Form 10-K

(Address, including zip code, of Registrant’s principal executive offices and telephone number, including area code)

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference to Part III of this Form 10-K or any amendment to this Form 10-K. o

The aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $7,900,000,000 as of December 28, 2001, based upon the closing price on the Nasdaq National Market reported for such date. This calculation does not reflect a determination that certain persons are affiliates of the Registrant for any other purpose. The number of shares outstanding of the Registrant’s Common Stock on December 28, 2001 was 231,763,496 shares.

Portions of the Registrant’s Proxy Statement for its 2002 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed with the Securities and Exchange Commission, are incorporated by reference into Part III of this Form 10-K Report.

This Annual Report on Form 10-K (Annual Report) contains forward-looking statements. These forward-looking statements include, without limitation, predictions regarding our future:


	•	revenues;
	•	customer concentration;
	•	gross margins;
	•	research and development expenses;
	•	sales and marketing expenses;
	•	general and administrative expenses;
	•	facilities lease losses;
	•	realization of deferred tax assets;
	•	liquidity and sufficiency of existing cash, cash equivalents, and short-term investments for near-term requirements;
	•	the effect of recent accounting pronouncements on our financial condition or results of operations; and
	•	new product features and introductions.

You can identify these and other forward-looking statements by the use of words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under the heading “Risk Factors.” All forward-looking statements included in this document are based on information available to us on the date hereof. We assume no obligation to update any forward-looking statements.

We are the world’s leading provider of infrastructure for Storage Area Networks (SANs), offering a product family of Fibre Channel fabric switches which provide an intelligent networking foundation for SANs.

We deliver and enable hardware and software products, education, and services that allow companies to implement highly available, scalable, manageable, and secure environments for business-critical storage applications. Companies can leverage our SAN infrastructure solutions to connect servers with storage devices and scale them independently, consolidate and share servers and storage resources, centralize data management, share valuable backup resources across the enterprise, and provision and manage more storage without increasing personnel resources. Our products and services allow companies to more easily keep pace with rapid growth in data storage requirements, reduce the total cost of ownership of data storage environments, improve computing network and application efficiency and performance, and simplify the implementation and management of SANs and SAN-based applications.

Our SilkWorm® family of Fibre Channel fabric switches are fully networkable, enabling customers to create a high-performance SAN fabric that is highly reliable and scalable to support the interconnection of hundreds of server and storage devices, and is compatible with existing and recently introduced products, providing investment protection for the customer.

Our products are sold through original equipment manufacturer (OEM) partners, master resellers, and fabric partners (systems integrators and value-added resellers). We have relationships with the majority of companies that supply substantially all of the world’s servers and external storage — these companies use our solutions as an intelligent networking platform for their SAN solutions.

We were incorporated on May 14, 1999, as a Delaware corporation and are the successor to operations originally begun on August 24, 1995. Our headquarters are located in San Jose, California. The mailing address for our headquarters is 1745 Technology Drive, San Jose, California, 95110, telephone number: (408) 487-8000. We can also be reached at our Web site at www.brocade.com. Information contained on our Web site is not a part of this Annual Report. All URLs included in this Annual Report are inactive textual references only.

During the last decade, a multitude of changes in computing technology, the implementation of enterprise resource software applications, and the globalization of business via the Internet have created a tremendous increase in data storage requirements — requiring many organizations to reassess the way they view their storage environments. Storage capacity requirements have grown exponentially, and continuous access to data and the devices on which it is stored is now a crucial business requirement.

In addition to managing increased storage requirements, the current economic environment has created the additional challenge for IT executives of storing and managing data while reducing the total cost of ownership of their storage environments. This is especially true as business information becomes an increasingly strategic corporate asset that must be continuously accessible by employees, partners, and customers. To ensure their business information is stored securely and backed up reliably, many organizations are implementing Brocade-based SANs as an intelligent networking platform for their storage environments.

High availability and security are fundamental requirements for storage environments — requiring an architecture with redundancy built into both the hardware and the network, as well as a secure platform that is resistant to intentional security breaches or inadvertent human error. In addition, business continuance has increased as a priority for IT executives — requiring a storage networking platform that supports a full spectrum of disaster recovery options from remote data backup to dynamic failover of the data center.

SANs should be easy to implement, manage, and maintain and provide a high return on investment (ROI). Brocade-based SANs help companies centralize data management, improve server, storage and personnel resource utilization, and provide a highly available and secure platform for business continuance. SANs based on Brocade fabric switches meet some of the most challenging business requirements, including ensuring that all data is protected and accessible across the enterprise, improving efficiency of IT resource management, and maximizing system and data availability. In addition, through Brocade SANs, customers can extend the life of legacy environments by making it possible to leverage existing investments in direct-attached server and storage infrastructure by migrating them into a networked storage environment.

Our next generation products are based on an Intelligent Fabric Services Architecture, which defines a networking foundation for the unique requirements of enterprise storage environments and provides a flexible, intelligent platform for networking storage. This architecture uniquely provides the industry with a hardware foundation of 1 Gigabit per second (Gbit/sec) and 2 Gbit/sec fabric switches, including advanced fabric services such as trunking and frame filtering, enterprise-class security, and an open application programming interface (API) that simplifies fabric management for enterprise storage applications.

We provide a family of switches under the SilkWorm trademark. Designed to support all SAN requirements from the entry-level to the enterprise, our switches enable high availability and security in the SAN fabric to support business continuance requirements and assure highly secure and scalable environments for storage applications.

The SilkWorm family of Fibre Channel fabric switches includes 1 Gbit/sec switches available in 8-port, 16-port, and 64-port configurations, and a 2 Gbit/sec fabric switch currently available in 16-port configurations (the SilkWorm 3800). In addition, the recently announced SilkWorm 12000, scalable to 128 ports and

based on an extensible backplane that can support up to 10 Gbit/sec Fibre Channel speeds and multiple networking protocols, is expected to be the industry’s first 2 Gbit/sec high port density fabric switch with these capabilities. Beta shipments of the SilkWorm 12000 were made to OEM customers at the end of fiscal 2001 and we expect volume production to occur during the first calendar quarter of 2002.

The SilkWorm 3800 and SilkWorm 12000 are based on our third generation Application Specific Integrated Circuit (ASIC) technology. Industry-first features of the architecture include trunking, which aggregates bandwidth between our switches in a SAN fabric to deliver up to 8 Gbit/sec actual speeds. As a result, applications deployed over this infrastructure are higher performing, easier to manage, and less expensive to operate. Other unique capabilities — such as frame filtering, increased zoning capabilities, security and network monitoring capabilities — facilitate the deployment of new SAN management applications, and enable new fabric services for clustering, virtualization, and shared file systems. We expect this architecture to be the foundation for all of our upcoming 2 Gbit/sec products.

Our SilkWorm family of Fibre Channel fabric switches is based on the Brocade Fabric Operating System (Fabric OS). The Fabric OS provides a common, feature-rich platform for SAN-designed applications and offers advanced features for proactive SAN management and monitoring. For example, the capabilities delivered with the Brocade Fabric OS enable applications to dynamically discover physical components in a Brocade SAN and proactively monitor Brocade SAN fabric resources.

We make the value-added features of the Fabric OS available to qualified partners through the Brocade Fabric Access Layer (Fabric Access), the application programming interface (API) to Fabric OS. These partners are providers of applications, technologies, and products that take advantage of the full features and functionality of the Brocade SAN infrastructure. In addition, we recently introduced Brocade Fabric Manager (Fabric Manager), a host-based centralized management software product dedicated to administering a multi-switch, multi-fabric Brocade environment. Fabric Manager complements existing Brocade SAN management tools, enabling SAN capacity planning through proactive analysis of SAN traffic, and allowing our fabric switches to self-monitor their environment and proactively notify applications of potential problems before they occur.

In addition to providing an intelligent networking platform for storage environments — spanning entry-level to enterprise Fibre Channel fabric switches — we work with more than 150 companies to facilitate the development of technologies and products that further leverage the intelligence in Brocade-based SANs. Through our application programming interface, companies can simplify the management of SANs and gain additional capabilities within their storage and SAN management applications. In addition, our relationships with Cisco Systems, Inc. (Cisco) and others make it possible to internetwork SANs utilizing protocols such as Asynchronous Transfer Mode (ATM), Internet Protocol (IP), and Dense Wave Division Multiplexing (DWDM). Our investments in interoperability and standards, education and professional services ease the deployment of heterogeneous, multi-vendor SANs.

Our Fabric OS provides an intelligent operating system foundation that allows strategic application partners to unlock the power resident within the SAN. Through Fabric Access, companies are taking advantage of our standards-based APIs to develop SAN-designed applications. These companies are developing applications that take specific advantage of the underlying Brocade Intelligent Fabric Services Architecture to simplify management of heterogeneous SANs while providing higher levels of storage application functionality. Brocade Fabric Access partners include companies such as BMC Software, Compaq Computer Corporation (Compaq), EMC Corporation (EMC), and VERITAS Software Corporation (Veritas).

The deployment of SANs on a large scale is creating the need to internetwork SANs over optical infrastructure through DWDM technologies and over IP-based networks. Brocade-based SANs can be internetworked via ATM, IP, and DWDM solutions from companies such as Adva Optical Networking, Cisco, CNT, LuxN, Nortel Networks, and ONI Systems. This enables the extension of SAN applications for business continuance — high-speed remote data mirroring, wide area data replication, and remote data backup — and new capabilities such as digital content distribution and storage outsourcing.

We continue to invest in making SANs simpler to design, deploy, and manage, and in enabling end-to-end interoperability for heterogeneous, multivendor SANs.


	•	Standards: We are a major participant in the primary standards and industry groups for SANs, including the National Committee for Information Technology Standards (NCITS) T11 Technical Committee, the primary governing body for Fibre Channel-related standards; the Storage Networking Industry Association (SNIA); the Fibre Channel Industry Association (FCIA); the FibreAlliance; the Internet Engineering Task Force (IETF) and others. We have authored or contributed significantly to many of the storage networking standards in existence today.

	•	Interoperability and testing labs: In fiscal 2001, we invested extensively in interoperability and testing labs and plan to continue to invest in interoperability and testing facilities in the future. These facilities enable us to verify new and existing products in large, multivendor SANs, simplifying the complexity of deployment for end-users.

	•	Fabric Aware Program: The Brocade Fabric Aware program is an end-to-end interoperability initiative for enterprise SANs. With more than 40 leading industry partners, the program is a comprehensive testing and configuration initiative designed to foster end-to-end SAN interoperability in a multi-vendor, heterogeneous environment.

	•	SOLUTIONware: We offer a library of pretested, certified SAN configuration guides for popular SAN environment and application configurations. Brocade SOLUTIONware simplifies SAN deployment by providing a proven and pre-tested set of step by step instructions for addressing today’s most challenging business requirements: data storage management, resource management, and business continuance.

We have established a worldwide education and training organization to deliver high-quality, technical training on SAN technologies and implementation to our partners and their customers. To date, we have trained thousands of SAN technical professionals at our education facilities, providing hands-on technical training in SAN design, implementation, and operation.

The Brocade SAN Certification Program is an educational service that measures and recognizes IT professionals’ expertise in industry-leading SAN solutions and technologies. Designed to help increase SAN expertise and help ensure superior customer service and support of Brocade-based SANs, the program offers certification for IT professionals on Brocade SANs after completing rigorous testing administered by an independent testing organization.

Brocade Professional Services Providers (PSPs) are authorized by us to work with SAN customers to assess storage environment requirements, recommend the most effective SAN design and solution, and implement a strategic infrastructure designed to handle the most demanding requirements.

Authorized PSPs are qualified consulting firms and systems integrators that have completed extensive training in SAN design and implementation using Brocade SAN infrastructure. In fiscal 2001, we grew our PSP program to include eight authorized PSPs in North America.

Our solutions provide an intelligent platform for networking storage and are designed to meet SAN requirements from entry-level to the enterprise. SANs are one of the key foundation technologies of data centers and high-performance application environments in enterprises where data storage requirements are high and/or dynamic, and in which data availability and reliability are important business requirements.

We sell and market our products through OEM partners, master resellers, and fabric partners located worldwide. To further accelerate end customer demand for our products, we employ a direct-touch sales force. Our sales force works with our OEM partners, master resellers, and fabric partners to help end customers understand the benefits of SANs, design SANs that enable the networking of their existing IT infrastructure, and ease the deployment of large heterogeneous SANs.

Our OEM partners include the world’s leading providers of servers and storage. These companies supply the majority of the world’s external storage. Our OEM partners typically offer our products for sale after completing extensive product qualification cycles. Our OEM partners offer either Brocade-branded or OEM-branded products.

Our master resellers are value-added distributors who are authorized to market, sell, and support the SilkWorm family of fabric switches and software, and provide support services and education to authorized fabric partners.

Our fabric partners are leading systems integrators and value-added resellers who are authorized to market, sell, and support the SilkWorm family of fabric switches and software, and provide support services and education. Authorized fabric partners have completed comprehensive training on our products and advanced SAN configuration and integration.

To address the demand for comprehensive maintenance programs for SAN products, we have created a service and support program that leverages the expertise and hands-on capabilities of all our technical resources. We offer several levels of maintenance contracts that can be purchased separately through our master resellers and fabric partners. The plans offer a wide range of service options, including 24 by 7 online self-help, telephone technical assistance and troubleshooting, and hardware repair and replacement.

Our primary customers are OEMs, fabric partners, and master resellers. Currently, our major OEM customers include Compaq, Dell Computer Corporation, EMC, Fujitsu Siemens Computers, Hewlett-Packard Company (HP), Hitachi Data Systems, Inc., IBM, Silicon Graphics, Inc., Storage Technology, Sun Microsystems, Inc., and Unisys Corporation. Our major fabric partner customers include Datalink Corporation, Grass Valley Group, StorageNetworks, Inc., Tokyo Electron Limited, and XIOTech Corporation. Our major master reseller customers include Bell Microproducts and GE Access.

Our revenues are derived primarily from sales of our SilkWorm family of products. For the year ended October 27, 2001, Compaq, EMC, and IBM each contributed over 10 percent of our total revenues. For the year ended October 28, 2000, Compaq and EMC each contributed over 10 percent of our total revenues. For the year ended October 31, 1999, Compaq, EMC, and Sequent Computer Systems each contributed over 10 percent of our total revenues. In September of 1999, IBM acquired Sequent Computer Systems. The level of sales to any customer may vary from quarter to quarter and we expect that significant customer concentration will continue for the foreseeable future. The loss of any one of these customers, or a decrease in the level of sales to any one of these customers, could have a material adverse impact on our financial condition or results of operations.

Our strategy is to facilitate a rapid evolution of the SAN market to enable customers to deploy large SANs that are internetworked across optical infrastructures, IP-based networks, or other communications infrastructure. We are committed to helping SAN customers optimize server, storage, personnel, and application investments and extend those benefits across the enterprise. Enabling end-to-end SAN interoperability and reducing the cost of data management is important in the evolving SAN market. Our approach to acquisitions and investments is to help grow the SAN market and facilitate solutions that help SAN end-user customers get the most out of their server and storage investments. To date, we have made no acquisitions. We have made minority equity investments in companies that develop technology or provide services that are complementary to or broaden the markets for our products, and to promote our business and strategic objectives.

The industry in which we compete is subject to rapid technological developments, evolving industry standards, changes in customer requirements, and new product introductions. As a result, our success depends, in part, on our ability to continue to enhance our existing solutions and to develop and introduce new solutions that improve performance and reduce the total cost of ownership in the storage environment.

We have invested heavily in research and development to support current and future product development. We continue to enhance and extend our products to anticipate and meet customer requirements. We continue to increase the speed and performance of our Fabric switching products, and to deliver higher port density and more cost-optimized solutions. We also continue to expand the capability of our Fabric OS by investing in delivering additional functionality of our distributed operating system and new value-added services and software to simplify the management and deployment of SANs. Our products are designed to support 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 reduces the time to market for new products and features. We intend to continue to leverage this architecture to develop and introduce additional products and enhancements in the future.

For the years ended October 27, 2001, October 28, 2000, and October 31, 1999, our research and development expenses totaled $110.7 million, $50.5 million, and $15.3 million, respectively. All expenditures for research and development costs have been expensed as incurred. We expect to continue to maintain our high level of investment in research and development.

The current and potential market for SAN solutions and technologies is continually evolving and subject to rapid technological change. New SAN solutions and products are continually being introduced by major server and storage providers, and we expect that existing products will be continually enhanced. Currently we face primary competition from other developers of Fibre Channel interconnection products including Gadzoox Networks, Inc., INRANGE Technologies Corporation, McDATA Corporation, QLogic Corporation, and Vixel Corporation.

In addition, as the SAN market evolves, non-Fibre Channel based interconnection products that interconnect servers and storage may become commercially available. To the extent that these products provide the ability to network servers and storage and support high-performance, block-data storage applications, they may compete with our current and future products. Competitive products might include, but are not limited to, non-Fibre Channel based emerging products based on Gigabit Ethernet, 10 Gigabit Ethernet, and InfiniBand. In addition, networking companies, manufacturers of networking equipment, or other companies may develop competitive products. Our OEM partners or other customers/partners could also 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, size and extent of installed base, ability to meet delivery schedules, customer service, and technical support.

Some of our potential competitors have longer operating histories, significantly greater resources, and greater brand recognition. As a result, these companies may have greater credibility with our existing and potential customers and 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. These advantages could allow them to respond more quickly than we can to new or emerging technologies and changes in customer requirements. In addition, some of our potential competitors have established supplier or joint development relationships with current or potential customers of ours. These competitors may be able to leverage their existing relationships to discourage these customers from purchasing additional products from us or persuade them to replace our products with their products. Such increased competition may result in price reductions, lower gross margins, and reduction of market share. We may not 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 current or future competitive pressures will not materially harm our business.

We use Solectron Corporation, a third-party contract manufacturer, to manufacture our products. Solectron invoices us based on prices and payment terms mutually agreed upon and set forth in purchase orders we issue to Solectron. The pricing takes into account component costs, manufacturing costs, and margin requirements. Although the purchase orders we place with Solectron are cancelable, the terms of our manufacturing agreement with Solectron would require us to purchase all unused material not returnable or usable by other customers. 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 application specific integrated circuits (ASICs) and operating system and other software, as well as certain details in the fabrication and enclosure of our products. In addition, we determine the components that are incorporated into our products and select appropriate suppliers of those components. We are currently in the process of qualifying a second third-party contract manufacturer to manufacture some of our products.

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 are ASICs, microprocessors, certain connectors, certain logic chips, programmable logic devices, and chassis. Our principal limited-source components include printed circuit boards and power supplies. In addition, we license certain software from Wind River Systems, Inc. that is incorporated into the Fabric OS. If we are unable to buy or license these components on a timely basis, we will not be able to deliver our products to customers in a timely manner. We use a rolling six-month forecast based on anticipated product orders to determine component requirements. If we overestimate component requirements, we may have excess inventory, which would increase our costs. If we underestimate component requirements, we may have inadequate inventory, which could interrupt the manufacturing process and result in lost or deferred revenue. In addition, lead times for components 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 the manufacturing and sales processes.

We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality agreements, and other contractual restrictions with employees and third parties to establish and protect our proprietary rights. Despite these precautions, the measures we undertake may not prevent misappropriation or infringement of our proprietary technology. These measures may not preclude competitors from independently developing products with functionality or features similar to our products.

We maintain a program to identify and obtain patent protection for our inventions. It is possible that we will not receive patents for every application we file. Furthermore, our issued patents may not adequately protect our technology from infringement or prevent others from claiming that our products infringe the patents of those 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 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 resources and could materially harm our business.

Some of our products are designed to include software or other intellectual property licensed from third parties. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, we believe that such licenses generally could be obtained on commercially reasonable terms.

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 require us to license back our technology or may not be available on terms acceptable to us, or at all. For these reasons, infringement claims could materially harm our business.

Our business is characterized by short-lead-time orders and fast delivery schedules. Sales of our products are generally made pursuant to contracts and purchase orders that are cancelable without significant penalties. These commitments are subject to price renegotiations and to changes in quantities of products and delivery schedules in order to reflect changes in customers’ requirements and manufacturing availability. In addition, actual shipments depend on the manufacturing capacity of suppliers and the availability of products from such suppliers. As a result of the foregoing factors, we do not believe that backlog at any given time is a meaningful indicator of our ability to achieve any particular level of revenue or financial performance.

At October 27, 2001, we had 1,066 employees. No employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with employees to be good. Employees are currently located in our U.S. headquarters in San Jose, California; our European headquarters in Geneva, Switzerland; our Asia Pacific headquarters in Hong Kong; and offices in North America, the United Kingdom, Germany, France, Canada, Korea, Japan, China, Singapore, and Australia. Competition for technical personnel in the computing industry continues to be significant. We believe that our success depends in part on our ability to hire, assimilate, and retain qualified personnel. We cannot assure you that we will continue to be successful at hiring, assimilating, and retaining employees in the future.

The following table sets forth certain information regarding our executive officers as of December 31, 2001:

Gregory L. Reyes has served as our Chairman of the Board of Directors and Chief Executive Officer since May 2001. From July 1998 to May 2001, Mr. Reyes served as our President and Chief Executive Officer and was a member of our Board of Directors. Before joining Brocade, from January 1995 to June 1998, Mr. Reyes was President and Chief Executive Officer of Wireless Access, Inc., a wireless data communications products company. From January 1995 to November 1997, Mr. Reyes served as Chairman of the Board of Directors of Wireless Access. From January 1991 to January 1995, Mr. Reyes served as Divisional Vice President and

general manager of Norand Data Systems, a developer of wireless data networks and hand-held terminals. Mr. Reyes also serves on the Board of Directors and Compensation Committee of Verisign, Inc., an Internet infrastructure company. Mr. Reyes received a B.S. in Economics and Business Administration from Saint Mary’s College in Moraga, California.

Michael J. Byrd has served as our President and Chief Operating Officer since May 2001. Mr. Byrd joined Brocade in April 1999 and served as our Vice President, Finance and Chief Financial Officer from May 1999 to May 2001. From February 1994 to April 1999, Mr. Byrd served as Vice President, Finance and Chief Financial Officer of Maxim Integrated Products, Inc., a designer, developer and manufacturer of linear and mixed-signal integrated circuits. From 1982 to 1994, Mr. Byrd held various positions at Ernst & Young, most recently as Partner. Mr. Byrd received a B.S. in Business Administration from California Polytechnic State University, San Luis Obispo.

Antonio Canova has served as our Vice President, Finance and Chief Financial Officer since May 2001. Mr. Canova joined Brocade in November 2000 as our Vice President, Finance. From April 2000 to November 2000, Mr. Canova served as Vice President, Chief Financial Officer, and Secretary of Wireless Inc., a wireless broadband equipment manufacturer. From 1984 to 2000, Mr. Canova held various positions at KPMG LLP, most recently as Partner. Mr. Canova received a B.S. in Accounting from Santa Clara University.

Jack Cuthbert has served as our Vice President, Worldwide Sales since November 2001. From November 2000 to November 2001, Mr. Cuthbert served as our Vice President, Worldwide Sales, Marketing and Support, and from April 2000 to November 2000, Mr. Cuthbert served as our Vice President, Worldwide Marketing. He was Vice President North American Sales from October 1999 to April 2000, and was Director, Channel Sales from June 1998 to October 1999. From November 1996 to June 1998, Mr. Cuthbert served as Vice President, North American Sales at Macromedia, Inc., an Internet software development company. From July 1986 to July 1996, Mr. Cuthbert held various positions at SGI, a producer of visual computing systems, most recently Director, North American Channels. Mr. Cuthbert received a B.Sc. in Physics from the University of Waterloo in Canada and a M.S. in Engineering Physics from McMaster University in Canada.

Financial information relating to foreign and domestic sales and operations for the three years ended October 27, 2001, October 28, 2000, and October 31, 1999, is set forth in Note 11, “Segment Information,” of the Notes to Consolidated Financial Statements attached hereto. Financial information relating to revenues, income and total assets for the three years ended October 27, 2001, October 28, 2000, and October 31, 1999, can be found under “Selected Financial Data” and also in our Consolidated Financial Statements attached hereto.

Brocade, the B weave logo and SilkWorm are registered trademarks of Brocade Communications Systems, Inc. or its subsidiaries in the United States and/or in other countries. All other brands, products, or service names are or may be trademarks or service marks of, and are used to identify, products or services of their respective owners.

Our quarterly revenues and operating results may 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 impact the predictability of our quarterly results include the following:


	•	changes in general economic conditions and specific economic conditions in the computer, storage, and networking industries. In particular, recent economic uncertainty has resulted in a general reduction in information technology (IT) spending. This reduction in IT spending has lead to a decline in our growth rates compared to historical trends;
	•	the timing of customer orders and product implementations, particularly large orders from and product implementations of our OEM customers;


	•	the effects of terrorist activity and armed conflict, such as disruptions in general economic activity;
	•	announcements and new product introductions by competitors;
	•	deferrals of customer orders in anticipation of new products, services or product enhancements introduced by us or our competitors;
	•	our ability to obtain sufficient supplies of sole or limited sourced components, including application specific integrated circuits (ASICs), microprocessors, certain logic chips, programmable logic devices, chassis, printed circuit boards, and power supplies;
	•	increases in prices of components used in the manufacture of our products;
	•	our ability to attain and maintain production volumes and quality levels; and
	•	variations in the mix of our switches sold and the mix of distribution channels through which they are sold.

Accordingly, the results of any prior periods should not be relied upon as an indication of future performance. To the extent that our operating results are below expectations of market analysts or investors our stock price may decline.

In recent quarters, unfavorable economic conditions and reduced IT spending rates in the United States, Europe, and Asia have adversely affected our operating results and lead to a decline in our growth rates compared to historical trends. We are unable to predict when IT spending rates will return to historical levels, if at all. Should there be further reductions in either domestic or international IT spending rates, or should IT spending rates not return to historical levels, our revenues, operating results, and financial condition may continue to be adversely affected.

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 these products is uncertain. Factors that may affect the market acceptance of our products include the performance, price and total cost of ownership of our products; the features and functionality of our products; the availability and price of competing products and 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 and product enhancements on a timely basis and by keeping pace with technological developments and emerging industry standards. We expect to launch new products and upgrades to our existing products during the next year and our future revenue growth will be dependent on the success of these new products. We have in the past experienced delays in product development and such delays may occur in the future.

As new or enhanced products are introduced, we must successfully manage the transition from older products in order to minimize disruption in customers’ ordering patterns, avoid excessive levels of older product inventories, and ensure that enough supplies of new products can be delivered to meet customers’ demands. Our failure to develop and successfully introduce new products and product enhancements could adversely affect our business and financial results. For example, we recently accelerated the transition of our product offerings from 1 to 2 Gbit/sec technology, which resulted in us recording charges of approximately $12.1 million for inventory purchase commitments, fixed asset impairments and other charges. Our failure to manage the transition to newer products could result in an increase in inventory levels and/or a decline in revenues.

In particular, in conjunction with the transition of our product offerings from 1 to 2 Gbit/sec technology, we have begun introducing products with new features and functionality. We face risks relating to this product transition, including risks relating to forecasting of demand for 2 Gbit/sec products and related transition issues, as discussed in the previous paragraph, as well as possible product and software defects and a potentially different sales and support environment due to the complexity of these new systems. If we fail to timely introduce new 2 Gbit/sec products with enhanced features, such as our SilkWorm 12000 family of products, or if there is no demand for these products, our business could be seriously harmed.

Increased international political instability, as demonstrated by the September 2001 terrorist attacks, disruption in air transportation and further enhanced security measures as a result of the September 2001 terrorist attacks, the conflict in Afghanistan and the increasing tension in the Middle East, may hinder our ability to do business and may increase our costs. This increased instability may, for example, negatively impact the reliability and cost of transportation, negatively impact the desire of our employees and customers to travel, adversely affect our ability to obtain adequate insurance at reasonable rates, or require us to take extra security precautions for our operations. In addition, to the extent that air transportation is delayed or disrupted, the operations of our contract manufacturers and suppliers may be disrupted, particularly if shipments of components and raw materials are delayed. If this international political instability continues or increases, our business and results of operations could be harmed.

Our ability to successfully implement our business plan, develop and offer products, and manage expansion in a rapidly evolving market requires a comprehensive and effective planning and management process. We continue to increase the scope of our operations domestically and internationally, and have grown headcount substantially. In addition, we plan to continue to hire employees in the foreseeable future. Our growth in business, headcount, and relationships with customers and other third parties has placed, and will continue to place, a significant strain on management systems and resources. Our failure to continue to improve upon our operational, managerial, and financial controls, reporting systems, and procedures, and/or our failure to continue to expand, train, and manage our work force worldwide, could seriously harm our business and financial results.

We sell and market our products through OEM partners, fabric integrator partners and master resellers. We must continually assess, anticipate and respond to the needs of these OEM partners, fabric integrator partners and master resellers. We must ensure that our products integrate with solutions provided by these OEM partners, fabric integrator partners and master resellers. We must also continually assess, anticipate and respond to the needs of their customers, who are the end-users of our products. If we fail to respond to the needs of these groups, our business and operating results could be harmed.

