10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended January 26, 2002

OR

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

For the transition period from __________ to __________

Commission file number: 000-25601

BROCADE COMMUNICATIONS SYSTEMS, INC.

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation) 77-0409517
(I.R.S. employer identification no.)

1745 Technology Drive
San Jose, CA 95110
(408) 487-8000
(Address, including zip code, of Registrant’s
principal executive offices and telephone
number, including area code)

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 [X] No [   ]

The number of shares outstanding of the Registrant’s Common Stock on February 19, 2002 was 232,737,368 shares.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risks
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 4.1
EXHIBIT 4.3

BROCADE COMMUNICATIONS SYSTEMS, INC.

FORM 10-Q

QUARTER ENDED JANUARY 26, 2002

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations for the Three Months Ended January 26, 2002 and January 27, 2001	3
	Condensed Consolidated Balance Sheets as of January 26, 2002 and October 27, 2001	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended January 26, 2002 and January 27, 2001	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	25
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 2.	Changes in Securities and Use of Proceeds	26
Item 6.	Exhibits and Reports on Form 8-K	27
SIGNATURES		27

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

		Three Months Ended
		January 26,			January 27,
		2002			2001
Net revenues		$	123,078		$	165,024
Cost of revenues			48,978			66,054
	Gross margin		74,100			98,970
Operating expenses:
	Research and development		29,302			26,142
	Sales and marketing		25,590			23,831
	General and administrative		4,543			4,380
	Amortization of deferred stock compensation		242			280
	Total operating expenses		59,677			54,633
Income from operations			14,423			44,337
Interest income			3,567			2,118
Interest expense			(1,310	)		—
Other expense, net			(232	)		(24	)
Income before provision for income taxes			16,448			46,431
Provision for income taxes			4,777			13,929
Net income		$	11,671		$	32,502
Net income per share — Basic		$	0.05		$	0.15
Net income per share — Diluted		$	0.05		$	0.13
Shares used in per share calculation — Basic			228,256			216,128
Shares used in per share calculation — Diluted			248,233			247,856

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

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BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)

				January 26,			October 27,
				2002			2001
				(unaudited)
Assets
Current assets:
	Cash and cash equivalents			$	756,601		$	150,118
	Short-term investments				67,281			105,030
			Total cash, cash equivalents and short-term investments		823,882			255,148
	Marketable equity securities				402			332
	Accounts receivable, net of allowances for doubtful accounts of $3,014 and $3,025, respectively				73,531			68,900
	Inventories, net				9,170			10,307
	Deferred tax assets, net				28,306			28,025
	Prepaid expenses and other current assets				10,761			10,022
			Total current assets		946,052			372,734
Property and equipment, net					112,164			97,457
Deferred tax assets, net					216,564			207,209
Convertible subordinated debt issuance costs					12,125			—
Other assets					6,399			6,322
			Total assets	$	1,293,304		$	683,722
Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable			$	31,249		$	25,082
	Accrued employee compensation				20,049			21,994
	Deferred revenue				13,883			12,630
	Current liabilities associated with lease losses				11,035			11,339
	Other accrued liabilities				41,172			43,895
			Total current liabilities		117,388			114,940
Non-current liabilities associated with lease losses					26,825			30,896
Convertible subordinated debt					550,000			—
Commitments and contingencies (Note 6)
Stockholders’ equity:
	Preferred stock, $0.001 par value, 5,000 shares authorized, no shares outstanding				—			—
	Common stock, $0.001 par value, 800,000 shares authorized:
		Issued and outstanding: 232,481 and 229,762 shares at January 26, 2002 and October 27, 2001, respectively			232			230
	Additional paid-in capital				543,425			493,738
	Deferred stock compensation				(796	)		(1,038	)
	Accumulated other comprehensive income				125			522
	Retained earnings				56,105			44,434
			Total stockholders’ equity		599,091			537,886
			Total liabilities and stockholders’ equity	$	1,293,304		$	683,722

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

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BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

					Three Months Ended
					January 26,			January 27,
					2002			2001
Cash flows from operating activities:
	Net income				$	11,671		$	32,502
	Adjustments to reconcile net income to net cash provided by operating activities:
		Tax benefits from employee stock option transactions				13,396			46,174
		Deferred taxes				(9,719	)		(33,403	)
		Depreciation, amortization and write-offs of property and equipment				7,139			2,980
		Provision for doubtful accounts receivable and sales returns				300			369
		Amortization of deferred stock compensation				242			280
		Changes in operating assets and liabilities:
			Accounts receivable			(4,931	)		(25,024	)
			Inventories			1,137			(4,268	)
			Prepaid expenses and other assets			(815	)		(6,080	)
			Accounts payable			6,167			30,035
			Accrued employee compensation			(1,945	)		(7,114	)
			Deferred revenue			1,253			7,057
			Other accrued liabilities			(2,723	)		9,393
			Liabilities associated with lease losses			(1,431	)		—
				Net cash provided by operating activities		19,741			52,901
Cash flows from investing activities:
	Purchases of property and equipment					(24,540	)		(26,053	)
	Purchases of short-term investments					—			(6,194	)
	Proceeds from maturities of short-term investments					37,364			8,152
	Other investing activities					—			(6,400	)
				Net cash provided by (used in) investing activities		12,824			(30,495	)
Cash flows from financing activities:
	Proceeds from issuance of common stock, net					36,293			34,527
	Proceeds from issuance of convertible subordinated debt					537,625			—
				Net cash provided by financing activities		573,918			34,527
Net increase in cash and cash equivalents						606,483			56,933
Cash and cash equivalents, beginning of period						150,118			27,265
Cash and cash equivalents, end of period					$	756,601		$	84,198

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

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BROCADE COMMUNICATIONS SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Organization and Operations of Brocade

     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 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.

2. Summary of Significant Accounting Policies

Basis of Presentation

     The accompanying financial data as of January 26, 2002, and for the three months ended January 26, 2002 and January 27, 2001, has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The October 27, 2001 Condensed Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 27, 2001.

     In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present a fair statement of financial position as of January 26, 2002, results of operations, and cash flows for the three months ended January 26, 2002, and January 27, 2001, have been made. The results of operations for the three months ended January 26, 2002 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Cash, Cash Equivalents and Short-term Investments

     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. Treasury securities and debt securities issued by U.S. government agencies with original maturity dates between three months and one year. All short-term investments are classified as available-for-sale. Unrealized gains and losses are included in accumulated other comprehensive income in the accompanying Condensed Consolidated Balance Sheets, net of any related tax effect. No gains or losses were realized on the sale of short-term investments for the quarters ended January 26, 2002, and January 27, 2001, as the Company’s short-term investments were held to maturity.

Revenue Recognition

     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 Brocade products into the customer’s products. These revenues, and related costs, are deferred and recognized when the customer has successfully integrated Brocade

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products into its product offerings and Brocade 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.

Computation of Net Income per Share

     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 on earnings per share and from the assumed conversion of outstanding convertible debt that has a dilutive effect on earnings per share.

Concentrations

     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 four 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 in U.S. government agency debt securities and limits the amount of credit exposure to any one entity. Subsequent to January 26, 2002, the Company invested $540.0 million, primarily consisting of the proceeds from its convertible debt offering, in debt securities of three separate U.S. government agencies.

     For the quarters ended January 26, 2002, and January 27, 2001, four and two customers each contributed greater than 10 percent of the Company’s total revenues, for combined totals of 70 percent and 55 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, Hewlett-Packard Company (HP) and Compaq Computer Corporation (Compaq), two of the Company’s OEM customers, have announced their intent to merge, which if consummated could result in a disruption in the Company’s sales to these two customers.

     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 January 26, 2002, and October 27, 2001, 78 percent and 76 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 sales returns and other allowances. The Company has not experienced material credit losses in any of the periods presented.

     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.

Comprehensive Income

     The components of comprehensive income, net of tax, are as follows (in thousands):

		Three Months Ended
		January 26,			January 27,
		2002			2001
Net income		$	11,671		$	32,502
Other comprehensive income:
	Change in net unrealized gains on marketable equity securities and short-term investments		(397	)		(17,217	)
Total comprehensive income		$	11,274		$	15,285

Recent Accounting Pronouncements

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     In October 2001, the Financial Accounting Standards Board (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.

3. Liabilities Associated with Facilities Lease Losses

     During the quarter ended October 27, 2001, the Company recorded a charge of $39.8 million related to estimated facilities lease losses, net of expected sublease income, and a charge of $5.7 million in connection with the impairment of certain related leasehold improvements. These charges were estimates in accordance with SFAS No. 5, “Accounting for Contingencies,” and represented the low-end of an estimated range that may be adjusted upon the occurrence of future triggering events. Under certain circumstances, the high-end of this range was estimated to be $63.0 million. Triggering events may include, but are not limited to, changes in estimated time to sublease the facilities, sublease terms, and sublease rates. Should operating lease rental rates continue to decline or should it take longer than expected to find a suitable tenant to sublease the facilities, adjustments to the facilities lease losses reserve may be necessary in future periods based upon the then current actual events and circumstances. As of January 26, 2002, no triggering events had occurred. As a result, no adjustments were made to the estimated facilities lease losses and related asset impairment charges previously recorded.

     The activity for the facilities lease losses reserve, net of expected sublease income, for the quarter ended January 26, 2002, consisted of the following (in thousands):

		Facilities
		Lease Losses
Reserve balances at October 27, 2001		$	38,834
Cash payments on facilities lease losses			(1,431	)
	Reserve balances at January 26, 2002	$	37,403

     Cash payments for facilities leases related to the above noted facilities lease losses will be made over the next five years. In addition to the $37.4 million reserved for future lease commitments, net of expected sublease income, the Company has a remaining reserve balance of $0.5 million for future purchase commitments in connection with certain related leasehold improvements currently under construction. For the quarter ended January 26, 2002, the Company made cash payments of $2.9 million related to these accrued purchase commitments.

4. Convertible Subordinated Debt

     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 (aggregate of approximately 12.6 million shares) at any time prior to maturity on January 1, 2007. At any time on or after January 5, 2005, the Company may redeem the notes in whole or in part at the following prices expressed as a percentage of the principal amount:

Redemption Period	Price
Beginning on January 5, 2005 and ending on December 31, 2005		100.80	%
Beginning on January 1, 2006 and ending on December 31, 2006		100.40	%
On January 1, 2007 and thereafter		100.00	%

     The Company is required to pay interest on January 1 and July 1 of each year, beginning July 1, 2002. Debt issuance costs of $12.4 million are being amortized over a five-year term using the straight-line method, which approximates the effective interest rate method. The amortization of these debt issuance costs will accelerate upon

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early redemption or conversion of the notes. Subsequent to January 26, 2002, the net proceeds of $537.6 million were invested in U.S. government agency debt securities. The net proceeds remain available for general corporate purposes, including working capital and capital expenditures.

5. Balance Sheet Detail

     Inventories consisted of the following and are shown net of reserves for excess and obsolete inventory (in thousands):

		January 26,		October 27,
		2002		2001
Raw materials		$	5,549	$	6,572
Finished goods			3,621		3,735
	Total	$	9,170	$	10,307

     Property and equipment, net consisted of the following (in thousands):

		January 26,			October 27,
		2002			2001
Computers, equipment and software		$	126,398		$	104,236
Furniture and fixtures			3,073			3,200
Leasehold improvements			10,137			12,974
			139,608			120,410
Less: Accumulated depreciation and amortization			(27,444	)		(22,953	)
	Total	$	112,164		$	97,457

     Leasehold improvements at January 26, 2002 and October 27, 2001, are shown net of estimated asset impairments related to facilities lease losses (see Note 3).

6. Commitments and Contingencies

Leases

     The Company leases its facilities and certain equipment under various operating lease agreements expiring through November 2013. In connection with its facilities lease agreements the Company has signed unconditional, irrevocable letters of credit totaling $18.7 million as security for the leases. Future minimum lease payments under all non-cancelable operating leases at January 26, 2002 were $275.8 million. In addition to base rent on its facilities leases, many of the operating lease agreements require that the Company pay a proportional share of the respective facilities’ operating expenses.

     At January 26, 2002, the Company had a facilities lease losses reserve, net of expected sublease income, related to future facilities lease commitments of $37.4 million (see Note 3).

Manufacturing and Purchase Commitments

     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 January 26, 2002, the Company’s commitment to Solectron for such inventory components was $30.3 million, net of purchase commitment reserves of $7.6 million, 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 January 26, 2002, the Company had non-cancelable purchase commitments for various components totaling $4.3 million, net of purchase commitment reserves of $1.1 million, which the Company expects to utilize during future normal ongoing operations.

     The Company has established total purchase commitment reserves of $8.7 million for excess inventory components committed to be purchased from Solectron and other key component vendors that it believes may not be realizable during future normal ongoing operations. These purchase commitment reserves represent the difference between the cost of the components and their estimated fair value based upon assumptions about

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market conditions and the Company’s current forecast of revenue. To the extent that such forecasts are not achieved or actual market conditions are less favorable than those projected, the Company’s commitments and associated reserve levels may change.

Legal Proceedings

     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 alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (and Rule 10b-5 promulgated thereunder) against all defendants and violations of Section 20(a) of the Securities Exchange Act of 1934 against the Individual Defendants.A second, substantively similar complaint, Radliff v. Brocade Communications Systems, Inc., was filed in the same court on September 25, 2001. On March 6, 2002, the United States District Court for the Southern District of New York entered an order dismissing the cases without prejudice as to the Company and the Individual Defendants.

     On February 14, 2002, a suit captioned McData Corp. v. Brocade Communications Systems, Inc. was filed against the Company in the United States District Court for the District of Colorado. The complaint alleged that the Brocade SilkWorm 3800 Enterprise Fibre Channel Fabric Switch and Brocade SilkWorm 12000 Core Fabric Switch infringe U.S. Patent No. 6,233,236, entitled “Method and Apparatus for Measuring Traffic Within a Switch.” The complaint seeks unspecified compensatory and exemplary damages and to permanently enjoin the Company from infringing the patent in the future. On March 4, 2002, McDATA Corporation filed an amended complaint, in which it additionally alleged that the Brocade SilkWorm 3200 Entry Fabric Switch infringed this patent. In connection with this suit, on March 4, 2002, McDATA Corporation filed a motion for a preliminary injunction against the Company with regard to the patent. No hearing on the motion for preliminary injunction or the underlying claims has been scheduled. The Company believes that it has meritorious defenses to the claims and intends to defend the action vigorously.

7. Net Income per Share

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

		Three Months Ended
		January 26,			January 27,
		2002			2001
Net income		$	11,671		$	32,502
Basic and diluted net income per share:
	Weighted average shares of common stock outstanding		231,000			223,734
	Less: Weighted average shares of common stock subject to repurchase		(2,744	)		(7,606	)
Weighted average shares used in computing basic net income per share			228,256			216,128
Dilutive effect of common share equivalents			19,977			31,728
Weighted average shares used in computing diluted net income per share			248,233			247,856
Basic net income per share		$	0.05		$	0.15
Diluted net income per share		$	0.05		$	0.13

     For the quarters ended January 26, 2002, and January 27, 2001, potential common share equivalents in the form of stock options to purchase 29.4 million and 1.2 million weighted average shares of common stock, respectively, were antidilutive and therefore not included in the computation of diluted earnings per share. In addition, for the quarter ended January 26, 2002, common share equivalents resulting from a potential conversion of the Company’s convertible subordinated debt of 5.0 million weighted average common shares were antidilutive and therefore not included in the computation of diluted earnings per share.

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8. Segment Information

     The Company is organized and operates as one operating segment: the design, development, manufacturing, marketing and selling of infrastructure for SANs. The Chief Executive Officer is the Company’s Chief Operating Decision Maker (CODM), as defined by SFAS 131, “Disclosures about Segments of an Enterprise and Related Information.” The CODM 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 and international revenues were approximately 70 percent and 30 percent of total revenues, respectively for the quarter ended January 26, 2002. Domestic and international revenues were approximately 73 percent and 27 percent for the quarter ended January 27, 2001. Domestic revenues include sales to certain OEM customers who then distribute Brocade product to their international customers. To date service revenue has not exceeded 10 percent of total revenues. Identifiable assets located in foreign countries were not material at January 26, 2002, and October 27, 2001. For the quarters ended January 26, 2002, and January 27, 2001, four and two customers each contributed greater than 10 percent of the Company’s total revenues, for combined totals of 70 percent and 55 percent of total revenues, respectively.

9. Subsequent Events

     On February 5, 2002, the Company’s Board of Directors adopted a stockholder rights plan. Under the plan, the Company declared and paid a dividend of one right for each share of common stock held by stockholders of record as of the close of business on February 19, 2002. Each right initially entitles stockholders to purchase a fractional share of the Company’s preferred stock at $280 per share. However, the rights are not immediately exercisable and will become exercisable only upon the occurrence of certain events. If a person or group acquires, or announces a tender or exchange offer that would result in the acquisition of 15 percent or more of the Company’s common stock while the stockholder rights plan remains in place, then, unless the rights are redeemed by the Company for $0.001 per right, the rights will become exercisable by all rights holders except the acquiring person or group for shares of the Company or the third party acquirer having a value of twice the right’s then-current exercise price.

     The rights may have the effect of preventing or delaying a change in control of the Company.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     This report contains forward-looking statements, which are predictions about future events. These forward-looking statements include predictions regarding our:

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• revenues and profits;

• customer concentration;

• gross margins;

• research and development expenses;

• sales and marketing expenses;

• general and administrative expenses;

• interest income and expense;

• realization of deferred tax assets;

• facilities lease losses, inventory and other asset impairments;

• liquidity and sufficiency of existing cash, cash equivalents, and short-term investments for near-term requirements; and

• the effect of recent accounting pronouncements on our financial condition and results of operations.

     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,” “intend,” “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.” The following information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Condensed Consolidated Financial Statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and notes thereto contained in our Annual Report on Form 10-K filed with the SEC on January 24, 2002.

     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.

Recent Events

     On February 14, 2002, a suit captioned McData Corp. v. Brocade Communications Systems, Inc. was filed against Brocade in the United States District Court for the District of Colorado. The complaint alleged that the Brocade SilkWorm 3800 Enterprise Fibre Channel Fabric Switch and Brocade SilkWorm 12000 Core Fabric Switch infringe U.S. Patent No. 6,233,236, entitled “Method and Apparatus for Measuring Traffic Within a Switch.” The complaint seeks unspecified compensatory and exemplary damages and to permanently enjoin Brocade from infringing the patent in the future. On March 4, 2002, McDATA Corporation filed an amended complaint, in which it additionally alleged that the Brocade SilkWorm 3200 Entry Fabric Switch infringed this patent. In connection with this suit, on March 4, 2002, McDATA Corporation filed a motion for a preliminary injunction against Brocade with regard to the patent. No hearing on the motion for preliminary injunction or the underlying claims has been scheduled. We believe that we have meritorious defenses to the claims and intend to defend the action vigorously.

     On March 6, 2002, the United States District Court for the Southern District of New York entered an order dismissing without prejudice as to Brocade and three of its officers and directors the litigation captioned Chae v. Brocade Communications Systems, Inc. et al and Radliff v. Brocade Communications Systems, Inc. See note 6, “Commitments and Contingencies — Legal Proceedings,” of the Notes to Condensed Consolidated Financial Statements.

     On February 5, 2002, our Board of Directors adopted a stockholder rights plan. Under the plan, we declared and paid a dividend of one right for each share of common stock held by stockholders of record as of the close of business on February 19, 2002. Each right initially entitles stockholders to purchase a fractional share of our preferred stock at $280 per share. However, the rights are not immediately exercisable and will become exercisable only upon the occurrence of certain events. If a person or group acquires, or announces a tender or exchange offer that would result in the acquisition of 15 percent or more of our common stock while the stockholder rights plan remains in place, then, unless the rights are redeemed by us for $0.001 per right, the rights will become exercisable by all rights holders except the acquiring person or group for shares of us or the third party acquirer having a value of twice the right’s then-current exercise price. The stockholder rights plan may have the effect of deterring or delaying a change in control of Brocade.

Results of Operations

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

			Three Months Ended
			January 26,			January 27,
			2002			2001
Net revenues				100.0	%		100.0	%
Cost of revenues				39.8			40.0
	Gross margin			60.2			60.0
Operating expenses:
	Research and development			23.8			15.8
	Sales and marketing			20.8			14.4
	General and administrative			3.7			2.7
	Amortization of deferred stock compensation			0.2			0.2
		Total operating expenses		48.5			33.1
Income from operations				11.7			26.9
Interest income				2.9			1.2
Interest expense				(1.0	)		—
Other expense, net				(0.2	)		—
Income before provision for income taxes				13.4			28.1
Provision for income taxes				3.9			8.4
Net income				9.5	%		19.7	%

     Revenues. Our revenues are derived primarily from sales of our SilkWorm family of products. Net revenues for the quarter ended January 26, 2002 were $123.1 million, compared with $165.0 million for the quarter ended January 27, 2001. The decrease in net revenues was primarily the result of decreased unit sales due to unfavorable economic conditions and reduced information technology (IT) spending rates compared with the same period a year ago. The decrease was also the result of declining average unit selling prices partially offset by an increase in the percentage of sales of higher priced products.

     Domestic and international revenues were approximately 70 percent and 30 percent of total revenues, respectively, for the quarter ended January 26, 2002, compared with approximately 73 percent and 27 percent of total revenues, respectively, for the quarter ended January 27, 2001. International revenues primarily consisted of sales to customers in Western Europe and East 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 our product to their international customers.

     A significant portion of our revenues is concentrated among a relatively small number of customers. For the quarters ended January 26, 2002 and January 27, 2001, four and two customers each contributed greater than 10 percent of our total revenues for combined totals of 70 percent and 55 percent of our total revenues, respectively. 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 if consummated could result in a disruption in our sales to these two customers.

     In recent quarters, unfavorable economic conditions and reduced global IT spending rates 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.

     Gross margin. Gross margin increased to 60.2 percent of net revenues for the quarter ended January 26, 2002, compared with 60.0 percent for the quarter ended January 27, 2001. The increase was primarily due to lower component and manufacturing costs partially offset by a decline in average unit selling prices. We currently expect gross margin for the quarter ended April 27, 2002 to remain relatively consistent with that reported for the quarter ended January 26, 2002.

     Research and development expenses. Research and development (R&D) expenses increased to $29.3 million for the quarter ended January 26, 2002, compared with $26.1 million for the quarter ended January 27, 2001. 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 increase in R&D expenses reflects our continued

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belief that investment in R&D 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 decrease as a percentage of net revenues.

     Sales and marketing expenses. Sales and marketing expenses increased to $25.6 million for the quarter ended January 26, 2002, compared with $23.8 million for the quarter ended January 27, 2001. 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 increase in sales and marketing expenses was primarily due to the hiring of additional sales and marketing personnel. 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, we are currently expanding our international sales activities to various countries in Europe and the Asia Pacific region. We currently anticipate that sales and marketing expenses will increase in absolute dollars, but will decrease as a percentage of net revenues.

     General and administrative expenses. General and administrative (G&A) expenses were $4.5 million for the quarter ended January 26, 2002, compared with $4.4 million for the quarter ended January 27, 2001. G&A expenses consist primarily of salaries and related expenses for corporate executives, finance, human resources and investor relations, as well as recruiting expenses, professional fees, legal expenses, other corporate expenses, and IT and facilities expenses. We currently anticipate that G&A expenses will increase in absolute dollars, but will remain relatively constant as a percentage of net revenues.

     Amortization of deferred stock compensation. We recorded amortization of deferred stock compensation of $0.2 million and $0.3 million for the quarters ended January 26, 2002, and January 27, 2001, respectively. At January 26, 2002, unamortized deferred stock compensation was approximately $800,000.

     Interest income, net. Interest income increased to $3.6 million for the quarter ended January 26, 2002, compared with $2.1 million for the quarter ended January 27, 2001. The increase in interest income was primarily the result of additional investment income on increased cash and short-term investment balances, partially offset by declining interest rates. Interest expense was $1.3 million for the quarter ended January 26, 2002, and was primarily the result of interest expense in connection with the issuance of convertible subordinated debt. We currently anticipate that both interest income and interest expense will increase for the quarter ended April 27, 2002.

     Provision for income taxes. Our effective tax rate for the quarter ended January 26, 2002 was 29 percent compared with 30 percent for the quarter ended January 27, 2001. Our ability to maintain our current effective 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 effective tax rate could change.

Liquidity and Capital Resources

     Cash, cash equivalents, and short-term investments were $823.9 million at January 26, 2002, an increase of $568.7 million from October 27, 2001. For the quarter ended January 26, 2002, we generated $19.7 million in cash from operating activities, primarily from net income and an increase in accounts payable, partially offset by an increase in accounts receivable. Also included in cash from operations were income tax benefits related to employee stock option transactions partially offset by an increase in net deferred tax assets. At January 26, 2002, we had $244.9 million in net deferred tax assets, which we believe will be realizable through future profitable operations.

     Net cash provided by investing activities totaled $12.8 million and resulted from proceeds from maturities of short-term investments of $37.3 million, partially offset by $24.5 million invested in capital equipment. Net cash provided by financing activities totaled $573.9 million and was the result of $537.6 million in net proceeds from the issuance of convertible subordinated notes (see note 4, “Convertible Subordinated Debt,” of the Notes to Condensed Consolidated Financial Statements), and $36.3 million in net proceeds from the issuance of common stock related to employee participation in employee stock plans.

     Net proceeds from the issuance of common stock related to employee participation in employee stock programs have historically been a significant component of our liquidity. The extent to which our employees participate in these programs generally increases or decreases based upon changes in the market price of our common stock. As a result, our cash flow resulting from the issuance of common stock related to employee participation in employee stock programs will vary.

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     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 would require us to purchase from Solectron all inventory components not returnable or usable by other Solectron customers. At January 26, 2002, our commitment to Solectron for such inventory components was $30.3 million, net of purchase commitment reserves of $7.6 million, 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 January 26, 2002, we had non-cancelable purchase commitments for various components totaling $4.3 million, net of purchase commitment reserves of $1.1 million, which we expect to utilize during future normal ongoing operations.

     We have established total purchase commitment reserves of $8.7 million for excess inventory components committed to be purchased from Solectron and other key component vendors that we believe may not be realizable during future normal ongoing operations. These purchase commitment reserves represent the difference between the cost of the components and their estimated fair value based upon assumptions about market conditions and our current forecast of revenue. To the extent that such forecasts are not achieved or actual market conditions are less favorable than those projected, our commitments and associated reserve levels may change.

     On December 21, 2001, and January 10, 2002, we sold $550 million in aggregate principal amount of 2 percent convertible subordinated notes due 2007 (see note 4, “Convertible Subordinated Debt,” of the Notes to Condensed Consolidated Financial Statements). 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 (aggregate of approximately 12.6 million shares) at any time prior to maturity on January 1, 2007. At any time on or after January 5, 2005, we may redeem the notes in whole or in part at the following prices expressed as a percentage of the principal amount:

Redemption Period	Price
Beginning on January 5, 2005 and ending on December 31, 2005		100.80	%
Beginning on January 1, 2006 and ending on December 31, 2006		100.40	%
On January 1, 2007 and thereafter		100.00	%

     We are required to pay interest on January 1 and July 1 of each year, beginning July 1, 2002. Debt issuance costs of $12.4 million are being amortized over a five-year term using the straight-line method, which approximates the effective interest rate method. The amortization of these debt issuance costs will accelerate upon early redemption or conversion of the notes. The net proceeds remain available for general corporate purposes, including working capital and capital expenditures.

     The following table summarizes our contractual obligations (including interest expense) and commitments at January 26, 2002 (in thousands):

				Less than				After
		Total		1 year		1 — 3 years		3 years
Contractual Obligations:
Convertible subordinated notes, including interest		$	605,000	$	11,000	$	22,000	$	572,000
Non-cancelable operating leases			275,801		26,905		50,933		197,963
Unconditional purchase obligations, gross			43,283		43,283		—		—
	Total contractual cash obligations	$	924,084	$	81,188	$	72,933	$	769,963
Other Commitments:
Standby letters of credit		$	18,749	$	n/a	$	n/a	$	n/a

     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 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 the market acceptance of our products.

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Related Party Transactions

     Larry W. Sonsini, a director of Brocade, serves as a member and Chairman and CEO of Wilson Sonsini Goodrich & Rosati, Professional Corporation (WSGR), our principal outside legal counsel. Aggregate fees billed to us by WSGR for legal services rendered during the quarters ended January 26, 2002, and January 27, 2001, were $351,000 and $161,000, respectively.

     Mark Leslie, a director of Brocade, serves on the Board of Directors of VERITAS Software Corporation (Veritas), a company with whom we do business. For the quarters ended January 26, 2002, and January 27, 2001, total revenues from sales to Veritas were $800,000 and $1.2 million, respectively. Accounts receivable balances due from Veritas were $370,000 and $204,000 at January 26, 2002 and October 27, 2001, respectively. We believe that sales to Veritas were on terms no more favorable than those with unrelated parties.

Critical Accounting Policies

     Our discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate, on an on-going basis, our estimates and judgments, including those related to sales returns, bad debts, excess inventory and purchase commitments, investments, warranty obligations, lease losses, income taxes, and contingencies and litigation. We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

     We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements:

• Revenue recognition and allowances;

• Inventory and purchase commitment reserves;

• Lease losses; and

• Accounting for income taxes.

     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. We record a provision for estimated sales discounts, rebates, credits and, at times, returns on product sales in the same period as the related revenues are recorded. These estimates are based on historical sales returns, analysis of credit memo data, current economic trends, changes in customer demand, and other factors. If the data used to calculate these estimates does not properly anticipate future returns, revenue could be misstated. To date, actual experience has been consistent with our estimates.

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     We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We analyze accounts receivable and historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in customer payment terms and practices when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances and charges against earnings may be required.

     We write down inventory and record purchase commitment reserves for estimated excess and obsolete inventory and equal to the difference between the cost of inventory and the estimated fair value based upon assumptions about future demand and market conditions. Although we strive to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and commitments, and our reported results. If actual market conditions are less favorable than those projected, additional inventory write-downs, purchase commitment reserves, and charges against earnings may be required. Actual experience has been consistent with our estimates.

     During the quarter ended October 27, 2001, as a result of continuing unfavorable economic conditions and a reduction in IT spending rates, we performed a comprehensive analysis of our real estate facility requirements and identified excess facility space, which has subsequently been offered for sublease. Based upon the results of this analysis, during the quarter ended October 27, 2001, we recorded a charge of $39.8 million related to estimated facilities lease losses, net of expected sublease income, and a charge of $5.7 million in connection with the impairment of certain related leasehold improvements. In determining the net facilities lease losses and related asset impairment charges, various assumptions were made including the time period over which the facilities will be vacant, expected sublease terms, and expected sublease rates. The charges recorded were estimates in accordance with SFAS No. 5, “Accounting for Contingencies,” and represented the low-end of an estimated range that may be adjusted upon the occurrence of future triggering events. Under certain circumstances, we estimated the high-end of this range to be $63.0 million. Triggering events may include, but are not limited to, changes in estimated time to sublease the facilities, sublease terms, and sublease rates. Should operating lease rental rates continue to decline or should it take longer than expected to find a suitable tenant to sublease the facility, adjustments to the facilities lease losses reserve may be necessary in future periods based upon the then current actual events and circumstances. As of January 26, 2002, no triggering events had occurred. As a result, no adjustments were made to the estimated facilities lease losses and related asset impairment charges previously recorded.

     The determination of our tax provision is subject to judgments and estimates due to operations in several tax jurisdictions outside the United States. Sales to our international customers are generally taxed at rates that are lower than U.S. rates, resulting in a reduction of our effective tax rate. The ability to maintain our current effective tax rate is contingent upon existing tax laws in both the United States and in the respective countries in which our international subsidiaries are located. Future changes in domestic or international tax laws could affect the continued realization of the tax benefits we are currently receiving and expect to receive from international sales. In addition, a decrease in the percentage of our total revenue from international subsidiaries or in the mix of international revenue among particular tax jurisdictions could increase our overall effective tax rate. Also, our current effective tax rate assumes that U.S. income taxes are not provided for undistributed earnings of certain non-U.S. subsidiaries. These earnings could become subject to incremental foreign withholding, Federal and state income taxes should they be either deemed or actually remitted to the U.S.

     The carrying value of our net deferred tax assets assumes that we will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions, to fully realize the net deferred tax assets. If these estimates and related assumptions change in the future, we may be required to record valuation allowances against our deferred tax assets resulting in additional income tax expense. We evaluate the expected realization of our deferred tax assets and assess the need for valuation allowances quarterly.

Recent Accounting Pronouncements

     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

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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.

Risk Factors

     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 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, introductions, and transitions of new products by us and our 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;

• variations in the mix of our products sold and the mix of distribution channels through which they are sold;

• litigation; and

• legislation or regulatory developments.

     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.

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

     In recent quarters, unfavorable economic conditions and reduced global IT spending rates 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.

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

     We currently derive substantially all of our revenues from sales of our SilkWorm family of products. We expect that revenue from this product family will continue to account for a substantial portion of our revenues for the foreseeable future. Therefore, widespread market acceptance of these products is critical to our future success. Some of our products have been only recently introduced and therefore, the demand and market acceptance of 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.

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

     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, during the quarter ended October 27, 2001, the accelerated transition of our product offerings from 1 to 2 Gigabit per second (Gbit/sec) technology 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 any of the forgoing occur, our business could be seriously harmed.

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

     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.

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

     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.

     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 sell and market our products through OEM partners, master resellers and fabric partners. We must continually assess, anticipate and respond to the needs of these OEM partners, master resellers and fabric partners. We must ensure that our products integrate with solutions provided by these OEM partners, master resellers and fabric partners. 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, master resellers and fabric partners, our direct contact with the end-users of our products is often limited. Although we make every effort to communicate with,

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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, master resellers and fabric partners 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, master resellers and fabric partners. If our customers are unable to accurately forecast demand or 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. Furthermore, we may not be able to identify these forecast differences until late in our quarter and consequently may not be able to make adjustments to our business model without negatively impacting our earnings.

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

     We plan to expand our international sales activities significantly. 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 realization of the tax benefits we are currently receiving and expect to receive from sales to our international customers. In addition a decrease in the percentage of our total revenue from international customers or in the mix of international revenue among particular tax jurisdictions, could increase our overall effective tax rate.

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

     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 quarter year ended January 26, 2002, four customers each represented at least 10 percent of our total revenues for a combined total of 70 percent of our total revenues. In addition, Hewlett-Packard Company (HP) and Compaq Computer Corporation (Compaq), two of our OEM customers, have announced their intent to merge, which if consummated could 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.

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

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     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.

     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 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 recently qualified 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.

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

     We currently purchase several key components 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 the operating system of our products. 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.

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

     The markets for our SAN switching products are competitive, and are likely to become even more competitive. Increased competition could result in pricing pressures, reduced sales, reduced margins, reduced profits, reduced market share or the failure of our products to achieve or maintain market acceptance. Our products face competition from multiple sources 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.

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

     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.

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

     Networking products frequently contain undetected software or hardware errors when first introduced or as new versions are released. Our products are 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 another vendor’s SAN products, or ours, could delay or prevent the development of the SAN market.

     We may not be able to maintain profitability.

     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.

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

     Our success depends to a significant degree upon the continued contributions of 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 may be unable to protect our intellectual property, which would negatively affect our ability to compete.

     We rely on a combination of patent, copyright, trademark, trade secret laws, confidentiality agreements and other contractual restrictions on disclosure to protect our intellectual property rights. We also enter into

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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.

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

     In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. On February 14, 2002, a suit captioned McData Corp. v. Brocade Communications Systems, Inc. was filed against Brocade in the United States District Court for the District of Colorado. The complaint alleged that the Brocade SilkWorm 3800 Enterprise Fibre Channel Fabric Switch and Brocade SilkWorm 12000 Core Fabric Switch infringe U.S. Patent No. 6,233,236, entitled “Method and Apparatus for Measuring Traffic Within a Switch.” The complaint seeks unspecified compensatory and exemplary damages and to permanently enjoin Brocade from infringing the patent in the future. On March 4, 2002, McDATA Corporation filed an amended complaint, in which it additionally alleged that the Brocade SilkWorm 3200 Entry Fabric Switch infringed this patent. In connection with this suit, on March 4, 2002, McDATA Corporation filed a motion for a preliminary injunction against Brocade with regard to the patent. No hearing on the motion for preliminary injunction or the underlying claims has been scheduled. We believe that we have meritorious defenses to the claims and intend to defend the action vigorously.

     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.

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

     As part of our strategy, we expect to review opportunities to buy other businesses or technologies that would complement our current products, expand the breadth of our markets or enhance our technical capabilities, or that may otherwise offer growth opportunities. 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.

     These purchases also involve numerous risks, including:

• 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;

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• 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.

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

     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 standard specifications. Our products comprise only a part of the entire SAN solution utilized by the end-user 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 in our charter documents, customer agreements, Delaware law and our recently adopted stockholder rights plan could prevent or delay a change in control of Brocade, which could hinder your ability to receive a premium for your shares.

     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. In addition we recently adopted a stockholder rights plan. Any of these things could prevent or delay a change in control of Brocade, which could hinder your ability to receive a premium for your shares.

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

     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 of financial results by us or other technology companies;

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• announcements by us, our competitors, customers or similar businesses of significant technical innovations, contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

• losses of major OEM customers;

• additions or departures of key personnel;

• sales by us of common stock or convertible securities; and

• incurring additional debt.

     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.

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

     In the past, securities class action litigation often has been brought against a company following periods of volatility in the market price of its securities. We 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.

     Business interruptions could adversely affect our business.

     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, from time to time, 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.

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

     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 harmed.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

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

Interest Rate Risk

     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. Our cash, cash equivalents, and short-term investments are primarily maintained at four major financial institutions in the United States. At January 26, 2002, we did not hold any derivative instruments. 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 January 26, 2002. Carrying value approximates fair value.

				Average
		Amount		Interest Rate
Cash and cash equivalents		$	756,601		1.91	%
Short-term investments			67,281		3.89	%
	Total	$	823,882		2.07	%

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     Subsequent to January 26, 2002, we invested $540.0 million in AAA rated 36-month debt securities of U.S. government agencies.

     Our convertible subordinated debt is subject to a fixed interest rate and the notes are based on a fixed conversion ratio into common stock. Therefore, we are not exposed to changes in interest rates related to our long-term debt instruments.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     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 alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (and Rule 10b-5 promulgated thereunder) against all defendants and violations of Section 20(a) of the Securities Exchange Act of 1934 against the Individual Defendants. A second, substantively similar complaint, Radliff v. Brocade Communications Systems, Inc., was filed in the same court on September 25, 2001. On March 6, 2002, the United States District Court for the Southern District of New York entered an order dismissing the cases without prejudice as to the Company and the Individual Defendants.

     On February 14, 2002, a suit captioned McData Corp. v. Brocade Communications Systems, Inc. was filed against the Company in the United States District Court for the District of Colorado. The complaint alleged that the Brocade SilkWorm 3800 Enterprise Fibre Channel Fabric Switch and Brocade SilkWorm 12000 Core Fabric Switch infringe U.S. Patent No. 6,233,236, entitled “Method and Apparatus for Measuring Traffic Within a Switch.” The complaint seeks unspecified compensatory and exemplary damages and to permanently enjoin the Company from infringing the patent in the future. On March 4, 2002 McDATA, Corporation filed an amended complaint, in which it additionally alleged that the Brocade SilkWorm 3200 Entry Fabric Switch infringed this patent. In connection with this suit, on March 4, 2002, McDATA Corporation filed a motion for a preliminary injunction against the Company with regard to the patent. No hearing on the motion for preliminary injunction or the underlying claims has been scheduled. The Company believes that it has meritorious defenses to the claims and intends to defend the action.

Item 2. Changes in Securities and Use of Proceeds

     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 (aggregate of approximately 12.6 million shares) at any time prior to maturity on January 1, 2007. At any time on or after January 5, 2005, we may redeem the notes in whole or in part at the following prices expressed as a percentage of the principal amount:

Redemption Period	Price
Beginning on January 5, 2005 and ending on December 31, 2005		100.80	%
Beginning on January 1, 2006 and ending on December 31, 2006		100.40	%
On January 1, 2007 and thereafter		100.00	%

     We are required to pay interest on January 1 and July 1 of each year, beginning July 1, 2002. Debt issuance costs of $12.4 million are being amortized over a five-year term using the straight-line method, which approximates the effective interest rate method. The amortization of these debt issuance costs will accelerate upon early redemption or conversion of the notes. The offer and sale of the notes was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2). We intend to file a registration statement for the resale of the notes and the shares of common stock issuable upon conversion of the notes within 90 days after the closing of the offering. Subsequent to January 26, 2002, the net proceeds of $537.6 million were invested in U.S. government agency debt securities. The net proceeds remain available for general corporate purposes, including

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working capital and capital expenditures.

Item 6. Exhibits and Reports on Form 8-K

     (a)  Exhibits.

4.1	Indenture, dated as of December 21, 2001, between Brocade and State Street Bank and Trust Company of California, N.A.
4.2	Form of Note (included in Exhibit 4.1)
4.3	Registration Rights Agreement, dated as of December 21, 2001, by and among Brocade and Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Salomon Smith Barney Inc. and Merrill Lynch Pierce Fenner and Smith Incorporated.

     (b)  Reports on Form 8-K.

     We filed one report on Form 8-K during the quarter ended January 26, 2002. Information regarding the item reported on is as follows:

Date	Item Reported On
January 23, 2002	Private placement of $550 million in convertible subordinated notes due 2007.

     Items 3, 4, and 5 are not applicable and have been omitted.

SIGNATURES

     Pursuant to the requirements 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.

	Brocade Communications Systems, Inc.
Date: March 12, 2002	By:	/s/ ANTONIO CANOVA
		Antonio Canova Vice President and Chief Financial Officer

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EXHIBIT INDEX

Exhibit
No.	Description
4.1	Indenture, dated as of December 21, 2001, between Brocade and State Street Bank and Trust Company of California, N.A.
4.2	Form of Note (included in Exhibit 4.1)
4.3	Registration Rights Agreement, dated as of December 21, 2001, by and among Brocade and Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Salomon Smith Barney Inc. and Merrill Lynch Pierce Fenner and Smith Incorporated.

 - EX-4.1 3 f79821ex4-1.txt EXHIBIT 4.1 Exhibit 4.1 - -------------------------------------------------------------------------------- BROCADE COMMUNICATIONS SYSTEMS, INC. TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE --------------------------- INDENTURE DATED AS OF DECEMBER 21, 2001 --------------------------- 2% CONVERTIBLE SUBORDINATED NOTES DUE 2007 - -------------------------------------------------------------------------------- TABLE OF CONTENTS

PAGE ---- ARTICLE ONE DEFINITIONS.............................................................................................2 Section 1.1 Definitions................................................................................2 Affiliate..............................................................................................2 Board of Directors.....................................................................................2 Business Day...........................................................................................2 Closing Price..........................................................................................2 Commission.............................................................................................2 Common Stock...........................................................................................2 Company................................................................................................3 Company Notice.........................................................................................3 Conversion Date........................................................................................3 Conversion Price.......................................................................................3 Conversion Rate........................................................................................3 Corporate Trust Office.................................................................................3 Custodian..............................................................................................3 default................................................................................................3 Defaulted Interest.....................................................................................3 Depositary.............................................................................................3 Designated Senior Indebtedness.........................................................................3 Event of Default.......................................................................................4 Exchange Act...........................................................................................4 Fundamental Change.....................................................................................4 Global Note............................................................................................4 Indebtedness...........................................................................................4 Indenture..............................................................................................5 Initial Purchaser......................................................................................5 Institutional Accredited Investor......................................................................5 Liquidated Damages.....................................................................................5 Non-Payment Default....................................................................................5 Note or Notes..........................................................................................5 Note register..........................................................................................5 Note registrar.........................................................................................5 Noteholder or holder...................................................................................5 Notice Date............................................................................................5 Officers' Certificate..................................................................................5 Opinion of Counsel.....................................................................................5 Non-Provisional Redemption.............................................................................5 outstanding............................................................................................5 Payment Blockage Notice................................................................................6 Person.................................................................................................6 Portal Market..........................................................................................6 Predecessor............................................................................................6

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PAGE ---- Purchased Shares.......................................................................................6 QIB....................................................................................................6 Registration Rights Agreement..........................................................................6 Representative.........................................................................................6 Responsible Officer....................................................................................6 Restricted Securities..................................................................................6 Rule 144A..............................................................................................7 Securities Act.........................................................................................7 Senior Indebtedness....................................................................................7 Significant Subsidiary.................................................................................7 Subsidiary.............................................................................................7 Trading Day............................................................................................7 Trigger Event..........................................................................................7 Trust Indenture Act....................................................................................7 Trustee................................................................................................8 ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES........................................8 Section 2.1 Designation Amount and Issue of Notes......................................................8 Section 2.2 Form of Notes..............................................................................8 Section 2.3 Date and Denomination of Notes; Payments of Interest.......................................9 Section 2.4 Execution of Notes........................................................................10 Section 2.5 Exchange and Registration of Transfer Notes; Restrictions on Transfer; Depositary................................................................................11 Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes................................................18 Section 2.7 Temporary Notes...........................................................................19 Section 2.8 Cancellation of Notes Paid, Etc...........................................................20 Section 2.9 CUSIP Numbers.............................................................................20 ARTICLE THREE REDEMPTION AND REPURCHASE OF NOTES....................................................................20 Section 3.1 Redemption by the Company.................................................................20 Section 3.2 Notice of Redemption; Selection of Notes..................................................20 Section 3.3 Payment of Notes Called for Redemption....................................................22 Section 3.4 Conversion Arrangement on Call for Redemption.............................................23 Section 3.5 Repurchase at Option of Holders...........................................................23 ARTICLE FOUR SUBORDINATION OF NOTES.................................................................................25 Section 4.1 Agreement of Subordination................................................................25 Section 4.2 Payments to Noteholders...................................................................26 Section 4.4 Authorization to Effect Subordination.....................................................29 Section 4.5 Notice to Trustee.........................................................................29 Section 4.6 Trustee's Relation to Senior Indebtedness.................................................30 Section 4.7 No Impairment of Subordination............................................................31 Section 4.8 Certain Conversions Not Deemed Payment....................................................31 Section 4.9 Article Applicable to Paying Agents.......................................................31

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PAGE ---- Section 4.10 Senior Indebtedness Entitled to Rely......................................................31 Section 4.11 Reliance on Judicial Order or Certificate of Liquidating Agent............................31 ARTICLE FIVE PARTICULAR COVENANTS OF THE COMPANY....................................................................32 Section 5.1 Payment of Principal, Premium and Interest................................................32 Section 5.2 Maintenance of Office or Agency...........................................................32 Section 5.3 Appointments to Fill Vacancies in Trustee's Office........................................33 Section 5.4 Provisions as to Paying Agent.............................................................33 Section 5.5 Existence.................................................................................34 Section 5.6 Maintenance of Properties.................................................................34 Section 5.7 Payment of Taxes and Other Claims.........................................................34 Section 5.8 Rule 144A Information Requirement.........................................................35 Section 5.9 Stay, Extension and Usury Laws............................................................35 Section 5.10 Compliance Certificate....................................................................35 Section 5.11 Liquidated Damages........................................................................36 ARTICLE SIX NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE...........................................36 Section 6.1 Noteholders' Lists........................................................................36 Section 6.2 Preservation and Disclosure of Lists......................................................36 Section 6.3 Reports by Trustee........................................................................37 Section 6.4 Reports by Company........................................................................37 ARTICLE SEVEN REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON AN EVENT OF DEFAULT........................................37 Section 7.1 Events of Default.........................................................................37 Section 7.2 Payments of Notes on Default; Suit Therefor...............................................39 Section 7.3 Application of Monies Collected by Trustee................................................41 Section 7.4 Proceedings by Noteholder.................................................................41 Section 7.5 Proceedings by Trustee....................................................................42 Section 7.6 Remedies Cumulative and Continuing........................................................42 Section 7.7 Direction of Proceedings and Waiver of Defaults by Majority of Noteholders................43 Section 7.8 Notice of Defaults........................................................................43 Section 7.9 Undertaking to Pay Costs..................................................................43 ARTICLE EIGHT THE TRUSTEE...........................................................................................44 Section 8.1 Duties and Responsibilities of Trustee....................................................44 Section 8.2 Reliance on Documents, Opinions, Etc......................................................45 Section 8.3 No Responsibility for Recitals, Etc.......................................................46 Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes......................46 Section 8.5 Monies to be Held in Trust................................................................46 Section 8.6 Compensation and Expenses of Trustee......................................................46 Section 8.7 Officers' Certificate as Evidence.........................................................47 Section 8.8 Conflicting Interests of Trustee..........................................................47

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PAGE ---- Section 8.9 Eligibility of Trustee....................................................................47 Section 8.10 Resignation or Removal of Trustee.........................................................48 Section 8.11 Acceptance by Successor Trustee...........................................................49 Section 8.12 Succession by Merger, Etc.................................................................49 Section 8.13 Preferential Collection of Claims.........................................................50 Section 8.14 Trustee's Application for Instructions from the Company...................................50 ARTICLE NINE THE NOTEHOLDERS........................................................................................50 Section 9.1 Action by Noteholders.....................................................................50 Section 9.2 Proof of Execution by Noteholders.........................................................51 Section 9.3 Who Are Deemed Absolute Owners............................................................51 Section 9.4 Company-Owned Notes Disregarded...........................................................51 Section 9.5 Revocation of Consents; Future Holders Bound..............................................51 ARTICLE TEN MEETINGS OF NOTEHOLDERS.................................................................................52 Section 10.1 Purpose of Meetings.......................................................................52 Section 10.2 Call of Meetings by Trustee...............................................................52 Section 10.3 Call of Meetings by Company or Noteholders................................................53 Section 10.4 Qualifications for Voting.................................................................53 Section 10.5 Regulations...............................................................................53 Section 10.6 Voting....................................................................................53 Section 10.7 No Delay of Rights by Meeting.............................................................54 ARTICLE ELEVEN SUPPLEMENTAL INDENTURES..............................................................................54 Section 11.1 Supplemental Indentures Without Consent of Noteholders....................................54 Section 11.2 Supplemental Indenture with Consent of Noteholders........................................55 Section 11.3 Effect of Supplemental Indenture..........................................................56 Section 11.4 Notation on Notes.........................................................................57 Section 11.5 Evidence of Compliance of Supplemental Indenture to be Furnished to Trustee...............57 ARTICLE TWELVE CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE....................................................57 Section 12.1 Company May Consolidate, Etc., on Certain Terms...........................................57 Section 12.2 Successor Corporation to be Substituted...................................................57 ARTICLE THIRTEEN SATISFACTION AND DISCHARGE OF INDENTURE............................................................58 Section 13.1 Discharge of Indenture....................................................................58 Section 13.2 Deposited Monies to be Held in Trust by Trustee...........................................59 Section 13.3 Paying Agent to Repay Monies Held.........................................................59 Section 13.4 Return of Unclaimed Monies................................................................59 Section 13.5 Reinstatement.............................................................................59 ARTICLE FOURTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS....................................60 Section 14.1 Indenture and Notes Solely Corporate Obligations..........................................60

-iv- TABLE OF CONTENTS (CONTINUED)

PAGE ---- ARTICLE FIFTEEN CONVERSION OF NOTES.................................................................................60 Section 15.1 Right to Convert..........................................................................60 Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends......................................................61 Section 15.3 Cash Payments in Lieu of Fractional Shares................................................62 Section 15.4 Conversion Rate...........................................................................62 Section 15.5 Adjustment of Conversion Rate.............................................................62 Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale.................................71 Section 15.7 Taxes on Shares Issued....................................................................72 Section 15.8 Reservation of Shares; Shares to be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock.....................................................72 Section 15.9 Responsibility of Trustee.................................................................73 Section 15.10 Notice to Holders Prior to Certain Actions................................................73 ARTICLE SIXTEEN MISCELLANEOUS PROVISIONS............................................................................74 Section 16.1 Provisions Binding on Company's Successors................................................74 Section 16.2 Official Acts by Successor Corporation....................................................74 Section 16.3 Addresses for Notices, Etc................................................................74 Section 16.4 Governing Law.............................................................................75 Section 16.5 Evidence of Compliance with Conditions Precedent; Certificates to Trustee.................75 Section 16.6 Legal Holidays............................................................................75 Section 16.7 Trust Indenture Act.......................................................................76 Section 16.8 No Security Interest Created..............................................................76 Section 16.9 Benefits of Indenture.....................................................................76 Section 16.10 Table of Contents, Headings, Etc..........................................................76 Section 16.11 Authenticating Agent......................................................................76 Section 16.12 Execution in Counterparts.................................................................77 Section 16.13 Severability..............................................................................77

