10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended April 28, 2007

OR

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

1745 Technology Drive
San Jose, CA 95110
(408) 333-8000
(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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

The number of shares outstanding of the Registrant’s Common Stock on May 14, 2007 was 400,913,077shares.

BROCADE COMMUNICATIONS SYSTEMS, INC.

FORM 10-Q

QUARTER ENDED APRIL 28, 2007

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements		4
	Condensed Consolidated Statements of Income for the Three and Six Months Ended April 28, 2007 and April 29, 2006		4
	Condensed Consolidated Balance Sheets as of April 28, 2007 and October 28, 2006		5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended April 28, 2007 and April 29, 2006		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
Item 3.	Quantitative and Qualitative Disclosures About Market Risks		48
Item 4.	Controls and Procedures		49
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		49
Item 1A.	Risk Factors		52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		64
Item 4	Submission of Matters to a Vote of Security Holders		65
Item 6.	Exhibits		66
SIGNATURES			67
EXHIBIT 4.2
EXHIBIT 4.3
EXHIBIT 4.4
EXHIBIT 4.5
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 10.6
EXHIBIT 10.7
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

2

Forward-Looking Statements

     This Quarterly Report on Form 10-Q contains forward-looking statements regarding future events and our future results. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to, projections of revenue, margins, expenses, tax provisions, earnings, cash flows, benefit obligations, share repurchases or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning expected development, performance or market share relating to products or services; any statements regarding future economic conditions or performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under “Part II — Other Information, Item 1A. Risk Factors” and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Further, we undertake no obligation to revise or update any forward-looking statements for any reason.

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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 amounts)
(Unaudited)

	Three months ended						Six months ended
	April 28,			April 29,			April 28,			April 29,
	2007			2006			2007			2006
Net revenues
Product	$	300,438		$	168,668		$	507,654		$	325,968
Service		44,830			14,074			61,771			26,856
Total Revenue		345,268			182,742			569,425			352,824
Cost of revenues
Product		140,980			69,119			213,292			130,989
Service		33,440			8,479			43,918			15,990
Total cost of revenue		174,420			77,598			257,210			146,979
Gross margin		170,848			105,144			312,215			205,845
Operating expenses:
Research and development		58,303			40,725			100,694			79,467
Sales and marketing		59,364			34,313			97,951			65,181
General and administrative		13,570			7,296			20,975			15,097
Legal fees associated with indemnification obligations, defense, and other related costs		15,234			3,160			20,462			7,189
Acquisition and integration costs		7,564			—			14,997			—
Provision for SEC settlement		—			—			—			7,000
Amortization of intangible assets		7,977			518			8,887			518
Facilities lease losses		—			3,775			—			3,775
Total operating expenses		162,012			89,787			263,966			178,227
Income from operations		8,836			15,357			48,249			27,618
Interest and other income, net		10,788			7,206			18,244			14,236
Interest expense		(2,054	)		(1,838	)		(2,058	)		(3,615	)
Income before provision for income taxes		17,570			20,725			64,435			38,239
Income tax provision		16,727			7,212			30,273			15,066
Net income	$	843		$	13,513		$	34,162		$	23,173
Net income per share — Basic	$	0.00		$	0.05		$	0.10		$	0.09
Net income per share — Diluted	$	0.00		$	0.05		$	0.10		$	0.08
Shares used in per share calculation — Basic		395,574			270,564			334,215			269,982
Shares used in per share calculation — Diluted		411,989			274,393			348,563			273,247

See accompanying notes to condensed consolidated financial statements.

4

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)
(Unaudited)

	April 28,			October 28,
	2007			2006
Assets
Current assets:
Cash and cash equivalents	$	363,838		$	274,368
Short-term investments		391,694			267,694
Total cash, cash equivalents and short-term investments		755,532			542,062
Accounts receivable, net of allowances of $5,959 and $4,842 at April 28, 2007 and October 28, 2006, respectively		151,595			98,394
Inventories		26,406			8,968
Prepaid expenses and other current assets		46,687			43,365
Total current assets		980,220			692,789
Long-term investments		80,980			40,492
Property and equipment, net		201,303			104,299
Goodwill		419,704			41,013
Intangible assets, net		311,976			15,465
Other assets		29,371			6,660
Total assets	$	2,023,554		$	900,718
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	77,797		$	56,741
Accrued employee compensation		91,885			62,842
Deferred revenue		87,705			52,051
Current liabilities associated with lease losses		13,943			4,931
Purchase commitments		64,542			6,104
Income tax payable		65,759			39,076
Other accrued liabilities		71,547			42,811
Total current liabilities		473,178			264,556
Non-current liabilities associated with lease losses		26,354			11,105
Non-current deferred revenue		38,283			8,827
Convertible subordinated debt		161,970			—
Other non-current liabilities		1,513			—
Total liabilities		701,298			284,488
Commitments and contingencies (Note 7)
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: 400,453 and 272,141 shares at April 28, 2007 and October 28, 2006, respectively		400			272
Additional paid-in capital		1,547,288			888,978
Accumulated other comprehensive income/(loss)		12,610			(817	)
Accumulated deficit		(238,042	)		(272,203	)
Total stockholders’ equity		1,322,256			616,230
Total liabilities and stockholders’ equity	$	2,023,554		$	900,718

See accompanying notes to condensed consolidated financial statements.

5

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(Unaudited)

	Six Months Ended
	April 28,			April 29,
	2007			2006
Cash flows from operating activities:
Net income	$	34,161		$	23,173
Adjustments to reconcile net income to net cash provided by operating activities:
Excess tax benefit from employee stock plans		(161	)		(6,587	)
Depreciation and amortization		40,802			18,551
Loss on disposal of property and equipment		203			200
Amortization of debt issuance costs		—			851
Non-cash compensation expense		14,729			14,899
Provision for doubtful accounts receivable and sales returns		1,662			744
Provision for SEC settlement		—			7,000
Non-cash facilities lease loss expense		—			3,775
Changes in operating assets and liabilities:
Accounts receivable		53,735			(6,180	)
Inventories		(4,585	)		2,807
Prepaid expenses and other assets		(8,997	)		(2,915	)
Accounts payable		(20,938	)		10,463
Accrued employee compensation		(22,272	)		11,013
Deferred revenue		12,274			10,163
Other accrued liabilities and long-term debt		(18,385	)		2,156
Liabilities associated with lease losses		(2,653	)		(2,419	)
Net cash provided by operating activities		79,575			87,694
Cash flows from investing activities:
Purchases of property and equipment		(27,587	)		(15,473	)
Purchases of short-term investments		(290,890	)		(138,184	)
Proceeds from maturities and sale of short-term investments		377,833			135,484
Purchases of long-term investments		(91,801	)		(12,568	)
Proceeds from maturities and sale of long-term investments		5,847			—
Purchases of restricted short-term investments		—			(3,309	)
Proceeds from maturities of restricted short-term investments		—			2,909
Purchases of non-marketable minority equity investments		—			(4,575	)
Decrease in restricted cash		5,839
Cash acquired on merger with McDATA		147,407			—
Cash paid in connection with acquisitions, net of cash acquired		(7,704	)		(59,887	)
Net cash provided (used) in investing activities		118,944			(95,603	)
Cash flows from financing activities:
Excess tax benefit from employee stock plans		161			6,587
Payments on capital lease obligations		(706	)		—
Common stock repurchase plan		(59,874	)		(14,930	)
Redemption of outstanding convertible debt		(124,185	)		—
Proceeds from issuance of common stock, net		75,700			15,162
Net cash provided (used) by financing activities		(108,904	)		6,819
Effect of exchange rate fluctuations on cash and cash equivalents		(145	)		98
Net increase (decrease) in cash and cash equivalents		89,470			(992	)
Cash and cash equivalents, beginning of period		274,368			182,001
Cash and cash equivalents, end of period	$	363,838		$	181,009

See accompanying notes to condensed consolidated financial statements.

6

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”) develops, markets, sells, and supports data storage networking products and services, offering a line of storage networking products that enable companies to implement and manage highly available, scalable, and secure environments for data storage networks. The Brocade family of storage area networking (“SAN”) products is designed to help companies reduce the cost and complexity of managing business information within a data storage environment, ensure high availability of mission critical applications and serve as a platform for corporate data backup and disaster recovery. In addition, the Brocade family of application infrastructure solutions extends the ability to proactively manage and optimize application and information resources across the enterprise. Brocade products are installed around the world at companies, institutions, and other entities ranging from large enterprises to small and medium size businesses. Brocade products and services are marketed, sold, and supported worldwide to end-user customers primarily through distribution partners, including original equipment manufacturers (“OEMs”), distributors, systems integrators, and value-added resellers.

     Brocade was reincorporated as a Delaware corporation on May 14, 1999, succeeding operations that began in California on August 24, 1995. The Company’s headquarters are located in San Jose, California.

     Brocade(R), the Brocade B-wing logo(TM), Fabric OS(R), File Lifecycle Manager(R), My View(R), Secure Fabric OS(R), and StorageX(R) are registered trademarks of Brocade Communications Systems, Inc., in the United States and/or in other countries. All other brands, products, or service names identified are or may be trademarks or service marks of, and are used to identify, products or services of their respective owners.

2. Summary of Significant Accounting Policies

Fiscal Year

     The Company’s fiscal year is the 52 or 53 weeks ending on the last Saturday in October. As is customary for companies that use the 52/53-week convention, every fifth year contains a 53-week year. Both fiscal years 2007 and 2006 are 52-week fiscal years.

Basis of Presentation

     The accompanying financial data as of April 28, 2007, and for the three and six months ended April 28, 2007 and April 29, 2006, 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 U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The October 28, 2006 Condensed Consolidated Balance Sheet was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles. 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 28, 2006.

     In the opinion of management, all adjustments (which include only normal recurring adjustments, except as otherwise indicated) necessary to present a fair statement of financial position as of April 28, 2007, results of operations for the three and six months ended April 28, 2007 and April 29, 2006, and cash flows for the three and six months ended April 28, 2007 and April 29, 2006 have been made. The results of operations for the three and six months ended April 28, 2007 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Reclassifications

     Certain reclassifications have been made to prior year balances in order to conform to current year presentation.

Cash and Cash Equivalents

7

     The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents.

Restricted Cash

     Through the acquisition of McDATA, the Company assumed two interest rate swaps. As part of the agreements, the Company is required to provide collateral based on changes in the fair value of the interest rate swap. As of April 28, 2007, $5.0 million of restricted cash is included in the Company’s other non current assets in the Condensed Consolidated Balance Sheet.

     In addition, certain McDATA executives were eligible to receive cash compensation for severance of approximately $10.3 million. These funds were escrowed prior to the acquisition, classified as restricted cash, and included in the Company’s current assets as of the acquisition date. The funds were released to the executives on February 5, 2007.

Investments and Equity Securities

     Investment securities with original or remaining maturities of more than three months but less than one year are considered short-term investments. Investment securities with original or remaining maturities of one year or more are considered long-term investments. Short-term and long-term investments consist of auction rate securities, debt securities issued by United States government agencies, municipal government obligations, and corporate bonds and notes.

     Short-term and long-term investments are maintained at five major financial institutions, are classified as available-for-sale, and are recorded on the accompanying Condensed Consolidated Balance Sheets at fair value. Fair value is determined using quoted market prices for those securities. Unrealized holding gains and losses are included as a separate component of accumulated other comprehensive income on the accompanying Condensed Consolidated Balance Sheets, net of any related tax effect. Realized gains and losses are calculated based on the specific identification method and are included in interest and other income, net, on the Condensed Consolidated Statements of Income.

     The Company recognizes an impairment charge when the declines in the fair values of its investments below the cost basis are judged to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the length of time and extent to which the fair value has been less than the Company’s cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

     Equity securities consist of equity holdings in public companies and are classified as available-for-sale when there are no restrictions on the Company’s ability to immediately liquidate such securities. Marketable equity securities are recorded on the accompanying Condensed Consolidated Balance Sheets at fair value. Fair value is determined using quoted market prices for those securities. Unrealized holding gains and losses are included as a separate component of accumulated other comprehensive income on the accompanying Condensed Consolidated Balance Sheets, net of any related tax effect. Realized gains and losses are calculated based on the specific identification method and are included in interest and other income, net on the Condensed Consolidated Statements of Income.

     From time to time the Company makes equity investments in non-publicly traded companies. These investments are included in other assets on the accompanying Condensed Consolidated Balance Sheets, and are generally accounted for under the cost method as the Company does not have the ability to exercise significant influence over the respective company’s operating and financial policies. The Company monitors its investments for impairment on a quarterly basis and makes appropriate reductions in carrying values when such impairments are determined to be other-than-temporary. Impairment charges are included in interest and other income, net on the Condensed Consolidated Statements of Income. Factors used in determining an impairment include, but are not limited to, the current business environment including competition and uncertainty of financial condition; going concern considerations such as the rate at which the investee company utilizes cash, and the investee company’s ability to obtain additional private financing to fulfill its stated business plan; the need for changes to the investee company’s existing business model due to changing business environments and its ability to successfully implement necessary changes; and comparable valuations. If an investment is determined to be impaired, a determination is made as to whether such impairment is other-than-temporary. As of April 28, 2007 and October 28, 2006, the

8

carrying values of the Company’s equity investments in non-publicly traded companies were $0.8 million and $0.8 million, respectively.

     On February 13, 2007, one of the non-publicly traded entities that the Company has an equity investment in completed its initial public offering (“IPO”). The Company has 113,464 shares of stock at a purchase price of $6.61 per share. Subject to the agreement, there is a lockup period not to exceed 180 days following the effective date of the registration statement filed under the Securities Act of 1933, as amended (the “Securities Act”), during which the Company cannot sell or otherwise transfer any securities. As such, the carrying value of the securities for a total of $12.4 million is included in short term investments, and the unrealized gain is included in accumulated other comprehensive income.

     In addition, included in investment balances are certain derivatives used as fair—value hedges for a total of $0.2 million against positions held in certain marketable equity securities.

Goodwill and Intangible Assets

     The Company accounts for goodwill in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 142 requires that goodwill be capitalized at cost and tested annually for impairment. The Company evaluates goodwill on an annual basis during its second fiscal quarter, or whenever events and changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s implied fair value. Events which might indicate impairment include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of economic environment on the Company’s customer base, material negative changes in relationships with significant customers, and/or a significant decline in the Company’s stock price for a sustained period.