Because we sell and market our products through OEM partners, fabric integrator partners, and master resellers, our direct contact with the end-users of our products is often limited. Although we make every effort to communicate with, understand, and anticipate the current and future needs of the end-users of our products, to a large extent we rely on our OEM partners, fabric integrator partners, and master resellers for visibility into those end-user requirements. Our failure to adequately assess and anticipate future end-user needs could negatively impact the demand for our products and reduce our revenues.

Similarly, we have limited ability to forecast the demand for our products. In preparing sales and demand forecasts, we largely rely on input from our OEM partners, fabric integrator partners, and master resellers. If we fail to effectively communicate with our customers about end-user demand or other time sensitive information, sales and demand forecasts may not reflect the most accurate, up-to-date information. Because

we make business decisions based on our sales and demand forecasts, should these forecasts not materialize, our business and financial results could be negatively impacted.

We plan to expand our international sales activities significantly. Expansion of international operations will involve inherent risks that we may not be able to control, including:


	•	supporting multiple languages;
	•	recruiting sales and technical support personnel with the skills to support our products;
	•	increased complexity and costs of managing international operations;
	•	protectionist laws and business practices that favor local competition;
	•	multiple, potentially conflicting, and changing governmental laws and regulations, including differing employment laws;
	•	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 of revenues has 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. In the future, a portion of our international revenues may be denominated in foreign currencies, including the Euro, which will subject us to risks associated with fluctuations in those foreign currencies. Additionally, we receive significant tax benefits from sales to our international customers. These benefits are contingent upon existing tax laws in both the United States and in the respective countries in which our international customers are located. Future changes in domestic or international tax laws could affect the continued realizability of the tax benefits we are currently receiving and expect to receive from sales to our international customers.

Although our customer base has increased, we still depend on large, recurring purchases from a limited number of large OEM customers. Our agreements with our OEM customers are typically cancelable, non-exclusive, and have no minimum purchase requirements. For the fiscal year ended October 27, 2001, eight customers represented over 83 percent of our total revenues, and three customers, Compaq, EMC, and IBM, each represented at least 10 percent of our total revenues. In addition, HP and Compaq, two of our OEM customers, have announced their intent to merge, which may result in a disruption in our sales to these two customers. We anticipate that our revenues and operating results will continue to depend on sales to a relatively small number of customers. Therefore, the loss of any one significant customer, or a decrease in the level of sales to any one significant customer, could seriously harm our financial condition and results of operations.

Our success will depend on our continuing ability to develop and manage relationships with significant OEMs, system integrators and resellers, as well as on the sales efforts and success of these customers. Our OEM customers may evaluate our products for a limited time period before they begin to market and sell them. Assisting these customers through the evaluation process may require significant sales, marketing, and management efforts on our part, particularly if our products are being qualified with multiple customers at the same time. In addition, once our products have been qualified, our customer agreements have no minimum purchase commitments. We may not be able to maintain or expand our distribution channels, manage distribution relationships successfully or market our products through OEMs effectively. Our failure to

manage successfully our distribution relationships or the failure of our customers to sell our products could reduce our revenues.

We currently depend on Solectron, a third party manufacturer for numerous companies, to manufacture all of our products. If we should fail to effectively manage our relationship with 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. Although we are currently in the process of qualifying a second third-party contract manufacturer to manufacture some of our products, if we are required or choose to change contract manufacturers, we may lose revenue and damage our customer relationships.

We have entered into a manufacturing agreement with Solectron under which we provide to Solectron a twelve-month product forecast and place purchase orders with Solectron sixty calendar days in advance of the scheduled delivery of products to our customers. Although our purchase orders placed with Solectron are cancelable, the terms of the agreement would require us to purchase from Solectron all inventory components not returnable or usable by other Solectron customers. Accordingly, if we inaccurately forecast demand for our products, we may be unable to obtain adequate manufacturing capacity from Solectron to meet customers’ delivery requirements or we may accumulate excess inventories. As of October 27, 2001, we had commitments to Solectron for purchases of components of approximately $37.9 million, net of amounts reserved for purchase commitments, which we, as of that date, expected to utilize during future normal ongoing operations. As of that date we also had commitments to other parties of $8.3 million, net of amounts reserved for purchase commitments, which we, as of that date, also expected to utilize during future normal ongoing operations.

We currently purchase several key components used in the manufacture of our products from single or limited sources. We purchase ASICs, microprocessors, certain connectors, certain logic chips, programmable logic devices, and chassis from single sources, and printed circuit boards and power supplies from limited sources. In addition, we license certain software from third parties that is incorporated into our Fabric OS. If we are unable to buy or license these components on a timely basis, we will not be able to deliver product to our customers in a timely manner. We use a rolling six-month forecast based on anticipated product orders to determine component requirements. If we overestimate component requirements, we may have excess inventory, which would increase our costs. If we underestimate component requirements, we may have inadequate inventory, which could interrupt the manufacturing process and result in lost or deferred revenue. In addition, lead times for components 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 the manufacturing and sales processes.

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 and we may not be able to compete successfully against current and future competitors. Furthermore, as the SAN market evolves, non-Fibre Channel-based products may become available to interconnect servers and storage. To the extent that these products provide the ability to network servers and storage and support high-performance, block-data storage applications, they may

compete with our current and future products. These products may include, but are not limited to, non-Fibre Channel based emerging products based on Gigabit Ethernet, 10-Gigabit Ethernet and Infiniband.

The average unit prices of our products may 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. For example, the average unit prices of our products have declined over the past three years as a result of competitive pricing pressures and our efforts to increase market share. If we are unable to offset these factors by increasing sales volumes, our total revenues will decline. In addition, to maintain our gross margins, we must develop and introduce new products and product enhancements, and must continue to reduce the manufacturing cost of our products. Failure to reduce the manufacturing cost of our products in response to declines in unit selling prices would result in a decline in our gross margins.

Networking products frequently contain undetected software or hardware errors when first introduced or as new versions are released. Our products are becoming increasingly 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 engineering personnel from product development efforts and cause significant customer relations problems. Moreover, the occurrence of hardware and software errors, whether caused by us or another vendor’s SAN products, could delay or prevent the development of the SAN market.

We may not be able to maintain profitability in the future. We expect to incur significant costs and expenses for product development, sales and marketing, customer support, and expansion of corporate infrastructure. We make investment decisions based upon anticipated revenues and margins. Failure of these anticipated revenues and margins to materialize could impact our future profitability.

In addition, we have a limited operating history. Therefore, it is difficult to forecast future operating results based on historical results. We plan our operating expenses based in part on future revenue projections. Our ability to accurately forecast quarterly revenue is limited for the reasons discussed above in “Our quarterly revenues and operating results may fluctuate in future periods for a number of reasons, which could adversely affect the trading price of our stock.” 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 revenues. If this were to occur, we could incur losses and our operating results may be below our expectations and those of investors and market analysts.

Our success depends to a significant degree upon the continued contributions of key management, engineering, and sales and marketing personnel, many of whom would be difficult to replace. We do not have 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 management to operate effectively, both individually and as a group.

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, finance, and operations personnel. We have experienced difficulty in hiring qualified ASIC, software, system and test, sales and marketing, and customer support personnel. We may not be successful in attracting and retaining these individuals in the future. 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 the computer storage and server industry whose employees accept positions with competitors frequently claim that their

competitors have engaged in unfair hiring practices. We cannot provide assurance that such claims will not be received 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 against these claims, regardless of their merits.

We rely on a combination of patent, copyright, trademark, trade secret laws, confidentiality agreements and other contractual restrictions 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 technology, software, documentation, and other confidential information. These measures may not preclude competitors from independently developing products with functionality or features similar to our products. Despite 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 take to prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect proprietary rights as fully as in the United States, will be effective.

In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. We have previously been 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 proprietary rights. These lawsuits, regardless of their success, would likely be time-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 products or services that use the challenged intellectual property;
	•	obtain from the owner of the infringed intellectual property a license to the relevant intellectual property, which license may require us to license our intellectual property to such owner, or 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, use, sell, import and/or export our products, which would reduce revenues.

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. 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;
	•	use cash, which may result in a reduction of our liquidity;
	•	incur debt; or
	•	assume liabilities.


	•	problems combining the purchased operations, technologies, personnel 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 acquired organizations.

We may not be able to successfully integrate any businesses, products, technologies or personnel that we might acquire in the future.

Industry standards for SAN products are continuing to 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 interoperate together. Industry standards are in place to specify guidelines for interoperability and communication based on standards specifications. Our products comprise only a part of the entire SAN solution used by the end-customer and we depend on the companies that provide other components of the SAN solution, many of whom are significantly larger than us, 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 comply with various regulations and standards defined by the Federal Communications Commission and Underwriters Laboratories. Internationally, products that we develop will 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.

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;
	•	limiting the persons who may call special meetings of stockholders;
	•	prohibiting stockholder actions by written consent; and
	•	requiring super-majority voting to effect amendments to the foregoing provisions of our certificate of incorporation and bylaws.

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 that we give prior notice of a change of control and grant certain manufacturing rights following the change of control.

The market price of our common stock has experienced significant volatility in the past and may continue to fluctuate significantly in response to the following factors, some of which are beyond our control:


	•	macroeconomic conditions;
	•	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;

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 performance.

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 are currently in litigation regarding alleged nondisclosure of improprieties in the distribution of shares in our initial public offering by our underwriters, including undisclosed fees and commissions received by the underwriters and alleged laddering arrangements. In addition, in the future we may be the target of other securities litigation. Securities litigation could result in substantial costs and divert management’s attention and resources.

Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure and other events beyond our control. A substantial portion of our facilities, including our corporate headquarters, is located near major earthquake faults and we neither carry earthquake insurance nor have we set aside funds or reserves to cover such earthquake-related losses. Our facilities in the State of California have been subject to rolling electrical blackouts resulting from shortages of available electrical power. Should these blackouts continue to occur or increase in severity in the future, they could disrupt the operations of our affected facilities. Although we carry business interruption insurance to mitigate the impact of potential business interruptions, should a business interruption occur, our business could be seriously harmed.

From time to time, we make equity investments for the promotion of business and strategic objectives. The market price and valuation of the securities that we hold in these companies may fluctuate due to market conditions and other circumstances over which we have little or no control. To the extent that the fair value of these securities is less than our cost over an extended period of time, our results of operations and financial position could be negatively impacted.

Our principal administrative, sales and marketing, education, customer support, and research and development facilities are located in approximately 495,000 square feet of leased office space in San Jose, California. Of this total, we currently occupy approximately 300,000 square feet. The remaining 195,000 square feet is currently under construction and we intend to occupy a portion of this additional space upon its scheduled completion during the first quarter of calendar 2002. In the fourth quarter of fiscal 2001, we identified approximately 97,000 square feet of this committed office space that, based on our anticipated hiring needs, we do not expect to utilize for the foreseeable future. Accordingly, this space has been made available for sublease (see Note 3, “Facilities Lease Losses and Asset Impairment Charges,” of the Notes to Consolidated Financial Statements). The leases on these facilities will expire beginning August 2010. In addition to the San Jose facilities, we also lease sales, marketing, and administrative office space in various locations throughout the world.

We are subject to various legal proceedings, claims, and litigation that arise in the normal course of our business. While the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our financial position, results of operations, or cash flows.

On July 20, 2001, a putative class action captioned Chae v. Brocade Communications Systems, Inc. et al. was filed against us and three of our officers and directors (collectively the “Individual Defendants”) in the United States District Court for the Southern District of New York. Also named as defendants were Morgan Stanley & Co., Inc., BT Alex Brown, Inc., and Dain Rauscher, Inc., the underwriters in our initial public offering. The complaint alleges violations of Section 10(b) of the Securities Act of 1934 (and Rule 10b-5 promulgated thereunder) against all defendants and violations of Section 20(a) of the Securities Act of 1934 against the Individual Defendants. The complaint seeks unspecified damages on behalf of a purported class of purchasers of common stock between May 24, 1999 and July 17, 2001. A second, substantively similar complaint, Radliff v. Brocade Communications Systems, Inc., was filed in the same court on September 25, 2001. We believe that the claims are without merit and intend to defend the actions vigorously.

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2001.

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Our common stock has been quoted on the Nasdaq National Market under the symbol “BRCD” since our initial public offering on May 24, 1999. Prior to this time, there was no public market for the stock. See “Item 6. Selected Financial Data” for the high and low bid prices per share of our common stock as reported on the Nasdaq National Market, for the periods indicated.

We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. According to records of our transfer agent, we had 538 stockholders of record at October 27, 2001.

The following selected financial data should be read in conjunction with our consolidated 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 Annual Report. The consolidated statement of operations data set forth below for each of the years in the three-year period ended October 27, 2001, the consolidated balance sheet data as of October 27, 2001 and October 28, 2000, are derived from, and qualified by reference to, the audited financial statements appearing elsewhere in this Annual Report. The statement of operations data for the years ended October 31, 1998, and October 31, 1997, and the balance sheet data as of October 31, 1999, October 31, 1998, and October 31, 1997, are derived from audited financial statements not included herein. All references to earnings per share and the number of common shares have been retroactively restated to reflect three two-for-one stock splits, effected on December 3, 1999, March 15, 2000, and December 22, 2000.

Note: We changed our fiscal year end to the last Saturday in October, beginning with the fiscal year ended October 28, 2000. This change did not have a material impact on our financial position or results of operations.

(1)

The fiscal year ended October 27, 2001 includes the impact of the following items recorded during the fourth quarter ended October 27, 2001: charges to cost of revenues of $7.7 million primarily associated with the accrual of purchase commitments for excess inventory components related to an accelerated transition of product offerings from 1 to 2 Gbit/sec technology; charges included in operating expenses of $45.5 million related to estimated facilities lease losses and the impairment of certain related leasehold improvements following a comprehensive evaluation of real estate facility requirements; charges included in operating expenses of $4.4 million related to the impairment of equipment no longer used in research and development and sales and marketing efforts associated with an accelerated transition of product offerings from 1 to 2 Gbit/sec technology and other charges; and losses of $19.5 million related to other-than-temporary declines in the fair value of minority equity investments in non-publicly traded companies as a result of the recent significant deterioration in the private equity markets, and related adjustment for income tax provisions. The above charges and resulting income tax effects resulted in reductions to net income per share on a diluted basis of $0.29 and $0.27 for the three months and year ended October 27, 2001, respectively.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table sets forth certain financial data for the periods indicated as a percentage of total net revenues:

Revenues. Our revenues are derived primarily from sales of our SilkWorm family of products. Net revenues for the year ended October 27, 2001 increased to $513.0 million, an increase of 56 percent compared with net revenues of $329.0 million for the year ended October 28, 2000. Net revenues for the year ended October 28, 2000, represented an increase of 379 percent over net revenues of $68.7 million for the year ended October 31, 1999. These increases in net revenues reflect increased demand for SAN switching products and are the result of increased unit sales to several OEM and fabric integrator customers, and to an expanding customer base. The increases in unit sales have been partially offset by declining average unit selling prices.

Domestic and international revenues were approximately 71 percent and 29 percent of our total revenues, respectively, for the year ended October 27, 2001. For the year ended October 28, 2000, domestic and international revenues were approximately 78 percent and 22 percent of our total revenues, respectively, and for the year ended October 31, 1999, substantially all of our revenues were domestic. International revenues primarily consisted of sales to countries in Western Europe and Asia. Revenues are attributed to geographic areas based on the location of the customer to which product is shipped. Domestic revenues include sales to certain OEM customers who then distribute product to their international customers.

A significant portion of our revenues is concentrated among a relatively small number of customers. For the year ended October 27, 2001, three customers each contributed over 10 percent of our total revenues for a combined total of 56 percent of our total revenues. For the year ended October 28, 2000, two customers each contributed over 10 percent of our total revenues for a combined total of 49 percent of our total revenues, and for the year ended October 31, 1999, three customers each contributed over 10 percent of our total revenues for a combined total of 70 percent of our total revenues. The level of sales to any single customer may vary and the loss of any one significant customer, or a decrease in the level of sales to any one significant customer, could seriously harm our financial condition and results of operations. We expect that a significant portion of our future revenues will continue to come from sales of products to a relatively small number of customers. In

addition, HP and Compaq, two of our OEM customers, have announced their intent to merge, which could result in a disruption in our sales to these two customers.

In recent quarters, unfavorable economic conditions and reduced information technology (IT) spending rates in the United States, Europe, and Asia have lead to a decline in our growth rates compared to historical trends. We are unable to predict when IT spending rates will return to historical levels, if at all.

Product revenue is generally recognized when persuasive evidence of an arrangement exists, delivery has occurred, fee is fixed or determinable, and collectibility is probable. However, revenue recognition is deferred for shipments to new customers and for shipments of next generation products to existing customers when significant support services are required to successfully integrate our product into our customer’s products. These revenues, and related costs, are deferred and recognized when the customer has successfully integrated our product into its product offerings and we have met our support obligations. In addition, revenue from sales to master resellers is recognized upon reported sell-through. Our post-sales obligations are generally limited to product warranties. Service revenue is recognized over the contractual period, generally one to three years. Warranty costs, sales returns, and other allowances are accrued based on experience at the time of shipment.

Gross margin. Gross margin increased to 58.5 percent for the year ended October 27, 2001, compared with 58.2 percent and 51.2 percent for the years ended October 28, 2000, and October 31, 1999, respectively. The increases were primarily due to lower component and manufacturing costs and the allocation of fixed manufacturing costs over a greater revenue base, partially offset by declines in average unit selling prices of our products. Gross margin for the year ended October 27, 2001 was adversely affected by charges for inventory reserves and charges related to the accrual of purchase commitments for excess inventory components used in the manufacture of our 1 Gbit/sec related products as a result of an accelerated transition of our product offerings from 1 to 2 Gbit/sec technology.

During the fourth quarter ended October 27, 2001, we announced the general availability of our SilkWorm 3800 enterprise fabric switch. The SilkWorm 3800 is the first in an expected family of 2 Gbit/sec per second products. Subsequent to its introduction we realized that our customers would transition from 1 to 2 Gbit/sec technology more rapidly than we had previously expected. We expect this product will accelerate the market demand for 2 Gbit/sec products. As a result of this expected accelerated transition of product offerings from 1 to 2 Gbit/sec technologies, our gross margin for the year ended October 27, 2001 was adversely affected by a charge of $7.7 million recorded during the fourth quarter ended October 27, 2001, related to the accrual of purchase commitments for excess inventory components used in the manufacture of our 1 Gbit/sec related products.

Research and development expenses. Research and development (R&D) expenses increased to $110.7 million for the year ended October 27, 2001, compared with $50.5 million and $15.3 million for the years ended October 28, 2000, and October 31, 1999, respectively. R&D expenses consist primarily of salaries and related personnel expenses; fees paid to consultants and outside service providers; nonrecurring engineering charges; prototyping expenses related to the design, development, testing and enhancement of our products; and IT and facilities expenses. The increases in R&D expenses reflect our belief that continued investment in research and development is a critical factor in maintaining our competitive position. We currently anticipate that R&D expenses will continue to increase in absolute dollars, but will remain relatively constant as a percentage of net revenues.

Sales and marketing expenses. Sales and marketing expenses increased to $94.9 million for the year ended October 27, 2001, compared with $46.5 million and $13.3 million for the years ended October 28, 2000, and October 31, 1999, respectively. Sales and marketing expenses consist primarily of salaries, commissions and related expenses for personnel engaged in marketing and sales; costs associated with promotional and travel expenses; and IT and facilities expenses. The increases in sales and marketing expenses were primarily due to the hiring of additional sales and marketing personnel and increased direct selling expenses, such as commissions, associated with increased revenues. We believe that continued investment in sales and marketing is critical to the success of our strategy to expand relationships with our OEM customers; to expand our presence in the fabric integration channel; to communicate with, understand and anticipate the current and future needs of the end users of our products in order to increase demand for our partners; and to maintain

our leadership position in the SAN market. In addition, during the year ended October 27, 2001, we began expanding our international sales activities in various countries in Europe and the Asia Pacific region. We currently anticipate that sales and marketing expenses will increase in both absolute dollars and as a percentage of net revenues.

General and administrative expenses. General and administrative (G&A) expenses increased to $17.7 million for the year ended October 27, 2001, compared with $10.5 million and $3.8 million for the years ended October 28, 2000, and October 31, 1999, respectively. G&A expenses consist primarily of salaries and related expenses for executives, finance, human resources and investor relations, as well as recruiting expenses, professional fees, legal expenses, other corporate expenses, and IT and facilities expenses. The increases in G&A expenses were primarily due to additional headcount and other expenses necessary to manage and support increased levels of business activity. We currently anticipate that G&A expenses will continue to increase in absolute dollars, but will remain relatively constant as a percentage of net revenues.

Amortization of deferred stock compensation. In connection with the grant of certain stock options to employees during the year ended October 31, 1999, we recorded deferred stock compensation of $5.1 million. No additional deferred stock compensation was recorded during the years ended October 27, 2001, or October 28, 2000. Deferred stock compensation is amortized over the vesting periods of the applicable options. For each of the years ended October 27, 2001, and October 28, 2000, we recorded amortization of deferred stock compensation of $1.1 million, and for the year ended October 31, 1999, we recorded amortization of deferred stock compensation of $1.9 million. At October 27, 2001, unamortized deferred stock compensation was $1.0 million.

Facilities lease losses and other charges. During the year ended October 27, 2001, we experienced the impact of unfavorable economic conditions and a reduction in IT spending rates. As a result of these continuing unfavorable economic conditions and our reevaluation of future employee hiring in terms of timing and geographic location, we performed a comprehensive analysis of our real estate facility requirements and identified excess facility space, which has been offered for sublease. Factors considered in the analysis included, but were not limited to, anticipated future revenue growth rates; anticipated future headcount requirements in terms of both headquarters and field personnel; and anticipated sublease terms and time to sublease based upon current market conditions. Based upon the results of this analysis and the excess facilities space identified, during the fourth quarter ended October 27, 2001, we recorded a charge of $45.5 million related to facilities lease losses and the impairment of certain related assets (see Note 3, “Facilities Lease Losses and Asset Impairment Charges,” of the Notes to Consolidated Financial Statement).

The facilities lease losses and related asset impairment charges are estimates in accordance with SFAS No. 5, “Accounting for Contingencies,” and represent the low-end of an estimated range that may be adjusted upon the occurrence of a future triggering event. Triggering events may include, but are not limited to, changes in estimated time to sublease, sublease terms, and sublease rates. Should operating lease rental rates continue to decline in current markets or should it take longer than expected to find a suitable tenant to sublease the facility, adjustments to the facilities lease losses reserve will be made in future periods, if necessary, based upon the then current actual events and circumstances. We have estimated that under certain circumstances the facilities lease losses could increase to $63.0 million.

Also during the fourth quarter ended October 27, 2001, we announced the general availability of our SilkWorm 3800 enterprise fabric switch, the first in an expected family of 2 Gbit/sec per second products. As a result of the expected accelerated transition of our product offerings from 1 to 2 Gbit/sec technology, we recorded a charge of $4.4 million primarily related to the impairment of certain 1 Gbit/sec related equipment no longer used in research and development and sales and marketing efforts (see Note 3, “Facilities Lease Losses and Asset Impairment Charges,” of the Notes to Consolidated Financial Statements).

Interest and other income, net. Net interest and other income increased to $8.2 million for the year ended October 27, 2001, compared with $5.4 million for the year ended October 28, 2000, and $1.7 million for the year ended October 31, 1999. These increases were primarily the result of higher average cash and short-term investment balances, partially offset by declining interest rates. We currently anticipate that both interest income and interest expense will increase in future periods as a result of the $550 million in convertible

subordinated notes that we sold in private placements on December 21, 2001, and January 10, 2002 (see Note 12, “Subsequent Events,” of the Notes to Consolidated Financial Statements).

Loss on investments, net. Net loss on investments for the year ended October 27, 2001, consisted of impairment losses on minority equity investments in non-publicly traded companies of $24.2 million, partially offset by realized gains on sales of marketable equity securities of $8.1 million.

We have made certain minority equity investments in non-publicly traded companies that develop technology or provide services that are complementary to or broaden the markets for our products, and to promote our business and strategic objectives. These minority equity investments in non-public companies are included in other assets on our consolidated balance sheets, are carried at cost, and are accounted for under the cost method. We hold less than 20 percent of the voting equity of such companies, and neither have nor seek corporate governance or significant influence over their respective operating and financial policies. We monitor our investments for impairment on a quarterly basis and make appropriate reductions in carrying values when such impairment is determined to be other-than-temporary. Factors used in determining an impairment include, but are not limited to, the current business environment including competition and uncertainty of financial condition; going concern considerations such as the inability to obtain additional private financing to fulfill the investee’s stated business plan and cash burn rate; the need for changes to the respective investee’s existing business model due to changing business environments and its ability to successfully implement necessary changes; and comparable valuations. If an investment is determined to be impaired, a determination is made as to whether such impairment is other-than-temporary.

During the year ended October 27, 2001, we made minority equity investments in non-publicly traded companies of $23.6 million. Our investments were made primarily in companies in the storage networking, Internet infrastructure, fabless semiconductor, networking services, and managed storage services industries. These companies were, and continue to be, development stage companies with significant risks. During the year ended October 27, 2001, the industries in which these companies compete experienced considerable market declines associated with a depressed macroeconomic environment and there remains significant uncertainty regarding the timing of any recovery. Many of these companies had spent the majority of their funding on operating activities and/or lost key business partners due to bankruptcy, and we determined that the carrying value of our investments were impaired. Based upon current market conditions and substantial doubt about these companies’ ability to raise additional funding, achieve positive cash flow, and achieve projected revenues, we concluded the impairments were other-than-temporary and recorded impairment charges of $24.2 million. The impairment charges reduced the carrying value of our investments to the estimated fair value. At October 27, 2001, and October 28, 2000, the carrying values of our minority equity investments in non-publicly traded companies were $2.2 million and $2.8 million, respectively.

If the companies with whom we have remaining investments are unable to raise additional capital, or if the results of operations and financial condition of these companies continue to decline, and market conditions do not improve, we may incur additional impairment charges in our investment portfolio in the future.

Provision for income taxes. Our effective tax rate was 84.0 percent for the year ended October 27, 2001, compared with 23.1 percent and 4.0 percent for the years ended October 28, 2000, and October 31, 1999, respectively. Our effective tax rates have historically differed from the federal statutory rate for various reasons (see Note 8, “Income Taxes,” of the Notes to Consolidated Financial Statements). For the year ended October 27, 2001, our effective tax rate differed from the federal statutory rate primarily due to the inability to benefit certain losses on minority equity investments in non-publicly traded companies. We currently expect an effective tax rate of approximately 29.0 percent for the fiscal year ending October 26, 2002. Our ability to realize this 29.0 percent tax rate requires that international revenues and earnings be achieved as planned. To the extent that international revenues and earnings differ from plan, a factor largely influenced by the buying behavior of our OEM customers, or unfavorable changes in tax laws and regulations occur, our tax rate could change.

Cash, cash equivalents, and short-term investments were $255.1 million at October 27, 2001, an increase of $100.1 million over the prior year amount of $155.0 million. For the year ended October 27, 2001, we generated $111.7 million in cash from operating activities, primarily from net income before non-cash charges related to facilities lease losses and asset impairments, and net impairment losses on minority equity investments in non-publicly traded companies. Also included in cash from operations were income tax benefits related to employee stock option transactions offset by an increase in deferred tax assets. At October 27, 2001, we had $235.2 million in deferred tax assets, which we believe will be will be realizable through profitable future operations. Net cash used in investing activities totaled $70.1 million and was primarily the result of $82.3 million invested in capital equipment and $23.6 million invested in minority equity investments in non-publicly traded companies, partially offset by net maturities of short-term investments of $23.0 million and proceeds from sales of marketable equity securities of $12.8 million. Net cash provided by financing activities totaled $81.2 million and was the result of proceeds from the issuance of common stock related to employee participation in employee stock plans.

We have entered into various agreements to lease our headquarters facilities in San Jose, California. In connection with these lease agreements, and subsequent amendments, we have signed unconditional, irrevocable letters of credit totaling $18.7 million as security for the leases (see Note 6 “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements).

We have a manufacturing agreement with Solectron Corporation (Solectron) under which we provide to Solectron a twelve-month product forecast and place purchase orders with Solectron sixty calendar days in advance of the scheduled delivery of products to our customers. Although the purchase orders we place with Solectron are cancelable, the terms of the agreement require us to purchase from Solectron all unused inventory components not returnable or usable by other Solectron customers. At October 27, 2001, our commitment to Solectron for such inventory components was $37.9 million, net of purchase commitment reserves, which we expect to utilize during future normal ongoing operations.

Independently of Solectron, we purchase several key components used in the manufacture of our products. At October 27, 2001, we had non-cancelable purchase commitments for various components totaling $8.3 million, net of purchase commitment reserves, which we expect to utilize during future normal ongoing operations.