-v- Reconciliation and Tie Between the Trust Indenture Act of 1939 and Indenture, dated as of December 21, 2001, between Brocade Communications Systems, Inc. and State Street Bank and Trust Company of California, N.A., as Trustee. TRUST INDENTURE ACT SECTION INDENTURE SECTION --------------------------- ----------------- Section 310 (a)(1)...................................... 8.9 (a)(2)...................................... 8.9 (a)(3)...................................... Not Applicable (a)(4)...................................... Not Applicable (a)(5)...................................... 8.9 (b)......................................... 8.8; 8.9; 8.10; 8.11 Section 311 (a)......................................... 8.13 (b)......................................... 8.13 (b)(2)...................................... 8.13 Section 312 (a)......................................... 6.1; 6.2(a) (b)......................................... 6.2(b) (c)......................................... 6.2(c) Section 313 (a)......................................... 6.3(a) (b)......................................... 6.3(a) (c)......................................... 6.3(a) (d)......................................... 6.3(b) Section 314 (a)......................................... 6.4 (b)......................................... Not Applicable (c)(1)...................................... 16.5 (c)(2)...................................... 16.5 (c)(3)...................................... Not Applicable (d)......................................... Not Applicable (e)......................................... 16.5 Section 315 (a)......................................... 8.1 (b)......................................... 7.8 (c)......................................... 8.1 (d)......................................... 8.1 (d)(1)...................................... 8.1(a) (d)(2)...................................... 8.1(b) (d)(3)...................................... 8.1(c) (e)......................................... 7.9 Section 316 (a)......................................... 7.7 (a)(1)(A)................................... 7.7 (a)(1)(B)................................... 7.7 (a)(2)...................................... Not Applicable (b)......................................... 7.4 -vi- TRUST INDENTURE ACT SECTION INDENTURE SECTION --------------------------- ----------------- (c) 9.1 Section 317 (a)(1)...................................... 7.5 (a)(2)...................................... 7.5 (b)......................................... 5.4 Section 318 (a)......................................... 16.7 Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. -vii- INDENTURE INDENTURE, dated as of December 21, 2001, between Brocade Communications Systems, Inc., a Delaware corporation (hereinafter called the "Company") having its principal office at 1745 Technology Drive, San Jose, California 95110, and State Street Bank and Trust Company of California, N.A., a national banking association, as trustee hereunder (hereinafter called the "Trustee") having its principal corporate trust office at 633 West 5th Street, 12th Floor, Los Angeles, California 90071. W I T N E S S E T H : - - - - - - - - - - WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issue of its 2% Convertible Subordinated Notes due 2007 (hereinafter called the "Notes"), in an aggregate principal amount not to exceed $550,000,000 and, to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery of this Indenture; and WHEREAS, the Notes, the certificate of authentication to be borne by the Notes, a form of assignment, a form of option to elect repayment upon a Fundamental Change, and a form of conversion notice to be borne by the Notes are to be substantially in the forms hereinafter provided for; and WHEREAS, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee or a duly authorized authenticating agent, as in this Indenture provided, the valid, binding and legal obligations of the Company, and to constitute these presents a valid agreement according to its terms, have been done and performed, and the execution of this Indenture and the issue hereunder of the Notes have in all respects been duly authorized. NOW, THEREFORE, THIS INDENTURE WITNESSETH: That in order to declare the terms and conditions upon which the Notes are, and are to be, authenticated, issued and delivered, and in consideration of the premises and of the purchase and acceptance of the Notes by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Notes (except as otherwise provided below), as follows: -1- ARTICLE ONE DEFINITIONS Section 1.1 Definitions. The terms defined in this Section 1.1 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1. All other terms used in this Indenture that are defined in the Trust Indenture Act or which are by reference therein defined in the Securities Act (except as herein otherwise expressly provided or unless the context otherwise requires) shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of the execution of this Indenture. The words "herein", "hereof", "hereunder", and words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other Subdivision. The terms defined in this Article include the plural as well as the singular. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Board of Directors" means the Board of Directors of the Company or a committee of such Board duly authorized to act for it hereunder. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which the banking institutions in The City of New York or the city in which the Corporate Trust Office is located are authorized or obligated by law or executive order to close or be closed. "Closing Price" has the meaning specified in Section 15.5(h)(1). "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. Subject to the provisions of Section 15.6, however, shares issuable on conversion of Notes shall include only shares of the class designated as common stock of the Company at the date of this Indenture (namely, the Common Stock, par value $0.001 per share) or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to -2- redemption by the Company; provided, however, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Company" means the corporation named as the "Company" in the first paragraph of this Indenture, and, subject to the provisions of Article Twelve, shall include its successors and assigns. "Company Notice" has the meaning specified in Section 3.5(b). "Conversion Date" has the meaning specified in Section 15.2. "Conversion Price" has the meaning specified in Section 3.1. "Conversion Rate" has the meaning specified in Section 15.4. "Corporate Trust Office" or other similar term, means the designated office of the Trustee at which at any particular time the trust created by this Indenture shall be administered, which office is, at the date as of which this Indenture is dated, located at 633 West 5th Street, 12th Floor, Los Angeles, California 90071, attention: Corporate Trust Department (Brocade Communication Systems, Inc. 2% Convertible Subordinated Notes due 2007). "Custodian" means State Street Bank and Trust Company of California, N.A., as custodian with respect to the Notes in global form, or any successor entity thereto. "default" means any event that is, or after notice or passage of time, or both, would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 2.3. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.5(d) as the Depositary with respect to such Notes, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and thereafter, "Depositary" shall mean or include such successor. "Designated Senior Indebtedness" means any Senior Indebtedness with respect to which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Senior Indebtedness shall be "Designated Senior Indebtedness" for purposes of this Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). If any payment made to any holder of any Designated Senior Indebtedness or its Representative with respect to such Designated Senior Indebtedness is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy or reorganization of the Company or otherwise, the reinstated Indebtedness of the Company arising as a result of such rescission or return shall constitute Designated Senior Indebtedness effective as of the date of such rescission or return. -3- "Event of Default" means any event specified in Section 7.1(a), (b), (c), (d) or (e). "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as in effect from time to time. "Fundamental Change" means the occurrence of any transaction or event in connection with which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or constitute solely the right to receive consideration (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) which is not all or substantially all common stock listed (or, upon consummation of or immediately following such transaction or event, which will be listed) on a United States national securities exchange or approved (or upon consummation of or immediately following such transaction or event, which will be approved) for quotation on the Nasdaq National Market or any similar United States system of automated dissemination of quotations of securities prices. "Global Note" has the meaning set forth in Section 2.5(b). "Indebtedness" means, with respect to any Person, and without duplication: (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money (including obligations of the Company in respect of overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or evidenced by bonds, debentures, notes or similar instruments (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof), other than any account payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services; (b) all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit, bank guarantees or bankers' acceptances; (c) all obligations and liabilities (contingent or otherwise) in respect of leases of such Person required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on the balance sheet of such Person and all obligations and other liabilities (contingent or otherwise) under any lease or related document (including a purchase agreement) in connection with the lease of real property which provides that such Person is contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee a minimum residual value of the leased property to the lessor and the obligations of such Person under such lease or related document to purchase or to cause a third party to purchase such leased property; (d) all obligations of such Person (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreement or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement; (e) all direct or indirect guaranties or similar agreements by such Person in respect of, and obligations or liabilities (contingent or otherwise) of such Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another Person of the kind described in clauses (a) through (d); (f) any indebtedness or other obligations described in clauses (a) through (e) secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by such Person, regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by such Person; and (g) any and all deferrals, renewals, -4- extensions and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind described in clauses (a) through (f). "Indenture" means this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented. "Initial Purchasers" means Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Merrill Lynch & Co. and Salomon Smith Barney Inc. "Institutional Accredited Investor" means an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Liquidated Damages" has the meaning specified for "Additional Interest" in Section 2(e) of the Registration Rights Agreement. "Non-Payment Default" has the meaning specified in Section 4.2(ii). "Note" or "Notes" means any Note or Notes, as the case may be, authenticated and delivered under this Indenture, including the Global Note. "Note register" has the meaning specified in Section 2.5(a). "Note registrar" has the meaning specified in Section 2.5(a). "Noteholder" or "holder" as applied to any Note, or other similar terms (but excluding the term "beneficial holder"), means any Person in whose name at the time a particular Note is registered on the Note registrar's books. "Notice Date" has the meaning specified in Section 3.1. "Officers' Certificate", when used with respect to the Company, means a certificate signed by both (a) the Chairman of the Board, the Chief Executive Officer, the President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "Vice President") and (b) the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant Secretary of the Company. "Opinion of Counsel" means an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company, or other counsel reasonably acceptable to the Trustee. "Optional Redemption" has the meaning specified in Section 3.1. "outstanding", when used with reference to Notes and subject to the provisions of Section 9.4, means, as of any particular time, all Notes authenticated and delivered by the Trustee under this Indenture, except: (a) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancellation; -5- (b) Notes, or portions thereof, (i) for the redemption of which monies in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or (ii) which shall have been otherwise defeased in accordance with Article Thirteen; (c) Notes in lieu of which, or in substitution for which, other Notes shall have been authenticated and delivered pursuant to the terms of Section 2.6; and (d) Notes converted into Common Stock pursuant to Article Fifteen and Notes deemed not outstanding pursuant to Article Three. "Payment Blockage Notice" has the meaning specified in Section 4.2(ii). "Person" means a corporation, an association, a partnership, a limited liability company, an individual, a joint venture, a joint stock company, a trust, an unincorporated organization or a government or an agency or a political subdivision thereof. "Portal Market" means The Portal Market operated by the National Association of Securities Dealers, Inc. or any successor thereto. "Predecessor Note" of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note, and, for the purposes of this definition, any Note authenticated and delivered under Section 2.6 in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the lost, destroyed or stolen Note that it replaces. "Purchased Shares" has the meaning specified in Section 15.5(f). "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of December 21, 2001, among the Company and the Initial Purchasers, as amended from time to time in accordance with its terms. "Representative" means (a) the indenture trustee or other trustee, agent or representative for any Senior Indebtedness or (b) with respect to any Senior Indebtedness that does not have any such trustee, agent or other representative, (i) in the case of such Senior Indebtedness issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior Indebtedness, any holder or owner of such Senior Indebtedness acting with the consent of the required Persons necessary to bind such holders or owners of such Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness, the holder or owner of such Senior Indebtedness. "Responsible Officer", when used with respect to the Trustee, means an officer of the Trustee in the Corporate Trust Office assigned and duly authorized by the Trustee to administer this Indenture. "Restricted Securities" has the meaning specified in Section 2.5(d). -6- "Rule 144A" means Rule 144A as promulgated under the Securities Act. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as in effect from time to time. "Senior Indebtedness" means the principal of, premium, if any, interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding) and rent payable on or in connection with, and all fees, costs, expenses and other amounts accrued or due on or in connection with Indebtedness of the Company, whether outstanding on the date of this Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by the Company (including all deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to, the foregoing), unless in the case of any particular Indebtedness the instrument creating or evidencing the same or the assumption or guarantee thereof expressly provides that such Indebtedness shall not be senior in right of payment to the Notes or expressly provides that such Indebtedness is "pari passu" or "junior" to the Notes. Notwithstanding the foregoing, the term "Senior Indebtedness" shall not include any Indebtedness of the Company to any subsidiary of the Company, a majority of the voting stock of which is owned, directly or indirectly, by the Company. If any payment made to any holder of any Senior Indebtedness or its Representative with respect to such Senior Indebtedness is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy or reorganization of the Company or otherwise, the reinstated Indebtedness of the Company arising as a result of such rescission or return shall constitute Senior Indebtedness effective as of the date of such rescission or return. "Significant Subsidiary" means, as of any date of determination, a Subsidiary of the Company that would constitute a "significant subsidiary" as such term is defined under Rule 1-02 of Regulation S-X of the Commission. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock or other equity interest entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or managing general partner of which is such Person or a subsidiary of such Person or (b) the only general partners of which are such Person or of one or more subsidiaries of such Person (or any combination thereof). "Trading Day" has the meaning specified in Section 15.5(h)(5). "Trigger Event" has the meaning specified in Section 15.5(d). "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as it was in force at the date of this Indenture, except as provided in Sections 11.3 and 15.6; provided, however, that, in the event the Trust Indenture Act of 1939 is amended after the date hereof, the -7- term "Trust Indenture Act" shall mean, to the extent required by such amendment, the Trust Indenture Act of 1939, as so amended. "Trustee" means State Street Bank and Trust Company of California, N.A., and its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor trustee at the time serving as successor trustee hereunder. The definitions of certain other terms are as specified in Sections 2.5 and 3.5 and Article Fifteen. ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES Section 2.1 Designation Amount and Issue of Notes. The Notes shall be designated as "2% Convertible Subordinated Notes due 2007". Notes not to exceed the aggregate principal amount of $550,000,000 (except pursuant to Sections 2.5, 2.6, 3.3, 3.5 and 15.2 hereof) upon the execution of this Indenture, or from time to time thereafter, may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Notes to or upon the written order of the Company, signed by (a) its Chairman of the Board, Chief Executive Officer, President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "Vice President") and (b) its Treasurer or any Assistant Treasurer or its Secretary or any Assistant Secretary, without any further action by the Company hereunder. Section 2.2 Form of Notes. The Notes and the Trustee's certificate of authentication to be borne by such Notes shall be substantially in the form set forth in Exhibit A, which is incorporated in and made a part of this Indenture. Any of the Notes may have such letters, numbers or other marks of identification and such notations, legends and endorsements as the officers executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange or automated quotation system on which the Notes may be listed, or to conform to usage. Any Note in global form shall represent such of the outstanding Notes as shall be specified therein and shall provide that it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be increased or reduced to reflect transfers or exchanges permitted hereby. Any endorsement of a Note in global form to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in such manner and upon instructions given by the holder of such Notes in accordance with this Indenture. Payment of -8- principal of and interest and premium, if any, on any Note in global form shall be made to the holder of such Note. The terms and provisions contained in the form of Note attached as Exhibit A hereto shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Section 2.3 Date and Denomination of Notes; Payments of Interest. The Notes shall be issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. Every Note shall be dated the date of its authentication and shall bear interest from the applicable date in each case as specified on the face of the form of Note attached as Exhibit A hereto. Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve (12) 30-day months. The Person in whose name any Note (or its Predecessor Note) is registered on the Note register at the close of business on any record date with respect to any interest payment date shall be entitled to receive the interest payable on such interest payment date, except (i) that the interest payable upon redemption (unless the date of redemption is an interest payment date) will be payable to the Person to whom principal is payable and (ii) as set forth in the next succeeding sentence. In the case of any Note (or portion thereof) that is converted during the period from (but excluding) a record date to (but excluding) the next succeeding interest payment date either (x) if such Note (or portion thereof) has been called for redemption on a redemption date which occurs during such period, or is to be repurchased in connection with a Fundamental Change on a Repurchase Date (as defined in Section 3.5) that occurs during such period, the Company shall not be required to pay interest on such interest payment date in respect of any such Note (or portion thereof) except to the extent required to be paid upon redemption of such Note or portion thereof pursuant to Section 3.3 or 3.5 hereof or (y) if such Note (or portion thereof) has not been called for redemption on a redemption date that occurs during such period and is not to be repurchased in connection with a Fundamental Change on a Repurchase Date that occurs during such period, such Note (or portion thereof) that is submitted for conversion during such period shall be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount so converted, as provided in the penultimate paragraph of Section 15.2 hereof, unless at the time of conversion there is a default in the payment of interest on the Notes. Interest shall be payable at the office of the Company maintained by the Company for such purposes in the Borough of Manhattan, The City of New York, which shall initially be an office or agency of the Trustee and may, as the Company shall specify to the paying agent in writing by each record date, be paid either (i) by check mailed to the address of the Person entitled thereto as it appears in the Note register (provided that the holder of Notes with an aggregate principal amount in excess of $2,000,000 shall, at the written election of such holder, be paid by wire transfer in immediately available funds) or (ii) by transfer to an account maintained by such Person located in the United States; provided, however, that payments to the Depositary will be made by wire transfer of immediately available funds to the account of the Depositary or its nominee. The term "record date" with respect to any interest payment date shall mean the June 15 or December 15 preceding the relevant July 1 or January 1, respectively. -9- Any interest on any Note which is payable, but is not punctually paid or duly provided for, on any July 1 or January 1 (herein called "Defaulted Interest") shall forthwith cease to be payable to the Noteholder on the relevant record date by virtue of his having been such Noteholder, and such Defaulted Interest shall be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest to be paid on each Note and the date of the payment (which shall be not less than twenty-five (25) days after the receipt by the Trustee of such notice, unless the Trustee shall consent to an earlier date), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Person entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall be not more than fifteen (15) days and not less than ten (10) days prior to the date of the proposed payment, and not less than ten (10) days after the receipt by the Trustee of the notice of the proposed payment, the Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first-class postage prepaid, to each Noteholder at his address as it appears in the Note register, not less than ten (10) days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Notes (or their respective Predecessor Notes) were registered at the close of business on such special record date and shall no longer be payable pursuant to the following clause (2) of this Section 2.3. (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Notes may be listed or designated for issuance, and upon such notice as may be required by such exchange or automated quotation system, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Section 2.4 Execution of Notes. The Notes shall be signed in the name and on behalf of the Company by the manual or facsimile signature of its Chairman of the Board, Chief Executive Officer, President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title "Vice President") and attested by the manual or facsimile signature of its Secretary or any of its Assistant Secretaries or its Treasurer or any of its Assistant Treasurers (which may be printed, engraved or otherwise reproduced thereon, by facsimile or otherwise). Only such Notes as shall bear thereon a certificate of -10- authentication substantially in the form set forth on the form of Note attached as Exhibit A hereto, manually executed by the Trustee (or an authenticating agent appointed by the Trustee as provided by Section 16.11), shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee (or such an authenticating agent) upon any Note executed by the Company shall be conclusive evidence that the Note so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. In case any officer of the Company who shall have signed any of the Notes shall cease to be such officer before the Notes so signed shall have been authenticated and delivered by the Trustee, or disposed of by the Company, such Notes nevertheless may be authenticated and delivered or disposed of as though the person who signed such Notes had not ceased to be such officer of the Company, and any Note may be signed on behalf of the Company by such persons as, at the actual date of the execution of such Note, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such person was not such an officer. Section 2.5 Exchange and Registration of Transfer Notes; Restrictions on Transfer; Depositary. (a) The Company shall cause to be kept at the Corporate Trust Office a register (the register maintained in such office and in any other office or agency of the Company designated pursuant to Section 5.2 being herein sometimes collectively referred to as the "Note register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. The Note register shall be in written form or in any form capable of being converted into written form within a reasonably prompt period of time. The Trustee is hereby appointed "Note registrar" for the purpose of registering Notes and transfers of Notes as herein provided. The Company may appoint one or more co-registrars in accordance with Section 5.2. Upon surrender for registration of transfer of any Note to the Note registrar or any co-registrar, and satisfaction of the requirements for such transfer set forth in this Section 2.5, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations and of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture. Notes may be exchanged for other Notes of any authorized denominations and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at any such office or agency maintained by the Company pursuant to Section 5.2. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Noteholder making the exchange is entitled to receive bearing registration numbers not contemporaneously outstanding. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. -11- All Notes presented or surrendered for registration of transfer or for exchange, redemption or conversion shall (if so required by the Company or the Note registrar) be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company, and the Notes shall be duly executed by the Noteholder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes. Neither the Company nor the Trustee nor any Note registrar shall be required to exchange or register a transfer of (a) any Notes for a period of fifteen (15) days next preceding any selection of Notes to be redeemed, (b) any Notes or portions thereof called for redemption pursuant to Section 3.2, (c) any Notes or portions thereof surrendered for conversion pursuant to Article Fifteen or (d) any Notes or portions thereof tendered for repurchase (and not withdrawn) pursuant to Section 3.5. (b) So long as the Notes are eligible for book-entry settlement with the Depositary, or unless otherwise required by law, all Notes that, upon initial issuance are beneficially owned by QIBs or as a result of a sale or transfer after initial issuance are beneficially owned by QIBs, will be represented by one or more Notes in global form registered in the name of the Depositary or the nominee of the Depositary (the "Global Note"), except as otherwise specified below. The transfer and exchange of beneficial interests in any such Global Note shall be effected through the Depositary in accordance with this Indenture and the procedures of the Depositary therefor. The Trustee shall make appropriate endorsements to reflect increases or decreases in the principal amounts of any such Global Note as set forth on the face of the Note ("Principal Amount") to reflect any such transfers. Except as provided below, beneficial owners of a Global Note shall not be entitled to have certificates registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and will not be considered holders of such Global Note. (c) So long as the Notes are eligible for book-entry settlement with the Depositary, or unless otherwise required by law, upon any transfer of a definitive Note to a QIB in accordance with Rule 144A, and upon receipt of the definitive Note or Notes being so transferred, together with a certification, substantially in the form on the reverse of the Note, from the transferor that the transfer is being made in compliance with Rule 144A (or other evidence satisfactory to the Trustee), the Trustee shall make an endorsement on the Global Note to reflect an increase in the aggregate Principal Amount of the Notes represented by such Global Note, and the Trustee shall cancel such definitive Note or Notes in accordance with the standing instructions and procedures of the Depositary, the aggregate Principal Amount of the Notes represented by such Global Note to be increased accordingly; provided, however, that no definitive Note, or portion thereof, in respect of which the Company or an Affiliate of the Company held any beneficial interest shall be included in such Global Note until such definitive Note is freely tradable in accordance with Rule 144(k) under the Securities Act, provided further that the Trustee shall issue Notes in definitive form upon any transfer of a beneficial interest in the Global Note to the Company or any Affiliate of the Company. -12- Upon any sale or transfer of a Note to an Institutional Accredited Investor (other than pursuant to a registration statement that has been declared effective under the Securities Act), such Institutional Accredited Investor shall, prior to such sale or transfer, furnish to the Company and/or the Trustee a signed letter containing representations and agreements relating to restrictions on transfer substantially in the form set forth in Exhibit B to this Indenture. Upon any transfer of a beneficial interest in the Global Note to an Institutional Accredited Investor, the Trustee shall make an endorsement on the Global Note to reflect a decrease in the aggregate Principal Amount of the Notes represented by such Global Note, and the Company shall execute a definitive Note or Notes in exchange therefore, and the Trustee, upon receipt of such definitive Note or Notes and the written order of the Company, shall authenticate and deliver such, definitive Note or Notes. Any Note in global form may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the Custodian, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Notes to be tradeable on The Portal Market or as may be required for the Notes to be tradeable on any other market developed for trading of securities pursuant to Rule 144A or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange or automated quotation system upon which the Notes may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Notes are subject. (d) Every Note that bears or is required under this Section 2.5(d) to bear the legend set forth in this Section 2.5(d) (together with any Common Stock issued upon conversion of the Notes and required to bear the legend set forth in Section 2.5(e), collectively, the "Restricted Securities") shall be subject to the restrictions on transfer set forth in this Section 2.5(d) (including those set forth in the legend set forth below) unless such restrictions on transfer shall be waived by written consent of the Company, and the holder of each such Restricted Security, by such Noteholder's acceptance thereof, agrees to be bound by all such restrictions on transfer. As used in Sections 2.5(d) and 2.5(e), the term "transfer" encompasses any sale, pledge, loan, transfer or other disposition whatsoever of any Restricted Security. Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any certificate evidencing such Note (and all securities issued in exchange therefor or substitution thereof, other than Common Stock, if any, issued upon conversion thereof, which shall bear the legend set forth in Section 2.5(e), if applicable) shall bear a legend in substantially the following form, unless such Note has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer), or unless otherwise agreed by the Company in writing, with written notice thereof to the Trustee: THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE -13- FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR"), OR (C) A NON-U.S. PERSON; (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THIS NOTE OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE EXCEPT (A) TO BROCADE COMMUNICATIONS SYSTEMS, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTES (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES OF LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (2)(F) ABOVE), IT WILL FURNISH TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE PRIOR TO THE -14- EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THIS NOTE UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR IS A PURCHASER WHO IS NOT A UNITED STATES PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS SUCH TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THIS NOTE PURSUANT TO CLAUSE (2)(F) ABOVE OR UPON ANY TRANSFER OF THIS NOTE UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTION. Any Note (or security issued in exchange or substitution therefor) as to which such restrictions on transfer shall have expired in accordance with their terms or as to conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of such Note for exchange to the Note registrar in accordance with the provisions of this Section 2.5, be exchanged for a new Note or Notes, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 2.5(d). Notwithstanding any other provisions of this Indenture (other than the provisions set forth in the second paragraph of Section 2.5(c) and in this Section 2.5(d)), a Note in global form may not be transferred as a whole or in part except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the Notes in global form. Initially, the Global Note shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Custodian for Cede & Co. -15- If at any time the Depositary for a Note in global form notifies the Company that it is unwilling or unable to continue as Depositary for such Note, the Company may appoint a successor Depositary with respect to such Note. If a successor Depositary is not appointed by the Company within ninety (90) days after the Company receives such notice, the Company will execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of Notes, will authenticate and deliver, Notes in certificated form, in aggregate principal amount equal to the principal amount of such Note in global form, in exchange for such Note in global form. If a Note in certificated form is issued in exchange for any portion of a Note in global form after the close of business at the office or agency where such exchange occurs on any record date and before the opening of business at such office or agency on the next succeeding interest payment date, interest will not be payable on such interest payment date in respect of such certificated Note, but will be payable on such interest payment date, subject to the provisions of Section 2.3, only to the Person to whom interest in respect of such portion of such Note in global form is payable in accordance with the provisions of this Indenture. Notes in certificated form issued in exchange for all or a part of a Note in global form pursuant to this Section 2.5 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such Notes in certificated form to the Persons in whose names such Notes in certificated form are so registered. At such time as all interests in a Note in global form have been redeemed, repurchased, converted, canceled, exchanged for Notes in certificated form, or transferred to a transferee who receives Notes in certificated form thereof, such Note in global form shall, upon receipt thereof, be canceled by the Trustee in accordance with standing procedures and instructions existing between the Depositary and the Custodian. At any time prior to such cancellation, if any interest in a Note in global form is exchanged for Notes in certificated form, redeemed, converted, repurchased or canceled, or transferred to a transferee who receives Notes in certificated form therefor or any Note in certificated form is exchanged or transferred for part of a Note in global form, the principal amount of such Note in global form shall, in accordance with the standing procedures and instructions existing between the Depositary and the Custodian, be appropriately reduced or increased, as the case may be, and an endorsement shall be made on such Note in global form, by the Trustee or the Custodian, at the direction of the Trustee, to reflect such reduction or increase. (e) Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any stock certificate representing Common Stock issued upon conversion of any Note shall bear a legend in substantially the following form, unless such Common Stock has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer) or such Common Stock has been issued upon conversion of Notes that have been transferred pursuant to a registration statement that has been declared effective under the Securities Act, or unless otherwise agreed by the Company in writing with written notice thereof to the transfer agent: -16- THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT, UNTIL THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE COMMON STOCK EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO BROCADE COMMUNICATIONS SYSTEMS, INC. OR TO ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT PRIOR TO SUCH TRANSFER, FURNISHES TO WELLS FARGO SHAREOWNER SERVICES, AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRANSFER AGENT OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (1)(F) ABOVE), IT WILL FURNISH TO WELLS FARGO SHAREOWNER SERVICES, AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR IS A PURCHASER WHO IS NOT A U.S. -17- PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO WELLS FARGO SHAREOWNER SERVICES (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE (1)(F) ABOVE OR UPON ANY TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of the certificates representing such shares of Common Stock for exchange in accordance with the procedures of the transfer agent for the Common Stock, be exchanged for a new certificate or certificates for a like number of shares of Common Stock, which shall not bear the restrictive legend required by this Section 2.5(e). (f) Any Note or Common Stock issued upon the conversion or exchange of a Note that, prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), is purchased or owned by the Company or any Affiliate thereof may not be resold by the Company or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction which results in such Notes or Common Stock, as the case may be, no longer being "restricted securities" (as defined under Rule 144). Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note shall become mutilated or be destroyed, lost or stolen, the Company in its discretion may execute, and upon its written request the Trustee or an authenticating agent appointed by the Trustee shall authenticate and make available for delivery, a new Note, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Note, or in lieu of and in substitution for the Note so destroyed, lost or stolen. In every case the applicant for a substituted Note shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless for any loss, liability, cost or expense caused by or connected with such substitution, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company, to the Trustee and, if applicable, to such authenticating agent evidence to their satisfaction of the destruction, loss or theft of such Note and of the ownership thereof. -18- Following receipt by the Trustee or such authenticating agent, as the case may be, of satisfactory security or indemnity and evidence, as described in the preceding paragraph, the Trustee or such authenticating agent may authenticate any such substituted Note and make available for delivery such Note. Upon the issuance of any substituted Note, the Company may require the payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any Note which has matured or is about to mature or has been called for redemption or has been tendered for redemption (and not withdrawn) or is to be converted into Common Stock shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Note, pay or authorize the payment of or convert or authorize the conversion of the same (without surrender thereof except in the case of a mutilated Note), as the case may be, if the applicant for such payment or conversion shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless for any loss, liability, cost or expense caused by or connected with such substitution, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company, the Trustee and, if applicable, any paying agent or conversion agent evidence to their satisfaction of the destruction, loss or theft of such Note and of the ownership thereof. Every substitute Note issued pursuant to the provisions of this Section 2.6 by virtue of the fact that any Note is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note shall be found at any time, and shall be entitled to all the benefits of (but shall be subject to all the limitations set forth in) this Indenture equally and proportionately with all other Notes duly issued hereunder. To the extent permitted by law, all Notes shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment or conversion of mutilated, destroyed, lost or stolen Notes and shall preclude all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment or conversion of negotiable instruments or other securities without their surrender. Section 2.7 Temporary Notes. Pending the preparation of Notes in certificated form, the Company may execute and the Trustee or an authenticating agent appointed by the Trustee shall, upon the written request of the Company, authenticate and deliver temporary Notes (printed or lithographed). Temporary Notes shall be issuable in any authorized denomination, and substantially in the form of the Notes in certificated form, but with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the Company. Every such temporary Note shall be executed by the Company and authenticated by the Trustee or such authenticating agent upon the same conditions and in substantially the same manner, and with the same effect, as the Notes in certificated form. Without unreasonable delay the Company will execute and deliver to the Trustee or such authenticating agent Notes in certificated form (other than in the case of Notes in global form) and thereupon all temporary Notes (other than any such Note in global form) may be surrendered in exchange therefor, at each office or agency maintained by the Company pursuant to Section 5.2 and the Trustee or such authenticating agent shall authenticate and make available for delivery in exchange for such temporary Notes an equal aggregate principal amount of Notes in certificated form. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits and -19- subject to the same limitations under this Indenture as Notes in certificated form authenticated and delivered hereunder. Section 2.8 Cancellation of Notes Paid, Etc. All Notes surrendered for the purpose of payment, redemption, repurchase, conversion, exchange or registration of transfer shall, if surrendered to the Company or any paying agent or any Note registrar or any conversion agent, be surrendered to the Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be promptly canceled by it, and no Notes shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall dispose of such canceled Notes in accordance with its customary procedures. If the Company acquires any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Notes unless and until the same are delivered to the Trustee for cancellation. Section 2.9 CUSIP Numbers. The Company in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Noteholders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. ARTICLE THREE REDEMPTION AND REPURCHASE OF NOTES Section 3.1 Redemption by the Company. At any time on or after January 5, 2005, and prior to maturity, the Notes may be redeemed at the option of the Company (an "Optional Redemption"), in whole or in part, upon notice as set forth in Section 3.2 (the "Notice Date"), at the following Non-Provisional Redemption prices (expressed as percentages of the principal amount), together in each case with accrued and unpaid interest, if any (including Liquidated Damages, if any) to, but excluding, the date fixed for redemption:

Period Redemption Price - ------ ---------------- Beginning on January 5, 2005 and ending on December 31, 2005 100.80% Beginning on January 1, 2006 and ending on December 31, 2006 100.40%