     For purposes of SFAS 142, the Company operates under one reporting unit. To determine the reporting unit’s fair value, the Company utilized the income valuation approach as well as the market valuation approach in the current year valuation. The income approach provides an estimation of the fair value of the Company based on the cash flows that the Company can be expected to generate over its remaining life. The market approach provides an estimate of the fair value of the Company by comparing it to publicly traded companies in similar lines of business. Based on the results of the impairment review, the Company has determined that no indicators of impairment existed as of April 28, 2007.

     Intangible assets other than goodwill are amortized over their estimated useful lives, unless these lives are determined to be indefinite. Intangible assets are carried at cost less accumulated amortization. Amortization is recognized over the estimated useful life of the respective asset. Intangible assets are reviewed for impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). The Company performs impairment test for long-lived assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Examples of such events or circumstances include significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of acquired assets or the strategy for its business, significant negative industry or economic trends, and/or a significant decline in the Company’s stock price for a sustained period. Impairments are recognized based on the difference between the fair value of the asset and its carrying value, and fair value is generally measured based on discounted cash flow analyses. No intangible asset impairment was recorded for the periods presented.

Concentrations

     Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term and long-term investments, and accounts receivable. Cash, cash equivalents, and short-term and long-term investments are primarily maintained at five major financial institutions in the United States. Deposits held with banks may be redeemed upon demand and may exceed the amount of insurance provided on such deposits. The Company principally invests in United States government debt securities, United States government agency debt securities and corporate bonds and notes, and limits the amount of credit exposure to any one entity.

     A majority of the Company’s trade receivable balance is derived from sales to OEM partners in the computer storage and server industry. As of April 28, 2007, three customers accounted for 25 percent, 17 percent, and 15 percent respectively, of total accounts receivable. As of October 28, 2006, three customers accounted for 44 percent, 21 percent, and 8 percent, respectively, of total accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable balances. The Company has established reserves for credit losses, sales returns, and other allowances. While the Company has not experienced material credit losses in any of the periods presented, there can be no assurance that the Company will not experience material credit losses in the future.

     For the three months ended April 28, 2007 and April 29, 2006, three customers each represented ten percent or more of the Company’s total revenues for combined totals of 67 percent and 70 percent of total revenues, respectively. For the six months ended April 28, 2007 and April 29, 2006, three customers each represented ten percent or more of the Company’s total revenues for combined totals of 69 percent and 71 percent of total revenues, respectively. The level of sales to any one of these customers may

9

vary, and the loss of, or a decrease in the level of sales to, any one of these customers could seriously harm the Company’s financial condition and results of operations.

     The Company currently relies on single and limited supply sources for several key components used in the manufacture of its products. Additionally, the Company relies on one contract manufacturer for a significant portion of the production of its products. The inability of any single and limited source suppliers or the inability of a contract manufacturer to fulfill supply and production requirements, respectively, could have a material adverse effect on the Company’s future operating results.

     The Company’s business is concentrated in the SAN industry, which from time to time has been impacted by unfavorable economic conditions and reduced information technology (“IT”) spending rates. Accordingly, the Company’s future success depends upon the buying patterns of customers in the SAN industry, their response to current and future IT investment trends, and the continued demand by such customers for the Company’s products. The Company’s future success, in part, will depend upon its ability to enhance its existing products and to develop and introduce, on a timely basis, new cost-effective products and features that keep pace with technological developments and emerging industry standards.

Revenue Recognition

     Product revenue. Product revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is probable. However, for newly introduced products, many of the Company’s large OEM customers require a product qualification period during which the Company’s products are tested and approved by the OEM customer for sale to its customers. Revenue recognition, and related cost, is deferred for shipments to new OEM customers and for shipments of newly introduced products to existing OEM customers until satisfactory evidence of completion of the product qualification has been received from the OEM customer. Revenue from sales to the Company’s master reseller customers is recognized in the same period in which the product is actually sold by the master reseller (sell-through).

     The Company reduces revenue for estimated sales returns, sales programs, and other allowances at the time of shipment. Sales returns, sales programs, and other allowances are estimated based upon historical experience, current trends, and the Company’s expectations regarding future experience. In addition, the Company maintains allowances for doubtful accounts, which are also accounted for as a reduction in revenue. The allowance for doubtful accounts is estimated based upon analysis of accounts receivable, historical collection patterns, customer concentrations, customer creditworthiness, current economic trends, and changes in customer payment terms and practices.

     Service revenue. Service revenue consists of training and maintenance arrangements, including post-contract customer support (“PCS”) services. PCS services are offered under renewable, annual fee-based contracts or as part of multiple element arrangements and typically include upgrades and enhancements to the Company’s software operating system, and telephone support. Service revenue, including revenue allocated to PCS elements, is deferred and recognized ratably over the contractual period. Service contracts are typically one to three years in length. Training revenue is recognized upon completion of the training.

     Multiple-element arrangements. The Company’s multiple-element product offerings include computer hardware and software products, and support services. The Company also sells certain software products and support services separately. The Company’s software products are essential to the functionality of its hardware products and are, therefore, accounted for in accordance with Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended. The Company allocates revenue to each element in a multiple element arrangement based upon vendor-specific objective evidence (“VSOE”) of the fair value of the element or, if VSOE is not available for the delivered element, by application of the residual method. In the application of the residual method, we allocate revenue to the undelivered elements based on VSOE for those elements and allocate the residual revenue to the delivered elements. VSOE of the fair value for an element is based upon the price charged when the element is sold separately. Revenue allocated to each element is then recognized when the basic revenue recognition criteria are met for each element.

     Warranty Expense. The Company provides warranties on its products ranging from one to three years. Estimated future warranty costs are accrued at the time of shipment and charged to cost of revenues based upon historical experience.

Foreign Currency

     The financial statements of the Company’s international subsidiaries have been translated into U.S. dollars. Assets and liabilities are translated into U.S. dollars at period-end exchange rates. Income and expenses are translated at the average exchange rates during the period. The resulting translation adjustments are included in the Company’s condensed consolidated balance sheet in the stockholders’ equity section as a component of accumulated other comprehensive loss.

10

     The Company is exposed to market risks related to fluctuations in foreign exchange rates because some sales transactions, and the assets and liabilities of its foreign subsidiaries, are denominated in foreign currencies. The Company uses forward exchange contracts to address the risk of certain currency fluctuations. See Note 8, Derivative Accounting Policies. For amounts not associated with forward contracts, gains and losses from transactions denominated in foreign currencies are included in the Company’s net income (loss) as part of interest and other income in the accompanying condensed consolidated statements of operations. The Company recognized foreign currency transaction gains and (losses) for the three and six months ended April 28, 2007, of $0.9 million and $0.4 million, respectively.

Stock-Based Compensation

     Effective October 30, 2005, the Company began recording compensation expense associated with stock-based awards and other forms of equity compensation in accordance with Statement of Financial Accounting Standards No. 123-R, Share-Based Payment, (“SFAS 123R”) as interpreted by SEC Staff Accounting Bulletin No. 107. The Company adopted the modified prospective transition method provided for under SFAS 123R. Under this transition method, compensation cost associated with stock-based awards recognized beginning in the first quarter of fiscal year 2006 includes 1) quarterly amortization related to the remaining unvested portion of stock-based awards granted prior to October 30, 2005, based on the grant date fair value estimated in accordance with the original provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (“SFAS 123”); and 2) quarterly amortization related to stock-based awards, stock options and restricted stock, granted subsequent to October 30, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. In addition, the Company records expense over the offering period and vesting term in connection with shares issued under its employee stock purchase plan. The compensation expense for stock-based awards includes an estimate for forfeitures and is recognized over the expected term of the award under an accelerated vesting method.

     Prior to October 30, 2005, the Company accounted for stock-based awards using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees” (“APB 25”), whereby the difference between the exercise price and the fair market value on the date of grant is recognized as compensation expense. Under the intrinsic value method of accounting, no compensation expense was recognized in the Company’s Condensed Consolidated Statements of Income when the exercise price of the Company’s employee stock option grant equals the market price of the underlying common stock on the date of grant, and the measurement date of the option grant is certain. The measurement date is certain when the date of grant is fixed and determinable. Prior to October 30, 2005, when the measurement date was not certain, the Company recorded stock-based compensation expense using variable accounting under APB 25. From May 1999 through July 2003, the Company granted 98.8 million options that were subject to variable accounting under APB 25 because the measurement date of the options granted was not certain. Effective October 30, 2005, if the measurement date is not certain, the Company records stock-based compensation expense under SFAS 123R.

     On November 10, 2005, the Financial Accounting Standards Board issued FASB Staff position No. FAS 123R-3, Transition Election Related to Accounting for tax Effects of Share-Based Payment Awards (“FAS 123R-3”). The Company has elected to adopt the alternative transition method provided in the FASB Staff Position for calculating the tax effects of equity-based compensation pursuant to SFAS 123R. The alternative transition method includes simplified methods to establish the beginning balance of the Additional Paid-In Capital Pool (“APIC Pool”) related to the tax effects of employee equity-based compensation, and to determine the subsequent impact on the APIC pool and Condensed Consolidated Statement of Cash Flows of the tax effects of employee equity-based compensation awards that were outstanding upon the implementation of SFAS 123R.

Employee Stock Plans

     The Company has several stock-based compensation plans (the “Plans”) that are described in the Company’s Annual Report on Form 10-K for the fiscal year ended October 28, 2006, as well as several stock-based compensation plans assumed in connection with the acquisition of McDATA Corporation and filed on Form S-8 with the Securities and Exchange Commission on January 30, 2007 (collectively, the “Plans”) . The Company, under the various equity plans, grants stock options for shares of the Company’s common stock to its employees and directors. The Company has also issued restricted stock under the Plans. In accordance with the Plans, incentive stock options may not be granted at less than 100 percent of the estimated fair market value of the common stock, and incentive stock options granted to a person owning more than 10 percent of the combined voting power of all classes of stock of the Company must be issued at 110 percent of the fair market value of the stock on the date of grant. Nonstatutory stock options may be granted at any price. Under the Plans, options or restricted stock typically have a maximum term of seven or ten years. The majority of options granted under the Plans vest over a period of four years. Certain options granted under the Plans vest over shorter or longer periods. At April 28, 2007, an aggregate of 161.9 million shares were authorized for future issuance under the Plans, which includes Stock Options, shares issued pursuant to the Employee Stock Purchase Plan, and Restricted Stock Units and Awards. A total of 114.9

11

million shares of common stock were available for grant under the Plans as of April 28, 2007. Awards that expire, or are cancelled without delivery of shares, generally become available for issuance under the Plans.

Stock Options

     When the measurement date is certain, the fair value of each option grant is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the following table. The expected term of stock options is based on the midpoint of the historical exercise behavior and uniform exercise behavior. The expected volatility is based on an equal weighted average of implied volatilities from traded options of the Company’s stock and historical volatility of the Company’s stock. The risk free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The dividend yield reflects that Brocade has not paid any cash dividends since inception and does not anticipate paying cash dividends in the foreseeable future.

	Three Months Ended						Six Months Ended
	April 28,			April 29,			April 28,			April 29,
Stock Options	2007			2006			2007			2006
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free interest rate		4.5 — 4.9	%		5.0 — 5.3	%		4.5 — 5.3	%		4.8 — 5.0	%
Expected volatility		46.6	%		48.5	%		47.1	%		50.7	%
Expected term (in years)		4.0			3.3			3.7			3.3

     The Company recorded $4.6 million and $3.5 million of compensation expense relative to stock options for the quarters ended April 28, 2007 and April 29, 2006, respectively, in accordance with SFAS 123R. The Company recorded $8.9 million and $7.9 million of compensation expense relative to stock options for the six months ended April 28, 2007 and April 29, 2006, respectively, in accordance with SFAS 123R. A summary of stock option activity under the Plans for the six months ended April 28, 2007 and April 29, 2006 is presented as follows:

						Weighted Average
						Remaining
	Shares			Weighted Average		Contractual Term		Aggregate Intrinsic
	(in thousands)			Exercise Price		(Years)		Value ($000)
Outstanding, October 28, 2006		39,954		$	6.35
Granted		2,180		$	9.14
Exercised		(4,249	)	$	5.58
Forfeited or Expired		(546	)	$	5.28
Outstanding, January 27, 2007		37,339		$	6.62
Assumed upon McDATA acquisition		15,632		$	11.12
Granted		4,314		$	9.08
Exercised		(8,044	)	$	9.36
Forfeited or Expired		(2,683	)	$	12.71
Outstanding, April 28, 2007		46,558		$	7.53		5.3	$	155,977
Ending Vested and Expected to Vest		44,026		$	8.47		5.5	$	147,666
Exercisable and Vested, April 28, 2007		27,981		$	9.53		4.7	$	90,951

						Weighted Average
						Remaining
	Shares			Weighted Average		Contractual Term		Aggregate Intrinsic
	(in thousands)			Exercise Price		(Years)		Value ($000)
`Outstanding, October 29, 2005		45,179		$	6.59
Granted		1,165		$	4.19
Exercised		(204	)	$	0.68
Forfeited or Expired		(3,209	)	$	6.14
Outstanding, January 28, 2006		42,931		$	6.57
Granted		2,025		$	5.52
Exercised		(2,061	)	$	5.50
Forfeited or Expired		(1,965	)	$	6.09
Outstanding, April 29, 2006		40,930		$	6.60		6.1	$	29,797
Ending Vested and Expected to Vest		38,826		$	6.68		6.5	$	27,500
Exercisable and Vested, April 29, 2006		24,989		$	7.54		6.2	$	12,642

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     The weighted-average fair value of employee stock options granted during the three months ended April 28, 2007 and April 29, 2006 were $3.74 and $2.15, respectively. The total intrinsic value of stock options exercised for the three months ended April 28, 2007 and April 29, 2006 were $30.2 million and $1.5 million, respectively.

     As of April 28, 2007 and April 29, 2006, there was $31.4 million and $17.0 million, respectively, of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 1.5 years and 3.7 years, respectively.