We have established purchase commitment reserves for excess inventory component commitments to Solectron and other key component vendors that we believe may not be realizable during future normal ongoing operations. Our commitments to Solectron and other key component vendors are based on our current forecasts of revenue. To the extent that such forecasts are not achieved, our commitments and associated reserve levels may change.

On December 21, 2001, and January 10, 2002, we sold, in private placements pursuant to Section 4(2) of the Securities Act of 1933, as amended, $550 million in aggregate principal amount of 2 percent convertible subordinated notes due 2007. The initial purchasers of the notes were Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Salomon Smith Barney, Inc. and Merrill Lynch, Pierce Fenner and Smith Incorporated, who purchased the notes from us at a discount of 2.25 percent of the aggregate principal amount. Holders of the notes may, in whole or in part, convert the notes into shares of our common stock at a conversion rate of 22.8571 shares per $1,000 principal amount of notes at any time prior to maturity on January 1, 2007. We are required to pay interest on January 1 and July 1 of each year, beginning July 1, 2002. We intend to use the net proceeds of the offering of $537.6 million for general corporate purposes, including working capital and capital expenditures.

We believe that our existing cash, cash equivalents, short-term investments, and cash 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 the 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.

During the fourth quarter of the year ended October 27, 2001, we adopted Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101). The adoption of SAB 101 did not have a material impact on our operating results or financial position.

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141 “Business Combinations” (SFAS 141) and Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (SFAS 142). SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method of accounting, thereby eliminating use of the pooling of interests method. SFAS 141 also requires that an intangible asset acquired in a business combination be recognized apart from goodwill if: (i) the intangible asset arises from contractual or other legal rights or (ii) the acquired intangible asset is capable of being separated from the acquired enterprise, as defined in SFAS 141.

SFAS 142 requires, among other things, that goodwill not be amortized but should be subject to impairment testing at the “reporting unit level” at least annually and more frequently upon the occurrence of certain events, as defined by SFAS 142. A reporting unit is the same level as or one level below an operating segment, as defined by Statement of Financial Accounting Standards No. 131 “Disclosures About Segments of an Enterprise and Related Information.”

We are required to apply SFAS 141 to business combinations initiated after June 30, 2001 and are required to adopt SFAS 142 at the beginning of fiscal 2003, with the exception of goodwill and intangible assets with indefinite lives acquired after June 30, 2001, which will be immediately subject to the non-amortization and amortization provisions as defined by SFAS 142.

We do not expect the adoption of either SFAS 141 or SFAS 142 to have a material impact on our financial position, results of operations, or cash flows.

In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). SFAS 144 supersedes SFAS No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (SFAS 121), and certain provisions of APB Opinion No. 30 “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (APB 30). SFAS 144 establishes standards for long-lived assets to be disposed of, and redefines the valuation and presentation of discontinued operations. SFAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. We do not expect the adoption of SFAS 144 to have a material effect on our financial position, results of operations, or cash flows.

We are exposed to market risk related to changes in interest rates and equity security prices.

Our exposure to market risk due to changes in the general level of U.S. interest rates relates primarily to our cash equivalents and short-term investments portfolio. The primary objective of our investment activities is the preservation of principal while maximizing investment income and minimizing risk. As such, our short-term investments consist of U.S. Treasury and Federal agency debt securities with original maturity dates between three months and one year. Due to the nature of our short-term investments, we believe that market risk due to changes in interest rates is not material.

The following table (in thousands) presents our cash equivalents and short-term investments subject to interest rate risk and their related weighted average interest rates at October 27, 2001. Carrying value approximates fair value.

Our exposure to market risk due to equity security price fluctuations primarily relates to investments in marketable equity securities. These investments are generally in companies in the volatile high-technology sector. We do not attempt to reduce or eliminate the market exposure on these securities. A 20 percent adverse change in equity prices would result in a decrease of approximately $66,000 in the fair value of marketable equity securities at October 27, 2001.

We have audited the accompanying consolidated balance sheets of Brocade Communications Systems, Inc. (a Delaware corporation) and subsidiaries as of October 27, 2001 and October 28, 2000, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended October 27, 2001. These financial statements and the schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. 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. and subsidiaries as of October 27, 2001 and October 28, 2000 and the results of their operations and their cash flows for each of the three years in the period ended October 27, 2001, in conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed under Item 14(a)(2) is presented for purposes 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.

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY



	Redeemable Convertible									Common									Warrants
	Preferred Stock									Stock						Additional			for			Deferred
																Paid-In			Common			Stock
	Shares			Amount			Warrants			Shares			Amount			Capital			Stock			Compensation


	(In thousands)
Balances at October 31, 1998		9,235		$	35,261		$	648			41,560		$	42		$	2,183		$	—		$	(300	)
Issuance of Series D redeemable convertible preferred stock, net		299			2,322			(326	)		—			—			—			—			—
Conversion of redeemable convertible preferred stock to common stock		(9,534	)		(37,583	)		(322	)		117,000			117			37,466			322			—
Issuance of common stock		—			—			—			35,680			35			67,999			—			—
Issuance of stock for notes receivable from stockholders		—			—			—			18,816			19			6,393			—			—
Repayments on notes receivable from stockholders		—			—			—			—			—			—			—			—
Exercise of warrants for common stock		—			—			—			2,272			2			380			(322	)		—
Compensation charges		—			—			—			—			—			80			—			—
Deferred stock compensation		—			—			—			—			—			5,077			—			(5,077	)
Amortization of deferred stock compensation		—			—			—			—			—			—			—			1,937
Repurchase of common stock		—			—			—			(1,248	)		(1	)		(92	)		—			—
Change in unrealized gain (loss) on short-term investments		—			—			—			—			—			—			—			—
Net income		—			—			—			—			—			—			—			—

Balances at October 31, 1999		—			—			—			214,080			214			119,486			—			(3,440	)
Issuance of common stock		—			—			—			8,479			9			39,026			—			—
Repayments on notes receivable from stockholders		—			—			—			—			—			—			—			—
Tax benefits of employee stock transactions		—			—			—			—			—			148,356			—			—
Amortization of deferred stock compensation		—			—			—			—			—			—			—			1,120
Change in unrealized gain (loss) on marketable equity securities and short-term investments		—			—			—			—			—			—			—			—
Net income		—			—			—			—			—			—			—			—

Balances at October 28, 2000		—			—			—			222,559			223			306,868			—			(2,320	)
Issuance of common stock		—			—			—			7,369			7			81,328			—			—
Tax benefits of employee stock transactions		—			—			—			—			—			104,682			—			—
Charitable contribution of stock		—			—			—			42			—			1,000			—			—
Compensation charges		—			—			—			—			—			107			—			—
Deferred stock compensation adjustment		—			—			—			—			—			(200	)		—			200
Amortization of deferred stock compensation		—			—			—			—			—			—			—			1,082
Repurchase of common stock		—			—			—			(208	)		—			(47	)		—			—
Change in unrealized gain (loss) on marketable equity securities and short-term investments		—			—			—			—			—			—			—			—
Reclassification adjustment for gains previously included in net income		—			—			—			—			—			—			—			—
Net income		—			—			—			—			—			—			—			—

Balances at October 27, 2001		—		$	—		$	—			229,762		$	230		$	493,738		$	—		$	(1,038	)

[Continued from above table, first column(s) repeated]


	Notes			Accumulated						Total
	Receivable			Other			Retained			Stockholders’
	from			Comprehensive			Earnings			Equity			Comprehensive
	Stockholders			Income (Loss)			(Deficit)			(Deficit)			Income (Loss)


	(In thousands)
Balances at October 31, 1998	$	(450	)	$	—		$	(28,830	)	$	(27,355	)
Issuance of Series D redeemable convertible preferred stock, net		—			—			—			—			—
Conversion of redeemable convertible preferred stock to common stock		—			—			—			37,905			—
Issuance of common stock		—			—			—			68,034			—
Issuance of stock for notes receivable from stockholders		(6,412	)		—			—			—			—
Repayments on notes receivable from stockholders		1,202			—			—			1,202			—
Exercise of warrants for common stock		—			—			—			60			—
Compensation charges		—			—			—			80			—
Deferred stock compensation		—			—			—			—			—
Amortization of deferred stock compensation		—			—			—			1,937			—
Repurchase of common stock		—			—			—			(93	)		—
Change in unrealized gain (loss) on short-term investments		—			(49	)					(49	)		(49	)
Net income		—			—			2,485			2,485			2,485

Balances at October 31, 1999		(5,660	)		(49	)		(26,345	)		84,206		$	2,436

Issuance of common stock		—			—			—			39,035			—
Repayments on notes receivable from stockholders		5,660			—			—			5,660			—
Tax benefits of employee stock transactions		—			—			—			148,356			—
Amortization of deferred stock compensation		—			—			—			1,120			—
Change in unrealized gain (loss) on marketable equity securities and short-term investments		—			44,569			—			44,569			44,569
Net income		—			—			67,931			67,931			67,931

Balances at October 28, 2000		—			44,520			41,586			390,877		$	112,500

Issuance of common stock		—			—			—			81,335			—
Tax benefits of employee stock transactions		—			—			—			104,682			—
Charitable contribution of stock		—			—			—			1,000			—
Compensation charges		—			—			—			107			—
Deferred stock compensation adjustment		—			—			—			—			—
Amortization of deferred stock compensation		—			—			—			1,082			—
Repurchase of common stock		—			—			—			(47	)		—
Change in unrealized gain (loss) on marketable equity securities and short-term investments		—			(43,998	)		—			(43,998	)		(43,998	)
Reclassification adjustment for gains previously included in net income		—			—			—			—			8,112
Net income		—			—			2,848			2,848			2,848

Balances at October 27, 2001	$	—		$	522		$	44,434		$	537,886		$	(33,038	)

The accompanying notes are an integral part of these consolidated financial statements.

Brocade Communications Systems, Inc. (Brocade or the Company) is the world’s leading provider of infrastructure for Storage Area Networks (SANs), offering a product family of Fibre Channel fabric switches which provide an intelligent networking foundation for SANs. Brocade delivers products, and provides education and services that allow companies to implement highly available, scalable, manageable, and secure environments for business-critical storage applications. The Brocade SilkWorm family of Fibre Channel fabric switches enables customers to create a high-performance SAN fabric that is highly reliable and scalable to support the interconnection of hundreds of server and storage devices, and is compatible with existing and recently introduced products, providing investment protection for the customer. Brocade products are sold through OEM partners, master resellers, and fabric partners.

Brocade was incorporated on May 14, 1999 as a Delaware corporation and is the successor to operations originally begun on August 24, 1995. The Company’s headquarters are located in San Jose, California.

The Company changed its fiscal year end to the last Saturday in October, beginning with the fiscal year ended October 28, 2000. This change did not have a material impact on the Company’s financial position or results of operations.

The Consolidated Financial Statements include the accounts of Brocade Communication Systems, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.

The Company considers all highly liquid investment securities with original maturities of three months or less to be cash equivalents. Investment securities with original maturities of more than three months but less than one year are considered short-term investments. The Company’s short-term investments consist of U.S. Treasuries and Federal Agency debt securities with original maturity dates between three months and one year. All short-term investments are classified as available-for-sale. Unrealized holding gains and losses are included in accumulated other comprehensive income in the accompanying consolidated balance sheets, net of any related tax effect. Realized gains and losses are included in loss on investments, net in the consolidated statements of operations and the specific identification method is used to determine the cost basis of securities sold. For the years ended October 27, 2001, October 28, 2000, and October 31, 1999, no gains or losses were realized on the sale of short-term investments.

Marketable equity securities consist of equity holdings in public companies and are classified as available-for-sale when there are no restrictions on the Company’s ability to immediately liquidate such securities. The fair value of marketable equity securities is determined using quoted market prices for those securities. Unrealized holding gains and losses are included in accumulated other comprehensive income in the accompanying consolidated balance sheets, net of any related tax effect. Realized gains and losses are calculated based on the specific identification method and are included in loss on investments, net in the consolidated statements of operations.

The Company also has certain other minority equity investments in non-publicly traded companies. These investments are included in other assets on the Company’s consolidated balance sheets, are carried at

cost, and are accounted for under the cost method. The Company holds less than 20 percent of the voting equity of such companies, and neither has nor seeks corporate governance or significant influence over the respective company’s operating and financial policies. The Company monitors its investments for impairment on a quarterly basis and makes appropriate reductions in carrying values when such impairments are determined to be other-than-temporary. Factors used in determining an impairment include, but are not limited to, the current business environment including competition and uncertainty of financial condition; going concern considerations such as the inability to obtain additional private financing to fulfill the investee’s stated business plan and cash burn rate; the need for changes to the respective investee’s existing business model due to changing business environments and its ability to successfully implement necessary changes; and comparable valuations. If an investment is determined to be impaired, a determination is made as to whether such impairment is other-than-temporary (see Note 4).

Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, marketable equity securities, accounts receivable, employee notes receivables, accounts payable, and accrued liabilities, approximate fair value because of their short maturities. The fair values of short-term investments and marketable equity securities are determined using quoted market prices for those securities or similar financial instruments.

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 and are shown net of reserves for excess and obsolete inventory (in thousands):

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally four years except for the Company’s enterprise-wide, integrated business information system, which is being depreciated over seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the useful life of the asset or the remaining term of the lease. Property and equipment consisted of the following (in thousands):

Leasehold improvements at October 27, 2001, are shown net of estimated asset impairments related to facilities lease losses (see Note 3). Included in property and equipment at October 27, 2001, and October 28, 2000, are assets acquired under capital lease obligations with a total cost and related accumulated amortization of $2.6 million.

Accrued employee compensation consists of accrued wages, commissions, payroll taxes, vacation, payroll deductions for the employee stock purchase plan and other employee benefit payroll deductions.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments, and accounts receivable. Cash, cash equivalents, and short-term investments are primarily maintained at three major financial institutions in the United States. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand. The Company generally invests only in high credit quality, short-term debt instruments and limits the amount of credit exposure to any one entity.

A majority of the Company’s trade receivable balance is derived from sales to original equipment manufacturers in the computer storage and server industry. At October 27, 2001, and October 28, 2000, 76 percent and 70 percent of accounts receivable, respectively, were concentrated with five customers. The Company performs on going credit evaluations of its customers and generally does not require collateral on accounts receivable. The Company has established reserves for credit losses and product sales returns. The Company has not experienced material credit losses in any of the periods presented.

For the fiscal years ended October 27, 2001, October 28, 2000, and October 31, 1999, three, two, and three customers each contributed over 10 percent of the Company’s total revenues for combined totals of 56 percent, 49 percent, and 70 percent of total revenues, respectively. The level of sales to any single customer may vary and the loss of any one of these customers, or a decrease in the level of sales to any one of these customers, could have a material adverse impact on the Company’s financial condition or results of operations. In addition, HP and Compaq, two of the Company’s OEM customers, have announced their intent to merge, which could result in a disruption in the Company’s sales to these two customers.

The Company currently relies on single and limited supply sources for several key components used in the manufacture of its products. Additionally, the Company relies on a single third party manufacturer for the production of its products. The inability of the Company’s single and limited source suppliers or the inability of the Company’s third party manufacturer to fulfill supply and production requirements, respectively, could negatively impact future results.

The Company’s business is concentrated in the storage area networking industry. Accordingly, the Company’s future success depends upon the buying patterns of such customers and the continued demand by

such customers for the Company’s products. The Company’s continued success will depend upon its ability to enhance its existing products and to develop and introduce, on a timely basis, new products and features that keep pace with technological developments and emerging industry standards.

Product revenue is generally recognized when persuasive evidence of an arrangement exists, delivery has occurred, fee is fixed or determinable, and collectibility is probable. However, revenue recognition is deferred for shipments to new customers and for shipments of next generation products to existing customers when significant support services are required to successfully integrate the Company’s product into the customer’s products. These revenues, and related costs, are deferred and recognized when the customer has successfully integrated the Company’s product into its product offerings and the Company has met its support obligations. In addition, revenue from sales to master resellers is recognized upon reported sell-through. The Company’s post-sales obligations are generally limited to product warranties. Service revenue is recognized over the contractual period, generally one to three years. Warranty costs, sales returns, and other allowances are accrued based on experience at the time of shipment.

The Company provides for estimated expenses for warranty obligations as revenue is recognized to the extent not covered by its third-party contract manufacturer. The Company has not experienced any material warranty claims.

Costs to develop the Company’s products are expensed as incurred in accordance with Statement of Financial Accounting Standards No. 2, “Accounting for Research and Development Costs” (SFAS 2).

In accordance with Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,” (SFAS 86), the Company 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 27, 2001, October 28, 2000, and October 31, 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 consolidated statements of operations for all periods presented.

Costs related to internally developed software and software purchased for internal use are capitalized in accordance with Statement of Position 98-1, “Accounting for Costs of Computer Software Developed or Obtained for Internal Use.” During the year ended October 28, 2000, the Company purchased an enterprise-wide, integrated business information system. At October 27, 2001, $15.3 million in capitalized costs related to the purchase and subsequent implementation of this system were included in property and equipment. These costs are being depreciated over a period of seven years.

The company accounts for the impairment of long-lived assets pursuant to Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived

Assets to be Disposed of,” (SFAS 121). Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. During the fourth quarter ended October 27, 2001, the Company recorded a charge of $5.7 million related to the impairment of certain leasehold improvements associated with estimated facilities lease losses, and a charge of $4.4 million primarily related to the impairment of certain 1 Gbit/sec related equipment no longer used in research and development and sales and marketing efforts (see Note 3).

The Company accounts for income taxes pursuant to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” (SFAS 109). Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. The Company believes its deferred tax assets will be realized through future profitable operations.

Net income per share is presented in conformity with Statement of Financial Accounting Standards No. 128, “Earnings Per Share,” (SFAS 128), for all periods presented. In accordance with SFAS 128, basic net income per share is computed using the weighted-average number of common shares outstanding during the period, less shares subject to repurchase. Diluted net income per share is computed using the weighted-average number of common and dilutive common-equivalent shares outstanding during the period. Dilutive common-equivalent shares result from the assumed exercise of outstanding stock options that have a dilutive effect when applying the treasury stock method.

The following table presents the calculation of basic and diluted net income per common share (in thousands, except per share amounts):

Comprehensive income is comprised of net income and unrealized holding gains (losses) on marketable equity securities and short-term investments.

The Company accounts for its stock option plans and its Employee Stock Purchase Plan in accordance with the provisions of Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees,” (APB 25), whereby the difference between the exercise price and the fair value at the date of grant is recognized as compensation expense. Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” (SFAS 123), established a fair value based method of accounting for stock-based plans. Companies that elect to account for stock-based compensation plans in accordance with 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 under SFAS 123. Accordingly, pro forma disclosures required under SFAS 123 are included in Note 7.

On November 8, 1999, January 21, 2000, and November 29, 2000, the Company’s Board of Directors approved two-for-one splits of the Company’s common stock. The stock began trading on a split-adjusted basis on December 3, 1999, March 15, 2000, and December 22, 2000, respectively. All references in the accompanying consolidated financial statements and notes thereto to earnings per share and the number of common shares have been retroactively restated to reflect the common stock splits.

During the first quarter of fiscal 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (SFAS 133). SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments and hedging activities and requires that an entity recognize derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The adoption of SFAS 133 did not have a material impact on the Company’s operations or financial position. At October 27, 2001, the Company did not hold any derivative instruments.

Assets and liabilities of non-U.S. subsidiaries that operate where the local currency is the functional currency are translated to U.S. dollars at exchange rates in effect at the balance sheet date with the resulting translation adjustments recorded directly to a separate component of accumulated other comprehensive income. Income and expense accounts are translated at average exchange rates during the year. Where the U.S. dollar is the functional currency, translation adjustments are recorded in income. Foreign currency translation adjustments have, to date, not been material. Gains and losses from foreign currency transactions, which were not material for any of the years presented, are included in interest and other income, net in the Company’s consolidated statements of operations.

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States 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 consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates are used for but not limited to the useful lives of fixed assets, allowances for doubtful accounts and product returns, inventory and warranty reserves, fixed asset and investment impairment charges, facilities lease losses and other charges, accrued liabilities and other reserves, taxes, and contingencies. Actual results could differ from these estimates.

Certain prior year amounts have been reclassified to conform to the current year presentation.

During the fourth quarter of the year ended October 27, 2001, the Company adopted Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (SAB 101). The adoption of SAB 101 did not have a material impact on the Company’s operating results or financial position.

The Company is required to apply SFAS 141 to business combinations initiated after June 30, 2001 and is required to adopt SFAS 142 at the beginning of fiscal 2003, with the exception of goodwill and intangible assets with indefinite lives acquired after June 30, 2001, which will be immediately subject to the non-amortization and amortization provisions as defined by SFAS 142.

Management does not expect the adoption of either SFAS 141 or SFAS 142 to have a material impact on the Company’s financial position, results of operations, or cash flows.

In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). SFAS 144 supersedes SFAS No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (SFAS 121), and certain provisions of APB Opinion No. 30 “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (APB 30). SFAS 144 establishes standards for long-lived assets to be disposed of, and redefines the valuation and presentation of discontinued operations. SFAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. Management does not expect the adoption of SFAS 144 to have a material effect on the Company’s financial position, results of operations, or cash flows.

During the year ended October 27, 2001, the Company experienced the impact of unfavorable economic conditions and a reduction in IT spending rates. As a result of these continuing unfavorable economic conditions and the Company’s reevaluation of future employee hiring in terms of timing and geographic location, the Company performed a comprehensive analysis of its real estate facility requirements and identified excess facility space, which has been offered for sublease. Factors considered in the analysis included, but were not limited to, anticipated future revenue growth rates and anticipated future headcount requirements for both headquarters and field personnel.

Based upon the results of this analysis and the excess facilities space identified, during the fourth quarter ended October 27, 2001, the Company recorded a charge of $39.8 million related to facilities lease losses and a charge of $5.7 million in connection with the impairment of certain related leasehold improvements. In determining the facilities lease losses and related asset impairment charges, net of cost recovery efforts from expected sublease income, various assumptions were made, including, the time period over which the building will be vacant; expected sublease terms; and expected sublease rates.

The facilities lease losses and related asset impairment charges are estimates in accordance with SFAS No. 5, “Accounting for Contingencies,” and represent the low-end of an estimated range that may be adjusted upon the occurrence of future triggering events. Triggering events may include, but are not limited to, changes in estimated time to sublease, sublease terms, and sublease rates. Should operating lease rental rates continue to decline in current markets or should it take longer than expected to find a suitable tenant to sublease the facility, adjustments to the facilities lease losses reserve will be made in future periods, if necessary, based upon the then current actual events and circumstances. The Company has estimated that under certain circumstances the facilities lease losses could increase to $63.0 million.

A summary of the facilities lease losses incurred for the fiscal year ended October 27, 2001, is outlined as follows (in thousands):

The Company expects to make payments related to the above noted facilities lease losses over the next five years. In addition to the $38.8 million reserved for future lease commitments, net of expected sublease income, the Company has accrued $3.4 million for purchase commitments in connection with certain related leasehold improvements currently under construction. The Company expects to fully incur these purchase commitments during the first half of calendar year 2002.

During the fourth quarter ended October 27, 2001, the Company announced the general availability of its SilkWorm 3800 enterprise fabric switch, the first in an expected family of 2 Gbit/sec per second products. As a result of the expected accelerated transition of the Company’s product offerings from 1 to 2 Gbit/sec technology, the Company recorded a charge of $4.4 million primarily related to the impairment of certain 1 Gbit/sec related equipment no longer used in research and development and sales and marketing efforts.

Loss on investments, net for the year ended October 27, 2001, consisted of impairment losses on minority equity investments in non-publicly traded companies of $24.2 million, partially offset by gross realized gains on sales of marketable equity securities of $8.1 million.

The Company has made certain minority equity investments in non-publicly traded companies that develop technology or provide services that are complementary to or broaden the markets for its products, and to promote its business and strategic objectives. The Company’s minority equity investments in non-public companies are included in other assets on the Company’s consolidated balance sheets, are carried at cost, and are accounted for under the cost method. The Company holds less than 20 percent of the voting equity of such companies, and neither has nor seeks corporate governance or significant influence over the respective company’s operating and financial policies. The Company monitors its investments for impairment on a quarterly basis and makes appropriate reductions in carrying values when such impairments are determined to be other-than-temporary. Factors used in determining an impairment include, but are not limited to, the current business environment including competition and uncertainty of financial condition; going concern considerations such as the inability to obtain additional private financing to fulfill the investee’s stated business plan and cash burn rate; the need for changes to the respective investee’s existing business model due to changing business environments and its ability to successfully implement necessary changes; and comparable valuations. If an investment is determined to be impaired, a determination is made as to whether such impairment is other-than-temporary.

During the year ended October 27, 2001, the Company made minority equity investments in non-publicly traded companies of $23.6 million. The investments were made primarily in companies in the storage networking, Internet infrastructure, fabless semiconductor, networking services and managed storage service provider industries. These companies were, and continue to be, development stage companies with significant risks. During the year ended October 27, 2001, the industries in which these companies compete experienced considerable market declines associated with a depressed macroeconomic environment and there remains significant uncertainty regarding the timing of any recovery. Many of these companies had spent the majority of their funding on operating activities and/or lost key business partners due to bankruptcy, and the Company determined that the carrying value of its investments were impaired. Based upon current market conditions and substantial doubt about these companies’ ability to raise additional funding, achieve positive cash flow, and achieve projected revenues, the Company concluded the impairments were other-than-temporary and recorded impairment charges of $24.2 million. The impairment charges reduced the carrying value of the Company’s investments to the estimated fair value. At October 27, 2001, and October 28, 2000, the carrying values of the Company’s minority equity investments in non-publicly traded companies were $2.2 million and $2.8 million, respectively.

The following tables summarize the Company’s available-for-sale securities (in thousands):

For the year ended October 27, 2001, gross gains of $8.1 million were realized on the sale of marketable equity securities. No gains or losses were realized on the sale of marketable equity securities for the years ended October 28, 2000, and October 31, 1999. At October 27, 2001, and October 28, 2000, net unrealized holding gains of $0.5 million and $44.5 million, respectively, were included in accumulated other comprehensive income in the accompanying consolidated balance sheets.

The Company leases its facilities under various operating lease agreements expiring through November 2013. In connection with these agreements the Company has signed unconditional, irrevocable letters of credit totaling $18.7 million as security for the leases. In addition to base rent, many of the operating lease agreements require that the Company pay a proportional share of the respective facilities’ operating expenses. Rent expense for the years ended October 27, 2001, October 28, 2000, and October 31, 1999, was $16.5 million, $4.1 million, and $1.3 million, respectively.

Future minimum lease payments under all noncancelable operating leases at October 27, 2001 were as follows (in thousands):

At October 27, 2001, the Company had recorded $38.8 million in facilities lease loss reserves related to future lease commitments, net of expected sublease income (see Note 3).

The Company has a manufacturing agreement with Solectron Corporation under which the Company provides to Solectron a twelve-month product forecast and places purchase orders with Solectron sixty calendar days in advance of the scheduled delivery of products to the Company’s customers. Although the Company’s purchase orders placed with Solectron are cancelable, the terms of the agreement would require the Company to purchase from Solectron all inventory components not returnable or usable by other Solectron customers. At October 27, 2001, the Company’s commitment to Solectron for such inventory components was $37.9 million, net of purchase commitment reserves, which the Company expects to utilize during future normal ongoing operations.

Independently of Solectron, the Company purchases several key components used in the manufacture of its products. At October 27, 2001, the Company had non-cancelable purchase commitments for various components totaling $8.3 million, net of purchase commitment reserves, which the Company expects to utilize during future normal ongoing operations.

The Company has established purchase commitment reserves for inventory component commitments to Solectron and other key component vendors that it believes may not be realizable during future normal ongoing operations.

The Company is subject to various legal proceedings, claims, and litigation that arise in the normal course of business. While the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

On July 20, 2001, a putative class action captioned Chae v. Brocade Communications Systems, Inc. et al. was filed against the Company and three of its officers and directors (collectively the “Individual Defendants”) in the United States District Court for the Southern District of New York. Also named as defendants were Morgan Stanley & Co., Inc., BT Alex Brown, Inc., and Dain Rauscher, Inc., the underwriters in the Company’s initial public offering. The complaint alleges violations of Section 10(b) of the Securities Act of 1934 (and Rule 10b-5 promulgated thereunder) against all defendants and violations of Section 20(a) of the Securities Act of 1934 against the Individual Defendants. The complaint seeks unspecified damages on behalf of a purported class of purchasers of common stock between May 24, 1999 and July 17, 2001. A second,

substantively similar complaint, Radliff v. Brocade Communications Systems, Inc., was filed in the same court on September 25, 2001. The Company believes that the claims are without merit and intends to defend the actions vigorously.