and 100% on January 1, 2007; provided, however, that if the date fixed for redemption is on a July 1 or January 1, then the interest payable on such date shall be paid to the holder of record on the preceding June 15 or December 15, respectively. Section 3.2 Notice of Redemption; Selection of Notes. In case the Company shall desire to exercise the right to redeem all or, as the case may be, any part of the Notes pursuant to Section 3.1, it shall fix a date for redemption and it or, at its written request received by the Trustee not fewer than forty-five (45) days prior (or such shorter period of time as may be acceptable to the Trustee) to the date fixed for redemption, the Trustee in the name of and at the expense of the Company, shall mail or cause to be mailed a notice of such redemption not fewer -20- than thirty (30) nor more than sixty (60) days prior to the date fixed for redemption to the holders of Notes so to be redeemed as a whole or in part at their last addresses as the same appear on the Note register; provided, however, that if the Company shall give such notice, it shall also give written notice, and written notice of the Notes to be redeemed, to the Trustee. The Company may not give notice of any redemption of the Notes if a default in payment of interest or premium, if any, on the Notes has occurred and is continuing. Such mailing shall be by first class mail. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Note designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Note. Concurrently with the mailing of any such notice of redemption, the Company shall issue a press release announcing such redemption, the form and content of which press release shall be determined by the Company in its sole discretion. The failure to issue any such press release or any defect therein shall not affect the validity of the redemption notice or any of the proceedings for the redemption of any Note called for redemption. Each such notice of redemption shall specify the aggregate principal amount of Notes to be redeemed, the CUSIP number or numbers of the Notes being redeemed, the date fixed for redemption (which shall be a Business Day), the redemption price at which Notes are to be redeemed, the place or places of payment, that payment will be made upon presentation and surrender of such Notes, that interest accrued to the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon or on the portion thereof to be redeemed will cease to accrue. Such notice shall also state the current Conversion Rate and the date on which the right to convert such Notes or portions thereof into Common Stock will expire. If fewer than all the Notes are to be redeemed, the notice of redemption shall identify the Notes to be redeemed (including CUSIP numbers, if any). In case any Note is to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that, on and after the date fixed for redemption, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof will be issued. On or prior to the redemption date specified in the notice of redemption given as provided in this Section 3.2, the Company will deposit with the Trustee or with one or more paying agents (or, if the Company is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 5.4) an amount of money in immediately available funds sufficient to redeem on the redemption date all the Notes (or portions thereof) so called for redemption (other than those theretofore surrendered for conversion into Common Stock) at the appropriate redemption price, together with accrued interest to, but excluding, the date fixed for redemption; provided, however, that if such payment is made on the redemption date it must be received by the Trustee or paying agent, as the case may be, by 10:00 a.m. New York City time on such date. The Company shall be entitled to retain any interest, yield or gain on amounts deposited with the Trustee or any paying agent pursuant to this Section 3.2 in excess of amounts required hereunder to pay the redemption price together with accrued interest to, but excluding, the date fixed for redemption. If any Note called for redemption is converted into shares of Common Stock pursuant hereto prior to such redemption, any money deposited with the Trustee or any paying agent or so segregated and held in trust for the redemption of such Note shall be paid to the Company upon its written request, or, if then held by the Company, shall be discharged from -21- such trust. Whenever any Notes are to be redeemed, the Company will give the Trustee written notice in the form of an Officers' Certificate not fewer than forty five (45) days (or such shorter period of time as may be acceptable to the Trustee) prior to the redemption date as to the aggregate principal amount of Notes to be redeemed. If less than all of the outstanding Notes are to be redeemed, the Trustee shall select the Notes or portions thereof of the Global Note or the Notes in certificated form to be redeemed (in principal amounts of $1,000 or integral multiples thereof) by lot, on a pro rata basis or by another method the Trustee deems fair and appropriate. If any Note selected for partial redemption is submitted for conversion in part after such selection, the portion of such Note submitted for conversion shall be deemed (so far as may be) to be the portion to be selected for redemption. The Notes (or portions thereof) so selected shall be deemed duly selected for redemption for all purposes hereof, notwithstanding that any such Note is submitted for conversion in part before the mailing of the notice of redemption. Upon any redemption of less than all of the outstanding Notes, the Company and the Trustee may (but need not), solely for purposes of determining the pro rata allocation among such Notes as are unconverted and outstanding at the time of redemption, treat as outstanding any Notes surrendered for conversion during the period of fifteen (15) days next preceding the mailing of a notice of redemption and may (but need not) treat as outstanding any Note authenticated and delivered during such period in exchange for the unconverted portion of any Note converted in part during such period. Section 3.3 Payment of Notes Called for Redemption. If notice of redemption has been given as above provided, the Notes or portion of Notes with respect to which such notice has been given shall, unless converted into Common Stock pursuant to the terms hereof, become due and payable on the date fixed for redemption and at the place or places stated in such notice at the applicable redemption price, together with interest accrued to (but excluding) the date fixed for redemption, and on and after said date (unless the Company defaults in the payment of such Notes at the redemption price, together with interest accrued to said date) interest on the Notes or portion of Notes so called for redemption shall cease to accrue and, after the close of business on the Business Day next preceding the date fixed for redemption, such Notes shall cease to be convertible and, except as provided in Sections 8.5 and 13.4, to be entitled to any benefit or security under this Indenture, and the holders thereof shall have no right in respect of such Notes except the right to receive the redemption price thereof and unpaid interest to (but excluding) the date fixed for redemption. On presentation and surrender of such Notes at a place of payment in said notice specified, the said Notes or the specified portions thereof shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued thereon to (but excluding) the date fixed for redemption; provided, however, that if the applicable redemption date is an interest payment date, the semi-annual payment of interest becoming due on such date shall be payable to the holders of such Notes registered as such on the relevant record date instead of the holders surrendering such Notes for redemption on such date. Upon presentation of any Note redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder thereof, at the expense of -22- the Company, a new Note or Notes, of authorized denominations, in principal amount equal to the unredeemed portion of the Notes so presented. Notwithstanding the foregoing, the Trustee shall not redeem any Notes or mail any notice of redemption during the continuance of a default in payment of interest or premium, if any, on the Notes. If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid or duly provided for, bear interest from the date fixed for redemption at the rate borne by the Note and such Note shall remain convertible into Common Stock until the principal and premium, if any, and interest shall have been paid or duly provided for. Section 3.4 Conversion Arrangement on Call for Redemption. In connection with any redemption of Notes, the Company may arrange for the purchase and conversion of any Notes by an agreement with one or more investment bankers or other purchasers to purchase such Notes by paying to the Trustee in trust for the Noteholders, on or before the date fixed for redemption, an amount not less than the applicable redemption price, together with interest accrued to (but excluding) the date fixed for redemption, of such Notes. Notwithstanding anything to the contrary contained in this Article Three, the obligation of the Company to pay the redemption price of such Notes, together with interest accrued to (but excluding) the date fixed for redemption, shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, a copy of which will be filed with the Trustee prior to the date fixed for redemption, any Notes not duly surrendered for conversion by the holders thereof may, at the Company's option, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such holders and (notwithstanding anything to the contrary contained in Article Fifteen) surrendered by such purchasers for conversion, all as of immediately prior to the close of business on the date fixed for redemption (and the right to convert any such Notes shall be extended through such time), subject to payment of the above amount as aforesaid. At the Company's direction, the Trustee shall hold and dispose of any such amount paid to it in the same manner as it would monies deposited with it by the Company for the redemption of Notes. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Notes shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture. Section 3.5 Repurchase at Option of Holders.(a)If there shall occur a Fundamental Change at any time prior to maturity of the Notes, then each Noteholder shall have the right, at such holder's option, to require the Company to repurchase all of such holder's Notes, or any portion thereof that is an integral multiple of $1,000 principal amount, on the date (the "Repurchase Date") that is thirty (30) days after the date of the Company Notice (as defined in Section 3.5(b) below) of such Fundamental Change (or, if such 30th day is not a Business Day, the immediately preceding Business Day) at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to (but excluding) the Repurchase Date; provided, however, that, if such Repurchase Date is a July 1 or January 1, then the interest payable on such date shall be paid to the holders of record of the Notes on the next preceding June 15 or December 15, respectively. -23- Upon presentation of any Note repurchased in part only, the Company shall execute and, upon the Company's written direction to the Trustee, the Trustee shall authenticate and deliver to the holder thereof, at the Company's expense, a new Note or Notes, of authorized denominations, in principal amount equal to the unrepurchased portion of the Notes so presented. (b) On or before the tenth day after the occurrence of a Fundamental Change, the Company or, at its written request (which must be received by the Trustee at least five (5) Business Days prior to the date the Trustee is requested to give notice as described below, unless the Trustee agrees in writing to a shorter period), the Trustee in the name of and at the expense of the Company, shall mail or cause to be mailed to all holders of record on the date of the Fundamental Change a notice (the "Company Notice") of the occurrence of such Fundamental Change and of the repurchase right at the option of the holders arising as a result thereof. Such notice shall be mailed in the manner and with the effect set forth in the first paragraph of Section 3.2 (without regard for the time limits set forth therein). If the Company shall give such notice, the Company shall also deliver a copy of the Company Notice to the Trustee at such time as it is mailed to Noteholders. Concurrently with the mailing of any Company Notice, the Company shall issue a press release announcing such Fundamental Change referred to in the Company Notice, the form and content of which press release shall be determined by the Company in its sole discretion. The failure to issue any such press release or any defect therein shall not affect the validity of the Company Notice or any proceedings for the repurchase of any Note which any Noteholder may elect to have the Company repurchase as provided in this Section 3.5. Each Company Notice shall specify the circumstances constituting the Fundamental Change, the Repurchase Date, the price at which the Company shall be obligated to repurchase Notes, that the holder must exercise the redemption right on or prior to the close of business on the Repurchase Date (the "Fundamental Change Expiration Time"), that the holder shall have the right to withdraw any Notes surrendered prior to the Fundamental Change Expiration Time, a description of the procedure which a Noteholder must follow to exercise such redemption right and to withdraw any surrendered Notes, the place or places where the holder is to surrender such holder's Notes, and the amount of interest accrued on each Note to the Repurchase Date. No failure of the Company to give the foregoing notices and no defect therein shall limit the Noteholders' repurchase rights or affect the validity of the proceedings for the repurchase of the Notes pursuant to this Section 3.5. (c) For a Note to be so repurchased at the option of the holder, the Company must receive at the office or agency of the Company maintained for that purpose or, at the option of such holder, the Corporate Trust Office, such Note with the form entitled "Option to Elect Repayment Upon A Fundamental Change" on the reverse thereof duly completed, together with such Notes duly endorsed for transfer, on or before the Fundamental Change Expiration Time. All questions as to the validity, eligibility (including time of receipt) and acceptance of any Note for repayment shall be determined by the Company, whose determination shall be final and binding absent manifest error. (d) On or prior to the Repurchase Date, the Company will deposit with the Trustee or with one or more paying agents (or, if the Company is acting as its own paying agent, -24- set aside, segregate and hold in trust as provided in Section 5.4) an amount of money sufficient to repay on the Repurchase Date all the Notes to be repurchased on such date at the appropriate repurchase price, together with accrued interest to (but excluding) the Repurchase Date; provided, however, that if such payment is made on the Repurchase Date it must be received by the Trustee or paying agent, as the case may be, by 10:00 a.m. New York City time, on such date. Payment for Notes surrendered for repurchase (and not withdrawn) prior to the Fundamental Change Expiration Time will be made promptly (but in no event more than five (5) Business Days) following the Repurchase Date by mailing checks for the amount payable to the holders of such Notes entitled thereto as they shall appear on the registry books of the Company. (e) In the case of a reclassification, change, consolidation, merger, combination, sale or conveyance to which Section 15.6 applies, in which the Common Stock is changed or exchanged as a result into the right to receive stock, securities or other property or assets (including cash), which includes shares of Common Stock or shares of common stock of another Person that are, or upon issuance will be, traded on a United States national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States and such shares constitute at the time such change or exchange becomes effective in excess of 50% of the aggregate fair market value of such stock, securities or other property or assets (including cash) (as determined by the Company, which determination shall be conclusive and binding), then the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture (accompanied by an Opinion of Counsel that such supplemental indenture complies with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) modifying the provisions of this Indenture relating to the right of holders of the Notes to cause the Company to repurchase the Notes following a Fundamental Change, including, without limitation, the applicable provisions of this Section 3.5 and the definitions of Common Stock and Fundamental Change, as appropriate, as determined in good faith by the Company (which determination shall be conclusive and binding), to make such provisions apply to such other Person if different from the Company and the common stock issued by such Person (in lieu of the Company and the Common Stock). (f) The Company will comply with the provisions of Rule 13e-4 and any other tender offer rules under the Exchange Act to the extent then applicable in connection with the repurchase rights of the holders of Notes in the event of a Fundamental Change. ARTICLE FOUR SUBORDINATION OF NOTES Section 4.1 Agreement of Subordination. The Company covenants and agrees, and each holder of Notes issued hereunder by its acceptance thereof likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article Four, and each Person holding any Note, whether upon original issue or upon registration of transfer, assignment or exchange thereof, accepts and agrees to be bound by such provisions. The payment of the principal of, premium, if any, and interest (including Liquidated Damages, if any) on all Notes (including, but not limited to, the redemption price with respect to -25- the Notes called for redemption in accordance with Section 3.2 and the repurchase price with respect to the Notes submitted for repurchase in accordance with Section 3.5 as provided in this Indenture) issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full in cash or other payment satisfactory to the holders of Senior Indebtedness of all Senior Indebtedness, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article Four shall prevent the occurrence of any default or Event of Default hereunder. Section 4.2 Payments to Noteholders. No payment shall be made with respect to the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes (including, but not limited to, the redemption price with respect to the Notes to be called for redemption in accordance with Section 3.2 and the repurchase price with respect to the Notes submitted for repurchase in accordance with Section 3.5 as provided in this Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 4.5, if: (i) a default in the payment of principal, premium, if any, interest, rent or other obligations in respect of Designated Senior Indebtedness occurs and is continuing beyond any applicable period of grace (a "Payment Default"); or (ii) a default, other than a Payment Default, on any Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a holder of Designated Senior Indebtedness, a Representative of Designated Senior Indebtedness or the Company (a "Non-Payment Default"). If the Trustee receives any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section 4.2 unless and until (A) at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice and (B) all scheduled payments of principal, premium, if any, and interest (including Liquidated Damages, if any) on the Notes that have come due have been paid in full in cash. No Non-Payment Default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. The Company may and shall resume payments on and distributions in respect of the Notes upon: (1) in the case of a Payment Default, the date upon which any such Payment Default is cured or waived or ceases to exist, (2) in the case of a Non-Payment Default, the earlier of (a) the date upon which such default is cured or waived or ceases to exist or (b) 179 days after the applicable Payment Blockage Notice is received by the Trustee, or -26- (3) if the maturity of the Designated Senior Indebtedness has not been accelerated, or in the case of any lease, 179 days after notice is received by the Company that the lessor under such lease has exercised its right to terminate the lease or required the Company to make an irrevocable offer to terminate the lease following an event of default under the lease. unless this Article Four otherwise prohibits the payment or distribution at the time of such payment or distribution. Upon any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, or payment thereof in accordance with its terms provided for in cash or other payment satisfactory to the holders of such Senior Indebtedness before any payment is made on account of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes (except payments made pursuant to Article Thirteen from monies deposited with the Trustee pursuant thereto prior to commencement of proceedings for such dissolution, winding up, liquidation or reorganization), and upon any such dissolution or winding up or liquidation or reorganization of the Company or bankruptcy, insolvency, receivership or other proceeding, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holders of the Notes or the Trustee would be entitled, except for the provisions of this Article Four, shall (except as aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Notes or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, or as otherwise required by law or a court order) or their Representative or Representatives to the extent necessary to pay all Senior Indebtedness in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the holders of the Notes or to the Trustee. For purposes of this Article Four, the words, "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article Four with respect to the Notes to the payment of all Senior Indebtedness which may at the time be outstanding. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another Person upon the terms and conditions provided for in Article Twelve shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 4.2 if such other Person shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article Twelve. -27- In the event of the acceleration of the Notes because of an Event of Default, no payment or distribution shall be made to the Trustee or any holder of Notes in respect of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes (including, but not limited to, the redemption price with respect to the Notes called for redemption in accordance with Section 3.2 and the repurchase price with respect to the Notes submitted for repurchase at the option of the holder in accordance with Section 3.5 as provided in this Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 4.5, until all Senior Indebtedness has been paid in full in cash or other payment satisfactory to the holders of Senior Indebtedness or such acceleration is rescinded in accordance with the terms of this Indenture. If payment of the Notes is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify holders of Senior Indebtedness of the acceleration. In the event that, notwithstanding the foregoing provisions, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise), prohibited by the foregoing provisions in this Section 4.2, shall be received by the Trustee or the holders of the Notes before all Senior Indebtedness is paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, or provision is made for such payment thereof in accordance with its terms in cash or other payment satisfactory to the holders of such Senior Indebtedness, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Indebtedness or their Representative or Representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of any Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness. Nothing in this Section 4.2 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 8.6. This Section 4.2 shall be subject to the further provisions of Section 4.5. Section 4.3 Subrogation of Notes. Subject to the payment in full of all Senior Indebtedness in cash or other payment satisfactory to the holders of such Senior Indebtedness, the rights of the holders of the Notes shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article Four (equally and ratably with the holders of all indebtedness of the Company that by its express terms, is subordinated to other indebtedness of the Company to substantially the same extent as the Notes are subordinated and is entitled to like rights of subrogation) to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until the principal, premium, if any, and interest (including Liquidated Damages, if any) on the Notes shall be paid in full, and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the holders of the Notes or the Trustee would be entitled except for the provisions of this Article Four, and no payment over pursuant to the provisions of this Article Four, to or for the benefit of the holders of Senior Indebtedness by holders of the Notes or the Trustee, shall, as among the Company, its creditors other than holders -28- of Senior Indebtedness, and the holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Indebtedness, and no payments or distributions of cash, property or securities to or for the benefit of the holders of the Notes pursuant to the subrogation provisions of this Article Four, which would otherwise have been paid to the holders of Senior Indebtedness, shall be deemed to be a payment by the Company to or for the account of the Notes. It is understood that the provisions of this Article Four are and are intended solely for the purposes of defining the relative rights of the holders of the Notes, on the one hand, and the holders of the Senior Indebtedness, on the other hand. Nothing contained in this Article Four or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Indebtedness, and the holders of the Notes, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Notes the principal of, premium, if any, and interest (including Liquidated Damages, if any) on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Notes and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the holder of any Note from exercising all remedies otherwise permitted by applicable law upon Event of Default under this Indenture, subject to the rights, if any, under this Article Four of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article Four, the Trustee, subject to the provisions of Section 8.1, and the holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such bankruptcy, dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the holders of the Notes, for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon and all other facts pertinent thereto or to this Article Four. Section 4.4 Authorization to Effect Subordination. Each holder of a Note, by its acceptance thereof, authorizes and directs the Trustee on the holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article Four and appoints the Trustee to act as the holder's attorney-in-fact for all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in the third paragraph of Section 7.2 hereof at least thirty (30) days before the expiration of the time to file such claim, the holders of any Senior Indebtedness or their representatives are hereby authorized to file an appropriate claim for and on behalf of the holders of the Notes. Section 4.5 Notice to Trustee. The Company shall give prompt written notice in the form of an Officers' Certificate to a Responsible Officer of the Trustee and to any paying agent of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee or any paying agent in respect of the Notes pursuant to the provisions of this Article Four. Notwithstanding the provisions of this Article Four or any other provision of this -29- Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Notes pursuant to the provisions of this Article Four, unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Corporate Trust Office from the Company (in the form of an Officers' Certificate) or a Representative or a holder or holders of Senior Indebtedness or from any trustee thereof, and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 8.1, shall be entitled in all respects to assume that no such facts exist; provided, however, that if on a date not less than two Business Days prior to the date upon which by the terms hereof any such monies may become payable for any purpose (including, without limitation, the payment of the principal of, or premium, if any, or interest (including Liquidated Damages, if any) on any Note) the Trustee shall not have received, with respect to such monies, the notice provided for in this Section 4.5, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to apply monies received to the purpose for which they were received, and shall not be affected by any notice to the contrary that may be received by it on or after such prior date. Notwithstanding anything in this Article Four to the contrary, nothing shall prevent any payment by the Trustee to the Noteholders of monies deposited with it pursuant to Section 13.1, and any such payment shall not be subject to the provisions of Section 4.1 or 4.2. The Trustee, subject to the provisions of Section 8.1, shall be entitled to rely on the delivery to it of a written notice by a Representative or a person representing himself to be a holder of Senior Indebtedness (or a trustee on behalf of such holder) to establish that such notice has been given by a Representative or a holder of Senior Indebtedness or a trustee on behalf of any such holder or holders. The Trustee shall not be required to make any payment or distribution to or on behalf of a holder of Senior Indebtedness pursuant to this Article Four unless it has received satisfactory evidence as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Four. Section 4.6 Trustee's Relation to Senior Indebtedness. The Trustee, in its individual capacity, shall be entitled to all the rights set forth in this Article Four in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in Section 8.13 or elsewhere in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Four, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and, subject to the provisions of Section 8.1, the Trustee shall not be liable to any holder of Senior Indebtedness (i) for any failure to make any payments or distributions to such holder or (ii) if it shall pay over or deliver to holders of Notes, the Company or any other Person money or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article Four or otherwise. -30- Section 4.7 No Impairment of Subordination. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Section 4.8 Certain Conversions Not Deemed Payment. For the purposes of this Article Four only, (1) the issuance and delivery of junior securities upon conversion of Notes in accordance with Article Fifteen shall not be deemed to constitute a payment or distribution on account of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on Notes or on account of the purchase or other acquisition of Notes, and (2) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 15.3), property or securities (other than junior securities) upon conversion of a Note shall be deemed to constitute payment on account of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on such Note. For the purposes of this Section 4.8, the term "junior securities" means (a) shares of any stock of any class of the Company or (b) securities of the Company that are subordinated in right of payment to all Senior Indebtedness that may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Notes are so subordinated as provided in this Article Four. Nothing contained in this Article Four or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors (other than holders of Senior Indebtedness) and the Noteholders, the right, which is absolute and unconditional, of the Holder of any Note to convert such Note in accordance with Article Fifteen. Section 4.9 Article Applicable to Paying Agents. If at any time any paying agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article Four shall (unless the context otherwise requires) be construed as extending to and including such paying agent within its meaning as fully for all intents and purposes as if such paying agent were named in this Article Four in addition to or in place of the Trustee; provided, however, that the first paragraph of Section 4.5 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as paying agent. The Trustee shall not be responsible for the actions or inactions of any other paying agents (including the Company if acting as its own paying agent) and shall have no control of any funds held by such other paying agents. Section 4.10 Senior Indebtedness Entitled to Rely. The holders of Senior Indebtedness (including, without limitation, Designated Senior Indebtedness) shall have the right to rely upon this Article Four, and no amendment or modification of the provisions contained herein shall diminish the rights of such holders unless such holders shall have agreed in writing thereto. Section 4.11 Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article Four, the Trustee and the Noteholders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate -31- of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Noteholders, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Four. ARTICLE FIVE PARTICULAR COVENANTS OF THE COMPANY Section 5.1 Payment of Principal, Premium and Interest. The Company covenants and agrees that it will duly and punctually pay or cause to be paid the principal of and premium, if any (including the redemption price upon redemption pursuant to Section 3.2 and the repurchase price upon repurchase pursuant to Section 3.5), and interest (including Liquidated Damages, if any), on each of the Notes at the places, at the respective times and in the manner provided herein and in the Notes. Section 5.2 Maintenance of Office or Agency. The Company will maintain an office or agency in the Borough of Manhattan, The City of New York, where the Notes may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion, or redemption or repurchase and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not designated or appointed by the Trustee. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee at 633 West 5th Street, 12th Floor, Los Angeles, California 90071, Attention: Corporate Trust Department (Brocade Communications Systems, Inc. 2% Convertible Subordinated Notes due 2007). The Company may also from time to time designate co-registrars and one or more offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company will give prompt written notice of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the Trustee as paying agent, Note registrar, Custodian and conversion agent and the office of State Street Bank and Trust Company, N.A., 61 Broadway, New York, NY 10006, an Affiliate of Trustee, Attention: Corporate Trust Department as the office or agency of the Company for each of the aforesaid purposes. So long as the Trustee is the Note registrar, the Trustee agrees to mail, or cause to be mailed, the notices set forth in Section 8.10(a) and the third paragraph of Section 8.11. If co-registrars have been appointed in accordance with this Section 5.2, the Trustee shall mail such notices only to the Company and the holders of Notes it can identify from its records. -32- Section 5.3 Appointments to Fill Vacancies in Trustee's Office. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 8.10, a Trustee, so that there shall at all times be a Trustee hereunder. Section 5.4 Provisions as to Paying Agent. (a) If the Company appoints a paying agent other than the Trustee, or if the Trustee appoints such a paying agent, the Company will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent agrees with the Trustee, subject to the provisions of this Section 5.4: (1) that it will hold all sums held by it as such agent for the payment of the principal of and premium, if any, or interest including Liquidated Damages on the Notes (whether such sums have been paid to it by the Company or by any other obligor on the Notes) in trust for the benefit of the holders of the Notes; (2) that it will hold all sums held by it as such agent for the payment of any cash to be paid by the Company in connection with a conversion of Notes into cash in lieu of shares of Common Stock; (3) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Notes) to make any payment of the principal of and premium, if any, or interest (including Liquidated Damages, if any) on the Notes when the same shall be due and payable; and (4) that at any time during the continuance of an Event of Default, upon request of the Trustee, it will forthwith pay to the Trustee all sums so held in trust. The Company shall, (i) on or before each due date of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes, deposit with the paying agent a sum (in funds which are immediately available on the due date for such payment) sufficient to pay such principal, premium, if any, or interest, and (ii) if the Company has elected, with proper notice as described in Section 15.2, to pay cash in lieu of issuing shares of Common Stock upon conversion of the Notes, on or before the second Business Day following the Conversion Date, deposit with the paying agent a sum (in funds which are immediately available on the due date for such payment) sufficient to pay such cash, and (unless such paying agent is the Trustee) the Company will promptly notify the Trustee of any failure to take such action; provided, however, that if such deposit is made on the due date, with respect to principal, premium, if any, or interest, or the second Business Day following the Conversion Date, with respect to a cash payment in lieu of conversion, such deposit shall be received by the paying agent by 10:00 a.m. New York City time, on such date. (b) If the Company acts as its own paying agent, it will, on or before each due date of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes or the second Business Day following a Conversion Date, as applicable, set aside, segregate and hold in trust for the benefit of the holders of the Notes a sum sufficient to pay such principal, premium, if any, or interest (including Liquidated Damages, if any) so becoming due or the amount of cash due to the holder upon conversion and will promptly notify the Trustee of -33- any failure to take such action and of any failure by the Company (or any other obligor under the Notes) to make any payment of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes when the same shall become due and payable. (c) Anything in this Section 5.4 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by the Company or any paying agent hereunder as required by this Section 5.4, such sums to be held by the Trustee upon the trusts herein contained and upon such payment by the Company or any paying agent to the Trustee, the Company or such paying agent shall be released from all further liability with respect to such sums. (d) Anything in this Section 5.4 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 5.4 is subject to Sections 13.3 and 13.4. The Trustee shall not be responsible for the actions of any other paying agents (including the Company if acting as its own paying agent) and shall have no control of any funds held by such other paying agents. Section 5.5 Existence. Subject to Article Twelve, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence and rights (charter and statutory); provided, however, that the Company shall not be required to preserve any such right if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Noteholders. Section 5.6 Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any Significant Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 5.6 shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Noteholders. Section 5.7 Payment of Taxes and Other Claims. The Company will pay or discharge, or cause to be paid or discharged, before the same may become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon the Company or any Significant Subsidiary or upon the income, profits or property of the Company or any Significant Subsidiary, (ii) all claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon the property of the Company or any Significant Subsidiary, and (iii) all stamps and other duties, if any, which may be imposed by the United States or any political subdivision thereof or therein in connection with the issuance, transfer, exchange or conversion of any Notes or with respect to this Indenture; provided, however, that, in the case of -34- clauses (i) and (ii), the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim (A) if the failure to do so will not, in the aggregate, have a material adverse impact on the Company, or (B) if the amount, applicability or validity is being contested in good faith by appropriate proceedings. Section 5.8 Rule 144A Information Requirement. Within the period prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), the Company covenants and agrees that it shall, during any period in which it is not subject to Section 13 or 15(d) under the Exchange Act, make available to any holder or beneficial holder of Notes or any Common Stock issued upon conversion thereof which continue to be Restricted Securities in connection with any sale thereof and any prospective purchaser of Notes or such Common Stock designated by such holder or beneficial holder, the information required pursuant to Rule 144A(d)(4) under the Securities Act upon the request of any holder or beneficial holder of the Notes or such Common Stock and it will take such further action as any holder or beneficial holder of such Notes or such Common Stock may reasonably request, all to the extent required from time to time to enable such holder or beneficial holder to sell its Notes or Common Stock without registration under the Securities Act within the limitation of the exemption provided by Rule 144A, as such Rule may be amended from time to time. Upon the request of any holder or any beneficial holder of the Notes or such Common Stock, the Company will deliver to such holder a written statement as to whether it has complied with such requirements. Section 5.9 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 5.10 Compliance Certificate. The Company shall deliver to the Trustee, within one hundred twenty (120) days after the end of each fiscal year of the Company, a certificate signed by either the principal executive officer, principal financial officer or principal accounting officer of the Company, stating whether or not to the best knowledge of the signer thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and the status thereof of which the signer may have knowledge. The Company will deliver to the Trustee, forthwith (and in any event within five Business Days) upon becoming aware of (i) any default in the performance or observance of any covenant, agreement or condition contained in this Indenture, or (ii) any Event of Default, an -35- Officers' Certificate specifying with particularity such default or Event of Default and further stating what action the Company has taken, is taking or proposes to take with respect thereto. Any notice required to be given under this Section 5.10 shall be delivered to a Responsible Officer of the Trustee at its Corporate Trust Office. Section 5.11 Liquidated Damages. If Liquidated Damages are payable by the Company pursuant to the Registration Rights Agreement, the Company shall deliver to the Trustee a certificate to that effect stating (i) the amount of such Liquidated Damages that are payable and (ii) the date on which such damages are payable. Unless and until a Responsible Officer of the Trustee receives such a certificate, the Trustee may assume without inquiry that no Liquidated Damages are payable. If the Company has paid Liquidated Damages directly to the Persons entitled to them, the Company shall deliver to the Trustee a certificate setting forth the particulars of such payment. ARTICLE SIX NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE Section 6.1 Noteholders' Lists. The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee, semiannually, not more than fifteen (15) days after each June 15, and December 15, in each year beginning with June 15, 2002, and at such other times as the Trustee may request in writing, within thirty (30) days after receipt by the Company of any such request (or such lesser time as the Trustee may reasonably request in order to enable it to timely provide any notice to be provided by it hereunder), a list in such form as the Trustee may reasonably require of the names and addresses of the holders of Notes as of a date not more than fifteen (15) days (or such other date as the Trustee may reasonably request in order to so provide any such notices) prior to the time such information is furnished, except that no such list need be furnished by the Company to the Trustee so long as the Trustee is acting as the sole Note registrar. Section 6.2 Preservation and Disclosure of Lists.(a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Notes contained in the most recent list furnished to it as provided in Section 6.1 or maintained by the Trustee in its capacity as Note registrar or co-registrar in respect of the Notes, if so acting. The Trustee may destroy any list furnished to it as provided in Section 6.1 upon receipt of a new list so furnished. (b) The rights of Noteholders to communicate with other holders of Notes with respect to their rights under this Indenture or under the Notes, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Noteholder, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of holders of Notes made pursuant to the Trust Indenture Act. -36- Section 6.3 Reports by Trustee.(a) Within sixty (60) days after June 15, of each year commencing with the year 2002, the Trustee shall transmit to holders of Notes such reports dated as of June 15 of the year in which such reports are made concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of such report shall, at the time of such transmission to holders of Notes, be filed by the Trustee with each stock exchange and automated quotation system upon which the Notes are listed and with the Company (and the Commission if at any time this Indenture becomes qualified under the Trust Indenture Act). The Company will promptly notify the Trustee in writing when the Notes are listed on any stock exchange or automated quotation system or are delisted therefrom. Section 6.4 Reports by Company. The Company shall file with the Trustee (and the Commission if at any time this Indenture becomes qualified under the Trust Indenture Act), and transmit to holders of Notes, such information, documents and other reports and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act, whether or not the Notes are governed by such Act; provided, however, that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within fifteen (15) days after the same is so required to be filed with the Commission. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). ARTICLE SEVEN REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON AN EVENT OF DEFAULT Section 7.1 Events of Default. In case one or more of the following Events of Default (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall have occurred and be continuing: (a) default in the payment of any installment of interest (including Liquidated Damages, if any) upon any of the Notes as and when the same shall become due and payable, and continuance of such default for a period of thirty (30) days, whether or not such payment is permitted under Article Four hereof; or (b) default in the payment of the principal of or premium, if any, on any of the Notes or in any payment of cash required to be made in lieu of conversion of the Notes into Common Stock, as and when the same shall become due and payable either at maturity or in connection with any redemption or repurchase pursuant to Article Three or conversion pursuant -37- to Article Fifteen, by acceleration or otherwise, whether or not such payment is permitted under Article Four hereof; or (c) failure on the part of the Company duly to observe or perform any other of the covenants or agreements on the part of the Company in the Notes or in this Indenture (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section 7.1 specifically dealt with) continued for a period of sixty (60) days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee, or the Company and a Responsible Officer of the Trustee by the holders of at least twenty-five percent (25%) in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4; or (d) the Company or any Significant Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or any Significant Subsidiary or its or such Significant Subsidiary's debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any Significant Subsidiary or any substantial part of the property of the Company or any Significant Subsidiary, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it or any Significant Subsidiary, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or (e) an involuntary case or other proceeding shall be commenced against the Company or any Significant Subsidiary seeking liquidation, reorganization or other relief with respect to it or any Significant Subsidiary or its or such Significant Subsidiary's debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any Significant Subsidiary or any substantial part of the property of the Company or any Significant Subsidiary, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of ninety (90) consecutive days; then, and in each and every such case (other than an Event of Default specified in Section 7.1(d) or (e) with respect to the Company), unless the principal of all of the Notes shall have already become due and payable, either the Trustee or the holders of not less than twenty-five percent (25%) in aggregate principal amount of the Notes then outstanding hereunder determined in accordance with Section 9.4, by notice in writing to the Company (and to the Trustee if given by Noteholders), may declare the principal of and premium, if any, on all the Notes and the interest accrued thereon (including Liquidated Damages, if any) to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Notes contained to the contrary notwithstanding. If an Event of Default specified in Section 7.1(d) or (e) with respect to the Company occurs, the principal of all the Notes and the interest accrued thereon (including Liquidated Damages, if any) shall be immediately and automatically due and payable without necessity of further action. This provision, however, is subject to the conditions that if, at any time after the principal of the Notes shall have been so declared due and payable, and before any judgment or decree for the payment of the monies due shall have been obtained or entered as hereinafter provided, the Company shall -38- pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon (including Liquidated Damages, if any) all Notes and the principal of and premium, if any, on all Notes which shall have become due otherwise than by acceleration (with interest on overdue installments of interest (including Liquidated Damages, if any) (to the extent that payment of such interest is enforceable under applicable law) and on such principal and premium, if any, at the rate borne by the Notes, to the date of such payment or deposit) and amounts due to the Trustee pursuant to Section 8.6, and if all defaults under this Indenture, other than the nonpayment of principal of and premium, if any, and accrued interest on (including Liquidated Damages, if any) Notes which shall have become due by acceleration, shall have been cured or waived pursuant to Section 7.7, then and in every such case the holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Company and to the Trustee, may waive all defaults or Events of Default that may be waived pursuant to Section 7.7 and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or Event of Default, or shall impair any right consequent thereon. The Company shall notify a Responsible Officer of the Trustee promptly (and in any event within five Business Days) upon becoming aware thereof, of any Event of Default. If the Trustee has proceeded to enforce any right under this Indenture and such proceedings have been discontinued or abandoned because of such waiver or rescission and annulment or for any other reason or have been determined adversely to the Trustee, then and in every such case the Company, the holders of Notes, and the Trustee shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the holders of Notes, and the Trustee shall continue as though no such proceeding had been taken. Section 7.2 Payments of Notes on Default; Suit Therefor. The Company covenants that (a) in case default shall be made in the payment of any installment of interest upon (including Liquidated Damages, if any) any of the Notes as and when the same shall become due and payable, and such default shall have continued for a period of thirty (30) days, or (b) in case default shall be made in the payment of the principal of or premium, if any, on any of the Notes as and when the same shall have become due and payable, whether at maturity of the Notes or in connection with any redemption or repurchase, or in any payment of cash required to be made in lieu of conversion of the Notes into Common Stock, by or under this Indenture declaration or otherwise, then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Notes, the whole amount that then shall have become due and payable on all such Notes for principal and premium, if any, interest (including Liquidated Damages, if any), or conversion, as the case may be, with interest upon the overdue principal and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) upon the overdue installments of interest (including Liquidated Damages, if any) at the rate borne by the Notes, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to the Trustee, its agents, attorneys and counsel, and all other amounts due the Trustee under Section 8.6. Until such demand by the Trustee, the Company may pay the principal of and premium, if any, interest (including Liquidated Damages, if any) and cash payment upon conversion of the Notes to the registered holders, whether or not the Notes are overdue. -39- If the Company fails forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor on the Notes and collect in the manner provided by law out of the property of the Company or any other obligor on the Notes wherever situated the monies adjudged or decreed to be payable. If there are pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Notes under Title 11 of the United States Code, or any other applicable law, or if a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official has been appointed for or taken possession of the Company or such other obligor, the property of the Company or such other obligor, or in the case of any other judicial proceedings relative to the Company or such other obligor upon the Notes, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 7.2, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal, premium, if any, and interest (including Liquidated Damages, if any) owing and unpaid in respect of the Notes, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Noteholders allowed in such judicial proceedings relative to the Company or any other obligor on the Notes, its or their creditors, or its or their property, and to collect and receive any monies or other property payable or deliverable on any such claims, and to distribute the same after the deduction of any amounts due the Trustee under Section 8.6, and any receiver, assignee or trustee in bankruptcy or reorganization, liquidator, custodian or similar official is hereby authorized by each of the Noteholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee any amount due it for reasonable compensation, expenses, advances and disbursements, including counsel fees incurred by it up to the date of such distribution. To the extent that such payment of reasonable compensation, expenses, advances and disbursements out of the estate in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, monies, securities and other property which the holders of the Notes may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Trustee without the possession of any of the Notes, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, be for the ratable benefit of the holders of the Notes. -40- In any proceedings brought by the Trustee (and in any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the holders of the Notes, and it shall not be necessary to make any holders of the Notes parties to any such proceedings. Section 7.3 Application of Monies Collected by Trustee. Any monies collected by the Trustee pursuant to this Article Seven shall be applied in the order following, at the date or dates fixed by the Trustee for the distribution of such monies, upon presentation of the several Notes, and stamping thereon the payment, if only partially paid, and upon surrender thereof, if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 8.6; SECOND: Subject to the provisions of Article Four, in case the principal of the outstanding Notes shall not have become due and be unpaid, to the payment of interest on (including Liquidated Damages, if any) the Notes in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest (including Liquidated Damages, if any) at the rate borne by the Notes, such payments to be made ratably to the Persons entitled thereto; THIRD: Subject to the provisions of Article Four, in case the principal of the outstanding Notes shall have become due, by declaration or otherwise, and be unpaid to the payment of the whole amount then owing and unpaid upon the Notes for principal and premium, if any, and interest (including Liquidated Damages, if any), with interest on the overdue principal and premium, if any, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest (including Liquidated Damages, if any) at the rate borne by the Notes, and in case such monies shall be insufficient to pay in full the whole amounts so due and unpaid upon the Notes, then to the payment of such principal and premium, if any, and interest (including Liquidated Damages, if any) without preference or priority of principal and premium, if any, over interest (including Liquidated Damages, if any), or of interest (including Liquidated Damages, if any) over principal and premium, if any, or of any installment of interest over any other installment of interest, or of any Note over any other Note, ratably to the aggregate of such principal and premium, if any, and accrued and unpaid interest; and FOURTH: Subject to the provisions of Article Four, to the payment of the remainder, if any, to the Company or any other Person lawfully entitled thereto. Section 7.4 Proceedings by Noteholder. No holder of any Note shall have any right by virtue of or by reference to any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture, or for the appointment of a receiver, trustee, liquidator, custodian or other similar official, or for any other remedy hereunder, unless such holder previously gave the Trustee written notice of an Event of Default and of the continuance thereof, as hereinbefore provided, and unless also the holders of not less than twenty-five percent (25%) in aggregate principal amount of the Notes then outstanding shall have made written request upon the Trustee to institute such action, suit or -41- proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee for sixty (60) days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 7.7; it being understood and intended, and being expressly covenanted by the taker and holder of every Note with every other taker and holder and the Trustee, that no one or more holders of Notes shall have any right in any manner whatever by virtue of or by reference to any provision of this Indenture to affect, disturb or prejudice the rights of any other holder of Notes, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Notes (except as otherwise provided herein). For the protection and enforcement of this Section 7.4, each Noteholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Notwithstanding any other provision of this Indenture and any provision of any Note, the right of any holder of any Note to receive payment of the principal of and premium, if any (including the redemption price upon redemption pursuant to Section 3.2 and the repurchase price upon repurchase pursuant to Section 3.5), accrued interest (including Liquidated Damages, if any) and cash payment upon conversion of such Note in lieu of conversion into Common Stock, on or after the respective due dates expressed in such Note or in the event of redemption or conversion, or to institute suit for the enforcement of any such payment on or after such respective dates against the Company shall not be impaired or affected without the consent of such holder Anything in this Indenture or the Notes to the contrary notwithstanding, the holder of any Note, without the consent of either the Trustee or the holder of any other Note, in its own behalf and for its own benefit, may enforce, and may institute and maintain any proceeding suitable to enforce, its rights of conversion as provided herein. Section 7.5 Proceedings by Trustee. In case of an Event of Default, the Trustee may, in its discretion, proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as are necessary to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Section 7.6 Remedies Cumulative and Continuing. Except as provided in Section 2.6, all powers and remedies given by this Article Seven to the Trustee or to the Noteholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the Trustee or the holders of the Notes, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture, and no delay or omission of the Trustee or of any holder of any of the Notes to exercise any right or power accruing upon any default or Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or any acquiescence therein, and, subject to the provisions of -42- Section 7.4, every power and remedy given by this Article Seven or by law to the Trustee or to the Noteholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Noteholders. Section 7.7 Direction of Proceedings and Waiver of Defaults by Majority of Noteholders. The holders of a majority in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4 shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided, however, that (a) such direction shall not be in conflict with any rule of law or with this Indenture, (b) the Trustee may take any other action which is not inconsistent with such direction and (c) the Trustee may decline to take any action that would benefit some Noteholder to the detriment of other Noteholders. The holders of a majority in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4 may, on behalf of the holders of all of the Notes, waive any past default or Event of Default hereunder and its consequences except (i) a default in the payment of interest (including Liquidated Damages, if any) or premium, if any, on, or the principal of, the Notes, (ii) a failure by the Company to convert any Notes, (iii) a default in the payment of redemption price or repurchase price pursuant to Article Three or (iv) a default in respect of a covenant or provisions hereof which under Article Eleven cannot be modified or amended without the consent of the holders of each or all Notes then outstanding or affected thereby. Upon any such waiver, the Company, the Trustee and the holders of the Notes shall be restored to their former positions and rights hereunder. Whenever any default or Event of Default hereunder shall have been waived as permitted by this Section 7.7, said default or Event of Default shall for all purposes of the Notes and this Indenture be deemed to have been cured and to be not continuing; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Section 7.8 Notice of Defaults. The Trustee shall, within ninety (90) days after a Responsible Officer of the Trustee has actual knowledge of the occurrence of a default, mail to all Noteholders, as the names and addresses of such holders appear upon the Note register, notice of all defaults actually known to a Responsible Officer, unless such defaults shall have been cured or waived before the giving of such notice; provided, however, that except in the case of default in the payment of the principal of, or premium, if any, or interest (including Liquidated Damages, if any) on any of the Notes, the Trustee shall be protected in withholding such notice if and so long as a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Noteholders. Section 7.9 Undertaking to Pay Costs. All parties to this Indenture agree, and each holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may, in its discretion, require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided, however, that the provisions of this Section 7.9 (to the extent permitted by law) shall not apply to any suit instituted by the Trustee, to any suit instituted by any Noteholder, or group of Noteholders, holding in the aggregate more -43- than ten percent (10%) in principal amount of the Notes at the time outstanding determined in accordance with Section 9.4, or to any suit instituted by any Noteholder for the enforcement of the payment of the principal of or premium, if any, or interest (including Liquidated Damages, if any) on any Note on or after the due date expressed in such Note or to any suit for the enforcement of the right to convert any Note in accordance with the provisions of Article Fifteen. ARTICLE EIGHT THE TRUSTEE Section 8.1 Duties and Responsibilities of Trustee. The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (a) prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred: (1) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture and the Trust Indenture Act, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture and the Trust Indenture Act against the Trustee; and (2) in the absence of bad faith and willful misconduct on the part of the Trustee, the Trustee may conclusively rely as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but, in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee, unless the Trustee was negligent in ascertaining the pertinent facts; (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the written direction of the holders of not less than a majority in principal amount of the Notes at the time outstanding determined as provided in Section 9.4 relating to the time, method and place of conducting any proceeding for any -44- remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; (d) whether or not therein provided, every provision of this Indenture relating to the conduct or affecting the liability of, or affording protection to, the Trustee shall be subject to the provisions of this Section 8.1; (e) the Trustee shall not be liable in respect of any payment (as to the correctness of amount, entitlement to receive or any other matters relating to payment) or notice effected by the Company or any paying agent or any records maintained by any co-registrar with respect to the Notes; and (f) if any party fails to deliver a notice relating to an event the fact of which, pursuant to this Indenture, requires notice to be sent to the Trustee, the Trustee may conclusively rely on its failure to receive such notice as reason to act as if no such event occurred. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Section 8.2 Reliance on Documents, Opinions, Etc. Except as otherwise provided in Section 8.1: (a) the Trustee may conclusively rely and shall be fully protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, note, coupon or other paper or document (whether in its original or facsimile form) believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company; (c) the Trustee may consult with counsel of its own selection and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Noteholders pursuant to the provisions of this Indenture, unless such Noteholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; -45- (e) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the expense of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation; (f) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder; and (g) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. Section 8.3 No Responsibility for Recitals, Etc. The recitals contained herein and in the Notes (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes. The Trustee shall not be accountable for the use or application by the Company of any Notes or the proceeds of any Notes authenticated and delivered by the Trustee in conformity with the provisions of this Indenture. Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes. The Trustee, any paying agent, any conversion agent or Note registrar, in its individual or any other capacity, may become the owner or pledgee of Notes with the same rights it would have if it were not Trustee, paying agent, conversion agent or Note registrar. Section 8.5 Monies to be Held in Trust. Subject to the provisions of Section 13.4 and Section 4.2, all monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as may be agreed in writing from time to time by the Company and the Trustee. Section 8.6 Compensation and Expenses of Trustee. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation for all services rendered by it hereunder in any capacity (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) as mutually agreed to from time to time in writing between the Company and the Trustee, and the Company will pay or reimburse the Trustee upon its request for all expenses, disbursements and advances reasonably incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its -46- counsel and of all Persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or willful misconduct. The Company also covenants to fully indemnify the Trustee (or any officer, director or employee of the Trustee) and any predecessor Trustee, in any capacity under this Indenture and its agents and any authenticating agent for, and to hold them harmless against, any and all loss, liability, claim, damage or expense (including taxes, other than taxes based on the income of the Trustee) incurred without negligence or willful misconduct on the part of the Trustee or such officers, directors, employees and agent or authenticating agent, as the case may be, and arising out of or in connection with the acceptance or administration of this trust or in any other capacity hereunder, including the costs and expenses of defending themselves against any claim of liability in the premises. The Company's obligations under this Section 8.6 to compensate or indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall be secured by a lien prior to that of the Notes upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Notes. The Company's obligation under this Section 8.6 shall survive the resignation or removal of the Trustee and the satisfaction and discharge of this Indenture. When the Trustee and its agents and any authenticating agent incur expenses or render services after an Event of Default specified in Section 7.1(d) or (e) with respect to the Company occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any bankruptcy, insolvency or similar laws. Section 8.7 Officers' Certificate as Evidence. Except as otherwise provided in Section 8.1, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or willful misconduct on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee. Section 8.8 Conflicting Interests of Trustee. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. Section 8.9 Eligibility of Trustee. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000 (or if such Person is a member of a bank holding company system, its bank holding company shall have a combined capital and surplus of at least $50,000,000). If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority, then for the purposes of this Section 8.9, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 8.9, it shall resign immediately in the manner and with the effect hereinafter specified in this Article Eight. -47- Section 8.10 Resignation or Removal of Trustee.(a) The Trustee may at any time resign by giving written notice of such resignation to the Company and to the holders of Notes. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment sixty (60) days after the mailing of such notice of resignation to the Noteholders, the resigning Trustee may, upon ten (10) Business Days' notice to the Company and the Noteholders, appoint a successor identified in such notice or may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor trustee, or, if any Noteholder who has been a bona fide holder of a Note or Notes for at least six (6) months may, subject to the provisions of Section 7.9, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any of the following shall occur: (1) the Trustee shall fail to comply with Section 8.8 after written request therefor by the Company or by any Noteholder who has been a bona fide holder of a Note or Notes for at least six (6) months; or (2) the Trustee shall cease to be eligible in accordance with the provisions of Section 8.9 and shall fail to resign after written request therefor by the Company or by any such Noteholder; or (3) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 7.9, any Noteholder who has been a bona fide holder of a Note or Notes for at least six (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee; provided, however, that if no successor Trustee shall have been appointed and have accepted appointment sixty (60) days after either the Company or a Noteholder has removed the Trustee, the Trustee so removed may petition any court of competent jurisdiction for an appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4 may at any time remove the Trustee and nominate a successor trustee which shall be deemed appointed as successor trustee unless, within ten (10) days after notice to the Company of such nomination, the Company objects -48- thereto, in which case the Trustee so removed or any Noteholder, or if such Trustee so removed or any Noteholder fails to act, the Company, upon the terms and conditions and otherwise as provided in Section 8.10(a), may petition any court of competent jurisdiction for an appointment of a successor trustee. (d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 8.10 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 8.11. Section 8.11 Acceptance by Successor Trustee. Any successor trustee appointed as provided in Section 8.10 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein; but, nevertheless, on the written request of the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any amount then due it and its agents and counsel pursuant to the provisions of Section 8.6, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon request of any such successor trustee, the Company shall execute all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a lien upon all property and funds held or collected by such trustee as such, except for funds held in trust for the benefit of holders of particular Notes, to secure any amounts then due it pursuant to the provisions of Section 8.6. No successor trustee shall accept appointment as provided in this Section 8.11 unless, at the time of such acceptance, such successor trustee shall be qualified under the provisions of Section 8.8 and be eligible under the provisions of Section 8.9. Upon acceptance of appointment by a successor trustee as provided in this Section 8.11, the Company (or the former trustee, at the expense of and at the written direction of the Company) shall mail or cause to be mailed notice of the succession of such trustee hereunder to the holders of Notes at their addresses as they shall appear on the Note register. If the Company fails to mail such notice within ten (10) days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Company. Section 8.12 Succession by Merger, Etc. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee (including any trust created by this Indenture), shall be the successor to the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that in the case of any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, such corporation shall be qualified under the provisions of Section 8.8 and eligible under the provisions of Section 8.9. -49- In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture, any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee or authenticating agent appointed by such predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee or any authenticating agent appointed by such successor trustee may authenticate such Notes in the name of the successor trustee; and in all such cases such certificates shall have the full force that is provided in the Notes or in this Indenture; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or authenticate Notes in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. Section 8.13 Preferential Collection of Claims. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Notes), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of the claims against the Company (or any such other obligor). Section 8.14 Trustee's Application for Instructions from the Company. Any application by the Trustee for written instructions from the Company (other than with regard to any action proposed to be taken or omitted to be taken by the Trustee that affects the rights of the holders of the Notes or holders of Senior Indebtedness under this Indenture, including, without limitation, under Article Four hereof) may, at the option of the Trustee, set forth in writing any action proposed to be taken or omitted by the Trustee under this Indenture and the date on and/or after which such action shall be taken or such omission shall be effective. The Trustee shall not be liable for any action taken by, or omission of, the Trustee in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than three (3) Business Days after the date any officer of the Company actually receives such application, unless any such officer shall have consented in writing to any earlier date) unless prior to taking any such action (or the effective date in the case of an omission), the Trustee shall have received written instructions in response to such application specifying the action to be taken or omitted. ARTICLE NINE THE NOTEHOLDERS Section 9.1 Action by Noteholders. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Notes may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action, the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by Noteholders in person or by agent or proxy appointed in writing, or (b) by the record of the holders of Notes voting in favor thereof at any meeting of Noteholders duly called and held in accordance with the provisions of Article Ten, or (c) by a combination of such instrument or instruments and any such record of such a meeting of Noteholders. Whenever the Company or the Trustee solicits the taking of any action by the holders of the Notes, the Company or the Trustee may fix in advance of such solicitation, a date -50- as the record date for determining holders entitled to take such action. The record date shall be not more than fifteen (15) days prior to the date of commencement of solicitation of such action. Section 9.2 Proof of Execution by Noteholders. Subject to the provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any instrument by a Noteholder or its agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The holding of Notes shall be proved by the registry of such Notes or by a certificate of the Note registrar. The record of any Noteholders' meeting shall be proved in the manner provided in Section 10.6. Section 9.3 Who Are Deemed Absolute Owners. The Company, the Trustee, any paying agent, any conversion agent and any Note registrar may deem the Person in whose name a Note shall be registered upon the Note register to be, and may treat it as, the absolute owner of such Note (whether or not such Note shall be overdue and notwithstanding any notation of ownership or other writing thereon made by any Person other than the Company or any Note registrar) for the purpose of receiving payment of or on account of the principal of, premium, if any, and interest (including Liquidated Damages, if any) on such Note, for conversion of such Note and for all other purposes; and neither the Company nor the Trustee nor any paying agent nor any conversion agent nor any Note registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effective to satisfy and discharge the liability for monies payable upon any such Note. Section 9.4 Company-Owned Notes Disregarded. In determining whether the holders of the requisite aggregate principal amount of Notes have concurred in any direction, consent, waiver or other action under this Indenture, Notes which are owned by the Company or any other obligor on the Notes or any Affiliate of the Company or any other obligor on the Notes shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided, however, that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent, waiver or other action, only Notes which a Responsible Officer knows are so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section 9.4 if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Notes and that the pledgee is not the Company, any other obligor on the Notes or any Affiliate of the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Notes, if any, known by the Company to be owned or held by or for the account of any of the above described Persons, and, subject to Section 8.1, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Notes not listed therein are outstanding for the purpose of any such determination. Section 9.5 Revocation of Consents; Future Holders Bound. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 9.1, of the taking of any action by -51- the holders of the percentage in aggregate principal amount of the Notes specified in this Indenture in connection with such action, any holder of a Note which is shown by the evidence to be included in the Notes the holders of which have consented to such action may, by filing written notice with the Trustee at its Corporate Trust Office and upon proof of holding as provided in Section 9.2, revoke such action so far as concerns such Note. Except as aforesaid, any such action taken by the holder of any Note shall be conclusive and binding upon such holder and upon all future holders and owners of such Note and of any Notes issued in exchange or substitution therefor, irrespective of whether any notation in regard thereto is made upon such Note or any Note issued in exchange or substitution therefor. ARTICLE TEN MEETINGS OF NOTEHOLDERS Section 10.1 Purpose of Meetings. A meeting of Noteholders may be called at any time and from time to time pursuant to the provisions of this Article Ten for any of the following purposes: (1) to give any notice to the Company or to the Trustee or to give any directions to the Trustee permitted under this Indenture, or to consent to the waiving of any default or Event of Default hereunder and its consequences, or to take any other action authorized to be taken by Noteholders pursuant to any of the provisions of Article Seven; (2) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article Eight; (3) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 11.2; or (4) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of the Notes under any other provision of this Indenture or under applicable law. Section 10.2 Call of Meetings by Trustee. The Trustee may at any time call a meeting of Noteholders to take any action specified in Section 10.1, to be held at such time and at such place as the Trustee shall determine. Notice of every meeting of the Noteholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting and the establishment of any record date pursuant to Section 9.1, shall be mailed to holders of Notes at their addresses as they shall appear on the Note register. Such notice shall also be mailed to the Company. Such notices shall be mailed not less than twenty (20) nor more than ninety (90) days prior to the date fixed for the meeting. Any meeting of Noteholders shall be valid without notice if the holders of all Notes then outstanding are present in person or by proxy or if notice is waived before or after the meeting by the holders of all Notes outstanding, and if the Company and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. -52- Section 10.3 Call of Meetings by Company or Noteholders. In case at any time the Company, pursuant to a resolution of its Board of Directors, or the holders of at least ten percent (10%) in aggregate principal amount of the Notes then outstanding determined in accordance with Section 9.4, shall have requested the Trustee to call a meeting of Noteholders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within twenty (20) days after receipt of such request, then the Company or such Noteholders may determine the time and the place for such meeting and may call such meeting to take any action authorized in Section 10.1, by mailing notice thereof as provided in Section 10.2. Section 10.4 Qualifications for Voting. To be entitled to vote at any meeting of Noteholders a Person shall (a) be a holder of one or more Notes on the record date pertaining to such meeting or (b) be a Person appointed by an instrument in writing as proxy by a holder of one or more Notes on the record date pertaining to such meeting. The only Persons who shall be entitled to be present or to speak at any meeting of Noteholders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. Section 10.5 Regulations. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Noteholders, in regard to proof of the holding of Notes and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Noteholders as provided in Section 10.3, in which case the Company or the Noteholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the holders of a majority in principal amount of the Notes represented at the meeting and entitled to vote at the meeting (determined in accordance with Section 9.4). Subject to the provisions of Section 9.4, at any meeting each Noteholder or proxyholder shall be entitled to one vote for each $1,000 principal amount of Notes held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Note challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Notes held by him or instruments in writing as aforesaid duly designating him as the proxy to vote on behalf of other Noteholders. Any meeting of Noteholders duly called pursuant to the provisions of Section 10.2 or 10.3 may be adjourned from time to time by the holders of a majority of the aggregate principal amount of Notes represented at the meeting (determined in accordance with Section 9.4), whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice. Section 10.6 Voting. The vote upon any resolution submitted to any meeting of Noteholders shall be by written ballot on which shall be subscribed the signatures of the holders -53- of Notes or of their representatives by proxy and the outstanding principal amount of the Notes held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Noteholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 10.2. The record shall show the principal amount of the Notes voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 10.7 No Delay of Rights by Meeting. Nothing contained in this Article Ten shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Noteholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Noteholders under any of the provisions of this Indenture or of the Notes. ARTICLE ELEVEN SUPPLEMENTAL INDENTURES Section 11.1 Supplemental Indentures Without Consent of Noteholders. The Company, when authorized by the resolutions of the Board of Directors, and the Trustee may, from time to time, and at any time enter into an indenture or indentures supplemental hereto for one or more of the following purposes: (a) to make provision with respect to the conversion rights of the holders of Notes pursuant to the requirements of Section 15.6 and the repurchase obligations of the Company pursuant to the requirements of Section 3.5(e); (b) subject to Article Four, to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Notes, any property or assets; (c) to evidence the succession of another Person to the Company, or successive successions, and the assumption by the successor Person of the covenants, agreements and obligations of the Company pursuant to Article Twelve; (d) to add to the covenants of the Company such further covenants, restrictions or conditions as the Board of Directors and the Trustee shall consider to be for the benefit of the holders of Notes, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions or conditions a default or an Event of -54- Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction or condition, such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; (e) to provide for the issuance under this Indenture of Notes in coupon form (including Notes registrable as to principal only) and to provide for exchangeability of such Notes with the Notes issued hereunder in fully registered form and to make all appropriate changes for such purpose; (f) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture that may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture that shall not materially adversely affect the interests of the holders of the Notes; (g) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Notes; or (h) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualifications of this Indenture under the Trust Indenture Act, or under any similar federal statute hereafter enacted. Upon the written request of the Company, accompanied by a copy of the resolutions of the Board of Directors certified by its Secretary or Assistant Secretary authorizing the execution of any supplemental indenture, the Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations that may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any supplemental indenture that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 11.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Notes at the time outstanding, notwithstanding any of the provisions of Section 11.2. Notwithstanding any other provision of this Indenture or the Notes, the Registration Rights Agreement and the obligation to pay Liquidated Damages thereunder may be amended, modified or waived in accordance with the provisions of the Registration Rights Agreement. Section 11.2 Supplemental Indenture with Consent of Noteholders. With the consent (evidenced as provided in Article Nine) of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding as determined in accordance with Section 9.4, the Company, when authorized by the resolutions of the Board of Directors, and the Trustee may, from time to time and at any time, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the -55- provisions of this Indenture or any supplemental indenture or of modifying in any manner the rights of the holders of the Notes; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption or repurchase thereof, or impair the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, or modify the provisions of this Indenture with respect to the subordination of the Notes in a manner adverse to the Noteholders in any material respect, or change the obligation of the Company to repurchase any Note upon the happening of a Fundamental Change in a manner adverse to the holder of Notes, or impair the right to convert the Notes subject to the terms set forth herein, including Section 15.6, or reduce the quorum or voting requirements of this Indenture or change any obligation of the Company to maintain an office or agency in the places and for the purposes specified in this Indenture, in each case, without the consent of the holder of each Note so affected, or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. Upon the written request of the Company, accompanied by a copy of the resolutions of the Board of Directors certified by its Secretary or Assistant Secretary and authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Noteholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Noteholders under this Section 11.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Section 11.3 Effect of Supplemental Indenture. Any supplemental indenture executed pursuant to the provisions of this Article Eleven shall comply with the Trust Indenture Act, as then in effect, provided that this Section 11.3 shall not require such supplemental indenture or the Trustee to be qualified under the Trust Indenture Act prior to the time such qualification is in fact required under the terms of the Trust Indenture Act or this Indenture has been qualified under the Trust Indenture Act, nor shall it constitute any admission or acknowledgment by any party to such supplemental indenture that any such qualification is required prior to the time such qualification is in fact required under the terms of the Trust Indenture Act or this Indenture has been qualified under the Trust Indenture Act. Upon the execution of any supplemental indenture pursuant to the provisions of this Article Eleven, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitation of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Notes shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. -56- Section 11.4 Notation on Notes. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article Eleven may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may, at the Company's expense, be prepared and executed by the Company, authenticated by the Trustee (or an authenticating agent duly appointed by the Trustee pursuant to Section 16.11) and delivered in exchange for the Notes then outstanding, upon surrender of such Notes then outstanding. Section 11.5 Evidence of Compliance of Supplemental Indenture to be Furnished to Trustee. Prior to entering into any supplemental indenture, the Trustee may request an Officers' Certificate and an Opinion of Counsel meeting the requirements set forth in Section 16.5 as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article Eleven. ARTICLE TWELVE CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE Section 12.1 Company May Consolidate, Etc., on Certain Terms. Subject to the provisions of Section 12.2, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of the Company with or into any other Person or Persons (whether or not affiliated with the Company), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance or lease (or successive sales, conveyances or leases) of all or substantially all of the property of the Company, to any other Person (whether or not affiliated with the Company), authorized to acquire and operate the same and that shall be organized under the laws of the United States of America, any state thereof or the District of Columbia or any other country, if the merger, consolidation or other transaction would not impair the rights of the holders of the Notes; provided, however, that upon any such consolidation, merger, sale, conveyance or lease, (a) no default or Event of Default shall have occurred and be continuing immediately following such merger, consolidation or other transaction, and (b) the due and punctual payment of the principal of and premium, if any, and interest (including Liquidated Damages, if any) on all of the Notes, according to their tenor and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company, shall be expressly assumed, by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee by the Person (if other than the Company) formed by such consolidation, or into which the Company shall have been merged, or by the Person that shall have acquired or leased such property, and such supplemental indenture shall provide for the applicable conversion rights set forth in Section 15.6. Section 12.2 Successor Corporation to be Substituted. In case of any such consolidation, merger, sale, conveyance or lease and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and premium, if any, and interest on all of the Notes and the due and punctual performance of all of the covenants and -57- conditions of this Indenture to be performed by the Company, such successor Person shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of this first part. Such successor Person thereupon may cause to be signed, and may issue either in its own name or in the name of Brocade Communications Systems, Inc. any or all of the Notes, issuable hereunder that theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor Person instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver, or cause to be authenticated and delivered, any Notes that previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Notes that such successor Person thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Notes so issued shall in all respects have the same legal rank and benefit under this Indenture as the Notes theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Notes had been issued at the date of the execution hereof. In the event of any such consolidation, merger, sale, conveyance or lease, the Person named as the "Company" in the first paragraph of this Indenture or any successor that shall thereafter have become such in the manner prescribed in this Article Twelve may be dissolved, wound up and liquidated at any time thereafter and such Person shall be released from its liabilities as obligor and maker of the Notes and from its obligations under this Indenture. In case of any such consolidation, merger, sale, conveyance or lease, such changes in phraseology and form (but not in substance) may be made in the Notes thereafter to be issued as may be appropriate. Section 12.3 Opinion of Counsel to be Given Trustee. The Trustee shall receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance or lease and any such assumption complies with the provisions of this Article Twelve. ARTICLE THIRTEEN SATISFACTION AND DISCHARGE OF INDENTURE Section 13.1 Discharge of Indenture. When (a) the Company shall deliver to the Trustee for cancellation all Notes theretofore authenticated (other than any Notes that have been destroyed, lost or stolen and in lieu of or in substitution for which other Notes shall have been authenticated and delivered) and not theretofore canceled, or (b) all the Notes not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon redemption of all of the Notes (other than any Notes that shall have been mutilated, destroyed, lost or stolen and in lieu of or in substitution for which other Notes shall have been authenticated and delivered) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest due or to become due to such date of maturity or redemption date, as the case may be, accompanied by a verification report, as to the sufficiency of the deposited amount, from an independent certified accountant or other -58- financial professional satisfactory to the Trustee, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect (except as to (i) remaining rights of registration of transfer, substitution and exchange and conversion of Notes, (ii) rights hereunder of Noteholders to receive payments of principal of and premium, if any, and interest on, the Notes and the other rights, duties and obligations of Noteholders, as beneficiaries hereof with respect to the amounts, if any, so deposited with the Trustee and (iii) the rights, obligations and immunities of the Trustee hereunder), and the Trustee, on written demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel as required by Section 16.5 and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; the Company, however, hereby agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Notes. Section 13.2 Deposited Monies to be Held in Trust by Trustee. Subject to Section 13.4, all monies deposited with the Trustee pursuant to Section 13.1, provided such deposit was not in violation of Article Four, shall be held in trust for the sole benefit of the Noteholders and not to be subject to the subordination provisions of Article Four, and such monies shall be applied by the Trustee to the payment, either directly or through any paying agent (including the Company if acting as its own paying agent), to the holders of the particular Notes for the payment or redemption of which such monies have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest and premium, if any. Section 13.3 Paying Agent to Repay Monies Held. Upon the satisfaction and discharge of this Indenture, all monies then held by any paying agent of the Notes (other than the Trustee) shall, upon written request of the Company, be repaid to it or paid to the Trustee, and thereupon such paying agent shall be released from all further liability with respect to such monies. Section 13.4 Return of Unclaimed Monies. Subject to the requirements of applicable law, any monies deposited with or paid to the Trustee for payment of the principal of, premium, if any, or interest on Notes and not applied but remaining unclaimed by the holders of Notes for two years after the date upon which the principal of, premium, if any, or interest on such Notes, as the case may be, shall have become due and payable, shall be repaid to the Company by the Trustee on demand and all liability of the Trustee shall thereupon cease with respect to such monies; and the holder of any of the Notes shall thereafter look only to the Company for any payment that such holder may be entitled to collect unless an applicable abandoned property law designates another Person. Section 13.5 Reinstatement. If the Trustee or the paying agent is unable to apply any money in accordance with Section 13.2 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 13.1 until such time as the Trustee or the paying agent is permitted to apply all such money in accordance with Section 13.2; provided, however, that if the Company makes any payment of interest on or principal of any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of -59- the holders of such Notes to receive such payment from the money held by the Trustee or paying agent. ARTICLE FOURTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS Section 14.1 Indenture and Notes Solely Corporate Obligations. No recourse for the payment of the principal of or premium, if any, or interest on any Note, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer, director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes. ARTICLE FIFTEEN CONVERSION OF NOTES Section 15.1 Right to Convert. Subject to and upon compliance with the provisions of this Indenture, including, without limitation, Article Four, the holder of any Note shall have the right, at its option, at any time after the original issuance of the Notes hereunder through the close of business on the final maturity date of the Notes (except that, with respect to any Note or portion of a Note that shall be called for redemption, such right shall terminate, except as provided in Section 15.2, Section 3.2 or Section 3.4, at the close of business on the Business Day next preceding the date fixed for redemption of such Note or portion of a Note unless the Company shall default in payment due upon redemption thereof) to convert the principal amount of any such Note, or any portion of such principal amount which is $1,000 or an integral multiple thereof. The Notes will be convertible at the Conversion Rate, determined as hereinafter provided, in effect at the time of conversion into fully paid and non-assessable shares of Common Stock (as such shares shall then be constituted), by surrender of the Note so to be converted in whole or in part in the manner provided, together with any required funds, in Section 15.2. A Note in respect of which a holder is exercising its option to require repurchase upon a Fundamental Change pursuant to Section 3.5 may be converted only if such holder withdraws its repurchase election in accordance with Section 3.5. A holder of Notes is not entitled to any rights of a holder of Common Stock until such holder has converted his Notes to Common Stock, and only to the extent such Notes are deemed to have been converted to Common Stock under this Article Fifteen. -60- Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. In order to exercise the conversion privilege with respect to any Note in certificated form, the holder of any such Note to be converted in whole or in part shall surrender such Note, duly endorsed, at an office or agency maintained by the Company pursuant to Section 5.2, accompanied by the funds, if any, required by the penultimate paragraph of this Section 15.2, and shall give written notice of conversion in the form provided on the Notes (or such other notice which is acceptable to the Company) to the office or agency that the holder elects to convert such Note or the portion thereof specified in said notice. If the Notes are converted into Common Stock, such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued, and shall be accompanied by transfer taxes, if required pursuant to Section 15.7. Each such Note surrendered for conversion into Common Stock shall, unless the shares issuable on conversion are to be issued in the same name as the registration of such Note, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or his duly authorized attorney. In order to exercise the conversion privilege with respect to any interest in a Note in global form, the beneficial holder must complete, or cause to be completed, the appropriate instruction form for conversion pursuant to the Depository's book-entry conversion program, deliver, or cause to be delivered, by book-entry delivery an interest in such Note in global form, furnish appropriate endorsements and transfer documents if required by the Company or the Trustee or conversion agent, and pay the funds, if any, required by this Section 15.2 and any transfer taxes if required pursuant to Section 15.7. As promptly as practicable after satisfaction of the requirements for conversion into Common Stock set forth above, subject to compliance with any restrictions on transfer if shares issuable on conversion are to be issued in a name other than that of the Noteholder (as if such transfer were a transfer of the Note or Notes (or portion thereof) so converted), the Company shall issue and shall deliver to such Noteholder at the office or agency maintained by the Company for such purpose pursuant to Section 5.2, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Note or portion thereof as determined by the Company in accordance with the provisions of this Article Fifteen and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon such conversion, calculated by the Company as provided in Section 15.3. In case any Note of a denomination greater than $1,000 shall be surrendered for partial conversion, and subject to Section 2.3, the Company shall execute and the Trustee shall authenticate and deliver to the holder of the Note so surrendered, without charge to him, a new Note or Notes in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Note. Each conversion shall be deemed to have been effected as to any such Note (or portion thereof) on the date on which the requirements of the holder set forth above in this Section 15.2 have been satisfied as to such Note (or portion thereof) (a "Conversion Date"). The Person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock -61- transfer books of the Company shall be closed shall constitute the Person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Rate in effect on the date upon which such Note shall be surrendered. No adjustment in respect of interest on any Note converted or dividends on any shares issued upon conversion of such Note will be made upon any conversion except as set forth in the next sentence. If this Note (or portion hereof) is surrendered for conversion during the period from the close of business on any record date for the payment of interest to the close of business on the Business Day preceding the following interest payment date and either (x) has not been called for redemption on a redemption date that occurs during such period or (y) is not to be repurchased in connection with a Fundamental Change on a Repurchase Date that occurs during such period, this Note (or portion hereof being converted) must be accompanied by an amount, in New York Clearing House funds or other funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted; provided, however, that no such payment shall be required if there shall exist at the time of conversion a default in the payment of interest on the Notes. Upon the conversion of an interest in a Note in global form, the Trustee (or other conversion agent appointed by the Company), or the Custodian at the direction of the Trustee (or other conversion agent appointed by the Company), shall make a notation on such Note in global form as to the reduction in the principal amount represented thereby. The Company shall notify the Trustee in writing of any conversions of Notes effected through any conversion agent other than the Trustee. Section 15.3 Cash Payments in Lieu of Fractional Shares. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Notes. If more than one Note is surrendered for conversion at one time by the same holder, the number of full shares that shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Notes (or specified portions thereof to the extent permitted thereby) so surrendered. If any fractional share of stock would be issuable upon the conversion of any Note or Notes, the Company shall make an adjustment and payment therefor in cash at the current market price thereof to the holder of Notes. The current market price of a share of Common Stock for purposes of this Section 15.3 shall be the Closing Price on the last Business Day immediately preceding the Conversion Date. Section 15.4 Conversion Rate. The conversion rate shall be as specified in the form of Note (herein called the "Conversion Rate") attached as Exhibit A hereto, subject to adjustment as provided in this Article Fifteen. Section 15.5 Adjustment of Conversion Rate. The Conversion Rate shall be adjusted from time to time by the Company as follows: (a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect at the opening of business on the date following the date fixed for the -62- determination of stockholders entitled to receive such dividend or other distribution by a fraction, the numerator of which shall be the sum of the number of shares of the Common Stock outstanding at the close of business on the date fixed for such determination and the total number of shares constituting such dividend or other distribution, and the denominator of which shall be the number of shares of the Common Stock outstanding at the close of business on the date fixed for such determination, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purpose of this paragraph (a), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. If any dividend or distribution of the type described in this Section 15.5(a) is declared but not so paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them (for a period expiring within forty-five (45) days after the date fixed for determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (as defined below) on the date fixed for determination of stockholders entitled to receive such rights or warrants, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the date fixed for determination of stockholders entitled to receive such rights or warrants by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the total number of additional shares of Common Stock offered for subscription or purchase and the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the number of shares that the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price. Such adjustment shall be successively made whenever any such rights or warrants are issued, and shall become effective immediately after the opening of business on the day following the date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate that would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants and any amount payable on exercise or conversion thereof, the value of such consideration, if other than cash, to be determined by the Board of Directors. (c) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of -63- business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 15.5(a) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 15.5(b), and excluding any dividend or distribution (x) paid exclusively in cash or (y) referred to in Section 15.5(a) (any of the foregoing hereinafter in this Section 15.5(d) called the "Securities")), then, in each such case (unless the Company elects to reserve such Securities for distribution to the Noteholders upon the conversion of the Notes so that any such holder converting Notes will receive upon such conversion, in addition to the shares of Common Stock to which such holder is entitled, the amount and kind of such Securities which such holder would have received if such holder had converted its Notes into Common Stock immediately prior to the Record Date (as defined in Section 15.5(h)(4) for such distribution of the Securities)), the Conversion Rate shall be increased so that the same shall be equal to the rate determined by multiplying the Conversion Rate in effect on the Record Date with respect to such distribution by a fraction, the numerator of which shall be the Current Market Price per share of the Common Stock and the denominator of which shall be the Current Market Price per share of the Common Stock on such Record Date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) on the Record Date of the portion of the Securities so distributed applicable to one share of Common Stock, such increase to become effective immediately prior to the opening of business on the day following such Record Date; provided, however, that in the event the then fair market value (as so determined) of the portion of the Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion the amount of Securities such holder would have received had such holder converted each Note on the Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 15.5(d) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price of the Common Stock. Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"): (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Section 15.5 -64- (and no adjustment to the Conversion Rate under this Section 15.5 will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Rate shall be made under this Section 15.5(d). If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Indenture, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Rate under this Section 15.5 was made, (1) in the case of any such rights or warrants that shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Rate shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants that shall have expired or been terminated without exercise by any holders thereof, the Conversion Rate shall be readjusted as if such rights and warrants had not been issued. No adjustment of the Conversion Rate shall be made pursuant to this Section 15.5(d) in respect of rights or warrants distributed or deemed distributed on any Trigger Event to the extent that such rights or warrants are actually distributed, or reserved by the Company for distribution to holders of Notes upon conversion by such holders of Notes to Common Stock. For purposes of this Section 15.5(d) and Sections 15.5(a) and (b), any dividend or distribution to which this Section 15.5(d) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Common Stock or rights or warrants (and any Conversion Rate increase required by this Section 15.5(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Rate increase required by Sections 15.5(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution", "the date fixed for the determination of stockholders entitled to receive such rights or warrants" and "the date fixed for such determination" within the meaning of Sections 15.5(a) and (b), and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 15.5(a). -65- (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding (x) any quarterly cash dividend on the Common Stock to the extent the aggregate cash dividend per share of Common Stock in any fiscal quarter does not exceed the greater of (A) the amount per share of Common Stock of the next preceding quarterly cash dividend on the Common Stock to the extent that such preceding quarterly dividend did not require any adjustment of the Conversion Rate pursuant to this Section 15.5(e) (as adjusted to reflect subdivisions, or combinations of the Common Stock), and (B) 3.75% of the arithmetic average of the Closing Price (determined as set forth in Section 15.5(h)) during the ten Trading Days (as defined in Section 15.5(h)) immediately prior to the date of declaration of such dividend, and (y) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary), then, in such case, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the close of business on such record date by a fraction, the numerator of which shall be such Current Market Price of the Common Stock and the denominator of which shall be the Current Market Price of the Common Stock on the record date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Common Stock, such increase to be effective immediately prior to the opening of business on the day following the record date; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the record date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion the amount of cash such holder would have received had such holder converted each Note on the record date. In the event that such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. If any adjustment is required to be made as set forth in this Section 15.5(e) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this Section 15.5(e) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. (f) In case a tender or exchange offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) that as of the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, the Conversion Rate shall be increased to equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the Expiration Time by a fraction the numerator of which shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of -66- Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator of which shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such increase to become effective immediately prior to the opening of business on the Trading Day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such tender or exchange offer had not been made. (g) In case of a tender or exchange offer made by a Person other than the Company or any Subsidiary for an amount that increases the offeror's ownership of Common Stock to more than twenty-five percent (25%) of the Common Stock outstanding and shall involve the payment by such Person of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) that as of the last time (the "Offer Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, and in which, as of the Offer Expiration Time the Board of Directors is not recommending rejection of the offer, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the Offer Expiration Time by a fraction the numerator of which shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Offer Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Accepted Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Accepted Purchased Shares) at the Offer Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time and the denominator of which shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Offer Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, such increase to become effective immediately prior to the opening of business on the Trading Day following the Offer Expiration Time. In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this Section 15.5(g) shall not be made if, as of the Offer Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Article Twelve. (h) For purposes of this Section 15.5, the following terms shall have the meaning indicated: -67- (1) "Closing Price" with respect to any security on any day shall mean the closing sale price, regular way, on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case as quoted on the Nasdaq National Market or, if such security is not quoted or listed or admitted to trading on such Nasdaq National Market, on the principal national securities exchange or quotation system on which such security is quoted or listed or admitted to trading or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive. (2) "Current Market Price" shall mean the average of the daily Closing Prices per share of Common Stock for the ten consecutive Trading Days immediately prior to the date in question except as hereinafter provided for purposes of any computation under Section 15.5(f) or (g); provided, however, that (1) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation and other than the tender or exchange offer requiring such computation under Section 15.5(f) or (g)) that requires an adjustment to the Conversion Rate pursuant to Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs during such ten consecutive Trading Days, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by dividing such Closing Price by the same fraction by which the Conversion Rate is so required to be adjusted as a result of such other event, (2) if the "ex" date for any event (other than the issuance or distribution requiring such computation and other than the tender or exchange offer requiring such computation under Section 15.5(f) or (g)) that requires an adjustment to the Conversion Rate pursuant to Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by dividing such Closing Price by the reciprocal of the fraction by which the Conversion Rate is so required to be adjusted as a result of such other event, and (3) if the "ex" date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof in a manner consistent with any determination of such value for purposes of Section 15.5(d), (f) or (g), whose determination shall be conclusive and described in a resolution of the Board of Directors or such duly authorized committee thereof, as the case may be) of the -68- evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of any computation under Section 15.5(f) or (g), the "Current Market Price" of the Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share of Common Stock for such day and the next two succeeding Trading Days; provided, however, that if the "ex" date for any event (other than the tender or exchange offer requiring such computation under Section 15.5(f) or (g)) that requires an adjustment to the Conversion Rate pursuant to Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs on or after the Expiration Time or Offer Expiration Time, as the case may be, for the tender or exchange offer requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted as provided in clauses (1), (2) and (3) of the proviso contained in the first sentence of this Section 15.5(h)(2). For purpose of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades, regular way, on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades, regular way, on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (3) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades, regular way, on such exchange or in such market after the Expiration Time or the Offer Expiration Time of such offer. (3) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's-length transaction. (4) "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (5) "Trading Day" shall mean (x) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made thereon or (y) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which the New York Stock Exchange or another national securities exchange is open for business or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. -69- (i) The Company may make such increases in the Conversion Rate, in addition to those required by Sections 15.5(a), (b), (c), (d), (e), (f) or (g) as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company from time to time may increase the Conversion Rate by any amount for any period of time if the period is at least twenty (20) days, the increase is irrevocable during the period and the Board of Directors shall have made a determination that such increase would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Rate is increased pursuant to the preceding sentence, the Company shall mail to holders of record of the Notes a notice of the increase at least fifteen (15) days prior to the date the increased Conversion Rate takes effect, and such notice shall state the increased Conversion Rate and the period during which it will be in effect. (j) No adjustment in the Conversion Rate shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in such ratio; provided, however, that any adjustments that by reason of this Section 15.5(j) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. To the extent the Notes become convertible into cash, assets, property or securities (other than capital stock of the Company), no adjustment need be made thereafter as to the cash, assets, property or such securities. Interest will not accrue on the cash. (k) Whenever the Conversion Rate is adjusted as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate setting forth the Conversion Rate after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Unless and until a Responsible Officer of the Trustee shall have received such Officers' Certificate, the Trustee shall not be deemed to have knowledge of any adjustment of the Conversion Rate and may assume without inquiry that the last Conversion Rate of which it has knowledge is still in effect. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Rate setting forth the adjusted Conversion Rate and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Rate to the holder of each Note at his last address appearing on the Note register provided for in Section 2.5 of this Indenture, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (l) In any case in which this Section 15.5 provides that an adjustment shall become effective immediately after (1) a record date or Record Date for an event, (2) the date fixed for the determination of stockholders entitled to receive a dividend or distribution pursuant to Section 15.5(a), (3) a date fixed for the determination of stockholders entitled to receive rights or warrants pursuant to Section 15.5(b), (4) the Expiration Time for any tender or exchange offer pursuant to Section 15.5(f), or (5) the Offer Expiration Time for a tender or exchange offer pursuant to Section 15.5(g) (each a "Determination Date"), the Company may elect to defer until -70- the occurrence of the relevant Adjustment Event (as hereinafter defined) (x) issuing to the holder of any Note converted after such Determination Date and before the occurrence of such Adjustment Event, the additional shares of Common Stock or other securities issuable upon such conversion by reason of the adjustment required by such Adjustment Event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (y) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 15.3. For purposes of this Section 15.5(l), the term "Adjustment Event" shall mean: (a) in any case referred to in clause (1) hereof, the occurrence of such event, (b) in any case referred to in clause (2) hereof, the date any such dividend or distribution is paid or made, (c) in any case referred to in clause (3) hereof, the date of expiration of such rights or warrants, and (d) in any case referred to in clause (4) or clause (5) hereof, the date a sale or exchange of Common Stock pursuant to such tender or exchange offer is consummated and becomes irrevocable. (m) For purposes of this Section 15.5, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a subdivision or combination to which Section 15.5(c) applies), (ii) any consolidation, merger or combination of the Company with another Person as a result of which holders of Common Stock shall be entitled to receive stock, other securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of all or substantially all of the properties and assets of the Company to any other Person as a result of which holders of Common Stock shall be entitled to receive stock, other securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing Person, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) providing that such Note shall be convertible into the kind and amount of shares of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes (assuming, for such purposes, a sufficient number of authorized shares of Common Stock are available to convert all such Notes) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of stock, other securities or other property or assets -71- (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance (provided that, if the kind or amount of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purposes of this Section 15.6 the kind and amount of stock, other securities or other property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article Fifteen. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Notes, at its address appearing on the Note register provided for in Section 2.5 of this Indenture, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section 15.6 shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. If this Section 15.6 applies to any event or occurrence, Section 15.5 shall not apply. Section 15.7 Taxes on Shares Issued. The issue of stock certificates on conversions of Notes shall be made without charge to the converting Noteholder for any tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the holder of any Note converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the Person or Persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Section 15.8 Reservation of Shares; Shares to be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock. The Company shall provide, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares of Common Stock to provide for the conversion of the Notes from time to time as such Notes are presented for conversion. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Notes, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Price. The Company covenants that all shares of Common Stock which may be issued upon conversion of Notes will upon issue be fully paid and non-assessable by the Company and free from all taxes, liens and charges with respect to the issue thereof. -72- The Company covenants that, if any shares of Common Stock to be provided for the purpose of conversion of Notes hereunder require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon conversion, the Company will in good faith and as expeditiously as possible, to the extent then permitted by the rules and interpretations of the Commission, endeavor to secure such registration or approval, as the case may be. The Company further covenants that, if at any time the Common Stock shall be listed on the Nasdaq National Market or any other national securities exchange or automated quotation system, the Company will, if permitted by the rules of such exchange or automated quotation system, list and keep listed, so long as the Common Stock shall be so listed on such exchange or automated quotation system, all Common Stock issuable upon conversion of the Note; provided, however, that, if the rules of such exchange or automated quotation system permit the Company to defer the listing of such Common Stock until the first conversion of the Notes into Common Stock in accordance with the provisions of this Indenture, the Company covenants to list such Common Stock issuable upon conversion of the Notes in accordance with the requirements of such exchange or automated quotation system at such time. Section 15.9 Responsibility of Trustee. The Trustee and any other conversion agent shall not at any time be under any duty or responsibility to any holder of Notes to determine the Conversion Rate or whether any facts exist which may require any adjustment of the Conversion Rate, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other conversion agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Note; and the Trustee and any other conversion agent make no representations with respect thereto. Neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Note for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article Fifteen. Without limiting the generality of the foregoing, neither the Trustee nor any conversion agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 15.6 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Noteholders upon the conversion of their Notes after any event referred to in such Section 15.6 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 8.1, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. Section 15.10 Notice to Holders Prior to Certain Actions. In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment in the Conversion Rate pursuant to Section 15.5; or -73- (b) the Company shall authorize the granting to the holders of all or substantially all of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (c) of any reclassification or reorganization of the Common Stock (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any of the Company's stockholders is required, or of the sale or transfer of all or substantially all of the assets of the Company or any Significant Subsidiary; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company or any Significant Subsidiary; the Company shall cause to be filed with the Trustee and to be mailed to each holder of Notes at his address appearing on the Note register provided for in Section 2.5 of this Indenture, as promptly as possible but in any event at least ten (10) days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective or occur, and the date, if any, as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. ARTICLE SIXTEEN MISCELLANEOUS PROVISIONS Section 16.1 Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements by the Company contained in this Indenture shall bind its successors and assigns whether so expressed or not. Section 16.2 Official Acts by Successor Corporation. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any Person that shall at the time be the lawful sole successor of the Company. Section 16.3 Addresses for Notices, Etc. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Notes on the Company shall be deemed to have been sufficiently given or made, for all purposes, if given or served by being deposited postage prepaid by registered or certified mail in a post -74- office letter box addressed (until another address is filed by the Company with the Trustee) to Brocade Communications Systems, Inc., 1745 Technology Drive, San Jose, California 95110, Attention: Chief Financial Officer. Any notice, direction, request or demand hereunder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or served by being deposited, postage prepaid, by registered or certified mail in a post office letter box addressed to the Corporate Trust Office, which office is, at the date as of which this Indenture is dated, located at 633 West 5th Street, 12th Floor, Los Angeles, California 90071, Attention: Corporate Trust Department (Brocade Communications Systems, Inc. 2% Convertible Subordinated Notes due 2007). The Trustee, by notice to the Company, may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Noteholder shall be mailed to him by first class mail, postage prepaid, at his address as it appears on the Note register and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with respect to other Noteholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 16.4 Governing Law. This Indenture and each Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of the State of New York. Section 16.5 Evidence of Compliance with Conditions Precedent; Certificates to Trustee. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Section 16.6 Legal Holidays. In any case in which the date of maturity of interest on or principal of the Notes or the date fixed for redemption or repurchase of any Note will not be a Business Day, then payment of such interest on or principal of the Notes need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect -75- as if made on the date of maturity or the date fixed for redemption or repurchase, and no interest shall accrue for the period from and after such date. Section 16.7 Trust Indenture Act. This Indenture is hereby made subject to, and shall be governed by, the provisions of the Trust Indenture Act required to be part of and to govern indentures qualified under the Trust Indenture Act; provided, however, that, unless otherwise required by law, notwithstanding the foregoing, this Indenture and the Notes issued hereunder shall not be subject to the provisions of subsections (a)(1), (a)(2), and (a)(3) of Section 314 of the Trust Indenture Act as now in effect or as hereafter amended or modified; provided further that this Section 16.7 shall not require this Indenture or the Trustee to be qualified under the Trust Indenture Act prior to the time such qualification is required under the terms of the Trust Indenture Act, nor shall it constitute any admission or acknowledgment by any party to the Indenture that any such qualification is required prior to the time such qualification is in fact required under the terms of the Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in an indenture qualified under the Trust Indenture Act, such required provision shall control. Section 16.8 No Security Interest Created. Nothing in this Indenture or in the Notes, expressed or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect, in any jurisdiction in which property of the Company or its Subsidiaries is located. Section 16.9 Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto, any paying agent, any authenticating agent, any Note registrar and their successors hereunder, the holders of Notes and the holders of Senior Indebtedness, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 16.10 Table of Contents, Headings, Etc. The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 16.11 Authenticating Agent. The Trustee may appoint an authenticating agent that shall be authorized to act on its behalf, and subject to its direction, in the authentication and delivery of Notes in connection with the original issuance thereof and transfers and exchanges of Notes hereunder, including under Sections 2.4, 2.5, 2.6, 2.7, 3.3 and 3.5, as fully to all intents and purposes as though the authenticating agent had been expressly authorized by this Indenture and those Sections to authenticate and deliver Notes. For all purposes of this Indenture, the authentication and delivery of Notes by the authenticating agent shall be deemed to be authentication and delivery of such Notes "by the Trustee" and a certificate of authentication executed on behalf of the Trustee by an authenticating agent shall be deemed to satisfy any requirement hereunder or in the Notes for the Trustee's certificate of authentication. Such authenticating agent shall at all times be a Person eligible to serve as Trustee hereunder pursuant to Section 8.9. -76- Any corporation into which any authenticating agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any authenticating agent shall be a party, or any corporation succeeding to the corporate trust business of any authenticating agent, shall be the successor of the authenticating agent hereunder, if such successor corporation is otherwise eligible under this Section 16.11, without the execution or filing of any paper or any further act on the part of the parties hereto or the authenticating agent or such successor corporation. Any authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any authenticating agent by giving written notice of termination to such authenticating agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any authenticating agent shall cease to be eligible under this Section, the Trustee shall either promptly appoint a successor authenticating agent or itself assume the duties and obligations of the former authenticating agent under this Indenture and, upon such appointment of a successor authenticating agent, if made, shall give written notice of such appointment of a successor authenticating agent to the Company and shall mail notice of such appointment of a successor authenticating agent to all holders of Notes as the names and addresses of such holders appear on the Note register. The Company agrees to pay to the authenticating agent from time to time such reasonable compensation for its services as shall be agreed upon in writing between the Company and the authenticating agent. The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 16.11 shall be applicable to any authenticating agent. Section 16.12 Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. Section 16.13 Severability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, then (to the extent permitted by law) the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. -77- IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed. BROCADE COMMUNICATIONS SYSTEMS, INC. By: /s/ Antonio Canova ---------------------------------- Name: Antonio Canova Title: Chief Financial Officer STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By: /s/ Stephen Rivero ---------------------------------- Name: Stephen Rivero Title: Vice President -78- EXHIBIT A For Global Note only: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE "DEPOSITARY", WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE CERTIFICATES) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT HEREIN IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR"), OR (C) A NON-U.S. PERSON; (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THIS NOTE OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE EXCEPT (A) TO BROCADE COMMUNICATIONS SYSTEMS, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTES (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES OF LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF A-1 AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (2)(F) ABOVE), IT WILL FURNISH TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THIS NOTE UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR IS A PURCHASER WHO IS NOT A UNITED STATES PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS SUCH TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THIS NOTE PURSUANT TO CLAUSE (2)(F) ABOVE OR UPON ANY TRANSFER OF THIS NOTE UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTION. A-2 BROCADE COMMUNICATIONS SYSTEMS, INC. 2% CONVERTIBLE SUBORDINATED NOTE DUE 2007 CUSIP: ___________ No.: _____ $___________ Brocade Communications Systems, Inc., a corporation duly organized and validly existing under the laws of the State of Delaware (herein called the "Company", which term includes any successor corporation under the Indenture referred to on the reverse hereof), for value received hereby promises to pay to ________________ or registered assigns, the principal sum of _______________ Dollars ($___________) on January 1, 2007, at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on July 1 and January 1 of each year, commencing July 1, 2002, on said principal sum at said office or agency, in like coin or currency, at the rate per annum of 2%, from July 1 or January 1, as the case may be, next preceding the date of this Note to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Note, or unless no interest has been paid or duly provided for on the Notes, in which case from December 21, 2001, until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after any June 15 or December 15, as the case may be, and before the following July 1 or January 1, this Note shall bear interest from such July 1 or January 1; provided, however, that if the Company shall default in the payment of interest due on such July 1 or January 1, then this Note shall bear interest from the next preceding July 1 or January 1 to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Note, from December 21, 2001. Except as otherwise provided in the Indenture, the interest payable on the Note pursuant to the Indenture on any July 1 or January 1 will be paid to the Person entitled thereto as it appears in the Note register at the close of business on the record date, which shall be the June 15 or December 15 (whether or not a Business Day) next preceding such July 1 or January 1, as provided in the Indenture; provided, however, that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Interest may, at the option of the Company, be paid either (i) by check mailed to the registered address of such Person (provided that the holder of Notes with an aggregate principal amount in excess of $2,000,000 shall, at the written election of such holder, be paid by wire transfer of immediately available funds) or (ii) by transfer to an account maintained by such Person located in the United States; provided, however, that payments to the Depositary will be made by wire transfer of immediately available funds to the account of the Depositary or its nominee. Reference is made to the further provisions of this Note set forth on the reverse hereof, including, without limitation, provisions subordinating the payment of principal of and premium, if any, and interest (including Liquidated Damages, if any) on the Notes to the prior payment in full of all Senior Indebtedness, as defined in the Indenture in cash or other payment satisfactory to the holders of such Senior Indebtedness, and provisions giving the holder of this Note the right to convert this Note on the terms and subject to the limitations referred to on the reverse hereof A-3 and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of the State of New York. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture. A-4 IN WITNESS WHEREOF, the Company has caused this Note to be duly executed. BROCADE COMMUNICATIONS SYSTEMS, INC. By: -------------------------------- Name: Title: Attest: By: -------------------------------- Name: Title: Dated: ------------ TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes described in the within-named Indenture. STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By: -------------------------------- Name: Title: By: -------------------------------- As Authenticating Agent (if different from Trustee) A-5 REVERSE OF NOTE BROCADE COMMUNICATIONS SYSTEMS, INC. 2% CONVERTIBLE SUBORDINATED NOTES DUE 2007 This Note is one of a duly authorized issue of Notes of the Company, designated as its 2% Convertible Subordinated Notes Due 2007 (herein called the "Notes"), limited to the aggregate principal amount of $550,000,000, all issued or to be issued under and pursuant to an Indenture dated as of December 21, 2001 (herein called the "Indenture"), between the Company and State Street Bank and Trust Company of California, N.A., as trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. In case an Event of Default (as defined in the Indenture) shall have occurred and be continuing, the principal of, premium, if any, and accrued interest (including Liquidated Damages, if any) on all Notes may be declared by either the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable upon redemption or repurchase thereof, or impair the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, or modify the provisions of the Indenture with respect to the subordination of the Notes in a manner adverse to the Noteholders in any material respect, or change the obligation of the Company to repurchase any Note upon the happening of a Fundamental Change (as defined in the Indenture) in a manner adverse to the holders of the Notes, or impair the right to convert the Notes subject to the terms set forth in the Indenture, including Section 15.6 thereof, without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. Subject to the provisions of the Indenture, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except a default in the payment of interest (including Liquidated Damages, if any) or any premium on, or the principal of, any of the Notes, or a failure by the Company to make any required conversion of Notes into Common Stock of the Company or make any payment of cash required upon A-6 conversion of the Notes, or a default in the payment of the redemption price or the repurchase price pursuant to Article Three of the Indenture, or a default in respect of a covenant or provisions of the Indenture which under Article Eleven of the Indenture cannot be modified without the consent of the holders of all Notes then outstanding or affected thereby. Any such consent or waiver by the holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Note and any Notes which may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. The indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, expressly subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture) of the Company, whether outstanding at the date of the Indenture or thereafter incurred, and this Note is issued subject to the provisions of the Indenture with respect to such subordination. Each holder of this Note, by accepting the same, agrees to and shall be bound by such provisions and authorizes the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee his attorney-in-fact for such purpose. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest (including Liquidated Damages, if any) on this Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. The Notes are issuable in registered form, without coupons, in denominations of $1,000 principal amount and any integral multiple of $1,000. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, without payment of any service charge but with payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in connection with any registration or exchange of Notes, Notes may be exchanged for a like aggregate principal amount of Notes of any other authorized denominations. At any time on or after January 5, 2005, and prior to maturity, the Notes may be redeemed at the option of the Company, in whole or in part, upon mailing a notice of such redemption not less than 30 nor more than 60 days before the date fixed for redemption to the holders of Notes at their last registered addresses, all as provided in the Indenture, at the following Optional Redemption prices (expressed as percentages of the principal amount), together in each case with accrued and unpaid interest (including Liquidated Damages, if any) to, but excluding, the date fixed for redemption: A-7