Employee Stock Purchase Plan

     Under Brocade’s Employee Stock Purchase Plan, eligible employees can participate and purchase shares semi-annually through payroll deductions at the lower of 85% of the fair market value of the stock at the commencement or end of the offering period. The Purchase Plan permits eligible employees to purchase common stock through payroll deductions for up to 15% of qualified compensation. The Company accounts for the Employee Stock Purchase Plan as a compensatory plan and recorded compensation expense of $1.3 million and $1.1 million for the three months ended April 28, 2007 and April 29, 2006, respectively, and $2.5 million and $2.0 million for the six months ended April 28, 2007 and April 29, 2006 respectively in accordance with SFAS 123R.

     The fair value of the option component of the Employee Stock Purchase Plan shares was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	Three Months Ended						Six Months Ended
	April 28,			April 29,			April 28,			April 29,
Employee Stock Purchase Plan	2007			2006			2007			2006
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free interest rate		5.1 — 5.2	%		3.4 — 4.4	%		5.1 — 5.2	%		3.4 — 4.4	%
Expected volatility		53.5	%		44.3	%		53.5	%		44.3	%
Expected term (in years)		0.5			0.5			0.5			0.5

     As of April 28, 2007 and April 29, 2006, there was $0.5 million and $0.4 million, respectively, of total unrecognized compensation costs related to employee stock purchases. These costs were expected to be recognized over a weighted average period of 0.1 years and 0.1 years, respectively.

Restricted Stock Awards

     For the six months ended April 28, 2007 and April 29, 2006, Brocade issued restricted stock awards of 0.1 million shares and 1.9 million shares, respectively, to certain eligible employees at a purchase price of $0.00 and $0.001 per share, respectively. These restricted shares are not transferable until fully vested and are subject to repurchase for all unvested shares upon termination. The fair value of each award is based on the Company’s closing stock price on the date of grant. In addition, as part of its acquisition of McData, the Company became the administrator of retention compensation plans for certain employees. The plans provided the employees restricted stock that would vest generally over a two year service period under certain conditions, subject to full acceleration of vesting upon termination without cause and execution of a release in favor of the Company. The Company assumed that none of its executives would forfeit. The Company recorded the stock-based compensation consistent with the provisions of 123R using a two year service period.

     Compensation expense computed under the fair value method for stock awards issued is being amortized under a graded vesting method over the awards’ vesting period and was $1.1 million and $1.1 million, for the three months ended April 28, 2007 and April 29, 2006, respectively, and $2.4 million and $2.0 million, for the six months ended April 28, 2007 and April 29, 2006, respectively.

     The weighted-average fair value of the restricted stock awards granted in the six months ended April 28, 2007 and April 29, 2006 was $8.98 and zero, respectively. The total fair value of stock awards vested for both the six months ended April 28, 2007 and April 29, 2006 was zero. At April 28, 2007, unrecognized costs related to restricted stock awards totaled approximately $3.0 million. These costs are expected to be recognized over a weighted average period of one year. A summary of the nonvested shares for the six months ended April 28, 2007 and April 29, 2006, respectively, is presented as follows:

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	Shares			Weighted Average
	(in thousand)			Grant-Date Fair Value
Nonvested, October 28, 2006		1,848		$	4.44
Granted		130		$	8.98
Vested		(3	)	$	7.05
Forfeited		—			—
Nonvested, January 27, 2007		1,975		$	4.73
Assumed upon McDATA merger		1,058		$	3.08
Granted		—		$	—
Vested		(50	)	$	0.01
Forfeited		(174	)	$	0.99
Nonvested, April 28, 2007		2,809		$	3.27
Expected to vest, April 28, 2007		2,346		$	3.27

	Shares			Weighted Average
	(in thousand)			Grant-Date Fair Value
Nonvested, October 29, 2005		13		$	7.05
Granted		1,923		$	4.43
Vested		(3	)	$	7.05
Forfeited		—			—
Nonvested, January 29, 2006		1,933		$	4.44
Granted		—			—
Vested		(3	)	$	7.05
Forfeited		(20	)	$	4.43
Nonvested, April 29, 2006		1,910		$	4.44
Expected to vest, April 29, 2006		1,595		$	4.44

Restricted Stock Units

     For the six months ended April 28, 2007, Brocade issued restricted stock units of 0.3 million shares. No restricted stock units were issued for the six months ended April 29, 2006. Typically, vesting of restricted stock units occurs over two to three years and is subject to the employee’s continuing service to Brocade. The compensation expense of $0.3 million related to these awards was determined using the fair market value of Brocade’s common stock on the date of the grant and is recognized under a graded vesting method over the vesting period.

     A summary of the changes in restricted stock units outstanding under Brocade’s equity-based compensation plans during the six months ended April 28, 2007 is presented as follows:

				Weighted
				Average
	Shares			Grant-Date
	(in thousand)			Fair Value
Nonvested, October 28, 2006		—			—
Granted		346		$	9.19
Vested		—			—
Forfeited		—			—
Nonvested, January 27, 2007		346		$	9.19
Granted		15		$	10.11
Vested		—			—
Forfeited		(5	)	$	9.19
Nonvested, April 28, 2007		356		$	9.19
Nonvested expected to vest at April 28, 2007		278		$	9.19

     As of April 28, 2007, Brocade had $2.1 million of total unrecognized compensation expense, net of estimated forfeitures, related to restricted stock unit grants, which is expected to be recognized over the weighted average period of 2.3 years.

Tender Offer

     On June 12, 2006, the Company completed a tender offer that allowed employees to amend or cancel certain options to remedy potential adverse personal tax consequences. As a result, the Company amended certain options granted after August 14, 2003 that were or may have been granted at a discount to increase the option grant price to the fair market value on the date of grant, and to give

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the employee a cash payment for the difference in option grant price between the amended option and the original discounted price. In addition, for certain options granted prior to August 14, 2003 that were or may have been granted at a discount, the Company canceled the options in exchange for a cash payment based on the Black-Scholes estimate of fair value of the option. The Company accounted for these modifications and settlements in accordance with SFAS 123R and as a result recorded incremental compensation expense of $2.1 million during the three months ended July 29, 2006 and recognized a liability of $3.3 million for the cash payments. The liability was paid in January 2007.

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 shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares result from the assumed exercise of outstanding stock options, by application of the treasury stock method, that have a dilutive effect on earnings per share.

Comprehensive Income

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

	Three Months Ended				Six Months Ended
	April 28,		April 29,		April 28,		April 29,
	2007		2006		2007		2006
Net income	$	843	$	13,513	$	34,162	$	23,173
Other comprehensive income:
Change in net unrealized gains (losses) on marketable equity securities and investments		13,066		488		13,023		965
Cumulative translation adjustments		930		104		404		98
Total comprehensive income	$	14,839	$	14,105	$	47,589	$	24,236

3. Balance Sheet Details

     The following tables provide details of selected balance sheet items (in thousands):

	April 28,			October 28,
	2007			2006
Inventories:
Raw materials	$	2,835		$	82
Finished goods		23,571			8,886
Total	$	26,406		$	8,968
Property and equipment, net:
Computer equipment and software	$	93,500		$	73,421
Engineering and other equipment		169,048			144,530
Furniture and fixtures		10,511			4,360
Leasehold improvements		52,767			43,519
Land and building		87,026			30,000
Subtotal		412,851			295,830
Less: Accumulated depreciation and amortization		(211,548	)		(191,531	)
Total	$	201,303		$	104,299

	April 28,		October 28,
	2007		2006
Other accrued liabilities:
Accrued warranty		6,755		2,230
Accrued sales programs		12,736		12,051
Other		50,056		28,530
Total	$	71,547	$	42,811

     Leasehold improvements as of April 28, 2007 and October 28, 2006, are shown net of estimated asset impairments related to facilities lease losses (see Note 5).

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4. Investments and Equity Securities

     The following tables summarize the Company’s investments and equity securities (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
April 28, 2007
U.S. government and its agencies and municipal obligations	$	174,314	$	9	$	(271	)	$	174,052
Corporate bonds and notes		254,675		78		(394	)		254,359
Marketable equity securities		32,557		12,434		(727	)		44,264
Total	$	461,546	$	12,521	$	(1,392	)	$	472,675
Reported as:
Short-term investments								$	391,694
Long-term investments									80,981
Total								$	472,675
October 28, 2006
U.S. government and its agencies and municipal obligations	$	124,105	$	5	$	(556	)	$	123,554
Corporate bonds and notes		185,183		32		(583	)		184,632
Total	$	309,288	$	37	$	(1,139	)	$	308,186
Reported as:
Short-term investments								$	267,694
Long-term investments									40,492
Total								$	308,186

     For the three months ended April 28, 2007 gains of $0.6 million were realized on the sale of short term investments. For the three months ended April 29, 2006, no gains were realized on the sale of investments or marketable equity securities. As of April 28, 2007 and October 28, 2006, net unrealized holding losses of $1.4 million and $1.1 million, respectively, were included in accumulated other comprehensive income in the accompanying Condensed Consolidated Balance Sheets.

     At April 28, 2007, the Company held approximately $0.2 million of purchased put options for U.S. Treasury futures. These investments were purchased as an economic hedge to mitigate interest rate risk related to a portfolio of preferred equity securities, included in marketable equity securities above, with a market value of approximately $31.8 million at April 28, 2007.

5. Liabilities Associated with Facilities Lease Losses

     During the three months 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 estimated impairment of certain related leasehold improvements. These charges represented the low-end of an estimated range of $39.8 million to $63.0 million and have been adjusted upon the occurrence of certain triggering events.

     During the three months ended July 27, 2002, the Company completed a transaction to sublease a portion of these vacant facilities. Accordingly, based on then current market data, the Company revised certain estimates and assumptions, including those related to estimated sublease rates, estimated time to sublease the facilities, expected future operating costs, and expected future use of the facilities. The Company reevaluates its estimates and assumptions on a quarterly basis and makes adjustments to the reserve balance if necessary.

     In November 2003, the Company purchased a previously leased building. In addition, the Company consolidated the engineering organization and development, test and interoperability laboratories into the purchased facilities and vacated other existing leased facilities. As a result, the Company recorded adjustments to the facilities lease loss reserve recorded in fiscal year 2001 described above, and recorded additional reserves in connection with the facilities consolidation.

     During the three months ended April 29, 2006, the Company recorded a charge of $3.8 million related to estimated facilities lease losses, net of expected sublease income. This charge represents an estimate based on current market data. As a result, the Company revised certain estimates and assumptions, including those related to estimated sublease rates, estimated time to sublease the facilities, expected future operating costs, and expected future use of the facilities.

     During the three months ended January 2007, the Company recorded a charge of $0.6 million related to estimated lease losses, net of expected sublease income as a result of the acquisition of Silverback Systems, Inc. During the three months ended April 28, 2007, the Company recorded a purchase accounting adjustment of $26.3 million related to estimated losses, net of expected sublease

16

income, as a result of the acquisition of McDATA Corporation. The Company reevaluates its estimates and assumptions on a quarterly basis and makes adjustments to the reserve balance if necessary.

     The following table summarizes the activity related to the facilities lease losses reserve, net of expected sublease income (in thousands), as of April 28, 2007:

	Lease Loss
	Reserve
Reserve balances at October 28, 2006	$	16,036
Additional reserves related to acquisitions		27,004
Cash payments on facilities leases		(2,739	)
Non-cash charges		(4	)
Reserve balance at April 28, 2007	$	40,297

     Cash payments for facilities leases related to the above noted facilities lease losses will be paid over the respective lease terms through fiscal year 2010.

6. Convertible Subordinated Debt

     Convertible subordinated debt includes $172.5 million outstanding 2.25% convertible subordinated notes (the “2.25% Notes”) due February 15, 2010 previously issued by McData. In accordance with purchase accounting rules, the Notes were adjusted to their aggregate fair value of $162.0 million based on the quoted market closing price as of the acquisition date.

     On January 29, 2007, effective upon the consummation of the merger, the Company fully and unconditionally guaranteed the 2.25% Notes and became a co—obligor on the 2.25% Notes with McData. The 2.25% Notes were convertible into Class A common stock at a conversion rate of 93.3986 shares per $1,000 principal amount of notes (aggregate of approximately 16.1 million shares) at any time prior to February 15, 2010, subject to adjustments. As of April 28, 2007, the approximate bid and ask prices per $100 of the Company’s 2.25% Notes were $101.5 and $102.5, respectively, resulting in an aggregate fair value of between $175.1 million and $176.8 million. Pursuant to the merger agreement, at the effective time of the Merger each outstanding share of the McDATA’s Class A common stock, $0.01 part value per share, was converted into the right to receive 0.75 shares of Brocade’s common stock, $0.001 par value per share, together with cash in lieu of fractional shares. As a result of the conversion, an approximate aggregate of 21.5 million shares are subject to conversion at any time prior to February 15, 2010.

     Concurrent with the issuance of the 2.25% Notes, McDATA entered into share option transactions using approximately $20.5 million of net proceeds. As part of these share option transactions, McDATA purchased options that cover approximately 12.1 million shares of common stock, at a strike price of $8.03. McDATA also sold options that cover approximately 12.7 million shares of common stock, at a strike price of $11.31. The net cost of the share option transactions was recorded against additional paid—in—capital in accordance with EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s own Stock” (“EITF 00-19”).

     Prior to the merger, McData entered into an interest rate swap agreement with a notional amount of $155.3 million that has the economic effect of modifying that dollar portion of the fixed interest obligations associated with the 2.25% Notes so that the interest payable effectively becomes variable based on the six—month London Interbank Offered Rate (LIBOR) minus 152 basis points. The reset dates of the swap are February 15 and August 15 of each year until maturity on February 15, 2010. At April 28, 2007, the six—month LIBOR setting for the swap was 5.35%, creating a rate of approximately 3.83%, which is effective until August 15, 2007. The Company evaluated the effectiveness of the hedge in the current quarter and concluded that there was no ineffective portion of the hedge. As a result, no change in the fair value of the hedge was recognized in earnings. At April 28, 2007, the fair value of the interest rate swap represents approximately $5.0 million and is included in long—term liabilities. As part of the agreement, the Company is also required to post collateral based on changes in the fair value of the interest rate swap. This collateral, in the form of restricted cash, is approximated $6.6 million at April 28, 2007 and is included in non current assets.

     In addition, effective upon the consummation of the merger with McDATA, the Company fully and unconditionally guaranteed, and became a co-obligor, in the $122.4 million outstanding 3.00% convertible subordinated notes (the “3% Notes”) due February 15, 2007, previously issued by Computer Network Technology, Inc. (“CNT”), and assumed on June 1, 2005 by McDATA, upon McDATA’s acquisition of CNT. On February 15, 2007, the Company paid the remaining balance due on the 3.00% Notes and also paid $1.4 million to settle the related swap agreement. On February 21, 2007, the Company received $3.9 million which consisted of all the related collateral and accrued interest.