In connection with the grant of certain stock options to employees during the year ended October 31, 1999, the Company recorded deferred stock compensation of $5.1 million, representing the difference between the deemed fair value of the common stock for accounting purposes and the option exercise price of such options at the date of grant. Such amounts are presented as reductions of stockholders’ equity and amortized ratably over the vesting period of the applicable options. $1.1 million, $1.1 million, and $1.9 million were expensed during the years ended October 27, 2001, October 28, 2000, and October 31, 1999, respectively. Deferred stock compensation 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 deferred stock compensation related to any other periods presented has been recorded.

In March 1999, the Board of Directors approved the adoption of the Company’s 1999 Employee Stock Purchase Plan (the “Purchase Plan”), and the Company’s shareholders approved the Purchase Plan in April 1999. The Purchase Plan permits eligible employees to purchase shares of the Company’s common stock through payroll deductions at 85 percent of the fair market value at certain plan-defined dates. The maximum number of shares of the Company’s common stock available for sale under the Purchase Plan is 1.6 million shares, plus an annual increase to be added on the first day of the Company’s fiscal year, equal to the lesser of 20.0 million shares, or 2.5 percent of the outstanding shares of common stock at such date. Accordingly, on October 28, 2001, 5.7 million additional shares were made available for issuance under the Purchase Plan. During the years ended October 27, 2001, and October 28, 2000, 190,000 shares and 604,000 shares were issued under the Purchase Plan, respectively. No shares were issued during fiscal 1999. At October 27, 2001, 11.7 million shares were available for future issuance under the Purchase Plan.

In March 1999, the Board of Directors approved the Company’s 1999 Stock Plan (the “1999 Plan”) and the Company’s shareholders approved the 1999 Plan in April 1999. The 1999 Plan provides for the grant of incentive stock options and/or nonstatutory stock options to employees. Per the terms of the 1999 Plan, the maximum number of shares of the Company’s common stock available for sale under the 1999 Plan is 60.9 million shares, plus an annual increase to be added on the first day of the Company’s fiscal year, equal to the lesser of 40.0 million shares, or 5.0 percent of the outstanding shares of common stock at such date. Accordingly, on October 28, 2001, 11.5 million additional shares were made available for grant under the 1999 Plan. At October 27, 2001, the Company had reserved 32.1 million shares of authorized but unissued shares of common stock for future issuance under the 1999 Plan. Of this amount, 31.8 million shares were outstanding and 252,000 shares were available for future grants.

In March 1999, the Board of Directors approved the 1999 Director Option Plan (the “Director Plan”) and the Company’s shareholders approved the Director Plan in April 1999. The Director Plan provides for the grant of common stock to Directors of the Company. At October 27, 2001, the Company had reserved 1.5 million shares of authorized but unissued shares of common stock for future issuance under the Director Plan. Of this amount, 480,000 shares were outstanding and 1.0 million shares were available for future grants.

In September 1999, the Board of Directors approved the Company’s 1999 Nonstatutory Stock Option Plan (the “NSO Plan”). The NSO Plan provides for the grant of nonstatutory stock options to employees and consultants. A total of 51.4 million shares of common stock have been reserved for issuance under the NSO Plan. At October 27, 2001, the Company had reserved approximately 48.5 million shares of authorized but unissued shares of common stock for future issuance under the NSO Plan. Of this amount, 48.4 million shares were outstanding and 88,000 shares were available for future grants.

The Company, under the various stock option plans (the “Plans”) discussed above, grants stock options for shares of common stock to employees and directors. In accordance with the Plans, the stated exercise price for Nonqualified Stock Options (NSOs) shall not be less than 85 percent 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 percent of the estimated fair market value of the common stock, and stock options granted to a person owning more than 10 percent of the combined voting power of all classes of stock of the Company must be issued at 110 percent 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. The majority of options granted under the Plans generally vest over a period of four years. Certain options granted under the Plans vest over a period of one year. At October 27, 2001, the Company had reserved 82.1 million shares of authorized but unissued shares of common stock for future issuance under all of the Plans. Of this amount, 80.7 million shares were outstanding and 1.4 million shares were available for future grants.

The following table summarizes stock option plan activity under all of the Plans (in thousands except per share amounts):

The following table summarizes information about stock options outstanding and exercisable at October 27, 2001 (in thousands except number of years and per share amounts):

At October 27, 2001, 3.8 million shares issued upon exercise of stock options with a weighted-average exercise price of $0.40 per share were subject to repurchase by the Company.

During the 12-month period ended March 2001, the Company granted to employees 23.6 million options to purchase shares of its common stock at an average exercise price of approximately $71.00 per share. Also, during that same 12-month period, the Company hired in excess of 500 employees, which represented approximately 60 percent of the Company’s workforce at that time. During the first calendar quarter of 2001, the Company’s stock price experienced a considerable decline in value. As a result of this decline, the exercise prices of the majority of options granted to employees were well in excess of the market price of the Company’s common stock. The Company believed it was in the best interest of its shareholders to ensure that its employee base was both retained and financially motivated. Accordingly, in April of 2001, the Company granted 20.3 million incremental options with exercise prices of $20.70 per share to its employees with existing options whose exercise prices were significantly in excess of the market price per share of the Company’s common stock. The dilutive effect of common share equivalents associated with stock options for the years ended October 27, 2001, October 28, 2000, and October 31, 1999, were 16.4 million shares, 24.1 million shares, and 15.6 million shares, respectively.

SFAS 123 requires disclosure of pro forma information regarding option grants made to employees based on specified valuation techniques that produce estimated compensation expense. Had compensation expense been determined under the provisions of SFAS 123, net income would have decreased to the following pro forma amounts, (in thousands except per share data):

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for each respective fiscal year ended:

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s options. Based upon the above assumptions, the weighted-average fair value of employee stock options granted during the years ended October 27, 2001, October 28, 2000, and October 31, 1999, were $26.17, $30.82, and $2.42 per share, respectively.

The Company sponsors a savings plan, the Brocade Communications Systems 401(k) Plan (the Plan), which qualifies under Section 401(k) of the Internal Revenue Code and is designed to provide retirement benefits for its eligible employees through tax deferred salary deductions. Eligible employees may contribute from 1 percent to 20 percent of their annual compensation to the Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Service. The Company matches employee contributions dollar for dollar up to a maximum of $1,500 per year per person. All matching contributions vest immediately. The Company’s matching contributions to the Plan totaled $1.4 million and $0.6 million for the years ended October 27, 2001, and October 28, 2000, respectively.

Income (loss) before provision for income taxes consisted of the following (in thousands):

The difference between the U.S. federal statutory rate and the Company’s income tax provision for financial statement purposes consisted of the following:

At October 27, 2001, the Company did not have sufficient unrealized capital gains to offset capital losses resulting from impairments of minority equity investments in non-publicly traded companies recorded during the year ended October 27, 2001. Therefore, no tax benefit has been recorded associated with the impairment of those investments.

U.S. income taxes were not provided for undistributed earnings of certain non-U.S. subsidiaries taxed at rates lower than U.S. rates. The Company intends to utilize these earnings through expansion of its business operations outside the United States for an indefinite period of time.

As of October 27, 2001, the Company had federal net operating loss carryforwards of $420.2 million and state net operating loss carryforwards of $242.8 million. The federal net operating loss and other tax credit carryforwards expire on various dates between 2010 through 2021. The state net operating loss carryforwards expire on various dates between 2003 through 2021. 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.

The Company’s income taxes payable for federal, state, and foreign purposes have been reduced and the deferred tax assets increased by the tax benefits associated with employee stock options. The benefits were credited directly to stockholders’ equity and amounted to $104.7 million for the year ended October 27, 2001. Benefits reducing taxes payable amounted to $22.4 million and benefits increasing gross deferred tax assets amounted to $82.3 million for the year ended October 27, 2001. The Company believes that all deferred tax assets will be realized through profitable future operations and accordingly, there is no need for a valuation allowance for any of the deferred tax assets.

During the year ended October 31, 1999, the Company sold 18.8 million shares of its common stock to officers and a director of the Company in consideration for full recourse promissory notes in the aggregate amount of $6.4 million. Should the officers terminate employment, the shares are subject to a right of repurchase by the Company that lapses over a four-year period. At October 27, 2001, all such promissory notes had been repaid in full and there were no outstanding balances.

The Company holds minority equity investments in certain companies with which it does business. In addition, a member of the Company’s Board of Directors serves as a Director of a company with whom the Company does business. For the years ended October 27, 2001, and October 28, 2000, total revenues from such companies were $7.0 million and $13.1 million, respectively. Accounts receivable balances due from such companies were $804,000 and $2.7 million at October 27, 2001, and October 28, 2000, respectively. Sales transactions with such companies were on terms no more favorable than those with unrelated parties.

At October 27, 2001, the Company had outstanding loans to various employees totaling $4.5 million. These loans are generally related to the respective employees’ relocation and subsequent purchase of a home in the San Francisco Bay Area in connection with their employment with the Company. The loans are evidenced by secured promissory notes to the Company and generally bear interest at rates ranging from 5.0 percent to 6.1 percent.

The Company is organized and operates as one operating segment; the design, development, manufacturing, marketing and selling of switching solutions for SANs. The Company’s Chief Operating Decision Maker, as defined by SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” allocates resources and assesses the performance of the Company based on revenues and overall profitability. Revenues are attributed to geographic areas based on the location of the customer to which product is shipped. Domestic revenues include sales to certain OEM customers who then distribute product to their international customers. To date, service and software revenues have not exceeded 10 percent of total revenues.

For the year ended October 27, 2001, three customers accounted for 26 percent, 20 percent, and 10 percent of total revenues respectively. For the year ended October 28, 2000, two customers accounted for 31 percent and 18 percent of total revenues, respectively. For the year ended October 31, 1999, three customers accounted for 34 percent, 26 percent, and 10 percent of total revenues, respectively. The level of sales to any customer may vary from quarter to quarter and the Company expects that significant customer concentration will continue for the foreseeable future. The loss of any one of these customers, or a decrease in the level of sales to any one of these customers, could have a material adverse impact on the Company’s consolidated financial condition or results of operations.

Geographic information for the years ended October 27, 2001, and October 28, 2000, are presented below (in thousands). For the year ended October 31, 1999, international revenues were not material. Identifiable assets located in foreign countries were not material at October 27, 2001, and October 28, 2000.

On December 21, 2001, and January 10, 2002, the Company sold, in private placements pursuant to Section 4(2) of the Securities Act of 1933, as amended, $550 million in aggregate principal amount of 2 percent convertible subordinated notes due 2007. The initial purchasers of the notes were Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Salomon Smith Barney, Inc. and Merrill Lynch, Pierce Fenner and Smith Incorporated, who purchased the notes from the Company at a discount of 2.25 percent of the aggregate principal amount. Holders of the notes may, in whole or in part, convert the notes into shares of the Company’s common stock at a conversion rate of 22.8571 shares per $1,000 principal amount of notes at any time prior to maturity on January 1, 2007. The Company is required to pay interest on January 1 and July 1 of each year, beginning July 1, 2002. The Company intends to use the net proceeds of the offering of $537.6 million for general corporate purposes, including working capital and capital expenditures.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Certain information required by Part III is incorporated by reference from the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the Company’s 2002 Annual Meeting of Stockholders to be held on April 18, 2002 (the “Proxy Statement”).

The information required by this section is incorporated by reference from the information in the section entitled “Election of Directors” in the Proxy Statement. Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Exchange Act. This disclosure is contained in the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement and is incorporated by reference, herein. The information required by this Item with respect to the Company’s executive officers is contained in Item 1 of Part I of this Annual Report under the heading “Executive Officers of the Registrant.”

The information required by this section is incorporated by reference from the information in the section entitled “Executive Compensation and Other Matters” in the Proxy Statement.

The information required by this section is incorporated by reference from the information in the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.

The information required by this section is incorporated by reference from the information in the section entitled “Certain Relationships and Related Transactions” in the Proxy Statement.


	(1) Financial Statements:

	Reference is made to the Index to Consolidated Financial Statements of Brocade Communications Systems, Inc. under Item 8 in Part II of this Form 10-K.

	(2) Financial Statement Schedules:

	The following financial statement schedule of Brocade Communications Systems, Inc. for the years ended October 27, 2001, October 28, 2000, and October 31, 1999, is filed as part of this Annual Report and should be read in conjunction with the Consolidated Financial Statements of Brocade Communications Systems, Inc.

	Schedule II — Valuation and Qualifying Accounts	Page 57


	(3) Exhibits:

	The exhibits listed below are required by Item 601 of Regulation S-K. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K has been identified.


*	Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.


#	Confidential treatment granted as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission.


†	Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Securities and Exchange Commission.


(1)	Incorporated by reference from Brocade’s Registration Statement on Form S-1 (Reg. No. 333-74711), as amended.

(2)	Incorporated by reference from Brocade’s Registration Statement on Form S-8 (Reg. No. 333-95653) filed on January 28, 2000.

(3)	Incorporated by reference from Brocade’s Annual Report on Form 10-K for the fiscal year ended October 31, 1999, as amended.

(4)	Incorporated by reference from Brocade’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 29, 2000.

(5)	Incorporated by reference from Brocade’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 27, 2001.

(6)	Incorporated by reference from Brocade’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 28, 2001.

(7)	Incorporated by reference from Brocade’s Annual Report on Form 10-K for the fiscal year ended October 28, 2000.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	By:	/s/ GREGORY L. REYES _______________________________________ Gregory L. Reyes


	Chairman of the Board and
	Chief Executive Officer
	January 24, 2002

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gregory L. Reyes, Michael J. Byrd, and Antonio Canova, and each of them, his true and lawful attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:


*	Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.


#	Confidential treatment granted as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission.


†	Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Securities and Exchange Commission.


(1)	Incorporated by reference from Brocade’s Registration Statement on Form S-1 (Reg. No. 333-74711), as amended.

(2)	Incorporated by reference from Brocade’s Registration Statement on Form S-8 (Reg. No. 333-95653) filed on January 28, 2000.

(3)	Incorporated by reference from Brocade’s Annual Report on Form 10-K for the fiscal year ended October 31, 1999, as amended.

(4)	Incorporated by reference from Brocade’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 29, 2000.

(5)	Incorporated by reference from Brocade’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 27, 2001.

(6)	Incorporated by reference from Brocade’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 28, 2001.

(7)	Incorporated by reference from Brocade’s Annual Report on Form 10-K for the fiscal year ended October 28, 2000.

EX-3.1 3 f78518ex3-1.txt EXHIBIT 3.1 Exhibit 3.1 RESTATED AND AMENDED 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: ARTICLE I The name of the corporation is Brocade Communications Systems, Inc. ARTICLE II The address of the Company'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 Company 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 Company is authorized to issue two classes of shares of stock to be designated, respectively, Common Stock, $.001 par value, and Preferred Stock, $0.001 par value. The total number of shares that the Company is authorized to issue is 805,000,000 shares. The number of shares of Common Stock authorized is 800,000,000. The number of shares of Preferred Stock authorized is 5,000,000. 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 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. ARTICLE V The Company is to have perpetual existence. ARTICLE VI 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 Company shall so provide. ARTICLE VII 1. The management of the business and the conduct of the affairs of the Company shall be vested in its Board of Directors. The number of directors which constitute the whole Board of Directors of the Company shall be designated in the Bylaws of the Company. 2. 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. 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 Company'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 Company 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 VIII 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 VII or this ARTICLE VIII. ARTICLE IX The Company 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 VIII of this Certificate, and all rights conferred upon the stockholders herein are granted subject to this right. ARTICLE X 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 Company. ARTICLE XI 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 Company shall be indemnified by the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. 2. The Company 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 Company or any predecessor of the Company or serves or served at any other enterprise as a director, officer or employee at the request of the Company or any predecessor to the Company. 3. Neither any amendment nor repeal of this Article XI, nor the adoption of any provision of this Company's Certificate of Incorporation inconsistent with this Article XI, shall eliminate or reduce the effect of this Article XI, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article XI, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. ARTICLE XII Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Company 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 Company. ARTICLE XIII 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 Company. IN WITNESS WHEREOF, the Company has caused this Certificate of Incorporation to be signed by Greg R. Reyes, its Chief Financial Officer, effective as of April 20, 2001. BROCADE COMMUNICATIONS SYSTEMS, INC. By: ------------------------------- Michael J. Byrd Chief Financial Officer EX-10.23 4 f78518ex10-23.txt EXHIBIT 10.23 Exhibit 10.23 Mark Favreau December 18, 2000 Sr. Corporate Account Sales Executive Brocade Communications 37 Tower Hill Rd. North Reading, Mass. 01864 Subject: Contract Renewal Mark; please use this letter as notification of our intent to extend the existing Agreement with Brocade for another year. Outlined below is the unit pricing that was agreed to last week in a teleconference between Pat Jackson, Charlie Smith, Doug Fierro, Ron Koshko and myself. Also, for contract file purposes, I wanted to make sure I included in this letter that Brocade agreed to supply EMC with Extended Fabric License keys [*] to use for Customer Service Field Spare replacement. If you have any questions or issues with the pricing or renewal please give me a call. Q1 2001 pricing agreement: EMC part number Brocade part number Agreed to Q1,'00 unit price - --------------- ------------------- --------------------------- [*] [*] [*] [*] [*] [*] [*] [*] [*] CC: Doug Fierro Pat Jackson Charlie Smith Regards, Al Windhol EMC Supply Base Management * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT 10.23 EXHIBIT A PRODUCT AND REPAIR PRICING EMC APPROVED LOGISTICS PARTNERS PRICING

* SUPPLER to use [*] GBIC's as primary source, [*] as secondary source. All GBIC's, integrated and FRU's, to be tested as specified in Exhibit C. ** SUPPLIER to use [*] GBIC's as primary until [*] is fully qualified. All GBIC's, integrated and FRU's, to be tested as specified in Exhibit C. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EX-10.24 5 f78518ex10-24.txt EXHIBIT 10.24 EXHIBIT 10.24 GOODS AGREEMENT AGREEMENT # ROC-P-68 This Agreement dated as of April 15, 1999 ("EFFECTIVE DATE"), between International Business Machines Corporation ("BUYER") and Brocade Communications Systems, Inc. ("SUPPLIER"), establishes the basis for a multinational procurement relationship under which Buyer may purchase from Supplier the Products and Services which are described in SOWs issued under this Agreement. 1.0 DEFINITIONS: "AFFILIATES" means entities that control, are controlled by, or are under common control with a party to this Agreement and that have signed a PA. "AGREEMENT" means this agreement and any relevant Statements of Work ("SOW"), Work Authorizations ("WA"), Participation Attachments ("PA"), and other attachments or appendices specifically referenced in this Agreement. "BUYER" means either IBM or one of its Affiliates. "DAYS" means calendar days unless otherwise specified. "BUYER PERSONNEL" means agents, employees, contractors or remarketers engaged by Buyer. "PARTICIPATION AGREEMENT" or "PA" means an agreement signed by Affiliates and accepted by Supplier in writing, which incorporates by reference the terms and conditions in this agreement, any relevant SOW, and other attachments or appendices specifically referenced in the PA. Buyer to supply Supplier with copies of all such documents. "PRODUCTS" means items identified in the relevant SOW. "SERVICES" means the services identified in the relevant SOW. "STATEMENT OF WORK" or "SOW" means any document attached to or included in this Agreement which describes the Products and Services, including any requirements, specifications or schedules. "SUPPLIER" means either Supplier or one of its Affiliates. "SUPPLIER PERSONNEL" means agents, employees or subcontractors engaged by Supplier. "WORK AUTHORIZATION" or "WA" means a purchase order or other Buyer designated document, in either electronic or hard copy form, issued by Buyer's procurement personnel, and is the only authorization for Supplier to perform any work under this Agreement. A SOW is a WA only if designated as such in writing by Buyer. EXHIBIT 10.24 GOODS AGREEMENT 2.0 STATEMENT OF WORK: Supplier will provide the Products or Services as specified in the relevant SOW only when specified in a WA. Supplier will not make any changes to the form, fit or function of the Products without Buyer's prior written consent, such consent not to be withheld unreasonably. Supplier will maintain the capability to supply agreed upon Products, including parts of Products, for a period of months after withdrawal of such Products as specified in the relevant SOW. Supplier will notify Buyer of its intent to withdraw any Product and will continue to deliver such withdrawn Products for the periods as specified in the relevant SOW. Supplier shall process WAs issued by Buyer and shall accept all WAs in Accordance with this Goods Agreement and the applicable SOW. Supplier shall provide Buyer written sales order acknowledgment within [*] of receipt. If order acknowledgment is not received with [*], the WA will be deemed to be accepted by Supplier. 3.0 TERM AND TERMINATION 3.1 TERM: Products and Services acquired by Buyer on or after the Effective Date will be covered by this Agreement. This Agreement will remain in effect until terminated. 3.2 TERMINATION OF THIS AGREEMENT: Either party may terminate this Agreement, without any cancellation charge, for a material breach of the Agreement by the other party or if the other party becomes insolvent or files or has filed against it a petition in bankruptcy ("Cause"), to the extent permitted by law. Such termination will be effective at the end of a thirty (30) day written notice period if the Cause remains uncured. Either party may terminate this Agreement without Cause when there are no outstanding SOWs. 3.3 TERMINATION OF A SOW OR WA: Buyer may terminate a SOW with Cause effective immediately or without Cause on 60 days written notice. Upon termination, in accordance with Buyer's written direction, Supplier will immediately: (i) cease work; (ii) prepare and submit to Buyer an itemization of all completed and partially completed Products and Services; (iii) deliver to Buyer Products satisfactorily completed up to the date of termination at the agreed upon Prices in the relevant SOW; and (iv) deliver upon request any work in process. In the event Buyer terminates without Cause, Buyer will compensate Supplier for the actual and reasonable expenses incurred by Supplier for work in process up to and including the date of termination, provided Supplier uses reasonable efforts to mitigate Buyer's liability under this SubSection by, among other actions, returning to its suppliers, selling to others, or otherwise using the canceled Products (including raw materials or works in process) and provided such expenses do not exceed the Prices. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT 10.24 GOODS AGREEMENT 4.0 PRICING 4.1 PRICING: Supplier will provide Products and Services to Buyer for the Prices. Except as may be set forth in a SOW, the Prices for Products and Services specified in the applicable SOW, and reflected in a WA, will be the only amount due to Supplier from Buyer. 4.2 COMPETITIVE PRICING. [*] Prices will at least be competitive with industry prices for like products and services and, if not, Supplier will use commercially reasonable efforts to adjust its Prices so that they are competitive. 5.0 PAYMENTS AND ACCEPTANCE: Terms for payment will be specified in the relevant SOW. Payment of invoices will not be deemed acceptance of Products or Services, but rather such Products or Services will be subject to inspection, test and rejection by Buyer for a period as specified in the relevant SOW. Buyer may reject Products or Services that do not comply with the specifications and require prompt correction or replacement of such Products, as specified in the relevant SOW. During the relevant warranty period, Buyer may reject entire lots of Products which do not meet quality levels as specified in the relevant SOW after such testing and evaluation, and such Products shall be returned to Supplier as set forth in Section 6.2 ("Warranty Redemption") below. 6.0 WARRANTIES 6.1 ONGOING WARRANTIES: Supplier makes the following ongoing representations and warranties: (i) it has the right to enter into this Agreement and its performance of this Agreement will not violate the terms of any contract, obligation, law, regulation or ordinance to which it is or becomes subject; (ii) to the best of Supplier's knowledge, no claim, lien, or action exists or is threatened against Supplier that would interfere with Buyer's use or sale of the Products; (iii) Products are free from defects in design (except for written designs provided by Buyer unless such designs are based entirely on Supplier's specifications), material and workmanship and will conform to the warranties and specifications in this Agreement for the time period from the date of shipment as specified in the relevant SOW; (iv) Products are safe for any use consistent with and will comply with the warranties and specifications in this Agreement; (v) Products and Services are Year 2000 ready such that they are capable of correctly processing, providing, receiving and displaying date data, as well as exchanging accurate date data with all products with which the Products are intended to be used as set forth in the accompanying documentation, within and between the twentieth and twenty-first centuries, provided that all other products (e.g., hardware, software and firmware) used in combination with the Products properly exchange date data with the * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT 10.24 GOODS AGREEMENT Products; (vi) none of the Products contain nor are any of the Products manufactured using ozone depleting substances known as halons, chlorofluorocarbons, methyl chloroform and carbon tetrachloride; (vii) Products sold as new are new and do not contain used or reconditioned parts; however, Products which are serviced under the applicable warranty may be new or reconditioned; and (ix) Products and Services do not infringe any intellectual property right of a third party. Supplier will promptly notify Buyer in writing should there be any failure to adhere to the representations and warranties as stated herein. THE WARRANTIES IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES, REPRESENTATIONS AND CONDITIONS, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING THOSE WARRANTIES, REPRESENTATIONS OR CONDITIONS OF MERCHANTABILITY, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FITNESS FOR A PARTICULAR USE. 6.2 WARRANTY REDEMPTION: If Products or Services do not comply with the warranties in this Agreement, Supplier will repair or replace Products (at the mutually agreed to level) or re-perform Services, or credit or refund the then-current Price of Products or Services, such remedy at Supplier's discretion. For such Products, Supplier will issue to Buyer a Return Material Authorization ("RMA") within two (2) business days of Buyer's written notice. Buyer may return Products which do not conform to the warranties in this Agreement from any Buyer location to the nearest authorized Supplier location at cost of Supplier and Supplier will, at cost of Supplier, return any repaired or replaced Product in a timely manner. The foregoing states Supplier's exclusive liability, and Buyer's sole and exclusive remedy, for the failure of the Products to conform to the relevant specifications during the applicable warranty period. 6.3 POST WARRANTY SERVICE: Supplier will offer post warranty Services as specified in the relevant SOW or identify a third party which will provide such Services. In the event a third party will provide such Services, Supplier will provide the designated party with the information required for the performance of the Services. 6.4 EPIDEMIC DEFECTS: Supplier will, at Buyer's discretion, repair or replace, or provide a credit or refund (at the then-current Prices) for Products which have the same or similar defect at a rate as specified in the relevant SOW ("Epidemic Defect Rate"), after verification of such Epidemic Defect Rate by Supplier, or where a safety defect is found. Supplier will commence such performance within five (5) calendar days of Buyer's written notice to Supplier of an Epidemic Defect Rate. Supplier will reimburse Buyer for all actual and reasonable expenses incurred by Buyer, as mutually agreed to, for such repair and replacement of Products, including expenses associated with problem diagnosis, field and finished goods inventory repair or replacement. 7.0 DELIVERY 7.1 DELIVERY LOGISTICS: Delivery under this Agreement means delivery to the Buyer location and/or Buyer delivery point as specified in the relevant SOW or WA. Buyer may EXHIBIT 10.24 GOODS AGREEMENT cancel or reschedule the delivery date or change the delivery point as specified in the relevant SOW. The term of sale will be specified in the relevant SOW. Buyer will use commercially reasonable efforts to issue a [*] rolling forecast for quantities of Products that may be required. Supplier will only deliver the Products specified in a WA. ANY PRODUCT QUANTITIES CITED IN OR PURSUANT TO THIS AGREEMENT, EXCEPT FOR QUANTITIES CITED IN A WA, ARE PRELIMINARY AND NON-BINDING ONLY. BUYER MAKES NO REPRESENTATION OR WARRANTY AS TO THE QUANTITY OF PRODUCTS THAT IT WILL PURCHASE, IF ANY. 7.2 ON-TIME DELIVERY: The lead-time for Buyer to issue a WA prior to delivery will be specified in a SOW. Except as provided in SubSection 14.8 ("Force Majeure"), Products specified in a WA for delivery with such lead-time will be delivered on time. Supplier will use commercially reasonable efforts when Buyer requests delivery with a shorter lead-time. If Supplier cannot comply with a delivery commitment, Supplier will promptly notify Buyer of a revised delivery date and Buyer may: (i) cancel without charge any Products or Services ordered under a given WA which have not yet been Delivered; (ii) require Supplier to deliver Products using priority freight delivery at Supplier's expense for the incremental freight charges; and (iv) exercise all other remedies provided in this Agreement. 8.0 INTELLECTUAL PROPERTY: Supplier grants Buyer all intellectual property rights licensable by Supplier which are necessary for Buyer to sell the Products from Supplier and to use the Products as expressly provided for under this Agreement. 8.1 MICROCODE LICENSE: Supplier hereby grants Buyer a non-exclusive, worldwide, right and license under all applicable intellectual property rights of Supplier to (i) use, execute and display all device drivers, firmware and software of Supplier used in the support and operation of the Products, including upgrades, updates, bug fixes or back-up versions of the same (the "Microcode"), in object code format only, in conjunction with, or for use with the Products, (ii) reproduce, distribute and license the Microcode, in object code format only, as part of, in conjunction with or for use with the Products sold or leased by Buyer to end users, and (iii) to authorize, license and sublicense third parties to do any, some or all of the foregoing. Buyer shall distribute the Microcode (as incorporated into the Products) with an end user agreement which is legally enforceable in the jurisdiction within which the Products are distributed, and which is no less protective of Supplier's rights than this Agreement. All rights in and to the Microcode which are not granted to Buyer herein are expressly reserved to Supplier. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT 10.24 GOODS AGREEMENT 8.2 RESTRICTIONS: Buyer shall have no right to (i) sell the Microcode in stand-alone form; (ii) modify or adapt the Microcode for other products or create derivative works of the Microcode; (iii) decompile, reverse translate, or disassemble the Microcode for any reason, or (iv) use or distribute the Microcode for any purpose other than as set forth in this Agreement. 8.3 TRADEMARKS: This Agreement does not grant either party the right to use the other party's trademarks, trade names or service marks. 8.4 OWNERSHIP: Notwithstanding the terms of SubSection 14.10 ("Prior Communication and Order of Preference"), nothing in this Agreement or any SOW or WA shall be construed to grant any title or rights of ownership of the Microcode to Buyer, and that Supplier owns and shall continue to own all right, title and interest in the Microcode. 9.0 INDEMNIFICATION 9.1 GENERAL INDEMNIFICATION: Supplier will defend, hold harmless and indemnify, including attorney's fees, Buyer and Buyer Personnel against claims that arise or are alleged to have arisen as a result of negligent or intentional acts or omissions of Supplier or Supplier Personnel in performing its obligations under this Agreement. 9.2 INTELLECTUAL PROPERTY INDEMNIFICATION: Supplier will defend, hold harmless and indemnify, including attorney's fees, Buyer and Buyer Personnel from claims that Supplier's Products or Services infringe the intellectual property rights of a third party. If such a claim is or is likely to be made, Supplier will, at its option: (i) obtain for Buyer the right to continue to use and sell the Products and Services consistent with this Agreement; (ii) modify the Products and Services so they are non-infringing and in compliance with this Agreement; or (iii) replace the Products and Services with non-infringing ones that comply with this Agreement. In the event that none of the options in the preceding sentence are commercially practical, at Buyer's request, Supplier shall accept the cancellation of infringing Services and/or the return of infringing Products, and refund to Buyer the amounts paid in respect of such infringing Services and/or infringing Products. 9.3 EXCEPTIONS TO INDEMNIFICATION: Supplier will have no obligation to indemnify Buyer or Buyer Personnel for claims that Supplier's Products or Services infringe the intellectual property rights of a third party to the extent such claims arise as a result of: (i) Buyer's combination of Products or Services with products or services not authorized by Supplier or approved for use with the Products; (ii) Supplier's implementation of a Buyer originated design; or (iii) Buyer's unauthorized modification of the Products. Supplier will have no obligation to indemnify Buyer or Buyer Personnel for any claim under this Section 9 unless Buyer has promptly notified Supplier of such claim, has provided Supplier with reasonable assistance in defending any such claim and has allowed Supplier to have sole control over the defense and settlement, if applicable, of any such claim. Notwithstanding the foregoing, Buyer shall have the right, at Buyer's expense, to retain counsel and assist in the defense of any such claim. EXHIBIT 10.24 GOODS AGREEMENT 10.0 LIMITATION OF LIABILITY: 10.1 LIMITATION: Except for liability under the Section entitled Indemnification and the SubSection entitled Epidemic Defects, in no event will either party be liable to the other for any lost revenues, lost profits, incidental, indirect, consequential, special or punitive damages, whether or not such party was informed of the possibility of such damages. 10.2 LIABILITY CAP: Except for liability under Section 9.0 ("Indemnification"), Supplier's liability for all claims, however caused and on any theory of liability arising out of this Agreement, shall in no event exceed an amount equal [*] of the total purchase revenue actually received by Buyer in respect of the affected Products in the [*] immediately preceding the event giving rise to such damages or [*], whichever is greater. 11.0 SUPPLIER AND SUPPLIER PERSONNEL: Supplier is an independent contractor and this Agreement does not create an agency relationship between Buyer and Supplier or Buyer and Supplier Personnel. Buyer assumes no liability or responsibility for Supplier Personnel. Supplier will: (i) ensure it and Supplier Personnel are in compliance with all laws, regulations, ordinances, and licensing requirements; (ii) be responsible for the supervision, control, compensation, withholdings, health and safety of Supplier Personnel; (iii) ensure Supplier Personnel performing Services on Buyer's premises comply with the On Premises Guidelines, which will be provided to Supplier; and (iv) to the best of Supplier's knowledge, inform Buyer if a former employee of Buyer will be assigned work under this Agreement, such assignment subject to Buyer approval. 12.0 ELECTRONIC COMMERCE: The parties will use commercially reasonable efforts to establish procedures that would enable the parties to conduct transactions using an electronic commerce approach under which the parties will electronically transmit and receive legally binding purchase and sale obligations ("Documents"), including electronic credit entries transmitted by Buyer to the Supplier account specified in the relevant SOW. Each party, at its own expense, will provide and maintain the equipment, software, services and testing necessary for it to effectively and reliably transmit and receive such Documents. Either party may use a third party service provider for network services, provided the other party is given sixty (60) days prior written notice of any changes to such services. A Document will be deemed received upon arrival at the receiving party's mailbox or Internet address and the receiving party will promptly send an acknowledgment of receipt of such Document from the receiving party. The receiving party will promptly notify the originating party if a Document is received in an unintelligible form, provided that the originating * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT 10.24 GOODS AGREEMENT party can be identified. In the absence of receiving party's acknowledgment of a given Document, the originating party will be obligated to re-send the Document until such time as it receives an acknowledgment that the Document has been received by the receiving party as set forth above. Each party will authenticate Documents using a digital signature or User ID mutually agreed by the parties, and will maintain security procedures to prevent its unauthorized use. 13.0 RECORDKEEPING AND AUDIT RIGHTS: Supplier will maintain (and provide to Buyer upon reasonable notice and frequency to Supplier) relevant accounting records to support invoices under this Agreement for three (3) years following completion or termination of the relevant SOW. All accounting records will be maintained in accordance with generally accepted accounting principles. 14.0 GENERAL 14.1 AMENDMENTS: This Agreement may only be amended by a writing specifically referencing this Agreement which has been signed by authorized representatives of the parties. 14.2 ASSIGNMENT: Neither party will assign their rights or delegate or subcontract their duties under this Agreement to third parties or affiliates without the prior written consent of the other party, such consent not to be withheld unreasonably, except that Buyer may assign this Agreement in conjunction with the sale of a substantial part of its business utilizing this Agreement. Any unauthorized assignment of this Agreement is void. 14.3 CHOICE OF LAW AND FORUM; WAIVER OF JURY TRIAL; LIMITATION OF ACTION: This Agreement and the performance of transactions under this Agreement will be governed by the laws of the country in which the transaction is performed, except that the laws of the State of New York applicable to contracts executed in and performed entirely within that State will apply if any part of the transaction is performed within the United States. The parties expressly waive any right to a jury trial regarding disputes related to this Agreement. Unless otherwise provided by local law without the possibility of contractual waiver or limitation, any legal or other action related to this Agreement must be commenced no later than two (2) years from the date on which the claim of action arose. The parties expressly disclaim the applicability of the United Nations Convention on the International Sale of Goods (CISG). 14.4 COMMUNICATIONS: All communications between the parties regarding this Agreement will be conducted through the parties' representatives as specified in the relevant SOW. Supplier will use reasonable efforts to participate in replenishment logistics programs presented by Buyer. EXHIBIT 10.24 GOODS AGREEMENT 14.5 COUNTERPARTS: This Agreement may be signed in one or more counterparts, each of which will be deemed to be an original and all of which when taken together will constitute the same agreement. Any copy of this Agreement made by reliable means is considered an original. 14.6 EXCHANGE OF INFORMATION: Unless required otherwise by law, all information exchanged by the parties will be considered non-confidential. If the parties require the exchange of confidential information, such exchange will be made under the Confidential Disclosure Agreement (CDA) #OEM99026 dated February 2, 1999 and any Supplements thereto which have been signed or which may be signed in the future. The parties will not publicize the terms or conditions of this Agreement in any advertising, marketing or promotional materials except as may be required by law, provided the party publicizing obtains any confidentiality treatment available. Supplier will use information regarding this Agreement only in the performance of this Agreement. 14.7 FREEDOM OF ACTION: This Agreement is nonexclusive and either party may design, develop, manufacture, acquire or market competitive products or services. Buyer will independently establish prices for resale of Products or Services and is not obligated to announce or market any Products or Services and does not guarantee the success of its marketing efforts, if any. 14.8 FORCE MAJEURE: Neither party will be in default or liable for any delay or failure to comply with this Agreement due to any cause beyond the control of the affected party, excluding labor disputes, provided such party promptly notifies the other. 14.9 OBLIGATIONS OF AFFILIATES: Affiliates will acknowledge acceptance of the terms and conditions of this Agreement through the signing of a PA before conducting any transaction under this Agreement. 14.10 PRIOR COMMUNICATIONS AND ORDER OF PRECEDENCE: This Agreement replaces any prior or contemporaneous oral or written agreements or other communication between the parties with respect to the subject matter of this Agreement, excluding any confidential disclosure agreements. In the event of any conflict in these documents, the order of precedence will be: (i) the quantity, delivery location and method of shipment of Products ordered under a WA; (ii) the relevant SOW; (iii) the relevant PA; (iv) this Agreement. 14.11 SEVERABILITY: If any term in this Agreement is found by competent judicial authority to be unenforceable in any respect, the validity of the remainder of this Agreement will be unaffected, provided that such unenforceability does not materially affect the parties' rights under this Agreement. 14.12 SURVIVAL: The provisions set forth in the following Sections and Subsections of this Agreement will survive after termination of this Agreement and will remain in effect until fulfilled: SubSection 6.1 ("Ongoing Warranties"), SubSection 6.2 ("Warranty Redemption"), Section 8.0 ("Intellectual Property"), Section 9.0 ("Indemnification"), Section 10.0 ("Limitation of EXHIBIT 10.24 GOODS AGREEMENT Liability"), Section 13.0 ("Record Keeping and Audit Rights"), SubSection 14.3 ("Choice of Law and Forum; Waiver of Jury Trial; Limitation of Action"), SubSection 14.6 ("Exchange of Information") and SubSection 14.10 ("Prior Communications and Order of Precedence"). 14.13 WAIVER: An effective waiver under this Agreement must be in writing signed by the party waiving its right. A waiver by either party of any instance of the other party's noncompliance with any obligation or responsibility under this Agreement will not be deemed a waiver of subsequent instances. EXHIBIT 10.24 GOODS AGREEMENT AGREEMENT # ROC-P-68