Period Redemption Price - ------ ---------------- Beginning on January 5, 2005 and ending on December 31, 2005 100.80% Beginning on January 1, 2005 and ending on December 31, 2006 100.40%

and 100% on January 1, 2007; provided, however, that if the date fixed for redemption is on July 1 or January 1, then the interest payable on such date shall be paid to the holder of record on the preceding June 15 or December 15, respectively. In order to make a cash payment in lieu of issuing shares of Common Stock upon any conversion of any Notes called for redemption, the redemption notice must specify such election to settle the conversion in cash. The Company may not give notice of any redemption of the Notes if a default in the payment of interest or premium, if any, on the Notes has occurred and is continuing. The Notes are not subject to redemption through the operation of any sinking fund. If a Fundamental Change occurs at any time prior to maturity of the Notes, the Notes will be repurchasable on the 30th day after notice thereof (or, if such 30th day is not a Business Day, the immediately preceding Business Day) (the "Repurchase Date") at the option of the holder of the Notes at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to (but excluding) the date of redemption; provided, however, that, if such Repurchase Date is a July 1 or January 1, the interest payable on such date shall be paid to the holder of record of the Notes on the preceding June 15 or December 15, respectively. The Notes will be repurchasable in integral multiples of $1,000 principal amount. The Company or, as provided in the Indenture, the Trustee, shall mail to all holders of record of the Notes a notice of the occurrence of a Fundamental Change and of the redemption right arising as a result thereof on or before the 10th day after the occurrence of such Fundamental Change. For a Note to be so repurchased at the option of the holder, the Company must receive at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, such Note with the form entitled "Option to Elect Repayment Upon a Fundamental Change" on the reverse thereof duly completed, together with such Note, duly endorsed for transfer, on or before the Fundamental Change Expiration Time (as defined in the Indenture). Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time after the original issuance of any Notes through the close of business on the final maturity date of the Notes, or, as to all or any portion hereof called for redemption, prior to the close of business on the Business Day immediately preceding the date fixed for redemption (unless the Company shall default in payment due upon redemption thereof), to convert the principal hereof or any portion of such principal which is $1,000 or an integral multiple thereof into that number of shares of the Company's Common Stock (as such shares shall be constituted at the date of conversion) at an initial Conversion Rate of 22.8571 shares of Common Stock per $1,000 principal amount of Notes, as may adjusted from time to time as provided in the Indenture, upon surrender of this Note, together with a conversion notice as provided in the Indenture (the form entitled "Conversion Notice" on the reverse hereof), to the Company at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, or at the option of such holder, the Corporate Trust Office as provided in the Indenture, and, unless the shares issuable on conversion are to be issued in the same name as this A-8 Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. No adjustment in respect of interest on any Note converted or dividends on any shares issued upon conversion of such Note will be made upon any conversion except as set forth in the next sentence. If this Note (or portion hereof) is surrendered for conversion during the period from the close of business on any record date for the payment of interest to the close of business on the Business Day preceding the following interest payment date and either (x) has not been called for redemption on a redemption date that occurs during such period or (y) is not to be repurchased in connection with a Fundamental Change on a Repurchase Date that occurs during such period, this Note (or portion hereof being converted) must be accompanied by an amount, in New York Clearing House funds or other funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted; provided, however, that no such payment shall be required if there exists at the time of conversion a default in the payment of interest on the Notes. No fractional shares will be issued upon any conversion, but an adjustment and payment in cash will be made, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Note or Notes for conversion. A Note in respect of which a holder is exercising its right to require repurchase upon a Fundamental Change may be converted only if such holder withdraws its election to exercise such right in accordance with the terms of the Indenture. Any Notes called for redemption, unless surrendered for conversion by the holders thereof on or before the close of business on the Business Day preceding the date fixed for redemption, may be deemed to be repurchased from the holders of such Notes for an amount equal to the applicable redemption price, together with accrued but unpaid interest (including Liquidated Damages, if any) to (but excluding) the date fixed for redemption, by one or more investment banks or other purchasers who may agree with the Company (i) to purchase such Notes from the holders thereof and convert them into shares of the Company's Common Stock and (ii) to make payment for such Notes as aforesaid to the Trustee in trust for the holders. Upon due presentment for registration of transfer of this Note at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof; subject to the limitations provided in the Indenture, without charge except for any tax, assessment or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any Note registrar) for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Note. A-9 No recourse for the payment of the principal of or any premium or interest on this Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any supplemental indenture or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer or director or Subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. This Note shall be deemed to be a contract made under the laws of New York, and for all purposes shall be construed in accordance with the laws of New York. Terms used in this Note and defined in the Indenture are used herein as therein defined. A-10 ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common TEN ENT - as tenant by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - Custodian ------------ ------------- (Cust) (Minor) under Uniform Gifts to Minors Act -------------------------------------------- (State) Additional abbreviations may also be used though not in the above list. A-11 CONVERSION NOTICE TO: BROCADE COMMUNICATIONS SYSTEMS, INC. The undersigned registered owner of this Note hereby irrevocably exercises the option to convert this Note, or the portion thereof (which is $1,000 or an integral multiple thereof) below designated, into shares of Common Stock of Brocade Communications Systems, Inc. in accordance with the terms of the Indenture referred to in this Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Note not converted are to be issued in the name of a Person other than the undersigned, the undersigned will provide the appropriate information below and pay all transfer taxes payable with respect thereto. Any amount required to be paid by the undersigned on account of interest accompanies this Note. Dated: ------------------- ----------------------------------- ----------------------------------- Signature(s) Signature(s) must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Note registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. ----------------------------------- Signature Guarantee A-12 Fill in the registration of shares of Common Stock if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder: - -------------------------------- (Name) - -------------------------------- (Street Address) - -------------------------------- (City, State and Zip Code) - -------------------------------- Please print name and address Principal amount to be converted (if less than all): $ ------------------------------- Social Security or Other Taxpayer Identification Number: - -------------------------------- A-13 OPTION TO ELECT REPAYMENT UPON A FUNDAMENTAL CHANGE TO: BROCADE COMMUNICATIONS SYSTEMS, INC. The undersigned registered owner of this Note hereby irrevocably acknowledges receipt of a notice from Brocade Communications Systems, Inc. (the "Company") as to the occurrence of a Fundamental Change with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Note, or the portion thereof (which is $1,000 or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Note at the price of 100% of such entire principal amount or portion thereof, together with accrued interest to, but excluding, such repayment date, to the registered holder hereof. Dated: -------------------------------- ----------------------------------- ----------------------------------- Signature(s) NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. Principal amount to be repaid (if less than all): $ ---------------------------------- ----------------------------------- Social Security or Other Taxpayer Identification Number A-14 ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto - ----------------------------------------------- - ----------------------------------------------- PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ----------------------------------------------- - -------------------------------------------------------------------------------- - ----------------------------------------------- - ----------------------------------------------- (Please print or typewrite name and address including postal zip code of assignee) - -------------------------------------------------------------------------------- the within Note and all rights thereunder, and hereby irrevocably constitutes and appoints - -------------------------------------------------------------------------------- Attorney to transfer said Note on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the Note within the "United States" or to, or for the account of, "U.S. persons" (in each case as defined in Regulation S under the Securities Act) and within the period prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision) (other than any transfer pursuant to a registration statement that has been declared effective under the Securities Act), the undersigned confirms that such Note is being transferred: A-15 [ ] To Brocade Communications Systems, Inc. or a subsidiary thereof; or [ ] Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or [ ] To an Institutional Accredited Investor pursuant to and in compliance with the Securities Act of 1933, as amended, in a minimum denomination of $200,000; or [ ] Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended; and unless the box below is checked, the undersigned confirms that such Note is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"). [ ] The transferee is an Affiliate of the Company. Dated: ------------------- ----------------------------------- ----------------------------------- Signature(s) Signature(s) must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Note registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. ----------------------------------- Signature Guarantee NOTICE: The signature of the conversion notice, the option to elect repayment upon a Fundamental Change or the assignment must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. A-16 EXHIBIT B Brocade Communications Systems, Inc. 5200 Great America Parkway Santa Clara, CA 95054 State Street Bank and Trust Company of California, N.A. 633 West 5th Street, 12th Floor Los Angeles, CA 90071 Attention: Corporate Trust Department Ladies and Gentlemen: In connection with our proposed purchase of 2% Convertible Subordinated Notes Due 2007 (the "Notes") of Brocade Communications Systems, Inc., a Delaware corporation (the "Company"), we confirm that: (i) we are an "accredited investor" within the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act of 1933, as amended (the "Securities Act"), or an entity in which all of the equity owners are accredited investors within the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act (an "Institutional Accredited Investor"); (ii) (A) any purchase of Notes by us will be for our own account or for the account of one or more other Institutional Accredited Investors or as fiduciary for the account of one or more trusts, each of which is an "accredited investor" within the meaning of Rule 501(a)(7) under the Securities Act and for each of which we exercise sole investment discretion or (B) we are a "bank," within the meaning of Section 3(a)(2) of the Securities Act, or a "savings and loan association" or other institution described in Section 3(a)(5)(A) of the Securities Act that is acquiring Notes as fiduciary for the account of one or more institutions for which we exercise sole investment discretion; (iii) in the event that we purchase any Notes, we will acquire Notes having a minimum purchase price of not less than $200,000 for our own account or for any separate account for which we are acting; (iv) we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing Notes; and (v) we are not acquiring Notes with a view to distribution thereof or with any present intention of offering or selling Notes or the Common Stock of the Company issuable upon conversion thereof, except as permitted below; provided that the disposition of our property and property of any accounts for which we are acting as fiduciary shall remain at all times within our control. B-1 We understand that the Notes are being offered in a transaction not involving any public offering within the United States within the meaning of the Securities Act and that the Notes and the Common Stock of the Company issuable upon conversion thereof have not been registered under the Securities Act, and we agree, on our own behalf and on behalf of each account for which we acquire any Notes, that if in the future we decide to resell or otherwise transfer such Notes or the Common Stock of the Company issuable upon conversion thereof, such Notes or Common Stock of the Company may be resold or otherwise transferred within the United States or to, or for the account or benefit of, U.S. persons only (i) to the Company or any subsidiary thereof, (ii) to a person who is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, (iii) to an Institutional Accredited Investor that, prior to such transfer, furnishes to the Trustee for the Notes (or in the case of Common Stock of the Company, the transfer agent therefor) a signed letter containing certain representations and agreements relating to the restrictions on transfer of such securities (the form of which letter can be obtained from the Trustee or the transfer agent, as the case may be), (iv) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if applicable), or (v) pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer), and in each case, in accordance with any applicable securities law of any State of the U.S. and in accordance with the legends set forth on the Notes or the Common Stock of the Company issuable upon conversion thereof. We further agree to provide any person purchasing any of the Notes or the Common Stock of the Company issuable upon conversion thereof (other than pursuant to clause (iv) or (v) above) from us a notice advising such purchaser that resales of such securities are restricted as stated herein. We understand that the Trustee and transfer agent for the Notes and the Common Stock of the Company will not be required to accept for registration of transfer any Notes or any Common Stock of the Company issued upon conversion of the Notes, except upon presentation of evidence satisfactory to the Company that the foregoing restrictions on transfer have been complied with. We further understand that any Notes and any Common Stock of the Company issued upon conversion of the Notes will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of this paragraph. The Company and the Trustee and their respective counsel are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. B-2 THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. (Name of Purchaser) By: -------------------------------- Name: --------------------------- Title: -------------------------- Address: ------------------------ -------------------------------- -------------------------------- B-3 EX-4.3 4 f79821ex4-3.txt EXHIBIT 4.3 Exhibit 4.3 REGISTRATION RIGHTS AGREEMENT BY AND AMONG BROCADE COMMUNICATIONS SYSTEMS, INC. AS ISSUER, AND MORGAN STANLEY & CO. INCORPORATED, GOLDMAN, SACHS & CO., SALOMON SMITH BARNEY INC., AND MERRILL LYNCH, PIERCE FENNER AND SMITH INCORPORATED AS INITIAL PURCHASERS DATED DECEMBER 21, 2001 THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of December 21, 2001, by and among Brocade Communications Systems, Inc., a Delaware corporation (the "Company"), and Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Salomon Smith Barney Inc. and Merrill Lynch, Pierce Fenner and Smith Incorporated pursuant to the Purchase Agreement, dated December 18, 2001 (the "Purchase Agreement"), among the Company and the Initial Purchasers. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement. The Company agrees with the Initial Purchasers, (i) for their benefit as Initial Purchasers and (ii) for the benefit of the beneficial owners (including the Initial Purchasers) from time to time of the Debentures (as defined herein) and the beneficial owners from time to time of the Underlying Common Stock (as defined herein) issued upon conversion of the Debentures (each of the foregoing a "Holder" and together the "Holders"), as follows: SECTION 1. DEFINITIONS. Capitalized terms used herein without definition shall have their respective meanings set forth in the Placement Agreement. As used in this Agreement, the following terms shall have the following meanings: Additional Interest: See Section 2(e) hereof. Affiliate: With respect to any specified person, an "affiliate," as defined in Rule 144, of such person. Amendment Effectiveness Deadline Date: See Section 2(d) hereof. Applicable Conversion Price: The Applicable Conversion Price as of any date of determination means the Conversion Price in effect as of such date of determination or, if no Debentures are then outstanding, the Conversion Price that would be in effect were Debentures then outstanding. Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close. Common Stock: The shares of common stock, par value $0.001 per share, of the Company and any other shares of common stock as may constitute "Common Stock" for purposes of the Indenture, including the Underlying Common Stock. Conversion Price: Conversion Price shall have the meaning assigned such term in the Indenture. Damages Accrual Period: See Section 2(e) hereof. Damages Payment Date: Each January 1 and July 1. 2 Debentures: The 2% Convertible Subordinated Debentures due 2007 of the Company to be purchased pursuant to the Purchase Agreement. Deferral Notice: See Section 3(i) hereof. Deferral Period: See Section 3(i) hereof. Effectiveness Deadline Date: See Section 2(a) hereof. Effectiveness Period: The period of two years from the later of (a) the Issue Date and (b) December 18, 2001. Event: See Section 2(e) hereof. Event Date: See Section 2(e) hereof. Event Termination Date: See Section 2(e) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Filing Deadline Date: See Section 2(a) hereof. Holder: See the second paragraph of this Agreement. Indenture: The Indenture, dated as of the date hereof, between the Company and State Street Bank and Trust Company of California, N.A., as trustee, pursuant to which the Debentures are being issued. Initial Purchasers: Means Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Salomon Smith Barney Inc. and Merrill Lynch & Co. Initial Shelf Registration Statement: See Section 2(a) hereof. Issue Date: December 21, 2001. Losses: See Section 6 hereof. Material Event: See Section 3(i) hereof. Notice and Questionnaire: A written notice delivered to the Company containing substantially the information called for by the Selling Securityholder Notice and Questionnaire attached as Annex A to the Offering Memorandum of the Company issued December __, 2001 relating to the Debentures. Notice Holder: On any date, any Holder that has delivered an appropriately completed Notice and Questionnaire to the Company on or prior to such date. Purchase Agreement: See the preamble hereof. 3 Prospectus: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any amendment or prospectus supplement, including post-effective amendments, and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such Prospectus. Record Holder: (i) With respect to any Damages Payment Date relating to any Debentures as to which any such Additional Interest has accrued, the holder of record of such Debenture on the record date fifteen (15) days prior to such Damages Payment Date and (ii) with respect to any Damages Payment Date relating to the Underlying Common Stock as to which any such Additional Interest has accrued, the registered holder of such Underlying Common Stock fifteen (15) days prior to such Damages Payment Date. Registrable Securities: The Debentures until such Debentures have been converted or exchanged into the Underlying Common Stock and, at all times subsequent to any such conversion or exchange the Underlying Common Stock and any securities into or for which such Underlying Common Stock have been converted or exchanged, and any security issued with respect thereto upon any stock dividend, split or similar event until, in the case of any such security, (A) the earliest of (i) its effective registration under the Securities Act and resale in accordance with the Registration Statement covering it, (ii) expiration of the holding period that would be applicable thereto under Rule 144(k) were it not held by an Affiliate of the Company or (iii) its sale to the public pursuant to Rule 144, and (B) as a result of the event or circumstance described in any of the foregoing clauses (i) through (iii), the legends with respect to transfer restrictions required under the Indenture are removed or removable in accordance with the terms of the Indenture or such legends, as the case may be. Registration Expenses: See Section 5 hereof. Registration Statement: Any registration statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such registration statement. Restated Principal Amount: As this term is defined in the Indenture. Restricted Securities: As this term is defined in Rule 144. Rule 144: Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. Rule 144A: Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. 4 Securities Act: The Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. Shelf Registration Statement: See Section 2(a) hereof. Subsequent Shelf Registration Statement: See Section 2(b) hereof. Tax Event: As this term is defined in the Indenture. TIA: The Trust Indenture Act of 1939, as amended. Trustee: State Street Bank and Trust Company of California, N.A. (or any successor entity), the Trustee under the Indenture. Underlying Common Stock: The Common Stock into which the Debentures are convertible or issued upon any such conversion. SECTION 2. SHELF REGISTRATION. (a) The Company shall use its reasonable efforts to prepare and file or cause to be prepared and filed with the SEC, as soon as practicable but in any event by the date (the "Filing Deadline Date") ninety (90) days after the Issue Date, a Registration Statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act (a "Shelf Registration Statement") registering the resale from time to time by Holders thereof of all of the Registrable Securities (the "Initial Shelf Registration Statement"). The Initial Shelf Registration Statement shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for resale by such Holders in accordance with the methods of distribution elected by the Holders and set forth in the Initial Shelf Registration Statement. The Company shall use its reasonable efforts to cause the Initial Shelf Registration Statement to be declared effective under the Securities Act as promptly as is practicable but in any event by the date (the "Effectiveness Deadline Date") that is one hundred eighty (180) days after the Issue Date, and to keep the Initial Shelf Registration Statement (or any Subsequent Shelf Registration Statement) continuously effective under the Securities Act until the expiration of the Effectiveness Period. At the time the Initial Shelf Registration Statement is declared effective, each Holder that became a Notice Holder on or prior to the date ten (10) Business Days prior to such time of effectiveness shall be named as a selling securityholder in the Initial Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of Registrable Securities in accordance with applicable law. None of the Company's security holders (other than the Holders of Registrable Securities) shall have the right to include any of the Company's securities in the Shelf Registration Statement. (b) If the Initial Shelf Registration Statement or any Subsequent Shelf Registration Statement (as defined below) ceases to be effective for any reason at any time during the Effectiveness Period (other than because all Registrable Securities registered thereunder shall have been resold pursuant thereto or shall have otherwise ceased to be Registrable Securities), the Company shall use its reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within thirty 5 (30) days of such cessation of effectiveness amend the Shelf Registration Statement in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration Statement covering all of the securities that as of the date of such filing are Registrable Securities (a "Subsequent Shelf Registration Statement"). If a Subsequent Shelf Registration Statement is filed, the Company shall use reasonable efforts to cause the Subsequent Shelf Registration Statement to become effective as promptly as is practicable after such filing and to keep such Registration Statement (or Subsequent Shelf Registration Statement) continuously effective until the end of the Effectiveness Period. (c) The Company shall supplement and amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement, if required by the Securities Act or as reasonably requested by the Initial Purchasers or by the Trustee on behalf of the registered Holders or by any managing underwriter in the event of an underwritten offering. (d) Each Holder of Registrable Securities agrees that if such Holder wishes to sell Registrable Securities pursuant to a Shelf Registration Statement and related Prospectus, it will do so only in accordance with this Section 2(d) and Section 3(i). Each Holder of Registrable Securities wishing to sell Registrable Securities pursuant to a Shelf Registration Statement and related Prospectus agrees to deliver a Notice and Questionnaire to the Company prior to any intended distribution of Registrable Securities under the Shelf Registration Statement. From and after the date the Initial Shelf Registration Statement is declared effective, the Company shall, as promptly as practicable after the date a Notice and Questionnaire is delivered, and in any event upon the later of (x) fifteen (15) Business Days after such date or (y) fifteen (15) Business Days after the expiration of any Deferral Period in effect when the Notice and Questionnaire is delivered or put into effect, (i) if required by applicable law, file with the SEC a post-effective amendment to the Shelf Registration Statement (and if the Company shall receive a Notice and Questionnaire from another Holder before such post-effective amendment has been declared effective by the SEC, the Company shall have thirty (30) Business Days to file another post-effective amendment with the SEC with respect to such Holder) or prepare and, if required by applicable law, file a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that the Holder delivering such Notice and Questionnaire is named as a selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of the Registrable Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use reasonable efforts to cause such post-effective amendment to be declared effective under the Securities Act as promptly as is practicable, but in any event by the date (the "Amendment Effectiveness Deadline Date") that is forty-five (45) days after the date such post-effective amendment is required by this clause to be filed; (ii) provide such Holder copies of any documents filed pursuant to Section 2(d)(i); and (iii) notify such Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 2(d)(i); provided, that if such Notice and Questionnaire is delivered during a Deferral Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Deferral Period in accordance with Section 3(i). Notwithstanding anything contained herein to the contrary, (i) the Company shall be under no obligation to name any 6 Holder that is not a Notice Holder as a selling securityholder in any Registration Statement or related Prospectus and (ii) the Amendment Effectiveness Deadline Date shall be extended by up to ten (10) Business Days from the expiration of a Deferral Period (and the Company shall incur no obligation to pay Additional Interest during such extension) if such Deferral Period shall be in effect on the Amendment Deadline Effective Date. (e) The parties hereto agree that the Holders of Registrable Securities will suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision, if (i) the Initial Shelf Registration Statement has not been filed on or prior to the Filing Deadline Date, (ii) the Initial Shelf Registration Statement has not been declared effective under the Securities Act on or prior to the Effectiveness Deadline Date, (iii) the Company has failed to perform its obligations set forth in Section 2(d) within the time period required therein, (iv) the aggregate duration of Deferral Periods in any period exceeds the number of days permitted in respect of such period pursuant to Section 3(i) hereof or (v) the number of Deferral Periods in any period exceeds the number permitted in respect of such period pursuant to Section 3(i) hereof (each of the events of a type described in any of the foregoing clauses (i) through (v) are individually referred to herein as an "Event," and the Filing Deadline Date in the case of clause (i), the Effectiveness Deadline Date in the case of clause (ii), the date by which the Company is required to perform its obligations set forth in Section 2(d) in the case of clause (iii) (including the filing of any post-effective amendment prior to the Amendment Effectiveness Deadline Date), the date on which the aggregate duration of Deferral Periods in any period exceeds the number of days permitted by Section 3(i) hereof in the case of clause (iv), and the date of the commencement of a Deferral Period that causes the limit on the number of Deferral Periods in any period under Section 3(i) hereof to be exceeded in the case of clause (v), being referred to herein as an "Event Date"). Events shall be deemed to continue until the "Event Termination Date," which shall be the following dates with respect to the respective types of Events: the date the Initial Shelf Registration Statement is filed in the case of an Event of the type described in clause (i), the date the Initial Shelf Registration Statement is declared effective under the Securities Act in the case of an Event of the type described in clause (ii), the date the Company performs its obligations set forth in Section 2(d) in the case of an Event of the type described in clause (iii) (including, without limitation, the date the relevant post-effective amendment to the Shelf Registration Statement is declared effective under the Securities Act), termination of the Deferral Period that caused the limit on the aggregate duration of Deferral Periods in a period set forth in Section 3(i) to be exceeded in the case of the commencement of an Event of the type described in clause (iv), and termination of the Deferral Period the commencement of which caused the number of Deferral Periods in a period permitted by Section 3(i) to be exceeded in the case of an Event of the type described in clause (v). Accordingly, commencing on (and including) any Event Date and ending on (but excluding) the next date on which there are no Events that have occurred and are continuing (a "Damages Accrual Period"), the Company agrees to pay, as additional interest and not as a penalty, an amount (the "Additional Interest"), payable on the Damages Payment Dates to Record Holders of Debentures that are Registrable Securities and of shares of Underlying Common Stock issued upon conversion of Debentures that are Registrable Securities, as the case may be, accruing, for each portion of such Damages Accrual Period beginning on and including a Damages Payment Date (or, in respect of the first time that the Additional Interest is to be paid to Holders on a Damages Payment Date as a result of the occurrence of any particular Event, 7 from the Event Date) and ending on but excluding the first to occur of (A) the date of the end of the Damages Accrual Period or (B) the next Damages Payment Date, at a rate per annum equal to one-half of one percent (0.5%) of the principal amount at maturity of such Debentures (or, following a Tax Event, of the Restated Principal Amount plus accrued but unpaid interest) or one-half of one percent (0.5%) of the Applicable Conversion Price of such shares of Underlying Common Stock, as the case may be, in each case determined as of the Business Day immediately preceding the next Damages Payment Date; provided, that in the case of a Damages Accrual Period that is in effect solely as a result of an Event of the type described in clause (iii) of the immediately preceding paragraph, such Additional Interest shall be paid only to the Holders that have delivered Notice and Questionnaires that caused the Company to incur the obligations set forth in Section 2(d) the non-performance of which is the basis of such Event, provided further, that any Additional Interest accrued with respect to any Debenture or portion thereof called for redemption on a redemption date or converted into Underlying Common Stock on a conversion date prior to the Damages Payment Date, shall, in any such event, be paid instead to the Holder who submitted such Debenture or portion thereof for redemption or conversion on the applicable redemption date or conversion date, as the case may be, on such date (or promptly following the conversion date, in the case of conversion). Notwithstanding the foregoing, no Additional Interest shall accrue as to any Registrable Security from and after the earlier of (x) the date such security is no longer a Registrable Security and (y) expiration of the Effectiveness Period. The rate of accrual of the Additional Interest with respect to any period shall not exceed the rate provided for in this paragraph notwithstanding the occurrence of multiple concurrent Events. Following the cure of all Events requiring the payment by the Company of Additional Interest to the Holders of Registrable Securities pursuant to this Section, the accrual of Additional Interest will cease (without in any way limiting the effect of any subsequent Event requiring the payment of Additional Interest by the Company). The Trustee shall be entitled, on behalf of Holders of Debentures or Underlying Common Stock, to seek any available remedy for the enforcement of this Agreement, including for the payment of any Additional Interest. Notwithstanding the foregoing, the parties agree that the sole damages payable for a violation of the terms of this Agreement with respect to which Additional Interest are expressly provided shall be such Additional Interest. Nothing shall preclude a Notice Holder or Holder of Registrable Securities from pursuing or obtaining specific performance or other equitable relief with respect to this Agreement. All of the Company's obligations set forth in this Section 2(e) that are outstanding with respect to any Registrable Security at the time such security ceases to be a Registrable Security shall survive until such time as all such obligations with respect to such security have been satisfied in full (notwithstanding termination of this Agreement pursuant to Section 8(k)). The parties hereto agree that the Additional Interest provided for in this Section 2(e) constitute a reasonable estimate of the damages that may be incurred by Holders of Registrable Securities by reason of the failure of the Shelf Registration Statement to be filed or declared effective or available for effecting resales of Registrable Securities in accordance with the provisions hereof. SECTION 3. REGISTRATION PROCEDURES. In connection with the registration obligations of the Company under Section 2 hereof, the Company shall: 8 (a) A reasonable time before filing any Registration Statement or Prospectus or any amendments or supplements thereto with the SEC, furnish to counsel to the Initial Purchasers copies of all such documents proposed to be filed and use reasonable efforts to reflect in each such document when so filed with the SEC such comments as counsel to the Initial Purchasers reasonably shall propose within five (5) Business Days of the delivery of such copies to the Initial Purchasers. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable period specified in Section 2(a); cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and use its reasonable efforts to comply with the provisions of the Securities Act applicable to it with respect to the disposition of all securities covered by such Registration Statement during the Effectiveness Period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or such Prospectus as so supplemented. (c) As promptly as practicable give notice to counsel to the Notice Holders and the Initial Purchasers (i) when any Prospectus, Prospectus supplement, Registration Statement or post-effective amendment to a Registration Statement has been filed with the SEC and, with respect to a Registration Statement or any post-effective amendment, when the same has been declared effective, (ii) of any request, following the effectiveness of the Initial Shelf Registration Statement under the Securities Act, by the SEC or any other federal or state governmental authority for amendments or supplements to any Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the occurrence of (but not the nature of or details concerning) a Material Event and (vi) of the determination by the Company that a post-effective amendment to a Registration Statement will be filed with the SEC, which notice may, at the discretion of the Company (or as required pursuant to Section 3(i)), state that it constitutes a Deferral Notice, in which event the provisions of Section 3(i) shall apply. (d) Use reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction in which they have been qualified for sale, in either case at the earliest possible moment. (e) If reasonably requested by any Initial Purchaser or any Notice Holder, as promptly as practicable incorporate in a Prospectus supplement or post-effective amendment to a Registration Statement such information as the Initial Purchaser or such Notice Holder shall, on the basis of a written opinion of nationally-recognized counsel experienced in such matters, 9 determine to be required to be included therein by applicable law and make any required filings of such Prospectus supplement or such post-effective amendment. (f) If requested by any Initial Purchaser or any Notice Holder, as promptly as practicable furnish to each Notice Holder and the Initial Purchasers, without charge, at least one (1) conformed copy of the Registration Statement and any amendment thereto, including financial statements but excluding schedules, all documents incorporated or deemed to be incorporated therein by reference and all exhibits (unless requested in writing to the Company by such Notice Holder or the Initial Purchasers, as the case may be). (g) During the Effectiveness Period, deliver to each Notice Holder in connection with any sale of Registrable Securities pursuant to a Registration Statement, without charge, as many copies of the Prospectus or Prospectuses relating to such Registrable Securities (including each preliminary prospectus) and any amendment or supplement thereto as such Notice Holder may reasonably request; and the Company hereby consents (except during such periods that a Deferral Notice is outstanding and has not been revoked) to the use of such Prospectus or each amendment or supplement thereto by each Notice Holder in connection with any offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto in the manner set forth therein. (h) Prior to any public offering of the Registrable Securities pursuant to the Shelf Registration Statement, register or qualify or cooperate with the Notice Holders in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Notice Holder reasonably requests in writing (which request may be included in the Notice and Questionnaire); prior to any public offering of the Registrable Securities pursuant to the Shelf Registration Statement, keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period in connection with such Notice Holder's offer and sale of Registrable Securities pursuant to such registration or qualification (or exemption therefrom) and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of such Registrable Securities in the manner set forth in the relevant Registration Statement and the related Prospectus; provided, that the Company will not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Agreement or (ii) take any action that would subject it to general service of process in suits or to taxation in any such jurisdiction where it is not then so subject. (i) Upon (A) the issuance by the SEC of a stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of proceedings with respect to the Shelf Registration Statement under Section 8(d) or 8(e) of the Securities Act, (B) the occurrence of any event or the existence of any fact (a "Material Event") as a result of which any Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or any Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (C) the occurrence or existence of any pending corporate development that, in the reasonable discretion 10 of the Company, makes it appropriate to suspend the availability of the Shelf Registration Statement and the related Prospectus, (i) in the case of clause (B) above, subject to the next sentence, as promptly as practicable prepare and file, if necessary pursuant to applicable law, a post-effective amendment to such Registration Statement or a supplement to the related Prospectus or any document incorporated therein by reference or file any other required document that would be incorporated by reference into such Registration Statement and Prospectus so that such Registration Statement does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and such Prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, and, in the case of a post-effective amendment to a Registration Statement, subject to the next sentence, use its reasonable efforts to cause it to be declared effective as promptly as is practicable, and (ii) give notice to the Notice Holders that the availability of the Shelf Registration Statement is suspended (a "Deferral Notice") and, upon receipt of any Deferral Notice, each Notice Holder agrees not to sell any Registrable Securities pursuant to the Registration Statement until such Notice Holder's receipt of copies of the supplemented or amended Prospectus provided for in clause (i) above, or until it is advised in writing by the Company that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. The Company will use all reasonable efforts to ensure that the use of the Prospectus may be resumed (x) in the case of clause (A) above, as promptly as is practicable, (y) in the case of clause (B) above, as soon as, in the sole judgment of the Company, public disclosure of such Material Event would not be prejudicial to or contrary to the interests of the Company or, if necessary to avoid unreasonable burden or expense, as soon as practicable thereafter and (z) in the case of clause (C) above, as soon as, in the discretion of the Company, such suspension is no longer appropriate. The Company shall be entitled to exercise its right under this Section 3(i) to suspend the availability of the Shelf Registration Statement or any Prospectus, without incurring or accruing any obligation to pay Additional Interest pursuant to Section 2(e), no more than one (1) time in any three month period or four (4) times in any twelve month period, and any such period during which the availability of the Registration Statement and any Prospectus is suspended (the "Deferral Period") shall, without incurring any obligation to pay Additional Interest pursuant to Section 2(e), not exceed 30 days; provided, that in the case of a Material Event relating to an acquisition or a probable acquisition or financing, recapitalization, business combination or other similar transaction, the Company may, without incurring any obligation to pay Additional Interest pursuant to Section 2(e), deliver to Notice Holders a second notice to the effect set forth above, which shall have the effect of extending the Deferral Period by up to an additional 30 days, or such shorter period of time as is specified in such second notice, provided, that the aggregate duration of any Deferral Periods shall not, without incurring any obligation to pay Additional Interest pursuant to Section 2(e), exceed 60 days in any three month period or 90 days in any twelve (12) month period. (j) If requested in writing in connection with a disposition of Registrable Securities pursuant to a Registration Statement, make reasonably available for inspection during normal business hours by a representative for the Notice Holders of such Registrable Securities and any broker-dealers, attorneys and accountants retained by such Notice Holders, all relevant 11 financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the appropriate officers, directors and employees of the Company and its subsidiaries to make reasonably available for inspection during normal business hours on reasonable notice all relevant information reasonably requested by such representative for the Notice Holders or any such broker-dealers, attorneys or accountants in connection with such disposition, in each case as is customary for similar "due diligence" examinations; provided, however, that such persons shall first agree in writing with the Company that any information that is reasonably and in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons and shall be used solely for the purposes of exercising rights under this Agreement, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of any Registration Statement or the use of any Prospectus referred to in this Agreement), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by any such person or (iv) such information becomes available to any such person from a source other than the Company and such source is not bound by a confidentiality agreement, and provided further, that the foregoing inspection and information gathering shall, to the greatest extent possible, be coordinated on behalf of all the Notice Holders and the other parties entitled thereto by the counsel referred to in Section 5. (k) Use reasonable efforts to comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements (which need not be audited) satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 3-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company commencing after the effective date of a Registration Statement, which statements shall cover said periods. (l) Cooperate with each Notice Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities sold or to be sold pursuant to a Registration Statement, which certificates shall not bear any restrictive legends, and cause such Registrable Securities to be in such denominations as are permitted by the Indenture and registered in such names as such Notice Holder may request in writing at least two (2) Business Days prior to any sale of such Registrable Securities. (m) Provide a CUSIP number for all Registrable Securities covered by each Registration Statement not later than the effective date of such Registration Statement and provide the Trustee and the transfer agent for the Common Stock with printed certificates for the Registrable Securities that are in a form eligible for deposit with The Depository Trust Company. (n) Provide such information as is required for any filings required to be made with the National Association of Securities Dealers, Inc. (o) Upon (i) the filing of the Initial Registration Statement and (ii) the effectiveness of the Initial Registration Statement, announce the same, in each case by release to Reuters Economic Services and Bloomberg Business News. 12 SECTION 4. HOLDER'S OBLIGATIONS. Each Holder agrees, by acquisition of the Registrable Securities, that no Holder of Registrable Securities shall be entitled to sell any of such Registrable Securities pursuant to a Registration Statement or to receive a Prospectus relating thereto, unless such Holder has furnished the Company with a Notice and Questionnaire as required pursuant to Section 2(d) hereof (including the information required to be included in such Notice and Questionnaire) and the information set forth in the next sentence. Each Notice Holder agrees promptly to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Notice Holder not misleading and any other information regarding such Notice Holder and the distribution of such Registrable Securities as the Company may from time to time reasonably request. Any sale of any Registrable Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its plan of distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to or provided by such Holder or its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to or provided by such Holder or its plan of distribution necessary to make the statements in such Prospectus, in the light of the circumstances under which they were made, not misleading. SECTION 5. REGISTRATION EXPENSES. The Company shall bear all fees and expenses incurred in connection with the performance by the Company of its obligations under Sections 2 and 3 of this Agreement whether or not any of the Registration Statements are declared effective. Such fees and expenses shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (x) with respect to filings required to be made with the National Association of Securities Dealers, Inc. and (y) of compliance with federal and state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of the counsel specified in the next sentence in connection with Blue Sky qualifications of the Registrable Securities under the laws of such jurisdictions as the Notice Holders of a majority of the Registrable Securities being sold pursuant to a Registration Statement may designate), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company), (iii) duplication expenses relating to copies of any Registration Statement or Prospectus delivered to any Holders hereunder, (iv) fees and disbursements of counsel for the Company in connection with the Shelf Registration Statement, (v) reasonable fees and disbursements of the Trustee and its counsel and of the registrar and transfer agent for the Common Stock and (vi) Securities Act liability insurance obtained by the Company in its sole discretion. In addition, the Company shall bear or reimburse the Notice Holders for the reasonable fees and disbursements of one firm of legal counsel for the Holders, which shall initially be Gray Cary Ware & Freidenrich LLP, but which may, with the written consent of the Initial Purchasers (which shall not be unreasonably withheld), be another nationally recognized law firm experienced in securities law matters designated by the Company. In addition, the Company shall pay the internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange on which similar securities of the Company are then listed and the fees and expenses of any person, including special experts, retained by the 13 Company. Notwithstanding the provisions of this Section 5, each seller of Registrable Securities shall pay selling expenses and all registration expenses to the extent required by applicable law. SECTION 6. INDEMNIFICATION. (a) Indemnification by the Company. The Company shall indemnify and hold harmless each Notice Holder and each person, if any, who controls any Notice Holder (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) from and against any losses, liabilities, claims, damages and expenses (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (collectively, "Losses"), arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided, however, that the Company shall not be liable in any such case to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement contained in or omission or alleged omission from any of such documents in reliance upon and conformity with any of the information relating to the Holders furnished to the Company in writing by a Holder expressly for use therein; provided further, that the indemnification contained in this paragraph shall not inure to the benefit of any Holder of Registrable Securities (or to the benefit of any person controlling such Holder) on account of any such Losses arising out of or based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus provided in each case the Company has performed its obligations under Section 3(a) hereof if either (A) (i) such Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Holder to the person asserting the claim from which such Losses arise and (ii) the Prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission, or (B) (x) such untrue statement or alleged untrue statement, omission or alleged omission is corrected in an amendment or supplement to the Prospectus and (y) having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such Holder thereafter fails to deliver such Prospectus as so amended or supplemented, with or prior to the delivery of written confirmation of the sale of a Registrable Security to the person asserting the claim from which such Losses arise. (b) Indemnification by Holders of Registrable Securities. Each Holder agrees severally and not jointly to indemnify and hold harmless the Company and its respective directors and officers, and each person, if any, who controls the Company (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) or any other Holder, from and against all Losses arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with information furnished to the Company by such Holder expressly for use in such Registration Statement or Prospectus or amendment or 14 supplement thereto. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds received by such Holder upon the sale of the Registrable Securities pursuant to the Registration Statement giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the reasonable fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all indemnified parties, and that all such fees and expenses shall be reimbursed as they are incurred. Such separate firm shall be designated in writing by, in the case of parties indemnified pursuant to Section 6(a), the Holders of a majority (with Holders of Debentures deemed to be the Holders, for purposes of determining such majority, of the number of shares of Underlying Common Stock into which such Debentures are or would be convertible or exchangeable as of the date on which such designation is made) of the Registrable Securities covered by the Registration Statement held by Holders that are indemnified parties pursuant to Section 6(a) and, in the case of parties indemnified pursuant to Section 6(b), the Company. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel and the indemnified party would be entitled thereto pursuant to the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. 15 (d) Contribution. To the extent that the indemnification provided for in this Section 6 is unavailable to an indemnified party under Section 6(a) or 6(b) hereof in respect of any Losses or is insufficient to hold such indemnified party harmless, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the initial placement pursuant to the Purchase Agreement (before deducting expenses) of the Registrable Securities to which such Losses relate. Benefits received by any Holder shall be deemed to be equal to the value of receiving Registrable Securities that are registered under the Securities Act. The relative fault of the Holders on the one hand and the Company on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Holders or by the Company, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Holders' respective obligations to contribute pursuant to this paragraph are several in proportion to the respective number of Registrable Securities they have sold pursuant to a Registration Statement, and not joint. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method or allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the Losses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding this Section 6(d), an indemnifying party that is a selling Holder of Registrable Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by such indemnifying party and distributed to the public were offered to the public exceeds the amount of any damages that such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The indemnity, contribution and expense reimbursement obligations of the parties hereunder shall be in addition to any liability any indemnified party may otherwise have hereunder, under the Purchase Agreement or otherwise. (f) The indemnity and contribution provisions contained in this Section 6 shall remain operative and in full force and effect regardless of (i) any termination of this 16 Agreement, (ii) any investigation made by or on behalf of any Holder or any person controlling any Holder, or the Company, or the Company's officers or directors or any person controlling the Company and (iii) the sale of any Registrable Securities by any Holder. SECTION 7. INFORMATION REQUIREMENTS. The Company covenants that, if at any time before the end of the Effectiveness Period the Company is not subject to the reporting requirements of the Exchange Act, it will cooperate with any Holder of Registrable Securities and take such further reasonable action as any Holder of Registrable Securities may reasonably request in writing (including, without limitation, making such reasonable representations as any such Holder may reasonably request), all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 and Rule 144A under the Securities Act and customarily taken in connection with sales pursuant to such exemptions. Upon the written request of any Holder of Registrable Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such filing requirements, unless such a statement has been included in the Company's most recent report filed pursuant to Section 13 or Section 15(d) of the Exchange Act. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities (other than the Common Stock) under any section of the Exchange Act. SECTION 8. MISCELLANEOUS. (a) No Conflicting Agreements. The Company is not, as of the date hereof, a party to, nor shall it, on or after the date of this Agreement, enter into, any agreement with respect to its securities that conflicts with the rights granted to the Holders of Registrable Securities in this Agreement. The Company represents and warrants that the rights granted to the Holders of Registrable Securities hereunder do not in any way conflict with the rights granted to the holders of the Company's securities under any other agreements. (b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority of the then outstanding Underlying Common Stock constituting Registrable Securities (with Holders of Debentures deemed to be the Holders, for purposes of this Section, of the number of outstanding shares of Underlying Common Stock into which such Debentures are or would be convertible or exchangeable as of the date on which such consent is requested). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders of Registrable Securities may be given by Holders of at least a majority of the Registrable Securities being sold by such Holders pursuant to such Registration Statement; provided, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. Each Holder of Registrable Securities outstanding at the time of any such amendment, modification, supplement, waiver or consent or thereafter shall be bound by any such amendment, modification, 17 supplement, waiver or consent effected pursuant to this Section 8(b), whether or not any notice, writing or marking indicating such amendment, modification, supplement, waiver or consent appears on the Registrable Securities or is delivered to such Holder. (c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, by telecopier, by courier guaranteeing overnight delivery or by first-class mail, return receipt requested, and shall be deemed given (i) when made, if made by hand delivery, (ii) upon confirmation, if made by telecopier, (iii) one (1) Business Day after being deposited with such courier, if made by overnight courier or (iv) on the date indicated on the notice of receipt, if made by first-class mail, to the parties as follows: (w) if to a Holder of Registrable Securities, at the most current address given by such Holder to the Company in a Notice and Questionnaire or any amendment thereto; (x) if to the Company, to: Brocade Communications Systems, Inc. 1745 Technology Drive San Jose, CA 95110 Attention: Chief Financial Officer Telecopy No.: (408) 487-8101 and Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Katharine Martin, Esq. Telecopy No.: (650) 493-6811 (y) if to the Initial Purchasers, to: Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Attention: Equity Capital Markets Telecopy No.: (212) 761-0356 and Gray Cary Ware & Freidenrich LLP 400 Hamilton Avenue Palo Alto, California 94301-1825 Attention: Gregory Gallo, Esq. Telecopy No.: (650) 833-2001 18 or to such other address as such person may have furnished to the other persons identified in this Section 8(c) in writing in accordance herewith. (d) Approval of Holders. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) (other than the Initial Purchasers or subsequent Holders of Registrable Securities if such subsequent Holders are deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (e) Successors and Assigns. Any person who purchases any Registrable Securities from the Initial Purchasers shall be deemed, for purposes of this Agreement, to be an assignee of the Initial Purchasers. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties and shall inure to the benefit of and be binding upon each Holder of any Registrable Securities. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (i) Severability. If any term provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. (j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and the registration rights granted by the Company with respect to the Registrable Securities. Except as provided in the Purchase Agreement, there are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and undertakings among the parties with respect to such registration rights. No party hereto shall have any rights, duties or obligations other than 19 those specifically set forth in this Agreement. In no event will such methods of distribution take the form of an underwritten offering of the Registrable Securities without the prior agreement of the Company. (k) Termination. This Agreement and the obligations of the parties hereunder shall terminate upon the end of the Effectiveness Period, except for any liabilities or obligations under Section 4, 5 or 6 hereof and the obligations to make payments of and provide for Additional Interest under Section 2(e) hereof to the extent such damages accrue prior to the end of the Effectiveness Period, each of which shall remain in effect in accordance with its terms. 20 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. BROCADE COMMUNICATIONS SYSTEMS, INC. By: /s/ Antonio Canova ------------------------------------ Name: Antonio Canova Title: Chief Financial Officer Confirmed and accepted as of the date first above written: MORGAN STANLEY & CO. INCORPORATED GOLDMAN, SACHS & CO. SALOMON SMITH BARNEY INC. MERRILL LYNCH, PIERCE FENNER AND SMITH INCORPORATED By: Morgan Stanley & Co. Incorporated By: /s/ David A. Schwarzbach ------------------------------------ Name: David A. Schwarzbach Title: Vice President -----END PRIVACY-ENHANCED MESSAGE-----

EX-4.1

                                                                    Exhibit 4.1



- --------------------------------------------------------------------------------


                      BROCADE COMMUNICATIONS SYSTEMS, INC.

                                       TO

            STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.,

                                   AS TRUSTEE

                           ---------------------------


                                    INDENTURE

                                   DATED AS OF

                                DECEMBER 21, 2001

                           ---------------------------

                   2% CONVERTIBLE SUBORDINATED NOTES DUE 2007

- --------------------------------------------------------------------------------




                                TABLE OF CONTENTS




                                                                                                                    PAGE
                                                                                                                    ----
                                                                                                                 
ARTICLE ONE   DEFINITIONS.............................................................................................2
         Section 1.1       Definitions................................................................................2
               Affiliate..............................................................................................2
               Board of Directors.....................................................................................2
               Business Day...........................................................................................2
               Closing Price..........................................................................................2
               Commission.............................................................................................2
               Common Stock...........................................................................................2
               Company................................................................................................3
               Company Notice.........................................................................................3
               Conversion Date........................................................................................3
               Conversion Price.......................................................................................3
               Conversion Rate........................................................................................3
               Corporate Trust Office.................................................................................3
               Custodian..............................................................................................3
               default................................................................................................3
               Defaulted Interest.....................................................................................3
               Depositary.............................................................................................3
               Designated Senior Indebtedness.........................................................................3
               Event of Default.......................................................................................4
               Exchange Act...........................................................................................4
               Fundamental Change.....................................................................................4
               Global Note............................................................................................4
               Indebtedness...........................................................................................4
               Indenture..............................................................................................5
               Initial Purchaser......................................................................................5
               Institutional Accredited Investor......................................................................5
               Liquidated Damages.....................................................................................5
               Non-Payment Default....................................................................................5
               Note or Notes..........................................................................................5
               Note register..........................................................................................5
               Note registrar.........................................................................................5
               Noteholder or holder...................................................................................5
               Notice Date............................................................................................5
               Officers' Certificate..................................................................................5
               Opinion of Counsel.....................................................................................5
               Non-Provisional Redemption.............................................................................5
               outstanding............................................................................................5
               Payment Blockage Notice................................................................................6
               Person.................................................................................................6
               Portal Market..........................................................................................6
               Predecessor............................................................................................6



                                      -i-


                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                                                    PAGE
                                                                                                                    ----
                                                                                                                 
               Purchased Shares.......................................................................................6
               QIB....................................................................................................6
               Registration Rights Agreement..........................................................................6
               Representative.........................................................................................6
               Responsible Officer....................................................................................6
               Restricted Securities..................................................................................6
               Rule 144A..............................................................................................7
               Securities Act.........................................................................................7
               Senior Indebtedness....................................................................................7
               Significant Subsidiary.................................................................................7
               Subsidiary.............................................................................................7
               Trading Day............................................................................................7
               Trigger Event..........................................................................................7
               Trust Indenture Act....................................................................................7
               Trustee................................................................................................8

ARTICLE TWO  ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES........................................8
         Section 2.1       Designation Amount and Issue of Notes......................................................8
         Section 2.2       Form of Notes..............................................................................8
         Section 2.3       Date and Denomination of Notes; Payments of Interest.......................................9
         Section 2.4       Execution of Notes........................................................................10
         Section 2.5       Exchange and Registration of Transfer Notes; Restrictions on Transfer;
                           Depositary................................................................................11
         Section 2.6       Mutilated, Destroyed, Lost or Stolen Notes................................................18
         Section 2.7       Temporary Notes...........................................................................19
         Section 2.8       Cancellation of Notes Paid, Etc...........................................................20
         Section 2.9       CUSIP Numbers.............................................................................20

ARTICLE THREE  REDEMPTION AND REPURCHASE OF NOTES....................................................................20
         Section 3.1       Redemption by the Company.................................................................20
         Section 3.2       Notice of Redemption; Selection of Notes..................................................20
         Section 3.3       Payment of Notes Called for Redemption....................................................22
         Section 3.4       Conversion Arrangement on Call for Redemption.............................................23
         Section 3.5       Repurchase at Option of Holders...........................................................23

ARTICLE FOUR  SUBORDINATION OF NOTES.................................................................................25
         Section 4.1       Agreement of Subordination................................................................25
         Section 4.2       Payments to Noteholders...................................................................26
         Section 4.4       Authorization to Effect Subordination.....................................................29
         Section 4.5       Notice to Trustee.........................................................................29
         Section 4.6       Trustee's Relation to Senior Indebtedness.................................................30
         Section 4.7       No Impairment of Subordination............................................................31
         Section 4.8       Certain Conversions Not Deemed Payment....................................................31
         Section 4.9       Article Applicable to Paying Agents.......................................................31



                                      -ii-


                                TABLE OF CONTENTS
                                   (CONTINUED)




                                                                                                                    PAGE
                                                                                                                    ----
                                                                                                                 
         Section 4.10      Senior Indebtedness Entitled to Rely......................................................31
         Section 4.11      Reliance on Judicial Order or Certificate of Liquidating Agent............................31

ARTICLE FIVE  PARTICULAR COVENANTS OF THE COMPANY....................................................................32
         Section 5.1       Payment of Principal, Premium and Interest................................................32
         Section 5.2       Maintenance of Office or Agency...........................................................32
         Section 5.3       Appointments to Fill Vacancies in Trustee's Office........................................33
         Section 5.4       Provisions as to Paying Agent.............................................................33
         Section 5.5       Existence.................................................................................34
         Section 5.6       Maintenance of Properties.................................................................34
         Section 5.7       Payment of Taxes and Other Claims.........................................................34
         Section 5.8       Rule 144A Information Requirement.........................................................35
         Section 5.9       Stay, Extension and Usury Laws............................................................35
         Section 5.10      Compliance Certificate....................................................................35
         Section 5.11      Liquidated Damages........................................................................36

ARTICLE SIX  NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE...........................................36
         Section 6.1       Noteholders' Lists........................................................................36
         Section 6.2       Preservation and Disclosure of Lists......................................................36
         Section 6.3       Reports by Trustee........................................................................37
         Section 6.4       Reports by Company........................................................................37

ARTICLE SEVEN  REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON AN EVENT OF DEFAULT........................................37
         Section 7.1       Events of Default.........................................................................37
         Section 7.2       Payments of Notes on Default; Suit Therefor...............................................39
         Section 7.3       Application of Monies Collected by Trustee................................................41
         Section 7.4       Proceedings by Noteholder.................................................................41
         Section 7.5       Proceedings by Trustee....................................................................42
         Section 7.6       Remedies Cumulative and Continuing........................................................42
         Section 7.7       Direction of Proceedings and Waiver of Defaults by Majority of Noteholders................43
         Section 7.8       Notice of Defaults........................................................................43
         Section 7.9       Undertaking to Pay Costs..................................................................43

ARTICLE EIGHT  THE TRUSTEE...........................................................................................44
         Section 8.1       Duties and Responsibilities of Trustee....................................................44
         Section 8.2       Reliance on Documents, Opinions, Etc......................................................45
         Section 8.3       No Responsibility for Recitals, Etc.......................................................46
         Section 8.4       Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes......................46
         Section 8.5       Monies to be Held in Trust................................................................46
         Section 8.6       Compensation and Expenses of Trustee......................................................46
         Section 8.7       Officers' Certificate as Evidence.........................................................47
         Section 8.8       Conflicting Interests of Trustee..........................................................47




                                     -iii-



                                TABLE OF CONTENTS
                                   (CONTINUED)




                                                                                                                    PAGE
                                                                                                                    ----
                                                                                                                 
         Section 8.9       Eligibility of Trustee....................................................................47
         Section 8.10      Resignation or Removal of Trustee.........................................................48
         Section 8.11      Acceptance by Successor Trustee...........................................................49
         Section 8.12      Succession by Merger, Etc.................................................................49
         Section 8.13      Preferential Collection of Claims.........................................................50
         Section 8.14      Trustee's Application for Instructions from the Company...................................50

ARTICLE NINE  THE NOTEHOLDERS........................................................................................50
         Section 9.1       Action by Noteholders.....................................................................50
         Section 9.2       Proof of Execution by Noteholders.........................................................51
         Section 9.3       Who Are Deemed Absolute Owners............................................................51
         Section 9.4       Company-Owned Notes Disregarded...........................................................51
         Section 9.5       Revocation of Consents; Future Holders Bound..............................................51

ARTICLE TEN  MEETINGS OF NOTEHOLDERS.................................................................................52
         Section 10.1      Purpose of Meetings.......................................................................52
         Section 10.2      Call of Meetings by Trustee...............................................................52
         Section 10.3      Call of Meetings by Company or Noteholders................................................53
         Section 10.4      Qualifications for Voting.................................................................53
         Section 10.5      Regulations...............................................................................53
         Section 10.6      Voting....................................................................................53
         Section 10.7      No Delay of Rights by Meeting.............................................................54

ARTICLE ELEVEN  SUPPLEMENTAL INDENTURES..............................................................................54
         Section 11.1      Supplemental Indentures Without Consent of Noteholders....................................54
         Section 11.2      Supplemental Indenture with Consent of Noteholders........................................55
         Section 11.3      Effect of Supplemental Indenture..........................................................56
         Section 11.4      Notation on Notes.........................................................................57
         Section 11.5      Evidence of Compliance of Supplemental Indenture to be Furnished to Trustee...............57

ARTICLE TWELVE  CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE....................................................57
         Section 12.1      Company May Consolidate, Etc., on Certain Terms...........................................57
         Section 12.2      Successor Corporation to be Substituted...................................................57

ARTICLE THIRTEEN  SATISFACTION AND DISCHARGE OF INDENTURE............................................................58
         Section 13.1      Discharge of Indenture....................................................................58
         Section 13.2      Deposited Monies to be Held in Trust by Trustee...........................................59
         Section 13.3      Paying Agent to Repay Monies Held.........................................................59
         Section 13.4      Return of Unclaimed Monies................................................................59
         Section 13.5      Reinstatement.............................................................................59

ARTICLE FOURTEEN  IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS....................................60
         Section 14.1      Indenture and Notes Solely Corporate Obligations..........................................60



                                      -iv-



                                TABLE OF CONTENTS
                                   (CONTINUED)




                                                                                                                    PAGE
                                                                                                                    ----
                                                                                                                 
ARTICLE FIFTEEN  CONVERSION OF NOTES.................................................................................60
         Section 15.1      Right to Convert..........................................................................60
         Section 15.2      Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No
                           Adjustment for Interest or Dividends......................................................61
         Section 15.3      Cash Payments in Lieu of Fractional Shares................................................62
         Section 15.4      Conversion Rate...........................................................................62
         Section 15.5      Adjustment of Conversion Rate.............................................................62
         Section 15.6      Effect of Reclassification, Consolidation, Merger or Sale.................................71
         Section 15.7      Taxes on Shares Issued....................................................................72
         Section 15.8      Reservation of Shares; Shares to be Fully Paid; Compliance with Governmental
                           Requirements; Listing of Common Stock.....................................................72
         Section 15.9      Responsibility of Trustee.................................................................73
         Section 15.10     Notice to Holders Prior to Certain Actions................................................73

ARTICLE SIXTEEN  MISCELLANEOUS PROVISIONS............................................................................74
         Section 16.1      Provisions Binding on Company's Successors................................................74
         Section 16.2      Official Acts by Successor Corporation....................................................74
         Section 16.3      Addresses for Notices, Etc................................................................74
         Section 16.4      Governing Law.............................................................................75
         Section 16.5      Evidence of Compliance with Conditions Precedent; Certificates to Trustee.................75
         Section 16.6      Legal Holidays............................................................................75
         Section 16.7      Trust Indenture Act.......................................................................76
         Section 16.8      No Security Interest Created..............................................................76
         Section 16.9      Benefits of Indenture.....................................................................76
         Section 16.10     Table of Contents, Headings, Etc..........................................................76
         Section 16.11     Authenticating Agent......................................................................76
         Section 16.12     Execution in Counterparts.................................................................77
         Section 16.13     Severability..............................................................................77



                                      -v-



        Reconciliation and Tie Between the Trust Indenture Act of 1939 and
Indenture, dated as of December 21, 2001, between Brocade Communications
Systems, Inc. and State Street Bank and Trust Company of California, N.A., as
Trustee.


         TRUST INDENTURE ACT SECTION                                    INDENTURE SECTION
         ---------------------------                                    -----------------
                                                                    
         Section 310  (a)(1)......................................      8.9
                      (a)(2)......................................      8.9
                      (a)(3)......................................      Not Applicable
                      (a)(4)......................................      Not Applicable
                      (a)(5)......................................      8.9
                      (b).........................................      8.8; 8.9; 8.10; 8.11

         Section 311  (a).........................................      8.13
                      (b).........................................      8.13
                      (b)(2)......................................      8.13
         Section 312  (a).........................................      6.1; 6.2(a)
                      (b).........................................      6.2(b)
                      (c).........................................      6.2(c)
         Section 313  (a).........................................      6.3(a)
                      (b).........................................      6.3(a)
                      (c).........................................      6.3(a)
                      (d).........................................      6.3(b)
         Section 314  (a).........................................      6.4
                      (b).........................................      Not Applicable
                      (c)(1)......................................      16.5
                      (c)(2)......................................      16.5
                      (c)(3)......................................      Not Applicable
                      (d).........................................      Not Applicable
                      (e).........................................      16.5
         Section 315  (a).........................................      8.1
                      (b).........................................      7.8
                      (c).........................................      8.1
                      (d).........................................      8.1
                      (d)(1)......................................      8.1(a)
                      (d)(2)......................................      8.1(b)
                      (d)(3)......................................      8.1(c)
                      (e).........................................      7.9
         Section 316  (a).........................................      7.7
                      (a)(1)(A)...................................      7.7
                      (a)(1)(B)...................................      7.7
                      (a)(2)......................................      Not Applicable
                      (b).........................................      7.4



                                      -vi-




         TRUST INDENTURE ACT SECTION                                    INDENTURE SECTION
         ---------------------------                                    -----------------
                                                                    
                      (c)                                               9.1

         Section 317  (a)(1)......................................      7.5
                      (a)(2)......................................      7.5
                      (b).........................................      5.4
         Section 318  (a).........................................      16.7


        Note: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.



                                     -vii-



                                    INDENTURE

        INDENTURE, dated as of December 21, 2001, between Brocade Communications
Systems, Inc., a Delaware corporation (hereinafter called the "Company") having
its principal office at 1745 Technology Drive, San Jose, California 95110, and
State Street Bank and Trust Company of California, N.A., a national banking
association, as trustee hereunder (hereinafter called the "Trustee") having its
principal corporate trust office at 633 West 5th Street, 12th Floor, Los
Angeles, California 90071.


                             W I T N E S S E T H :
                             - - - - - - - - - -

        WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issue of its 2% Convertible Subordinated Notes due 2007
(hereinafter called the "Notes"), in an aggregate principal amount not to exceed
$550,000,000 and, to provide the terms and conditions upon which the Notes are
to be authenticated, issued and delivered, the Company has duly authorized the
execution and delivery of this Indenture; and

        WHEREAS, the Notes, the certificate of authentication to be borne by the
Notes, a form of assignment, a form of option to elect repayment upon a
Fundamental Change, and a form of conversion notice to be borne by the Notes are
to be substantially in the forms hereinafter provided for; and

        WHEREAS, all acts and things necessary to make the Notes, when executed
by the Company and authenticated and delivered by the Trustee or a duly
authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute these presents a
valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Notes have in all
respects been duly authorized.

                   NOW, THEREFORE, THIS INDENTURE WITNESSETH:

        That in order to declare the terms and conditions upon which the Notes
are, and are to be, authenticated, issued and delivered, and in consideration of
the premises and of the purchase and acceptance of the Notes by the holders
thereof, the Company covenants and agrees with the Trustee for the equal and
proportionate benefit of the respective holders from time to time of the Notes
(except as otherwise provided below), as follows:



                                      -1-


                                   ARTICLE ONE

                                   DEFINITIONS

        Section 1.1 Definitions. The terms defined in this Section 1.1 (except
as herein otherwise expressly provided or unless the context otherwise requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section 1.1. All other
terms used in this Indenture that are defined in the Trust Indenture Act or
which are by reference therein defined in the Securities Act (except as herein
otherwise expressly provided or unless the context otherwise requires) shall
have the meanings assigned to such terms in said Trust Indenture Act and in said
Securities Act as in force at the date of the execution of this Indenture. The
words "herein", "hereof", "hereunder", and words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
Subdivision. The terms defined in this Article include the plural as well as the
singular.

        "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.

        "Board of Directors" means the Board of Directors of the Company or a
committee of such Board duly authorized to act for it hereunder.

        "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which the banking institutions in The City of New
York or the city in which the Corporate Trust Office is located are authorized
or obligated by law or executive order to close or be closed.

        "Closing Price" has the meaning specified in Section 15.5(h)(1).

        "Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this Indenture such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.

        "Common Stock" means any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which is not subject to redemption by the Company. Subject to the provisions
of Section 15.6, however, shares issuable on conversion of Notes shall include
only shares of the class designated as common stock of the Company at the date
of this Indenture (namely, the Common Stock, par value $0.001 per share) or
shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which are not subject to


                                      -2-


redemption by the Company; provided, however, that if at any time there shall be
more than one such resulting class, the shares of each such class then so
issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.

        "Company" means the corporation named as the "Company" in the first
paragraph of this Indenture, and, subject to the provisions of Article Twelve,
shall include its successors and assigns.

        "Company Notice" has the meaning specified in Section 3.5(b).

        "Conversion Date" has the meaning specified in Section 15.2.

        "Conversion Price" has the meaning specified in Section 3.1.

        "Conversion Rate" has the meaning specified in Section 15.4.

        "Corporate Trust Office" or other similar term, means the designated
office of the Trustee at which at any particular time the trust created by this
Indenture shall be administered, which office is, at the date as of which this
Indenture is dated, located at 633 West 5th Street, 12th Floor, Los Angeles,
California 90071, attention: Corporate Trust Department (Brocade Communication
Systems, Inc. 2% Convertible Subordinated Notes due 2007).