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7. Commitments and Contingencies

Operating and Capital Leases

     The Company leases its facilities and certain equipment under various operating and capital lease agreements expiring through August 2016. In connection with its facilities lease agreements, the Company has signed unconditional, irrevocable letters of credit totaling $2.7 million as security for the leases. Future minimum lease payments under all non-cancelable operating leases as of April 28, 2007 were $115.4 million, net of contractual sublease income of $8.7. In addition to base rent, many of the facilities lease agreements require that the Company pay a proportional share of the respective facilities’ operating expenses.

     As of April 28, 2007, the Company had recorded $40.3 million in facilities lease loss reserves related to future lease commitments, net of expected sublease income (see Note 5).

Product Warranties

     The Company provides warranties on its products ranging from one to three years. Estimated future warranty costs are accrued at the time of shipment and charged to cost of revenues based upon historical experience. The Company’s accrued liability for estimated future warranty costs is included in other accrued liabilities on the accompanying Condensed Consolidated Balance Sheets. The following table summarizes the activity related to the Company’s accrued liability for estimated future warranty costs during the six months ended April 28, 2007 and April 29, 2006 (in thousands), respectively:

	Six Months Ended
	April 28,			April 29,
	2007			2006
Beginning Balance	$	2,230		$	1,746
Liabilities accrued for warranties issued during the period		6,855			930
Warranty claims paid and uses during the period		(1,794	)		(251	)
Changes in liability for pre-existing warranties during the period		(536	)		(135	)
Ending Balance	$	6,755		$	2,290

     In addition, the Company has standard indemnification clauses contained within its various customer contracts. As such, the Company indemnifies the parties to whom it sells its products with respect to the Company’s product infringing upon any patents, trademarks, copyrights, or trade secrets, as well as against bodily injury or damage to real or tangible personal property caused by a defective Company product. As of April 28, 2007, there have been no known events or circumstances that have resulted in a customer contract related indemnification liability to the Company.

Manufacturing and Purchase Commitments

     The Company has manufacturing agreements with Hon Hai Precision Industry Co. (“Foxconn”), SCI - -Sanmina (“Sanmina”) and Solectron under which the Company provides twelve-month product forecasts and places purchase orders in advance of the scheduled delivery of products to the Company’s customers. The required lead-time for placing orders with Foxconn, Sanmina and Solectron depends on the specific product. As of April 28, 2007, the Company’s aggregate commitment to Foxconn, Sanmina and Solectron for inventory components used in the manufacture of Brocade products was $178.9 million, net of purchase commitment reserves of $64.5 million, which the Company expects to utilize during future normal ongoing operations. The Company’s purchase orders placed with Foxconn, Sanmina and Solectron are cancelable, however if cancelled, the agreements requires the Company to purchase all inventory components not returnable, usable by, or sold to, other customers of the aforementioned contract manufacturers. The Company’s purchase commitments reserve reflects the Company’s estimate of purchase commitments it does not expect to consume in normal operations.

Legal Proceedings

     From time to time, claims are made against Brocade in the ordinary course of its business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties or injunctions prohibiting Brocade from selling one or more products or engaging in other activities. The occurrence of an unfavorable outcome in any specific period could have a material adverse affect on the Brocade’s results of operations for that period or future periods.

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     On July 20, 2001, the first of a number of putative class actions for violations of the federal securities laws was filed in the United States District Court for the Southern District of New York against Brocade, certain of its officers and directors, and certain of the underwriters for Brocade’s initial public offering of securities. A consolidated amended class action captioned In Re Brocade Communications Systems, Inc. Initial Public Offering Securities Litigation was filed on April 19, 2002. The complaint generally alleges that various underwriters engaged in improper and undisclosed activities related to the allocation of shares in Brocade’s initial public offering and seeks unspecified damages on behalf of a purported class of purchasers of common stock from May 24, 1999 to December 6, 2000. The lawsuit against Brocade is being coordinated for pretrial proceedings with a number of other pending litigations challenging underwriter practices in over 300 cases as In Re Initial Public Offering Securities Litigation, 21 MC 92(SAS). In October 2002, the individual defendants were dismissed without prejudice from the action, pursuant to a tolling agreement. On February 19, 2003, the Court issued an Opinion and Order dismissing all of the plaintiffs’ claims against Brocade. In June 2004, a stipulation of settlement for the claims against the issuer defendants, including Brocade, was submitted to the Court for approval. On August 31, 2005, the Court granted preliminary approval of the settlement. On April 24, 2006, the Court held a fairness hearing in connection with the motion for final approval of the settlement. The Court has yet to issue a ruling on the motion for final approval. The settlement is subject to a number of conditions, including certification of the class and final approval by the Court. On December 5, 2006, the Court of Appeals for the Second Circuit reversed the court’s October 2004 order certifying a class in six test cases (of which Brocade is not one) that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. On January 5, 2007, plaintiffs filed a petition for rehearing en banc by the Second Circuit, which was denied on April 6, 2007.

     McDATA Corporation, Mr. John F. McDonnell, the former Chairman of the board of directors of McDATA, Mrs. Dee J. Perry and Mr. Thomas O. McGimpsey, both former officers of McDATA were named as defendants in purported securities class action lawsuits filed in the United States District Court, Southern District of New York. The first of these lawsuits, filed on July 20, 2001, is captioned Gutner v. McDATA Corporation, Credit Suisse First Boston (CSFB), Merrill Lynch, Pierce Fenner & Smith Incorporated, Bear, Stearns & Co., Inc., FleetBoston Robertson Stephens et al., No. 01 CIV. 6627. Three other similar suits were filed against McDATA and the individuals. The complaints are identical to numerous other complaints filed against other companies that went public in 1999 and 2000. These lawsuits generally allege, among other things, that the registration statements and prospectus filed with the SEC by such companies were materially false and misleading because they failed to disclose (a) that certain underwriters had allegedly solicited and received excessive and undisclosed commissions from certain investors in exchange for which the underwriters allocated to those investors material portions of shares in connection with the initial public offerings, or IPOs, and (b) that certain of the underwriters had allegedly entered into agreements with customers whereby the underwriters agreed to allocate IPO shares in exchange for which the customers agreed to purchase additional company shares in the aftermarket at pre-determined prices. The complaints allege claims against McDATA, the named individuals, and CSFB, the lead underwriter of McDATA’s August 9, 2000 initial public offering, under Sections 11 and 15 of the Securities Act. The complaints also allege claims solely against CSFB and the other underwriter defendants under Section 12(a) (2) of the Securities Act, and claims against the individual defendants under Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Although management believes that all of the lawsuits are without legal merit and they intend to defend against them vigorously, there is no assurance that McDATA will prevail. In September 2002, plaintiffs’ counsel in the above-mentioned lawsuits offered to individual defendants of many of the public companies being sued, including McDATA, the opportunity to enter into a Reservation of Rights and Tolling Agreement that would dismiss without prejudice and without costs, all claims against such persons if the company itself had entity coverage insurance. This agreement was signed by Mr. John F. McDonnell, the former Chairman of McDATA, Mrs. Dee J. Perry, the former chief financial officer of McDATA, and Mr. Thomas O. McGimpsey, the former General Counsel and Vice President of Business Development of McDATA and the plaintiffs’ executive committee. Under the Reservation of Rights and Tolling Agreement, the plaintiffs dismissed the claims against such individuals. On February 19, 2003, the court in the above-mentioned lawsuits entered a ruling on the pending motions to dismiss, which dismissed some, but not all, of the plaintiffs’ claims against McDATA. These lawsuits have been consolidated as part of In Re Initial Public Offering Securities Litigation (SDNY). McDATA has considered and agreed to enter into a proposed settlement offer with representatives of the plaintiffs in the consolidated proceeding. On August 31, 2005, the court preliminarily approved the proposed settlement. On April 24, 2006, the Court held a fairness hearing in connection with the motion for final approval of the settlement. The Court has yet to issue a ruling on the motion for final approval. The settlement remains subject to a number of conditions, including certification of the class and final court approval. On December 5, 2006, the Court of Appeals for the Second Circuit reversed the court’s October 2004 order certifying a class in six test cases (of which McDATA is not one) that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. On January 5, 2007, plaintiffs filed a petition for rehearing en banc by the Second Circuit, which was denied on April 6, 2007.

     A shareholder class action lawsuit was filed against Inrange and certain of its officers on November 30, 2001, in the United States District Court for the Southern District of New York, seeking recovery of damages caused by Inrange’s alleged violation of securities laws, including section 11 of the Securities Act and section 10(b) of the Exchange Act. The complaint, which was also filed against

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the various underwriters that participated in Inrange’s initial public offering (IPO), is identical to hundreds of shareholder class actions pending in this court in connection with other recent IPOs and is generally referred to as In re Initial Public Offering Securities Litigation. The complaint alleges, in essence, (a) that the underwriters combined and conspired to increase their respective compensation in connection with the IPO by (i) receiving excessive, undisclosed commissions in exchange for lucrative allocations of IPO shares, and (ii) trading in Inrange’s stock after creating artificially high prices for the stock post-IPO through “tie-in” or “laddering” arrangements (whereby recipients of allocations of IPO shares agreed to purchase shares in the aftermarket for more than the public offering price for Inrange shares) and dissemination of misleading market analysis on Inrange’s prospects; and (b) that Inrange violated federal securities laws by not disclosing these underwriting arrangements in its prospectus. The defense has been tendered to the carriers of Inrange’s director and officer liability insurance, and a request for indemnification has been made to the various underwriters in the IPO. At this point, the insurers have issued a reservation of rights letter and the underwriters have refused indemnification. The court has granted Inrange’s motion to dismiss claims under section 10(b) of the Exchange Act because of the absence of a pleading of intent to defraud. The court granted plaintiffs leave to replead these claims, but no further amended complaint has been filed. The court denied Inrange’s motion to dismiss claims under section 11 of the Securities Act. The court has also dismissed Inrange’s individual officers without prejudice, after they entered into a tolling agreement with the plaintiffs. On July 25, 2003, Inrange’s board of directors conditionally approved a proposed partial settlement with the plaintiffs in this matter. The settlement would provide, among other things, a release of Inrange and of the individual defendants for the conduct alleged in the action to be wrongful in the complaint. Inrange would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential claims Inrange may have against its underwriters. In June 2004, an agreement of settlement was submitted to the court for preliminary approval. On August 31, 2005, the court preliminarily approved the proposed settlement. On April 24, 2006, the Court held a fairness hearing in connection with the motion for final approval of the settlement. The Court has yet to issue a ruling on the motion for final approval. The settlement remains subject to a number of conditions, including certification of the class and final court approval. On December 5, 2006, the Court of Appeals for the Second Circuit reversed the court’s October 2004 order certifying a class in six test cases (of which Inrange is not one) that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. On January 5, 2007, plaintiffs filed a petition for rehearing en banc by the Second Circuit, which was denied on April 6, 2007.

     On May 16, 2005, Brocade announced that the SEC and the Department of Justice, or the DOJ, at the time were conducting an investigation regarding Brocade’s historical stock option granting processes. Brocade has been cooperating with the SEC and DOJ. During the first quarter of fiscal year 2006, Brocade began active settlement discussions with the Staff of the SEC’s Division of Enforcement, or the Staff, regarding its financial restatements related to stock option accounting. As a result of these discussions, for the three months ended January 28, 2006, Brocade recorded a $7.0 million provision for an estimated settlement expense. The $7.0 million estimated settlement expense was based on an offer of settlement that Brocade made to the Staff and was subject to final approval by the SEC’s Commissioners. On May 31, 2007, the offer of settlement was approved by the SEC’s Commissioners.

     Beginning on or about May 19, 2005, several securities class action complaints were filed against Brocade and certain of its current and former officers. These actions were filed in the United States District Court for the Northern District of California on behalf of purchasers of Brocade’s stock from February 2001 to May 2005. These lawsuits followed Brocade’s restatement of certain financial results due to stock-based compensation accounting issues. On January 12, 2006, the Court appointed a lead plaintiff and lead counsel. On April 14, 2006, the lead plaintiff filed a consolidated complaint on behalf of purchasers of Brocade’s stock from May 2000 to May 2005. The consolidated complaint alleges, among other things, violations of sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The consolidated complaint generally alleges that Brocade and the individual defendants made false or misleading public statements regarding Brocade’s business and operations and seeks unspecified monetary damages and other relief against the defendants. These lawsuits followed Brocade’s restatement of certain financial results due to stock-based compensation accounting issues.

     Beginning on or about May 24, 2005, several derivative actions were also filed against certain of Brocade’s current and former directors and officers. These actions were filed in the United States District Court for the Northern District of California and in the California Superior Court in Santa Clara County. The complaints allege that certain of Brocade’s officers and directors breached their fiduciary duties to Brocade by engaging in alleged wrongful conduct including conduct complained of in the securities litigation described above. Brocade is named solely as a nominal defendant against whom the plaintiffs seek no recovery. The derivative actions pending in the District Court for the Northern District of California were consolidated and the Court created a Lead Counsel structure. The derivative plaintiffs filed a consolidated complaint in the District Court for the Northern District of California on October 7, 2005, and Brocade filed a motion to dismiss that action on October 27, 2005. On January 6, 2006, Brocade’s motion was granted and the consolidated complaint in the District Court for the Northern District of California was dismissed with leave to amend. The parties to this action subsequently reached a preliminary settlement, which remains subject to approval by the Court.

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     The derivative actions pending in the Superior Court in Santa Clara County were consolidated. The derivative plaintiffs filed a consolidated complaint in the Superior Court in Santa Clara County on September 19, 2005. Brocade filed a motion to stay that action in deference to the substantially identical consolidated derivative action pending in the District Court for the Northern District of California, and on November 15, 2005, the Court stayed the action. In October 2006, the Court partially lifted the stay and granted plaintiffs leave to file an amended complaint. On November 13, 2006, plaintiffs filed an amended complaint.

     No amounts have been recorded in Brocade’s Consolidated Financial Statements associated with these matters as the amounts are not probable or reasonably estimable other than the $7.0 million provision for an estimated settlement expense with the SEC as noted above. See Note 14 “Subsequent Events”.