EX-10.25 6 f78518ex10-25.txt EXHIBIT 10.25 Exhibit 10.25 [IBM LOGO] 5600 Cottle Road San Jose, CA 95193 0001 August 6, 2001 Mr. Patrick Johnston OEM Sales Executive Brocade Communications Systems, Inc. 1901 Guadalupe Parkway San Jose, CA 95131 Subject: Amendment 1 to IBM/Brocade Goods Agreement ROC-P-68 Dear Patrick: This letter serves as Amendment Number 1 to Goods Agreement ROC-P-68 (the "Agreement") which the parties hereto do mutually agree to amend as follows: 1. Modify the first paragraph to read as follows: "This Agreement dated as of April 15, 1999 ("Effective Date"), between International Business Machines Corporation ("Buyer"), and Brocade Communications Systems, Inc., establishes the basis for a multinational procurement relationship under which Buyer may purchase from Supplier the Products and Services which are described in SOWs issued under this Agreement." 2. Section 14.6, Exchange of Information, delete the third sentence in its entirety and replace with the following: "Neither party will issue any press releases, public statements, or publicly disclose the existence of or the terms contained in this Agreement unless they have received the prior written approval of the other party. The foregoing shall not prohibit either party from disclosing such information if required by law or regulation provided they notify the other party prior to such disclosure in order to provide the other party with opportunity to seek an appropriate protective order." Please have your authorized representative indicate acceptance thereof by signing both copies of the Amendment and returning one copy to the attention of Karen Takahashi at 5600 Cottle Road, San Jose, California 95193. The effective date of this Amendment shall be the date on the top of this Amendment (the "Effective Date"). The terms and conditions of this Agreement, as amended hereunder, shall apply to all activities performed under the Agreement after the Effective Date. All activities performed under this Agreement prior to the Effective Date shall be governed by the terms and conditions of the then-current Agreement. The parties acknowledge that they have read this Amendment, understand it, and agree to be bound by its terms and conditions. All capitalized terms not defined herein shall have the meaning set forth in the Agreement. All other terms and conditions of the Agreement that are Exhibit 10.25 unaffected by the revisions described in this amendment shall remain in full force and effect. Further, they agree that this Amendment and the subject Agreement are the complete and exclusive statement of the agreement between the parties, superseding all proposals or other prior agreement, oral or written, and all other communications between the parties relating to this subject. ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO: INTERNATIONAL BUSINESS MACHINES CORPORATION BROCADE COMMUNICATIONS SYSTEMS, INC. By: _______________________________________ By: _______________________________________ Authorized Signature Date Authorized Signature Date ___________________________________________ ___________________________________________ Type or Print Name Type or Print Name ___________________________________________ ___________________________________________ Title & Organization Title & Organization