        "Custodian" means State Street Bank and Trust Company of California,
N.A., as custodian with respect to the Notes in global form, or any successor
entity thereto.

        "default" means any event that is, or after notice or passage of time,
or both, would be, an Event of Default.

        "Defaulted Interest" has the meaning specified in Section 2.3.

        "Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.5(d) as the
Depositary with respect to such Notes, until a successor shall have been
appointed and become such pursuant to the applicable provisions of this
Indenture, and thereafter, "Depositary" shall mean or include such successor.

        "Designated Senior Indebtedness" means any Senior Indebtedness with
respect to which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which the
Company is a party) expressly provides that such Senior Indebtedness shall be
"Designated Senior Indebtedness" for purposes of this Indenture (provided that
such instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness). If any payment made to any holder of any
Designated Senior Indebtedness or its Representative with respect to such
Designated Senior Indebtedness is rescinded or must otherwise be returned by
such holder or Representative upon the insolvency, bankruptcy or reorganization
of the Company or otherwise, the reinstated Indebtedness of the Company arising
as a result of such rescission or return shall constitute Designated Senior
Indebtedness effective as of the date of such rescission or return.


                                      -3-


        "Event of Default" means any event specified in Section 7.1(a), (b),
(c), (d) or (e).

        "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder, as in effect from time to
time.

        "Fundamental Change" means the occurrence of any transaction or event in
connection with which all or substantially all of the Common Stock shall be
exchanged for, converted into, acquired for or constitute solely the right to
receive consideration (whether by means of an exchange offer, liquidation,
tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock listed (or, upon consummation of or immediately following such transaction
or event, which will be listed) on a United States national securities exchange
or approved (or upon consummation of or immediately following such transaction
or event, which will be approved) for quotation on the Nasdaq National Market or
any similar United States system of automated dissemination of quotations of
securities prices.

        "Global Note" has the meaning set forth in Section 2.5(b).

        "Indebtedness" means, with respect to any Person, and without
duplication: (a) all indebtedness, obligations and other liabilities (contingent
or otherwise) of such Person for borrowed money (including obligations of the
Company in respect of overdrafts, foreign exchange contracts, currency exchange
agreements, interest rate protection agreements, and any loans or advances from
banks, whether or not evidenced by notes or similar instruments) or evidenced by
bonds, debentures, notes or similar instruments (whether or not the recourse of
the lender is to the whole of the assets of such Person or to only a portion
thereof), other than any account payable or other accrued current liability or
obligation incurred in the ordinary course of business in connection with the
obtaining of materials or services; (b) all reimbursement obligations and other
liabilities (contingent or otherwise) of such Person with respect to letters of
credit, bank guarantees or bankers' acceptances; (c) all obligations and
liabilities (contingent or otherwise) in respect of leases of such Person
required, in conformity with generally accepted accounting principles, to be
accounted for as capitalized lease obligations on the balance sheet of such
Person and all obligations and other liabilities (contingent or otherwise) under
any lease or related document (including a purchase agreement) in connection
with the lease of real property which provides that such Person is contractually
obligated to purchase or cause a third party to purchase the leased property and
thereby guarantee a minimum residual value of the leased property to the lessor
and the obligations of such Person under such lease or related document to
purchase or to cause a third party to purchase such leased property; (d) all
obligations of such Person (contingent or otherwise) with respect to an interest
rate or other swap, cap or collar agreement or other similar instrument or
agreement or foreign currency hedge, exchange, purchase or similar instrument or
agreement; (e) all direct or indirect guaranties or similar agreements by such
Person in respect of, and obligations or liabilities (contingent or otherwise)
of such Person to purchase or otherwise acquire or otherwise assure a creditor
against loss in respect of, indebtedness, obligations or liabilities of another
Person of the kind described in clauses (a) through (d); (f) any indebtedness or
other obligations described in clauses (a) through (e) secured by any mortgage,
pledge, lien or other encumbrance existing on property which is owned or held by
such Person, regardless of whether the indebtedness or other obligation secured
thereby shall have been assumed by such Person; and (g) any and all deferrals,
renewals,


                                      -4-


extensions and refundings of, or amendments, modifications or supplements to,
any indebtedness, obligation or liability of the kind described in clauses (a)
through (f).

        "Indenture" means this instrument as originally executed or, if amended
or supplemented as herein provided, as so amended or supplemented.

        "Initial Purchasers" means Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co., Merrill Lynch & Co. and Salomon Smith Barney Inc.

        "Institutional Accredited Investor" means an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act.

        "Liquidated Damages" has the meaning specified for "Additional Interest"
in Section 2(e) of the Registration Rights Agreement.

        "Non-Payment Default" has the meaning specified in Section 4.2(ii).

        "Note" or "Notes" means any Note or Notes, as the case may be,
authenticated and delivered under this Indenture, including the Global Note.

        "Note register" has the meaning specified in Section 2.5(a).

        "Note registrar" has the meaning specified in Section 2.5(a).

        "Noteholder" or "holder" as applied to any Note, or other similar terms
(but excluding the term "beneficial holder"), means any Person in whose name at
the time a particular Note is registered on the Note registrar's books.

        "Notice Date" has the meaning specified in Section 3.1.

        "Officers' Certificate", when used with respect to the Company, means a
certificate signed by both (a) the Chairman of the Board, the Chief Executive
Officer, the President or any Vice President (whether or not designated by a
number or numbers or word or words added before or after the title "Vice
President") and (b) the Treasurer or any Assistant Treasurer, or the Secretary
or any Assistant Secretary of the Company.

        "Opinion of Counsel" means an opinion in writing signed by legal
counsel, who may be an employee of or counsel to the Company, or other counsel
reasonably acceptable to the Trustee.

        "Optional Redemption" has the meaning specified in Section 3.1.

        "outstanding", when used with reference to Notes and subject to the
provisions of Section 9.4, means, as of any particular time, all Notes
authenticated and delivered by the Trustee under this Indenture, except:

                (a) Notes theretofore canceled by the Trustee or delivered to
        the Trustee for cancellation;



                                      -5-


                (b) Notes, or portions thereof, (i) for the redemption of which
        monies in the necessary amount shall have been deposited in trust with
        the Trustee or with any paying agent (other than the Company) or (ii)
        which shall have been otherwise defeased in accordance with Article
        Thirteen;

                (c) Notes in lieu of which, or in substitution for which, other
        Notes shall have been authenticated and delivered pursuant to the terms
        of Section 2.6; and

                (d) Notes converted into Common Stock pursuant to Article
        Fifteen and Notes deemed not outstanding pursuant to Article Three.

                "Payment Blockage Notice" has the meaning specified in Section
        4.2(ii).

        "Person" means a corporation, an association, a partnership, a limited
liability company, an individual, a joint venture, a joint stock company, a
trust, an unincorporated organization or a government or an agency or a
political subdivision thereof.

        "Portal Market" means The Portal Market operated by the National
Association of Securities Dealers, Inc. or any successor thereto.

        "Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note, and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.6 in lieu of a lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the lost, destroyed or
stolen Note that it replaces.

        "Purchased Shares" has the meaning specified in Section 15.5(f).

        "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

        "Registration Rights Agreement" means the Registration Rights Agreement,
dated as of December 21, 2001, among the Company and the Initial Purchasers, as
amended from time to time in accordance with its terms.

        "Representative" means (a) the indenture trustee or other trustee, agent
or representative for any Senior Indebtedness or (b) with respect to any Senior
Indebtedness that does not have any such trustee, agent or other representative,
(i) in the case of such Senior Indebtedness issued pursuant to an agreement
providing for voting arrangements as among the holders or owners of such Senior
Indebtedness, any holder or owner of such Senior Indebtedness acting with the
consent of the required Persons necessary to bind such holders or owners of such
Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness,
the holder or owner of such Senior Indebtedness.

        "Responsible Officer", when used with respect to the Trustee, means an
officer of the Trustee in the Corporate Trust Office assigned and duly
authorized by the Trustee to administer this Indenture.

        "Restricted Securities" has the meaning specified in Section 2.5(d).


                                      -6-


        "Rule 144A" means Rule 144A as promulgated under the Securities Act.

        "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, as in effect from time to time.

        "Senior Indebtedness" means the principal of, premium, if any, interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and rent payable on or
in connection with, and all fees, costs, expenses and other amounts accrued or
due on or in connection with Indebtedness of the Company, whether outstanding on
the date of this Indenture or thereafter created, incurred, assumed, guaranteed
or in effect guaranteed by the Company (including all deferrals, renewals,
extensions or refundings of, or amendments, modifications or supplements to, the
foregoing), unless in the case of any particular Indebtedness the instrument
creating or evidencing the same or the assumption or guarantee thereof expressly
provides that such Indebtedness shall not be senior in right of payment to the
Notes or expressly provides that such Indebtedness is "pari passu" or "junior"
to the Notes. Notwithstanding the foregoing, the term "Senior Indebtedness"
shall not include any Indebtedness of the Company to any subsidiary of the
Company, a majority of the voting stock of which is owned, directly or
indirectly, by the Company. If any payment made to any holder of any Senior
Indebtedness or its Representative with respect to such Senior Indebtedness is
rescinded or must otherwise be returned by such holder or Representative upon
the insolvency, bankruptcy or reorganization of the Company or otherwise, the
reinstated Indebtedness of the Company arising as a result of such rescission or
return shall constitute Senior Indebtedness effective as of the date of such
rescission or return.

        "Significant Subsidiary" means, as of any date of determination, a
Subsidiary of the Company that would constitute a "significant subsidiary" as
such term is defined under Rule 1-02 of Regulation S-X of the Commission.

        "Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of capital stock or other equity interest entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other subsidiaries
of that Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or managing general partner of which is such Person or a
subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more subsidiaries of such Person (or any combination
thereof).

        "Trading Day" has the meaning specified in Section 15.5(h)(5).

        "Trigger Event" has the meaning specified in Section 15.5(d).

        "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended,
as it was in force at the date of this Indenture, except as provided in Sections
11.3 and 15.6; provided, however, that, in the event the Trust Indenture Act of
1939 is amended after the date hereof, the


                                      -7-


term "Trust Indenture Act" shall mean, to the extent required by such amendment,
the Trust Indenture Act of 1939, as so amended.

        "Trustee" means State Street Bank and Trust Company of California, N.A.,
and its successors and any corporation resulting from or surviving any
consolidation or merger to which it or its successors may be a party and any
successor trustee at the time serving as successor trustee hereunder.

        The definitions of certain other terms are as specified in Sections 2.5
and 3.5 and Article Fifteen.

                                   ARTICLE TWO

                         ISSUE, DESCRIPTION, EXECUTION,
                       REGISTRATION AND EXCHANGE OF NOTES

        Section 2.1 Designation Amount and Issue of Notes. The Notes shall be
designated as "2% Convertible Subordinated Notes due 2007". Notes not to exceed
the aggregate principal amount of $550,000,000 (except pursuant to Sections 2.5,
2.6, 3.3, 3.5 and 15.2 hereof) upon the execution of this Indenture, or from
time to time thereafter, may be executed by the Company and delivered to the
Trustee for authentication, and the Trustee shall thereupon authenticate and
deliver said Notes to or upon the written order of the Company, signed by (a)
its Chairman of the Board, Chief Executive Officer, President or any Vice
President (whether or not designated by a number or numbers or word or words
added before or after the title "Vice President") and (b) its Treasurer or any
Assistant Treasurer or its Secretary or any Assistant Secretary, without any
further action by the Company hereunder.

        Section 2.2 Form of Notes. The Notes and the Trustee's certificate of
authentication to be borne by such Notes shall be substantially in the form set
forth in Exhibit A, which is incorporated in and made a part of this Indenture.

        Any of the Notes may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Notes may be
listed, or to conform to usage.

        Any Note in global form shall represent such of the outstanding Notes as
shall be specified therein and shall provide that it shall represent the
aggregate amount of outstanding Notes from time to time endorsed thereon and
that the aggregate amount of outstanding Notes represented thereby may from time
to time be increased or reduced to reflect transfers or exchanges permitted
hereby. Any endorsement of a Note in global form to reflect the amount of any
increase or decrease in the amount of outstanding Notes represented thereby
shall be made by the Trustee or the Custodian, at the direction of the Trustee,
in such manner and upon instructions given by the holder of such Notes in
accordance with this Indenture. Payment of


                                      -8-


principal of and interest and premium, if any, on any Note in global form shall
be made to the holder of such Note.

        The terms and provisions contained in the form of Note attached as
Exhibit A hereto shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.

        Section 2.3 Date and Denomination of Notes; Payments of Interest. The
Notes shall be issuable in registered form without coupons in denominations of
$1,000 principal amount and integral multiples thereof. Every Note shall be
dated the date of its authentication and shall bear interest from the applicable
date in each case as specified on the face of the form of Note attached as
Exhibit A hereto. Interest on the Notes shall be computed on the basis of a
360-day year comprised of twelve (12) 30-day months.

        The Person in whose name any Note (or its Predecessor Note) is
registered on the Note register at the close of business on any record date with
respect to any interest payment date shall be entitled to receive the interest
payable on such interest payment date, except (i) that the interest payable upon
redemption (unless the date of redemption is an interest payment date) will be
payable to the Person to whom principal is payable and (ii) as set forth in the
next succeeding sentence. In the case of any Note (or portion thereof) that is
converted during the period from (but excluding) a record date to (but
excluding) the next succeeding interest payment date either (x) if such Note (or
portion thereof) has been called for redemption on a redemption date which
occurs during such period, or is to be repurchased in connection with a
Fundamental Change on a Repurchase Date (as defined in Section 3.5) that occurs
during such period, the Company shall not be required to pay interest on such
interest payment date in respect of any such Note (or portion thereof) except to
the extent required to be paid upon redemption of such Note or portion thereof
pursuant to Section 3.3 or 3.5 hereof or (y) if such Note (or portion thereof)
has not been called for redemption on a redemption date that occurs during such
period and is not to be repurchased in connection with a Fundamental Change on a
Repurchase Date that occurs during such period, such Note (or portion thereof)
that is submitted for conversion during such period shall be accompanied by
funds equal to the interest payable on such succeeding interest payment date on
the principal amount so converted, as provided in the penultimate paragraph of
Section 15.2 hereof, unless at the time of conversion there is a default in the
payment of interest on the Notes. Interest shall be payable at the office of the
Company maintained by the Company for such purposes in the Borough of Manhattan,
The City of New York, which shall initially be an office or agency of the
Trustee and may, as the Company shall specify to the paying agent in writing by
each record date, be paid either (i) by check mailed to the address of the
Person entitled thereto as it appears in the Note register (provided that the
holder of Notes with an aggregate principal amount in excess of $2,000,000
shall, at the written election of such holder, be paid by wire transfer in
immediately available funds) or (ii) by transfer to an account maintained by
such Person located in the United States; provided, however, that payments to
the Depositary will be made by wire transfer of immediately available funds to
the account of the Depositary or its nominee. The term "record date" with
respect to any interest payment date shall mean the June 15 or December 15
preceding the relevant July 1 or January 1, respectively.


                                      -9-



        Any interest on any Note which is payable, but is not punctually paid or
duly provided for, on any July 1 or January 1 (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Noteholder on the relevant
record date by virtue of his having been such Noteholder, and such Defaulted
Interest shall be paid by the Company, at its election in each case, as provided
in clause (1) or (2) below:

                (1) The Company may elect to make payment of any Defaulted
        Interest to the Persons in whose names the Notes (or their respective
        Predecessor Notes) are registered at the close of business on a special
        record date for the payment of such Defaulted Interest, which shall be
        fixed in the following manner. The Company shall notify the Trustee in
        writing of the amount of Defaulted Interest to be paid on each Note and
        the date of the payment (which shall be not less than twenty-five (25)
        days after the receipt by the Trustee of such notice, unless the Trustee
        shall consent to an earlier date), and at the same time the Company
        shall deposit with the Trustee an amount of money equal to the aggregate
        amount to be paid in respect of such Defaulted Interest or shall make
        arrangements satisfactory to the Trustee for such deposit prior to the
        date of the proposed payment, such money when deposited to be held in
        trust for the benefit of the Person entitled to such Defaulted Interest
        as in this clause provided. Thereupon the Trustee shall fix a special
        record date for the payment of such Defaulted Interest which shall be
        not more than fifteen (15) days and not less than ten (10) days prior to
        the date of the proposed payment, and not less than ten (10) days after
        the receipt by the Trustee of the notice of the proposed payment, the
        Trustee shall promptly notify the Company of such special record date
        and, in the name and at the expense of the Company, shall cause notice
        of the proposed payment of such Defaulted Interest and the special
        record date therefor to be mailed, first-class postage prepaid, to each
        Noteholder at his address as it appears in the Note register, not less
        than ten (10) days prior to such special record date. Notice of the
        proposed payment of such Defaulted Interest and the special record date
        therefor having been so mailed, such Defaulted Interest shall be paid to
        the Persons in whose names the Notes (or their respective Predecessor
        Notes) were registered at the close of business on such special record
        date and shall no longer be payable pursuant to the following clause (2)
        of this Section 2.3.

                (2) The Company may make payment of any Defaulted Interest in
        any other lawful manner not inconsistent with the requirements of any
        securities exchange or automated quotation system on which the Notes may
        be listed or designated for issuance, and upon such notice as may be
        required by such exchange or automated quotation system, if, after
        notice given by the Company to the Trustee of the proposed payment
        pursuant to this clause, such manner of payment shall be deemed
        practicable by the Trustee.

        Section 2.4 Execution of Notes. The Notes shall be signed in the name
and on behalf of the Company by the manual or facsimile signature of its
Chairman of the Board, Chief Executive Officer, President or any Vice President
(whether or not designated by a number or numbers or word or words added before
or after the title "Vice President") and attested by the manual or facsimile
signature of its Secretary or any of its Assistant Secretaries or its Treasurer
or any of its Assistant Treasurers (which may be printed, engraved or otherwise
reproduced thereon, by facsimile or otherwise). Only such Notes as shall bear
thereon a certificate of



                                      -10-


authentication substantially in the form set forth on the form of Note attached
as Exhibit A hereto, manually executed by the Trustee (or an authenticating
agent appointed by the Trustee as provided by Section 16.11), shall be entitled
to the benefits of this Indenture or be valid or obligatory for any purpose.
Such certificate by the Trustee (or such an authenticating agent) upon any Note
executed by the Company shall be conclusive evidence that the Note so
authenticated has been duly authenticated and delivered hereunder and that the
holder is entitled to the benefits of this Indenture.

        In case any officer of the Company who shall have signed any of the
Notes shall cease to be such officer before the Notes so signed shall have been
authenticated and delivered by the Trustee, or disposed of by the Company, such
Notes nevertheless may be authenticated and delivered or disposed of as though
the person who signed such Notes had not ceased to be such officer of the
Company, and any Note may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Note, shall be the proper officers
of the Company, although at the date of the execution of this Indenture any such
person was not such an officer.

        Section 2.5 Exchange and Registration of Transfer Notes; Restrictions on
Transfer; Depositary.

           (a) The Company shall cause to be kept at the Corporate Trust Office
a register (the register maintained in such office and in any other office or
agency of the Company designated pursuant to Section 5.2 being herein sometimes
collectively referred to as the "Note register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Note register shall be in
written form or in any form capable of being converted into written form within
a reasonably prompt period of time. The Trustee is hereby appointed "Note
registrar" for the purpose of registering Notes and transfers of Notes as herein
provided. The Company may appoint one or more co-registrars in accordance with
Section 5.2.

        Upon surrender for registration of transfer of any Note to the Note
registrar or any co-registrar, and satisfaction of the requirements for such
transfer set forth in this Section 2.5, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Notes of any authorized denominations and of a
like aggregate principal amount and bearing such restrictive legends as may be
required by this Indenture.

        Notes may be exchanged for other Notes of any authorized denominations
and of a like aggregate principal amount, upon surrender of the Notes to be
exchanged at any such office or agency maintained by the Company pursuant to
Section 5.2. Whenever any Notes are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Notes which
the Noteholder making the exchange is entitled to receive bearing registration
numbers not contemporaneously outstanding.

        All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.



                                      -11-


        All Notes presented or surrendered for registration of transfer or for
exchange, redemption or conversion shall (if so required by the Company or the
Note registrar) be duly endorsed, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company, and the Notes shall
be duly executed by the Noteholder thereof or his attorney duly authorized in
writing.

        No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax, assessment or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.

        Neither the Company nor the Trustee nor any Note registrar shall be
required to exchange or register a transfer of (a) any Notes for a period of
fifteen (15) days next preceding any selection of Notes to be redeemed, (b) any
Notes or portions thereof called for redemption pursuant to Section 3.2, (c) any
Notes or portions thereof surrendered for conversion pursuant to Article Fifteen
or (d) any Notes or portions thereof tendered for repurchase (and not withdrawn)
pursuant to Section 3.5.

           (b) So long as the Notes are eligible for book-entry settlement with
the Depositary, or unless otherwise required by law, all Notes that, upon
initial issuance are beneficially owned by QIBs or as a result of a sale or
transfer after initial issuance are beneficially owned by QIBs, will be
represented by one or more Notes in global form registered in the name of the
Depositary or the nominee of the Depositary (the "Global Note"), except as
otherwise specified below. The transfer and exchange of beneficial interests in
any such Global Note shall be effected through the Depositary in accordance with
this Indenture and the procedures of the Depositary therefor. The Trustee shall
make appropriate endorsements to reflect increases or decreases in the principal
amounts of any such Global Note as set forth on the face of the Note ("Principal
Amount") to reflect any such transfers. Except as provided below, beneficial
owners of a Global Note shall not be entitled to have certificates registered in
their names, will not receive or be entitled to receive physical delivery of
certificates in definitive form and will not be considered holders of such
Global Note.

           (c) So long as the Notes are eligible for book-entry settlement with
the Depositary, or unless otherwise required by law, upon any transfer of a
definitive Note to a QIB in accordance with Rule 144A, and upon receipt of the
definitive Note or Notes being so transferred, together with a certification,
substantially in the form on the reverse of the Note, from the transferor that
the transfer is being made in compliance with Rule 144A (or other evidence
satisfactory to the Trustee), the Trustee shall make an endorsement on the
Global Note to reflect an increase in the aggregate Principal Amount of the
Notes represented by such Global Note, and the Trustee shall cancel such
definitive Note or Notes in accordance with the standing instructions and
procedures of the Depositary, the aggregate Principal Amount of the Notes
represented by such Global Note to be increased accordingly; provided, however,
that no definitive Note, or portion thereof, in respect of which the Company or
an Affiliate of the Company held any beneficial interest shall be included in
such Global Note until such definitive Note is freely tradable in accordance
with Rule 144(k) under the Securities Act, provided further that the Trustee
shall issue Notes in definitive form upon any transfer of a beneficial interest
in the Global Note to the Company or any Affiliate of the Company.



                                      -12-


        Upon any sale or transfer of a Note to an Institutional Accredited
Investor (other than pursuant to a registration statement that has been declared
effective under the Securities Act), such Institutional Accredited Investor
shall, prior to such sale or transfer, furnish to the Company and/or the Trustee
a signed letter containing representations and agreements relating to
restrictions on transfer substantially in the form set forth in Exhibit B to
this Indenture. Upon any transfer of a beneficial interest in the Global Note to
an Institutional Accredited Investor, the Trustee shall make an endorsement on
the Global Note to reflect a decrease in the aggregate Principal Amount of the
Notes represented by such Global Note, and the Company shall execute a
definitive Note or Notes in exchange therefore, and the Trustee, upon receipt of
such definitive Note or Notes and the written order of the Company, shall
authenticate and deliver such, definitive Note or Notes.

        Any Note in global form may be endorsed with or have incorporated in the
text thereof such legends or recitals or changes not inconsistent with the
provisions of this Indenture as may be required by the Custodian, the Depositary
or by the National Association of Securities Dealers, Inc. in order for the
Notes to be tradeable on The Portal Market or as may be required for the Notes
to be tradeable on any other market developed for trading of securities pursuant
to Rule 144A or required to comply with any applicable law or any regulation
thereunder or with the rules and regulations of any securities exchange or
automated quotation system upon which the Notes may be listed or traded or to
conform with any usage with respect thereto, or to indicate any special
limitations or restrictions to which any particular Notes are subject.

           (d) Every Note that bears or is required under this Section 2.5(d) to
bear the legend set forth in this Section 2.5(d) (together with any Common Stock
issued upon conversion of the Notes and required to bear the legend set forth in
Section 2.5(e), collectively, the "Restricted Securities") shall be subject to
the restrictions on transfer set forth in this Section 2.5(d) (including those
set forth in the legend set forth below) unless such restrictions on transfer
shall be waived by written consent of the Company, and the holder of each such
Restricted Security, by such Noteholder's acceptance thereof, agrees to be bound
by all such restrictions on transfer. As used in Sections 2.5(d) and 2.5(e), the
term "transfer" encompasses any sale, pledge, loan, transfer or other
disposition whatsoever of any Restricted Security.

        Until the expiration of the holding period applicable to sales thereof
under Rule 144(k) under the Securities Act (or any successor provision), any
certificate evidencing such Note (and all securities issued in exchange therefor
or substitution thereof, other than Common Stock, if any, issued upon conversion
thereof, which shall bear the legend set forth in Section 2.5(e), if applicable)
shall bear a legend in substantially the following form, unless such Note has
been sold pursuant to a registration statement that has been declared effective
under the Securities Act (and which continues to be effective at the time of
such transfer), or unless otherwise agreed by the Company in writing, with
written notice thereof to the Trustee:

        THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
        UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
        "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND,
        ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
        STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES
        PERSONS EXCEPT AS SET FORTH IN THE



                                 -13-



        FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
        REPRESENTS THAT IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER"
        (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) AN
        INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
        501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT)
        ("INSTITUTIONAL ACCREDITED INVESTOR"), OR (C) A NON-U.S.
        PERSON; (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF
        THE HOLDING PERIOD APPLICABLE TO SALES OF THE NOTE EVIDENCED
        HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY
        SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THIS NOTE
        OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
        EXCEPT (A) TO BROCADE COMMUNICATIONS SYSTEMS, INC. OR ANY
        SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
        QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
        UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
        INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH
        TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST COMPANY OF
        CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS
        APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN
        REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
        TRANSFER OF THE NOTES (THE FORM OF WHICH LETTER CAN BE
        OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS
        APPLICABLE), AND IF SUCH TRANSFER IS IN RESPECT OF AN
        AGGREGATE PRINCIPAL AMOUNT OF NOTES OF LESS THAN $100,000, AN
        OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
        TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE
        THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE
        SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
        REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
        AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH
        HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND
        WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER);
        (3) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO
        CLAUSE (2)(F) ABOVE), IT WILL FURNISH TO STATE STREET BANK AND
        TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR
        TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS
        OR OTHER INFORMATION AS THE TRUSTEE MAY REASONABLY REQUIRE TO
        CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
        EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
        REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (4)
        AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS IS
        TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
        LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE PRIOR TO
        THE


                                 -14-


        EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THIS
        NOTE UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY
        SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE
        BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF
        SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK
        AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A
        SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFEREE
        IS AN INSTITUTIONAL ACCREDITED INVESTOR OR IS A PURCHASER WHO
        IS NOT A UNITED STATES PERSON, THE HOLDER MUST, PRIOR TO SUCH
        TRANSFER, FURNISH TO STATE STREET BANK AND TRUST COMPANY OF
        CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS
        APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
        INFORMATION AS SUCH TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM
        THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
        FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
        REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE
        REMOVED UPON THE EARLIER OF THE TRANSFER OF THIS NOTE PURSUANT
        TO CLAUSE (2)(F) ABOVE OR UPON ANY TRANSFER OF THIS NOTE UNDER
        RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR
        PROVISION). AS USED HEREIN, THE TERMS "UNITED STATES" AND
        "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
        UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
        REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
        THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTION.

        Any Note (or security issued in exchange or substitution therefor) as to
which such restrictions on transfer shall have expired in accordance with their
terms or as to conditions for removal of the foregoing legend set forth therein
have been satisfied may, upon surrender of such Note for exchange to the Note
registrar in accordance with the provisions of this Section 2.5, be exchanged
for a new Note or Notes, of like tenor and aggregate principal amount, which
shall not bear the restrictive legend required by this Section 2.5(d).

        Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in the second paragraph of Section 2.5(c) and in this
Section 2.5(d)), a Note in global form may not be transferred as a whole or in
part except by the Depositary to a nominee of the Depositary or by a nominee of
the Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary.

        The Depositary shall be a clearing agency registered under the Exchange
Act. The Company initially appoints The Depository Trust Company to act as
Depositary with respect to the Notes in global form. Initially, the Global Note
shall be issued to the Depositary, registered in the name of Cede & Co., as the
nominee of the Depositary, and deposited with the Custodian for Cede & Co.


                                      -15-


        If at any time the Depositary for a Note in global form notifies the
Company that it is unwilling or unable to continue as Depositary for such Note,
the Company may appoint a successor Depositary with respect to such Note. If a
successor Depositary is not appointed by the Company within ninety (90) days
after the Company receives such notice, the Company will execute, and the
Trustee, upon receipt of an Officers' Certificate for the authentication and
delivery of Notes, will authenticate and deliver, Notes in certificated form, in
aggregate principal amount equal to the principal amount of such Note in global
form, in exchange for such Note in global form.

        If a Note in certificated form is issued in exchange for any portion of
a Note in global form after the close of business at the office or agency where
such exchange occurs on any record date and before the opening of business at
such office or agency on the next succeeding interest payment date, interest
will not be payable on such interest payment date in respect of such
certificated Note, but will be payable on such interest payment date, subject to
the provisions of Section 2.3, only to the Person to whom interest in respect of
such portion of such Note in global form is payable in accordance with the
provisions of this Indenture.

        Notes in certificated form issued in exchange for all or a part of a
Note in global form pursuant to this Section 2.5 shall be registered in such
names and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. Upon execution and authentication, the Trustee shall
deliver such Notes in certificated form to the Persons in whose names such Notes
in certificated form are so registered.

        At such time as all interests in a Note in global form have been
redeemed, repurchased, converted, canceled, exchanged for Notes in certificated
form, or transferred to a transferee who receives Notes in certificated form
thereof, such Note in global form shall, upon receipt thereof, be canceled by
the Trustee in accordance with standing procedures and instructions existing
between the Depositary and the Custodian. At any time prior to such
cancellation, if any interest in a Note in global form is exchanged for Notes in
certificated form, redeemed, converted, repurchased or canceled, or transferred
to a transferee who receives Notes in certificated form therefor or any Note in
certificated form is exchanged or transferred for part of a Note in global form,
the principal amount of such Note in global form shall, in accordance with the
standing procedures and instructions existing between the Depositary and the
Custodian, be appropriately reduced or increased, as the case may be, and an
endorsement shall be made on such Note in global form, by the Trustee or the
Custodian, at the direction of the Trustee, to reflect such reduction or
increase.

           (e) Until the expiration of the holding period applicable to sales
thereof under Rule 144(k) under the Securities Act (or any successor provision),
any stock certificate representing Common Stock issued upon conversion of any
Note shall bear a legend in substantially the following form, unless such Common
Stock has been sold pursuant to a registration statement that has been declared
effective under the Securities Act (and which continues to be effective at the
time of such transfer) or such Common Stock has been issued upon conversion of
Notes that have been transferred pursuant to a registration statement that has
been declared effective under the Securities Act, or unless otherwise agreed by
the Company in writing with written notice thereof to the transfer agent:



                                      -16-



        THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED
        UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
        (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND,
        ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
        STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES
        PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE
        HOLDER HEREOF AGREES THAT, UNTIL THE EXPIRATION OF THE HOLDING
        PERIOD APPLICABLE TO SALES OF THE COMMON STOCK EVIDENCED
        HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY
        SUCCESSOR PROVISION), (1) IT WILL NOT RESELL OR OTHERWISE
        TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO
        BROCADE COMMUNICATIONS SYSTEMS, INC. OR TO ANY SUBSIDIARY
        THEREOF, (B) INSIDE THE UNITED STATES TO A "QUALIFIED
        INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
        SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) INSIDE THE
        UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
        DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE
        SECURITIES ACT) THAT PRIOR TO SUCH TRANSFER, FURNISHES TO
        WELLS FARGO SHAREOWNER SERVICES, AS TRANSFER AGENT (OR A
        SUCCESSOR TRANSFER AGENT, AS APPLICABLE), A SIGNED LETTER
        CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
        THE RESTRICTIONS ON TRANSFER OF THE COMMON STOCK EVIDENCED
        HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH
        TRANSFER AGENT OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE),
        (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904
        UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
        REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
        AVAILABLE), OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH
        HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND
        WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER);
        (2) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO
        CLAUSE (1)(F) ABOVE), IT WILL FURNISH TO WELLS FARGO
        SHAREOWNER SERVICES, AS TRANSFER AGENT (OR A SUCCESSOR
        TRANSFER AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL
        OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO
        CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
        EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
        REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT
        WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED
        HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO
        CLAUSE 1(F) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF
        THIS LEGEND. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL
        ACCREDITED INVESTOR OR IS A PURCHASER WHO IS NOT A U.S.


                                 -17-



        PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
        WELLS FARGO SHAREOWNER SERVICES (OR A SUCCESSOR TRANSFER
        AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR
        OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT
        SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR
        IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
        OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE
        EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY
        PURSUANT TO CLAUSE (1)(F) ABOVE OR UPON ANY TRANSFER OF THE
        COMMON STOCK EVIDENCED HEREBY AFTER THE EXPIRATION OF THE
        HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED
        HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY
        SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "UNITED
        STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
        REGULATION S UNDER THE SECURITIES ACT.

        Any such Common Stock as to which such restrictions on transfer shall
have expired in accordance with their terms or as to which the conditions for
removal of the foregoing legend set forth therein have been satisfied may, upon
surrender of the certificates representing such shares of Common Stock for
exchange in accordance with the procedures of the transfer agent for the Common
Stock, be exchanged for a new certificate or certificates for a like number of
shares of Common Stock, which shall not bear the restrictive legend required by
this Section 2.5(e).

           (f) Any Note or Common Stock issued upon the conversion or exchange
of a Note that, prior to the expiration of the holding period applicable to
sales thereof under Rule 144(k) under the Securities Act (or any successor
provision), is purchased or owned by the Company or any Affiliate thereof may
not be resold by the Company or such Affiliate unless registered under the
Securities Act or resold pursuant to an exemption from the registration
requirements of the Securities Act in a transaction which results in such Notes
or Common Stock, as the case may be, no longer being "restricted securities" (as
defined under Rule 144).

        Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note
shall become mutilated or be destroyed, lost or stolen, the Company in its
discretion may execute, and upon its written request the Trustee or an
authenticating agent appointed by the Trustee shall authenticate and make
available for delivery, a new Note, bearing a number not contemporaneously
outstanding, in exchange and substitution for the mutilated Note, or in lieu of
and in substitution for the Note so destroyed, lost or stolen. In every case the
applicant for a substituted Note shall furnish to the Company, to the Trustee
and, if applicable, to such authenticating agent such security or indemnity as
may be required by them to save each of them harmless for any loss, liability,
cost or expense caused by or connected with such substitution, and, in every
case of destruction, loss or theft, the applicant shall also furnish to the
Company, to the Trustee and, if applicable, to such authenticating agent
evidence to their satisfaction of the destruction, loss or theft of such Note
and of the ownership thereof.


                                      -18-


        Following receipt by the Trustee or such authenticating agent, as the
case may be, of satisfactory security or indemnity and evidence, as described in
the preceding paragraph, the Trustee or such authenticating agent may
authenticate any such substituted Note and make available for delivery such
Note. Upon the issuance of any substituted Note, the Company may require the
payment of a sum sufficient to cover any tax, assessment or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith. In case any Note which has matured or is about to mature or has been
called for redemption or has been tendered for redemption (and not withdrawn) or
is to be converted into Common Stock shall become mutilated or be destroyed,
lost or stolen, the Company may, instead of issuing a substitute Note, pay or
authorize the payment of or convert or authorize the conversion of the same
(without surrender thereof except in the case of a mutilated Note), as the case
may be, if the applicant for such payment or conversion shall furnish to the
Company, to the Trustee and, if applicable, to such authenticating agent such
security or indemnity as may be required by them to save each of them harmless
for any loss, liability, cost or expense caused by or connected with such
substitution, and, in every case of destruction, loss or theft, the applicant
shall also furnish to the Company, the Trustee and, if applicable, any paying
agent or conversion agent evidence to their satisfaction of the destruction,
loss or theft of such Note and of the ownership thereof.

        Every substitute Note issued pursuant to the provisions of this Section
2.6 by virtue of the fact that any Note is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Note shall be found at any time, and shall be
entitled to all the benefits of (but shall be subject to all the limitations set
forth in) this Indenture equally and proportionately with all other Notes duly
issued hereunder. To the extent permitted by law, all Notes shall be held and
owned upon the express condition that the foregoing provisions are exclusive
with respect to the replacement or payment or conversion of mutilated,
destroyed, lost or stolen Notes and shall preclude all other rights or remedies
notwithstanding any law or statute existing or hereafter enacted to the contrary
with respect to the replacement or payment or conversion of negotiable
instruments or other securities without their surrender.

        Section 2.7 Temporary Notes. Pending the preparation of Notes in
certificated form, the Company may execute and the Trustee or an authenticating
agent appointed by the Trustee shall, upon the written request of the Company,
authenticate and deliver temporary Notes (printed or lithographed). Temporary
Notes shall be issuable in any authorized denomination, and substantially in the
form of the Notes in certificated form, but with such omissions, insertions and
variations as may be appropriate for temporary Notes, all as may be determined
by the Company. Every such temporary Note shall be executed by the Company and
authenticated by the Trustee or such authenticating agent upon the same
conditions and in substantially the same manner, and with the same effect, as
the Notes in certificated form. Without unreasonable delay the Company will
execute and deliver to the Trustee or such authenticating agent Notes in
certificated form (other than in the case of Notes in global form) and thereupon
all temporary Notes (other than any such Note in global form) may be surrendered
in exchange therefor, at each office or agency maintained by the Company
pursuant to Section 5.2 and the Trustee or such authenticating agent shall
authenticate and make available for delivery in exchange for such temporary
Notes an equal aggregate principal amount of Notes in certificated form. Such
exchange shall be made by the Company at its own expense and without any charge
therefor. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits and



                                      -19-



subject to the same limitations under this Indenture as Notes in certificated
form authenticated and delivered hereunder.

        Section 2.8 Cancellation of Notes Paid, Etc. All Notes surrendered for
the purpose of payment, redemption, repurchase, conversion, exchange or
registration of transfer shall, if surrendered to the Company or any paying
agent or any Note registrar or any conversion agent, be surrendered to the
Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be
promptly canceled by it, and no Notes shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. The Trustee
shall dispose of such canceled Notes in accordance with its customary
procedures. If the Company acquires any of the Notes, such acquisition shall not
operate as a redemption or satisfaction of the indebtedness represented by such
Notes unless and until the same are delivered to the Trustee for cancellation.

        Section 2.9 CUSIP Numbers. The Company in issuing the Notes may use
"CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Noteholders;
provided, however, that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Notes or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Notes, and any such redemption
shall not be affected by any defect in or omission of such numbers. The Company
will promptly notify the Trustee of any change in the "CUSIP" numbers.


                                  ARTICLE THREE

                       REDEMPTION AND REPURCHASE OF NOTES

        Section 3.1 Redemption by the Company. At any time on or after January
5, 2005, and prior to maturity, the Notes may be redeemed at the option of the
Company (an "Optional Redemption"), in whole or in part, upon notice as set
forth in Section 3.2 (the "Notice Date"), at the following Non-Provisional
Redemption prices (expressed as percentages of the principal amount), together
in each case with accrued and unpaid interest, if any (including Liquidated
Damages, if any) to, but excluding, the date fixed for redemption:




Period                                                                                   Redemption Price
- ------                                                                                   ----------------
                                                                                        
Beginning on January 5, 2005 and ending on December 31, 2005                                100.80%

Beginning on January 1, 2006 and ending on December 31, 2006                                100.40%


and 100% on January 1, 2007; provided, however, that if the date fixed for
redemption is on a July 1 or January 1, then the interest payable on such date
shall be paid to the holder of record on the preceding June 15 or December 15,
respectively.

        Section 3.2 Notice of Redemption; Selection of Notes. In case the
Company shall desire to exercise the right to redeem all or, as the case may be,
any part of the Notes pursuant to Section 3.1, it shall fix a date for
redemption and it or, at its written request received by the Trustee not fewer
than forty-five (45) days prior (or such shorter period of time as may be
acceptable to the Trustee) to the date fixed for redemption, the Trustee in the
name of and at the expense of the Company, shall mail or cause to be mailed a
notice of such redemption not fewer



                                      -20-


than thirty (30) nor more than sixty (60) days prior to the date fixed for
redemption to the holders of Notes so to be redeemed as a whole or in part at
their last addresses as the same appear on the Note register; provided, however,
that if the Company shall give such notice, it shall also give written notice,
and written notice of the Notes to be redeemed, to the Trustee. The Company may
not give notice of any redemption of the Notes if a default in payment of
interest or premium, if any, on the Notes has occurred and is continuing. Such
mailing shall be by first class mail. The notice if mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the holder receives such notice. In any case, failure to give such notice by
mail or any defect in the notice to the holder of any Note designated for
redemption as a whole or in part shall not affect the validity of the
proceedings for the redemption of any other Note. Concurrently with the mailing
of any such notice of redemption, the Company shall issue a press release
announcing such redemption, the form and content of which press release shall be
determined by the Company in its sole discretion. The failure to issue any such
press release or any defect therein shall not affect the validity of the
redemption notice or any of the proceedings for the redemption of any Note
called for redemption.

        Each such notice of redemption shall specify the aggregate principal
amount of Notes to be redeemed, the CUSIP number or numbers of the Notes being
redeemed, the date fixed for redemption (which shall be a Business Day), the
redemption price at which Notes are to be redeemed, the place or places of
payment, that payment will be made upon presentation and surrender of such
Notes, that interest accrued to the date fixed for redemption will be paid as
specified in said notice, and that on and after said date interest thereon or on
the portion thereof to be redeemed will cease to accrue. Such notice shall also
state the current Conversion Rate and the date on which the right to convert
such Notes or portions thereof into Common Stock will expire. If fewer than all
the Notes are to be redeemed, the notice of redemption shall identify the Notes
to be redeemed (including CUSIP numbers, if any). In case any Note is to be
redeemed in part only, the notice of redemption shall state the portion of the
principal amount thereof to be redeemed and shall state that, on and after the
date fixed for redemption, upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion thereof will be issued.

        On or prior to the redemption date specified in the notice of redemption
given as provided in this Section 3.2, the Company will deposit with the Trustee
or with one or more paying agents (or, if the Company is acting as its own
paying agent, set aside, segregate and hold in trust as provided in Section 5.4)
an amount of money in immediately available funds sufficient to redeem on the
redemption date all the Notes (or portions thereof) so called for redemption
(other than those theretofore surrendered for conversion into Common Stock) at
the appropriate redemption price, together with accrued interest to, but
excluding, the date fixed for redemption; provided, however, that if such
payment is made on the redemption date it must be received by the Trustee or
paying agent, as the case may be, by 10:00 a.m. New York City time on such date.
The Company shall be entitled to retain any interest, yield or gain on amounts
deposited with the Trustee or any paying agent pursuant to this Section 3.2 in
excess of amounts required hereunder to pay the redemption price together with
accrued interest to, but excluding, the date fixed for redemption. If any Note
called for redemption is converted into shares of Common Stock pursuant hereto
prior to such redemption, any money deposited with the Trustee or any paying
agent or so segregated and held in trust for the redemption of such Note shall
be paid to the Company upon its written request, or, if then held by the
Company, shall be discharged from



                                      -21-


such trust. Whenever any Notes are to be redeemed, the Company will give the
Trustee written notice in the form of an Officers' Certificate not fewer than
forty five (45) days (or such shorter period of time as may be acceptable to the
Trustee) prior to the redemption date as to the aggregate principal amount of
Notes to be redeemed.

        If less than all of the outstanding Notes are to be redeemed, the
Trustee shall select the Notes or portions thereof of the Global Note or the
Notes in certificated form to be redeemed (in principal amounts of $1,000 or
integral multiples thereof) by lot, on a pro rata basis or by another method the
Trustee deems fair and appropriate. If any Note selected for partial redemption
is submitted for conversion in part after such selection, the portion of such
Note submitted for conversion shall be deemed (so far as may be) to be the
portion to be selected for redemption. The Notes (or portions thereof) so
selected shall be deemed duly selected for redemption for all purposes hereof,
notwithstanding that any such Note is submitted for conversion in part before
the mailing of the notice of redemption.

        Upon any redemption of less than all of the outstanding Notes, the
Company and the Trustee may (but need not), solely for purposes of determining
the pro rata allocation among such Notes as are unconverted and outstanding at
the time of redemption, treat as outstanding any Notes surrendered for
conversion during the period of fifteen (15) days next preceding the mailing of
a notice of redemption and may (but need not) treat as outstanding any Note
authenticated and delivered during such period in exchange for the unconverted
portion of any Note converted in part during such period.

        Section 3.3 Payment of Notes Called for Redemption. If notice of
redemption has been given as above provided, the Notes or portion of Notes with
respect to which such notice has been given shall, unless converted into Common
Stock pursuant to the terms hereof, become due and payable on the date fixed for
redemption and at the place or places stated in such notice at the applicable
redemption price, together with interest accrued to (but excluding) the date
fixed for redemption, and on and after said date (unless the Company defaults in
the payment of such Notes at the redemption price, together with interest
accrued to said date) interest on the Notes or portion of Notes so called for
redemption shall cease to accrue and, after the close of business on the
Business Day next preceding the date fixed for redemption, such Notes shall
cease to be convertible and, except as provided in Sections 8.5 and 13.4, to be
entitled to any benefit or security under this Indenture, and the holders
thereof shall have no right in respect of such Notes except the right to receive
the redemption price thereof and unpaid interest to (but excluding) the date
fixed for redemption. On presentation and surrender of such Notes at a place of
payment in said notice specified, the said Notes or the specified portions
thereof shall be paid and redeemed by the Company at the applicable redemption
price, together with interest accrued thereon to (but excluding) the date fixed
for redemption; provided, however, that if the applicable redemption date is an
interest payment date, the semi-annual payment of interest becoming due on such
date shall be payable to the holders of such Notes registered as such on the
relevant record date instead of the holders surrendering such Notes for
redemption on such date.

        Upon presentation of any Note redeemed in part only, the Company shall
execute and the Trustee shall authenticate and make available for delivery to
the holder thereof, at the expense of



                                      -22-



the Company, a new Note or Notes, of authorized denominations, in principal
amount equal to the unredeemed portion of the Notes so presented.

        Notwithstanding the foregoing, the Trustee shall not redeem any Notes or
mail any notice of redemption during the continuance of a default in payment of
interest or premium, if any, on the Notes. If any Note called for redemption
shall not be so paid upon surrender thereof for redemption, the principal and
premium, if any, shall, until paid or duly provided for, bear interest from the
date fixed for redemption at the rate borne by the Note and such Note shall
remain convertible into Common Stock until the principal and premium, if any,
and interest shall have been paid or duly provided for.

        Section 3.4 Conversion Arrangement on Call for Redemption. In connection
with any redemption of Notes, the Company may arrange for the purchase and
conversion of any Notes by an agreement with one or more investment bankers or
other purchasers to purchase such Notes by paying to the Trustee in trust for
the Noteholders, on or before the date fixed for redemption, an amount not less
than the applicable redemption price, together with interest accrued to (but
excluding) the date fixed for redemption, of such Notes. Notwithstanding
anything to the contrary contained in this Article Three, the obligation of the
Company to pay the redemption price of such Notes, together with interest
accrued to (but excluding) the date fixed for redemption, shall be deemed to be
satisfied and discharged to the extent such amount is so paid by such
purchasers. If such an agreement is entered into, a copy of which will be filed
with the Trustee prior to the date fixed for redemption, any Notes not duly
surrendered for conversion by the holders thereof may, at the Company's option,
be deemed, to the fullest extent permitted by law, acquired by such purchasers
from such holders and (notwithstanding anything to the contrary contained in
Article Fifteen) surrendered by such purchasers for conversion, all as of
immediately prior to the close of business on the date fixed for redemption (and
the right to convert any such Notes shall be extended through such time),
subject to payment of the above amount as aforesaid. At the Company's direction,
the Trustee shall hold and dispose of any such amount paid to it in the same
manner as it would monies deposited with it by the Company for the redemption of
Notes. Without the Trustee's prior written consent, no arrangement between the
Company and such purchasers for the purchase and conversion of any Notes shall
increase or otherwise affect any of the powers, duties, responsibilities or
obligations of the Trustee as set forth in this Indenture.

        Section 3.5 Repurchase at Option of Holders.(a)If there shall occur a
Fundamental Change at any time prior to maturity of the Notes, then each
Noteholder shall have the right, at such holder's option, to require the Company
to repurchase all of such holder's Notes, or any portion thereof that is an
integral multiple of $1,000 principal amount, on the date (the "Repurchase
Date") that is thirty (30) days after the date of the Company Notice (as defined
in Section 3.5(b) below) of such Fundamental Change (or, if such 30th day is not
a Business Day, the immediately preceding Business Day) at a redemption price
equal to 100% of the principal amount thereof, together with accrued interest to
(but excluding) the Repurchase Date; provided, however, that, if such Repurchase
Date is a July 1 or January 1, then the interest payable on such date shall be
paid to the holders of record of the Notes on the next preceding June 15 or
December 15, respectively.



                                      -23-


        Upon presentation of any Note repurchased in part only, the Company
shall execute and, upon the Company's written direction to the Trustee, the
Trustee shall authenticate and deliver to the holder thereof, at the Company's
expense, a new Note or Notes, of authorized denominations, in principal amount
equal to the unrepurchased portion of the Notes so presented.

           (b) On or before the tenth day after the occurrence of a Fundamental
Change, the Company or, at its written request (which must be received by the
Trustee at least five (5) Business Days prior to the date the Trustee is
requested to give notice as described below, unless the Trustee agrees in
writing to a shorter period), the Trustee in the name of and at the expense of
the Company, shall mail or cause to be mailed to all holders of record on the
date of the Fundamental Change a notice (the "Company Notice") of the occurrence
of such Fundamental Change and of the repurchase right at the option of the
holders arising as a result thereof. Such notice shall be mailed in the manner
and with the effect set forth in the first paragraph of Section 3.2 (without
regard for the time limits set forth therein). If the Company shall give such
notice, the Company shall also deliver a copy of the Company Notice to the
Trustee at such time as it is mailed to Noteholders. Concurrently with the
mailing of any Company Notice, the Company shall issue a press release
announcing such Fundamental Change referred to in the Company Notice, the form
and content of which press release shall be determined by the Company in its
sole discretion. The failure to issue any such press release or any defect
therein shall not affect the validity of the Company Notice or any proceedings
for the repurchase of any Note which any Noteholder may elect to have the
Company repurchase as provided in this Section 3.5.

        Each Company Notice shall specify the circumstances constituting the
Fundamental Change, the Repurchase Date, the price at which the Company shall be
obligated to repurchase Notes, that the holder must exercise the redemption
right on or prior to the close of business on the Repurchase Date (the
"Fundamental Change Expiration Time"), that the holder shall have the right to
withdraw any Notes surrendered prior to the Fundamental Change Expiration Time,
a description of the procedure which a Noteholder must follow to exercise such
redemption right and to withdraw any surrendered Notes, the place or places
where the holder is to surrender such holder's Notes, and the amount of interest
accrued on each Note to the Repurchase Date.

        No failure of the Company to give the foregoing notices and no defect
therein shall limit the Noteholders' repurchase rights or affect the validity of
the proceedings for the repurchase of the Notes pursuant to this Section 3.5.

           (c) For a Note to be so repurchased at the option of the holder, the
Company must receive at the office or agency of the Company maintained for that
purpose or, at the option of such holder, the Corporate Trust Office, such Note
with the form entitled "Option to Elect Repayment Upon A Fundamental Change" on
the reverse thereof duly completed, together with such Notes duly endorsed for
transfer, on or before the Fundamental Change Expiration Time. All questions as
to the validity, eligibility (including time of receipt) and acceptance of any
Note for repayment shall be determined by the Company, whose determination shall
be final and binding absent manifest error.

           (d) On or prior to the Repurchase Date, the Company will deposit with
the Trustee or with one or more paying agents (or, if the Company is acting as
its own paying agent,



                                      -24-


set aside, segregate and hold in trust as provided in Section 5.4) an amount of
money sufficient to repay on the Repurchase Date all the Notes to be repurchased
on such date at the appropriate repurchase price, together with accrued interest
to (but excluding) the Repurchase Date; provided, however, that if such payment
is made on the Repurchase Date it must be received by the Trustee or paying
agent, as the case may be, by 10:00 a.m. New York City time, on such date.
Payment for Notes surrendered for repurchase (and not withdrawn) prior to the
Fundamental Change Expiration Time will be made promptly (but in no event more
than five (5) Business Days) following the Repurchase Date by mailing checks for
the amount payable to the holders of such Notes entitled thereto as they shall
appear on the registry books of the Company.

           (e) In the case of a reclassification, change, consolidation, merger,
combination, sale or conveyance to which Section 15.6 applies, in which the
Common Stock is changed or exchanged as a result into the right to receive
stock, securities or other property or assets (including cash), which includes
shares of Common Stock or shares of common stock of another Person that are, or
upon issuance will be, traded on a United States national securities exchange or
approved for trading on an established automated over-the-counter trading market
in the United States and such shares constitute at the time such change or
exchange becomes effective in excess of 50% of the aggregate fair market value
of such stock, securities or other property or assets (including cash) (as
determined by the Company, which determination shall be conclusive and binding),
then the Person formed by such consolidation or resulting from such merger or
which acquires such assets, as the case may be, shall execute and deliver to the
Trustee a supplemental indenture (accompanied by an Opinion of Counsel that such
supplemental indenture complies with the Trust Indenture Act as in force at the
date of execution of such supplemental indenture) modifying the provisions of
this Indenture relating to the right of holders of the Notes to cause the
Company to repurchase the Notes following a Fundamental Change, including,
without limitation, the applicable provisions of this Section 3.5 and the
definitions of Common Stock and Fundamental Change, as appropriate, as
determined in good faith by the Company (which determination shall be conclusive
and binding), to make such provisions apply to such other Person if different
from the Company and the common stock issued by such Person (in lieu of the
Company and the Common Stock).

           (f) The Company will comply with the provisions of Rule 13e-4 and any
other tender offer rules under the Exchange Act to the extent then applicable in
connection with the repurchase rights of the holders of Notes in the event of a
Fundamental Change.

                                  ARTICLE FOUR

                             SUBORDINATION OF NOTES

        Section 4.1 Agreement of Subordination. The Company covenants and
agrees, and each holder of Notes issued hereunder by its acceptance thereof
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article Four, and each Person holding any Note, whether upon
original issue or upon registration of transfer, assignment or exchange thereof,
accepts and agrees to be bound by such provisions.

        The payment of the principal of, premium, if any, and interest
(including Liquidated Damages, if any) on all Notes (including, but not limited
to, the redemption price with respect to



                                      -25-


the Notes called for redemption in accordance with Section 3.2 and the
repurchase price with respect to the Notes submitted for repurchase in
accordance with Section 3.5 as provided in this Indenture) issued hereunder
shall, to the extent and in the manner hereinafter set forth, be subordinated
and subject in right of payment to the prior payment in full in cash or other
payment satisfactory to the holders of Senior Indebtedness of all Senior
Indebtedness, whether outstanding at the date of this Indenture or thereafter
incurred.

        No provision of this Article Four shall prevent the occurrence of any
default or Event of Default hereunder.

        Section 4.2 Payments to Noteholders. No payment shall be made with
respect to the principal of, premium, if any, or interest (including Liquidated
Damages, if any) on the Notes (including, but not limited to, the redemption
price with respect to the Notes to be called for redemption in accordance with
Section 3.2 and the repurchase price with respect to the Notes submitted for
repurchase in accordance with Section 3.5 as provided in this Indenture), except
payments and distributions made by the Trustee as permitted by the first or
second paragraph of Section 4.5, if:

                (i) a default in the payment of principal, premium, if any,
        interest, rent or other obligations in respect of Designated Senior
        Indebtedness occurs and is continuing beyond any applicable period of
        grace (a "Payment Default"); or

                (ii) a default, other than a Payment Default, on any Designated
        Senior Indebtedness occurs and is continuing that then permits holders
        of such Designated Senior Indebtedness to accelerate its maturity and
        the Trustee receives a notice of the default (a "Payment Blockage
        Notice") from a holder of Designated Senior Indebtedness, a
        Representative of Designated Senior Indebtedness or the Company (a
        "Non-Payment Default").

        If the Trustee receives any Payment Blockage Notice pursuant to clause
(ii) above, no subsequent Payment Blockage Notice shall be effective for
purposes of this Section 4.2 unless and until (A) at least 365 days shall have
elapsed since the initial effectiveness of the immediately prior Payment
Blockage Notice and (B) all scheduled payments of principal, premium, if any,
and interest (including Liquidated Damages, if any) on the Notes that have come
due have been paid in full in cash. No Non-Payment Default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice.

        The Company may and shall resume payments on and distributions in
respect of the Notes upon:

                (1) in the case of a Payment Default, the date upon which any
        such Payment Default is cured or waived or ceases to exist,

                (2) in the case of a Non-Payment Default, the earlier of (a) the
        date upon which such default is cured or waived or ceases to exist or
        (b) 179 days after the applicable Payment Blockage Notice is received by
        the Trustee, or



                                      -26-



                (3) if the maturity of the Designated Senior Indebtedness has
        not been accelerated, or in the case of any lease, 179 days after notice
        is received by the Company that the lessor under such lease has
        exercised its right to terminate the lease or required the Company to
        make an irrevocable offer to terminate the lease following an event of
        default under the lease.

unless this Article Four otherwise prohibits the payment or distribution at the
time of such payment or distribution.

        Upon any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness shall first be paid in full in cash or other payment
satisfactory to the holders of such Senior Indebtedness, or payment thereof in
accordance with its terms provided for in cash or other payment satisfactory to
the holders of such Senior Indebtedness before any payment is made on account of
the principal of, premium, if any, or interest (including Liquidated Damages, if
any) on the Notes (except payments made pursuant to Article Thirteen from monies
deposited with the Trustee pursuant thereto prior to commencement of proceedings
for such dissolution, winding up, liquidation or reorganization), and upon any
such dissolution or winding up or liquidation or reorganization of the Company
or bankruptcy, insolvency, receivership or other proceeding, any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the holders of the Notes or
the Trustee would be entitled, except for the provisions of this Article Four,
shall (except as aforesaid) be paid by the Company or by any receiver, trustee
in bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, or by the holders of the Notes or by the Trustee under this
Indenture if received by them or it, directly to the holders of Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders, or as otherwise required by law or a
court order) or their Representative or Representatives to the extent necessary
to pay all Senior Indebtedness in full in cash or other payment satisfactory to
the holders of such Senior Indebtedness, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness, before any
payment or distribution is made to the holders of the Notes or to the Trustee.

        For purposes of this Article Four, the words, "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article Four with
respect to the Notes to the payment of all Senior Indebtedness which may at the
time be outstanding. The consolidation of the Company with, or the merger of the
Company into, another Person or the liquidation or dissolution of the Company
following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another Person upon the terms and conditions
provided for in Article Twelve shall not be deemed a dissolution, winding-up,
liquidation or reorganization for the purposes of this Section 4.2 if such other
Person shall, as a part of such consolidation, merger, conveyance or transfer,
comply with the conditions stated in Article Twelve.



                                      -27-


        In the event of the acceleration of the Notes because of an Event of
Default, no payment or distribution shall be made to the Trustee or any holder
of Notes in respect of the principal of, premium, if any, or interest (including
Liquidated Damages, if any) on the Notes (including, but not limited to, the
redemption price with respect to the Notes called for redemption in accordance
with Section 3.2 and the repurchase price with respect to the Notes submitted
for repurchase at the option of the holder in accordance with Section 3.5 as
provided in this Indenture), except payments and distributions made by the
Trustee as permitted by the first or second paragraph of Section 4.5, until all
Senior Indebtedness has been paid in full in cash or other payment satisfactory
to the holders of Senior Indebtedness or such acceleration is rescinded in
accordance with the terms of this Indenture. If payment of the Notes is
accelerated because of an Event of Default, the Company or the Trustee shall
promptly notify holders of Senior Indebtedness of the acceleration.

        In the event that, notwithstanding the foregoing provisions, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities (including, without limitation, by way of setoff or
otherwise), prohibited by the foregoing provisions in this Section 4.2, shall be
received by the Trustee or the holders of the Notes before all Senior
Indebtedness is paid in full in cash or other payment satisfactory to the
holders of such Senior Indebtedness, or provision is made for such payment
thereof in accordance with its terms in cash or other payment satisfactory to
the holders of such Senior Indebtedness, such payment or distribution shall be
held in trust for the benefit of and shall be paid over or delivered to the
holders of Senior Indebtedness or their Representative or Representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, as calculated by the Company, for application to the
payment of any Senior Indebtedness remaining unpaid to the extent necessary to
pay all Senior Indebtedness in full in cash or other payment satisfactory to the
holders of such Senior Indebtedness, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness.

        Nothing in this Section 4.2 shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 8.6. This Section 4.2 shall be subject
to the further provisions of Section 4.5.