Integration costs

     In connection with the acquisition of McDATA, the Company recorded acquisition and integration costs of $7.6 million and $15.0 million for the three and six months ended April 28, 2007, respectively, which consisted primarily of costs incurred for consulting services and other professional fees. No amounts have been recorded in Brocade’s Condensed Consolidated Financial Statements associated with acquisition and integration costs for the three and six months ended April 29, 2006.

8. Derivative Accounting Policies

     In the normal course of business, the Company is exposed to fluctuations in interest rates and the exchange rates associated with foreign currencies The derivatives entered into by the Company qualify for, and are designated as, fair value hedges and foreign-currency cash flow hedges as per the definitions of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, incorporating FASB Statements No. 137, 138 and 149” (“SFAS 133”).

     The derivatives are recognized on the balance sheet at their fair value. Unrealized gain positions are recorded as other current assets. Unrealized loss positions are recorded as other liabilities or other non-current liabilities. Changes in fair values of outstanding cash flow hedges that are highly effective as per the definition of SFAS 133 are recorded in other comprehensive income, until earnings are affected by the variability of cash flows of the underlying hedged transaction. In most cases amounts recorded in other comprehensive income will be released to earnings at maturity of the related derivative. The recognition of effective hedge results offset the gains or losses on the underlying exposure. Cash flows from derivative transactions are classified according to the nature of the risk being hedged.

     The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking hedge transactions. This process includes linking all derivatives either to specific assets and liabilities on the balance sheet or specific firm commitments or forecasted transactions. The Company also formally assesses both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, the Company discontinues hedge accounting prospectively, as discussed below.

     The Company discontinues hedge accounting prospectively when (1) the derivative is no longer highly effective, as per SFAS 133, in offsetting changes in the cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate.

     When the Company discontinues hedge accounting but it continues to be probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified into earnings when the forecasted transaction affects earnings. However, if it is no longer probable that a forecasted transaction will occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the

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balance sheet until maturity, recognizing future changes in the fair value in current-period earnings. Any hedge ineffectiveness, as per SFAS 133, is recorded in current-period earnings in other expense (income), net. Effectiveness is assessed based on the comparison of current forward rates to the rates established on the Company’s hedges.

     Interest Rate Swaps—The Company assumed two interest rate swaps as part of the McDATA acquisition to address interest rate market risk exposure of the two debt agreements assumed. The interest rate swaps are designated and qualify as a fair value hedge under SFAS 133. For derivative instruments that are designated and qualify as a fair value hedge, the gains and losses on the derivative instrument, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current earnings during the period of change in fair values. If the change in the value of the hedging instrument offsets the change in the value of the hedged item, the hedge is considered perfectly effective. The accounting for hedge effectiveness is measured at least quarterly based on the relative change in fair value between the derivative contract and the hedged item over time. Any change in fair value resulting from ineffectiveness, the amount by which the change in the value of the hedge does not exactly offset the change in the value of the hedged item, is recognized immediately in earnings. The Company evaluated the effectiveness of the hedge in the current quarter and concluded that there was no ineffective portion of the hedge. As a result, no change in the fair value of the hedge was recognized in earnings. Adjustments to the fair value of the interest rate swap agreements are recorded as short or long—term liabilities. The differential to be paid or received under these agreements is accrued consistently with the terms of the agreements and is recognized in interest expense over the term of the related debt. The related amounts payable to or receivable from counterparties are included in accounts receivable or accrued liabilities.

     On February 15, 2007, the Company paid approximately $1.4 million to settle its interest rate swap agreement associated with the debt purchased from CNT in conjunction with the payment of the underlying debt (see Note 6).

     Foreign Currency Cash Flow Hedge

     As of April 28, 2007, losses of $0.1 million, net, which represented effective hedges of net investments, were reported as a component of accumulated other comprehensive income/(loss) within unrealized translation adjustment. Hedge ineffectiveness, which is reported in the consolidated statements of income as other expense, was not significant.

9. Segment Information

     FASB Statement No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”), establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. The chief operating decision maker is the Chief Executive Officer (“CEO”).

     Prior to the Merger with McData, the Company had one reporting segment relating to the design, development, manufacture and sale of data access and storage networking solutions that provide highly-available, scalable and centrally-managed storage area networks . The Company’s CODM, as defined by SFAS 131, has allocated resources and assessed the performance of the Company based on consolidated revenue and overall profitability. Because of the completion of the integration of McDATA’s service business, the Company is operating in two distinct reporting segments, one for products and the other for services. The products segment consists of hardware and software products. The services segment consists of break/fix maintenance, extended warranty, installation, consulting, network management, related software maintenance and support revenue, and telecommunications services.

     Financial decisions and the allocation of resources are based on the information from the Company’s management reporting system. At this point in time, the Company does not track all of its assets by operating segments. Consequently, it is not practical to show assets by operating segments.

     Summarized financial information by operating segment for the three and six months ended April 28, 2007 and April 29, 2006, based on the internal management system is as follows (in thousands):

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	Three Months Ended				Six Months Ended
	April 28,		April 29,		April 28,		April 29,
	2007		2006		2007		2006
Revenue
Product	$	300,438	$	168,668	$	507,654	$	325,968
Service		44,830		14,074		61,771		26,856
Total		345,268		182,742		569,425		352,824
Cost of Revenue
Product		140,980		69,119		213,292		130,989
Service		33,440		8,479		43,918		15,990
Total		174,420		77,598		257,210		146,979
Gross margin
Product		159,458		99,549		294,362		194,979
Service		11,390		5,595		17,853		10,866
Total	$	170,848	$	105,144	$	312,215	$	205,845

10. Net Income per Share

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

	Three Months Ended						Six Months Ended
	April 28,			April 29,			April 28,			April 29,
	2007			2006			2007			2006
Net income	$	843		$	13,513		$	34,162		$	23,173
Basic and diluted net income per share:
Weighted-average shares of common stock outstanding		398,738			272,474			336,957			271,905
Less: Weighted-average shares of common stock subject to repurchase		(3,164	)		(1,910	)		(2,742	)		(1,923	)
Weighted-average shares used in computing basic net income per share		395,574			270,564			334,215			269,982
Dilutive effect of common share equivalents		16,415			3,829			14,348			3,265
Weighted-average shares used in computing diluted net income per share		411,989			274,393			348,563			273,247
Basic net income per share	$	0.00		$	0.05		$	0.10		$	0.09
Diluted net income per share	$	0.00		$	0.05		$	0.10		$	0.08

     For the three months ended April 28, 2007 and April 29, 2006, potential common shares in the form of stock options to purchase 12.4 million and 30.0 million weighted-average shares of common stock, respectively, were antidilutive and, therefore, not included in the computation of diluted earnings per share. For the six months ended April 28, 2007 and April 29, 2006, potential common shares in the form of stock options to purchase 3.1 million and 36.3 million weighted-average shares of common stock, respectively, were antidilutive and, therefore, not included in the computation of diluted earnings per share. For both the three months and the six months ended April 28, 2007 and April 29, 2006, potential common shares resulting from the potential conversion, on a weighted average basis, of the Company’s convertible subordinated debt of 6.5 million and 6.4 million common shares were antidilutive and therefore not included in the computation of diluted earnings per share for that period. No dilutive effect has been included for the share options sold in relation to the convertible subordinated debt because of their anti-dilutive impact.

11. Acquisitions

McData Corporation

     On January 29, 2007, the Company completed its acquisition of McDATA Corporation by the merger of Worldcup Merger Corporation (“Merger Sub”), a Delaware corporation and wholly-owned subsidiary of the Company, with and into McDATA, in accordance with the Agreement and Plan of Reorganization, dated as of August 7, 2006, as amended, by and among the Company, Merger Sub and McDATA, which we refer to as the Merger Agreement. As a result of the Merger, McDATA is now a wholly-owned subsidiary of the Company. McDATA provides storage networking and data infrastructure solutions.

     Pursuant to the terms of the Merger Agreement, each outstanding share of Class A and Class B common stock of McDATA was converted into the right to receive 0.75 shares of the Company’s common stock. Additionally, each outstanding option to purchase McDATA Class A or Class B common stock was assumed by the Company and now represents an option to acquire shares of common stock of the Company, subject to the applicable conversion ratio, on the terms and conditions set forth in the Merger Agreement. Based on Brocade’s closing stock price on January 26, 2007, the transaction is valued at approximately $658.9 million.

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     The results of operations of McData are included in the accompanying Condensed Consolidated Statement of Income from the date of the acquisition. The Company considers the acquisition of McData to be material to its results of operations, and therefore is presenting pro forma statements of income for the three and six months ended April 29, 2006 and April 28, 2007,

     The following unaudited pro forma information presents a summary of the results of operations of the Company assuming the acquisition of McData occurred at the beginning of each of the periods presented. The pro forma financial information (in thousands) , except per share information, is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the Merger had taken place at the beginning of each of the periods presented, nor is it indicative of future operating results:

	Three Months Ended					Six Months Ended
	April 28,		April 29,			April 28,			April 29,
	2007		2006			2007(1)			2006
Total Revenue	$	345,268	$	351,054		$	725,513		$	689,641
Pretax income		17,570		3,662			17,103			1,018
Net Income		843		(5,213	)		(13,640	)		(11,775	)
Basic earnings per share	$	0.00	$	(0.01	)	$	(0.02	)	$	(0.03	)

(1) The results of operations include Brocade’s results for the six months ended April 28, 2007 and McDATA’s historical results for the three months ended October 31, 2006, including amortization related to fair value adjustments based on the fair values of assets acquired and liabilities assumed as of the McDATA acquisition date of January 29, 2007.

     The total purchase price was $658.9 million. The purchase price included direct acquisition costs of $23.4 million.

     In connection with this acquisition, the Company allocated the total purchase consideration to the net assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the acquisition date, resulting in goodwill of approximately $370.3 million which is not expected to be deductible for income tax purposes. The following table summarizes the allocation of the purchase price to the fair value of the assets and liabilities acquired (in thousands):

Assets acquired:
Cash and cash equivalents	$	147,407
Short term investments		78,315
Accounts receivable, net		108,426
Inventory, net		12,559
Fixed assets, net		90,015
Identifiable intangible assets
Tradename		10,341
Core/Developed technology		147,191
Customer relationships		157,501
Goodwill		370,296
Other assets		112,887
Total assets acquired		1,234,938
Liabilities assumed:
Debt assumed		282,050
Other liabilities		293,971
Total liabilities assumed		576,021
Net assets acquired	$	658,917

Silverback Systems, Inc.

     On January 5, 2007, the Company completed its acquisition of Silverback Systems, Inc. (“Silverback”), a privately held provider of network acceleration technology headquartered in Campbell, California. This acquisition enables the Company to provide communications solutions for SAN networks.

     The results of operations of Silverback are included in the accompanying Condensed Consolidated Statement of Income from the date of the acquisition. The Company does not consider the acquisition of Silverback to be material to its results of operations, and therefore is not presenting pro forma statements of income for the three months ended April 28, 2007.

     The total purchase price was $7.8 million, consisting of $4.5 million cash consideration and $3.3 million related to cash settlement of debt assumed. Of the $4.5 million cash consideration, $1.2 million will be held in escrow for a period of 18 months from the transaction date and will be released subject to certain contingencies. In addition, the Company paid direct acquisition costs of $0.4 million.

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     In connection with this acquisition, the Company allocated the total purchase consideration to the net assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the acquisition date, resulting in goodwill of approximately $8.3 million which is not expected to be deductible for income tax purposes. The following table summarizes the allocation of the purchase price to the fair value of the assets and liabilities acquired (in thousands):

Assets acquired
Cash	$	98
Accounts receivable		172
Identifiable intangible assets
Tradename		100
Core/Developed technology		590
Customer relationships		400
Non-compete agreements		370
Backlog		80
Goodwill		8,345
Other assets		1,644
Total assets acquired		11,799
Liabilities assumed Accounts payable and accrued liabilities		3,995
Total liabilities assumed		3,995
Net assets acquired	$	7,804

     Additionally, for the three months ended April 28, 2007, the Company recorded total acquisition-related retention and bonus compensation expense of $3.8 million. Of that amount, $2.9 million was related to the acquisition of McDATA, $0.5 million was related to the acquisition of NuView, Inc. in March 2006 and $0.4 million was related to the acquisition of Silverback in January 2007.

12. Goodwill and Intangible Assets

     The Company’s carrying value of goodwill as of April 28, 2007 consisted of the following (in thousands):

Balance at October 28, 2006	$	41,013
Silverback acquisition		8,395
McDATA acquisition		370,296
Balance at April 28, 2007	$	419,704

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     The Company amortizes intangible assets over a useful life ranging from 6 months to 7 years. Intangible assets as of April 28, 2007 consisted of the following (in thousands):

	Gross				Net
	Carrying		Accumulated		Carrying
	Value		Amortization		Value
Tradename	$	11,104	$	940	$	10,164
Core/Developed technology		154,342		11,328		143,014
Customer relationships		165,418		6,908		158,510
Non-compete agreements		349		77		272
Backlog		68		52		16
Total intangible assets	$	331,281	$	19,305	$	311,976

     The Company had no unamortized intangible assets as of April 28, 2006. For the three months ended April 28, 2007, total amortization expense related to intangible assets of $11.3 million is included in cost of revenues and $8.0 million is included in operating expenses in the Condensed Consolidated Statement of Income. The following table presents the estimated future amortization of intangible assets (in thousands):

	Future
	Estimated
Fiscal Years	Amortization
2007 (1)	$	38,489
2008		67,775
2009		64,600
2010		51,748
2011		41,748
2012		28,393
2013		16,070
2014		3,153
Total	$	311,976

(1) Reflects the remaining 6 months of fiscal 2007.

13. Supplemental Guarantor Information

     Effective upon the consummation of the merger with McDATA, the Company fully and unconditionally guaranteed, and became a co-obligor, in the $172.5 million outstanding 2.25% Convertible Subordinated Notes due February 15, 2010, previously issued by McData.

     The following condensed consolidating financial statements have been prepared from the Company’s financial information on the same basis of accounting as the condensed consolidated financial statements. Investments in our subsidiaries are accounted for on the equity method; accordingly, entries necessary to consolidate the Parent Guarantor, Issuer of Notes, and all of its subsidiaries are reflected in the eliminations column.