EX-10.26 7 f78518ex10-26.txt EXHIBIT 10.26 EXHIBIT 10.26 GOODS AGREEMENT STATEMENT OF WORK #1 This Statement of Work ("SOW") #1 adopts and incorporates by reference the terms and conditions of Goods Agreement # ROC-P-68 ("Agreement") between International Business Machines Corporation ("Buyer") and Brocade Communications Systems, Inc. ("Supplier"). Transactions performed under this SOW will be conducted in accordance with and be subject to the terms and conditions of this SOW and the Agreement. The term of this SOW #1 shall be effective from April 15, 1999 to December 31, 2001. Unless otherwise provided, capitalized terms shall have the meaning as set forth in the Agreement. 1.0 PRODUCT DESCRIPTION Except as provided in the next sentence, while this SOW is in effect, Buyer agrees to [*] IBM-logoed versions of 8-port and 16-port fibre channel switches from Supplier through [*] provided, however, that Supplier remain price competitive and meet the agreed to quality, schedule and supply requirements specified in this Agreement. Notwithstanding anything to the contrary, the parties agree that this [*]. 1.1 SPECIFICATIONS:
- --------------------------------------------------------------------------------------------------- IBM SPECIFICATION ENGINEERING DESCRIPTION (IF APPLICABLE) CHANGE LEVEL - --------------------------------------------------------------------------------------------------- [*] Version 1.0 Silkworm 2000 Family Product Specification 90-0000001-01 - --------------------------------------------------------------------------------------------------- [*] Dated 6/10/99 IBM Quality Specification - --------------------------------------------------------------------------------------------------- [*] Version 10 Packaging and Materials Handling Specification - --------------------------------------------------------------------------------------------------- [*] Version 2.0 Brocade Fabric OS Publication 53-0001487-03 - --------------------------------------------------------------------------------------------------- [*] Version 2.1 Brocade WebTools Reference Manual Publication 53-0001490-02 - --------------------------------------------------------------------------------------------------- [*] Version 2.0 Brocade Zoning Reference Manual Publication 53-0001488-02 - ---------------------------------------------------------------------------------------------------
1.2 CERTIFICATIONS: Certifications are as defined in the Product Specification referenced in Section 1.1. Supplier is responsible (at its cost) for obtaining Supplier's standard agency approvals as set forth above. Should Buyer require multiple listing registration of such agency approvals, Supplier will assist Buyer, at Buyer's cost. Cost of any unique or incremental listings will be at Buyer's expense. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT AGREEMENT# ROC-P-68 STATEMENT OF WORK SOW #1 2.0 PART NUMBERS, PRICES AND OTHER TERMS 2.1 PRICING:
- ----------------------------------------------------------------------------------------------------- IBM P/N Brocade P/N Description Unit Price - ----------------------------------------------------------------------------------------------------- [*] IB-2401-xxxx 8 Port Fibre Channel Switch, Single Power Supply [*] (includes Web Tools and Zoning) - whole unit switch Product - ----------------------------------------------------------------------------------------------------- [*] IB-2801-xxxx 16 Port Fibre Channel Switch, Single Power Supply [*] (includes Web Tools and Zoning) - whole unit switch Product - ----------------------------------------------------------------------------------------------------- [*] XIB-xxxxxx SilkWorm 2000 Power Supply [*] - ----------------------------------------------------------------------------------------------------- [*] XIB-xxxxxx Mainboard, SW 2400 (8-port) [*] - ----------------------------------------------------------------------------------------------------- [*] XIB-xxxxxx Fan Tray, SW 2400 (8-port) [*] - ----------------------------------------------------------------------------------------------------- [*] XIB-xxxxxx Chassis, SW 2400 (8-port) [*] - ----------------------------------------------------------------------------------------------------- [*] XIB-xxxxxx Mainboard, SW 2800 (16-port) [*] - ----------------------------------------------------------------------------------------------------- [*] XIB-xxxxxx Fan Tray, SW 2800 (16-port) [*] - ----------------------------------------------------------------------------------------------------- [*] XIB-xxxxxx Chassis, SW 2800 (16-port) with operator panel/LCD [*] - -----------------------------------------------------------------------------------------------------
All prices are in U.S. dollars. If Buyer purchases [*] assembled whole unit switch Products in any combination in any given quarter, Supplier will issue to Buyer a [*] of the actual amounts paid by Buyer to Supplier in respect of such Products during such quarter. If Buyer purchases [*] assembled whole unit switch Products in any combination in any given quarter, Supplier will issue to Buyer a [*] of the actual amounts paid by Buyer to Supplier in respect of such Products during such quarter. Certified Service Part (CSP) in warranty unit price is [*]. CSP post warranty unit price is as stated in Section 9.3 "Post Warranty Services" under Pricing. The parties agree to meet as required from time to time, but not more often than once each quarter, to discuss any changes in market conditions and if warranted, agree to negotiate in good faith any price adjustments necessary to have the Products remain competitive. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT AGREEMENT# ROC-P-68 STATEMENT OF WORK SOW #1 2.2 PAYMENT TERMS: Terms for payment on all invoices will be net [*] days from receipt of an acceptable invoice by Buyer, unless processed through Electronic Data Interchange (EDI). EDI invoices received at Buyer from the 1st-15th of the month will be paid on [*]; received at Buyer from the 15th-last day of the month will be paid on [*]. 2.3 TAXES AND DUTIES: Product prices are exclusive of all taxes. Buyer shall be responsible for all taxes that may be levied as a result of the sale of any Product sold under this Agreement, unless Supplier receives a valid tax exemption certificate from Buyer. Supplier will be responsible for all legal, regulatory and administrative requirements associated with importation of Products into the United States and the payment of all associated duties, taxes and fees. 2.4 LEAD TIME: With the exception of the initial volume order of Products, for which the lead time shall be [*] Days, the Product lead time is [*] Days prior to Delivery date. 2.5 SUPPLY OF PRODUCTS: Supplier shall deliver Products as specified in WAs. Notwithstanding any other provision of this Agreement (except force majeure), if due to a shortage Supplier is unable to deliver Products as specified in WAs, Supplier will give Buyer prompt written notice of such inability to deliver Products along with an estimate of the duration of such shortage. During such shortage period, the parties agree that Supplier will use an allocation method for fulfilling Buyer's WAs providing Buyer, at a minimum, an equivalent share of available capacity. If Supplier fails to correct such inability to supply Product or fails to develop a plan, acceptable to Buyer, to correct such inability to supply Product within [*] days, Buyer will have the right to cancel such WA(s) or portions thereof by written notice. If Buyer cancels WAs under this Subsection 2.5, Buyer's only obligation is to pay for Products already delivered at the time of Buyer's cancellation notice. If Buyer elects not to cancel WAs or portions thereof under this Subsection 2.5 in the event Supplier notifies Buyer that the agreed to Delivery will not be met, Supplier agrees to discount the price of Products appearing on such WAs by [*] if such Products are delivered more than thirty (30) days after the agreed to Delivery. Should Supplier's inability to supply Product extend beyond [*] days, the parties agree that: a) the provision under Section 1.0 of this SOW no longer applies and Buyer, at its sole discretion, shall have the right to purchase from third parties any quantity(ies) of IBM-logoed 8-port and 16-port fibre channel switches, without limitations. 2.6 DELIVERY: Delivery means delivery of Products to a carrier designated by Buyer, F.O.B. Supplier's contracted manufacturer's (Solectron) Milpitas, California facility. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT AGREEMENT# ROC-P-68 STATEMENT OF WORK SOW #1 2.7 COUNTRY OF ORIGIN: Supplier certifies the Products purchased hereunder have the country of origin of the U.S.A., as provided under applicable United States law as regulations. If there are any changes to this information. Supplier will notify Buyer by providing a new country of origin certification signed by an authorized Supplier representative before shipping any Products other than those with the country of origin listed above. Supplier acknowledges that Buyer will rely upon this certification in making representations to Buyer customers and to comply with various laws and regulations. 2.8 ACCEPTANCE TERM: Buyer will inspect each delivery of Products and perform those tests it deems necessary to determine if the Products conform to the applicable specifications. Acceptance period is [*] days from the date of receipt by Buyer. Buyer shall be deemed to have accepted the Products only in the event that; (i) Buyer fails to accept or reject the Products on or before the expiration of the [*]day expiration period, (ii) accepts the Products in writing, or (iii) delivers the Products to any customer of Buyer. Buyer's acceptance of any Product shall in no way negate any warranty provided under this SOW or the Agreement, and Buyer's remedy in the event of nonacceptance is a warranty return of such Product pursuant to Section 6.0 of the Goods Agreement. Verified line fallouts from Buyer that have been returned to Supplier for repair and test No Trouble Found (NTF) will not be returned to Buyer. 2.9 WARRANTY PERIOD: Product warranty period is [*] months from the date of shipment. 2.10 NOTICE OF PRODUCT WITHDRAW: Supplier will provide Buyer with [*] written notice of its intent to withdraw any Product ("End of Life" or "EOL") prior to the last date of manufacture of a Product, and Buyer may order such Products up to [*] days prior to the last date of manufacture. Subject to Product availability, Supplier will accept orders for Products which have been notified for EOL for an additional [*] after the last date of manufacture. 2.11 EPIDEMIC DEFECT RATE: The Epidemic Defect Rate is defined as [*] times the Normal Annualized Failure Rate for the same or similar defect. 3.0 RESCHEDULING/CANCELLATION The ordering location may reschedule the Delivery Date of any undelivered Product multiple times without incurring a charge by giving notice to Supplier in accordance with the table below. Any such rescheduled date will not exceed the originally scheduled Delivery Date by more than 3 months or fall outside of Supplier's current fiscal quarter, whichever is less. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT AGREEMENT# ROC-P-68 STATEMENT OF WORK SOW #1
- ----------------------------------------------------------------------------------------------------- MINIMUM DAYS NOTICE PRIOR TO DELIVERY DATE TO: - ----------------------------------------------------------------------------------------------------- NUMBER OF DAYS PRIOR TO DELIVERY RESCHEDULE CANCEL WITHOUT CHANGE DELIVERY DELIVER EARLY DATE WITHOUT CHARGE CHARGE POINT - ----------------------------------------------------------------------------------------------------- 0-15 Days [*] [*] 2 day notice 1 day - ----------------------------------------------------------------------------------------------------- [*] Days [*] [*] 2 day notice 1 day - ----------------------------------------------------------------------------------------------------- [*] Days [*] [*] 2 day notice 1 day - -----------------------------------------------------------------------------------------------------
SUPPLIER AGREES TO PROCURE MATERIAL AND SUBASSEMBLIES ABOVE BUYER'S FORECAST TO ENABLE UPSIDE IN THE [*] Day window. Buyer has no liability for forecasted volumes except as stated herein. In the event (i) Buyer cancels orders scheduled out [*] Days or later, (ii) terminates the SOW without cause or, (iii) terminates the SOW for not meeting unforecasted demand, then the Buyer shall have liability for [*] Days worth of the actual Buyer-unique material and volumes (not to exceed one hundred percent (100%) of forecast). Supplier shall use commercially reasonable efforts to mitigate Buyer's liability under this Subsection by, among other actions, returning to its supplier's , selling to others or otherwise using the canceled Products (including raw materials or works in process) within the [*] days following the cancellation or termination event. 4.0 REPLENISHMENT LOGISTICS ATTACHMENT Supplier agrees to negotiate in good faith to establish the terms and conditions under which the parties would enter into a Replenishment Logistics Attachment for the Products, which will be incorporated into this Agreement when signed by both parties. 5.0 DOCUMENTATION "Documentation" shall mean the OEM Manual and the Users Guide (attached) which Supplier generally makes available to its customers containing descriptive, operating, installation, engineering and maintenance information for Products, as such documents may be amended from time to time and any updates, modifications and enhancements made to them, during the term of this SOW. Supplier shall provide Buyer with a master copy and one copy of all Documentation for each Product, in both hardcopy format and electronic format, suitable for dissemination by Buyer. Solely in conjunction with Buyer's sale, installation, service and support of Products purchased under this Agreement, Supplier grants Buyer a nonexclusive, royalty-free right and license to copy, use, modify, translate and otherwise prepare derivative works of the Documentation and distribute the Documentation and derivative works to its customers, provided that Buyer keep Supplier's copyright and other proprietary notices as may appear on such Documentation and refrain from doing anything that would jeopardize Supplier's proprietary and other rights in the Documentation. Should Buyer require Supplier to make modifications to said Documentation, the cost will be at Buyer's expense. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT AGREEMENT# ROC-P-68 STATEMENT OF WORK SOW #1 6.0 ENGINEERING CHANGES: Engineering Changes shall not be applied to any Product under this Agreement unless implementation is conducted in accordance with the following engineering process: Supplier Changes: Supplier will notify Buyer (through the Technical Coordinator) of any engineering change proposed to be made by Supplier to the Product and will supply Buyer with a written description of the anticipated effect the engineering change will have on the Product, including price (savings), performance, reliability, serviceability, manufacturability and any cost impact to Buyer as a result of the implementation of the engineering change. Buyer has the right to approve or disapprove of such engineering change, which approval shall not be unreasonably withheld. Buyer may elect to evaluate and test the prototype, parts and/or designs specified as part of the proposed change and Supplier shall provide such parts to Buyer at no charge for such evaluation and testing. Buyer (through the Technical Coordinator) shall approve or disapprove Supplier proposed changes within 30 Days of receipt of a written request, except for changes required to satisfy governmental standards or safety for which Buyer shall respond within five (5) business days, unless extended by mutual consent. Failure to respond shall be deemed to be Buyer's acceptance of such proposed change. If such change affects price, the Buyer Business Coordinator must also provide approval. If Buyer approves the engineering change, the Product Specification and unit pricing will be amended as required. Buyer will not unreasonably refuse to approve Supplier's engineering changes into the Product. If the Buyer requires more then five (5) business days to approve a change that Supplier has proposed to guarantee the continuity of supply, the [*] price reduction provision in Section 2.5 and the termination of the [*] provision in Section 1.0 shall be extended by the number of additional days that it takes Supplier to receive Buyer's approval for such change. Buyer Changes: Buyer may request in writing (through the Technical Coordinator) that Supplier incorporate an engineering change into the Product. Such request will include a description of the proposed change sufficient to permit Supplier to evaluate its feasibility. Within 30 Days of such request (or extended by mutual consent), Supplier will advise Buyer of the conditions under which it would make the engineering change. Supplier's evaluation will be in writing and will state the increase or decrease price adjustment (if any) and the effect on the performance, reliability, safety, appearance, dimensions, tolerances, manufacturability and serviceability of the Product. Buyer's Technical Coordinator shall approve or disapprove the engineering change based on Supplier's written evaluation. If such change affects price, the Buyer's Business Coordinator must provide approval prior to implementation. If Buyer approves the engineering change, the Product Specification and unit pricing will be amended as required. Supplier will not unreasonably refuse to incorporate Buyer's engineering changes into the Product. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT AGREEMENT# ROC-P-68 STATEMENT OF WORK SOW #1 In the event a change/improvement initiated by either party shall result in a cost decrease, it is understood and agreed the parties shall mutually agree to a price decrease effective immediately upon complete implementation of such change/improvement. 7.0 DISASTER RECOVERY PLAN Supplier shall maintain throughout the term of this SOW a formal disaster recovery plan which covers Supplier's ability to continue Product shipment and maintain contracted commitments in the event of a disaster. 8.0 MANUFACTURING RIGHTS: 8.1 CESSATION OF PRODUCT BUSINESS: If, during the term of this Agreement: [*] (each such event shall hereafter referred to as a "Trigger Event"). Buyer shall notify Supplier in writing if Buyer is aware or becomes aware of the occurrence of such a Trigger Event, or Supplier shall notify Buyer in writing if Supplier is aware or becomes aware of the occurrence of such a Trigger Event, and Supplier shall have [*] days after the date of such written notification or from the date of the occurrence of such a Trigger Event in which to remedy such condition or conditions, or such longer period as is mutually agreed to by the parties in writing (hereafter referred to as the "Cure Period"). 8.2 ELECTION OF REMEDIES BY BUYER: If Supplier is unable to remedy the Trigger Event during the Cure Period, within [*] days after the end of the Cure Period, Buyer shall select one of the following options to ensure an adequate supply of 8-port and 16-port fibre channel switches: (i) exercise the right to manufacture (or have manufactured) Products pursuant to Sections 8.3 through 8.6 inclusive, or (ii) purchase 8-port and 16-port fibre channel switches from third parties. If Buyer fails to provide Supplier with written notice of such election within such [*] day period, the parties agree that Buyer will be deemed to have selected option (ii) of this Section 8.2. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT AGREEMENT# ROC-P-68 STATEMENT OF WORK SOW #1 8.3 KNOW-HOW TRANSFER: If Buyer selects the right to manufacture (or have manufactured) pursuant to option (i) in Section 8.2 above, Supplier will promptly deliver to Buyer the following "Manufacturing Assistance Items": [*]. These Manufacturing Assistance Items are to be provided by Supplier in order to enable Buyer to make or have made Products and/or Spare Parts. In addition, Supplier shall, upon Buyer's request and payment by Buyer of Supplier's then-current standard rates therefor, provide such technical assistance as may be reasonably requested to enable Buyer to make or have a third party make Products and/or Spare Parts, subject to the reasonable availability of Supplier personnel. Nothing contained herein shall obligate Supplier to disclose to Buyer any confidential information of a third party, the disclosure of which requires permission of such third party, provided that Supplier agrees to use commercially reasonable efforts to obtain such permission if such confidential information is necessary for Buyer to make or have made Products and/or Spare Parts. All Manufacturing Assistance Items and non-public information of any kind that is required to produce the Products and Spare Parts, whether in written or oral form ("Supplier Confidential Information") shall be deemed to be confidential to Supplier and shall not be disclosed to any employee or agent without a need to know such information to manufacture the Products and Spare Parts as authorized in Section 8.4 below, both during the term of this SOW and thereafter. Buyer shall ensure that it has obtained or will obtain from its employees and agents, and the employees and agents of its Subsidiaries and authorized third parties, who will receive Supplier Confidential Information a written agreement to hold such Supplier Confidential Information in confidence and to use the same care and discretion to avoid disclosure of such information as Buyer uses with its own similar information which it does not wish to disclose, but in no event less than commercially reasonable measures to protect such information. All such Supplier Confidential Information shall be maintained in a locked facility accessible only by authorized personnel. 8.4 RIGHT TO MANUFACTURE: If Buyer selects the right to manufacture (or have manufactured) pursuant to option (i) in Section 8.2 above, Supplier will grant to Buyer a non-exclusive, non-assignable, royalty-free, worldwide license under all Supplier's and Supplier's Subsidiaries' patents, copyrights, mask work rights, and trade secrets and all information, such license being sufficient to allow Buyer to use the Manufacturing Assistance Items and other information provided by Supplier pursuant to Subsection 8.3 above (the "Manufacturing Know-How") and to make, have made, use, lease and/or sell Products, successor Products and/or Spare Parts, together with the right of Buyer to sublicense to its Subsidiaries or a third party to make, have made, use, lease and/or sell Products, successor Products and/or Spare Parts, subject to the limitation set forth in Section 8.5 below ("Limited Manufacturing License"). Unless earlier terminated as set forth in Section 8.5 below, except with * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT AGREEMENT# ROC-P-68 STATEMENT OF WORK SOW #1 respect to existing Products or Spare Parts that are being manufactured on or after such time and except as specified in the next sentence, Supplier acknowledges and agrees that the Limited Manufacturing License granted under this Section 8.4 shall immediately terminate on December 31, 2001. Notwithstanding the foregoing, as to successor Products, Supplier agrees that provided Buyer has used commercially reasonable efforts to discontinue the use of Supplier's Confidential Information after the termination of the Limited Manufacturing License, Supplier hereby grants to Buyer an immunity from suit with respect to the usage of any Supplier Confidential Information that has been mentally retained in the unaided memory of the employees and agents of Buyer, its Subsidiaries and any third parties authorized by Buyer and its Subsidiaries. 8.5 TERMINATION OF MANUFACTURING RIGHTS: If Buyer selects the right to manufacture (or have manufactured) pursuant to option (i) in Section 8.2 above, and, during the term of Limited Manufacturing License, begins to make substantial volume purchases of any 8-port or 16-port fibre channel switches from any third party, the parties agree that the Limited Manufacturing License granted to Buyer under Section 8.4 shall terminate effective two (2) months after the commencement of any such substantial volume purchases. Upon any termination of the Limited Manufacturing License, Buyer shall use commercially reasonable efforts to return to Supplier or destroy all Supplier Confidential Information to Supplier, retaining no copies in any tangible form or medium, and provide to Supplier a certificate from a Buyer executive attesting to such fact. 8.6 CANCELLATION OF PURCHASE ORDER(s) (WAs): Upon the date of the transfer of "Manufacturing Assistance Items" under Subsection 8.3 above, any WAs of Buyer for Products issued by Buyer on or after the date of any of the Trigger Events, may be canceled by Buyer, by a written notice to Supplier, and Buyer will have no further obligations thereunder except Buyer's obligations in connection with acceptable Products already delivered prior to such cancellation, including but not limited to, payment obligations for such delivered Products, unless otherwise agreed to by the parties. 9.0 SUPPLIER SERVICES 9.1 PRODUCT REPAIR - FIELD FAILURES: The Certified Service Part (CSP) document (attached) outlines the Buyer requirements of Supplier to bring a field returned, used Product to a level that qualifies the Product as a CSP. Supplier agrees to repair and/or upgrade field returned, used Products in accordance with this CSP document. 9.2 NO TROUBLE FOUND (NTF) CHARGES: Buyer agrees to test and verify suspected faults in failed Products before returning such parts to Supplier. Supplier agrees to reasonably assist Buyer in the development and documentation of testing and verification methods that will be used by Buyer for this purpose. Supplier may request charges for verified NTF Products that exceed the mutually agreed to percentage of the total quantity of Product returned to Supplier GOODS AGREEMENT AGREEMENT# ROC-P-68 STATEMENT OF WORK SOW #1 over the previous [*] days. In the event Buyer is charged for a NTF Product that is returned to Buyer and such Product continues to fail, Supplier agrees to reverify the failure in a similar configuration and to refund any NTF amounts paid by Buyer with respect thereto. 9.3 POST WARRANTY SERVICES Definitions: "Post Warranty Products" means Products for which the original warranty period has expired. "Turn Around Time" or "TAT" means the elapsed time from Products arriving at Supplier to shipment date back to Buyer. Availability: Supplier will maintain the capability to supply spare parts of Products ("Spare Parts") for a period of [*] after withdrawal of such Products as specified herein. Supplier may assign its rights to warranty replacement Spare Parts or EOL Spare Parts to an Buyer approved third party. Buyer will have no obligation to have any Products repaired by Supplier. Pricing: Post Warranty repair pricing for the mainboard shall be mutually agreed no later than December 31, 2000. Such pricing shall not exceed [*]. In the event Supplier determines, in good faith, that the mainboard is unrepairable, Buyer shall purchase a replacement FRU at the then-current FRU price. All other listed FRUs have been determined by Supplier to be non-repairable. Any change in this unit price shall be as mutually agreed upon by the Parties. Planning: Buyer may periodically issue not binding forecasts for post warranty repair service. The Supplier will implement an auditable process for Products sent to the Supplier for repair and Supplier will inform Buyer of receipt of Products from Buyer. Supplier will use commercially reasonable efforts to achieve a maximum Repair Yield and will inform Buyer if it is unable to achieve the Yield. Packaging and Delivery: The Products will be individually packaged and labeled according to Buyer specification GA-21-9261-10, unless specified otherwise agreed to. Packaging may be reused only with Buyer's written authorization. The terms of delivery for Products will be as stated under Section 2.5 (Delivery) and Supplier will notify Buyer of discrepancies between the shipping documents and received Products. The TAT for Serviced Products will be [*] after receipt of said Products, unless specified otherwise. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT AGREEMENT# ROC-P-68 STATEMENT OF WORK SOW #1 Materials: All Products and associated spares, including scrap materials, will be returned to the owning affiliate as specified in the relevant WA. Buyer may request a quarterly inventory report of AFR Products and associated spares or may designate a third party to conduct such activity. All consigned materials supplied on a consigned basis will remain property of Buyer and Supplier will provide a quarterly inventory report of such materials. Supplier will use all parts supplied by Buyer solely for the performance of this Agreement unless otherwise agreed. Repair Warranty: For a period of [*] or the remainder of the original warranty period for the Product, whichever is longer, from the date of repaired Product is Delivered to Buyer, Supplier will repair or replace Products, at Supplier's discretion, without charge if the Product fails to conform to the specifications specified in this SOW. The warranty period for repaired Post Warranty Products will be determined based on the out of warranty repair price listed under pricing in this Section. 9.4 TECHNICAL SUPPORT: Buyer will provide first and second level support for the Products to Buyer's end users. Supplier will provide third level support to Buyer (at no additional charge). Third level support includes (but is not limited to) emergency support (via pager) [*] basis for priority 1 issues. Supplier agrees to use commercially reasonable efforts to assist Buyer in solving problems within the following timeframes, based on notification of problem from Buyer: Severity 1 problem [*]; Severity 2 problem within [*]; Severity 3 and 4 problem within [*]. Routine support and problem logging, to be provided during normal business hours (Monday through Friday, 8:00 AM to 5:00 PM PST). Typical duties include, but are not limited to, providing reasonable levels of technical assistance to Buyer's support organization and timely delivery of determination and correction of a defect, error or other problem (including failure analysis) and associated documentation. In order to minimize Buyer's cost of maintenance services and technical support for Products, Supplier agrees to promptly provide and share with Buyer relevant failure and other technical information. Supplier will provide on-site technical support as mutually agreed at Buyer's designated facility to supplement and facilitate the qualification. 9.5 TRAINING: Supplier agrees to provide Buyer all current marketing and sales training materials. Supplier agrees to actively assist in the marketing and sales training of a reasonable number of Buyer personnel, such quantity to be mutually agreed to. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT AGREEMENT# ROC-P-68 STATEMENT OF WORK SOW #1 Technical training requested by Buyer will be made available by Supplier at its San Jose facility at Supplier's standard rates, as accepted and agreed to by Buyer. Buyer acknowledges that the materials distributed by the Supplier during the technical training are protected by copyright, and that the Buyer shall have no rights to reproduce such materials without the prior written consent of Supplier. 9.6 CESSATION OF POST-WARRANTY SERVICE: Should Supplier fail to provide post-warranty services as specified in the second paragraph of Section 9.3 ("Availability") or, during the term of this SOW, technical support as specified in Section 9.4 with respect to a Product that has been withdrawn as specified in this SOW, then Buyer shall notify Supplier if Buyer becomes aware of such occurrence and Supplier shall have thirty (30) days after the date of Buyer's notification in which to remedy such condition or conditions, or such longer period mutually agreed by the parties in writing. If an applicable failure by Supplier to provide services to Buyer is not remedied as specified in the preceding sentence, then Buyer may, upon written notice to Supplier, obtain from Supplier Manufacturing Assistance Items required to make or have made Spare Parts and to provide warranty and technical support services solely: (i) for the affected Product, (ii) under the terms of the Limited Manufacturing License set forth above in Section 8.4, and (iii) for the remainder of the [*] period specified in the second paragraph of Section 9.3 ("Availability"). Notwithstanding the foregoing, the parties agree that Supplier shall only be required to deliver to Buyer Supplier Confidential Information and Manufacturing Assistance Items which are strictly required for the manufacture of the Spare Parts and for Buyer's provision of warranty and technical support services for the affected Product, and that upon the termination of the Limited Manufacturing License with respect to such items, Buyer shall use commercially reasonable efforts to return to Supplier or destroy all Supplier Confidential Information, retaining no copies in any tangible form or medium, and provide to Supplier a certificate from a Buyer executive attesting to such fact 10.0 COMMUNICATIONS COORDINATORS All communications between the parties will be carried out through the following designated coordinators: * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT AGREEMENT# ROC-P-68 STATEMENT OF WORK SOW #1
- ---------------------------------------------------------------------------------------------------- BUSINESS COORDINATORS - ---------------------------------------------------------------------------------------------------- FOR SUPPLIER FOR BUYER - ---------------------------------------------------------------------------------------------------- Name Patrick Johnston Name Dave Froyum - ---------------------------------------------------------------------------------------------------- Address 1901 Guadalupe Parkway Address 3605 Highway 52 N. San Jose, CA 95131 Rochester, MN 55901 - ---------------------------------------------------------------------------------------------------- Phone 408-487-8193 Phone 507-253-2288 - ---------------------------------------------------------------------------------------------------- Fax 408-487-8091 Fax 507-253-2148 - ---------------------------------------------------------------------------------------------------- Email pjohnsto@brocade.com Email dbf@us.ibm.com - ---------------------------------------------------------------------------------------------------- LEGAL COORDINATORS - ---------------------------------------------------------------------------------------------------- FOR SUPPLIER FOR BUYER - ---------------------------------------------------------------------------------------------------- Name Michael Byrd Name Barb Tieskoetter - ---------------------------------------------------------------------------------------------------- Address 1901 Guadalupe Parkway Address 3605 Highway 52 N. San Jose, CA 95131 Rochester, MN 55901 - ---------------------------------------------------------------------------------------------------- Phone 408-487-8184 Phone 507-253-5603 - ---------------------------------------------------------------------------------------------------- Fax 408-487-8091 Fax 507-253-2148 - ---------------------------------------------------------------------------------------------------- Email mbyrd@brocade.com Email btiesko@us.ibm.com - ---------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- TECHNICAL COORDINATORS - ---------------------------------------------------------------------------------------------------- FOR SUPPLIER FOR BUYER - ---------------------------------------------------------------------------------------------------- Name Scott Jensen Name Earl Timmons - ---------------------------------------------------------------------------------------------------- Address 1901 Guadalupe Parkway Address 3605 Highway 52 N. San Jose, CA 95131 Rochester, MN 55901 - ---------------------------------------------------------------------------------------------------- Phone 408-487-8145 Phone 507-253-2379 - ---------------------------------------------------------------------------------------------------- Fax 408-487-8091 Fax 507-253-2800 - ---------------------------------------------------------------------------------------------------- Email sjensen@brocade.com Email etimmons@us.ibm.com - ----------------------------------------------------------------------------------------------------
EXHIBIT 10.26 GOODS AGREEMENT STATEMENT OF WORK #1 11.0 SURVIVAL: Any provisions of this Agreement which by their nature extend beyond its termination remain in effect until fulfilled, and apply to respective successors and assignees.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO: INTERNATIONAL BUSINESS MACHINES CORPORATION BROCADE COMMUNICATIONS SYSTEMS, INC. By: _______________________________________ By: _____________________________________ Authorized Signature Authorized Signature Date Date Jeffrey S. Mueller Charles Smith ___________________________________________ _________________________________________ Printed Name Printed Name Manager, Materials Operations Vice President, Worldwide Sales ___________________________________________ _________________________________________ Title & Organization Title & Organization
EX-10.27 8 f78518ex10-27.txt EXHIBIT 10.27 Exhibit 10.27 January 11, 2001 Brocade Communications Systems, Inc. 1901 Guadalupe Parkway San Jose, CA 95131 Attention: Mr. Patrick Johnston SUBJECT: AMENDMENT 3 TO SOW#1 OF THE IBM/BROCADE GOODS AGREEMENT ROC-P-68 Dear Patrick: This letter serves as Amendment Number 3 to SOW#1 of the Goods Agreement ROC-P-68 which the parties thereto do mutually agree to amend as follows: 1. Section 2.1, Pricing, delete pricing table in its entirety and replace with the following table:
- ------------------------------------------------------------------------------------------------- IBM P/N / NUMA-QP/N BROCADE P/N DESCRIPTION UNIT PRICE - ------------------------------------------------------------------------------------------------- [*] [*] 8-port Fibre Channel Switch [*] Single Power Supply (SW2400) Includes SES, Web tools, Zoning and Fabric Watch - whole unit switch Product - ------------------------------------------------------------------------------------------------- [*] [*] 16 Port Fibre Channel [*] Switch Single Power Supply (SW2800) Includes SES, Web tools, Zoning and Fabric Watch - whole unit switch Product - ------------------------------------------------------------------------------------------------- [*] [*] Silkworm 2000 Power Supply [*] - ------------------------------------------------------------------------------------------------- [*] [*] Mainboard, SW 2400 (8-port) [*] * See Below - ------------------------------------------------------------------------------------------------- [*] [*] Fan Tray, SW 2400 (8-port) [*] - ------------------------------------------------------------------------------------------------- [*] [*] Chassis, SW 2400 (8-port) [*] - ------------------------------------------------------------------------------------------------- [*] [*] Mainboard, SW 2800 (16-port) [*] * See Below - ------------------------------------------------------------------------------------------------- [*] [*] Fan Tray, SW 2800 [*] - -------------------------------------------------------------------------------------------------
* Certain information on this pages has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.
- ------------------------------------------------------------------------------------------------- IBM P/N / NUMA-QP/N BROCADE P/N DESCRIPTION UNIT PRICE - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- (16-port) - ------------------------------------------------------------------------------------------------- [*] [*] Chassis, SW 2800 (16-port) [*] with operator panel / LCD - ------------------------------------------------------------------------------------------------- [*] [*] Quick Loop License [*] - ------------------------------------------------------------------------------------------------- [*] [*] Fabric Watch License [*] - ------------------------------------------------------------------------------------------------- [*] [*] Extended Fabrics [*] - ------------------------------------------------------------------------------------------------- [*] [*] Remote Switch [*] - -------------------------------------------------------------------------------------------------
All prices are in U.S. dollars. 2. Section 2.1, Pricing, add the following sentence below the pricing table: * Buyer and Supplier will determine a [*] process to enable the firmware licenses that Buyer's end use customer is [*]on a Mainboard replaced during servicing." 3. Section 2.1, Pricing, delete in it entirety paragraphs one and two and replace with the following: "If Buyer purchases [*] Products in any combination [*], then Buyer will receive a [*] products [*]. If Buyer purchases [*] Products in any combination [*], then Buyer will receive a [*] products [*]." * Certain information on this pages has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. The parties acknowledge that they have read this Amendment, understand it, and agree to be bound by its terms and conditions. Further, they agree that this Amendment and the subject Agreement are the complete and exclusive statement of the agreement between the parties, superseding all proposals or other prior agreement, oral or written, and all other communications between the parties relating to this subject. Please have your authorized representative indicate acceptance thereof by signing both copies of the Amendment and returning one copy to the attention of Karen Takahashi at 5600 Cottle Road, San Jose, California 95193. ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO: INTERNATIONAL BUSINESS MACHINES CORPORATION BROCADE COMMUNICATIONS SYSTEMS, INC. By: By: --------------------------------------- --------------------------------------- Authorized Signature Authorized Signature --------------------------------------- --------------------------------------- Date Date --------------------------------------- --------------------------------------- Type or Print Name Type or Printed Name --------------------------------------- --------------------------------------- Title & Organization Title & Organization