        Section 4.3 Subrogation of Notes. Subject to the payment in full of all
Senior Indebtedness in cash or other payment satisfactory to the holders of such
Senior Indebtedness, the rights of the holders of the Notes shall be subrogated
to the extent of the payments or distributions made to the holders of such
Senior Indebtedness pursuant to the provisions of this Article Four (equally and
ratably with the holders of all indebtedness of the Company that by its express
terms, is subordinated to other indebtedness of the Company to substantially the
same extent as the Notes are subordinated and is entitled to like rights of
subrogation) to the rights of the holders of Senior Indebtedness to receive
payments or distributions of cash, property or securities of the Company
applicable to the Senior Indebtedness until the principal, premium, if any, and
interest (including Liquidated Damages, if any) on the Notes shall be paid in
full, and, for the purposes of such subrogation, no payments or distributions to
the holders of the Senior Indebtedness of any cash, property or securities to
which the holders of the Notes or the Trustee would be entitled except for the
provisions of this Article Four, and no payment over pursuant to the provisions
of this Article Four, to or for the benefit of the holders of Senior
Indebtedness by holders of the Notes or the Trustee, shall, as among the
Company, its creditors other than holders


                                      -28-


of Senior Indebtedness, and the holders of the Notes, be deemed to be a payment
by the Company to or on account of the Senior Indebtedness, and no payments or
distributions of cash, property or securities to or for the benefit of the
holders of the Notes pursuant to the subrogation provisions of this Article
Four, which would otherwise have been paid to the holders of Senior
Indebtedness, shall be deemed to be a payment by the Company to or for the
account of the Notes. It is understood that the provisions of this Article Four
are and are intended solely for the purposes of defining the relative rights of
the holders of the Notes, on the one hand, and the holders of the Senior
Indebtedness, on the other hand.

        Nothing contained in this Article Four or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as among the Company, its creditors
other than the holders of Senior Indebtedness, and the holders of the Notes, the
obligation of the Company, which is absolute and unconditional, to pay to the
holders of the Notes the principal of, premium, if any, and interest (including
Liquidated Damages, if any) on the Notes as and when the same shall become due
and payable in accordance with their terms, or is intended to or shall affect
the relative rights of the holders of the Notes and creditors of the Company
other than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or the holder of any Note from exercising all
remedies otherwise permitted by applicable law upon Event of Default under this
Indenture, subject to the rights, if any, under this Article Four of the holders
of Senior Indebtedness in respect of cash, property or securities of the Company
received upon the exercise of any such remedy.

        Upon any payment or distribution of assets of the Company referred to in
this Article Four, the Trustee, subject to the provisions of Section 8.1, and
the holders of the Notes shall be entitled to rely upon any order or decree made
by any court of competent jurisdiction in which such bankruptcy, dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other Person making such payment or distribution, delivered to the Trustee or
to the holders of the Notes, for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon and all other facts pertinent thereto or to this Article Four.

        Section 4.4 Authorization to Effect Subordination. Each holder of a
Note, by its acceptance thereof, authorizes and directs the Trustee on the
holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article Four and appoints the
Trustee to act as the holder's attorney-in-fact for all such purposes. If the
Trustee does not file a proper proof of claim or proof of debt in the form
required in any proceeding referred to in the third paragraph of Section 7.2
hereof at least thirty (30) days before the expiration of the time to file such
claim, the holders of any Senior Indebtedness or their representatives are
hereby authorized to file an appropriate claim for and on behalf of the holders
of the Notes.

        Section 4.5 Notice to Trustee. The Company shall give prompt written
notice in the form of an Officers' Certificate to a Responsible Officer of the
Trustee and to any paying agent of any fact known to the Company that would
prohibit the making of any payment of monies to or by the Trustee or any paying
agent in respect of the Notes pursuant to the provisions of this Article Four.
Notwithstanding the provisions of this Article Four or any other provision of
this


                                      -29-



Indenture, the Trustee shall not be charged with knowledge of the existence of
any facts that would prohibit the making of any payment of monies to or by the
Trustee in respect of the Notes pursuant to the provisions of this Article Four,
unless and until a Responsible Officer of the Trustee shall have received
written notice thereof at the Corporate Trust Office from the Company (in the
form of an Officers' Certificate) or a Representative or a holder or holders of
Senior Indebtedness or from any trustee thereof, and before the receipt of any
such written notice, the Trustee, subject to the provisions of Section 8.1,
shall be entitled in all respects to assume that no such facts exist; provided,
however, that if on a date not less than two Business Days prior to the date
upon which by the terms hereof any such monies may become payable for any
purpose (including, without limitation, the payment of the principal of, or
premium, if any, or interest (including Liquidated Damages, if any) on any Note)
the Trustee shall not have received, with respect to such monies, the notice
provided for in this Section 4.5, then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
apply monies received to the purpose for which they were received, and shall not
be affected by any notice to the contrary that may be received by it on or after
such prior date.

        Notwithstanding anything in this Article Four to the contrary, nothing
shall prevent any payment by the Trustee to the Noteholders of monies deposited
with it pursuant to Section 13.1, and any such payment shall not be subject to
the provisions of Section 4.1 or 4.2.

        The Trustee, subject to the provisions of Section 8.1, shall be entitled
to rely on the delivery to it of a written notice by a Representative or a
person representing himself to be a holder of Senior Indebtedness (or a trustee
on behalf of such holder) to establish that such notice has been given by a
Representative or a holder of Senior Indebtedness or a trustee on behalf of any
such holder or holders. The Trustee shall not be required to make any payment or
distribution to or on behalf of a holder of Senior Indebtedness pursuant to this
Article Four unless it has received satisfactory evidence as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article Four.

        Section 4.6 Trustee's Relation to Senior Indebtedness. The Trustee, in
its individual capacity, shall be entitled to all the rights set forth in this
Article Four in respect of any Senior Indebtedness at any time held by it, to
the same extent as any other holder of Senior Indebtedness, and nothing in
Section 8.13 or elsewhere in this Indenture shall deprive the Trustee of any of
its rights as such holder.

        With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Four, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and, subject to the
provisions of Section 8.1, the Trustee shall not be liable to any holder of
Senior Indebtedness (i) for any failure to make any payments or distributions to
such holder or (ii) if it shall pay over or deliver to holders of Notes, the
Company or any other Person money or assets to which any holder of Senior
Indebtedness shall be entitled by virtue of this Article Four or otherwise.


                                      -30-


        Section 4.7 No Impairment of Subordination. No right of any present or
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof which any such holder may have or otherwise be charged with.

        Section 4.8 Certain Conversions Not Deemed Payment. For the purposes of
this Article Four only, (1) the issuance and delivery of junior securities upon
conversion of Notes in accordance with Article Fifteen shall not be deemed to
constitute a payment or distribution on account of the principal of, premium, if
any, or interest (including Liquidated Damages, if any) on Notes or on account
of the purchase or other acquisition of Notes, and (2) the payment, issuance or
delivery of cash (except in satisfaction of fractional shares pursuant to
Section 15.3), property or securities (other than junior securities) upon
conversion of a Note shall be deemed to constitute payment on account of the
principal of, premium, if any, or interest (including Liquidated Damages, if
any) on such Note. For the purposes of this Section 4.8, the term "junior
securities" means (a) shares of any stock of any class of the Company or (b)
securities of the Company that are subordinated in right of payment to all
Senior Indebtedness that may be outstanding at the time of issuance or delivery
of such securities to substantially the same extent as, or to a greater extent
than, the Notes are so subordinated as provided in this Article Four. Nothing
contained in this Article Four or elsewhere in this Indenture or in the Notes is
intended to or shall impair, as among the Company, its creditors (other than
holders of Senior Indebtedness) and the Noteholders, the right, which is
absolute and unconditional, of the Holder of any Note to convert such Note in
accordance with Article Fifteen.

        Section 4.9 Article Applicable to Paying Agents. If at any time any
paying agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term "Trustee" as used in this Article Four shall
(unless the context otherwise requires) be construed as extending to and
including such paying agent within its meaning as fully for all intents and
purposes as if such paying agent were named in this Article Four in addition to
or in place of the Trustee; provided, however, that the first paragraph of
Section 4.5 shall not apply to the Company or any Affiliate of the Company if it
or such Affiliate acts as paying agent.

        The Trustee shall not be responsible for the actions or inactions of any
other paying agents (including the Company if acting as its own paying agent)
and shall have no control of any funds held by such other paying agents.

        Section 4.10 Senior Indebtedness Entitled to Rely. The holders of Senior
Indebtedness (including, without limitation, Designated Senior Indebtedness)
shall have the right to rely upon this Article Four, and no amendment or
modification of the provisions contained herein shall diminish the rights of
such holders unless such holders shall have agreed in writing thereto.

        Section 4.11 Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets of the Company referred to in
this Article Four, the Trustee and the Noteholders shall be entitled to rely
upon any order or decree entered by any court of competent jurisdiction in which
such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate



                                      -31-


of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee
for the benefit of creditors, agent or other Person making such payment or
distribution, delivered to the Trustee or to the Noteholders, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
Four.

                                  ARTICLE FIVE

                       PARTICULAR COVENANTS OF THE COMPANY

        Section 5.1 Payment of Principal, Premium and Interest. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and premium, if any (including the redemption price upon
redemption pursuant to Section 3.2 and the repurchase price upon repurchase
pursuant to Section 3.5), and interest (including Liquidated Damages, if any),
on each of the Notes at the places, at the respective times and in the manner
provided herein and in the Notes.

        Section 5.2 Maintenance of Office or Agency. The Company will maintain
an office or agency in the Borough of Manhattan, The City of New York, where the
Notes may be surrendered for registration of transfer or exchange or for
presentation for payment or for conversion, or redemption or repurchase and
where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency not designated or appointed by the Trustee. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee at 633 West 5th Street, 12th Floor, Los Angeles, California 90071,
Attention: Corporate Trust Department (Brocade Communications Systems, Inc. 2%
Convertible Subordinated Notes due 2007).

        The Company may also from time to time designate co-registrars and one
or more offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations.
The Company will give prompt written notice of any such designation or
rescission and of any change in the location of any such other office or agency.

        The Company hereby initially designates the Trustee as paying agent,
Note registrar, Custodian and conversion agent and the office of State Street
Bank and Trust Company, N.A., 61 Broadway, New York, NY 10006, an Affiliate of
Trustee, Attention: Corporate Trust Department as the office or agency of the
Company for each of the aforesaid purposes.

        So long as the Trustee is the Note registrar, the Trustee agrees to
mail, or cause to be mailed, the notices set forth in Section 8.10(a) and the
third paragraph of Section 8.11. If co-registrars have been appointed in
accordance with this Section 5.2, the Trustee shall mail such notices only to
the Company and the holders of Notes it can identify from its records.


                                      -32-


        Section 5.3 Appointments to Fill Vacancies in Trustee's Office. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 8.10, a Trustee, so that there
shall at all times be a Trustee hereunder.

        Section 5.4 Provisions as to Paying Agent.

           (a) If the Company appoints a paying agent other than the Trustee, or
if the Trustee appoints such a paying agent, the Company will cause such paying
agent to execute and deliver to the Trustee an instrument in which such agent
agrees with the Trustee, subject to the provisions of this Section 5.4:

                (1) that it will hold all sums held by it as such agent for the
        payment of the principal of and premium, if any, or interest including
        Liquidated Damages on the Notes (whether such sums have been paid to it
        by the Company or by any other obligor on the Notes) in trust for the
        benefit of the holders of the Notes;

                (2) that it will hold all sums held by it as such agent for the
        payment of any cash to be paid by the Company in connection with a
        conversion of Notes into cash in lieu of shares of Common Stock;

                (3) that it will give the Trustee notice of any failure by the
        Company (or by any other obligor on the Notes) to make any payment of
        the principal of and premium, if any, or interest (including Liquidated
        Damages, if any) on the Notes when the same shall be due and payable;
        and

                (4) that at any time during the continuance of an Event of
        Default, upon request of the Trustee, it will forthwith pay to the
        Trustee all sums so held in trust.

        The Company shall, (i) on or before each due date of the principal of,
premium, if any, or interest (including Liquidated Damages, if any) on the
Notes, deposit with the paying agent a sum (in funds which are immediately
available on the due date for such payment) sufficient to pay such principal,
premium, if any, or interest, and (ii) if the Company has elected, with proper
notice as described in Section 15.2, to pay cash in lieu of issuing shares of
Common Stock upon conversion of the Notes, on or before the second Business Day
following the Conversion Date, deposit with the paying agent a sum (in funds
which are immediately available on the due date for such payment) sufficient to
pay such cash, and (unless such paying agent is the Trustee) the Company will
promptly notify the Trustee of any failure to take such action; provided,
however, that if such deposit is made on the due date, with respect to
principal, premium, if any, or interest, or the second Business Day following
the Conversion Date, with respect to a cash payment in lieu of conversion, such
deposit shall be received by the paying agent by 10:00 a.m. New York City time,
on such date.

           (b) If the Company acts as its own paying agent, it will, on or
before each due date of the principal of, premium, if any, or interest
(including Liquidated Damages, if any) on the Notes or the second Business Day
following a Conversion Date, as applicable, set aside, segregate and hold in
trust for the benefit of the holders of the Notes a sum sufficient to pay such
principal, premium, if any, or interest (including Liquidated Damages, if any)
so becoming due or the amount of cash due to the holder upon conversion and will
promptly notify the Trustee of



                                      -33-


any failure to take such action and of any failure by the Company (or any other
obligor under the Notes) to make any payment of the principal of, premium, if
any, or interest (including Liquidated Damages, if any) on the Notes when the
same shall become due and payable.

           (c) Anything in this Section 5.4 to the contrary notwithstanding, the
Company may, at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture, or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust by the Company or any paying agent hereunder
as required by this Section 5.4, such sums to be held by the Trustee upon the
trusts herein contained and upon such payment by the Company or any paying agent
to the Trustee, the Company or such paying agent shall be released from all
further liability with respect to such sums.

           (d) Anything in this Section 5.4 to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section 5.4 is subject to
Sections 13.3 and 13.4.

        The Trustee shall not be responsible for the actions of any other paying
agents (including the Company if acting as its own paying agent) and shall have
no control of any funds held by such other paying agents.

        Section 5.5 Existence. Subject to Article Twelve, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence and rights (charter and statutory); provided, however, that
the Company shall not be required to preserve any such right if the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Noteholders.

        Section 5.6 Maintenance of Properties. The Company will cause all
properties used or useful in the conduct of its business or the business of any
Significant Subsidiary to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section 5.6
shall prevent the Company from discontinuing the operation or maintenance of any
of such properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Noteholders.

        Section 5.7 Payment of Taxes and Other Claims. The Company will pay or
discharge, or cause to be paid or discharged, before the same may become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Significant Subsidiary or upon the income,
profits or property of the Company or any Significant Subsidiary, (ii) all
claims for labor, materials and supplies which, if unpaid, might by law become a
lien or charge upon the property of the Company or any Significant Subsidiary,
and (iii) all stamps and other duties, if any, which may be imposed by the
United States or any political subdivision thereof or therein in connection with
the issuance, transfer, exchange or conversion of any Notes or with respect to
this Indenture; provided, however, that, in the case of


                                      -34-


clauses (i) and (ii), the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim (A) if
the failure to do so will not, in the aggregate, have a material adverse impact
on the Company, or (B) if the amount, applicability or validity is being
contested in good faith by appropriate proceedings.

        Section 5.8 Rule 144A Information Requirement. Within the period prior
to the expiration of the holding period applicable to sales thereof under Rule
144(k) under the Securities Act (or any successor provision), the Company
covenants and agrees that it shall, during any period in which it is not subject
to Section 13 or 15(d) under the Exchange Act, make available to any holder or
beneficial holder of Notes or any Common Stock issued upon conversion thereof
which continue to be Restricted Securities in connection with any sale thereof
and any prospective purchaser of Notes or such Common Stock designated by such
holder or beneficial holder, the information required pursuant to Rule
144A(d)(4) under the Securities Act upon the request of any holder or beneficial
holder of the Notes or such Common Stock and it will take such further action as
any holder or beneficial holder of such Notes or such Common Stock may
reasonably request, all to the extent required from time to time to enable such
holder or beneficial holder to sell its Notes or Common Stock without
registration under the Securities Act within the limitation of the exemption
provided by Rule 144A, as such Rule may be amended from time to time. Upon the
request of any holder or any beneficial holder of the Notes or such Common
Stock, the Company will deliver to such holder a written statement as to whether
it has complied with such requirements.

        Section 5.9 Stay, Extension and Usury Laws. The Company covenants (to
the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of, premium,
if any, or interest (including Liquidated Damages, if any) on the Notes as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.

        Section 5.10 Compliance Certificate. The Company shall deliver to the
Trustee, within one hundred twenty (120) days after the end of each fiscal year
of the Company, a certificate signed by either the principal executive officer,
principal financial officer or principal accounting officer of the Company,
stating whether or not to the best knowledge of the signer thereof the Company
is in default in the performance and observance of any of the terms, provisions
and conditions of this Indenture (without regard to any period of grace or
requirement of notice provided hereunder) and, if the Company shall be in
default, specifying all such defaults and the nature and the status thereof of
which the signer may have knowledge.

        The Company will deliver to the Trustee, forthwith (and in any event
within five Business Days) upon becoming aware of (i) any default in the
performance or observance of any covenant, agreement or condition contained in
this Indenture, or (ii) any Event of Default, an



                                      -35-


Officers' Certificate specifying with particularity such default or Event of
Default and further stating what action the Company has taken, is taking or
proposes to take with respect thereto.

        Any notice required to be given under this Section 5.10 shall be
delivered to a Responsible Officer of the Trustee at its Corporate Trust Office.

        Section 5.11 Liquidated Damages. If Liquidated Damages are payable by
the Company pursuant to the Registration Rights Agreement, the Company shall
deliver to the Trustee a certificate to that effect stating (i) the amount of
such Liquidated Damages that are payable and (ii) the date on which such damages
are payable. Unless and until a Responsible Officer of the Trustee receives such
a certificate, the Trustee may assume without inquiry that no Liquidated Damages
are payable. If the Company has paid Liquidated Damages directly to the Persons
entitled to them, the Company shall deliver to the Trustee a certificate setting
forth the particulars of such payment.


                                   ARTICLE SIX

                         NOTEHOLDERS' LISTS AND REPORTS
                         BY THE COMPANY AND THE TRUSTEE

        Section 6.1 Noteholders' Lists. The Company covenants and agrees that it
will furnish or cause to be furnished to the Trustee, semiannually, not more
than fifteen (15) days after each June 15, and December 15, in each year
beginning with June 15, 2002, and at such other times as the Trustee may request
in writing, within thirty (30) days after receipt by the Company of any such
request (or such lesser time as the Trustee may reasonably request in order to
enable it to timely provide any notice to be provided by it hereunder), a list
in such form as the Trustee may reasonably require of the names and addresses of
the holders of Notes as of a date not more than fifteen (15) days (or such other
date as the Trustee may reasonably request in order to so provide any such
notices) prior to the time such information is furnished, except that no such
list need be furnished by the Company to the Trustee so long as the Trustee is
acting as the sole Note registrar.

        Section 6.2 Preservation and Disclosure of Lists.(a) The Trustee shall
preserve, in as current a form as is reasonably practicable, all information as
to the names and addresses of the holders of Notes contained in the most recent
list furnished to it as provided in Section 6.1 or maintained by the Trustee in
its capacity as Note registrar or co-registrar in respect of the Notes, if so
acting. The Trustee may destroy any list furnished to it as provided in Section
6.1 upon receipt of a new list so furnished.

           (b) The rights of Noteholders to communicate with other holders of
Notes with respect to their rights under this Indenture or under the Notes, and
the corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.

           (c) Every Noteholder, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure of
information as to names and addresses of holders of Notes made pursuant to the
Trust Indenture Act.


                                      -36-


        Section 6.3 Reports by Trustee.(a) Within sixty (60) days after June 15,
of each year commencing with the year 2002, the Trustee shall transmit to
holders of Notes such reports dated as of June 15 of the year in which such
reports are made concerning the Trustee and its actions under this Indenture as
may be required pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant thereto.

           (b) A copy of such report shall, at the time of such transmission to
holders of Notes, be filed by the Trustee with each stock exchange and automated
quotation system upon which the Notes are listed and with the Company (and the
Commission if at any time this Indenture becomes qualified under the Trust
Indenture Act). The Company will promptly notify the Trustee in writing when the
Notes are listed on any stock exchange or automated quotation system or are
delisted therefrom.

        Section 6.4 Reports by Company. The Company shall file with the Trustee
(and the Commission if at any time this Indenture becomes qualified under the
Trust Indenture Act), and transmit to holders of Notes, such information,
documents and other reports and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant to such Act, whether or not the Notes are governed by such Act;
provided, however, that any such information, documents or reports required to
be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
shall be filed with the Trustee within fifteen (15) days after the same is so
required to be filed with the Commission. Delivery of such reports, information
and documents to the Trustee is for informational purposes only and the
Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).

                                  ARTICLE SEVEN

                           REMEDIES OF THE TRUSTEE AND
                       NOTEHOLDERS ON AN EVENT OF DEFAULT

        Section 7.1 Events of Default. In case one or more of the following
Events of Default (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body) shall have occurred and be
continuing:

           (a) default in the payment of any installment of interest (including
Liquidated Damages, if any) upon any of the Notes as and when the same shall
become due and payable, and continuance of such default for a period of thirty
(30) days, whether or not such payment is permitted under Article Four hereof;
or

           (b) default in the payment of the principal of or premium, if any, on
any of the Notes or in any payment of cash required to be made in lieu of
conversion of the Notes into Common Stock, as and when the same shall become due
and payable either at maturity or in connection with any redemption or
repurchase pursuant to Article Three or conversion pursuant



                                      -37-



to Article Fifteen, by acceleration or otherwise, whether or not such payment is
permitted under Article Four hereof; or

           (c) failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on the part of the Company in the Notes or
in this Indenture (other than a covenant or agreement a default in whose
performance or whose breach is elsewhere in this Section 7.1 specifically dealt
with) continued for a period of sixty (60) days after the date on which written
notice of such failure, requiring the Company to remedy the same, shall have
been given to the Company by the Trustee, or the Company and a Responsible
Officer of the Trustee by the holders of at least twenty-five percent (25%) in
aggregate principal amount of the Notes at the time outstanding determined in
accordance with Section 9.4; or

           (d) the Company or any Significant Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or any Significant Subsidiary or its or such
Significant Subsidiary's debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
Significant Subsidiary or any substantial part of the property of the Company or
any Significant Subsidiary, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it or any Significant Subsidiary, or shall
make a general assignment for the benefit of creditors, or shall fail generally
to pay its debts as they become due; or

           (e) an involuntary case or other proceeding shall be commenced
against the Company or any Significant Subsidiary seeking liquidation,
reorganization or other relief with respect to it or any Significant Subsidiary
or its or such Significant Subsidiary's debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
Significant Subsidiary or any substantial part of the property of the Company or
any Significant Subsidiary, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of ninety (90) consecutive days;

then, and in each and every such case (other than an Event of Default specified
in Section 7.1(d) or (e) with respect to the Company), unless the principal of
all of the Notes shall have already become due and payable, either the Trustee
or the holders of not less than twenty-five percent (25%) in aggregate principal
amount of the Notes then outstanding hereunder determined in accordance with
Section 9.4, by notice in writing to the Company (and to the Trustee if given by
Noteholders), may declare the principal of and premium, if any, on all the Notes
and the interest accrued thereon (including Liquidated Damages, if any) to be
due and payable immediately, and upon any such declaration the same shall become
and shall be immediately due and payable, anything in this Indenture or in the
Notes contained to the contrary notwithstanding. If an Event of Default
specified in Section 7.1(d) or (e) with respect to the Company occurs, the
principal of all the Notes and the interest accrued thereon (including
Liquidated Damages, if any) shall be immediately and automatically due and
payable without necessity of further action. This provision, however, is subject
to the conditions that if, at any time after the principal of the Notes shall
have been so declared due and payable, and before any judgment or decree for the
payment of the monies due shall have been obtained or entered as hereinafter
provided, the Company shall



                                      -38-


pay or shall deposit with the Trustee a sum sufficient to pay all matured
installments of interest upon (including Liquidated Damages, if any) all Notes
and the principal of and premium, if any, on all Notes which shall have become
due otherwise than by acceleration (with interest on overdue installments of
interest (including Liquidated Damages, if any) (to the extent that payment of
such interest is enforceable under applicable law) and on such principal and
premium, if any, at the rate borne by the Notes, to the date of such payment or
deposit) and amounts due to the Trustee pursuant to Section 8.6, and if all
defaults under this Indenture, other than the nonpayment of principal of and
premium, if any, and accrued interest on (including Liquidated Damages, if any)
Notes which shall have become due by acceleration, shall have been cured or
waived pursuant to Section 7.7, then and in every such case the holders of a
majority in aggregate principal amount of the Notes then outstanding, by written
notice to the Company and to the Trustee, may waive all defaults or Events of
Default that may be waived pursuant to Section 7.7 and rescind and annul such
declaration and its consequences; but no such waiver or rescission and annulment
shall extend to or shall affect any subsequent default or Event of Default, or
shall impair any right consequent thereon. The Company shall notify a
Responsible Officer of the Trustee promptly (and in any event within five
Business Days) upon becoming aware thereof, of any Event of Default.

        If the Trustee has proceeded to enforce any right under this Indenture
and such proceedings have been discontinued or abandoned because of such waiver
or rescission and annulment or for any other reason or have been determined
adversely to the Trustee, then and in every such case the Company, the holders
of Notes, and the Trustee shall be restored respectively to their several
positions and rights hereunder, and all rights, remedies and powers of the
Company, the holders of Notes, and the Trustee shall continue as though no such
proceeding had been taken.

        Section 7.2 Payments of Notes on Default; Suit Therefor. The Company
covenants that (a) in case default shall be made in the payment of any
installment of interest upon (including Liquidated Damages, if any) any of the
Notes as and when the same shall become due and payable, and such default shall
have continued for a period of thirty (30) days, or (b) in case default shall be
made in the payment of the principal of or premium, if any, on any of the Notes
as and when the same shall have become due and payable, whether at maturity of
the Notes or in connection with any redemption or repurchase, or in any payment
of cash required to be made in lieu of conversion of the Notes into Common
Stock, by or under this Indenture declaration or otherwise, then, upon demand of
the Trustee, the Company will pay to the Trustee, for the benefit of the holders
of the Notes, the whole amount that then shall have become due and payable on
all such Notes for principal and premium, if any, interest (including Liquidated
Damages, if any), or conversion, as the case may be, with interest upon the
overdue principal and premium, if any, and (to the extent that payment of such
interest is enforceable under applicable law) upon the overdue installments of
interest (including Liquidated Damages, if any) at the rate borne by the Notes,
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including reasonable compensation to the
Trustee, its agents, attorneys and counsel, and all other amounts due the
Trustee under Section 8.6. Until such demand by the Trustee, the Company may pay
the principal of and premium, if any, interest (including Liquidated Damages, if
any) and cash payment upon conversion of the Notes to the registered holders,
whether or not the Notes are overdue.



                                      -39-


        If the Company fails forthwith to pay such amounts upon such demand, the
Trustee, in its own name and as trustee of an express trust, shall be entitled
and empowered to institute any actions or proceedings at law or in equity for
the collection of the sums so due and unpaid, and may prosecute any such action
or proceeding to judgment or final decree, and may enforce any such judgment or
final decree against the Company or any other obligor on the Notes and collect
in the manner provided by law out of the property of the Company or any other
obligor on the Notes wherever situated the monies adjudged or decreed to be
payable.

        If there are pending proceedings for the bankruptcy or for the
reorganization of the Company or any other obligor on the Notes under Title 11
of the United States Code, or any other applicable law, or if a receiver,
assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or
similar official has been appointed for or taken possession of the Company or
such other obligor, the property of the Company or such other obligor, or in the
case of any other judicial proceedings relative to the Company or such other
obligor upon the Notes, or to the creditors or property of the Company or such
other obligor, the Trustee, irrespective of whether the principal of the Notes
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand
pursuant to the provisions of this Section 7.2, shall be entitled and empowered,
by intervention in such proceedings or otherwise, to file and prove a claim or
claims for the whole amount of principal, premium, if any, and interest
(including Liquidated Damages, if any) owing and unpaid in respect of the Notes,
and, in case of any judicial proceedings, to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee and of the Noteholders allowed in such judicial proceedings
relative to the Company or any other obligor on the Notes, its or their
creditors, or its or their property, and to collect and receive any monies or
other property payable or deliverable on any such claims, and to distribute the
same after the deduction of any amounts due the Trustee under Section 8.6, and
any receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
custodian or similar official is hereby authorized by each of the Noteholders to
make such payments to the Trustee, and, in the event that the Trustee shall
consent to the making of such payments directly to the Noteholders, to pay to
the Trustee any amount due it for reasonable compensation, expenses, advances
and disbursements, including counsel fees incurred by it up to the date of such
distribution. To the extent that such payment of reasonable compensation,
expenses, advances and disbursements out of the estate in any such proceedings
shall be denied for any reason, payment of the same shall be secured by a lien
on, and shall be paid out of, any and all distributions, dividends, monies,
securities and other property which the holders of the Notes may be entitled to
receive in such proceedings, whether in liquidation or under any plan of
reorganization or arrangement or otherwise.

        All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Trustee without the possession of
any of the Notes, or the production thereof at any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, be for the ratable benefit of the holders of the Notes.


                                      -40-


        In any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Notes, and it shall not be necessary to make any holders of the Notes
parties to any such proceedings.

        Section 7.3 Application of Monies Collected by Trustee. Any monies
collected by the Trustee pursuant to this Article Seven shall be applied in the
order following, at the date or dates fixed by the Trustee for the distribution
of such monies, upon presentation of the several Notes, and stamping thereon the
payment, if only partially paid, and upon surrender thereof, if fully paid:

                FIRST: To the payment of all amounts due the Trustee under
        Section 8.6;

                SECOND: Subject to the provisions of Article Four, in case the
        principal of the outstanding Notes shall not have become due and be
        unpaid, to the payment of interest on (including Liquidated Damages, if
        any) the Notes in default in the order of the maturity of the
        installments of such interest, with interest (to the extent that such
        interest has been collected by the Trustee) upon the overdue
        installments of interest (including Liquidated Damages, if any) at the
        rate borne by the Notes, such payments to be made ratably to the Persons
        entitled thereto;

                THIRD: Subject to the provisions of Article Four, in case the
        principal of the outstanding Notes shall have become due, by declaration
        or otherwise, and be unpaid to the payment of the whole amount then
        owing and unpaid upon the Notes for principal and premium, if any, and
        interest (including Liquidated Damages, if any), with interest on the
        overdue principal and premium, if any, and (to the extent that such
        interest has been collected by the Trustee) upon overdue installments of
        interest (including Liquidated Damages, if any) at the rate borne by the
        Notes, and in case such monies shall be insufficient to pay in full the
        whole amounts so due and unpaid upon the Notes, then to the payment of
        such principal and premium, if any, and interest (including Liquidated
        Damages, if any) without preference or priority of principal and
        premium, if any, over interest (including Liquidated Damages, if any),
        or of interest (including Liquidated Damages, if any) over principal and
        premium, if any, or of any installment of interest over any other
        installment of interest, or of any Note over any other Note, ratably to
        the aggregate of such principal and premium, if any, and accrued and
        unpaid interest; and

                FOURTH: Subject to the provisions of Article Four, to the
        payment of the remainder, if any, to the Company or any other Person
        lawfully entitled thereto.

        Section 7.4 Proceedings by Noteholder. No holder of any Note shall have
any right by virtue of or by reference to any provision of this Indenture to
institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Indenture, or for the appointment of a receiver, trustee,
liquidator, custodian or other similar official, or for any other remedy
hereunder, unless such holder previously gave the Trustee written notice of an
Event of Default and of the continuance thereof, as hereinbefore provided, and
unless also the holders of not less than twenty-five percent (25%) in aggregate
principal amount of the Notes then outstanding shall have made written request
upon the Trustee to institute such action, suit or


                                      -41-


proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee for sixty (60)
days after its receipt of such notice, request and offer of indemnity, shall
have neglected or refused to institute any such action, suit or proceeding and
no direction inconsistent with such written request shall have been given to the
Trustee pursuant to Section 7.7; it being understood and intended, and being
expressly covenanted by the taker and holder of every Note with every other
taker and holder and the Trustee, that no one or more holders of Notes shall
have any right in any manner whatever by virtue of or by reference to any
provision of this Indenture to affect, disturb or prejudice the rights of any
other holder of Notes, or to obtain or seek to obtain priority over or
preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Notes (except as otherwise provided herein).
For the protection and enforcement of this Section 7.4, each Noteholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.

        Notwithstanding any other provision of this Indenture and any provision
of any Note, the right of any holder of any Note to receive payment of the
principal of and premium, if any (including the redemption price upon redemption
pursuant to Section 3.2 and the repurchase price upon repurchase pursuant to
Section 3.5), accrued interest (including Liquidated Damages, if any) and cash
payment upon conversion of such Note in lieu of conversion into Common Stock, on
or after the respective due dates expressed in such Note or in the event of
redemption or conversion, or to institute suit for the enforcement of any such
payment on or after such respective dates against the Company shall not be
impaired or affected without the consent of such holder

        Anything in this Indenture or the Notes to the contrary notwithstanding,
the holder of any Note, without the consent of either the Trustee or the holder
of any other Note, in its own behalf and for its own benefit, may enforce, and
may institute and maintain any proceeding suitable to enforce, its rights of
conversion as provided herein.

        Section 7.5 Proceedings by Trustee. In case of an Event of Default, the
Trustee may, in its discretion, proceed to protect and enforce the rights vested
in it by this Indenture by such appropriate judicial proceedings as are
necessary to protect and enforce any of such rights, either by suit in equity or
by action at law or by proceeding in bankruptcy or otherwise, whether for the
specific enforcement of any covenant or agreement contained in this Indenture or
in aid of the exercise of any power granted in this Indenture, or to enforce any
other legal or equitable right vested in the Trustee by this Indenture or by
law.

        Section 7.6 Remedies Cumulative and Continuing. Except as provided in
Section 2.6, all powers and remedies given by this Article Seven to the Trustee
or to the Noteholders shall, to the extent permitted by law, be deemed
cumulative and not exclusive of any thereof or of any other powers and remedies
available to the Trustee or the holders of the Notes, by judicial proceedings or
otherwise, to enforce the performance or observance of the covenants and
agreements contained in this Indenture, and no delay or omission of the Trustee
or of any holder of any of the Notes to exercise any right or power accruing
upon any default or Event of Default occurring and continuing as aforesaid shall
impair any such right or power, or shall be construed to be a waiver of any such
default or any acquiescence therein, and, subject to the provisions of


                                      -42-



Section 7.4, every power and remedy given by this Article Seven or by law to the
Trustee or to the Noteholders may be exercised from time to time, and as often
as shall be deemed expedient, by the Trustee or by the Noteholders.

        Section 7.7 Direction of Proceedings and Waiver of Defaults by Majority
of Noteholders. The holders of a majority in aggregate principal amount of the
Notes at the time outstanding determined in accordance with Section 9.4 shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee; provided, however, that (a) such direction shall not
be in conflict with any rule of law or with this Indenture, (b) the Trustee may
take any other action which is not inconsistent with such direction and (c) the
Trustee may decline to take any action that would benefit some Noteholder to the
detriment of other Noteholders. The holders of a majority in aggregate principal
amount of the Notes at the time outstanding determined in accordance with
Section 9.4 may, on behalf of the holders of all of the Notes, waive any past
default or Event of Default hereunder and its consequences except (i) a default
in the payment of interest (including Liquidated Damages, if any) or premium, if
any, on, or the principal of, the Notes, (ii) a failure by the Company to
convert any Notes, (iii) a default in the payment of redemption price or
repurchase price pursuant to Article Three or (iv) a default in respect of a
covenant or provisions hereof which under Article Eleven cannot be modified or
amended without the consent of the holders of each or all Notes then outstanding
or affected thereby. Upon any such waiver, the Company, the Trustee and the
holders of the Notes shall be restored to their former positions and rights
hereunder. Whenever any default or Event of Default hereunder shall have been
waived as permitted by this Section 7.7, said default or Event of Default shall
for all purposes of the Notes and this Indenture be deemed to have been cured
and to be not continuing; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.

        Section 7.8 Notice of Defaults. The Trustee shall, within ninety (90)
days after a Responsible Officer of the Trustee has actual knowledge of the
occurrence of a default, mail to all Noteholders, as the names and addresses of
such holders appear upon the Note register, notice of all defaults actually
known to a Responsible Officer, unless such defaults shall have been cured or
waived before the giving of such notice; provided, however, that except in the
case of default in the payment of the principal of, or premium, if any, or
interest (including Liquidated Damages, if any) on any of the Notes, the Trustee
shall be protected in withholding such notice if and so long as a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determines that the withholding of such notice is in the interests of the
Noteholders.

        Section 7.9 Undertaking to Pay Costs. All parties to this Indenture
agree, and each holder of any Note by his acceptance thereof shall be deemed to
have agreed, that any court may, in its discretion, require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees and expenses, against any party litigant in such
suit, having due regard to the merits and good faith of the claims or defenses
made by such party litigant; provided, however, that the provisions of this
Section 7.9 (to the extent permitted by law) shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Noteholder, or group of
Noteholders, holding in the aggregate more



                                      -43-



than ten percent (10%) in principal amount of the Notes at the time outstanding
determined in accordance with Section 9.4, or to any suit instituted by any
Noteholder for the enforcement of the payment of the principal of or premium, if
any, or interest (including Liquidated Damages, if any) on any Note on or after
the due date expressed in such Note or to any suit for the enforcement of the
right to convert any Note in accordance with the provisions of Article Fifteen.

                                  ARTICLE EIGHT

                                   THE TRUSTEE

        Section 8.1 Duties and Responsibilities of Trustee. The Trustee, prior
to the occurrence of an Event of Default and after the curing of all Events of
Default which may have occurred, undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture. In case an Event of
Default has occurred (which has not been cured or waived), the Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his own affairs.

        No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own willful misconduct, except that:

           (a) prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default which may have occurred:

                (1) the duties and obligations of the Trustee shall be
        determined solely by the express provisions of this Indenture and the
        Trust Indenture Act, and the Trustee shall not be liable except for the
        performance of such duties and obligations as are specifically set forth
        in this Indenture and no implied covenants or obligations shall be read
        into this Indenture and the Trust Indenture Act against the Trustee; and

                (2) in the absence of bad faith and willful misconduct on the
        part of the Trustee, the Trustee may conclusively rely as to the truth
        of the statements and the correctness of the opinions expressed therein,
        upon any certificates or opinions furnished to the Trustee and
        conforming to the requirements of this Indenture; but, in the case of
        any such certificates or opinions which by any provisions hereof are
        specifically required to be furnished to the Trustee, the Trustee shall
        be under a duty to examine the same to determine whether or not they
        conform to the requirements of this Indenture;

           (b) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Officers of the Trustee, unless the
Trustee was negligent in ascertaining the pertinent facts;

           (c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the written
direction of the holders of not less than a majority in principal amount of the
Notes at the time outstanding determined as provided in Section 9.4 relating to
the time, method and place of conducting any proceeding for any



                                      -44-



remedy available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under this Indenture;

           (d) whether or not therein provided, every provision of this
Indenture relating to the conduct or affecting the liability of, or affording
protection to, the Trustee shall be subject to the provisions of this Section
8.1;

           (e) the Trustee shall not be liable in respect of any payment (as to
the correctness of amount, entitlement to receive or any other matters relating
to payment) or notice effected by the Company or any paying agent or any records
maintained by any co-registrar with respect to the Notes; and

           (f) if any party fails to deliver a notice relating to an event the
fact of which, pursuant to this Indenture, requires notice to be sent to the
Trustee, the Trustee may conclusively rely on its failure to receive such notice
as reason to act as if no such event occurred.

           None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there is reasonable ground for believing that the
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.

        Section 8.2 Reliance on Documents, Opinions, Etc. Except as otherwise
provided in Section 8.1:

           (a) the Trustee may conclusively rely and shall be fully protected in
acting upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, debenture, note, coupon or other paper or
document (whether in its original or facsimile form) believed by it in good
faith to be genuine and to have been signed or presented by the proper party or
parties;

           (b) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Trustee by a copy
thereof certified by the Secretary or an Assistant Secretary of the Company;

           (c) the Trustee may consult with counsel of its own selection and any
advice or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or omitted by it hereunder in good
faith and in accordance with such advice or Opinion of Counsel;

           (d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Noteholders pursuant to the provisions of this
Indenture, unless such Noteholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby;



                                      -45-


           (e) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture or
other paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney at the expense of the Company
and shall incur no liability or additional liability of any kind by reason of
such inquiry or investigation;

           (f) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed by it with due care
hereunder; and

           (g) the rights, privileges, protections, immunities and benefits
given to the Trustee, including, without limitation, its right to be
indemnified, are extended to, and shall be enforceable by, the Trustee in each
of its capacities hereunder, and to each agent, custodian and other Person
employed to act hereunder.

        Section 8.3 No Responsibility for Recitals, Etc. The recitals contained
herein and in the Notes (except in the Trustee's certificate of authentication)
shall be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the
Company of any Notes or the proceeds of any Notes authenticated and delivered by
the Trustee in conformity with the provisions of this Indenture.

        Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar May
Own Notes. The Trustee, any paying agent, any conversion agent or Note
registrar, in its individual or any other capacity, may become the owner or
pledgee of Notes with the same rights it would have if it were not Trustee,
paying agent, conversion agent or Note registrar.

        Section 8.5 Monies to be Held in Trust. Subject to the provisions of
Section 13.4 and Section 4.2, all monies received by the Trustee shall, until
used or applied as herein provided, be held in trust for the purposes for which
they were received. Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as may be agreed in writing from time to time by the Company and the
Trustee.

        Section 8.6 Compensation and Expenses of Trustee. The Company covenants
and agrees to pay to the Trustee from time to time, and the Trustee shall be
entitled to, reasonable compensation for all services rendered by it hereunder
in any capacity (which shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust) as mutually agreed to from
time to time in writing between the Company and the Trustee, and the Company
will pay or reimburse the Trustee upon its request for all expenses,
disbursements and advances reasonably incurred or made by the Trustee in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its



                                      -46-


counsel and of all Persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or willful misconduct.
The Company also covenants to fully indemnify the Trustee (or any officer,
director or employee of the Trustee) and any predecessor Trustee, in any
capacity under this Indenture and its agents and any authenticating agent for,
and to hold them harmless against, any and all loss, liability, claim, damage or
expense (including taxes, other than taxes based on the income of the Trustee)
incurred without negligence or willful misconduct on the part of the Trustee or
such officers, directors, employees and agent or authenticating agent, as the
case may be, and arising out of or in connection with the acceptance or
administration of this trust or in any other capacity hereunder, including the
costs and expenses of defending themselves against any claim of liability in the
premises. The Company's obligations under this Section 8.6 to compensate or
indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall be secured by a lien prior to that of the Notes
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the benefit of the holders of particular Notes. The
Company's obligation under this Section 8.6 shall survive the resignation or
removal of the Trustee and the satisfaction and discharge of this Indenture.

        When the Trustee and its agents and any authenticating agent incur
expenses or render services after an Event of Default specified in Section
7.1(d) or (e) with respect to the Company occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any bankruptcy, insolvency or similar laws.

        Section 8.7 Officers' Certificate as Evidence. Except as otherwise
provided in Section 8.1, whenever in the administration of the provisions of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence or willful misconduct on the part
of the Trustee, be deemed to be conclusively proved and established by an
Officers' Certificate delivered to the Trustee.

        Section 8.8 Conflicting Interests of Trustee. If the Trustee has or
shall acquire a conflicting interest within the meaning of the Trust Indenture
Act, the Trustee shall either eliminate such interest or resign, to the extent
and in the manner provided by, and subject to the provisions of, the Trust
Indenture Act and this Indenture.

        Section 8.9 Eligibility of Trustee. There shall at all times be a
Trustee hereunder which shall be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at least
$50,000,000 (or if such Person is a member of a bank holding company system, its
bank holding company shall have a combined capital and surplus of at least
$50,000,000). If such Person publishes reports of condition at least annually,
pursuant to law or to the requirements of any supervising or examining
authority, then for the purposes of this Section 8.9, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance with the provisions of this
Section 8.9, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article Eight.


                                      -47-


        Section 8.10 Resignation or Removal of Trustee.(a) The Trustee may at
any time resign by giving written notice of such resignation to the Company and
to the holders of Notes. Upon receiving such notice of resignation, the Company
shall promptly appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which instrument shall
be delivered to the resigning Trustee and one copy to the successor trustee. If
no successor trustee shall have been so appointed and have accepted appointment
sixty (60) days after the mailing of such notice of resignation to the
Noteholders, the resigning Trustee may, upon ten (10) Business Days' notice to
the Company and the Noteholders, appoint a successor identified in such notice
or may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor trustee, or, if any Noteholder
who has been a bona fide holder of a Note or Notes for at least six (6) months
may, subject to the provisions of Section 7.9, on behalf of himself and all
others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor trustee.

           (b) In case at any time any of the following shall occur:

                (1) the Trustee shall fail to comply with Section 8.8 after
        written request therefor by the Company or by any Noteholder who has
        been a bona fide holder of a Note or Notes for at least six (6) months;
        or

                (2) the Trustee shall cease to be eligible in accordance with
        the provisions of Section 8.9 and shall fail to resign after written
        request therefor by the Company or by any such Noteholder; or

                (3) the Trustee shall become incapable of acting, or shall be
        adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
        property shall be appointed, or any public officer shall take charge or
        control of the Trustee or of its property or affairs for the purpose of
        rehabilitation, conservation or liquidation;

then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee, or, subject to the
provisions of Section 7.9, any Noteholder who has been a bona fide holder of a
Note or Notes for at least six (6) months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor trustee; provided,
however, that if no successor Trustee shall have been appointed and have
accepted appointment sixty (60) days after either the Company or a Noteholder
has removed the Trustee, the Trustee so removed may petition any court of
competent jurisdiction for an appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
remove the Trustee and appoint a successor trustee.

           (c) The holders of a majority in aggregate principal amount of the
Notes at the time outstanding determined in accordance with Section 9.4 may at
any time remove the Trustee and nominate a successor trustee which shall be
deemed appointed as successor trustee unless, within ten (10) days after notice
to the Company of such nomination, the Company objects



                                      -48-


thereto, in which case the Trustee so removed or any Noteholder, or if such
Trustee so removed or any Noteholder fails to act, the Company, upon the terms
and conditions and otherwise as provided in Section 8.10(a), may petition any
court of competent jurisdiction for an appointment of a successor trustee.

           (d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 8.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 8.11.

        Section 8.11 Acceptance by Successor Trustee. Any successor trustee
appointed as provided in Section 8.10 shall execute, acknowledge and deliver to
the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any amount then due it and its agents and counsel pursuant to
the provisions of Section 8.6, execute and deliver an instrument transferring to
such successor trustee all the rights and powers of the trustee so ceasing to
act. Upon request of any such successor trustee, the Company shall execute all
instruments in writing for more fully and certainly vesting in and confirming to
such successor trustee all such rights and powers. Any trustee ceasing to act
shall, nevertheless, retain a lien upon all property and funds held or collected
by such trustee as such, except for funds held in trust for the benefit of
holders of particular Notes, to secure any amounts then due it pursuant to the
provisions of Section 8.6.

        No successor trustee shall accept appointment as provided in this
Section 8.11 unless, at the time of such acceptance, such successor trustee
shall be qualified under the provisions of Section 8.8 and be eligible under the
provisions of Section 8.9.

        Upon acceptance of appointment by a successor trustee as provided in
this Section 8.11, the Company (or the former trustee, at the expense of and at
the written direction of the Company) shall mail or cause to be mailed notice of
the succession of such trustee hereunder to the holders of Notes at their
addresses as they shall appear on the Note register. If the Company fails to
mail such notice within ten (10) days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Company.

        Section 8.12 Succession by Merger, Etc. Any corporation into which the
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Trustee (including any trust created
by this Indenture), shall be the successor to the Trustee hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that in the case of any corporation succeeding to all
or substantially all of the corporate trust business of the Trustee, such
corporation shall be qualified under the provisions of Section 8.8 and eligible
under the provisions of Section 8.9.



                                      -49-


        In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture, any of the Notes shall have been authenticated
but not delivered, any such successor to the Trustee may adopt the certificate
of authentication of any predecessor trustee or authenticating agent appointed
by such predecessor trustee, and deliver such Notes so authenticated; and in
case at that time any of the Notes shall not have been authenticated, any
successor to the Trustee or any authenticating agent appointed by such successor
trustee may authenticate such Notes in the name of the successor trustee; and in
all such cases such certificates shall have the full force that is provided in
the Notes or in this Indenture; provided, however, that the right to adopt the
certificate of authentication of any predecessor Trustee or authenticate Notes
in the name of any predecessor Trustee shall apply only to its successor or
successors by merger, conversion or consolidation.

        Section 8.13 Preferential Collection of Claims. If and when the Trustee
shall be or become a creditor of the Company (or any other obligor upon the
Notes), the Trustee shall be subject to the provisions of the Trust Indenture
Act regarding the collection of the claims against the Company (or any such
other obligor).

        Section 8.14 Trustee's Application for Instructions from the Company.
Any application by the Trustee for written instructions from the Company (other
than with regard to any action proposed to be taken or omitted to be taken by
the Trustee that affects the rights of the holders of the Notes or holders of
Senior Indebtedness under this Indenture, including, without limitation, under
Article Four hereof) may, at the option of the Trustee, set forth in writing any
action proposed to be taken or omitted by the Trustee under this Indenture and
the date on and/or after which such action shall be taken or such omission shall
be effective. The Trustee shall not be liable for any action taken by, or
omission of, the Trustee in accordance with a proposal included in such
application on or after the date specified in such application (which date shall
not be less than three (3) Business Days after the date any officer of the
Company actually receives such application, unless any such officer shall have
consented in writing to any earlier date) unless prior to taking any such action
(or the effective date in the case of an omission), the Trustee shall have
received written instructions in response to such application specifying the
action to be taken or omitted.

                                  ARTICLE NINE

                                 THE NOTEHOLDERS

        Section 9.1 Action by Noteholders. Whenever in this Indenture it is
provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by Noteholders
in person or by agent or proxy appointed in writing, or (b) by the record of the
holders of Notes voting in favor thereof at any meeting of Noteholders duly
called and held in accordance with the provisions of Article Ten, or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of Noteholders. Whenever the Company or the Trustee solicits the taking
of any action by the holders of the Notes, the Company or the Trustee may fix in
advance of such solicitation, a date



                                      -50-


as the record date for determining holders entitled to take such action. The
record date shall be not more than fifteen (15) days prior to the date of
commencement of solicitation of such action.

        Section 9.2 Proof of Execution by Noteholders. Subject to the provisions
of Sections 8.1, 8.2 and 10.5, proof of the execution of any instrument by a
Noteholder or its agent or proxy shall be sufficient if made in accordance with
such reasonable rules and regulations as may be prescribed by the Trustee or in
such manner as shall be satisfactory to the Trustee. The holding of Notes shall
be proved by the registry of such Notes or by a certificate of the Note
registrar.

        The record of any Noteholders' meeting shall be proved in the manner
provided in Section 10.6.

        Section 9.3 Who Are Deemed Absolute Owners. The Company, the Trustee,
any paying agent, any conversion agent and any Note registrar may deem the
Person in whose name a Note shall be registered upon the Note register to be,
and may treat it as, the absolute owner of such Note (whether or not such Note
shall be overdue and notwithstanding any notation of ownership or other writing
thereon made by any Person other than the Company or any Note registrar) for the
purpose of receiving payment of or on account of the principal of, premium, if
any, and interest (including Liquidated Damages, if any) on such Note, for
conversion of such Note and for all other purposes; and neither the Company nor
the Trustee nor any paying agent nor any conversion agent nor any Note registrar
shall be affected by any notice to the contrary. All such payments so made to
any holder for the time being, or upon his order, shall be valid, and, to the
extent of the sum or sums so paid, effective to satisfy and discharge the
liability for monies payable upon any such Note.

        Section 9.4 Company-Owned Notes Disregarded. In determining whether the
holders of the requisite aggregate principal amount of Notes have concurred in
any direction, consent, waiver or other action under this Indenture, Notes which
are owned by the Company or any other obligor on the Notes or any Affiliate of
the Company or any other obligor on the Notes shall be disregarded and deemed
not to be outstanding for the purpose of any such determination; provided,
however, that, for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, consent, waiver or other action,
only Notes which a Responsible Officer knows are so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as outstanding for the purposes of this Section 9.4 if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right to vote
such Notes and that the pledgee is not the Company, any other obligor on the
Notes or any Affiliate of the Company or any such other obligor. In the case of
a dispute as to such right, any decision by the Trustee taken upon the advice of
counsel shall be full protection to the Trustee. Upon request of the Trustee,
the Company shall furnish to the Trustee promptly an Officers' Certificate
listing and identifying all Notes, if any, known by the Company to be owned or
held by or for the account of any of the above described Persons, and, subject
to Section 8.1, the Trustee shall be entitled to accept such Officers'
Certificate as conclusive evidence of the facts therein set forth and of the
fact that all Notes not listed therein are outstanding for the purpose of any
such determination.

        Section 9.5 Revocation of Consents; Future Holders Bound. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
9.1, of the taking of any action by



                                      -51-



the holders of the percentage in aggregate principal amount of the Notes
specified in this Indenture in connection with such action, any holder of a Note
which is shown by the evidence to be included in the Notes the holders of which
have consented to such action may, by filing written notice with the Trustee at
its Corporate Trust Office and upon proof of holding as provided in Section 9.2,
revoke such action so far as concerns such Note. Except as aforesaid, any such
action taken by the holder of any Note shall be conclusive and binding upon such
holder and upon all future holders and owners of such Note and of any Notes
issued in exchange or substitution therefor, irrespective of whether any
notation in regard thereto is made upon such Note or any Note issued in exchange
or substitution therefor.

                                   ARTICLE TEN

                             MEETINGS OF NOTEHOLDERS


        Section 10.1 Purpose of Meetings. A meeting of Noteholders may be called
at any time and from time to time pursuant to the provisions of this Article Ten
for any of the following purposes:

                (1) to give any notice to the Company or to the Trustee or to
        give any directions to the Trustee permitted under this Indenture, or to
        consent to the waiving of any default or Event of Default hereunder and
        its consequences, or to take any other action authorized to be taken by
        Noteholders pursuant to any of the provisions of Article Seven;

                (2) to remove the Trustee and nominate a successor trustee
        pursuant to the provisions of Article Eight;

                (3) to consent to the execution of an indenture or indentures
        supplemental hereto pursuant to the provisions of Section 11.2; or

                (4) to take any other action authorized to be taken by or on
        behalf of the holders of any specified aggregate principal amount of the
        Notes under any other provision of this Indenture or under applicable
        law.

        Section 10.2 Call of Meetings by Trustee. The Trustee may at any time
call a meeting of Noteholders to take any action specified in Section 10.1, to
be held at such time and at such place as the Trustee shall determine. Notice of
every meeting of the Noteholders, setting forth the time and the place of such
meeting and in general terms the action proposed to be taken at such meeting and
the establishment of any record date pursuant to Section 9.1, shall be mailed to
holders of Notes at their addresses as they shall appear on the Note register.
Such notice shall also be mailed to the Company. Such notices shall be mailed
not less than twenty (20) nor more than ninety (90) days prior to the date fixed
for the meeting.

        Any meeting of Noteholders shall be valid without notice if the holders
of all Notes then outstanding are present in person or by proxy or if notice is
waived before or after the meeting by the holders of all Notes outstanding, and
if the Company and the Trustee are either present by duly authorized
representatives or have, before or after the meeting, waived notice.


                                      -52-


        Section 10.3 Call of Meetings by Company or Noteholders. In case at any
time the Company, pursuant to a resolution of its Board of Directors, or the
holders of at least ten percent (10%) in aggregate principal amount of the Notes
then outstanding determined in accordance with Section 9.4, shall have requested
the Trustee to call a meeting of Noteholders, by written request setting forth
in reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed the notice of such meeting within twenty (20) days
after receipt of such request, then the Company or such Noteholders may
determine the time and the place for such meeting and may call such meeting to
take any action authorized in Section 10.1, by mailing notice thereof as
provided in Section 10.2.

        Section 10.4 Qualifications for Voting. To be entitled to vote at any
meeting of Noteholders a Person shall (a) be a holder of one or more Notes on
the record date pertaining to such meeting or (b) be a Person appointed by an
instrument in writing as proxy by a holder of one or more Notes on the record
date pertaining to such meeting. The only Persons who shall be entitled to be
present or to speak at any meeting of Noteholders shall be the Persons entitled
to vote at such meeting and their counsel and any representatives of the Trustee
and its counsel and any representatives of the Company and its counsel.

        Section 10.5 Regulations. Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Noteholders, in regard to proof of the holding of
Notes and of the appointment of proxies, and in regard to the appointment and
duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think fit.

        The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Noteholders as provided in Section 10.3, in which case the Company
or the Noteholders calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a permanent secretary of
the meeting shall be elected by vote of the holders of a majority in principal
amount of the Notes represented at the meeting and entitled to vote at the
meeting (determined in accordance with Section 9.4).

        Subject to the provisions of Section 9.4, at any meeting each Noteholder
or proxyholder shall be entitled to one vote for each $1,000 principal amount of
Notes held or represented by him; provided, however, that no vote shall be cast
or counted at any meeting in respect of any Note challenged as not outstanding
and ruled by the chairman of the meeting to be not outstanding. The chairman of
the meeting shall have no right to vote other than by virtue of Notes held by
him or instruments in writing as aforesaid duly designating him as the proxy to
vote on behalf of other Noteholders. Any meeting of Noteholders duly called
pursuant to the provisions of Section 10.2 or 10.3 may be adjourned from time to
time by the holders of a majority of the aggregate principal amount of Notes
represented at the meeting (determined in accordance with Section 9.4), whether
or not constituting a quorum, and the meeting may be held as so adjourned
without further notice.

        Section 10.6 Voting. The vote upon any resolution submitted to any
meeting of Noteholders shall be by written ballot on which shall be subscribed
the signatures of the holders


                                      -53-



of Notes or of their representatives by proxy and the outstanding principal
amount of the Notes held or represented by them. The permanent chairman of the
meeting shall appoint two inspectors of votes who shall count all votes cast at
the meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of Noteholders shall be prepared by the secretary of the meeting and
there shall be attached to said record the original reports of the inspectors of
votes on any vote by ballot taken thereat and affidavits by one or more persons
having knowledge of the facts setting forth a copy of the notice of the meeting
and showing that said notice was mailed as provided in Section 10.2. The record
shall show the principal amount of the Notes voting in favor of or against any
resolution. The record shall be signed and verified by the affidavits of the
permanent chairman and secretary of the meeting and one of the duplicates shall
be delivered to the Company and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.

        Any record so signed and verified shall be conclusive evidence of the
matters therein stated.

        Section 10.7 No Delay of Rights by Meeting. Nothing contained in this
Article Ten shall be deemed or construed to authorize or permit, by reason of
any call of a meeting of Noteholders or any rights expressly or impliedly
conferred hereunder to make such call, any hindrance or delay in the exercise of
any right or rights conferred upon or reserved to the Trustee or to the
Noteholders under any of the provisions of this Indenture or of the Notes.

                                 ARTICLE ELEVEN

                             SUPPLEMENTAL INDENTURES

        Section 11.1 Supplemental Indentures Without Consent of Noteholders. The
Company, when authorized by the resolutions of the Board of Directors, and the
Trustee may, from time to time, and at any time enter into an indenture or
indentures supplemental hereto for one or more of the following purposes:

           (a) to make provision with respect to the conversion rights of the
holders of Notes pursuant to the requirements of Section 15.6 and the repurchase
obligations of the Company pursuant to the requirements of Section 3.5(e);

           (b) subject to Article Four, to convey, transfer, assign, mortgage or
pledge to the Trustee as security for the Notes, any property or assets;

           (c) to evidence the succession of another Person to the Company, or
successive successions, and the assumption by the successor Person of the
covenants, agreements and obligations of the Company pursuant to Article Twelve;

           (d) to add to the covenants of the Company such further covenants,
restrictions or conditions as the Board of Directors and the Trustee shall
consider to be for the benefit of the holders of Notes, and to make the
occurrence, or the occurrence and continuance, of a default in any such
additional covenants, restrictions or conditions a default or an Event of



                                      -54-


Default permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, however, that in
respect of any such additional covenant, restriction or condition, such
supplemental indenture may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the case of
other defaults) or may provide for an immediate enforcement upon such default or
may limit the remedies available to the Trustee upon such default;

           (e) to provide for the issuance under this Indenture of Notes in
coupon form (including Notes registrable as to principal only) and to provide
for exchangeability of such Notes with the Notes issued hereunder in fully
registered form and to make all appropriate changes for such purpose;

           (f) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture that may be defective or
inconsistent with any other provision contained herein or in any supplemental
indenture, or to make such other provisions in regard to matters or questions
arising under this Indenture that shall not materially adversely affect the
interests of the holders of the Notes;

           (g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes; or

           (h) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualifications of this
Indenture under the Trust Indenture Act, or under any similar federal statute
hereafter enacted.

        Upon the written request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any supplemental indenture, the Trustee
is hereby authorized to join with the Company in the execution of any such
supplemental indenture, to make any further appropriate agreements and
stipulations that may be therein contained and to accept the conveyance,
transfer and assignment of any property thereunder, but the Trustee shall not be
obligated to, but may in its discretion, enter into any supplemental indenture
that affects the Trustee's own rights, duties or immunities under this Indenture
or otherwise.

        Any supplemental indenture authorized by the provisions of this Section
11.1 may be executed by the Company and the Trustee without the consent of the
holders of any of the Notes at the time outstanding, notwithstanding any of the
provisions of Section 11.2.

        Notwithstanding any other provision of this Indenture or the Notes, the
Registration Rights Agreement and the obligation to pay Liquidated Damages
thereunder may be amended, modified or waived in accordance with the provisions
of the Registration Rights Agreement.