26

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended April 28, 2007
(In thousands, except per share amounts)
(Unaudited)

	Parent			Issuer of			Subsidiaries
	Guarantor			Notes			Non Guarantors			Eliminations			Consolidated
Net revenues	$	145,130		$	74,813		$	130,432		$	(5,107	)	$	345,268
Cost of revenues		82,271			49,345			47,912			(5,106	)		174,420
Gross margin		62,859			25,468			82,521			(1	)		170,848
Operating expenses:
Research and development		6,633			3,996			47,674			—			58,303
Sales and marketing		38,902			(4,990	)		25,452			—			59,364
General and administrative		9,915			527			3,128			—			13,570
Legal fees associated with indemnification obligations, defense, and other related costs		15,234			—			—			—			15,234
Acquisition and integration costs		4,544			—			3,020			—			7,564
Provision for SEC settlement		—			—			—			—			—
Amortization of intangible assets		671			7,305			—			—			7,977
Total operating expenses	$	75,898		$	6,838		$	79,275		$	—		$	162,012
Income from operations		(13,040	)		18,630			3,247			(1	)		8,836
Interest and other income, net		8,294			(366	)		5,956			(3,098	)		10,788
Interest expense		—			(1,623	)		(431	)		—			(2,054	)
Income before provision for income taxes		(4,746	)		16,642			8,773			(3,099	)		17,570
Income tax provision		16,027			2			697			—			16,727
Net income (loss)	$	(20,773	)	$	16,640		$	8,075		$	(3,099	)	$	843

(1) In conjunction with the guarantee of McDATA Corporation (formerly known as McDATA) convertible debt, the accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 “Financial statements of guarantors and affiliates whose securities collateralize an issue registered or being registered.” This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with generally accepted accounting principles and is not representative of the operations of Brocade or the former McDATA on either a pre-merger or stand-alone basis.

27

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended April 28, 2007
(In thousands, except per share amounts)
(Unaudited)

	Parent			Issuer of			Subsidiaries
	Guarantor			Notes			Non Guarantors			Eliminations			Consolidated
Net revenues	$	275,150		$	74,813		$	230,803		$	(11,341	)	$	569,425
Cost of revenues		142,253			49,344			76,953			(11,340	)		257,210
Gross margin		132,897			36,378			153,849			(1	)		312,215
Operating expenses:
Research and development		48,578			3,996			48,120			—			100,694
Sales and marketing		65,652			(4,990	)		37.289			—			97,951
General and administrative		16,158			527			4,290			—			20,975
Legal fees associated, defense, with indemnification obligations and other related costs		20,462			—			—			—			20,462
Acquisition and integration costs		11,977			—			3,020			—			14,997
Provision for SEC settlement		—			—			—			—			—
Amortization of intangible assets		1,580			7,306			—			—			8,887
Facilities lease losses		—			—			—			—			—
Total operating expenses	$	164,408		$	6,839		$	92,719		$	—		$	263,966
Income from operations		(31,511	)		18,630			61,130			(1	)		48,249
Interest and other income, net		14,545			(366	)		7,163			(3,098	)		18,244
Interest expense		(3	)		(1,623	)		(432	)		—			2,058
Income before provision for income taxes		(16,972	)		16,642			67,862			(3,099	)		64,435
Income tax provision		23,459			2			6,812			—			30,273
Net income (loss)	$	(40,430	)	$	16,640		$	61,049		$	(3,099	)	$	34,162

(1) In conjunction with the guarantee of McDATA Corporation (formerly known as McDATA) convertible debt, the accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 “Financial statements of guarantors and affiliates whose securities collateralize an issue registered or being registered.” This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with generally accepted accounting principles and is not representative of the operations of Brocade or the former McDATA on either a pre-merger or stand-alone basis.

28

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended April 28, 2006
(In thousands, except per share amounts)
(Unaudited)

	Parent			Issuer of		Subsidiaries
	Guarantor			Notes		Non Guarantors			Eliminations			Consolidated
Net revenues	$	119,320		$	—	$	66,134		$	(2,712	)	$	182,742
Cost of revenues		60,243			—		20,067			(2,712	)		77,598
Gross margin		59,077			—		46,067			—			105,144
Operating expenses:
Research and development		10,486			—		30,239			—			40,725
Sales and marketing		24,172			—		10,141			—			34,313
General and administrative		6,399			—		897			—			7,296
Legal fees associated with indemnification obligations, defense, and other related costs		3,160			—					—			3,160
Acquisition and integration costs		—			—		—			—			—
Provision for SEC settlement		—			—		—			—			—
Amortization of intangible assets		518			—		—			—			518
Facilities lease losses		3,775			—		—			—			3,775
Total operating expenses		48,510			—		41,277			—			89,787
Income from operations		10,567			—		4,790			—			15,357
Interest and other income, net		6,360			—		846			—			7,206
Interest expense		(1,837	)		—		(1	)		—			(1,838	)
Income before provision for income taxes		15,089			—		5,636			—			20,725
Income tax provision		7,046			—		166			—			7,212
Net income (loss)	$	8,043		$		$	5,470		$	—		$	13,513

(1) In conjunction with the guarantee of McDATA Corporation (formerly known as McDATA) convertible debt, the accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 “Financial statements of guarantors and affiliates whose securities collateralize an issue registered or being registered.” This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with generally accepted accounting principles and is not representative of the operations of Brocade or the former McDATA on either a pre-merger or stand-alone basis.

29

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended April 28, 2006
(In thousands, except per share amounts)
(Unaudited)

	Parent			Issuer of		Subsidiaries
	Guarantor			Notes		Non Guarantors			Eliminations			Consolidated
Net revenues	$	223,263		$	—	$	137,740		$	(8,179	)	$	352,824
Cost of revenues		112,171			—		42,987			(8,179	)		146,979
Gross margin		111,092			—		94,753			—			205,845
Operating expenses:
Research and development	$	48,977		$	—	$	30,490		$	—		$	79,467
Sales and marketing		45,501			—		19,680			—			65,181
General and administrative		13,344			—		1,753			—			15,097
Legal fees associated with indemnification obligations, defense, and other related costs		7,189			—		—			—			7,189
Acquisition and integration costs		—			—		—			—			—
Provision for SEC settlement		7,000			—		—			—			7,000
Amortization of intangible assets		518			—		—			—			518
Facilities lease losses		3,775			—		—			—			3,775
Total operating expenses	$	126,303		$	—	$	51,924		$	—		$	178,227
Income from operations		(15,211	)		—		42,829			—			27,618
Interest and other income, net		13,033			—		1,203			—			14,236
Interest expense		(3,610	)		—		(5	)		—			(3,615	)
Income before provision for income taxes		(5,790	)		—		44,029			—			38,239
Income tax provision		10,606			—		4,460			—			15,066
Net income (loss)	$	(16,396	)	$	—	$	39,569		$	—		$	23,173

(1) In conjunction with the guarantee of McDATA Corporation (formerly known as McDATA) convertible debt, the accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 “Financial statements of guarantors and affiliates whose securities collateralize an issue registered or being registered.” This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with generally accepted accounting principles and is not representative of the operations of Brocade or the former McDATA on either a pre-merger or stand-alone basis.

30

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
As of April 28, 2007
(In thousands, except par value)
(Unaudited)

	Parent		Issuer of			Subsidiaries
	Guarantor		Notes			Non Guarantors			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	236,070	$	3,857		$	123,911		$	—		$	363,838
Short-term investments		339,866		31,832			19,996			—			391,694
Total cash, cash equivalents and short-term investments		575,936		35,689			143,907			—			755,532
Accounts receivable, net		44,504		54,106			52,620			365			151,595
Inventories		4,446		12,479			10,515			(1,034	)		26,406
Prepaid expenses and other current assets		34,683		1,461			10,660			(116	)		46,687
Total current assets	$	659,568	$	103,734		$	217,703		$	(785	)	$	980,220
Long-term investments		73,178		—			7,803			—			80,981
Property and equipment, net		110,555		75,014			15,015			719			201,303
Goodwill		49,408		286,567			83,729			—			419,704
Intangible assets, net		15,141		250,233			45,766			836			311,976
Other assets		2,018		19,667			18,672			(10,986	)		29,370
Total assets	$	909,868	$	735,213		$	388,687		$	(10,216	)	$	2,023,552
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	57,008	$	10,098		$	10,691		$	—		$	77,797
Intercompany accounts payable, net		119,603		127,100			(71,844	)		(174,859	)		—
Accrued employee compensation		66,769		13,409			11,707			—			91,885
Deferred revenue		29,692		(10,331	)		68,344			—			87,705
Current liabilities associated with lease losses		4,391		9,552			—			—			13,943
Other accrued liabilities		93,798		81,782			25,569			699			201,848
Total current liabilities	$	371,261	$	231,610		$	44,467		$	(174,160	)	$	473,178
Convertible subordinated debt		—		161,970			—			—			161,970
Non-current liabilities associated with lease losses		9,571		16,783			—			—			26,354
Non-current deferred revenue		9,586		1,475			27,220			—			38,283
Other non-current liabilities		132		(9,038	)		10,419			—			1,513
Total liabilities	$	390,550	$	402,800		$	82,106		$	(174,160	)	$	701,296
Total stockholders’ equity		519,318		332,413			306,581			163,944			1,322,256
Total liabilities and stockholders’ equity	$	909,868	$	735,213		$	388,687		$	(10,216	)	$	2,023,552

(1) In conjunction with the guarantee of McDATA Corporation (formerly known as McDATA) convertible debt, the accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 “Financial statements of guarantors and affiliates whose securities collateralize an issue registered or being registered.” This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with generally accepted accounting principles and is not representative of the operations of Brocade or the former McDATA on either a pre-merger or stand-alone basis.

31

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
As of October 28, 2006
(In thousands, except par value)
(Unaudited)

	Parent			Issuer of		Subsidiaries
	Guarantor			Notes		Non Guarantors		Eliminations		Consolidated
Assets
Current assets:
Cash and cash equivalents	$	195,493		$	—	$	78,875	$	—	$	274,368
Short-term investments		248,541			—		19,153		—		267,694
Total cash, cash equivalents and short-term investments		444,034			—		98,028		—		542,062
Accounts receivable, net		60,055			—		38,339		—		98,394
Inventories		6,481			—		2,487		—		8,968
Prepaid expenses and other current assets		40,615			—		2,750		—		43,365
Total current assets		551,185			—		141,604		—		692,789
Long-term investments		36,234			—		4,258		—		40,492
Property and equipment, net		99,282			—		5,017		—		104,299
Goodwill		41,013			—		—		—		41,013
Intangible assets, net		15,465			—		—		—		15,465
Other assets		2,522			—		4,138		—		6,660
Total assets	$	745,701		$	—	$	155,017	$	—	$	900,718
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	49,796		$	—	$	6,945	$	—	$	56,741
Intercompany accounts payable, net		(24,768	)		—		24,768		—		—
Accrued employee compensation		59,377			—		3,465		—		62,842
Deferred revenue		29,900			—		22,151		—		52,051
Current liabilities associated with lease losses		4,931			—				—		4,931
Other accrued liabilities		76,840			—		11,151		—		87,991
Total current liabilities		196,076			—		68,480		—		264,556
Non-current liabilities associated with lease losses		11,105			—		—		—		11,105
Non-current deferred revenue		5,070			—		3,757		—		8,827
Total liabilities		212,251			—		72,237		—		284,488
Total stockholders’ equity		533,450			—		82,780		—		616,230
Total liabilities and stockholders’ equity	$	745,701		$	—	$	155,017	$	—	$	900,718

(1) In conjunction with the guarantee of McDATA Corporation (formerly known as McDATA) convertible debt, the accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 “Financial statements of guarantors and affiliates whose securities collateralize an issue registered or being registered.” This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with generally accepted accounting principles and is not representative of the operations of Brocade or the former McDATA on either a pre-merger or stand-alone basis.

32

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months End April 28, 2007
(In thousands)
(Unaudited)

	Parent			Issuer of			Subsidiaries
	Guarantor			Notes			Non Guarantors			Consolidated
Cash flows from operating activities:		46,493			62,476			(29,396	)		79,573
Cash flows from investing activities:
Purchases of property and equipment		(25,575	)		(409	)		(1,603	)		(27,587	)
Purchases of short-term investments		(248,116	)		(24,485	)		(18,289	)		(290,890	)
Proceeds from maturities and sale of short-term investments		210,745			145,789			21,298			377,832
Purchases of long-term investments		(83,107	)		—			(8,694	)		(91,801	)
Proceeds from maturities and sale of long-term investments		6,252			(461	)		56			5,847
Cash paid in connection with acquisitions, net of cash acquired		(7,705	)		—						(7,705	)
Cash acquired on merger with McDATA		—			130,829			16,578			147,407
Increase/decrease in restricted cash		—			(6,583	)		12,422			5,839
Net cash used in investing activities		(147,506	)		244,680			21,767			118,942
Cash flows from financing activities:
Excess tax benefit from employee stock plans		161			—			—			161
Proceeds from issuance of common stock, net		65,375			10,325			0			75,700
Redemption of outstanding convertible debt								(124,185	)		(124,185	)
Common stock repurchase program		(59,874	)		—			—			(59,874	)
Intercompany activity		123,017			(312,948	)		189,931			—
Net cash provided by financing activities		128,680			(302,798	)		65,214			(108,904	)
Effect of exchange rate fluctuations on cash and cash equivalents		(12,910	)		4,358			8,407			(145	)
Net increase (decrease) in cash and cash equivalents		40,577			3,857			45,036			89,470
Cash and cash equivalents, beginning of period		195,493			—			78,875			274,368
Cash and cash equivalents, end of period		236,070			3,857			123,911			363,838

See accompanying notes to condensed consolidated financial statements.