* Certain information on this pages has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EX-10.28 9 f78518ex10-28.txt EXHIBIT 10.28 EXHIBIT 10.28 August 6, 2001 Brocade Communications Systems, Inc. 1901 Guadalupe Parkway San Jose, CA 95131 Attention: Mr. Patrick Johnston Subject: Amendment 4 to SOW#1 of the IBM/Brocade Goods Agreement ROC-P-68 Dear Patrick: This letter (the "Amendment") serves as Amendment Number 4 to SOW#1, including all amendments thereto ("SOW#1") of the Goods Agreement ROC-P-68, including all amendments thereto (the "Goods Agreement") which the parties hereto do mutually agree to amend as follows: 1. Modify the first sentence in the first paragraph of the SOW#1 to read as follows: "This Statement of Work ("SOW") #1 adopts and incorporated by reference the terms and conditions of the Goods Agreement # ROC-P-68 ("Agreement") between International Business Machines ("Buyer"), and Brocade Communications Systems, Inc." 2. Modify the third sentence in the first paragraph of the SOW#1 to read as follows: "The term of this SOW#1 shall be effective from April 15, 1999 to December 31, 2002." 3. Except for the pricing table in Section 2.1, any reference to "8-port and 16-port fibre channel switches" in the SOW#1 is modified to read "Product. 4. Section 1.0, "Product Description", delete in its entirety and replace with the following: "Except as provided in the next sentence, and for so long as this SOW is in effect, Buyer agrees to purchase from Supplier [*] its SAN cross-divisional Product Development Team or any successor group or groups [*] for IBM-logoed versions of 16-port and 32-port fibre channel switches provided, however, that Supplier's price to Buyer remains competitive with prices charged by others for comparable products (the term "competitive" meaning [*] of the then current fair market price of similar products of comparable functionality sold in comparable quantities to OEM Customers), and that switches provided by Supplier continue to meet the agreed to quality, schedule and supply requirements specified in this Agreement. [*] same issue as in the original 1999 agreement re: redacting the fact that this is a sole source agreement] * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT 10.28 5. Delete the table in Section 1.1, "Specifications," and replace with the following table:
- ----------------------------------------------------------------------------------------------- IBM SPECIFICATION/ATTACHMENTS ENGINEERING CHANGE LEVEL DESCRIPTION (IF APPLICABLE) - ----------------------------------------------------------------------------------------------- NA Version 1.0 SilkWorm 2000 Family Product Specification 90-0000001-01 - ----------------------------------------------------------------------------------------------- Attachment B Dated 8/06/2001 Supplier Quality Attachment - ----------------------------------------------------------------------------------------------- GA-219261-11 Version 10 Packaging and Materials Handling Specification - ----------------------------------------------------------------------------------------------- Attachment A Dated 10/17/00 IBM CSP Requirements - ----------------------------------------------------------------------------------------------- NA Version 2.0 Brocade Fabric OS Publication 53-0001487-03 - ----------------------------------------------------------------------------------------------- NA Version 2.1 Brocade WebTools Reference Manual Publication 53-0001490-02 - ----------------------------------------------------------------------------------------------- NA Version 2.0 Brocade Zoning Reference Manual Publication 53-0001488-02 - ----------------------------------------------------------------------------------------------- NA Version 1.0 SilkWorm 3800 Product Specification -- 90-0000077-01 - ----------------------------------------------------------------------------------------------- Version TBD SilkWorm 3900 Product Specification - TBD - ----------------------------------------------------------------------------------------------- Version TBD SilkWorm 3250 Product Specification - TBD - -----------------------------------------------------------------------------------------------
6. Delete first sentence in Section 2.5, "Supply of Products", in its entirety and replace with the following two sentences: "Supplier shall deliver Products as specified in WA's for forecasted orders. Unforecasted orders shall be subject to Supplier's acceptance in accordance with the [*] order acknowledgement period set forth in Section 2.0 of the Goods Agreement." 7. Add Section 1.4, "Quality Standards," to read as follows: 1.4.1 Supplier shall provide to Buyer applicable standard data and calculations that support the Products' ability to meet the quality standards set forth as Attachment B to this SOW #1. 1.4.2 Any of Supplier's contract manufacturers shall be approved to an ISO 9000 standard or higher. 1.4.3 Supplier shall perform failure analysis on all failed Products returned to Supplier. Upon determining the root cause of the failure, Supplier shall establish a corrective action plan to remove the Product defect. Buyer will assist Supplier with tracking all open failures and will work with Supplier to implement appropriate corrective action as reasonably determined necessary by Supplier. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT 10.28 8. Delete pricing table in its entirety Section 2.1, "Pricing," and replace with the following:
- ----------------------------------------------------------------------------------------------------- IBM P/N / NUMA-Q P/N BROCADE P/N DESCRIPTION UNIT PRICE -------------------- ----------- ----------- ---------- - ----------------------------------------------------------------------------------------------------- [*] [*] 8-Port Fibre Channel [*] Switch Single Power Supply (SW2400) Includes SES, Web tools, Zoning and Fabric Watch - whole unit switch Product - ----------------------------------------------------------------------------------------------------- [*] [*] 16 Port Fibre Channel [*] Switch Single Power Supply (SW2800) Includes SES, Web tools, Zoning and Fabric Watch - whole unit switch Product - ----------------------------------------------------------------------------------------------------- [*] [*] Silkworm 2000 Power Supply [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Mainboard, SW 2400 (8-port) [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Fan Tray, SW 2400 (8-port) [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Chassis, SW 2400 (8-port) [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Mainboard, SW 2800 [*] [*] (16-port) - ----------------------------------------------------------------------------------------------------- [*] [*] Fan Tray, SW 2800 (16-port) [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Chassis, SW 2800 [*] (16-port) with operator panel / LCD - ----------------------------------------------------------------------------------------------------- [*] [*] Quick Loop License [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Fabric Watch License [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Extended Fabrics [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Remote Switch [*] - ----------------------------------------------------------------------------------------------------- [*] [*] 16 Port Fibre Channel [*] Switch Single Power Supply (SW3800) Includes Web tools, Zoning and Fabric Watch - whole unit switch Product - ----------------------------------------------------------------------------------------------------- [*] 32 Port Fibre Channel [*] Switch Single Power Supply (SW3900) Includes SES, Web tools, Zoning and Fabric Watch - whole unit switch Product - -----------------------------------------------------------------------------------------------------
* Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT 10.28
- ----------------------------------------------------------------------------------------------------- [*] 8 Port Fibre Channel [*] Switch Single Power Supply (SW3250) Includes Web tools, Zoning and Fabric Watch -- whole unit switch Product - ----------------------------------------------------------------------------------------------------- [*] [*] Fan (SW3800) [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Power Supply (SW3800) [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Mainboard FRU (SW3800) [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Fan (SW3900) [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Power Supply (SW3900) [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Mainboard FRU (SW3900) [*] - ----------------------------------------------------------------------------------------------------- [*] [*] LUN Zoning [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Advanced Security [*] - ----------------------------------------------------------------------------------------------------- [*] [*] Enhanced Bundle [*] (Trunking and Performance Monitoring) - -----------------------------------------------------------------------------------------------------
All prices are in U.S. dollars. **Supplier shall provide Buyer with SW3900 Mainboard, Power Supply, and Fan pricing to be effective on the dates referenced in the above table in this Section 2.1 within [*] prior to Buyer's scheduled General Availability (GA) date of the SW3900 product and the parties shall mutually agree upon such prices within [*] following such provision. 9. Add the following sentence in the last paragraph of Section 2.1, "Pricing": "Supplier agrees to provide Buyer a minimum cost reduction (as a percentage of the then current price of the SilkWorm 3800 and 3900 integrated switch Products only) of [*] commencing September 1, 2002 and continuing through the term of this SOW #1." 10. Section 2.9, "Warranty Period", delete in its entirety and replace with the following: "Product warranty period is [*] from the date of shipment, except for Products identified as FRU's (Field Replacement Units) in Section 2.1 for which the warranty period will commence on the earlier of: (i) [*] from the date of shipment, or (ii) upon installation at a customer site; provided Buyer notifies Supplier in writing of the date the FRU is installed, the serial number of the switch the FRU is installed into, and the serial number of the defective FRU. Notwithstanding the foregoing, if Supplier fails to include a RMA field return form in a shipment of FRU's, Buyer shall be entitled to the extended warranty period set forth above for such FRU's, whether or not Buyer has provided the written notice set forth above. In the event Supplier had included the RMA field return form in the applicable shipment of FRU's and Buyer fails to provide such notice, Buyer's warranty period for the applicable FRU's will be [*] from the date of shipment." * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT 10.28 11. Delete the first sentence in Section 2.10, "Notice of Product Withdrawal," in its entirety and replace with the following two sentences: "Supplier will provide Buyer with [*] written notice of its intent to withdraw any Product ("End of Life" or "EOL") prior to the last date of manufacture of a Product, and Buyer may order such Products up to [*] prior to the last date of manufacture. 12. Delete Section 2.11, "Epidemic Defect Rate", in its entirety and replace with the following: "The Epidemic Defect Rate is defined as [*] over a [*] rolling average, the minimum sample size for the three months shall be [*], for the same or similar defect. ([*] rounded to the nearest whole failing unit)." 13. Add Section 2.12, "Use of Subcontractors," to read as follows: "Either party may use subcontractors to perform its obligations hereunder. Notwithstanding this subsection, each party's use of subcontractors will not relieve such party of the responsibility for the subcontractor's performance." 14. Section 3.0, "Rescheduling/Cancellation", delete table after first paragraph in its entirety and replace with the following:
- ------------------------------------------------------------------------------------------ MINIMUM DAYS NOTICE PRIOR TO DELIVERY DATE TO: - ------------------------------------------------------------------------------------------ MAXIMUM MAXIMUM PERCENTAGE OF PERCENTAGE OF EACH ORDER THAT EACH ORDER THAT NUMBER OF DAYS BUYER MAY BUYER MAY PRIOR TO DELIVERY RESCHEDULE CANCEL WITHOUT CHANGE DATE WITHOUT CHARGE CHARGE DELIVERY POINT DELIVERY EARLY - ------------------------------------------------------------------------------------------ 0 -- 15 Days [*] [*] 2 day notice 1 day - ------------------------------------------------------------------------------------------ [*] [*] [*] 2 day notice 1 day - ------------------------------------------------------------------------------------------ [*] [*] [*] 2 day notice 1 day - ------------------------------------------------------------------------------------------
Supplier shall provide Buyer with cancellation charges pursuant to this Section 3.0 within [*] of the date of the latest signature below and the parties shall mutually agree upon such cancellation charges within a reasonable time following such provision. 15. Modify the second sentence in Section 8.4, "Right to Manufacture," to read as follows: "Unless earlier terminated as set forth in Section 8.5 below, except with respect to existing Products or Spare Parts that are being manufactured on or after such time and except as specified in the next sentence, Buyer acknowledges and agrees that the Limited Manufacturing License granted under this Section 8.4 shall immediately terminate upon termination of this Agreement." * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT 10.28 16. Modify first sentence in Section 9.1, "Product Repair -- Field Failures," to read as follows: "Supplier shall use commercially reasonable efforts to comply with the requirements set forth in the Certified Service Part (CSP) document hereby included as part of this Agreement in Attachment A, outlining the Buyer requirements of Supplier to bring a field returned, used Product to a level that qualifies the Product as a CSP." 17. Replace the first sentence in Section 9.3, "Post Warranty Services," as follows: "Post Warranty repair pricing for the mainboard shall be as follows for the applicable listed Products. The Post Warranty repair pricing for the mainboard for the SW 3800 and SW 3900 Products shall be mutually agreed by the parties upon the earlier of (i) [*] from Supplier's general availability date of the applicable Product, or (ii) July 31, 2002. SW 2400 [*] SW 2800 [*] Products returned to Supplier will include a description of the failure specified on the RMA field return form provided that such form is included by Supplier with each FRU shipment. If the total quantity of Product returned to Supplier over the previous ninety (90) days exceeds more than [*] verified NTF (which shall include both hardware and software failures), Buyer will pay Supplier [*] for each verified NTF Product returned in accordance with Section 9.2. The reloading of microcode to repair a returned Product shall not constitute an NTF." 18. Modify the first sentence of the paragraph entitled, Packaging and Delivery in Section 9.3, "Post Warranty Services," to read as follows: "The Products will be individually packaged and labeled according to Buyer specification GA-21-9261-11, unless specifically otherwise agreed to." 19. Add a paragraph entitled, "Product Support," to Section 9.3, "Post Warranty Services," to read as follows: "Supplier will continue to provide technical support as provided in Section 9.4, for a period up to [*] after the termination of this Agreement or up to [*] after an End of Life notice provided by Supplier pursuant to Section 2.10, whichever is earlier." 20. Add to the second paragraph prior to the last sentence in Section 9.5, "Training," the following: "However, in the case of new Products added to this SOW #1, Supplier shall provide mutually agreed upon presales training to Buyer to support new Products at a mutually agreed upon time, date and location. Each party shall be responsible for all costs associated with the attendance of such training by such party's personnel." * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT 10.28 21. Section 9.6, "Cessation of Post Warranty Service", delete in first and second sentence any reference to: "the second paragraph of Section 9.3 ("Availability")" and replace with the following: "Section 9.3, in paragraphs titled Availability and Product Support" 22. Add Section 9.7, "Field Replaceable Units (FRU) Emergency," and subsections, to read as follows: 9.7.1. Definition "CODE A-ALERT EMERGENCY ORDER" or "EO" means WA placed by Buyer with a leadtime from Supplier's receipt of the WA to the shipping date not to exceed [*]. 9.7.2 Code A-Alert Emergency Order Placement Supplier will accept and respond to EO from Buyer 8:00 A.M. to 5:00 P.M. Pacific Standard Time, Monday through Friday, except Supplier holidays. Order confirmation time period begins at the time Order is received by Supplier. Supplier will provide a telephone service number for EO coverage. Supplier will use commercially reasonable efforts to respond to all EO within the time periods designated below. Buyer will place and Supplier will respond to all EO with Supplier via fax, EDI (or other electronic commerce approach) and/or telephone, such EO to be confirmed by Buyer with a written WA mailed or electronically transmitted to Supplier within two (2) Calendar Days of EO placement. Supplier will acknowledge EO back to Buyer via fax or telephone within the specified order confirmation time periods stated below. 9.7.3. Code A-Alert Emergency Order Work Authorizations WAs will include Buyer's Purchase Order number, Buyer's part number, part number description, quantity, unit Price, order type (short lead time, in the event a short lead time order is placed, are orders with requested Delivery Dates in less than the agreed to Lead Time), Delivery Date and ship to address. 9.7.4. Code A-Alert Emergency Order Shipments Supplier will use commercially reasonable efforts to ship Code A-Alert Emergency Orders within 24 hours of receipt of WA, unless specifically designated otherwise by Buyer, to arrive at the Buyer specified receiving location. If requested by Buyer in writing, Supplier will use commercially reasonable efforts to ship EOs via "Next Flight Out" and "Air Charter" to arrive at Buyer's specified receiving location on the same day of the WA. 9.7.5. Code A-Alert Emergency Order Delivery and Cancellation Supplier will deliver EOs directly to the address specified in the WA and in accordance with this SOW. Code A-Alert Emergency Order(s) are non-cancelable, however Buyer may contact Supplier anytime prior to time of shipment to make changes to the specified receiving location. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EXHIBIT 10.28 23. Modify the title of Attachment A, modify to read: "IBM CSP Requirements" 24. Delete the table in Section 10.0, "Communications Coordinators" and in Attachment A, delete the paragraphs entitled "Key IBM Contacts" and "Brocade Contacts" in their entirety. Replace in both Section 10.0 and the foregoing paragraphs in Attachment A with the following: KEY IBM CONTACTS Technical Coordinator Ruoyi Zhou Program Manager Phone: (408) 256-4479 Fax: (408) 256-6843 Email: ruoyi@us.ibm.com Business Coordinator Karen Takahashi Procurement Commodity Manager Phone: (408)256-0111 Fax: (408)256-0111 Email: ktakahas@us.ibm.com BROCADE CONTACTS Technical Coordinator Jim Baldyga Sr. Systems Engineer Phone: (408)487-8005 Fax: (408)603-584-8110 Email: jbaldyga@brocade.com Business Coordinator Patrick Johnston OEM Sales Executive Phone: (408) 487-8193 Fax: (208) 275-1497 pjohnsto@brocade.com Please have your authorized representative indicate acceptance thereof by signing both copies of the Amendment and returning one copy to the attention of Karen Takahashi at 5600 Cottle Road, San Jose, California 95193. The effective date of this Amendment shall be the date on the top of this Amendment (the "Effective Date"). EXHIBIT 10.28 The parties acknowledge that they have read this Amendment, understand it, and agree to be bound by its terms and conditions. All capitalized terms not defined herein shall have the meaning set forth in the Goods Agreement or the SOW #1. All other terms and conditions of the Goods Agreement and SOW#1 that are unaffected by the revisions set forth in this Amendment shall remain in full force and effect. Further, the parties agree that this Amendment and the Goods Agreement and SOW#1 are the complete and exclusive statement of the agreement between the parties, superseding all proposals or other prior agreement, oral or written, and all other communications between the parties relating to this subject.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO: INTERNATIONAL BUSINESS MACHINES CORPORATION BROCADE COMMUNICATIONS SYSTEMS, INC. By: _______________________________________ By: ______________________________________ Authorized Signature Date Authorized Signature Date ___________________________________________ __________________________________________ Type or Print Name Type or Print Name ___________________________________________ __________________________________________ Title & Organization Title & Organization
EXHIBIT 10.28 ATTACHMENT B SUPPLIER QUALITY ATTACHMENT This Supplier Quality Attachment ("SQA") adopts and incorporates by reference the terms and conditions of SOW #1 ("SOW") and Goods Agreement # ROC-P-68 ("Agreement") between Buyer and Supplier. 1.0 INCORPORATION OF SQA DOCUMENTS The SQA consists of this document, and applicable product specification documents and specifications as referenced in Section 1.1 of SOW#1, which were in effect upon execution of this SQA. 2.0 QUALITY REQUIREMENTS The requirements of this SQA shall constitute Supplier's quality program which must be implemented and maintained during the term of the SOW. Supplier will set forth the yearly quality and reliability performance commitments for the current year and through the remainder of the initial term of the SOW in a product quality report ("PQR"). The PQR shall include the mutually agreed product monitoring plan to be used to validate the effectiveness of process control limits and the Product meets the quality and reliability defined in such PQR. It is Buyer's expectation that Supplier will use e-business platforms (Web based applications) for ongoing real time quality management, including but not limited to information associated with Supplier Quality Management Systems ("SQMS") and Product Change Notification ("PCN"), etc. or as specified in the PQR. 3.0 ISO REQUIREMENTS For ISO compliance, Supplier's contracted manufacturer is ISO 9001* compliant ("Compliant"). * Note: ISO 9001 & 9004 have been developed as a consistent pair of quality management system standards. ISO 9001 is considered the standard by which the Supplier is expected to be compliant with; it is understood ISO 9004 provides a wider range of guidelines of objectives than ISO 9001, particularly for the continuous improvement of an organization's overall performance and efficiency. ISO 9004 is recommended as a guide to assist those suppliers who wish to move beyond the basic requirements of ISO 9001. 4.0 AUDITS On a periodic basis, upon reasonable written notice, the Buyer or Buyer's quality representative shall conduct audits/visits at the Supplier's and Supplier's contract manufacturer's manufacturing locations. The Supplier shall, at Buyer's request, permit access to the auditors to manufacturing operations and/or inspection of Products for Buyer, including access to the contract manufacturer's facilities. Periodic audits shall include process control, quality inspection test data, internal audit reports, and other information related to Products to verify compliance to the terms of this SQA. Under normal circumstances, Supplier shall be given at least a two weeks advance notice by Buyer's representatives of their intent to visit. Buyer's inspection of Product at the Supplier or contract manufacturer shall not relieve the Supplier's responsibility to furnish Product compliant with the applicable specifications as set forth in the SOW. Any Confidential Information exchanged in connection with the audit shall be handled in accordance with Section 14.6 of the Goods Agreement. 5.0 DOCUMENT CONTROL Supplier shall use commercially reasonable efforts to ensure that all documents such as software/firmware, engineering drawings, specifications, contracts, policies, procedures, manufacturing process flow chart, and EXHIBIT 10.28 work instructions (including test procedures) to be under revision control and available to all necessary Supplier personnel in Supplier's manufacturing environment. Supplier shall have a system for the effective updating/removal of any obsolete documentation from all manufacturing areas. 6.0 RECORDS Supplier shall establish and maintain procedures for identification, collection, indexing, filing, storage, maintenance, and disposition of all quality records including, but not limited to: Statistical Process Control ("SPC") data. This includes raw data or control charts, Cp and Cpk for critical/identified process parameters, and all records which provide evidence of sub-tier supplier activity, such as source inspections and First Article inspections, and records of all inspection and test activity to provide objective evidence that Products have passed acceptance criteria. Records shall be maintained for the life of the SOW plus the entire warranty period, as set forth in the SOW. All records shall be maintained in a central location and shall upon request be made available to Buyer's quality representative for review only. All such documents shall be deemed to be the Confidential Information of Supplier. 7.0 CONTINUOUS IMPROVEMENT PROCESS Supplier shall develop and implement a continuous improvement process that will provide for a cost-effective reduction in process-related excursions. The program, at a minimum, shall include: the supplier management strategy; manufacturing process controls (i.e., Maverick Product Elimination); a documented, systematic approach for identifying focus areas for continuous improvement for the current year, through the end of the term of the SOW, or for three years from the start of the SOW, whichever is shorter; and Early Failure Rate, Intrinsic Failure Rate, Shipped Product Quality Level and Failure Rate commitment and reduction plans to achieve Buyer goals. Supplier shall provide, at Buyer's request, status of the continuous improvement process and results. 8.0 QUALITY PROBLEM NOTIFICATION TO BUYER Supplier must notify Buyer of any quality or reliability problem which may affect Products, that have been identified by Supplier's internal testing (i.e., process control data, internal test data, burn-in data, etc.), by contract manufacturers which produce Products on behalf of Supplier, or by another customer (see ISO 9001). In case of problems, Supplier shall provide Buyer with the requested traceability data (p/n, lot number, date code, volumes, ship to locations, etc.) within 24 hours. The notification should include an immediate containment plan and a schedule for definition and implementation of permanent corrective actions. After the notification there shall be no shipment of suspect Products to Buyer without prior approval from Buyer's quality representative. 9.0 PRODUCT RE-QUALIFICATION COSTS Following Buyer qualification of the Product, Buyer reserves the right to re-qualify any product if the Supplier changes the manufacturing process or product, or; raw materials or specifications which may affect performance, function, quality or reliability. Supplier shall bear the reasonable costs of any re-qualifications required for changes made without Buyer's approval in accordance with Section 6.0 of the SOW. 10. PART HISTORY Supplier shall maintain a history file for each Product part number manufactured that tracks: materials and/or design changes controlled by the supplier; design changes controlled by Buyer (engineering changes, etc.), and; and purchased part manufacturer source changes. 11. PART QUALITY Unless otherwise specifically agreed upon within the SOW, Supplier shall be responsible for the quality levels of each of Supplier's components that comprise the Product or final assembly, except with respect to EXHIBIT 10.28 GBICs or SFPs, if any. If applicable, Supplier agrees to make available to Buyer third party warranties for GBICs or SFPs, to the extent Supplier is permitted to pass through such warranties to Buyer. 12. CORRECTIVE ACTION PROCESS Following a lot rejection by Buyer under Section 6.0 of the Goods Agreement, or a quality problem notification under Section 8 of this SQA, Supplier shall implement a corrective action process which shall provide documentation to identify the following: a) Specific defect description and failure mechanism; b) Containment of affected Product; c) Technical investigation/root cause analysis; d) Corrective action plan and preventive actions to preclude a recurrence, and; e) Verification of effectiveness of actions. With the exception of safety defects which Supplier shall provide a complete failure analysis not to exceed forty-eight (48) hours from notification, failure analysis response times from Supplier will be within forty-eight (48) hours of Buyer's lot rejection or the quality problem notification for preliminary analysis and fourteen (14) days for detailed analysis. The corrective action process shall include a checkpoint to determine if additional Products are exposed and the corrective action process and documentation specified within this Section. 13. EXCEPTION APPROVAL PROCESS Supplier shall not knowingly ship nonconforming Product to Buyer without written approval from Buyer's quality representative. In certain cases, Buyer's quality representative may approve shipment of suspected nonconforming Product if an evaluation plan pre-approved by the quality representative is executed with results acceptable to the representative. 14. REVIEW AND DISPOSITION OF NONCONFORMING PRODUCTS If Supplier intends to ship nonconforming Product to Buyer, then Supplier shall implement a Material Review Board ("MRB") to review and determine the disposition of nonconforming materials. At a minimum, the MRB shall consist of representatives from Manufacturing, engineering and Quality Engineering. The Supplier's process shall include the following dispositions: a) Rework - Product reworked to meet specified requirements; b) Use As Is - No actions taken on Product, Product does not meet specified requirements but is functional; c) Repaired - Product has been reworked to be functional but does not meet specified requirements; d) Scrap - Product not useable and does not meet specified requirements, or; e) Screen -- additional product test/inspection to meet specification. Any plans to rework or repair nonconforming materials shall be subject to final approval by Buyer's quality representative, such approval not to be unreasonably withheld. Any plans to use as-is must be pre-approved by Buyer's quality representative. All MRB records shall be maintained by Supplier and upon request, made available to Buyer for review. All MRB records shall be deemed the Confidential Information of Supplier. 15. PRODUCT IDENTIFICATION AND LOT TRACEABILITY Supplier shall establish and maintain procedures and processes for the identification and lot traceability of critical components during all stages of production, delivery, and installation per applicable ISO standards. Identification must be traceable through to the finished Product by serial numbers or equivalent methods. Both forward and backward traceability shall be available. Response time for traceability requests shall not exceed 24 hours. 16. QUALITY REPORTING Monthly executive summary reports in a format mutually agreed upon format shall be forwarded to Buyer at a mutually agreeable time or as specified in specific PQRs. Continuous quality reporting real time will be via SQMS or as specified in specific PQRs. 17. SUPPLIER QUALITY & RELIABILITY ("SQR") REVIEW MEETINGS Buyer requires regular Supplier quality/reliability meetings determined by a mutually agreeable schedule, to EXHIBIT 10.28 increase visibility into product and field performance. The intent is to conduct timely meetings in preparation for future business reviews/contractual negotiations. The agenda for the meeting shall be as set forth in exhibit 1 unless otherwise mutually agreed by the parties. 18. APPLICABLE PRODUCT SPECIFICATIONS & TESTS A. ISO 2859-1 (SAMPLING PROCEDURES FOR INSPECTION BY ATTRIBUTES) B. ISO 3951 (SAMPLING PROCEDURES FOR INSPECTION BY VARIABLES) EXHIBIT 10.28 SUPPLIER QUALITY ATTACHMENT (CONT.) EXHIBIT 1. QUALITY REVIEW MEETING AGENDA The following typical meeting agenda has been formulated to address all the pertinent quality/reliability topics. a) Supplier facility and subcontractor locations where BUYER product is fabricated, assembled and tested Physical addresses and line id's Review Group A, B, C test results b) Average Outgoing Quality (AOQ) fallout for SUPPLIER and total customer database Defect and root cause analysis Pareto distribution of fails Corrective action and data verification Point of origin and incidence contributions associated with internal, assembly and final test operations. c) Field Return data for BUYER and total customer database EFR/IFR estimates Defect and root cause analysis Pareto distribution of fails and associated POH distribution for Buyer and total customer database Failure mechanism driven corrective actions d) In-Process monitoring data Defect monitoring, elimination and analysis results Modeling techniques - Experimental, Analytical Analysis SPC parameter and control limits - data review Maverick Product Elimination occurrences (if applicable) and related data Yield cut limit compliance e) Internal Audit Results Last internal audit findings and corrective action of one manufacturing location & future audit plans f) PCN activity since last BUYER meeting Product, process, materials or specifications affecting form, fit or function Traceability history for date code inception g) Continuous Improvement Program for entire fab, assembly, test and field performance AOQ and Failure Rate Improvement targets for next 3 years h) Specification Compliance/Commitment to " BUYER Specifications" Any deviations/exceptions? If so, provide details and traceability information. i) Joint discussion followed by a summary wrap-up and activities EX-10.29 10 f78518ex10-29.txt EXHIBIT 10.29 GOODS AGREEMENT STATEMENT OF WORK #2 EXHIBIT 10.29 This Statement of Work ("SOW") # 2 adopts and incorporates by reference the terms and conditions of Goods Agreement # ROC-P-68 ("Agreement") between International Business Machines Corporation ("Buyer") and Brocade Communications Systems, Inc. ("Supplier"). Transactions performed under this SOW will be conducted in accordance with and be subject to the terms and conditions of this SOW and the Agreement. The term of this SOW #2 shall be effective from March 24, 2000 to March 24, 2002. Unless otherwise provided, capitalized terms shall have the meaning as set forth in the Agreement. 1.0 PRODUCT DESCRIPTION AND REQUIREMENTS 1.0.1 GENERAL DESCRIPTION. Managed Hub per Brocade 2010/2050 Entry Level Fibre Channel Switches Product Specification; Revision A; 01/06/00. 1.0.2 PRODUCT SPECIFICATIONS & CERTIFICATIONS:
- -------------------------------------------------------------------------------------------------------------- BUYER SPECIFICATION ENGINEERING # (IF APPLICABLE) CHANGE LEVEL # (IF APPLICABLE) DESCRIPTION - -------------------------------------------------------------------------------------------------------------- Not Applicable Version 1.5 SilkWorm 2000 Entry Family Product Specification 90-0000048-01 Revision A; 01/06/00 - -------------------------------------------------------------------------------------------------------------- Not Applicable Version 2.0 Brocade Fabric OS Reference Manual Publication 53-0001487-03 - -------------------------------------------------------------------------------------------------------------- Not Applicable Version 2.1 Brocade WebTools User's Reference Manual Publication 53-0001375-01 - -------------------------------------------------------------------------------------------------------------- Not Applicable Version 2.0 Brocade Zoning Reference Manual Publication 53-0001488-02 - -------------------------------------------------------------------------------------------------------------- Not Applicable Version 2.0 Brocade QuickLoop Reference Manual Publication 53-0001491-02 - -------------------------------------------------------------------------------------------------------------- GA21-9261-10 GA21-9261-10 Buyer's "Supplier Packaging and Materials Handling Specification" - -------------------------------------------------------------------------------------------------------------- Not Applicable Dated 06/10/99 IBM Quality Specification - -------------------------------------------------------------------------------------------------------------- M-H 6-4523-001 M-H 6-4523-001 IBM Materials Specification: Decorative Coatings, All Textures - -------------------------------------------------------------------------------------------------------------- M-B 6-6112-003 M-B 6-6112-003 IBM Materials Bulletin: Decorative Waterborne Coatings - -------------------------------------------------------------------------------------------------------------- M-H 6-4500-003 M-H 6-4500-003 IBM Materials Specification: Decorative and Non-decorative Finishes Acceptance Procedure - -------------------------------------------------------------------------------------------------------------- CORSAF-10-025440 12/22/98 Solectron Corporate Disaster Response and Recovery - -------------------------------------------------------------------------------------------------------------- Attachment A CSP Requirements Document - -------------------------------------------------------------------------------------------------------------- Attachment B 2010 Managed Hub Quality Plan - --------------------------------------------------------------------------------------------------------------
1.0.1 COO PRODUCT CERTIFICATION. Supplier certifies that the Products have the following country(ies) of origin. If there are any changes to this information, Supplier will notify Buyer by providing a new country of origin certification signed by an authorized Supplier representative before shipping any Products other than those with the country of origin listed below for such Product. If any part number listed has more than one country of origin, Supplier certifies that each country of origin is listed below, and Supplier agrees to deliver to Buyer, as soon as possible, instructions regarding how Buyer can distinguish each country of origin for part numbers with more than one country of origin: ------------------------------------------------------------------------ Buyer Assigned Part Product Country of Origin and Number Description/Model Type Complete Street Address ------------------------------------------------------------------------ 35L1649 Managed Hub/3534 United States of America Brocade Communications 1901 Guadalupe Parkway San Jose, CA 95131 ------------------------------------------------------------------------ GOODS AGREEMENT STATEMENT OF WORK #2 EXHIBIT 10.29 1.4 FAA CERTIFICATION: Supplier certifies that Products and their packages shipped as directed by Supplier do not contain explosives, hazardous materials, incendiaries and/or destructive devices as defined by the United States Federal Aviation Administration. 2.0 PART NUMBERS, PRICES AND OTHER TERMS 2.0.2 PRICING:
- ----------------------------------------------------------------------------------------------------- IBM Part # Brocade Part # IBM FRU Brocad FRU Part # Part # Description Date: Unit Price - ----------------------------------------------------------------------------------------------------- [*] [*] [*] [*] 8 Port FC-AL Loop Switch With [*] 7 Fixed Optical Ports and 1 GBIC Slot, Fixed Power Supply [*] (Includes Webtools 2.1, Zoning 2.1, and QuickLoop 2.1 [*] software). - -----------------------------------------------------------------------------------------------------
All prices are in U.S. Dollars The parties agree to meet as required from time to time, but at least once each quarter, to discuss any changes in market conditions and if warranted, agree to negotiate in good faith any price adjustments necessary to have the Products remain competitive. Any managed hub repaired through CSP that is in warrant is at [*]. 1.0.2 TAXES AND DUTIES. Product prices are exclusive of all taxes. Buyer shall be responsible for all taxes that may be levied as a result of the sale of any Product sold under this Agreement, unless Supplier receives a valid tax exemption certificate from Buyer. Supplier will be responsible for all legal, regulatory, and administrative requirements associated with importation of Products into the United States and the payment of all associated duties, taxes, and fees. 1.0.3 EPIDEMIC DEFECT RATE. The Epidemic Defect Rate is defined as [*] the Normal Annualized Failure Rate for the same or similar defect. Reference Attachment A, section 4.1. 2.4 PAYMENT TERMS: Terms for payment on all invoices will be net [*] from receipt of an acceptable invoice by Buyer. 2.5 LEAD TIME: With the exception of the initial volume order of products, for which lead time shall be [*], the product lead time is [*] prior to Delivery date. 2.6 WARRANTY PERIOD: The product warranty period is[*] from the date of shipment 2.7 ACCEPTANCE TERM: Buyer will inspect each delivery of Products and ensure that the Products conform to the applicable specifications. Acceptance period is [*] from the date of receipt by Buyer. Buyer shall be deemed to have accepted the Products only in the event that; (i) Buyer fails to accept or reject the Products on or before the expiration of the [*] expiration period, (ii) accepts the Products in writing, or (iii) delivers the Products to any customer of Buyer. Buyer's acceptance of any Product shall in no way negate any warranty provided under this SOW or the Agreement, and Buyer's remedy in the event of nonacceptance is a warranty return of such Product pursuant to Section 6.0 of the Goods Agreement. Verified line fallouts from Buyer that have been returned to Supplier for repair and test No Trouble Found (NTF) will not be returned to Buyer. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT STATEMENT OF WORK #2 EXHIBIT 10.29 2.8 SUPPLY OF PRODUCTS: Supplier shall deliver Products as specified in WAs. Notwithstanding any other provision of this Agreement (except force majeure), if due to a shortage Supplier is unable to deliver Products as specified in WAs, Supplier will give Buyer prompt written notice of such inability to deliver Products along with an estimate of the duration of such shortage. During such shortage period, the parties agree that Supplier will use an allocation method for fulfilling Buyer's WAs providing Buyer, at a minimum, an equivalent share of available capacity. If Supplier fails to correct such inability to supply Product or fails to develop a plan, acceptable to Buyer, to correct such inability to supply Product within [*], Buyer will have the right to cancel such WA(s) or portions thereof by written notice. If Buyer cancels WAs under this Subsection 2.8, Buyer's only obligation is to pay for Products already delivered at the time of Buyer's cancellation notice. If Buyer elects not to cancel WAs or portions thereof under this Subsection 2.8 in the event Supplier notifies Buyer that the agreed to Delivery will not be met, Supplier agrees to discount the price of Products appearing on such WAs [*] if such Products are delivered more than [*] after the agreed to Delivery. 2.9 NOTICE OF PRODUCT WITHDRAW: Supplier will provide Buyer with [*] written notice of its intent to withdraw any Product ("End of Life" or "EOL") prior to the last date of manufacture of a Product, and Buyer may order such Products up to [*] prior to the last date of manufacture. Subject to Product availability, Supplier will accept orders for Products which have been notified for EOL for an additional [*] after the last date of manufacture. 2.10 DELIVERY: Delivery means delivery of Products to a carrier designated by Buyer, F.O.B. Supplier's contracted manufacturer's (Solectron) Milpitas, California facility. 2.11 FORECAST: Buyer will provide Supplier with a monthly, non-binding [*] rolling forecast. ANY PRODUCT QUANTITIES CITED IN OR PURSUANT TO THIS AGREEMENT, EXCEPT FOR QUANTITIES CITED IN A "WA" AS FIRM, ARE PRELIMINARY AND NON-BINDING ONLY. BUYER MAKES NO REPRESENTATION OR WARRANTY AS TO THE QUANTITY OF PRODUCTS THAT IT WILL PURCHASE, IF ANY. 1.0 3.0 RESCHEDULING/CANCELLATION The ordering location may reschedule the Delivery Date of any undelivered Product multiple times without incurring a charge by giving notice to Supplier in accordance with the table below. Any such rescheduled date will not exceed the originally scheduled Delivery Date by more than 3 months or fall outside of Supplier's current fiscal Quarter, whichever is less. Supplier's fiscal year ends on October 31st. If Supplier changes current fiscal year, Supplier agrees to negotiate in good faith to establish new scheduling/cancellation terms within this subsection 3.0 with Buyer. MINIMUM NUMBER OF DAYS NOTICE PRIOR TO A SCHEDULED DELIVERY DATE TO:
- ----------------------------------------------------------------------------------------------- NUMBER OF DAYS PRIOR TO ORIGINALLY SCHEDULED DELIVERY RESCHEDULE CANCEL WITHOUT CHANGE DELIVERY DATE WITHOUT CHARGE CHARGE POINT DELIVER EARLY - ----------------------------------------------------------------------------------------------- 0-15 Days [*] [*] 1.02 day notice 1.01 day - ----------------------------------------------------------------------------------------------- [*] [*] [*] 2.02 day notice 1 day - ----------------------------------------------------------------------------------------------- [*] [*] [*] 3.02 day notice 1 day - ----------------------------------------------------------------------------------------------- [*] [*] [*] 2 day notice 1 day - -----------------------------------------------------------------------------------------------
4.0 REPLENISHMENT LOGISTICS ATTACHMENT Supplier agrees to negotiate in good faith to establish the terms and conditions under which the parties would enter into a Replenishment Logistics Attachment for the Products, which will be incorporated into this Agreement when signed by both parties. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT STATEMENT OF WORK #2 EXHIBIT 10.29 5.0 DOCUMENTATION "Documentation" shall mean the OEM Manual and the Users Guide which Supplier generally makes available to its customers containing descriptive, operating, installation, engineering and maintenance information for Products, as such documents may be amended from time to time and any updates, modifications and enhancements made to them, during the term of this SOW. Supplier shall provide Buyer with a master copy and one copy of all Documentation for each Product, in both hardcopy format and electronic format, suitable for dissemination by Buyer. Solely in conjunction with Buyer's sale, installation, service and support of Products purchased under this Agreement, Supplier grants Buyer a nonexclusive, royalty-free right and license to copy, use, modify, translate and otherwise prepare derivative works of the Documentation and distribute the Documentation and derivative works to its customers, provided that Buyer keep Supplier's copyright and other proprietary notices as may appear on such Documentation and refrain from doing anything that would jeopardize Supplier's proprietary and other rights in the Documentation. Should Buyer require Supplier to make modifications to said Documentation, the cost will be at Buyer's expense. 6.0 ENGINEERING CHANGES: Engineering Changes shall not be applied to any Product under this Agreement unless implementation is conducted in accordance with the following engineering process: Supplier Changes: Supplier will notify Buyer (through the Technical Coordinator) of any engineering change proposed to be made by Supplier to the Product and will supply Buyer with a written description of the anticipated effect the engineering change will have on the Product, including price (savings), performance, reliability, serviceability, manufacturability and any cost impact to Buyer as a result of the implementation of the engineering change. Buyer has the right to approve or disapprove of such engineering change, which approval shall not be unreasonably withheld. Buyer may elect to evaluate and test the prototype, parts and/or designs specified as part of the proposed change and Supplier shall provide such parts to Buyer at no charge for such evaluation and testing. Buyer (through the Technical Coordinator) shall approve or disapprove Supplier proposed changes within [*] of receipt of a written request, except for changes required to satisfy governmental standards or safety for which Buyer shall respond within [*], unless extended by mutual consent. Failure to respond shall be deemed to be Buyer's acceptance of such proposed change. If such change affects price, the Buyer Business Coordinator must also provide approval. If Buyer approves the engineering change, the Product Specification and unit pricing will be amended as required. Buyer will not unreasonably refuse to approve Supplier's engineering changes into the Product. If the Buyer requires more than [*] to approve a change that Supplier has proposed to guarantee the continuity of supply, the [*] provision in Section 2.8 shall be extended by the number of additional days that it takes Supplier to receive Buyer's approval for such change. Buyer Changes: Buyer may request in writing (through the Technical Coordinator) that Supplier incorporate an engineering change into the Product. Such request will include a description of the proposed change sufficient to permit Supplier to evaluate its feasibility. Within 30 Days of such request (or extended by mutual consent), Supplier will advise Buyer of the conditions under which it would make the engineering change. Supplier's evaluation will be in writing and will state the increase or decrease price adjustment (if any) and the effect on the performance, reliability, safety, appearance, dimensions, tolerances, manufacturability and serviceability of the Product. Buyer's Technical Coordinator shall approve or disapprove the engineering change based on Supplier's written evaluation. If such change affects price, the Buyer's Business Coordinator must provide approval prior to implementation. If Buyer approves the engineering change, the Product Specification and unit pricing will be amended as required. Supplier will not unreasonably refuse to incorporate Buyer's engineering changes into the Product. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT STATEMENT OF WORK #2 EXHIBIT 10.29 In the event a change/improvement initiated by either party shall result in a cost decrease, it is understood and agreed the parties shall mutually agree to a price decrease effective immediately upon complete implementation of such change/improvement. 7.0 DISASTER RECOVERY PLAN Supplier shall maintain throughout the term of this SOW a formal disaster recovery plan which covers Supplier's ability to continue Product shipment and maintain contracted commitments in the event of a disaster. (Reference Brocade Document #CORSAF-10-025440) 8.0 MANUFACTURING RIGHTS: 8.1 CESSATION OF PRODUCT BUSINESS: If, during the term of this Agreement: [*] [*] [*] [*] [*] [*] it (each such event shall hereafter referred to as a "Trigger Event"). Buyer shall notify Supplier in writing if Buyer is aware or becomes aware of the occurrence of such a Trigger Event, or Supplier shall notify Buyer in writing if Supplier is aware or becomes aware of the occurrence of such a Trigger Event, and Supplier shall have [*] after the date of such written notification or from the date of the occurrence of such a Trigger Event in which to remedy such condition or conditions, or such longer period as is mutually agreed to by the parties in writing (hereafter referred to as the "Cure Period"). 8.2 ELECTION OF REMEDIES BY BUYER: If Supplier is unable to remedy the Trigger Event during the Cure Period, within [*] after the end of the Cure Period, Buyer shall select one of the following options to ensure an adequate supply of the model 3534 Managed Hub (i) exercise the right to manufacture (or have manufactured) Products pursuant to Sections 8.3 through 8.6 inclusive, or (ii) purchase the model 3534 Managed Hub from third parties. If Buyer fails to provide Supplier with written notice of such election within such thirty (30) day period, the parties agree that Buyer will be deemed to have selected option (ii) of this Section 8.2. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT STATEMENT OF WORK #2 EXHIBIT 10.29 8.3 KNOW-HOW TRANSFER: If Buyer selects the right to manufacture (or have manufactured) pursuant to option (i) in Section 8.2 above, Supplier will promptly deliver to Buyer the following "Manufacturing Assistance Items": [*] These Manufacturing Assistance Items are to be provided by Supplier in order to enable Buyer to make or have made Products and/or Spare Parts. In addition, Supplier shall, upon Buyer's request and payment by Buyer of Supplier's then-current standard rates therefor, provide such technical assistance as may be reasonably requested to enable Buyer to make or have a third party make Products and/or Spare Parts, subject to the reasonable availability of Supplier personnel. Nothing contained herein shall obligate Supplier to disclose to Buyer any confidential information of a third party, the disclosure of which requires permission of such third party, provided that Supplier agrees to use commercially reasonable efforts to obtain such permission if such confidential information is necessary for Buyer to make or have made Products and/or Spare Parts. All Manufacturing Assistance Items and non-public information of any kind that is required to produce the Products and Spare Parts, whether in written or oral form ("Supplier Confidential Information") shall be deemed to be confidential to Supplier and shall not be disclosed to any employee or agent without a need to know such information to manufacture the Products and Spare Parts as authorized in Section 8.4 below, both during the term of this SOW and thereafter. Buyer shall ensure that it has obtained or will obtain from its employees and agents, and the employees and agents of its Subsidiaries and authorized third parties, who will receive Supplier Confidential Information a written agreement to hold such Supplier Confidential Information in confidence and to use the same care and discretion to avoid disclosure of such information as Buyer uses with its own similar information which it does not wish to disclose, but in no event less than commercially reasonable measures to protect such information. All such Supplier Confidential Information shall be maintained in a locked facility accessible only by authorized personnel. 8.4 RIGHT TO MANUFACTURE: If Buyer selects the right to manufacture (or have manufactured) pursuant to option (i) in Section 8.2 above, Supplier will grant to Buyer a non-exclusive, non-assignable, royalty-free, worldwide license under all Supplier's and Supplier's Subsidiaries' patents, copyrights, mask work rights, and trade secrets and all information, such license being sufficient to allow Buyer to use the Manufacturing Assistance Items and other information provided by Supplier pursuant to Subsection 8.3 above (the "Manufacturing Know-How") and to make, have made, use, lease and/or sell Products, successor Products and/or Spare Parts, together with the right of Buyer to sublicense to its Subsidiaries or a third party to make, have made, use, lease and/or sell Products, successor Products and/or Spare Parts, subject to the limitation set forth in Section 8.5 below ("Limited Manufacturing License"). Unless earlier terminated as set forth in Section 8.5 below, except with respect to existing Products or Spare Parts that are being manufactured on or after such time and except as specified in the next sentence, Supplier acknowledges and agrees that the Limited Manufacturing License granted under this Section 8.4 shall immediately terminate on March 24, 2002. Notwithstanding the foregoing, as to successor Products, Supplier agrees that provided Buyer has used commercially reasonable efforts to discontinue the use of Supplier's Confidential Information after the termination of the Limited Manufacturing License, Supplier hereby grants to Buyer an immunity from suit with respect to the usage of any Supplier Confidential Information that has been mentally retained in the unaided memory of the employees and agents of Buyer, its Subsidiaries and any third parties authorized by Buyer and its Subsidiaries. 8.5 TERMINATION OF MANUFACTURING RIGHTS: If Buyer selects the right to manufacture (or have manufactured) pursuant to option (i) in Section 8.2 above, and, during the term of Limited Manufacturing License, begins to make substantial volume purchases of any model 3534 Managed Hub from any third party, the parties agree that the Limited Manufacturing License granted to Buyer under Section 8.4 shall terminate effective two (2) months after the commencement of any such substantial volume purchases. Upon any termination of the Limited Manufacturing License, Buyer shall use commercially reasonable efforts to return to Supplier or destroy all Supplier Confidential Information to Supplier, retaining no copies in any tangible form or medium, and provide to Supplier a certificate from a Buyer executive attesting to such fact. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT STATEMENT OF WORK #2 EXHIBIT 10.29 8.6 CANCELLATION OF PURCHASE ORDER(s) (WAs): Upon the date of the transfer of "Manufacturing Assistance Items" under Subsection 8.3 above, any WAs of Buyer for Products issued by Buyer on or after the date of any of the Trigger Events, may be canceled by Buyer, by a written notice to Supplier, and Buyer will have no further obligations thereunder except Buyer's obligations in connection with acceptable Products already delivered prior to such cancellation, including but not limited to, payment obligations for such delivered Products, unless otherwise agreed to by the parties. 9.0 SUPPLIER SERVICES 9.1 PRODUCT REPAIR - FIELD FAILURES: The Certified Service Part (CSP) document (attached) outlines the Buyer requirements of Supplier to bring a field returned, used Product to a level that qualifies the Product as a CSP. Supplier agrees to repair and/or upgrade field returned, used Products in accordance with this CSP document. 9.2 NO TROUBLE FOUND (NTF) CHARGES: Buyer agrees to test and verify suspected faults in failed Products before returning such parts to Supplier. Supplier agrees to reasonably assist Buyer in the development and documentation of testing and verification methods that will be used by Buyer for this purpose. Supplier may request charges for verified NTF Products that exceed the mutually agreed to percentage of the total quantity of Product returned to Supplier over the previous ninety (90) days. In the event Buyer is charged for a NTF Product that is returned to Buyer and such Product continues to fail, Supplier agrees to reverify the failure in a similar configuration and to refund any NTF amounts paid by Buyer with respect thereto. 9.3 POST WARRANTY SERVICES Definitions: "Post Warranty Products" means Products for which the original warranty period has expired. "Turn Around Time" or "TAT" means the elapsed time from Products arriving at Supplier to shipment date back to Buyer. Availability: Supplier will maintain the capability to supply spare parts of Products ("Spare Parts") for a period of five (5) years after withdrawal of such Products as specified herein. Supplier may assign its rights to warranty replacement Spare Parts or EOL Spare Parts to an Buyer approved third party. Buyer will have no obligation to have any Products repaired by Supplier. Pricing: Post Warranty repair pricing for any units returned to the Supplier from the Buyer shall not exceed [*] of the then-current model 3534 Managed Hub unit price. Planning: Buyer may periodically issue not binding forecasts for post warranty repair service. The Supplier will implement an auditable process for Products sent to the Supplier for repair and Supplier will inform Buyer of receipt of Products from Buyer. Supplier will use commercially reasonable efforts to achieve a maximum Repair Yield and will inform Buyer if it is unable to achieve the Yield. Packaging and Delivery: The Products will be individually packaged and labeled according to Buyer specification GA-21-9261-10, unless specified otherwise agreed to. Packaging may be reused only with Buyer's written authorization. The terms of delivery for Products will be as stated under Section 2.10 (Delivery) and Supplier will notify Buyer of discrepancies between the shipping documents and received Products. The TAT for Serviced Products will be 30 Days after receipt of said Products, unless specified otherwise. Materials: All Products and associated spares, including scrap materials, will be returned to the owning affiliate as specified in the relevant WA. Buyer may request a quarterly inventory report of AFR Products and associated spares or may designate a third party to conduct such activity. All consigned materials supplied on a consigned basis will remain property of Buyer and Supplier will provide a quarterly inventory report of such materials. Supplier will use all parts supplied by Buyer solely for the performance of this Agreement unless otherwise agreed. * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT STATEMENT OF WORK #2 EXHIBIT 10.29 Repair Warranty: For a period of 90 days or the remainder of the original warranty period for the Product, whichever is longer, from the date of repaired Product is Delivered to Buyer, Supplier will repair or replace Products without charge if the Product fails to conform to the specifications specified in this SOW. The warranty period for repaired Post Warranty Products will be determined based on the out of warranty repair price listed under pricing in this Section. 9.4 TECHNICAL SUPPORT: Buyer will provide first and second level support for the Products to Buyer's end users. Supplier will provide third level support to Buyer (at no additional charge). Third level support includes (but is not limited to) emergency support (via pager) on [*] basis for priority 1 issues. Supplier agrees to use commercially reasonable efforts to assist Buyer in solving problems within the following timeframes, based on notification of problem from Buyer: Severity 1 problem within [*]; Severity 2 problem within [*]; Severity 3 and 4 problem within [*]. Routine support and problem logging, to be provided during normal business hours (Monday through Friday, 8:00 AM to 5:00 PM PST). Typical duties include, but are not limited to, providing reasonable levels of technical assistance to Buyer's support organization and timely delivery of determination and correction of a defect, error or other problem (including failure analysis) and associated documentation. In order to minimize Buyer's cost of maintenance services and technical support for Products, Supplier agrees to promptly provide and share with Buyer relevant failure and other technical information. Supplier will provide on-site technical support as mutually agreed at Buyer's designated facility to supplement and facilitate the qualification. 9.5 TRAINING: Supplier agrees to provide Buyer all current marketing and sales training materials. Supplier agrees to actively assist in the marketing and sales training of a reasonable number of Buyer personnel, such quantity to be mutually agreed to. Technical training requested by Buyer will be made available by Supplier at its San Jose facility at Supplier's standard rates, as accepted and agreed to by Buyer. Buyer acknowledges that the materials distributed by the Supplier during the technical training are protected by copyright, and that the Buyer shall have no rights to reproduce such materials without the prior written consent of Supplier. 9.6 CESSATION OF POST-WARRANTY SERVICE: Should Supplier fail to provide post-warranty services as specified in the second paragraph of Section 9.3 ("Availability") or, during the term of this SOW, technical support as specified in Section 9.4 with respect to a Product that has been withdrawn as specified in this SOW, then Buyer shall notify Supplier if Buyer becomes aware of such occurrence and Supplier shall have [*] after the date of Buyer's notification in which to remedy such condition or conditions, or such longer period mutually agreed by the parties in writing. If an applicable failure by Supplier to provide services to Buyer is not remedied as specified in the preceding sentence, then Buyer may, upon written notice to Supplier, obtain from Supplier Manufacturing Assistance Items required to make or have made Spare Parts and to provide warranty and technical support services solely: (i) for the affected Product, (ii) under the terms of the Limited Manufacturing License set forth above in Section 8.4, and (iii) for the remainder of the [*] specified in the second paragraph of Section 9.3 ("Availability"). Notwithstanding the foregoing, the parties agree that Supplier shall only be required to deliver to Buyer Supplier Confidential Information and Manufacturing Assistance Items which are strictly required for the manufacture of the Spare Parts and for Buyer's provision of warranty and technical support services for the affected Product, and that upon the termination of the Limited Manufacturing License with respect to such items, Buyer shall use commercially reasonable efforts to return to Supplier or destroy all Supplier Confidential Information, retaining no copies in any tangible form or medium, and provide to Supplier a certificate from a Buyer executive attesting to such fact * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. GOODS AGREEMENT STATEMENT OF WORK #2 EXHIBIT 10.29 1.0 10.0 COMMUNICATIONS All communications between the parties will be carried out through the designated coordinators: All procurement, business and administrative communications between the parties will be conducted through the following "Business Coordinators": - -------------------------------------------------------------------------------- Buyer Supplier - -------------------------------------------------------------------------------- Attention: Nathan Dickerman Attention: Patrick Johnston IBM Corporation Brocade Communications, Inc. 5600 Cottle Road 1901 Guadalupe Parkway San Jose, CA 95193 San Jose, CA 95131 Phone: (408) 256-5287 Phone: (408) 487-8193 Fax: (408) 256-9729 Fax: (408) 487-8091 E-Mail: njd1@us.ibm.com E-Mail: pjohnsto@brocade.com - -------------------------------------------------------------------------------- Technical communications between the parties will be conducted through the following "Technical Coordinators": - -------------------------------------------------------------------------------- Buyer Supplier - -------------------------------------------------------------------------------- Attention: Dennis Fazzio Attention: Scott Jensen IBM Corporation Brocade Communications 5600 Cottle Road 1901 Guadalupe Parkway San Jose, CA 95193 San Jose, CA 95131 Phone: (408) 256-0538 Phone: (408) 487-8145 Fax: (408) 256-6843 Fax: (408) 487-8091 E-Mail: fazzio@us.ibm.com E-Mail: TBD - -------------------------------------------------------------------------------- All legal notices will be sent to the following addresses and will be deemed received (a) 2 days after mailing if sent by certified mail, return receipt requested or (b) on the date confirmation is received if sent by facsimile transmittal, to the party set forth below. - -------------------------------------------------------------------------------- Buyer Supplier - -------------------------------------------------------------------------------- Attention: Nathan Dickerman Attention: Michael Byrd IBM Corporation Brocade Communications 5600 Cottle Road 1901 Guadalupe Parkway San Jose, CA 95193 San Jose, CA 95131 Phone: (408) 256-5287 Phone: (408) 487-8184 Fax: (408) 256-9729 Fax: (408) 487-8091 E-Mail: njd1@us.ibm.com E-Mail: mbyrd@brocade.com - -------------------------------------------------------------------------------- Each party may change its designated coordinators and/or addresses any time by a written notification to the relevant Coordinator. 1.0 11.0 SURVIVAL Any provisions of this SOW which by their nature extend beyond its termination or expiration will remain in effect until fulfilled, and apply to respective successors and assignees. 1.0 ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO: IBM Corporation Brocade Communications By: By: - -------------------------------------- ---------------------------------- Buyer Supplier Signature Date Signature Date Steve Jennings Charles Smith - -------------------------------------- ---------------------------------- Printed Name Printed Name Director, America's Procurement V.P. Worldwide Sales GOODS AGREEMENT STATEMENT OF WORK #2 EXHIBIT 10.29 - -------------------------------------- ---------------------------------- Title & Organization Title & Organization - -------------------------------------- ---------------------------------- EX-21.1 11 f78518ex21-1.txt EXHIBIT 21.1 Exhibit 21.1 SUBSIDIARIES OF REGISTRANT
NAME JURISDICTION OF INCORPORATION - ---- ----------------------------- Brocade Communications Systems Proprietary Ltd. Australia Brocade Communications Systems FSC Inc. Barbados Brocade Communications Canada Corp. Canada Brocade Communications Systems China HK Ltd. China Brocade Communications France S.A.S. France Brocade Communications Germany GmbH Germany Brocade Communications HK Ltd. Hong Kong Brocade Communications Systems K.K. Japan Brocade Communications Systems Korea Korea Brocade Communications Luxembourg SarL Luxembourg Brocade Communications Systems Singapore Pte. Ltd. Singapore Brocade Communications Switzerland SarL Switzerland Brocade Communications UK Ltd. United Kingdom
EX-23.1 12 f78518ex23-1.txt EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated November 20, 2001 (except with respect to the matters discussed in Note 12, as to which the date is January 10, 2002) included in the form 10-K, in the Company's previously filed Registration Statements on Form S-8 File No.'s 333-85187, 333-95653, 333-39126, 333-53734, 333-64260, and 333-72480. Arthur Andersen LLP San Jose, California January 24, 2002 -----END PRIVACY-ENHANCED MESSAGE-----