        Section 11.2 Supplemental Indenture with Consent of Noteholders. With
the consent (evidenced as provided in Article Nine) of the holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding as determined in accordance with Section 9.4, the Company, when
authorized by the resolutions of the Board of Directors, and the Trustee may,
from time to time and at any time, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the


                                      -55-



provisions of this Indenture or any supplemental indenture or of modifying in
any manner the rights of the holders of the Notes; provided, however, that no
such supplemental indenture shall (i) extend the fixed maturity of any Note, or
reduce the rate or extend the time of payment of interest thereon, or reduce the
principal amount thereof or premium, if any, thereon, or reduce any amount
payable on redemption or repurchase thereof, or impair the right of any
Noteholder to institute suit for the payment thereof, or make the principal
thereof or interest or premium, if any, thereon payable in any coin or currency
other than that provided in the Notes, or modify the provisions of this
Indenture with respect to the subordination of the Notes in a manner adverse to
the Noteholders in any material respect, or change the obligation of the Company
to repurchase any Note upon the happening of a Fundamental Change in a manner
adverse to the holder of Notes, or impair the right to convert the Notes subject
to the terms set forth herein, including Section 15.6, or reduce the quorum or
voting requirements of this Indenture or change any obligation of the Company to
maintain an office or agency in the places and for the purposes specified in
this Indenture, in each case, without the consent of the holder of each Note so
affected, or (ii) reduce the aforesaid percentage of Notes, the holders of which
are required to consent to any such supplemental indenture, without the consent
of the holders of all Notes then outstanding.

        Upon the written request of the Company, accompanied by a copy of the
resolutions of the Board of Directors certified by its Secretary or Assistant
Secretary and authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Noteholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.

        It shall not be necessary for the consent of the Noteholders under this
Section 11.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.

        Section 11.3 Effect of Supplemental Indenture. Any supplemental
indenture executed pursuant to the provisions of this Article Eleven shall
comply with the Trust Indenture Act, as then in effect, provided that this
Section 11.3 shall not require such supplemental indenture or the Trustee to be
qualified under the Trust Indenture Act prior to the time such qualification is
in fact required under the terms of the Trust Indenture Act or this Indenture
has been qualified under the Trust Indenture Act, nor shall it constitute any
admission or acknowledgment by any party to such supplemental indenture that any
such qualification is required prior to the time such qualification is in fact
required under the terms of the Trust Indenture Act or this Indenture has been
qualified under the Trust Indenture Act. Upon the execution of any supplemental
indenture pursuant to the provisions of this Article Eleven, this Indenture
shall be and be deemed to be modified and amended in accordance therewith and
the respective rights, limitation of rights, obligations, duties and immunities
under this Indenture of the Trustee, the Company and the holders of Notes shall
thereafter be determined, exercised and enforced hereunder, subject in all
respects to such modifications and amendments and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.


                                      -56-


        Section 11.4 Notation on Notes. Notes authenticated and delivered after
the execution of any supplemental indenture pursuant to the provisions of this
Article Eleven may bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company or the
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may, at the Company's expense, be
prepared and executed by the Company, authenticated by the Trustee (or an
authenticating agent duly appointed by the Trustee pursuant to Section 16.11)
and delivered in exchange for the Notes then outstanding, upon surrender of such
Notes then outstanding.

        Section 11.5 Evidence of Compliance of Supplemental Indenture to be
Furnished to Trustee. Prior to entering into any supplemental indenture, the
Trustee may request an Officers' Certificate and an Opinion of Counsel meeting
the requirements set forth in Section 16.5 as conclusive evidence that any
supplemental indenture executed pursuant hereto complies with the requirements
of this Article Eleven.

                                 ARTICLE TWELVE

                CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE

        Section 12.1 Company May Consolidate, Etc., on Certain Terms. Subject to
the provisions of Section 12.2, nothing contained in this Indenture or in any of
the Notes shall prevent any consolidation or merger of the Company with or into
any other Person or Persons (whether or not affiliated with the Company), or
successive consolidations or mergers in which the Company or its successor or
successors shall be a party or parties, or shall prevent any sale, conveyance or
lease (or successive sales, conveyances or leases) of all or substantially all
of the property of the Company, to any other Person (whether or not affiliated
with the Company), authorized to acquire and operate the same and that shall be
organized under the laws of the United States of America, any state thereof or
the District of Columbia or any other country, if the merger, consolidation or
other transaction would not impair the rights of the holders of the Notes;
provided, however, that upon any such consolidation, merger, sale, conveyance or
lease, (a) no default or Event of Default shall have occurred and be continuing
immediately following such merger, consolidation or other transaction, and (b)
the due and punctual payment of the principal of and premium, if any, and
interest (including Liquidated Damages, if any) on all of the Notes, according
to their tenor and the due and punctual performance and observance of all of the
covenants and conditions of this Indenture to be performed by the Company, shall
be expressly assumed, by supplemental indenture satisfactory in form to the
Trustee, executed and delivered to the Trustee by the Person (if other than the
Company) formed by such consolidation, or into which the Company shall have been
merged, or by the Person that shall have acquired or leased such property, and
such supplemental indenture shall provide for the applicable conversion rights
set forth in Section 15.6.

        Section 12.2 Successor Corporation to be Substituted. In case of any
such consolidation, merger, sale, conveyance or lease and upon the assumption by
the successor Person, by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, of the due and punctual payment
of the principal of and premium, if any, and interest on all of the Notes and
the due and punctual performance of all of the covenants and


                                      -57-



conditions of this Indenture to be performed by the Company, such successor
Person shall succeed to and be substituted for the Company, with the same effect
as if it had been named herein as the party of this first part. Such successor
Person thereupon may cause to be signed, and may issue either in its own name or
in the name of Brocade Communications Systems, Inc. any or all of the Notes,
issuable hereunder that theretofore shall not have been signed by the Company
and delivered to the Trustee; and, upon the order of such successor Person
instead of the Company and subject to all the terms, conditions and limitations
in this Indenture prescribed, the Trustee shall authenticate and shall deliver,
or cause to be authenticated and delivered, any Notes that previously shall have
been signed and delivered by the officers of the Company to the Trustee for
authentication, and any Notes that such successor Person thereafter shall cause
to be signed and delivered to the Trustee for that purpose. All the Notes so
issued shall in all respects have the same legal rank and benefit under this
Indenture as the Notes theretofore or thereafter issued in accordance with the
terms of this Indenture as though all of such Notes had been issued at the date
of the execution hereof. In the event of any such consolidation, merger, sale,
conveyance or lease, the Person named as the "Company" in the first paragraph of
this Indenture or any successor that shall thereafter have become such in the
manner prescribed in this Article Twelve may be dissolved, wound up and
liquidated at any time thereafter and such Person shall be released from its
liabilities as obligor and maker of the Notes and from its obligations under
this Indenture.

        In case of any such consolidation, merger, sale, conveyance or lease,
such changes in phraseology and form (but not in substance) may be made in the
Notes thereafter to be issued as may be appropriate.

        Section 12.3 Opinion of Counsel to be Given Trustee. The Trustee shall
receive an Officers' Certificate and an Opinion of Counsel as conclusive
evidence that any such consolidation, merger, sale, conveyance or lease and any
such assumption complies with the provisions of this Article Twelve.

                                ARTICLE THIRTEEN

                     SATISFACTION AND DISCHARGE OF INDENTURE

        Section 13.1 Discharge of Indenture. When (a) the Company shall deliver
to the Trustee for cancellation all Notes theretofore authenticated (other than
any Notes that have been destroyed, lost or stolen and in lieu of or in
substitution for which other Notes shall have been authenticated and delivered)
and not theretofore canceled, or (b) all the Notes not theretofore canceled or
delivered to the Trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to be called
for redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption, and the Company shall deposit with the
Trustee, in trust, funds sufficient to pay at maturity or upon redemption of all
of the Notes (other than any Notes that shall have been mutilated, destroyed,
lost or stolen and in lieu of or in substitution for which other Notes shall
have been authenticated and delivered) not theretofore canceled or delivered to
the Trustee for cancellation, including principal and premium, if any, and
interest due or to become due to such date of maturity or redemption date, as
the case may be, accompanied by a verification report, as to the sufficiency of
the deposited amount, from an independent certified accountant or other



                                      -58-


financial professional satisfactory to the Trustee, and if the Company shall
also pay or cause to be paid all other sums payable hereunder by the Company,
then this Indenture shall cease to be of further effect (except as to (i)
remaining rights of registration of transfer, substitution and exchange and
conversion of Notes, (ii) rights hereunder of Noteholders to receive payments of
principal of and premium, if any, and interest on, the Notes and the other
rights, duties and obligations of Noteholders, as beneficiaries hereof with
respect to the amounts, if any, so deposited with the Trustee and (iii) the
rights, obligations and immunities of the Trustee hereunder), and the Trustee,
on written demand of the Company accompanied by an Officers' Certificate and an
Opinion of Counsel as required by Section 16.5 and at the cost and expense of
the Company, shall execute proper instruments acknowledging satisfaction of and
discharging this Indenture; the Company, however, hereby agrees to reimburse the
Trustee for any costs or expenses thereafter reasonably and properly incurred by
the Trustee and to compensate the Trustee for any services thereafter reasonably
and properly rendered by the Trustee in connection with this Indenture or the
Notes.

        Section 13.2 Deposited Monies to be Held in Trust by Trustee. Subject to
Section 13.4, all monies deposited with the Trustee pursuant to Section 13.1,
provided such deposit was not in violation of Article Four, shall be held in
trust for the sole benefit of the Noteholders and not to be subject to the
subordination provisions of Article Four, and such monies shall be applied by
the Trustee to the payment, either directly or through any paying agent
(including the Company if acting as its own paying agent), to the holders of the
particular Notes for the payment or redemption of which such monies have been
deposited with the Trustee, of all sums due and to become due thereon for
principal and interest and premium, if any.

        Section 13.3 Paying Agent to Repay Monies Held. Upon the satisfaction
and discharge of this Indenture, all monies then held by any paying agent of the
Notes (other than the Trustee) shall, upon written request of the Company, be
repaid to it or paid to the Trustee, and thereupon such paying agent shall be
released from all further liability with respect to such monies.

        Section 13.4 Return of Unclaimed Monies. Subject to the requirements of
applicable law, any monies deposited with or paid to the Trustee for payment of
the principal of, premium, if any, or interest on Notes and not applied but
remaining unclaimed by the holders of Notes for two years after the date upon
which the principal of, premium, if any, or interest on such Notes, as the case
may be, shall have become due and payable, shall be repaid to the Company by the
Trustee on demand and all liability of the Trustee shall thereupon cease with
respect to such monies; and the holder of any of the Notes shall thereafter look
only to the Company for any payment that such holder may be entitled to collect
unless an applicable abandoned property law designates another Person.

        Section 13.5 Reinstatement. If the Trustee or the paying agent is unable
to apply any money in accordance with Section 13.2 by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 13.1 until such time as the Trustee or the paying
agent is permitted to apply all such money in accordance with Section 13.2;
provided, however, that if the Company makes any payment of interest on or
principal of any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of



                                      -59-


the holders of such Notes to receive such payment from the money held by the
Trustee or paying agent.

                                ARTICLE FOURTEEN

                           IMMUNITY OF INCORPORATORS,
                      STOCKHOLDERS, OFFICERS AND DIRECTORS

        Section 14.1 Indenture and Notes Solely Corporate Obligations. No
recourse for the payment of the principal of or premium, if any, or interest on
any Note, or for any claim based thereon or otherwise in respect thereof, and no
recourse under or upon any obligation, covenant or agreement of the Company in
this Indenture or in any supplemental indenture or in any Note, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, employee, agent, officer, director or subsidiary, as
such, past, present or future, of the Company or of any successor corporation,
either directly or through the Company or any successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that all such
liability is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of the Notes.

                                 ARTICLE FIFTEEN

                               CONVERSION OF NOTES

        Section 15.1 Right to Convert. Subject to and upon compliance with the
provisions of this Indenture, including, without limitation, Article Four, the
holder of any Note shall have the right, at its option, at any time after the
original issuance of the Notes hereunder through the close of business on the
final maturity date of the Notes (except that, with respect to any Note or
portion of a Note that shall be called for redemption, such right shall
terminate, except as provided in Section 15.2, Section 3.2 or Section 3.4, at
the close of business on the Business Day next preceding the date fixed for
redemption of such Note or portion of a Note unless the Company shall default in
payment due upon redemption thereof) to convert the principal amount of any such
Note, or any portion of such principal amount which is $1,000 or an integral
multiple thereof. The Notes will be convertible at the Conversion Rate,
determined as hereinafter provided, in effect at the time of conversion into
fully paid and non-assessable shares of Common Stock (as such shares shall then
be constituted), by surrender of the Note so to be converted in whole or in part
in the manner provided, together with any required funds, in Section 15.2.

        A Note in respect of which a holder is exercising its option to require
repurchase upon a Fundamental Change pursuant to Section 3.5 may be converted
only if such holder withdraws its repurchase election in accordance with Section
3.5. A holder of Notes is not entitled to any rights of a holder of Common Stock
until such holder has converted his Notes to Common Stock, and only to the
extent such Notes are deemed to have been converted to Common Stock under this
Article Fifteen.


                                      -60-



        Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock
on Conversion; No Adjustment for Interest or Dividends. In order to exercise the
conversion privilege with respect to any Note in certificated form, the holder
of any such Note to be converted in whole or in part shall surrender such Note,
duly endorsed, at an office or agency maintained by the Company pursuant to
Section 5.2, accompanied by the funds, if any, required by the penultimate
paragraph of this Section 15.2, and shall give written notice of conversion in
the form provided on the Notes (or such other notice which is acceptable to the
Company) to the office or agency that the holder elects to convert such Note or
the portion thereof specified in said notice. If the Notes are converted into
Common Stock, such notice shall also state the name or names (with address or
addresses) in which the certificate or certificates for shares of Common Stock
which shall be issuable on such conversion shall be issued, and shall be
accompanied by transfer taxes, if required pursuant to Section 15.7. Each such
Note surrendered for conversion into Common Stock shall, unless the shares
issuable on conversion are to be issued in the same name as the registration of
such Note, be duly endorsed by, or be accompanied by instruments of transfer in
form satisfactory to the Company duly executed by, the holder or his duly
authorized attorney.

        In order to exercise the conversion privilege with respect to any
interest in a Note in global form, the beneficial holder must complete, or cause
to be completed, the appropriate instruction form for conversion pursuant to the
Depository's book-entry conversion program, deliver, or cause to be delivered,
by book-entry delivery an interest in such Note in global form, furnish
appropriate endorsements and transfer documents if required by the Company or
the Trustee or conversion agent, and pay the funds, if any, required by this
Section 15.2 and any transfer taxes if required pursuant to Section 15.7.

        As promptly as practicable after satisfaction of the requirements for
conversion into Common Stock set forth above, subject to compliance with any
restrictions on transfer if shares issuable on conversion are to be issued in a
name other than that of the Noteholder (as if such transfer were a transfer of
the Note or Notes (or portion thereof) so converted), the Company shall issue
and shall deliver to such Noteholder at the office or agency maintained by the
Company for such purpose pursuant to Section 5.2, a certificate or certificates
for the number of full shares of Common Stock issuable upon the conversion of
such Note or portion thereof as determined by the Company in accordance with the
provisions of this Article Fifteen and a check or cash in respect of any
fractional interest in respect of a share of Common Stock arising upon such
conversion, calculated by the Company as provided in Section 15.3. In case any
Note of a denomination greater than $1,000 shall be surrendered for partial
conversion, and subject to Section 2.3, the Company shall execute and the
Trustee shall authenticate and deliver to the holder of the Note so surrendered,
without charge to him, a new Note or Notes in authorized denominations in an
aggregate principal amount equal to the unconverted portion of the surrendered
Note.

        Each conversion shall be deemed to have been effected as to any such
Note (or portion thereof) on the date on which the requirements of the holder
set forth above in this Section 15.2 have been satisfied as to such Note (or
portion thereof) (a "Conversion Date"). The Person in whose name any certificate
or certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become on said date the holder of record of
the shares represented thereby; provided, however, that any such surrender on
any date when the stock


                                      -61-



transfer books of the Company shall be closed shall constitute the Person in
whose name the certificates are to be issued as the record holder thereof for
all purposes on the next succeeding day on which such stock transfer books are
open, but such conversion shall be at the Conversion Rate in effect on the date
upon which such Note shall be surrendered.

        No adjustment in respect of interest on any Note converted or dividends
on any shares issued upon conversion of such Note will be made upon any
conversion except as set forth in the next sentence. If this Note (or portion
hereof) is surrendered for conversion during the period from the close of
business on any record date for the payment of interest to the close of business
on the Business Day preceding the following interest payment date and either (x)
has not been called for redemption on a redemption date that occurs during such
period or (y) is not to be repurchased in connection with a Fundamental Change
on a Repurchase Date that occurs during such period, this Note (or portion
hereof being converted) must be accompanied by an amount, in New York Clearing
House funds or other funds acceptable to the Company, equal to the interest
payable on such interest payment date on the principal amount being converted;
provided, however, that no such payment shall be required if there shall exist
at the time of conversion a default in the payment of interest on the Notes.

        Upon the conversion of an interest in a Note in global form, the Trustee
(or other conversion agent appointed by the Company), or the Custodian at the
direction of the Trustee (or other conversion agent appointed by the Company),
shall make a notation on such Note in global form as to the reduction in the
principal amount represented thereby. The Company shall notify the Trustee in
writing of any conversions of Notes effected through any conversion agent other
than the Trustee.

        Section 15.3 Cash Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional shares shall be issued
upon conversion of Notes. If more than one Note is surrendered for conversion at
one time by the same holder, the number of full shares that shall be issuable
upon conversion shall be computed on the basis of the aggregate principal amount
of the Notes (or specified portions thereof to the extent permitted thereby) so
surrendered. If any fractional share of stock would be issuable upon the
conversion of any Note or Notes, the Company shall make an adjustment and
payment therefor in cash at the current market price thereof to the holder of
Notes. The current market price of a share of Common Stock for purposes of this
Section 15.3 shall be the Closing Price on the last Business Day immediately
preceding the Conversion Date.

        Section 15.4 Conversion Rate. The conversion rate shall be as specified
in the form of Note (herein called the "Conversion Rate") attached as Exhibit A
hereto, subject to adjustment as provided in this Article Fifteen.

        Section 15.5 Adjustment of Conversion Rate. The Conversion Rate shall be
adjusted from time to time by the Company as follows:

           (a) In case the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock, the Conversion Rate shall be increased so that the same shall equal the
rate determined by multiplying the Conversion Rate in effect at the opening of
business on the date following the date fixed for the



                                      -62-



determination of stockholders entitled to receive such dividend or other
distribution by a fraction, the numerator of which shall be the sum of the
number of shares of the Common Stock outstanding at the close of business on the
date fixed for such determination and the total number of shares constituting
such dividend or other distribution, and the denominator of which shall be the
number of shares of the Common Stock outstanding at the close of business on the
date fixed for such determination, such increase to become effective immediately
after the opening of business on the day following the date fixed for such
determination. For the purpose of this paragraph (a), the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company. The Company will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the Company. If
any dividend or distribution of the type described in this Section 15.5(a) is
declared but not so paid or made, the Conversion Rate shall again be adjusted to
the Conversion Rate that would then be in effect if such dividend or
distribution had not been declared.

           (b) In case the Company shall issue rights or warrants to all holders
of its outstanding shares of Common Stock entitling them (for a period expiring
within forty-five (45) days after the date fixed for determination of
stockholders entitled to receive such rights or warrants) to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price (as defined below) on the date fixed for determination of
stockholders entitled to receive such rights or warrants, the Conversion Rate
shall be adjusted so that the same shall equal the rate determined by
multiplying the Conversion Rate in effect immediately prior to the date fixed
for determination of stockholders entitled to receive such rights or warrants by
a fraction, the numerator of which shall be the number of shares of Common Stock
outstanding on the date fixed for determination of stockholders entitled to
receive such rights or warrants plus the total number of additional shares of
Common Stock offered for subscription or purchase and the denominator of which
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for determination of stockholders entitled to receive
such rights or warrants plus the number of shares that the aggregate offering
price of the total number of shares so offered would purchase at such Current
Market Price. Such adjustment shall be successively made whenever any such
rights or warrants are issued, and shall become effective immediately after the
opening of business on the day following the date fixed for determination of
stockholders entitled to receive such rights or warrants. To the extent that
shares of Common Stock are not delivered after the expiration of such rights or
warrants, the Conversion Rate shall be readjusted to the Conversion Rate that
would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made on the basis of delivery of only the number of
shares of Common Stock actually delivered. In the event that such rights or
warrants are not so issued, the Conversion Rate shall again be adjusted to be
the Conversion Rate that would then be in effect if such date fixed for the
determination of stockholders entitled to receive such rights or warrants had
not been fixed. In determining whether any rights or warrants entitle the
holders to subscribe for or purchase shares of Common Stock at less than such
Current Market Price, and in determining the aggregate offering price of such
shares of Common Stock, there shall be taken into account any consideration
received by the Company for such rights or warrants and any amount payable on
exercise or conversion thereof, the value of such consideration, if other than
cash, to be determined by the Board of Directors.

           (c) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Rate in effect
at the opening of


                                      -63-



business on the day following the day upon which such subdivision becomes
effective shall be proportionately increased, and conversely, in case
outstanding shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Rate in effect at the opening of business
on the day following the day upon which such combination becomes effective shall
be proportionately reduced, such increase or reduction, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.

           (d) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock shares of any class of capital stock of the
Company (other than any dividends or distributions to which Section 15.5(a)
applies) or evidences of its indebtedness or assets (including securities, but
excluding any rights or warrants referred to in Section 15.5(b), and excluding
any dividend or distribution (x) paid exclusively in cash or (y) referred to in
Section 15.5(a) (any of the foregoing hereinafter in this Section 15.5(d) called
the "Securities")), then, in each such case (unless the Company elects to
reserve such Securities for distribution to the Noteholders upon the conversion
of the Notes so that any such holder converting Notes will receive upon such
conversion, in addition to the shares of Common Stock to which such holder is
entitled, the amount and kind of such Securities which such holder would have
received if such holder had converted its Notes into Common Stock immediately
prior to the Record Date (as defined in Section 15.5(h)(4) for such distribution
of the Securities)), the Conversion Rate shall be increased so that the same
shall be equal to the rate determined by multiplying the Conversion Rate in
effect on the Record Date with respect to such distribution by a fraction, the
numerator of which shall be the Current Market Price per share of the Common
Stock and the denominator of which shall be the Current Market Price per share
of the Common Stock on such Record Date less the fair market value (as
determined by the Board of Directors, whose determination shall be conclusive,
and described in a resolution of the Board of Directors) on the Record Date of
the portion of the Securities so distributed applicable to one share of Common
Stock, such increase to become effective immediately prior to the opening of
business on the day following such Record Date; provided, however, that in the
event the then fair market value (as so determined) of the portion of the
Securities so distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price of the Common Stock on the Record Date, in
lieu of the foregoing adjustment, adequate provision shall be made so that each
Noteholder shall have the right to receive upon conversion the amount of
Securities such holder would have received had such holder converted each Note
on the Record Date. In the event that such dividend or distribution is not so
paid or made, the Conversion Rate shall again be adjusted to be the Conversion
Rate that would then be in effect if such dividend or distribution had not been
declared. If the Board of Directors determines the fair market value of any
distribution for purposes of this Section 15.5(d) by reference to the actual or
when issued trading market for any securities, it must in doing so consider the
prices in such market over the same period used in computing the Current Market
Price of the Common Stock.

        Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances), which
rights or warrants, until the occurrence of a specified event or events
("Trigger Event"): (i) are deemed to be transferred with such shares of Common
Stock; (ii) are not exercisable; and (iii) are also issued in respect of future
issuances of Common Stock, shall be deemed not to have been distributed for
purposes of this Section 15.5


                                      -64-



        (and no adjustment to the Conversion Rate under this Section 15.5 will
be required) until the occurrence of the earliest Trigger Event, whereupon such
rights and warrants shall be deemed to have been distributed and an appropriate
adjustment (if any is required) to the Conversion Rate shall be made under this
Section 15.5(d). If any such right or warrant, including any such existing
rights or warrants distributed prior to the date of this Indenture, are subject
to events, upon the occurrence of which such rights or warrants become
exercisable to purchase different securities, evidences of indebtedness or other
assets, then the date of the occurrence of each such event shall be deemed to be
the date of distribution and record date with respect to new rights or warrants
with such rights (and a termination or expiration of the existing rights or
warrants without exercise by any of the holders thereof). In addition, in the
event of any distribution (or deemed distribution) of rights or warrants, or any
Trigger Event or other event (of the type described in the preceding sentence)
with respect thereto that was counted for purposes of calculating a distribution
amount for which an adjustment to the Conversion Rate under this Section 15.5
was made, (1) in the case of any such rights or warrants that shall all have
been redeemed or repurchased without exercise by any holders thereof, the
Conversion Rate shall be readjusted upon such final redemption or repurchase to
give effect to such distribution or Trigger Event, as the case may be, as though
it were a cash distribution, equal to the per share redemption or repurchase
price received by a holder or holders of Common Stock with respect to such
rights or warrants (assuming such holder had retained such rights or warrants),
made to all holders of Common Stock as of the date of such redemption or
repurchase, and (2) in the case of such rights or warrants that shall have
expired or been terminated without exercise by any holders thereof, the
Conversion Rate shall be readjusted as if such rights and warrants had not been
issued.

        No adjustment of the Conversion Rate shall be made pursuant to this
Section 15.5(d) in respect of rights or warrants distributed or deemed
distributed on any Trigger Event to the extent that such rights or warrants are
actually distributed, or reserved by the Company for distribution to holders of
Notes upon conversion by such holders of Notes to Common Stock.

        For purposes of this Section 15.5(d) and Sections 15.5(a) and (b), any
dividend or distribution to which this Section 15.5(d) is applicable that also
includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock (or both), shall be deemed instead to be (1) a
dividend or distribution of the evidences of indebtedness, assets or shares of
capital stock other than such shares of Common Stock or rights or warrants (and
any Conversion Rate increase required by this Section 15.5(d) with respect to
such dividend or distribution shall then be made) immediately followed by (2) a
dividend or distribution of such shares of Common Stock or such rights or
warrants (and any further Conversion Rate increase required by Sections 15.5(a)
and (b) with respect to such dividend or distribution shall then be made),
except (A) the Record Date of such dividend or distribution shall be substituted
as "the date fixed for the determination of stockholders entitled to receive
such dividend or other distribution", "the date fixed for the determination of
stockholders entitled to receive such rights or warrants" and "the date fixed
for such determination" within the meaning of Sections 15.5(a) and (b), and (B)
any shares of Common Stock included in such dividend or distribution shall not
be deemed "outstanding at the close of business on the date fixed for such
determination" within the meaning of Section 15.5(a).



                                      -65-


           (e) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock cash (excluding (x) any quarterly cash
dividend on the Common Stock to the extent the aggregate cash dividend per share
of Common Stock in any fiscal quarter does not exceed the greater of (A) the
amount per share of Common Stock of the next preceding quarterly cash dividend
on the Common Stock to the extent that such preceding quarterly dividend did not
require any adjustment of the Conversion Rate pursuant to this Section 15.5(e)
(as adjusted to reflect subdivisions, or combinations of the Common Stock), and
(B) 3.75% of the arithmetic average of the Closing Price (determined as set
forth in Section 15.5(h)) during the ten Trading Days (as defined in Section
15.5(h)) immediately prior to the date of declaration of such dividend, and (y)
any dividend or distribution in connection with the liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary), then, in such
case, the Conversion Rate shall be increased so that the same shall equal the
rate determined by multiplying the Conversion Rate in effect immediately prior
to the close of business on such record date by a fraction, the numerator of
which shall be such Current Market Price of the Common Stock and the denominator
of which shall be the Current Market Price of the Common Stock on the record
date less the amount of cash so distributed (and not excluded as provided above)
applicable to one share of Common Stock, such increase to be effective
immediately prior to the opening of business on the day following the record
date; provided, however, that in the event the portion of the cash so
distributed applicable to one share of Common Stock is equal to or greater than
the Current Market Price of the Common Stock on the record date, in lieu of the
foregoing adjustment, adequate provision shall be made so that each Noteholder
shall have the right to receive upon conversion the amount of cash such holder
would have received had such holder converted each Note on the record date. In
the event that such dividend or distribution is not so paid or made, the
Conversion Rate shall again be adjusted to be the Conversion Rate that would
then be in effect if such dividend or distribution had not been declared. If any
adjustment is required to be made as set forth in this Section 15.5(e) as a
result of a distribution that is a quarterly dividend, such adjustment shall be
based upon the amount by which such distribution exceeds the amount of the
quarterly cash dividend permitted to be excluded pursuant hereto. If an
adjustment is required to be made as set forth in this Section 15.5(e) above as
a result of a distribution that is not a quarterly dividend, such adjustment
shall be based upon the full amount of the distribution.

           (f) In case a tender or exchange offer made by the Company or any
Subsidiary for all or any portion of the Common Stock shall expire and such
tender or exchange offer (as amended upon the expiration thereof) shall require
the payment to stockholders of consideration per share of Common Stock having a
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a resolution of the Board of Directors)
that as of the last time (the "Expiration Time") tenders or exchanges may be
made pursuant to such tender or exchange offer (as it may be amended) exceeds
the Current Market Price of the Common Stock on the Trading Day next succeeding
the Expiration Time, the Conversion Rate shall be increased to equal the rate
determined by multiplying the Conversion Rate in effect immediately prior to the
Expiration Time by a fraction the numerator of which shall be the sum of (x) the
fair market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the acceptance (up to any maximum specified in
the terms of the tender or exchange offer) of all shares validly tendered or
exchanged and not withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchased Shares")
and (y) the product of the number of shares of


                                      -66-


Common Stock outstanding (less any Purchased Shares) at the Expiration Time and
the Current Market Price of the Common Stock on the Trading Day next succeeding
the Expiration Time and the denominator of which shall be the number of shares
of Common Stock outstanding (including any tendered or exchanged shares) at the
Expiration Time multiplied by the Current Market Price of the Common Stock on
the Trading Day next succeeding the Expiration Time, such increase to become
effective immediately prior to the opening of business on the Trading Day
following the Expiration Time. In the event that the Company is obligated to
purchase shares pursuant to any such tender or exchange offer, but the Company
is permanently prevented by applicable law from effecting any such purchases or
all such purchases are rescinded, the Conversion Rate shall again be adjusted to
be the Conversion Rate that would then be in effect if such tender or exchange
offer had not been made.

           (g) In case of a tender or exchange offer made by a Person other than
the Company or any Subsidiary for an amount that increases the offeror's
ownership of Common Stock to more than twenty-five percent (25%) of the Common
Stock outstanding and shall involve the payment by such Person of consideration
per share of Common Stock having a fair market value (as determined by the Board
of Directors, whose determination shall be conclusive, and described in a
resolution of the Board of Directors) that as of the last time (the "Offer
Expiration Time") tenders or exchanges may be made pursuant to such tender or
exchange offer (as it shall have been amended) that exceeds the Current Market
Price of the Common Stock on the Trading Day next succeeding the Offer
Expiration Time, and in which, as of the Offer Expiration Time the Board of
Directors is not recommending rejection of the offer, the Conversion Rate shall
be increased so that the same shall equal the rate determined by multiplying the
Conversion Rate in effect immediately prior to the Offer Expiration Time by a
fraction the numerator of which shall be the sum of (x) the fair market value
(determined as aforesaid) of the aggregate consideration payable to stockholders
based on the acceptance (up to any maximum specified in the terms of the tender
or exchange offer) of all shares validly tendered or exchanged and not withdrawn
as of the Offer Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Accepted Purchased Shares") and (y) the
product of the number of shares of Common Stock outstanding (less any Accepted
Purchased Shares) at the Offer Expiration Time and the Current Market Price of
the Common Stock on the Trading Day next succeeding the Offer Expiration Time
and the denominator of which shall be the number of shares of Common Stock
outstanding (including any tendered or exchanged shares) at the Offer Expiration
Time multiplied by the Current Market Price of the Common Stock on the Trading
Day next succeeding the Offer Expiration Time, such increase to become effective
immediately prior to the opening of business on the Trading Day following the
Offer Expiration Time. In the event that such Person is obligated to purchase
shares pursuant to any such tender or exchange offer, but such Person is
permanently prevented by applicable law from effecting any such purchases or all
such purchases are rescinded, the Conversion Rate shall again be adjusted to be
the Conversion Rate that would then be in effect if such tender or exchange
offer had not been made. Notwithstanding the foregoing, the adjustment described
in this Section 15.5(g) shall not be made if, as of the Offer Expiration Time,
the offering documents with respect to such offer disclose a plan or intention
to cause the Company to engage in any transaction described in Article Twelve.

           (h) For purposes of this Section 15.5, the following terms shall have
the meaning indicated:


                                      -67-

                       (1) "Closing Price" with respect to any security on any
               day shall mean the closing sale price, regular way, on such day
               or, in case no such sale takes place on such day, the average of
               the reported closing bid and asked prices, regular way, in each
               case as quoted on the Nasdaq National Market or, if such security
               is not quoted or listed or admitted to trading on such Nasdaq
               National Market, on the principal national securities exchange or
               quotation system on which such security is quoted or listed or
               admitted to trading or, if not quoted or listed or admitted to
               trading on any national securities exchange or quotation system,
               the average of the closing bid and asked prices of such security
               on the over-the-counter market on the day in question as reported
               by the National Quotation Bureau Incorporated, or a similar
               generally accepted reporting service, or if not so available, in
               such manner as furnished by any New York Stock Exchange member
               firm selected from time to time by the Board of Directors for
               that purpose, or a price determined in good faith by the Board of
               Directors or, to the extent permitted by applicable law, a duly
               authorized committee thereof, whose determination shall be
               conclusive.

                       (2) "Current Market Price" shall mean the average of the
               daily Closing Prices per share of Common Stock for the ten
               consecutive Trading Days immediately prior to the date in
               question except as hereinafter provided for purposes of any
               computation under Section 15.5(f) or (g); provided, however, that
               (1) if the "ex" date (as hereinafter defined) for any event
               (other than the issuance or distribution requiring such
               computation and other than the tender or exchange offer requiring
               such computation under Section 15.5(f) or (g)) that requires an
               adjustment to the Conversion Rate pursuant to Section 15.5(a),
               (b), (c), (d), (e), (f) or (g) occurs during such ten consecutive
               Trading Days, the Closing Price for each Trading Day prior to the
               "ex" date for such other event shall be adjusted by dividing such
               Closing Price by the same fraction by which the Conversion Rate
               is so required to be adjusted as a result of such other event,
               (2) if the "ex" date for any event (other than the issuance or
               distribution requiring such computation and other than the tender
               or exchange offer requiring such computation under Section
               15.5(f) or (g)) that requires an adjustment to the Conversion
               Rate pursuant to Section 15.5(a), (b), (c), (d), (e), (f) or (g)
               occurs on or after the "ex" date for the issuance or distribution
               requiring such computation and prior to the day in question, the
               Closing Price for each Trading Day on and after the "ex" date for
               such other event shall be adjusted by dividing such Closing Price
               by the reciprocal of the fraction by which the Conversion Rate is
               so required to be adjusted as a result of such other event, and
               (3) if the "ex" date for the issuance or distribution requiring
               such computation is prior to the day in question, after taking
               into account any adjustment required pursuant to clause (1) or
               (2) of this proviso, the Closing Price for each Trading Day on or
               after such "ex" date shall be adjusted by adding thereto the
               amount of any cash and the fair market value (as determined by
               the Board of Directors or, to the extent permitted by applicable
               law, a duly authorized committee thereof in a manner consistent
               with any determination of such value for purposes of Section
               15.5(d), (f) or (g), whose determination shall be conclusive and
               described in a resolution of the Board of Directors or such duly
               authorized committee thereof, as the case may be) of the


                                      -68-



                evidences of indebtedness, shares of capital stock or assets
                being distributed applicable to one share of Common Stock as of
                the close of business on the day before such "ex" date. For
                purposes of any computation under Section 15.5(f) or (g), the
                "Current Market Price" of the Common Stock on any date shall be
                deemed to be the average of the daily Closing Prices per share
                of Common Stock for such day and the next two succeeding Trading
                Days; provided, however, that if the "ex" date for any event
                (other than the tender or exchange offer requiring such
                computation under Section 15.5(f) or (g)) that requires an
                adjustment to the Conversion Rate pursuant to Section 15.5(a),
                (b), (c), (d), (e), (f) or (g) occurs on or after the Expiration
                Time or Offer Expiration Time, as the case may be, for the
                tender or exchange offer requiring such computation and prior to
                the day in question, the Closing Price for each Trading Day on
                and after the "ex" date for such other event shall be adjusted
                as provided in clauses (1), (2) and (3) of the proviso contained
                in the first sentence of this Section 15.5(h)(2). For purpose of
                this paragraph, the term "ex" date, (1) when used with respect
                to any issuance or distribution, means the first date on which
                the Common Stock trades, regular way, on the relevant exchange
                or in the relevant market from which the Closing Price was
                obtained without the right to receive such issuance or
                distribution, (2) when used with respect to any subdivision or
                combination of shares of Common Stock, means the first date on
                which the Common Stock trades, regular way, on such exchange or
                in such market after the time at which such subdivision or
                combination becomes effective, and (3) when used with respect to
                any tender or exchange offer means the first date on which the
                Common Stock trades, regular way, on such exchange or in such
                market after the Expiration Time or the Offer Expiration Time of
                such offer.

                       (3) "fair market value" shall mean the amount which a
               willing buyer would pay a willing seller in an arm's-length
               transaction.

                       (4) "Record Date" shall mean, with respect to any
               dividend, distribution or other transaction or event in which the
               holders of Common Stock have the right to receive any cash,
               securities or other property or in which the Common Stock (or
               other applicable security) is exchanged for or converted into any
               combination of cash, securities or other property, the date fixed
               for determination of stockholders entitled to receive such cash,
               securities or other property (whether such date is fixed by the
               Board of Directors or by statute, contract or otherwise).

                       (5) "Trading Day" shall mean (x) if the applicable
               security is quoted on the Nasdaq National Market, a day on which
               trades may be made thereon or (y) if the applicable security is
               listed or admitted for trading on the New York Stock Exchange or
               another national securities exchange, a day on which the New York
               Stock Exchange or another national securities exchange is open
               for business or (z) if the applicable security is not so listed,
               admitted for trading or quoted, any day other than a Saturday or
               Sunday or a day on which banking institutions in the State of New
               York are authorized or obligated by law or executive order to
               close.


                                      -69-



               (i) The Company may make such increases in the Conversion Rate,
in addition to those required by Sections 15.5(a), (b), (c), (d), (e), (f) or
(g) as the Board of Directors considers to be advisable to avoid or diminish any
income tax to holders of Common Stock or rights to purchase Common Stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes.

        To the extent permitted by applicable law, the Company from time to time
may increase the Conversion Rate by any amount for any period of time if the
period is at least twenty (20) days, the increase is irrevocable during the
period and the Board of Directors shall have made a determination that such
increase would be in the best interests of the Company, which determination
shall be conclusive. Whenever the Conversion Rate is increased pursuant to the
preceding sentence, the Company shall mail to holders of record of the Notes a
notice of the increase at least fifteen (15) days prior to the date the
increased Conversion Rate takes effect, and such notice shall state the
increased Conversion Rate and the period during which it will be in effect.

               (j) No adjustment in the Conversion Rate shall be required unless
such adjustment would require an increase or decrease of at least one percent
(1%) in such ratio; provided, however, that any adjustments that by reason of
this Section 15.5(j) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. No adjustment need be made for
rights to purchase Common Stock pursuant to a Company plan for reinvestment of
dividends or interest. To the extent the Notes become convertible into cash,
assets, property or securities (other than capital stock of the Company), no
adjustment need be made thereafter as to the cash, assets, property or such
securities. Interest will not accrue on the cash.

               (k) Whenever the Conversion Rate is adjusted as herein provided,
the Company shall promptly file with the Trustee and any conversion agent other
than the Trustee an Officers' Certificate setting forth the Conversion Rate
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment. Unless and until a Responsible Officer of the Trustee shall
have received such Officers' Certificate, the Trustee shall not be deemed to
have knowledge of any adjustment of the Conversion Rate and may assume without
inquiry that the last Conversion Rate of which it has knowledge is still in
effect. Promptly after delivery of such certificate, the Company shall prepare a
notice of such adjustment of the Conversion Rate setting forth the adjusted
Conversion Rate and the date on which each adjustment becomes effective and
shall mail such notice of such adjustment of the Conversion Rate to the holder
of each Note at his last address appearing on the Note register provided for in
Section 2.5 of this Indenture, within twenty (20) days after execution thereof.
Failure to deliver such notice shall not affect the legality or validity of any
such adjustment.

               (l) In any case in which this Section 15.5 provides that an
adjustment shall become effective immediately after (1) a record date or Record
Date for an event, (2) the date fixed for the determination of stockholders
entitled to receive a dividend or distribution pursuant to Section 15.5(a), (3)
a date fixed for the determination of stockholders entitled to receive rights or
warrants pursuant to Section 15.5(b), (4) the Expiration Time for any tender or
exchange offer pursuant to Section 15.5(f), or (5) the Offer Expiration Time for
a tender or exchange offer pursuant to Section 15.5(g) (each a "Determination
Date"), the Company may elect to defer until


                                      -70-



the occurrence of the relevant Adjustment Event (as hereinafter defined) (x)
issuing to the holder of any Note converted after such Determination Date and
before the occurrence of such Adjustment Event, the additional shares of Common
Stock or other securities issuable upon such conversion by reason of the
adjustment required by such Adjustment Event over and above the Common Stock
issuable upon such conversion before giving effect to such adjustment and (y)
paying to such holder any amount in cash in lieu of any fraction pursuant to
Section 15.3. For purposes of this Section 15.5(l), the term "Adjustment Event"
shall mean:

                       (a) in any case referred to in clause (1) hereof, the
               occurrence of such event,

                       (b) in any case referred to in clause (2) hereof, the
               date any such dividend or distribution is paid or made,

                       (c) in any case referred to in clause (3) hereof, the
               date of expiration of such rights or warrants, and

                       (d) in any case referred to in clause (4) or clause (5)
               hereof, the date a sale or exchange of Common Stock pursuant to
               such tender or exchange offer is consummated and becomes
               irrevocable.

               (m) For purposes of this Section 15.5, the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. The Company
will not pay any dividend or make any distribution on shares of Common Stock
held in the treasury of the Company.

        Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale.
If any of the following events occur, namely (i) any reclassification or change
of the outstanding shares of Common Stock (other than a subdivision or
combination to which Section 15.5(c) applies), (ii) any consolidation, merger or
combination of the Company with another Person as a result of which holders of
Common Stock shall be entitled to receive stock, other securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock, or (iii) any sale or conveyance of all or substantially all of the
properties and assets of the Company to any other Person as a result of which
holders of Common Stock shall be entitled to receive stock, other securities or
other property or assets (including cash) with respect to or in exchange for
such Common Stock, then the Company or the successor or purchasing Person, as
the case may be, shall execute with the Trustee a supplemental indenture (which
shall comply with the Trust Indenture Act as in force at the date of execution
of such supplemental indenture) providing that such Note shall be convertible
into the kind and amount of shares of stock, other securities or other property
or assets (including cash) receivable upon such reclassification, change,
consolidation, merger, combination, sale or conveyance by a holder of a number
of shares of Common Stock issuable upon conversion of such Notes (assuming, for
such purposes, a sufficient number of authorized shares of Common Stock are
available to convert all such Notes) immediately prior to such reclassification,
change, consolidation, merger, combination, sale or conveyance assuming such
holder of Common Stock did not exercise his rights of election, if any, as to
the kind or amount of stock, other securities or other property or assets


                                      -71-



(including cash) receivable upon such reclassification, change, consolidation,
merger, combination, sale or conveyance (provided that, if the kind or amount of
stock, other securities or other property or assets (including cash) receivable
upon such reclassification, change, consolidation, merger, combination, sale or
conveyance is not the same for each share of Common Stock in respect of which
such rights of election shall not have been exercised ("non-electing share"),
then for the purposes of this Section 15.6 the kind and amount of stock, other
securities or other property or assets (including cash) receivable upon such
reclassification, change, consolidation, merger, combination, sale or conveyance
for each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares). Such
supplemental indenture shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
Fifteen.

        The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Notes, at its address appearing on the
Note register provided for in Section 2.5 of this Indenture, within twenty (20)
days after execution thereof. Failure to deliver such notice shall not affect
the legality or validity of such supplemental indenture.

        The above provisions of this Section 15.6 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.

        If this Section 15.6 applies to any event or occurrence, Section 15.5
shall not apply.

        Section 15.7 Taxes on Shares Issued. The issue of stock certificates on
conversions of Notes shall be made without charge to the converting Noteholder
for any tax in respect of the issue thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of stock in any name other than that of the holder of
any Note converted, and the Company shall not be required to issue or deliver
any such stock certificate unless and until the Person or Persons requesting the
issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.

        Section 15.8 Reservation of Shares; Shares to be Fully Paid; Compliance
with Governmental Requirements; Listing of Common Stock. The Company shall
provide, free from preemptive rights, out of its authorized but unissued shares
or shares held in treasury, sufficient shares of Common Stock to provide for the
conversion of the Notes from time to time as such Notes are presented for
conversion.

        Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Notes, the Company will take all corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted Conversion Price.

        The Company covenants that all shares of Common Stock which may be
issued upon conversion of Notes will upon issue be fully paid and non-assessable
by the Company and free from all taxes, liens and charges with respect to the
issue thereof.


                                      -72-



        The Company covenants that, if any shares of Common Stock to be provided
for the purpose of conversion of Notes hereunder require registration with or
approval of any governmental authority under any federal or state law before
such shares may be validly issued upon conversion, the Company will in good
faith and as expeditiously as possible, to the extent then permitted by the
rules and interpretations of the Commission, endeavor to secure such
registration or approval, as the case may be.

        The Company further covenants that, if at any time the Common Stock
shall be listed on the Nasdaq National Market or any other national securities
exchange or automated quotation system, the Company will, if permitted by the
rules of such exchange or automated quotation system, list and keep listed, so
long as the Common Stock shall be so listed on such exchange or automated
quotation system, all Common Stock issuable upon conversion of the Note;
provided, however, that, if the rules of such exchange or automated quotation
system permit the Company to defer the listing of such Common Stock until the
first conversion of the Notes into Common Stock in accordance with the
provisions of this Indenture, the Company covenants to list such Common Stock
issuable upon conversion of the Notes in accordance with the requirements of
such exchange or automated quotation system at such time.

        Section 15.9 Responsibility of Trustee. The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Notes to determine the Conversion Rate or whether any facts exist
which may require any adjustment of the Conversion Rate, or with respect to the
nature or extent or calculation of any such adjustment when made, or with
respect to the method employed, or herein or in any supplemental indenture
provided to be employed, in making the same. The Trustee and any other
conversion agent shall not be accountable with respect to the validity or value
(or the kind or amount) of any shares of Common Stock, or of any securities or
property, which may at any time be issued or delivered upon the conversion of
any Note; and the Trustee and any other conversion agent make no representations
with respect thereto. Neither the Trustee nor any conversion agent shall be
responsible for any failure of the Company to issue, transfer or deliver any
shares of Common Stock or stock certificates or other securities or property or
cash upon the surrender of any Note for the purpose of conversion or to comply
with any of the duties, responsibilities or covenants of the Company contained
in this Article Fifteen. Without limiting the generality of the foregoing,
neither the Trustee nor any conversion agent shall be under any responsibility
to determine the correctness of any provisions contained in any supplemental
indenture entered into pursuant to Section 15.6 relating either to the kind or
amount of shares of stock or securities or property (including cash) receivable
by Noteholders upon the conversion of their Notes after any event referred to in
such Section 15.6 or to any adjustment to be made with respect thereto, but,
subject to the provisions of Section 8.1, may accept as conclusive evidence of
the correctness of any such provisions, and shall be protected in relying upon,
the Officers' Certificate (which the Company shall be obligated to file with the
Trustee prior to the execution of any such supplemental indenture) with respect
thereto.

        Section 15.10 Notice to Holders Prior to Certain Actions. In case:

               (a) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would require an adjustment in the
Conversion Rate pursuant to Section 15.5; or


                                      -73-



               (b) the Company shall authorize the granting to the holders of
all or substantially all of its Common Stock of rights or warrants to subscribe
for or purchase any share of any class or any other rights or warrants; or

               (c) of any reclassification or reorganization of the Common Stock
(other than a subdivision or combination of its outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par value to
par value), or of any consolidation or merger to which the Company is a party
and for which approval of any of the Company's stockholders is required, or of
the sale or transfer of all or substantially all of the assets of the Company or
any Significant Subsidiary; or

               (d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company or any Significant Subsidiary;

the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Notes at his address appearing on the Note register provided for in
Section 2.5 of this Indenture, as promptly as possible but in any event at least
ten (10) days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective or occur,
and the date, if any, as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of such
dividend, distribution, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up.

                                 ARTICLE SIXTEEN

                            MISCELLANEOUS PROVISIONS

        Section 16.1 Provisions Binding on Company's Successors. All the
covenants, stipulations, promises and agreements by the Company contained in
this Indenture shall bind its successors and assigns whether so expressed or
not.

        Section 16.2 Official Acts by Successor Corporation. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any Person that shall at the time be the lawful sole successor of the
Company.

        Section 16.3 Addresses for Notices, Etc. Any notice or demand which by
any provision of this Indenture is required or permitted to be given or served
by the Trustee or by the holders of Notes on the Company shall be deemed to have
been sufficiently given or made, for all purposes, if given or served by being
deposited postage prepaid by registered or certified mail in a post


                                      -74-



office letter box addressed (until another address is filed by the Company with
the Trustee) to Brocade Communications Systems, Inc., 1745 Technology Drive, San
Jose, California 95110, Attention: Chief Financial Officer. Any notice,
direction, request or demand hereunder to or upon the Trustee shall be deemed to
have been sufficiently given or made, for all purposes, if given or served by
being deposited, postage prepaid, by registered or certified mail in a post
office letter box addressed to the Corporate Trust Office, which office is, at
the date as of which this Indenture is dated, located at 633 West 5th Street,
12th Floor, Los Angeles, California 90071, Attention: Corporate Trust Department
(Brocade Communications Systems, Inc. 2% Convertible Subordinated Notes due
2007).

        The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.

        Any notice or communication mailed to a Noteholder shall be mailed to
him by first class mail, postage prepaid, at his address as it appears on the
Note register and shall be sufficiently given to him if so mailed within the
time prescribed.

        Failure to mail a notice or communication to a Noteholder or any defect
in it shall not affect its sufficiency with respect to other Noteholders. If a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.

        Section 16.4 Governing Law. This Indenture and each Note shall be deemed
to be a contract made under the laws of the State of New York, and for all
purposes shall be construed in accordance with the laws of the State of New
York.

        Section 16.5 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel stating that,
in the opinion of such counsel, all such conditions precedent have been complied
with.

        Each certificate or opinion provided for in this Indenture and delivered
to the Trustee with respect to compliance with a condition or covenant provided
for in this Indenture shall include: (1) a statement that the person making such
certificate or opinion has read such covenant or condition; (2) a brief
statement as to the nature and scope of the examination or investigation upon
which the statement or opinion contained in such certificate or opinion is
based; (3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.

        Section 16.6 Legal Holidays. In any case in which the date of maturity
of interest on or principal of the Notes or the date fixed for redemption or
repurchase of any Note will not be a Business Day, then payment of such interest
on or principal of the Notes need not be made on such date, but may be made on
the next succeeding Business Day with the same force and effect


                                      -75-



as if made on the date of maturity or the date fixed for redemption or
repurchase, and no interest shall accrue for the period from and after such
date.

        Section 16.7 Trust Indenture Act. This Indenture is hereby made subject
to, and shall be governed by, the provisions of the Trust Indenture Act required
to be part of and to govern indentures qualified under the Trust Indenture Act;
provided, however, that, unless otherwise required by law, notwithstanding the
foregoing, this Indenture and the Notes issued hereunder shall not be subject to
the provisions of subsections (a)(1), (a)(2), and (a)(3) of Section 314 of the
Trust Indenture Act as now in effect or as hereafter amended or modified;
provided further that this Section 16.7 shall not require this Indenture or the
Trustee to be qualified under the Trust Indenture Act prior to the time such
qualification is required under the terms of the Trust Indenture Act, nor shall
it constitute any admission or acknowledgment by any party to the Indenture that
any such qualification is required prior to the time such qualification is in
fact required under the terms of the Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with another provision hereof which is
required to be included in an indenture qualified under the Trust Indenture Act,
such required provision shall control.

        Section 16.8 No Security Interest Created. Nothing in this Indenture or
in the Notes, expressed or implied, shall be construed to constitute a security
interest under the Uniform Commercial Code or similar legislation, as now or
hereafter enacted and in effect, in any jurisdiction in which property of the
Company or its Subsidiaries is located.

        Section 16.9 Benefits of Indenture. Nothing in this Indenture or in the
Notes, express or implied, shall give to any Person, other than the parties
hereto, any paying agent, any authenticating agent, any Note registrar and their
successors hereunder, the holders of Notes and the holders of Senior
Indebtedness, any benefit or any legal or equitable right, remedy or claim under
this Indenture.

        Section 16.10 Table of Contents, Headings, Etc. The table of contents
and the titles and headings of the articles and sections of this Indenture have
been inserted for convenience of reference only, are not to be considered a part
hereof, and shall in no way modify or restrict any of the terms or provisions
hereof.

        Section 16.11 Authenticating Agent. The Trustee may appoint an
authenticating agent that shall be authorized to act on its behalf, and subject
to its direction, in the authentication and delivery of Notes in connection with
the original issuance thereof and transfers and exchanges of Notes hereunder,
including under Sections 2.4, 2.5, 2.6, 2.7, 3.3 and 3.5, as fully to all
intents and purposes as though the authenticating agent had been expressly
authorized by this Indenture and those Sections to authenticate and deliver
Notes. For all purposes of this Indenture, the authentication and delivery of
Notes by the authenticating agent shall be deemed to be authentication and
delivery of such Notes "by the Trustee" and a certificate of authentication
executed on behalf of the Trustee by an authenticating agent shall be deemed to
satisfy any requirement hereunder or in the Notes for the Trustee's certificate
of authentication. Such authenticating agent shall at all times be a Person
eligible to serve as Trustee hereunder pursuant to Section 8.9.


                                      -76-



        Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any authenticating agent
shall be a party, or any corporation succeeding to the corporate trust business
of any authenticating agent, shall be the successor of the authenticating agent
hereunder, if such successor corporation is otherwise eligible under this
Section 16.11, without the execution or filing of any paper or any further act
on the part of the parties hereto or the authenticating agent or such successor
corporation.

        Any authenticating agent may at any time resign by giving written notice
of resignation to the Trustee and to the Company. The Trustee may at any time
terminate the agency of any authenticating agent by giving written notice of
termination to such authenticating agent and to the Company. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time any
authenticating agent shall cease to be eligible under this Section, the Trustee
shall either promptly appoint a successor authenticating agent or itself assume
the duties and obligations of the former authenticating agent under this
Indenture and, upon such appointment of a successor authenticating agent, if
made, shall give written notice of such appointment of a successor
authenticating agent to the Company and shall mail notice of such appointment of
a successor authenticating agent to all holders of Notes as the names and
addresses of such holders appear on the Note register.

        The Company agrees to pay to the authenticating agent from time to time
such reasonable compensation for its services as shall be agreed upon in writing
between the Company and the authenticating agent.

        The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 16.11
shall be applicable to any authenticating agent.

        Section 16.12 Execution in Counterparts. This Indenture may be executed
in any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.

        Section 16.13 Severability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, then (to the extent
permitted by law) the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.


                                      -77-



        IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed.

                                         BROCADE COMMUNICATIONS SYSTEMS, INC.

                                         By:   /s/ Antonio Canova
                                             ----------------------------------
                                              Name:  Antonio Canova
                                              Title: Chief Financial Officer

                                         STATE STREET BANK AND TRUST
                                         COMPANY OF CALIFORNIA, N.A.,
                                         as Trustee

                                         By:   /s/ Stephen Rivero
                                             ----------------------------------
                                              Name:  Stephen Rivero
                                              Title: Vice President


                                      -78-



                                    EXHIBIT A

        For Global Note only: UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW
YORK, NEW YORK) (THE "DEPOSITARY", WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY
FOR THE CERTIFICATES) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITARY (AND ANY PAYMENT HEREIN IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

        THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT), (B) AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT)
("INSTITUTIONAL ACCREDITED INVESTOR"), OR (C) A NON-U.S. PERSON; (2) AGREES THAT
IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF
THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY
SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THIS NOTE OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS NOTE EXCEPT (A) TO BROCADE COMMUNICATIONS
SYSTEMS, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE NOTES (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), AND IF SUCH TRANSFER
IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES OF LESS THAN $100,000,
AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN COMPLIANCE
WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF


                                      A-1



AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE
TIME OF SUCH TRANSFER); (3) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER
PURSUANT TO CLAUSE (2)(F) ABOVE), IT WILL FURNISH TO STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE),
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE TRUSTEE MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT; AND (4) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE PRIOR TO THE
EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THIS NOTE UNDER RULE
144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER
OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A., AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE).
IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR IS A
PURCHASER WHO IS NOT A UNITED STATES PERSON, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS
TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS SUCH TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THIS NOTE
PURSUANT TO CLAUSE (2)(F) ABOVE OR UPON ANY TRANSFER OF THIS NOTE UNDER RULE
144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN,
THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
VIOLATION OF THE FOREGOING RESTRICTION.


                                      A-2



                      BROCADE COMMUNICATIONS SYSTEMS, INC.

                    2% CONVERTIBLE SUBORDINATED NOTE DUE 2007

                                                              CUSIP: ___________

No.: _____                                                          $___________


        Brocade Communications Systems, Inc., a corporation duly organized and
validly existing under the laws of the State of Delaware (herein called the
"Company", which term includes any successor corporation under the Indenture
referred to on the reverse hereof), for value received hereby promises to pay to
________________ or registered assigns, the principal sum of _______________
Dollars ($___________) on January 1, 2007, at the office or agency of the
Company maintained for that purpose in accordance with the terms of the
Indenture, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts, and to pay interest, semi-annually on July 1 and January 1 of each year,
commencing July 1, 2002, on said principal sum at said office or agency, in like
coin or currency, at the rate per annum of 2%, from July 1 or January 1, as the
case may be, next preceding the date of this Note to which interest has been
paid or duly provided for, unless the date hereof is a date to which interest
has been paid or duly provided for, in which case from the date of this Note, or
unless no interest has been paid or duly provided for on the Notes, in which
case from December 21, 2001, until payment of said principal sum has been made
or duly provided for. Notwithstanding the foregoing, if the date hereof is after
any June 15 or December 15, as the case may be, and before the following July 1
or January 1, this Note shall bear interest from such July 1 or January 1;
provided, however, that if the Company shall default in the payment of interest
due on such July 1 or January 1, then this Note shall bear interest from the
next preceding July 1 or January 1 to which interest has been paid or duly
provided for or, if no interest has been paid or duly provided for on such Note,
from December 21, 2001. Except as otherwise provided in the Indenture, the
interest payable on the Note pursuant to the Indenture on any July 1 or January
1 will be paid to the Person entitled thereto as it appears in the Note register
at the close of business on the record date, which shall be the June 15 or
December 15 (whether or not a Business Day) next preceding such July 1 or
January 1, as provided in the Indenture; provided, however, that any such
interest not punctually paid or duly provided for shall be payable as provided
in the Indenture. Interest may, at the option of the Company, be paid either (i)
by check mailed to the registered address of such Person (provided that the
holder of Notes with an aggregate principal amount in excess of $2,000,000
shall, at the written election of such holder, be paid by wire transfer of
immediately available funds) or (ii) by transfer to an account maintained by
such Person located in the United States; provided, however, that payments to
the Depositary will be made by wire transfer of immediately available funds to
the account of the Depositary or its nominee.

        Reference is made to the further provisions of this Note set forth on
the reverse hereof, including, without limitation, provisions subordinating the
payment of principal of and premium, if any, and interest (including Liquidated
Damages, if any) on the Notes to the prior payment in full of all Senior
Indebtedness, as defined in the Indenture in cash or other payment satisfactory
to the holders of such Senior Indebtedness, and provisions giving the holder of
this Note the right to convert this Note on the terms and subject to the
limitations referred to on the reverse hereof


                                      A-3



and as more fully specified in the Indenture. Such further provisions shall for
all purposes have the same effect as though fully set forth at this place.

        This Note shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be construed in accordance with
and governed by the laws of the State of New York.

        This Note shall not be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been manually signed by the
Trustee or a duly authorized authenticating agent under the Indenture.


                                      A-4



        IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed.

                                             BROCADE COMMUNICATIONS
                                             SYSTEMS, INC.


                                             By:
                                                --------------------------------
                                                  Name:
                                                  Title:



                                             Attest:


                                             By:
                                                --------------------------------
                                                  Name:
                                                  Title:

Dated:
       ------------

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Notes described in the within-named Indenture.

STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A., as Trustee


By:
    --------------------------------
    Name:
    Title:


By:
    --------------------------------
         As Authenticating Agent
       (if different from Trustee)


                                      A-5



                                 REVERSE OF NOTE

                      BROCADE COMMUNICATIONS SYSTEMS, INC.

                   2% CONVERTIBLE SUBORDINATED NOTES DUE 2007


        This Note is one of a duly authorized issue of Notes of the Company,
designated as its 2% Convertible Subordinated Notes Due 2007 (herein called the
"Notes"), limited to the aggregate principal amount of $550,000,000, all issued
or to be issued under and pursuant to an Indenture dated as of December 21, 2001
(herein called the "Indenture"), between the Company and State Street Bank and
Trust Company of California, N.A., as trustee (herein called the "Trustee"), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the Notes.

        In case an Event of Default (as defined in the Indenture) shall have
occurred and be continuing, the principal of, premium, if any, and accrued
interest (including Liquidated Damages, if any) on all Notes may be declared by
either the Trustee or the holders of not less than 25% in aggregate principal
amount of the Notes then outstanding, and upon said declaration shall become,
due and payable, in the manner, with the effect and subject to the conditions
provided in the Indenture.