33

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months End April 28, 2006
(In thousands)
(Unaudited)

	Parent			Issuer of		Subsidiaries
	Guarantor			Notes		Non Guarantors			Consolidated
Cash flows from operating activities:	$	52,068			—	$	35,656		$	87,694
Cash flows from investing activities:
Purchases of property and equipment		(14,419	)		—		(1,054	)		(15,473	)
Purchases of short-term investments		(138,134	)		—		—			(138,184	)
Proceeds from maturities and sale of short-term investments		135,484			—		—			135,484
Purchases of long-term investments		(12,568	)		—		—			(12,568	)
Proceeds from maturities and sale of long-term investments					—		—
Purchases of restricted short-term investments		(3,309	)		—		—			(3,309	)
Proceeds from the maturities of restricted short-term investments		2,909	)		—		—			2,909
Purchases of non-marketable minority equity investments		(4,575	)		—		—			(4,575	)
Cash paid in connection with acquisitions, net of cash acquired		(59,887	)		—		—			(59,887	)
Net cash used in investing activities	$	(94,549	)		—	$	(1,054	)	$	(95,603	)
Cash flows from financing activities:
Excess tax benefit from employee stock plans		6,587			—		—			6,587
Common stock repurchase program		(14,930	)		—		—			(14,930	)
Proceeds from issuance of common stock, net		15,162			—		—			15,162
Net cash provided by financing activities	$	6,819			—	$	—		$	6,819
Effect of exchange rate fluctuations on cash and cash equivalents	$	33			—	$	65		$	98
Net increase (decrease) in cash and cash equivalents	$	(35,945	)	$	—	$	34,953		$	(992	)
Cash and cash equivalents, beginning of period	$	306,789		$	—	$	63,084		$	369,873
Cash and cash equivalents, end of period	$	271,155		$	—	$	97,726		$	368,881

See accompanying notes to condensed consolidated financial statements.

14. Subsequent Events

     On May 16, 2005, Brocade announced that the SEC at that time was conducting an investigation regarding Brocade’s historical stock option granting processes. Brocade has been cooperating with the SEC and DOJ. During the first quarter of fiscal 2006, Brocade began active settlement discussions with the Staff of the SEC’s Division of Enforcement, or the Staff, regarding its financial restatements related to stock option accounting. As a result of settlement discussions with the Staff of the SEC’s Division of Enforcement, for the three months ended January 28, 2006, Brocade recorded a $7.0 million provision for estimated settlement expense. The $7.0 million estimated settlement expense was based on an offer of settlement that Brocade made to the Staff and was subject to final approval by the SEC’s Commissioners. On May 31, 2007, the offer of settlement was approved by the SEC’s Commissioners.

34

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

You should read the following discussion and analysis in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report filed on Form 10-K with the Securities and Exchange Commission on January 9, 2007.

Results of Operations

     The following table sets forth certain financial data for the periods indicated as a percentage of total net revenues except for cost of revenues and gross margin which are indicated as a percentage of segment net revenues:

	Three months ended						Six months ended
	April 28,			April 29,			April 28,			April 29,
	2007			2006			2007			2006
Product		87.0	%		92.3	%		89.2	%		92.4	%
Service		13.0			7.7			10.8			7.6
Net Revenues		100.0			100.0			100.0			100.0
Product		46.9			41.0			42.0			40.2
Service		74.6			60.2			71.1			59.4
Cost of revenues		50.5			42.5			45.2			41.7
Product		53.1			59.0			58.0			59.8
Service		25.4			39.8			28.9			40.5
Gross margin		49.5			57.5			54.8			58.3
Operating expenses:
Research and development		16.9			22.3			17.7			22.5
Sales and marketing		17.2			18.8			17.2			18.5
General and administrative		3.9			4.0			3.7			4.3
Legal fees associated with indemnification obligations, defense, and other related costs		4.4			1.7			3.6			2.0
Acquisition and integration costs		2.2			—			2.6			—
Provision for SEC settlement		—			—			—			2.0
Amortization of intangible assets		2.3			0.3			1.6			0.1
Facilities lease loss		—			2.1			—			1.1
Total operating expenses		46.9			49.1			46.4			50.5
Income from operations		2.6			8.4			8.5			7.8
Interest and other income, net		3.1			3.9			3.2			4.0
Interest expense		(0.6	)		(1.0	)		(0.4	)		(1.0	)
Income before provision for income taxes		5.1			11.3			11.3			10.8
Income tax provision		4.8			3.9			5.3			4.3
Net income		0.2	%		7.4	%		6.0	%		6.6	%

     Revenues. Our revenues are derived primarily from sales of our family of SAN products and our service and support offerings related to those products. Our fabric switches and directors, which range in size from 8 ports to 512 ports, connect servers and storage devices creating a SAN.

     Our total net revenues for the three months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

	Three Months Ended
	April 28,		% of Net			April 29,		% of Net			Increase/		%
	2007		Revenue			2006		Revenue			(Decrease)		Change
Product	$	300,438		87	%	$	168,668		92	%	$	131,770		78	%
Services		44,830		13	%		14,074		8	%		30,756		219	%
Total Net Revenue	$	345,268		100	%	$	182,742		100	%	$	162,526		89	%

     The increase in net revenues for the three months ended April 28, 2007 as compared with net revenues for the three months ended April 28, 2006 reflects growth in both product and services offerings. The increase in product revenues for the period reflected a 123 percent increase in the number of ports shipped, due in part to the McDATA acquisition, partially offset by a 20 percent decline in

35

average selling price per port. The increase in service revenues reflects the expansion of our installed base as a result of the McDATA acquisition.

     Our total net revenues for the six months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

	Six Months Ended
	April 28,		% of Net			April 29,		% of Net			Increase/		%
	2007		Revenue			2006		Revenue			(Decrease)		Change
Product	$	507,654		89	%	$	325,968		92	%	$	181,686		56	%
Services		61,771		11	%		26,856		8	%		34,915		130	%
Total Net Revenue	$	569,425		100	%	$	352,824		100	%	$	216,601		61	%

     The increase in net revenues for the six months ended April 28, 2007 as compared with net revenues for the six months ended April 28, 2006 reflects growth in both product and services offerings. The increase in product revenues for the period reflected an 88 percent increase in the number of ports shipped, partially offset by a 17 percent decline in average selling price per port. The increase in service revenues reflects the expansion of our installed base as a result of the McDATA acquisition.

     For both the three and six months ended April 28, 2007, the declines in average selling prices are the result of a continuing competitive pricing environment and change in product mix. We believe the increase in the number of ports shipped reflects higher demand for our products due to expansion of our installed base as a result of the McDATA acquisition and higher demand as end-users continue to consolidate storage and servers infrastructures using SANs, expand SANs to support more applications, and deploy SANs in new environments.

     Going forward, we expect the number of ports shipped to fluctuate depending on the demand for our existing and recently introduced products as well as the timing of product transitions by our OEM customers. We also expect that average selling prices per port will likely decline at rates consistent with or slightly below historical rates, unless they are adversely affected by accelerated pricing pressures, new product introductions by us or our competitors, or other factors that may be beyond our control. We expect quarterly fluctuations in revenue to be consistent with historic seasonal trends. Historically, our third fiscal quarter is consistent with, or slightly below, our second fiscal quarter and down from a seasonally strong first fiscal quarter, reflecting a typically slower growth period.

     Our total net revenues by geographical area for the three months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

	Three Months Ended
	April 28,		% of Net			April 29,		% of Net			Increase/		%
	2007		Revenue			2006		Revenue			(Decrease)		Change
Domestic	$	225,162		65	%	$	115,106		63	%	$	110,056		96	%
International		120,106		35	%		67,636		37	%		52,470		78	%
Total Net Revenue	$	345,268		100	%	$	182,742		100	%	$	162,526		89	%

     From a geographical perspective, our total net revenues for the six months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

	Six Months Ended
	April 28,		% of Net			April 29,		% of Net			Increase/		%
	2007		Revenue			2006		Revenue			(Decrease)		Change
Domestic	$	358,346		63	%	$	223,137		63	%	$	135,209		61	%
International		211,079		37	%		129,687		37	%		81,392		63	%
Total Net Revenue	$	569,425		100	%	$	352,824		100	%	$	216,601		61	%

     Historically, domestic revenues have been between 60 percent and 75 percent of total revenues. International revenues primarily consist of sales to customers in Western Europe and the greater Asia Pacific region. For the three months ended April 28, 2007 as compared to the three months ended April 29, 2006, international revenues have decreased as a percentage of revenue primarily as a result of faster growth in the North America region relative to Europe. For the six months ended April 28, 2007 as compared to the six months ended April 29, 2006, the mix between Domestic and International revenues are unchanged. Revenues are attributed to geographic areas based on where our products are shipped. However, certain OEM customers take possession of our products domestically and then distribute these products to their international customers. Because we account for all of those OEM revenues as domestic revenues, we cannot be certain of the extent to which our domestic and international revenue mix is impacted by the practices of our OEM customers, but we believe international revenue is a larger percent of our revenue than the attributed revenues may indicate.

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     A significant portion of our revenue is concentrated among a relatively small number of OEM customers. For the three months ended April 28, 2007, three customers each represented ten percent or more of our total revenues for a combined total of 67 percent of our total revenues. For the three months ended April 29, 2006, three customers each represented ten percent or more of our total revenues for combined total of 70 percent of total revenues. We expect that a significant portion of our future revenues will continue to come from sales of products to a relatively small number of OEM customers. Therefore, the loss of, or a decrease in the level of sales to, or a change in the ordering pattern of, any one of these customers could seriously harm our financial condition and results of operations.

     Cost of Goods Sold. Cost of goods sold consists of product costs, which typically vary with volume and manufacturing operations costs, which do not change directly with volume.

     Cost of goods sold for the three months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

	Three Months Ended
	April 28,		% of Net			April 29,		% of Net			Increase/		% Points
	2007		Revenue			2006		Revenue			(Decrease)		Change
Product	$	140,980		47	%	$	69,119		41	%	$	71,861		6	%
Services		33,440		75	%		8,479		60	%		24,961		15	%
Total Cost of Goods Sold	$	174,420		51	%	$	77,598		42	%	$	96,822		9	%

     Gross margin for the three months ended April 28, 2007 was 49.5 percent, a decrease of 8.0 percent from 57.5 percent for the three months ended April 29, 2006. For the three months ended April 28, 2007, product costs relative to net revenues decreased by 0.1 percent as compared to the three months ended April 29, 2006 as declines in average selling price were matched by declines in product costs in part due to an increase in the volume of shipments. Manufacturing operation costs and service operation costs increased by 5.0 percent relative to net revenues primarily due to increased headcount as the service and support organizations were expanded as a result of the McDATA acquisition as well as increased engineering charges as products transitioned into sustaining engineering from development. Amortization of intangibles increased to $11.3 million as a result of the McDATA acquisition.

     Cost of goods sold for the six months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

	Six Months Ended
	April 28,		% of Net			April 29,		% of Net			Increase/		% Points
	2007		Revenue			2006		Revenue			(Decrease)		Change
Product	$	213,292		42	%	$	130,989		40	%	$	82,303		2	%
Services		43,918		71	%		15,990		60	%		24,961		11	%
Total Cost of Goods Sold	$	257,210		45	%	$	146,979		42	%	$	110,231		3	%

     Gross margin for the six months ended April 28, 2007 was 54.8 percent, a decrease of 3.5 percent from 58.3 percent for the six months ended April 29, 2006. For the six months ended April 28, 2007, product costs relative to net revenues decreased by 1.1 percent as compared to the six months ended April 29, 2006 as declines in average selling price were less than declines in product costs in part due to an increase in the volume of shipments. Manufacturing operation costs and service operation costs increased by 2.9 percent relative to net revenues primarily due to increased headcount as the service and support organizations were expanded as a result of the McDATA acquisition as well as increased engineering charges as products transitioned into sustaining engineering from development. Amortization of intangibles increased to $11.3 million as a result of the McDATA acquisition.

     Gross margin is primarily affected by average selling price per port, number of ports shipped, and cost of goods sold. As described above, we expect that average selling prices per port for our products will continue to decline at rates consistent with, or slightly below, historical rates, unless they are further affected by accelerated pricing pressures, new product introductions by us or our competitors, or other factors that may be beyond our control. We believe that we have the ability to partially mitigate the effect of declines in average selling price per port on gross margins through our product and manufacturing operations cost reductions. However, the average selling price per port could decline at a faster pace than we anticipate. If this dynamic occurs, we may not be able to reduce our costs fast enough to prevent a decline in our gross margins. In addition, we must also maintain or increase the current volume of ports shipped to maintain our current gross margins. If we are unable to offset future reductions of average selling price per port with reductions in product and manufacturing operations costs, or if as a result of future reductions in average selling price per port our revenues do not grow, our gross margins would be negatively affected.

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     We recently introduced several new products and expect to introduce additional new products in the near future. As new or enhanced products are introduced, we must successfully manage the transition from older products in order to minimize disruption in customers’ ordering patterns, avoid excessive levels of older product inventories, and provide sufficient supplies of new products to meet customer demands. Our gross margins would likely be adversely affected if we fail to successfully manage the introductions of these new products. However, we currently anticipate that fluctuations in cost of goods sold related expenses will be consistent with fluctuations in revenue.

     Research and development expenses. Research and development (“R&D”) expenses consist primarily of salaries and related expenses for personnel engaged in engineering and R&D activities; fees paid to consultants and outside service providers; nonrecurring engineering charges; prototyping expenses related to the design, development, testing and enhancement of our products; depreciation related to engineering and test equipment; and IT and facilities expenses.

     Research and development expenses for the three months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$58,303	17%	$40,725	22%	(5)%

     For the three months ended April 28, 2007 as compared to the three months ended April 29, 2006, R&D expenses increased by $17.6 million, or 43 percent. This increase is primarily due to a $14.2 million increase in salaries and headcount related costs as a result of the Silverback and McDATA acquisitions, $4.2 million in additional outside service related expenses resulting from growth in product development and new product introductions, a $6.4 million increase in equipment and facilities costs, offset by a decrease of $7.1 million related to more products transitioned into sustaining engineering from development.

     Research and development expenses for the six months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$100,694	18%	$79,467	23%	(5)%

     For the six months ended April 28, 2007 as compared to the six months ended April 29, 2006, R&D expenses increased by $21.1 million, or 27 percent. This increase is primarily due to a $19.5 million increase in salaries and headcount related costs as a result of the McDATA and Silverback acquisitions, $5.3 million additional outside service related expenses resulting from growth in product development and new product introductions, a $8.4 million increase in equipment and facilities costs, offset by a decrease of $11.2 million related to more products transitioned into sustaining engineering from development.

     We currently anticipate that R&D expenses for the three months ending July 28, 2007 will be consistent with the three months ended April 28, 2007.

     Sales and marketing expenses. 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.