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
		For the fiscal year ended October 27, 2001
OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

		For the transition period from to


Delaware		77-0409517
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


INDEX
PART I
	Item 1.Business
	Item 2.Properties
	Item 3.Legal Proceedings
	Item 4.Submission of Matters to a Vote of Security Holders
PART II
	Item 5.Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6.Selected Financial Data
	Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A.Quantitative and Qualitative Disclosure About Market Risk
	Item 8.Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
PART IV
	Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
SCHEDULE II
SIGNATURES
EXHIBIT 3.1
EXHIBIT 10.23
EXHIBIT 10.24
EXHIBIT 10.25
EXHIBIT 10.26
EXHIBIT 10.27
EXHIBIT 10.28
EXHIBIT 10.29
EXHIBIT 21.1
EXHIBIT 23.1



			Fiscal Year Ended

			October 27,			October 28,		October 31,		October 31,			October 31,
			2001(1)			2000		1999		1998			1997


			(In thousands, except per share data)
Statement of Operations Data:
Net revenues			$	513,030		$	329,045	$	68,692	$	24,246		$	8,482
Cost of revenues				212,956			137,456		33,497		15,759			6,682

	Gross margin			300,074			191,589		35,195		8,487			1,800

Operating expenses:
	Research and development			110,749			50,505		15,267		14,744			7,666
	Sales and marketing			94,931			46,524		13,288		5,154			2,112
	General and administrative			17,737			10,506		3,849		3,813			1,464
	Amortization of deferred stock compensation			1,082			1,120		1,937		7			—
	Facilities lease losses and other charges			49,888			—		—		—			—

		Total operating expenses		274,387			108,655		34,341		23,718			11,242

Income (loss) from operations				25,687			82,934		854		(15,231	)		(9,442	)
Interest and other income (expense), net				8,207			5,382		1,737		120			(177	)
Loss on investments, net				(16,092	)		—		—		—			—

Income (loss) before provision for income taxes				17,802			88,316		2,591		(15,111	)		(9,619	)
Provision for income taxes				14,954			20,385		106		—			—

Net income (loss)			$	2,848		$	67,931	$	2,485	$	(15,111	)	$	(9,619	)

Net income (loss) per share — Basic			$	0.01		$	0.33	$	0.02	$	(0.56	)	$	(0.60	)
Net income (loss) per share — Diluted			$	0.01		$	0.28	$	0.01	$	(0.56	)	$	(0.60	)
Shares used in per share calculation — Basic				221,051			207,454		104,376		27,200			15,976
Shares used in per share calculation — Diluted				243,162			242,504		204,584		27,200			15,976

Balance Sheet Data:
Cash, cash equivalents and short-term investments			$	255,148		$	155,039	$	89,305	$	10,420		$	18,472
Working capital				257,794			230,028		79,253		5,276			15,334
Total assets				683,722			455,179		117,280		21,301			26,100
Non-current liabilities associated with lease losses				30,896			—		—		—			—
Long-term portion of debt and capital lease obligations				—			—		—		2,209			1,954
Redeemable convertible preferred stock				—			—		—		35,261			30,359
Total stockholders’ equity (deficit)				537,886			390,877		84,206		(27,355	)		(13,458	)


		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter(1)


		(In thousands, except per share and stock price data)
Quarterly Data:
Fiscal Year Ended October 27, 2001
Net revenues		$	165,024	$	115,206	$	116,279	$	116,521
Gross margin		$	98,970	$	69,133	$	69,795	$	62,176
Income (loss) from operations		$	44,337	$	12,654	$	15,110	$	(46,414	)
Net income (loss)		$	32,502	$	11,981	$	12,045	$	(53,680	)
Per share amounts:
	Basic	$	0.15	$	0.05	$	0.05	$	(0.24	)
	Diluted	$	0.13	$	0.05	$	0.05	$	(0.24	)
Shares used in computing per share amounts:
	Basic		216,128		219,865		222,863		225,350
	Diluted		247,856		238,740		246,219		225,350
Bid prices:
	High	$	131.15	$	108.06	$	55.25	$	39.34
	Low	$	65.75	$	16.75	$	27.74	$	12.60

Fiscal Year Ended October 28, 2000
Net revenues		$	42,740	$	62,053	$	92,138	$	132,114
Gross margin		$	22,656	$	36,000	$	53,979	$	78,954
Income from operations		$	8,065	$	15,663	$	24,044	$	35,162
Net income		$	7,308	$	13,316	$	20,077	$	27,230
Per share amounts:
	Basic	$	0.04	$	0.06	$	0.10	$	0.13
	Diluted	$	0.03	$	0.06	$	0.08	$	0.11
Shares used in computing per share amounts:
	Basic		202,080		205,982		209,208		212,546
	Diluted		235,536		241,860		244,424		248,194
Bid prices:
	High	$	46.46	$	92.50	$	105.63	$	133.72
	Low	$	29.56	$	38.19	$	43.25	$	81.13


		Page

PART I
Item 1.	Business		2
Item 2.	Properties		18
Item 3.	Legal Proceedings		18
Item 4.	Submission of Matters to a Vote of Security Holders		19
PART II
Item 5.	Market For Registrant’s Common Equity and Related Stockholder Matters		19
Item 6.	Selected Financial Data		19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk		27
Item 8.	Financial Statements and Supplementary Data		29
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		54
PART III
Item 10.	Directors and Executive Officers of the Registrant		54
Item 11.	Executive Compensation		54
Item 12.	Security Ownership of Certain Beneficial Owners and Management		54
Item 13.	Certain Relationships and Related Transactions		54
PART IV
Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		54
SIGNATURES			58


Name	Age		Position

Gregory L. Reyes		39	Chairman of the Board of Directors and Chief Executive Officer
Michael J. Byrd		41	President and Chief Operating Officer
Antonio Canova		40	Vice President, Finance and Chief Financial Officer
Jack Cuthbert		46	Vice President, Worldwide Sales


	*Our quarterly revenues and operating results may fluctuate in future periods for a number of reasons, which could adversely affect the trading price of our stock.*


	*Our revenues may be impacted by changes in information technology spending levels.*


	*Our success depends on our ability to develop new and enhanced products that achieve widespread market acceptance.*


	*As we introduce new products, we must manage the transition between our new products and our older products.*


	*International political instability may increase our cost of doing business and disrupt our business.*


	*Failure to manage expansion effectively could seriously harm our business, financial condition and prospects.*


	*Failure to adequately anticipate future OEM and end-user product needs and failure to forecast OEM and end-user demand could negatively impact the demand for our products and reduce our revenues.*


	*We plan to increase our international sales activities significantly, which will subject us to additional business risks.*


	*Fabric Operating System Software*


	*SAN-Designed Applications*


	*SAN Internetworking*


	*Interoperability and Standards*


	*We depend on OEM customers. The loss of any of these customers could significantly reduce our revenues.*


	*Failure to expand distribution channels and manage distribution relationships could significantly reduce our revenues.*


	The loss of Solectron Corporation, our sole manufacturer, or the failure to accurately forecast demand for our products or successfully manage our relationship with Solectron, could negatively impact our ability to manufacture and sell our products.


	*We are dependent on sole source and limited source suppliers for certain key components including ASICs and power supplies.*


	*Increased market competition may lead to reduced sales of our products, reduced profits and reduced market share.*


	*The prices of our products may decline which would reduce our revenues and gross margins.*


	*Undetected software or hardware errors could increase our costs and reduce our revenues.*


	*If we lose key personnel or are unable to hire additional qualified personnel, we may not be successful.*


	*We may be unable to protect our intellectual property, which would negatively affect our ability to compete.*


	*Others may bring infringement claims against us, which could be time-consuming and expensive to defend.*


	*We may engage in future acquisitions that dilute our stockholders and cause us to use cash, to incur debt or assume contingent liabilities.*


	*Our products must comply with evolving industry standards and government regulations.*


	*Provisions in our charter documents, customer agreements and Delaware law could prevent or delay a change in control and may reduce the market price of our common stock.*


	*We expect to experience volatility in our stock price, which could negatively affect your investment.*


	•	sales of common stock in the future; and
	•	incurring additional debt.


	*Our business may be harmed by class action litigation due to stock price volatility.*


	*Business interruptions could adversely affect our business.*


	*Our private minority equity investments are subject to equity price risk and their value may fluctuate.*


				Average
		Amount		Interest Rate

Cash and cash equivalents		$	150,118		2.67%
Short-term investments			105,030		4.38%

	Total	$	255,148		3.37%


	Page

Report of Independent Public Accountants		30
Consolidated Statements of Operations		31
Consolidated Balance Sheets		32
Consolidated Statements of Stockholders’ Equity		33
Consolidated Statements of Cash Flows		34
Notes to Consolidated Financial Statements		35