        The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Notes at the time outstanding, to execute
supplemental indentures adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of any supplemental
indenture or modifying in any manner the rights of the holders of the Notes;
provided, however, that no such supplemental indenture shall (i) extend the
fixed maturity of any Note, or reduce the rate or extend the time of payment of
interest thereon, or reduce the principal amount thereof or premium, if any,
thereon, or reduce any amount payable upon redemption or repurchase thereof, or
impair the right of any Noteholder to institute suit for the payment thereof, or
make the principal thereof or interest or premium, if any, thereon payable in
any coin or currency other than that provided in the Notes, or modify the
provisions of the Indenture with respect to the subordination of the Notes in a
manner adverse to the Noteholders in any material respect, or change the
obligation of the Company to repurchase any Note upon the happening of a
Fundamental Change (as defined in the Indenture) in a manner adverse to the
holders of the Notes, or impair the right to convert the Notes subject to the
terms set forth in the Indenture, including Section 15.6 thereof, without the
consent of the holder of each Note so affected or (ii) reduce the aforesaid
percentage of Notes, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all Notes then
outstanding. Subject to the provisions of the Indenture, the holders of a
majority in aggregate principal amount of the Notes at the time outstanding may
on behalf of the holders of all of the Notes waive any past default or Event of
Default under the Indenture and its consequences except a default in the payment
of interest (including Liquidated Damages, if any) or any premium on, or the
principal of, any of the Notes, or a failure by the Company to make any required
conversion of Notes into Common Stock of the Company or make any payment of cash
required upon


                                      A-6



conversion of the Notes, or a default in the payment of the redemption price or
the repurchase price pursuant to Article Three of the Indenture, or a default in
respect of a covenant or provisions of the Indenture which under Article Eleven
of the Indenture cannot be modified without the consent of the holders of all
Notes then outstanding or affected thereby. Any such consent or waiver by the
holder of this Note (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such holder and upon all future holders and owners
of this Note and any Notes which may be issued in exchange or substitution
hereof, irrespective of whether or not any notation thereof is made upon this
Note or such other Notes.

        The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, expressly subordinated and subject in right of
payment to the prior payment in full of all Senior Indebtedness (as defined in
the Indenture) of the Company, whether outstanding at the date of the Indenture
or thereafter incurred, and this Note is issued subject to the provisions of the
Indenture with respect to such subordination. Each holder of this Note, by
accepting the same, agrees to and shall be bound by such provisions and
authorizes the Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate the subordination so provided and appoints the Trustee
his attorney-in-fact for such purpose.

        No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
(including Liquidated Damages, if any) on this Note at the place, at the
respective times, at the rate and in the coin or currency herein prescribed.

        Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months.

        The Notes are issuable in registered form, without coupons, in
denominations of $1,000 principal amount and any integral multiple of $1,000. At
the office or agency of the Company referred to on the face hereof, and in the
manner and subject to the limitations provided in the Indenture, without payment
of any service charge but with payment of a sum sufficient to cover any tax,
assessment or other governmental charge that may be imposed in connection with
any registration or exchange of Notes, Notes may be exchanged for a like
aggregate principal amount of Notes of any other authorized denominations.

        At any time on or after January 5, 2005, and prior to maturity, the
Notes may be redeemed at the option of the Company, in whole or in part, upon
mailing a notice of such redemption not less than 30 nor more than 60 days
before the date fixed for redemption to the holders of Notes at their last
registered addresses, all as provided in the Indenture, at the following
Optional Redemption prices (expressed as percentages of the principal amount),
together in each case with accrued and unpaid interest (including Liquidated
Damages, if any) to, but excluding, the date fixed for redemption:


                                      A-7






Period                                                                              Redemption Price
- ------                                                                              ----------------
                                                                                 
Beginning on January 5, 2005 and ending on December 31, 2005                            100.80%
Beginning on January 1, 2005 and ending on December 31, 2006                            100.40%



and 100% on January 1, 2007; provided, however, that if the date fixed for
redemption is on July 1 or January 1, then the interest payable on such date
shall be paid to the holder of record on the preceding June 15 or December 15,
respectively. In order to make a cash payment in lieu of issuing shares of
Common Stock upon any conversion of any Notes called for redemption, the
redemption notice must specify such election to settle the conversion in cash.

        The Company may not give notice of any redemption of the Notes if a
default in the payment of interest or premium, if any, on the Notes has occurred
and is continuing.

        The Notes are not subject to redemption through the operation of any
sinking fund.

        If a Fundamental Change occurs at any time prior to maturity of the
Notes, the Notes will be repurchasable on the 30th day after notice thereof (or,
if such 30th day is not a Business Day, the immediately preceding Business Day)
(the "Repurchase Date") at the option of the holder of the Notes at a redemption
price equal to 100% of the principal amount thereof, together with accrued
interest to (but excluding) the date of redemption; provided, however, that, if
such Repurchase Date is a July 1 or January 1, the interest payable on such date
shall be paid to the holder of record of the Notes on the preceding June 15 or
December 15, respectively. The Notes will be repurchasable in integral multiples
of $1,000 principal amount. The Company or, as provided in the Indenture, the
Trustee, shall mail to all holders of record of the Notes a notice of the
occurrence of a Fundamental Change and of the redemption right arising as a
result thereof on or before the 10th day after the occurrence of such
Fundamental Change. For a Note to be so repurchased at the option of the holder,
the Company must receive at the office or agency of the Company maintained for
that purpose in accordance with the terms of the Indenture, such Note with the
form entitled "Option to Elect Repayment Upon a Fundamental Change" on the
reverse thereof duly completed, together with such Note, duly endorsed for
transfer, on or before the Fundamental Change Expiration Time (as defined in the
Indenture).

        Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time after the original issuance of any Notes
through the close of business on the final maturity date of the Notes, or, as to
all or any portion hereof called for redemption, prior to the close of business
on the Business Day immediately preceding the date fixed for redemption (unless
the Company shall default in payment due upon redemption thereof), to convert
the principal hereof or any portion of such principal which is $1,000 or an
integral multiple thereof into that number of shares of the Company's Common
Stock (as such shares shall be constituted at the date of conversion) at an
initial Conversion Rate of 22.8571 shares of Common Stock per $1,000 principal
amount of Notes, as may adjusted from time to time as provided in the Indenture,
upon surrender of this Note, together with a conversion notice as provided in
the Indenture (the form entitled "Conversion Notice" on the reverse hereof), to
the Company at the office or agency of the Company maintained for that purpose
in accordance with the terms of the Indenture, or at the option of such holder,
the Corporate Trust Office as provided in the Indenture, and, unless the shares
issuable on conversion are to be issued in the same name as this


                                      A-8



Note, duly endorsed by, or accompanied by instruments of transfer in form
satisfactory to the Company duly executed by, the holder or by his duly
authorized attorney.

        No adjustment in respect of interest on any Note converted or dividends
on any shares issued upon conversion of such Note will be made upon any
conversion except as set forth in the next sentence. If this Note (or portion
hereof) is surrendered for conversion during the period from the close of
business on any record date for the payment of interest to the close of business
on the Business Day preceding the following interest payment date and either (x)
has not been called for redemption on a redemption date that occurs during such
period or (y) is not to be repurchased in connection with a Fundamental Change
on a Repurchase Date that occurs during such period, this Note (or portion
hereof being converted) must be accompanied by an amount, in New York Clearing
House funds or other funds acceptable to the Company, equal to the interest
payable on such interest payment date on the principal amount being converted;
provided, however, that no such payment shall be required if there exists at the
time of conversion a default in the payment of interest on the Notes. No
fractional shares will be issued upon any conversion, but an adjustment and
payment in cash will be made, as provided in the Indenture, in respect of any
fraction of a share which would otherwise be issuable upon the surrender of any
Note or Notes for conversion. A Note in respect of which a holder is exercising
its right to require repurchase upon a Fundamental Change may be converted only
if such holder withdraws its election to exercise such right in accordance with
the terms of the Indenture. Any Notes called for redemption, unless surrendered
for conversion by the holders thereof on or before the close of business on the
Business Day preceding the date fixed for redemption, may be deemed to be
repurchased from the holders of such Notes for an amount equal to the applicable
redemption price, together with accrued but unpaid interest (including
Liquidated Damages, if any) to (but excluding) the date fixed for redemption, by
one or more investment banks or other purchasers who may agree with the Company
(i) to purchase such Notes from the holders thereof and convert them into shares
of the Company's Common Stock and (ii) to make payment for such Notes as
aforesaid to the Trustee in trust for the holders.

        Upon due presentment for registration of transfer of this Note at the
office or agency of the Company maintained for that purpose in accordance with
the terms of the Indenture, a new Note or Notes of authorized denominations for
an equal aggregate principal amount will be issued to the transferee in exchange
thereof; subject to the limitations provided in the Indenture, without charge
except for any tax, assessment or other governmental charge imposed in
connection therewith.

        The Company, the Trustee, any authenticating agent, any paying agent,
any conversion agent and any Note registrar may deem and treat the registered
holder hereof as the absolute owner of this Note (whether or not this Note shall
be overdue and notwithstanding any notation of ownership or other writing hereon
made by anyone other than the Company or any Note registrar) for the purpose of
receiving payment hereof, or on account hereof, for the conversion hereof and
for all other purposes, and neither the Company nor the Trustee nor any other
authenticating agent nor any paying agent nor other conversion agent nor any
Note registrar shall be affected by any notice to the contrary. All payments
made to or upon the order of such registered holder shall, to the extent of the
sum or sums paid, satisfy and discharge liability for monies payable on this
Note.


                                      A-9



        No recourse for the payment of the principal of or any premium or
interest on this Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in the Indenture or any supplemental indenture or in any Note, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, employee, agent, officer or director or
Subsidiary, as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law or by
the enforcement of any assessment or penalty or otherwise, all such liability
being, by acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.

        This Note shall be deemed to be a contract made under the laws of New
York, and for all purposes shall be construed in accordance with the laws of New
York.

        Terms used in this Note and defined in the Indenture are used herein as
therein defined.


                                      A-10



                                  ABBREVIATIONS

        The following abbreviations, when used in the inscription of the face of
this Note, shall be construed as though they were written out in full according
to applicable laws or regulations.

        TEN COM - as tenants in common

        TEN ENT - as tenant by the entireties

        JT TEN - as joint tenants with right of survivorship and not as tenants
        in common

         UNIF GIFT MIN ACT -              Custodian
                             ------------           -------------
                                (Cust)                 (Minor)

         under Uniform Gifts to Minors Act


         --------------------------------------------
                           (State)

        Additional abbreviations may also be used though not in the above list.


                                      A-11



                                CONVERSION NOTICE

TO:     BROCADE COMMUNICATIONS SYSTEMS, INC.

        The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion thereof (which is
$1,000 or an integral multiple thereof) below designated, into shares of Common
Stock of Brocade Communications Systems, Inc. in accordance with the terms of
the Indenture referred to in this Note, and directs that the shares issuable and
deliverable upon such conversion, together with any check in payment for
fractional shares and any Notes representing any unconverted principal amount
hereof, be issued and delivered to the registered holder hereof unless a
different name has been indicated below. If shares or any portion of this Note
not converted are to be issued in the name of a Person other than the
undersigned, the undersigned will provide the appropriate information below and
pay all transfer taxes payable with respect thereto. Any amount required to be
paid by the undersigned on account of interest accompanies this Note.

Dated:
       -------------------



                                             -----------------------------------


                                             -----------------------------------
                                             Signature(s)

                                             Signature(s) must be guaranteed by
                                             an "eligible guarantor institution"
                                             meeting the requirements of the
                                             Note registrar, which requirements
                                             include membership or participation
                                             in the Security Transfer Agent
                                             Medallion Program ("STAMP") or such
                                             other "signature guarantee program"
                                             as may be determined by the Note
                                             registrar in addition to, or in
                                             substitution for, STAMP, all in
                                             accordance with the Securities
                                             Exchange Act of 1934, as amended.


                                             -----------------------------------
                                             Signature Guarantee


                                      A-12



Fill in the registration of shares of Common Stock if to be issued, and Notes if
to be delivered, other than to and in the name of the registered holder:

- --------------------------------
(Name)


- --------------------------------
(Street Address)


- --------------------------------
(City, State and Zip Code)


- --------------------------------
Please print name and address

Principal amount to be converted
(if less than all):

$
 -------------------------------

Social Security or Other Taxpayer
Identification Number:

- --------------------------------


                                      A-13



                            OPTION TO ELECT REPAYMENT

                            UPON A FUNDAMENTAL CHANGE

TO:     BROCADE COMMUNICATIONS SYSTEMS, INC.


        The undersigned registered owner of this Note hereby irrevocably
acknowledges receipt of a notice from Brocade Communications Systems, Inc. (the
"Company") as to the occurrence of a Fundamental Change with respect to the
Company and requests and instructs the Company to repay the entire principal
amount of this Note, or the portion thereof (which is $1,000 or an integral
multiple thereof) below designated, in accordance with the terms of the
Indenture referred to in this Note at the price of 100% of such entire principal
amount or portion thereof, together with accrued interest to, but excluding,
such repayment date, to the registered holder hereof.

Dated:
       --------------------------------



                                             -----------------------------------

                                             -----------------------------------
                                             Signature(s)

                                             NOTICE: The above signatures of the
                                             holder(s) hereof must correspond
                                             with the name as written upon the
                                             face of the Note in every
                                             particular without alteration or
                                             enlargement or any change whatever.

                                             Principal amount to be repaid (if
                                             less than all):

                                             $
                                              ----------------------------------


                                             -----------------------------------
                                             Social Security or Other Taxpayer
                                             Identification Number


                                      A-14



                                   ASSIGNMENT

        FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfer(s) unto


- -----------------------------------------------

- -----------------------------------------------



PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE

- -----------------------------------------------

- --------------------------------------------------------------------------------



- -----------------------------------------------

- -----------------------------------------------
                   (Please print or typewrite name and address
                     including postal zip code of assignee)


- --------------------------------------------------------------------------------
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints


- --------------------------------------------------------------------------------
Attorney to transfer said Note on the books of the Company, with full power of
substitution in the premises.

        In connection with any transfer of the Note within the "United States"
or to, or for the account of, "U.S. persons" (in each case as defined in
Regulation S under the Securities Act) and within the period prior to the
expiration of the holding period applicable to sales thereof under Rule 144(k)
under the Securities Act (or any successor provision) (other than any transfer
pursuant to a registration statement that has been declared effective under the
Securities Act), the undersigned confirms that such Note is being transferred:


                                      A-15



        [ ]     To Brocade Communications Systems, Inc. or a subsidiary thereof;
                or

        [ ]     Pursuant to and in compliance with Rule 144A under the
                Securities Act of 1933, as amended; or

        [ ]     To an Institutional Accredited Investor pursuant to and in
                compliance with the Securities Act of 1933, as amended, in a
                minimum denomination of $200,000; or

        [ ]     Pursuant to and in compliance with Rule 144 under the Securities
                Act of 1933, as amended;

and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate").

        [ ]     The transferee is an Affiliate of the Company.

Dated:
       -------------------


                                             -----------------------------------


                                             -----------------------------------
                                             Signature(s)

                                             Signature(s) must be guaranteed by
                                             an "eligible guarantor institution"
                                             meeting the requirements of the
                                             Note registrar, which requirements
                                             include membership or participation
                                             in the Security Transfer Agent
                                             Medallion Program ("STAMP") or such
                                             other "signature guarantee program"
                                             as may be determined by the Note
                                             registrar in addition to, or in
                                             substitution for, STAMP, all in
                                             accordance with the Securities
                                             Exchange Act of 1934, as amended.


                                             -----------------------------------
                                             Signature Guarantee

        NOTICE: The signature of the conversion notice, the option to elect
repayment upon a Fundamental Change or the assignment must correspond with the
name as written upon the face of the Note in every particular without alteration
or enlargement or any change whatever.


                                      A-16



                                    EXHIBIT B

Brocade Communications Systems, Inc.
5200 Great America Parkway
Santa Clara, CA  95054

State Street Bank and Trust Company
     of California, N.A.
633 West 5th Street, 12th Floor
Los Angeles, CA  90071

Attention: Corporate Trust Department

Ladies and Gentlemen:

        In connection with our proposed purchase of 2% Convertible Subordinated
Notes Due 2007 (the "Notes") of Brocade Communications Systems, Inc., a Delaware
corporation (the "Company"), we confirm that:

               (i) we are an "accredited investor" within the meaning of Rule
        501(a)(1), (2) or (3) under the Securities Act of 1933, as amended (the
        "Securities Act"), or an entity in which all of the equity owners are
        accredited investors within the meaning of Rule 501(a)(1), (2) or (3)
        under the Securities Act (an "Institutional Accredited Investor");

               (ii) (A) any purchase of Notes by us will be for our own account
        or for the account of one or more other Institutional Accredited
        Investors or as fiduciary for the account of one or more trusts, each of
        which is an "accredited investor" within the meaning of Rule 501(a)(7)
        under the Securities Act and for each of which we exercise sole
        investment discretion or (B) we are a "bank," within the meaning of
        Section 3(a)(2) of the Securities Act, or a "savings and loan
        association" or other institution described in Section 3(a)(5)(A) of the
        Securities Act that is acquiring Notes as fiduciary for the account of
        one or more institutions for which we exercise sole investment
        discretion;

               (iii) in the event that we purchase any Notes, we will acquire
        Notes having a minimum purchase price of not less than $200,000 for our
        own account or for any separate account for which we are acting;

               (iv) we have such knowledge and experience in financial and
        business matters that we are capable of evaluating the merits and risks
        of purchasing Notes; and

               (v) we are not acquiring Notes with a view to distribution
        thereof or with any present intention of offering or selling Notes or
        the Common Stock of the Company issuable upon conversion thereof, except
        as permitted below; provided that the disposition of our property and
        property of any accounts for which we are acting as fiduciary shall
        remain at all times within our control.


                                      B-1



        We understand that the Notes are being offered in a transaction not
involving any public offering within the United States within the meaning of the
Securities Act and that the Notes and the Common Stock of the Company issuable
upon conversion thereof have not been registered under the Securities Act, and
we agree, on our own behalf and on behalf of each account for which we acquire
any Notes, that if in the future we decide to resell or otherwise transfer such
Notes or the Common Stock of the Company issuable upon conversion thereof, such
Notes or Common Stock of the Company may be resold or otherwise transferred
within the United States or to, or for the account or benefit of, U.S. persons
only (i) to the Company or any subsidiary thereof, (ii) to a person who is a
"qualified institutional buyer" (as defined in Rule 144A under the Securities
Act) in a transaction meeting the requirements of Rule 144A, (iii) to an
Institutional Accredited Investor that, prior to such transfer, furnishes to the
Trustee for the Notes (or in the case of Common Stock of the Company, the
transfer agent therefor) a signed letter containing certain representations and
agreements relating to the restrictions on transfer of such securities (the form
of which letter can be obtained from the Trustee or the transfer agent, as the
case may be), (iv) pursuant to the exemption from registration provided by Rule
144 under the Securities Act (if applicable), or (v) pursuant to a registration
statement that has been declared effective under the Securities Act (and which
continues to be effective at the time of such transfer), and in each case, in
accordance with any applicable securities law of any State of the U.S. and in
accordance with the legends set forth on the Notes or the Common Stock of the
Company issuable upon conversion thereof. We further agree to provide any person
purchasing any of the Notes or the Common Stock of the Company issuable upon
conversion thereof (other than pursuant to clause (iv) or (v) above) from us a
notice advising such purchaser that resales of such securities are restricted as
stated herein. We understand that the Trustee and transfer agent for the Notes
and the Common Stock of the Company will not be required to accept for
registration of transfer any Notes or any Common Stock of the Company issued
upon conversion of the Notes, except upon presentation of evidence satisfactory
to the Company that the foregoing restrictions on transfer have been complied
with. We further understand that any Notes and any Common Stock of the Company
issued upon conversion of the Notes will be in the form of definitive physical
certificates and that such certificates will bear a legend reflecting the
substance of this paragraph.

        The Company and the Trustee and their respective counsel are entitled to
rely upon this letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.


                                      B-2



        THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK.

                                             (Name of Purchaser)


                                             By:
                                                --------------------------------
                                                Name:
                                                     ---------------------------
                                                Title:
                                                      --------------------------


                                                Address:
                                                        ------------------------

                                                --------------------------------

                                                --------------------------------


                                      B-3

EX-4.3

                                                                     Exhibit 4.3

                          REGISTRATION RIGHTS AGREEMENT

                                  BY AND AMONG

                      BROCADE COMMUNICATIONS SYSTEMS, INC.

                                   AS ISSUER,

                                       AND

                       MORGAN STANLEY & CO. INCORPORATED,

                              GOLDMAN, SACHS & CO.,

                           SALOMON SMITH BARNEY INC.,

                                       AND

               MERRILL LYNCH, PIERCE FENNER AND SMITH INCORPORATED

                              AS INITIAL PURCHASERS

                             DATED DECEMBER 21, 2001




       THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of
December 21, 2001, by and among Brocade Communications Systems, Inc., a Delaware
corporation (the "Company"), and Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co., Salomon Smith Barney Inc. and Merrill Lynch, Pierce Fenner and
Smith Incorporated pursuant to the Purchase Agreement, dated December 18, 2001
(the "Purchase Agreement"), among the Company and the Initial Purchasers. In
order to induce the Initial Purchasers to enter into the Purchase Agreement, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution of this Agreement is a condition to the closing under
the Purchase Agreement.

       The Company agrees with the Initial Purchasers, (i) for their benefit as
Initial Purchasers and (ii) for the benefit of the beneficial owners (including
the Initial Purchasers) from time to time of the Debentures (as defined herein)
and the beneficial owners from time to time of the Underlying Common Stock (as
defined herein) issued upon conversion of the Debentures (each of the foregoing
a "Holder" and together the "Holders"), as follows:

       SECTION 1. DEFINITIONS. Capitalized terms used herein without definition
shall have their respective meanings set forth in the Placement Agreement. As
used in this Agreement, the following terms shall have the following meanings:

       Additional Interest: See Section 2(e) hereof.

       Affiliate: With respect to any specified person, an "affiliate," as
defined in Rule 144, of such person.

       Amendment Effectiveness Deadline Date: See Section 2(d) hereof.

       Applicable Conversion Price: The Applicable Conversion Price as of any
date of determination means the Conversion Price in effect as of such date of
determination or, if no Debentures are then outstanding, the Conversion Price
that would be in effect were Debentures then outstanding.

       Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that
is not a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to close.

       Common Stock: The shares of common stock, par value $0.001 per share, of
the Company and any other shares of common stock as may constitute "Common
Stock" for purposes of the Indenture, including the Underlying Common Stock.

       Conversion Price: Conversion Price shall have the meaning assigned such
term in the Indenture.

       Damages Accrual Period: See Section 2(e) hereof.

       Damages Payment Date: Each January 1 and July 1.


                                       2


       Debentures: The 2% Convertible Subordinated Debentures due 2007 of the
Company to be purchased pursuant to the Purchase Agreement.

       Deferral Notice: See Section 3(i) hereof.

       Deferral Period: See Section 3(i) hereof.

       Effectiveness Deadline Date: See Section 2(a) hereof.

       Effectiveness Period: The period of two years from the later of (a) the
Issue Date and (b) December 18, 2001.

       Event: See Section 2(e) hereof.

       Event Date: See Section 2(e) hereof.

       Event Termination Date: See Section 2(e) hereof.

       Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.

       Filing Deadline Date: See Section 2(a) hereof.

       Holder: See the second paragraph of this Agreement.

       Indenture: The Indenture, dated as of the date hereof, between the
Company and State Street Bank and Trust Company of California, N.A., as trustee,
pursuant to which the Debentures are being issued.

       Initial Purchasers: Means Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co., Salomon Smith Barney Inc. and Merrill Lynch & Co.

       Initial Shelf Registration Statement: See Section 2(a) hereof.

       Issue Date: December 21, 2001.

       Losses: See Section 6 hereof.

       Material Event: See Section 3(i) hereof.

       Notice and Questionnaire: A written notice delivered to the Company
containing substantially the information called for by the Selling
Securityholder Notice and Questionnaire attached as Annex A to the Offering
Memorandum of the Company issued December __, 2001 relating to the Debentures.

       Notice Holder: On any date, any Holder that has delivered an
appropriately completed Notice and Questionnaire to the Company on or prior to
such date.

       Purchase Agreement: See the preamble hereof.


                                       3


       Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any amendment or prospectus supplement, including
post-effective amendments, and all materials incorporated by reference or
explicitly deemed to be incorporated by reference in such Prospectus.

       Record Holder: (i) With respect to any Damages Payment Date relating to
any Debentures as to which any such Additional Interest has accrued, the holder
of record of such Debenture on the record date fifteen (15) days prior to such
Damages Payment Date and (ii) with respect to any Damages Payment Date relating
to the Underlying Common Stock as to which any such Additional Interest has
accrued, the registered holder of such Underlying Common Stock fifteen (15) days
prior to such Damages Payment Date.

       Registrable Securities: The Debentures until such Debentures have been
converted or exchanged into the Underlying Common Stock and, at all times
subsequent to any such conversion or exchange the Underlying Common Stock and
any securities into or for which such Underlying Common Stock have been
converted or exchanged, and any security issued with respect thereto upon any
stock dividend, split or similar event until, in the case of any such security,
(A) the earliest of (i) its effective registration under the Securities Act and
resale in accordance with the Registration Statement covering it, (ii)
expiration of the holding period that would be applicable thereto under Rule
144(k) were it not held by an Affiliate of the Company or (iii) its sale to the
public pursuant to Rule 144, and (B) as a result of the event or circumstance
described in any of the foregoing clauses (i) through (iii), the legends with
respect to transfer restrictions required under the Indenture are removed or
removable in accordance with the terms of the Indenture or such legends, as the
case may be.

       Registration Expenses: See Section 5 hereof.

       Registration Statement: Any registration statement of the Company that
covers any of the Registrable Securities pursuant to the provisions of this
Agreement including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all materials incorporated by reference or explicitly deemed to be incorporated
by reference in such registration statement.

       Restated Principal Amount: As this term is defined in the Indenture.

       Restricted Securities: As this term is defined in Rule 144.

       Rule 144: Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the
SEC.

       Rule 144A: Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.

       SEC: The Securities and Exchange Commission.


                                       4


       Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations promulgated by the SEC thereunder.

       Shelf Registration Statement: See Section 2(a) hereof.

       Subsequent Shelf Registration Statement: See Section 2(b) hereof.

       Tax Event: As this term is defined in the Indenture.

       TIA: The Trust Indenture Act of 1939, as amended.

       Trustee: State Street Bank and Trust Company of California, N.A. (or any
successor entity), the Trustee under the Indenture.

       Underlying Common Stock: The Common Stock into which the Debentures are
convertible or issued upon any such conversion.

       SECTION 2. SHELF REGISTRATION.

              (a) The Company shall use its reasonable efforts to prepare and
file or cause to be prepared and filed with the SEC, as soon as practicable but
in any event by the date (the "Filing Deadline Date") ninety (90) days after the
Issue Date, a Registration Statement for an offering to be made on a delayed or
continuous basis pursuant to Rule 415 of the Securities Act (a "Shelf
Registration Statement") registering the resale from time to time by Holders
thereof of all of the Registrable Securities (the "Initial Shelf Registration
Statement"). The Initial Shelf Registration Statement shall be on Form S-3 or
another appropriate form permitting registration of such Registrable Securities
for resale by such Holders in accordance with the methods of distribution
elected by the Holders and set forth in the Initial Shelf Registration
Statement. The Company shall use its reasonable efforts to cause the Initial
Shelf Registration Statement to be declared effective under the Securities Act
as promptly as is practicable but in any event by the date (the "Effectiveness
Deadline Date") that is one hundred eighty (180) days after the Issue Date, and
to keep the Initial Shelf Registration Statement (or any Subsequent Shelf
Registration Statement) continuously effective under the Securities Act until
the expiration of the Effectiveness Period. At the time the Initial Shelf
Registration Statement is declared effective, each Holder that became a Notice
Holder on or prior to the date ten (10) Business Days prior to such time of
effectiveness shall be named as a selling securityholder in the Initial Shelf
Registration Statement and the related Prospectus in such a manner as to permit
such Holder to deliver such Prospectus to purchasers of Registrable Securities
in accordance with applicable law. None of the Company's security holders (other
than the Holders of Registrable Securities) shall have the right to include any
of the Company's securities in the Shelf Registration Statement.

              (b) If the Initial Shelf Registration Statement or any Subsequent
Shelf Registration Statement (as defined below) ceases to be effective for any
reason at any time during the Effectiveness Period (other than because all
Registrable Securities registered thereunder shall have been resold pursuant
thereto or shall have otherwise ceased to be Registrable Securities), the
Company shall use its reasonable efforts to obtain the prompt withdrawal of any
order suspending the effectiveness thereof, and in any event shall within thirty


                                       5


(30) days of such cessation of effectiveness amend the Shelf Registration
Statement in a manner reasonably expected to obtain the withdrawal of the order
suspending the effectiveness thereof, or file an additional Shelf Registration
Statement covering all of the securities that as of the date of such filing are
Registrable Securities (a "Subsequent Shelf Registration Statement"). If a
Subsequent Shelf Registration Statement is filed, the Company shall use
reasonable efforts to cause the Subsequent Shelf Registration Statement to
become effective as promptly as is practicable after such filing and to keep
such Registration Statement (or Subsequent Shelf Registration Statement)
continuously effective until the end of the Effectiveness Period.

              (c) The Company shall supplement and amend the Shelf Registration
Statement if required by the rules, regulations or instructions applicable to
the registration form used by the Company for such Shelf Registration Statement,
if required by the Securities Act or as reasonably requested by the Initial
Purchasers or by the Trustee on behalf of the registered Holders or by any
managing underwriter in the event of an underwritten offering.

              (d) Each Holder of Registrable Securities agrees that if such
Holder wishes to sell Registrable Securities pursuant to a Shelf Registration
Statement and related Prospectus, it will do so only in accordance with this
Section 2(d) and Section 3(i). Each Holder of Registrable Securities wishing to
sell Registrable Securities pursuant to a Shelf Registration Statement and
related Prospectus agrees to deliver a Notice and Questionnaire to the Company
prior to any intended distribution of Registrable Securities under the Shelf
Registration Statement. From and after the date the Initial Shelf Registration
Statement is declared effective, the Company shall, as promptly as practicable
after the date a Notice and Questionnaire is delivered, and in any event upon
the later of (x) fifteen (15) Business Days after such date or (y) fifteen (15)
Business Days after the expiration of any Deferral Period in effect when the
Notice and Questionnaire is delivered or put into effect, (i) if required by
applicable law, file with the SEC a post-effective amendment to the Shelf
Registration Statement (and if the Company shall receive a Notice and
Questionnaire from another Holder before such post-effective amendment has been
declared effective by the SEC, the Company shall have thirty (30) Business Days
to file another post-effective amendment with the SEC with respect to such
Holder) or prepare and, if required by applicable law, file a supplement to the
related Prospectus or a supplement or amendment to any document incorporated
therein by reference or file any other required document so that the Holder
delivering such Notice and Questionnaire is named as a selling securityholder in
the Shelf Registration Statement and the related Prospectus in such a manner as
to permit such Holder to deliver such Prospectus to purchasers of the
Registrable Securities in accordance with applicable law and, if the Company
shall file a post-effective amendment to the Shelf Registration Statement, use
reasonable efforts to cause such post-effective amendment to be declared
effective under the Securities Act as promptly as is practicable, but in any
event by the date (the "Amendment Effectiveness Deadline Date") that is
forty-five (45) days after the date such post-effective amendment is required by
this clause to be filed; (ii) provide such Holder copies of any documents filed
pursuant to Section 2(d)(i); and (iii) notify such Holder as promptly as
practicable after the effectiveness under the Securities Act of any
post-effective amendment filed pursuant to Section 2(d)(i); provided, that if
such Notice and Questionnaire is delivered during a Deferral Period, the Company
shall so inform the Holder delivering such Notice and Questionnaire and shall
take the actions set forth in clauses (i), (ii) and (iii) above upon expiration
of the Deferral Period in accordance with Section 3(i). Notwithstanding anything
contained herein to the contrary, (i) the Company shall be under no obligation
to name any


                                       6


Holder that is not a Notice Holder as a selling securityholder in any
Registration Statement or related Prospectus and (ii) the Amendment
Effectiveness Deadline Date shall be extended by up to ten (10) Business Days
from the expiration of a Deferral Period (and the Company shall incur no
obligation to pay Additional Interest during such extension) if such Deferral
Period shall be in effect on the Amendment Deadline Effective Date.

              (e) The parties hereto agree that the Holders of Registrable
Securities will suffer damages, and that it would not be feasible to ascertain
the extent of such damages with precision, if (i) the Initial Shelf Registration
Statement has not been filed on or prior to the Filing Deadline Date, (ii) the
Initial Shelf Registration Statement has not been declared effective under the
Securities Act on or prior to the Effectiveness Deadline Date, (iii) the Company
has failed to perform its obligations set forth in Section 2(d) within the time
period required therein, (iv) the aggregate duration of Deferral Periods in any
period exceeds the number of days permitted in respect of such period pursuant
to Section 3(i) hereof or (v) the number of Deferral Periods in any period
exceeds the number permitted in respect of such period pursuant to Section 3(i)
hereof (each of the events of a type described in any of the foregoing clauses
(i) through (v) are individually referred to herein as an "Event," and the
Filing Deadline Date in the case of clause (i), the Effectiveness Deadline Date
in the case of clause (ii), the date by which the Company is required to perform
its obligations set forth in Section 2(d) in the case of clause (iii) (including
the filing of any post-effective amendment prior to the Amendment Effectiveness
Deadline Date), the date on which the aggregate duration of Deferral Periods in
any period exceeds the number of days permitted by Section 3(i) hereof in the
case of clause (iv), and the date of the commencement of a Deferral Period that
causes the limit on the number of Deferral Periods in any period under Section
3(i) hereof to be exceeded in the case of clause (v), being referred to herein
as an "Event Date"). Events shall be deemed to continue until the "Event
Termination Date," which shall be the following dates with respect to the
respective types of Events: the date the Initial Shelf Registration Statement is
filed in the case of an Event of the type described in clause (i), the date the
Initial Shelf Registration Statement is declared effective under the Securities
Act in the case of an Event of the type described in clause (ii), the date the
Company performs its obligations set forth in Section 2(d) in the case of an
Event of the type described in clause (iii) (including, without limitation, the
date the relevant post-effective amendment to the Shelf Registration Statement
is declared effective under the Securities Act), termination of the Deferral
Period that caused the limit on the aggregate duration of Deferral Periods in a
period set forth in Section 3(i) to be exceeded in the case of the commencement
of an Event of the type described in clause (iv), and termination of the
Deferral Period the commencement of which caused the number of Deferral Periods
in a period permitted by Section 3(i) to be exceeded in the case of an Event of
the type described in clause (v).

       Accordingly, commencing on (and including) any Event Date and ending on
(but excluding) the next date on which there are no Events that have occurred
and are continuing (a "Damages Accrual Period"), the Company agrees to pay, as
additional interest and not as a penalty, an amount (the "Additional Interest"),
payable on the Damages Payment Dates to Record Holders of Debentures that are
Registrable Securities and of shares of Underlying Common Stock issued upon
conversion of Debentures that are Registrable Securities, as the case may be,
accruing, for each portion of such Damages Accrual Period beginning on and
including a Damages Payment Date (or, in respect of the first time that the
Additional Interest is to be paid to Holders on a Damages Payment Date as a
result of the occurrence of any particular Event,


                                       7


from the Event Date) and ending on but excluding the first to occur of (A) the
date of the end of the Damages Accrual Period or (B) the next Damages Payment
Date, at a rate per annum equal to one-half of one percent (0.5%) of the
principal amount at maturity of such Debentures (or, following a Tax Event, of
the Restated Principal Amount plus accrued but unpaid interest) or one-half of
one percent (0.5%) of the Applicable Conversion Price of such shares of
Underlying Common Stock, as the case may be, in each case determined as of the
Business Day immediately preceding the next Damages Payment Date; provided, that
in the case of a Damages Accrual Period that is in effect solely as a result of
an Event of the type described in clause (iii) of the immediately preceding
paragraph, such Additional Interest shall be paid only to the Holders that have
delivered Notice and Questionnaires that caused the Company to incur the
obligations set forth in Section 2(d) the non-performance of which is the basis
of such Event, provided further, that any Additional Interest accrued with
respect to any Debenture or portion thereof called for redemption on a
redemption date or converted into Underlying Common Stock on a conversion date
prior to the Damages Payment Date, shall, in any such event, be paid instead to
the Holder who submitted such Debenture or portion thereof for redemption or
conversion on the applicable redemption date or conversion date, as the case may
be, on such date (or promptly following the conversion date, in the case of
conversion). Notwithstanding the foregoing, no Additional Interest shall accrue
as to any Registrable Security from and after the earlier of (x) the date such
security is no longer a Registrable Security and (y) expiration of the
Effectiveness Period. The rate of accrual of the Additional Interest with
respect to any period shall not exceed the rate provided for in this paragraph
notwithstanding the occurrence of multiple concurrent Events. Following the cure
of all Events requiring the payment by the Company of Additional Interest to the
Holders of Registrable Securities pursuant to this Section, the accrual of
Additional Interest will cease (without in any way limiting the effect of any
subsequent Event requiring the payment of Additional Interest by the Company).

       The Trustee shall be entitled, on behalf of Holders of Debentures or
Underlying Common Stock, to seek any available remedy for the enforcement of
this Agreement, including for the payment of any Additional Interest.
Notwithstanding the foregoing, the parties agree that the sole damages payable
for a violation of the terms of this Agreement with respect to which Additional
Interest are expressly provided shall be such Additional Interest. Nothing shall
preclude a Notice Holder or Holder of Registrable Securities from pursuing or
obtaining specific performance or other equitable relief with respect to this
Agreement.

       All of the Company's obligations set forth in this Section 2(e) that are
outstanding with respect to any Registrable Security at the time such security
ceases to be a Registrable Security shall survive until such time as all such
obligations with respect to such security have been satisfied in full
(notwithstanding termination of this Agreement pursuant to Section 8(k)).

       The parties hereto agree that the Additional Interest provided for in
this Section 2(e) constitute a reasonable estimate of the damages that may be
incurred by Holders of Registrable Securities by reason of the failure of the
Shelf Registration Statement to be filed or declared effective or available for
effecting resales of Registrable Securities in accordance with the provisions
hereof.

       SECTION 3. REGISTRATION PROCEDURES. In connection with the registration
obligations of the Company under Section 2 hereof, the Company shall:


                                       8


              (a) A reasonable time before filing any Registration Statement or
Prospectus or any amendments or supplements thereto with the SEC, furnish to
counsel to the Initial Purchasers copies of all such documents proposed to be
filed and use reasonable efforts to reflect in each such document when so filed
with the SEC such comments as counsel to the Initial Purchasers reasonably shall
propose within five (5) Business Days of the delivery of such copies to the
Initial Purchasers.

              (b) Prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
period specified in Section 2(a); cause the related Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and use its reasonable efforts to comply with the provisions of
the Securities Act applicable to it with respect to the disposition of all
securities covered by such Registration Statement during the Effectiveness
Period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement as so amended or such
Prospectus as so supplemented.

              (c) As promptly as practicable give notice to counsel to the
Notice Holders and the Initial Purchasers (i) when any Prospectus, Prospectus
supplement, Registration Statement or post-effective amendment to a Registration
Statement has been filed with the SEC and, with respect to a Registration
Statement or any post-effective amendment, when the same has been declared
effective, (ii) of any request, following the effectiveness of the Initial Shelf
Registration Statement under the Securities Act, by the SEC or any other federal
or state governmental authority for amendments or supplements to any
Registration Statement or related Prospectus or for additional information,
(iii) of the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of any Registration
Statement or the initiation or threatening of any proceedings for that purpose,
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (v) of the occurrence of (but
not the nature of or details concerning) a Material Event and (vi) of the
determination by the Company that a post-effective amendment to a Registration
Statement will be filed with the SEC, which notice may, at the discretion of the
Company (or as required pursuant to Section 3(i)), state that it constitutes a
Deferral Notice, in which event the provisions of Section 3(i) shall apply.

              (d) Use reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction in which they have been
qualified for sale, in either case at the earliest possible moment.

              (e) If reasonably requested by any Initial Purchaser or any Notice
Holder, as promptly as practicable incorporate in a Prospectus supplement or
post-effective amendment to a Registration Statement such information as the
Initial Purchaser or such Notice Holder shall, on the basis of a written opinion
of nationally-recognized counsel experienced in such matters,


                                       9


determine to be required to be included therein by applicable law and make any
required filings of such Prospectus supplement or such post-effective amendment.

              (f) If requested by any Initial Purchaser or any Notice Holder, as
promptly as practicable furnish to each Notice Holder and the Initial
Purchasers, without charge, at least one (1) conformed copy of the Registration
Statement and any amendment thereto, including financial statements but
excluding schedules, all documents incorporated or deemed to be incorporated
therein by reference and all exhibits (unless requested in writing to the
Company by such Notice Holder or the Initial Purchasers, as the case may be).

              (g) During the Effectiveness Period, deliver to each Notice Holder
in connection with any sale of Registrable Securities pursuant to a Registration
Statement, without charge, as many copies of the Prospectus or Prospectuses
relating to such Registrable Securities (including each preliminary prospectus)
and any amendment or supplement thereto as such Notice Holder may reasonably
request; and the Company hereby consents (except during such periods that a
Deferral Notice is outstanding and has not been revoked) to the use of such
Prospectus or each amendment or supplement thereto by each Notice Holder in
connection with any offering and sale of the Registrable Securities covered by
such Prospectus or any amendment or supplement thereto in the manner set forth
therein.

              (h) Prior to any public offering of the Registrable Securities
pursuant to the Shelf Registration Statement, register or qualify or cooperate
with the Notice Holders in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Notice Holder reasonably requests
in writing (which request may be included in the Notice and Questionnaire);
prior to any public offering of the Registrable Securities pursuant to the Shelf
Registration Statement, keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period in connection
with such Notice Holder's offer and sale of Registrable Securities pursuant to
such registration or qualification (or exemption therefrom) and do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of such Registrable Securities in the manner set forth in the
relevant Registration Statement and the related Prospectus; provided, that the
Company will not be required to (i) qualify as a foreign corporation or as a
dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Agreement or (ii) take any action that would
subject it to general service of process in suits or to taxation in any such
jurisdiction where it is not then so subject.

              (i) Upon (A) the issuance by the SEC of a stop order suspending
the effectiveness of the Shelf Registration Statement or the initiation of
proceedings with respect to the Shelf Registration Statement under Section 8(d)
or 8(e) of the Securities Act, (B) the occurrence of any event or the existence
of any fact (a "Material Event") as a result of which any Registration Statement
shall contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any Prospectus shall contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or (C) the occurrence or existence
of any pending corporate development that, in the reasonable discretion


                                       10


of the Company, makes it appropriate to suspend the availability of the Shelf
Registration Statement and the related Prospectus, (i) in the case of clause (B)
above, subject to the next sentence, as promptly as practicable prepare and
file, if necessary pursuant to applicable law, a post-effective amendment to
such Registration Statement or a supplement to the related Prospectus or any
document incorporated therein by reference or file any other required document
that would be incorporated by reference into such Registration Statement and
Prospectus so that such Registration Statement does not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
such Prospectus does not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, and, in the case of a
post-effective amendment to a Registration Statement, subject to the next
sentence, use its reasonable efforts to cause it to be declared effective as
promptly as is practicable, and (ii) give notice to the Notice Holders that the
availability of the Shelf Registration Statement is suspended (a "Deferral
Notice") and, upon receipt of any Deferral Notice, each Notice Holder agrees not
to sell any Registrable Securities pursuant to the Registration Statement until
such Notice Holder's receipt of copies of the supplemented or amended Prospectus
provided for in clause (i) above, or until it is advised in writing by the
Company that the Prospectus may be used, and has received copies of any
additional or supplemental filings that are incorporated or deemed incorporated
by reference in such Prospectus. The Company will use all reasonable efforts to
ensure that the use of the Prospectus may be resumed (x) in the case of clause
(A) above, as promptly as is practicable, (y) in the case of clause (B) above,
as soon as, in the sole judgment of the Company, public disclosure of such
Material Event would not be prejudicial to or contrary to the interests of the
Company or, if necessary to avoid unreasonable burden or expense, as soon as
practicable thereafter and (z) in the case of clause (C) above, as soon as, in
the discretion of the Company, such suspension is no longer appropriate. The
Company shall be entitled to exercise its right under this Section 3(i) to
suspend the availability of the Shelf Registration Statement or any Prospectus,
without incurring or accruing any obligation to pay Additional Interest pursuant
to Section 2(e), no more than one (1) time in any three month period or four (4)
times in any twelve month period, and any such period during which the
availability of the Registration Statement and any Prospectus is suspended (the
"Deferral Period") shall, without incurring any obligation to pay Additional
Interest pursuant to Section 2(e), not exceed 30 days; provided, that in the
case of a Material Event relating to an acquisition or a probable acquisition or
financing, recapitalization, business combination or other similar transaction,
the Company may, without incurring any obligation to pay Additional Interest
pursuant to Section 2(e), deliver to Notice Holders a second notice to the
effect set forth above, which shall have the effect of extending the Deferral
Period by up to an additional 30 days, or such shorter period of time as is
specified in such second notice, provided, that the aggregate duration of any
Deferral Periods shall not, without incurring any obligation to pay Additional
Interest pursuant to Section 2(e), exceed 60 days in any three month period or
90 days in any twelve (12) month period.

              (j) If requested in writing in connection with a disposition of
Registrable Securities pursuant to a Registration Statement, make reasonably
available for inspection during normal business hours by a representative for
the Notice Holders of such Registrable Securities and any broker-dealers,
attorneys and accountants retained by such Notice Holders, all relevant


                                       11


financial and other records, pertinent corporate documents and properties of the
Company and its subsidiaries, and cause the appropriate officers, directors and
employees of the Company and its subsidiaries to make reasonably available for
inspection during normal business hours on reasonable notice all relevant
information reasonably requested by such representative for the Notice Holders
or any such broker-dealers, attorneys or accountants in connection with such
disposition, in each case as is customary for similar "due diligence"
examinations; provided, however, that such persons shall first agree in writing
with the Company that any information that is reasonably and in good faith
designated by the Company in writing as confidential at the time of delivery of
such information shall be kept confidential by such persons and shall be used
solely for the purposes of exercising rights under this Agreement, unless (i)
disclosure of such information is required by court or administrative order or
is necessary to respond to inquiries of regulatory authorities, (ii) disclosure
of such information is required by law (including any disclosure requirements
pursuant to federal securities laws in connection with the filing of any
Registration Statement or the use of any Prospectus referred to in this
Agreement), (iii) such information becomes generally available to the public
other than as a result of a disclosure or failure to safeguard by any such
person or (iv) such information becomes available to any such person from a
source other than the Company and such source is not bound by a confidentiality
agreement, and provided further, that the foregoing inspection and information
gathering shall, to the greatest extent possible, be coordinated on behalf of
all the Notice Holders and the other parties entitled thereto by the counsel
referred to in Section 5.

              (k) Use reasonable efforts to comply with all applicable rules and
regulations of the SEC and make generally available to its securityholders
earning statements (which need not be audited) satisfying the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than 45 days after the end of any
3-month period (or 90 days after the end of any 12-month period if such period
is a fiscal year) commencing on the first day of the first fiscal quarter of the
Company commencing after the effective date of a Registration Statement, which
statements shall cover said periods.

              (l) Cooperate with each Notice Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities
sold or to be sold pursuant to a Registration Statement, which certificates
shall not bear any restrictive legends, and cause such Registrable Securities to
be in such denominations as are permitted by the Indenture and registered in
such names as such Notice Holder may request in writing at least two (2)
Business Days prior to any sale of such Registrable Securities.

              (m) Provide a CUSIP number for all Registrable Securities covered
by each Registration Statement not later than the effective date of such
Registration Statement and provide the Trustee and the transfer agent for the
Common Stock with printed certificates for the Registrable Securities that are
in a form eligible for deposit with The Depository Trust Company.

              (n) Provide such information as is required for any filings
required to be made with the National Association of Securities Dealers, Inc.

              (o) Upon (i) the filing of the Initial Registration Statement and
(ii) the effectiveness of the Initial Registration Statement, announce the same,
in each case by release to Reuters Economic Services and Bloomberg Business
News.


                                       12


       SECTION 4. HOLDER'S OBLIGATIONS. Each Holder agrees, by acquisition of
the Registrable Securities, that no Holder of Registrable Securities shall be
entitled to sell any of such Registrable Securities pursuant to a Registration
Statement or to receive a Prospectus relating thereto, unless such Holder has
furnished the Company with a Notice and Questionnaire as required pursuant to
Section 2(d) hereof (including the information required to be included in such
Notice and Questionnaire) and the information set forth in the next sentence.
Each Notice Holder agrees promptly to furnish to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Notice Holder not misleading and any other information
regarding such Notice Holder and the distribution of such Registrable Securities
as the Company may from time to time reasonably request. Any sale of any
Registrable Securities by any Holder shall constitute a representation and
warranty by such Holder that the information relating to such Holder and its
plan of distribution is as set forth in the Prospectus delivered by such Holder
in connection with such disposition, that such Prospectus does not as of the
time of such sale contain any untrue statement of a material fact relating to or
provided by such Holder or its plan of distribution and that such Prospectus
does not as of the time of such sale omit to state any material fact relating to
or provided by such Holder or its plan of distribution necessary to make the
statements in such Prospectus, in the light of the circumstances under which
they were made, not misleading.

       SECTION 5. REGISTRATION EXPENSES. The Company shall bear all fees and
expenses incurred in connection with the performance by the Company of its
obligations under Sections 2 and 3 of this Agreement whether or not any of the
Registration Statements are declared effective. Such fees and expenses shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (x) with respect to filings required to be
made with the National Association of Securities Dealers, Inc. and (y) of
compliance with federal and state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of the counsel specified
in the next sentence in connection with Blue Sky qualifications of the
Registrable Securities under the laws of such jurisdictions as the Notice
Holders of a majority of the Registrable Securities being sold pursuant to a
Registration Statement may designate), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
in a form eligible for deposit with The Depository Trust Company), (iii)
duplication expenses relating to copies of any Registration Statement or
Prospectus delivered to any Holders hereunder, (iv) fees and disbursements of
counsel for the Company in connection with the Shelf Registration Statement, (v)
reasonable fees and disbursements of the Trustee and its counsel and of the
registrar and transfer agent for the Common Stock and (vi) Securities Act
liability insurance obtained by the Company in its sole discretion. In addition,
the Company shall bear or reimburse the Notice Holders for the reasonable fees
and disbursements of one firm of legal counsel for the Holders, which shall
initially be Gray Cary Ware & Freidenrich LLP, but which may, with the written
consent of the Initial Purchasers (which shall not be unreasonably withheld), be
another nationally recognized law firm experienced in securities law matters
designated by the Company. In addition, the Company shall pay the internal
expenses of the Company (including, without limitation, all salaries and
expenses of officers and employees performing legal or accounting duties), the
expense of any annual audit, the fees and expenses incurred in connection with
the listing of the Registrable Securities on any securities exchange on which
similar securities of the Company are then listed and the fees and expenses of
any person, including special experts, retained by the


                                       13


Company. Notwithstanding the provisions of this Section 5, each seller of
Registrable Securities shall pay selling expenses and all registration expenses
to the extent required by applicable law.

       SECTION 6. INDEMNIFICATION.

              (a) Indemnification by the Company. The Company shall indemnify
and hold harmless each Notice Holder and each person, if any, who controls any
Notice Holder (within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act) from and against any losses, liabilities,
claims, damages and expenses (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (collectively, "Losses"), arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided,
however, that the Company shall not be liable in any such case to the extent
that any such Losses arise out of or are based upon an untrue statement or
alleged untrue statement contained in or omission or alleged omission from any
of such documents in reliance upon and conformity with any of the information
relating to the Holders furnished to the Company in writing by a Holder
expressly for use therein; provided further, that the indemnification contained
in this paragraph shall not inure to the benefit of any Holder of Registrable
Securities (or to the benefit of any person controlling such Holder) on account
of any such Losses arising out of or based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any preliminary
prospectus provided in each case the Company has performed its obligations under
Section 3(a) hereof if either (A) (i) such Holder failed to send or deliver a
copy of the Prospectus with or prior to the delivery of written confirmation of
the sale by such Holder to the person asserting the claim from which such Losses
arise and (ii) the Prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (B) (x) such
untrue statement or alleged untrue statement, omission or alleged omission is
corrected in an amendment or supplement to the Prospectus and (y) having
previously been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended or supplemented, with or prior to the
delivery of written confirmation of the sale of a Registrable Security to the
person asserting the claim from which such Losses arise.

              (b) Indemnification by Holders of Registrable Securities. Each
Holder agrees severally and not jointly to indemnify and hold harmless the
Company and its respective directors and officers, and each person, if any, who
controls the Company (within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act) or any other Holder, from and against all
Losses arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information furnished
to the Company by such Holder expressly for use in such Registration Statement
or Prospectus or amendment or


                                       14


supplement thereto. In no event shall the liability of any selling Holder of
Registrable Securities hereunder be greater in amount than the dollar amount of
the proceeds received by such Holder upon the sale of the Registrable Securities
pursuant to the Registration Statement giving rise to such indemnification
obligation.

              (c) Conduct of Indemnification Proceedings. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
party") in writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the reasonable fees and disbursements
of such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in respect of the
legal expenses of any indemnified party in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all indemnified parties, and that all such fees and expenses shall be reimbursed
as they are incurred. Such separate firm shall be designated in writing by, in
the case of parties indemnified pursuant to Section 6(a), the Holders of a
majority (with Holders of Debentures deemed to be the Holders, for purposes of
determining such majority, of the number of shares of Underlying Common Stock
into which such Debentures are or would be convertible or exchangeable as of the
date on which such designation is made) of the Registrable Securities covered by
the Registration Statement held by Holders that are indemnified parties pursuant
to Section 6(a) and, in the case of parties indemnified pursuant to Section
6(b), the Company. The indemnifying party shall not be liable for any settlement
of any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel and the indemnified party would be entitled thereto pursuant to the
second and third sentences of this paragraph, the indemnifying party agrees that
it shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.


                                       15


              (d) Contribution. To the extent that the indemnification provided
for in this Section 6 is unavailable to an indemnified party under Section 6(a)
or 6(b) hereof in respect of any Losses or is insufficient to hold such
indemnified party harmless, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party or parties on the one hand and the indemnified party or
parties on the other hand or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the indemnifying party or parties on the one hand and of
the indemnified party or parties on the other hand in connection with the
statements or omissions that resulted in such Losses, as well as any other
relevant equitable considerations. Benefits received by the Company shall be
deemed to be equal to the total net proceeds from the initial placement pursuant
to the Purchase Agreement (before deducting expenses) of the Registrable
Securities to which such Losses relate. Benefits received by any Holder shall be
deemed to be equal to the value of receiving Registrable Securities that are
registered under the Securities Act. The relative fault of the Holders on the
one hand and the Company on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Holders or by the Company, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Holders' respective obligations to contribute
pursuant to this paragraph are several in proportion to the respective number of
Registrable Securities they have sold pursuant to a Registration Statement, and
not joint.

       The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method or allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the Losses
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding this Section 6(d), an
indemnifying party that is a selling Holder of Registrable Securities shall not
be required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities sold by such indemnifying party and
distributed to the public were offered to the public exceeds the amount of any
damages that such indemnifying party has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.

              (e) The indemnity, contribution and expense reimbursement
obligations of the parties hereunder shall be in addition to any liability any
indemnified party may otherwise have hereunder, under the Purchase Agreement or
otherwise.

              (f) The indemnity and contribution provisions contained in this
Section 6 shall remain operative and in full force and effect regardless of (i)
any termination of this


                                       16


Agreement, (ii) any investigation made by or on behalf of any Holder or any
person controlling any Holder, or the Company, or the Company's officers or
directors or any person controlling the Company and (iii) the sale of any
Registrable Securities by any Holder.

       SECTION 7. INFORMATION REQUIREMENTS.

       The Company covenants that, if at any time before the end of the
Effectiveness Period the Company is not subject to the reporting requirements of
the Exchange Act, it will cooperate with any Holder of Registrable Securities
and take such further reasonable action as any Holder of Registrable Securities
may reasonably request in writing (including, without limitation, making such
reasonable representations as any such Holder may reasonably request), all to
the extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144 and Rule 144A under the Securities Act
and customarily taken in connection with sales pursuant to such exemptions. Upon
the written request of any Holder of Registrable Securities, the Company shall
deliver to such Holder a written statement as to whether it has complied with
such filing requirements, unless such a statement has been included in the
Company's most recent report filed pursuant to Section 13 or Section 15(d) of
the Exchange Act. Notwithstanding the foregoing, nothing in this Section 7 shall
be deemed to require the Company to register any of its securities (other than
the Common Stock) under any section of the Exchange Act.

       SECTION 8. MISCELLANEOUS.

              (a) No Conflicting Agreements. The Company is not, as of the date
hereof, a party to, nor shall it, on or after the date of this Agreement, enter
into, any agreement with respect to its securities that conflicts with the
rights granted to the Holders of Registrable Securities in this Agreement. The
Company represents and warrants that the rights granted to the Holders of
Registrable Securities hereunder do not in any way conflict with the rights
granted to the holders of the Company's securities under any other agreements.

              (b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of a majority of the then outstanding Underlying Common Stock constituting
Registrable Securities (with Holders of Debentures deemed to be the Holders, for
purposes of this Section, of the number of outstanding shares of Underlying
Common Stock into which such Debentures are or would be convertible or
exchangeable as of the date on which such consent is requested). Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders of Registrable Securities may be given by Holders of at
least a majority of the Registrable Securities being sold by such Holders
pursuant to such Registration Statement; provided, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence. Each Holder of Registrable
Securities outstanding at the time of any such amendment, modification,
supplement, waiver or consent or thereafter shall be bound by any such
amendment, modification,


                                       17


supplement, waiver or consent effected pursuant to this Section 8(b), whether or
not any notice, writing or marking indicating such amendment, modification,
supplement, waiver or consent appears on the Registrable Securities or is
delivered to such Holder.

              (c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, by telecopier, by
courier guaranteeing overnight delivery or by first-class mail, return receipt
requested, and shall be deemed given (i) when made, if made by hand delivery,
(ii) upon confirmation, if made by telecopier, (iii) one (1) Business Day after
being deposited with such courier, if made by overnight courier or (iv) on the
date indicated on the notice of receipt, if made by first-class mail, to the
parties as follows:

                     (w)    if to a Holder of Registrable Securities, at the
                            most current address given by such Holder to the
                            Company in a Notice and Questionnaire or any
                            amendment thereto;

                     (x)    if to the Company, to:

                            Brocade Communications Systems, Inc.
                            1745 Technology Drive
                            San Jose, CA 95110
                            Attention: Chief Financial Officer
                            Telecopy No.: (408) 487-8101

                            and

                            Wilson Sonsini Goodrich & Rosati
                            650 Page Mill Road
                            Palo Alto, California 94304-1050
                            Attention: Katharine Martin, Esq.
                            Telecopy No.: (650) 493-6811

                     (y)    if to the Initial Purchasers, to:

                            Morgan Stanley & Co.  Incorporated
                            1585 Broadway
                            New York, New York  10036
                            Attention: Equity Capital Markets
                            Telecopy No.: (212) 761-0356

                            and

                            Gray Cary Ware & Freidenrich LLP
                            400 Hamilton Avenue
                            Palo Alto, California 94301-1825
                            Attention: Gregory Gallo, Esq.
                            Telecopy No.: (650) 833-2001


                                       18


or to such other address as such person may have furnished to the other persons
identified in this Section 8(c) in writing in accordance herewith.

              (d) Approval of Holders. Whenever the consent or approval of
Holders of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company or its affiliates (as such
term is defined in Rule 405 under the Securities Act) (other than the Initial
Purchasers or subsequent Holders of Registrable Securities if such subsequent
Holders are deemed to be such affiliates solely by reason of their holdings of
such Registrable Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.

              (e) Successors and Assigns. Any person who purchases any
Registrable Securities from the Initial Purchasers shall be deemed, for purposes
of this Agreement, to be an assignee of the Initial Purchasers. This Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties and shall inure to the benefit of and be binding upon each
Holder of any Registrable Securities.

              (f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be original and all of which taken together
shall constitute one and the same agreement.

              (g) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.

              (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

              (i) Severability. If any term provision, covenant or restriction
of this Agreement is held to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated thereby, and the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction, it being intended that all of the rights and privileges of the
parties shall be enforceable to the fullest extent permitted by law.

              (j) Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and the registration rights
granted by the Company with respect to the Registrable Securities. Except as
provided in the Purchase Agreement, there are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
undertakings among the parties with respect to such registration rights. No
party hereto shall have any rights, duties or obligations other than


                                       19


those specifically set forth in this Agreement. In no event will such methods of
distribution take the form of an underwritten offering of the Registrable
Securities without the prior agreement of the Company.

              (k) Termination. This Agreement and the obligations of the parties
hereunder shall terminate upon the end of the Effectiveness Period, except for
any liabilities or obligations under Section 4, 5 or 6 hereof and the
obligations to make payments of and provide for Additional Interest under
Section 2(e) hereof to the extent such damages accrue prior to the end of the
Effectiveness Period, each of which shall remain in effect in accordance with
its terms.


                                       20


       IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                        BROCADE COMMUNICATIONS
                                        SYSTEMS, INC.

                                        By: /s/ Antonio Canova
                                            ------------------------------------
                                            Name: Antonio Canova
                                            Title: Chief Financial Officer

Confirmed and accepted as of
the date first above written:

MORGAN STANLEY & CO. INCORPORATED
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY INC.
MERRILL LYNCH, PIERCE FENNER
     AND SMITH INCORPORATED

By: Morgan Stanley & Co. Incorporated

By: /s/ David A. Schwarzbach
    ------------------------------------
    Name: David A. Schwarzbach
    Title: Vice President