     Sales and marketing expenses for the three months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$59,364	17%	$34,313	19%	(2)%

     For the three months ended April 28, 2007 as compared to the three months ended April 29, 2006, sales and marketing expenses increased by $25.1 million, or 73 percent. This increase is primarily due to the McDATA acquisition including; a $17.1 million increase in salaries and headcount related expenses, a $2.0 million increase in outside services, a $2.0 million increase in travel expenses and a $3.3 million increase in IT and facilities expenses.

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     Sales and marketing expenses for the six months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$97,951	17%	$65,181	18%	(1)%

     For the six months ended April 28, 2007 as compared to the six months ended April 29, 2006, sales and marketing expenses increased by $32.8 million, or 50 percent. This increase is primarily due to the McDATA acquisition including; a $21.1 million increase in salaries and headcount related expenses, a $2.5 million increase in outside services, a $1.9 increase in marketing, a $1.4 million increase in travel expenses and a $3.5 million increase in IT and facilities expenses.

     We currently anticipate that sales and marketing expenses for the three months ended July 28, 2007 will be consistent with the three months ended April 28, 2007.

     General and administrative expenses. General and administrative (“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, corporate legal expenses, other corporate expenses, and IT and facilities expenses.

     General and administrative expenses for the three months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$13,570	4%	$7,296	4%	—%

     G&A expenses for the three months ended April 28, 2007 as compared to the three months ended April 29, 2006, increased by $6.3 million, or 86 percent. The increase in G&A is primarily due to the McDATA acquisition and reflects a $6.3 million increase in salaries and headcount related expenses, a $4.0 million increase in outside services and consulting, a $6.4 million increase in equipment and facilities costs, offset by a decrease of $13.7 million in facilities and IT costs allocated to other functional groups.

     General and administrative expenses for the six months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$20,975	4%	$15,097	4%	—%

     G&A expenses for the six months ended April 28, 2007 as compared to the six months ended April 29, 2006, increased by $5.9 million, or 39 percent. The increase in G&A is primarily due to the McDATA acquisition and reflects a $7.7 million increase in salaries and headcount related expenses, a $4.1 million increase in outside services and consulting, a $7.0 million increase in equipment and facilities costs, offset by a decrease of $16.5 million in facilities and IT costs allocated to other functional groups.

     We currently anticipate that G&A expenses for the three months ending July 28, 2007 will be consistent with the three months ended April 28, 2007.

     Legal fees associated with indemnification obligations, defense, and other related costs. These expenses consist of professional legal and accounting service fees for various matters, including applicable indemnification obligations, defense of the Company in legal proceedings, the completed internal reviews and the ongoing SEC and Department of Justice (“DOJ”) joint investigations.

     Legal fees associated with indemnification obligations, defense, and other related costs for the three months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$15,234	4%	$3,160	2%	2%

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     Legal fees associated with indemnification obligations, defense, and other related costs for the six months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$20,462	4%	$7,189	2%	2%

     On January 24, 2005, we announced that our Audit Committee completed an internal review regarding historical stock option granting practices. Following the January 2005 Audit Committee internal review, on May 16, 2005, we announced that additional information had come to our attention that indicated that certain guidelines regarding stock option granting practices were not followed and our Audit Committee had commenced an internal review of our stock option accounting focusing on leaves of absence and transition and advisory roles. This Audit Committee review was completed in November 2005. In connection with the SEC and DOJ joint investigation regarding our historical stock option granting practices, we are obligated to indemnify certain employees for the legal expenses incurred. Fluctuations in legal fees for the three and six months ended April 28, 2007 as compared to the three and six months ended April 29, 2006 are due to the timing of costs incurred. See Note 14 “Subsequent Events” of the Notes to the Condensed Consolidated Financial Statements for details related to the settlement completed with the SEC on May 31, 2007.

     Acquisition and integration costs.

     Acquisition and integration costs for the three months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$7,564	2%	$—	—%	2%

     Acquisition and integration costs for the six months ended April 28, 2007 and April 29, 2006 were as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$14,997	3%	$—	—%	3%

     In connection with our acquisition of McDATA (see Note 11 “Acquisitions”, of the Notes to Condensed Consolidated Financial Statements), we recorded acquisition and integration costs during the three and six months ended April 28, 2007, which consisted primarily of costs incurred for consulting services, other professional fees, and bonuses paid to transitional employees.

     Provision for SEC settlement.

     There was no provision for SEC settlement for the three months ended April 28, 2007 and April 29, 2006.

     Provision for SEC settlement for the six months ended April 28, 2007 and April 29, 2006 was as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$—	—%	$7,000	2%	(2)%

     During the six months ended April 29, 2006, we began active settlement discussions with the Staff of the SEC’s Division of Enforcement (the “Staff”) regarding our financial restatements related to stock option accounting. As a result of these discussions, for the six months ended April 29, 2006, we recorded a $7.0 million provision for an estimated settlement expense. The $7.0 million estimated settlement expense is based on an offer of settlement that the Company made to the Staff and which the Staff intends to recommend to the SEC’s Commissioners. The offer of settlement is contingent upon final approval by the SEC’s Commissioners. No other provision amounts have been recorded in the Condensed Consolidated Financial Statements for the periods presented as the amounts are not reasonably estimable. See Note 14 “Subsequent Events” of the Notes to the Condensed Consolidated Financial Statements for details related to the settlement reached with the Staff on May 31, 2007.

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     Amortization of intangible assets.

     Amortization of intangible assets for the three months ended April 28, 2007 and April 29, 2006 was as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Point
2007	Revenue	2006	Revenue	Change
$7,977	2%	$518	—%	2%

     Amortization of intangible assets for the six months ended April 28, 2007 and April 29, 2006 was as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Point
2007	Revenue	2006	Revenue	Change
$8,887	2%	$518	—%	2%

     During the three and six months ended April 28, 2007, we recorded amortization of intangible assets related to the acquisitions of McDATA, Silverback and NuView. The increase in amortization of intangible assets for the three and six months ended April 28, 2007 as compared to the three and six months ended April 29, 2006 is due to the McDATA acquisition which was completed near the beginning of the three months ended April 28, 2007. We account for intangible assets in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Intangible assets are recorded based on estimates of fair value at the time of the acquisition and identifiable intangible assets are amortized on a straight line basis over their estimated useful lives (see Note 10: “Goodwill and Identifiable Intangible Assets,” of the Notes to Condensed Consolidated Financial Statements).

     Interest and other income, net.

     Interest and other income, net, for the three months ended April 28, 2007 and April 29, 2006 was as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Point
2007	Revenue	2006	Revenue	Change
$10,788	3%	$7,206	4%	(1)%

     Interest and other income, net, for the six months ended April 28, 2007 and April 29, 2006 was as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Point
2007	Revenue	2006	Revenue	Change
$18,244	3%	$14,236	4%	(1)%

     For the three and six months ended April 28, 2007 as compared to the three and six months ended April 29, 2006, the increase in interest and other income was primarily related to higher average rates of return due to investment mix and an increase in interest rates, as well as increased average cash, cash equivalent, and short-term and long-term investment balances as a result of the McDATA acquisition.

     Facilities Lease losses.

     Facilities lease losses for the three months ended April 28, 2007 and April 29, 2006 was as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Point
2007	Revenue	2006	Revenue	Change
$—	—%	$3,775	0.02%	(100)%

     Interest and other income, net, for the six months ended April 28, 2007 and April 29, 2006 was as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Point
2007	Revenue	2006	Revenue	Change
$—	—%	$3,775	0.02%	(100)%

     During the three months ended April 29, 2006, the Company recorded a charge of $3.8 million related to estimated facilities lease losses, net of expected sublease income. This charge represented an estimate based on current market data. As a result, the Company revised certain estimates and assumptions, including those related to estimated sublease rates, estimated time to sublease the facilities, expected future operating costs, and expected future use of the facilities. No charges were recorded during the three and six months ended April 28, 2007.

41

     Interest expense.

     Interest expense primarily represents the interest cost associated with our convertible subordinated debt.

     Interest expense for the three months ended April 28, 2007 and April 29, 2006 was as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Point
2007	Revenue	2006	Revenue	Change
$(2,054)	—%	$(1,838)	(1%)	1%

     The increase in interest expense for the three months ended April 28, 2007 as compared to the three months ended April 29, 2006 was primarily the result of the assumption of debt as a result of the McDATA acquisition.

     Interest expense for the six months ended April 28, 2007 and April 29, 2006 was as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Point
2007	Revenue	2006	Revenue	Change
$(2,058)	—%	$(3,615)	(1%)	1%

     The decrease in interest expense for the six months ended April 28, 2007 as compared to the six months ended April 29, 2006 was primarily the result of the outstanding balance of our convertible subordinated debt during the first six months of fiscal year 2006 compared to the outstanding balance and interest rate of our convertible subordinated debt during the first six months of fiscal year 2007. As of April 28, 2007 and April 29, 2006, the fair value of the outstanding balance of our convertible subordinated debt was $162.0 and $278.9 million, respectively.

Provision for income taxes

     Provision for income taxes for the three months ended April 28, 2007 and April 29, 2006 was as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Point
2007	Revenue	2006	Revenue	Change
$16,726	5%	$7,212	4%	1%

     Provision for income taxes for the six months ended April 28, 2007 and April 29, 2006 was as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Point
2007	Revenue	2006	Revenue	Change
$30,273	5%	$15,066	4%	1%

     For the three and six months ended April 28, 2007, our income tax provision was based on both domestic and international operations. We expect to continue to record an income tax provision for our international and domestic operations in the future. Since we have a full valuation allowance against deferred tax assets which result from U.S. operations, U.S. income tax expense or benefits are offset by releasing or increasing, respectively, the valuation allowance. Our U.S. federal income tax liability is reduced by the utilization of net operating loss and credit carryforwards from prior years such that only alternative minimum tax results. To the extent utilization of net operating losses or credit carryforwards are attributable to McData pre-acquisition operations; the resulting tax benefit is recorded to goodwill. To the extent these carryforwards are fully utilized against future earnings, our U.S. federal effective tax rate is expected to increase. To the extent that international revenues and earnings differ from those historically achieved, a factor largely influenced by the buying behavior of our OEM partners, or unfavorable changes in tax laws and regulations occur, our income tax provision could change.

     Estimates and judgments are required in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred tax assets, which arise from variable stock option expenses, net operating losses, tax carryforwards and temporary differences between the tax and financial statement recognition of revenue and expense. SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”), also requires that the deferred tax assets be reduced by a valuation allowance, if based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods.

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     In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence including our past operating results, the existence of cumulative losses in the most recent fiscal years and our forecast of future taxable income on a jurisdiction by jurisdiction basis. In determining future taxable income, we are responsible for assumptions utilized including the amount of state and federal pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgments about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. The combined Company’s cumulative losses incurred in three of the last four fiscal years represent sufficient negative evidence to require a full valuation allowance. As of April 28, 2007, we had a valuation allowance against the deferred tax assets, which we intend to maintain until sufficient positive evidence exists to support reversal of the valuation allowance. Future reversals or increases to our valuation allowance could have a significant impact on our future earnings.

     In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions. We recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If our estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.

     In November 2005, we were notified by the Internal Revenue Service (“IRS”) that our domestic federal income tax return for the year ended October 25, 2003 was subject to audit. The IRS has issued two Notices of Proposed Adjustment (“NOPAs”) related to the research and development credit which we are contesting. In the second quarter of fiscal year 2007 we received three NOPAs related to transfer pricing. We are currently contesting these three adjustments and we believe we have adequate reserves to cover any potential assessments that may result from the examination.

     In April 2006, we were notified by the Franchise Tax Board (“FTB”) that our California income tax returns for the years ended October 25, 2003 and October 30, 2004 were subject to audit. The FTB Audit is ongoing and we believe our reserves are adequate to cover any potential assessments that may result from the examination.

     Stock compensation expense.

     Stock compensation expense for the three months ended April 28, 2007 and April 29, 2006 was as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Point
2007	Revenue	2006	Revenue	Change
$8,005	2%	$7,382	4%	(2)%

     Stock compensation expense for the six months ended April 28, 2007 and April 29, 2006 was as follows (in thousands):

April 28,	% of Net	April 29,	% of Net	% Point
2007	Revenue	2006	Revenue	Change
$14,729	3%	$13,695	4%	(1)%

     Stock compensation expense was included in the following income statement line items for the three and six months ended April 28, 2007 and April 29, 2006 as follows (in thousands):

	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	April 28, 2007		April 29, 2006		April 28, 2007		April 29, 2006
Cost of goods sold	$	2,595	$	2,296	$	4,372	$	4,136
Research and development		2,371		2,470		4,809		4,688
Sales and marketing		1,954		1,800		3,661		3,249
General and administrative		1,085		816		1,887		1,622
Total stock compensation	$	8,005	$	7,382	$	14,729	$	13,695

     Included above is stock compensation arising from stock option grants remeasured at their intrinsic value and subject to change in measurement date. Stock based compensation expense for these options was $0.1 million and $1.8 million for the three months ended April 28, 2007 and April 29, 2006, respectively. Stock based compensation expense for these options was $0.1 million and $2.0

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million for the six months ended April 28, 2007 and April 29, 2006, respectively. The stock compensation expense associated with remeasuring awards at their intrinsic value each reporting period will vary significantly as a result of future changes in the market value of our common stock until those options are either exercised or expire unexercised. The change in stock-based compensation for these awards during the three and six months ended April 28, 2007 as compared to the three and six months ended April 29, 2006 is due to a change in market values of our common stock during the reported periods as well as exercise behaviors of the holders of these options.

Liquidity and Capital Resources

	Three Months Ended
	April 28,			January 27,			Increase/
	2007			2007			(Decrease)
				(in thousands)
Cash and cash equivalents	$	363,838		$	249,807		$	114,031
Short-term investments, restricted and unrestricted		391,694			319,331			72,363
Long-term investments		80,980			62,521			18,460
Total	$	836,512		$	631,659		$	204,854
Percentage of total assets		41	%		65	%

     Cash, cash equivalents, restricted short-term investments, and short-term and long-term investments increased $204.9 million over the balance as of January 27,2007. For the three months and six months ended April 28, 2007, we generated $46.2 million and $79.6 million in cash from operating activities, which significantly exceeded net income for the three and six months ended April 28, 2007 as a result of non-cash items related to depreciation and amortization as well as acquisition related accounts receivable coupled with a high level of collections during the period. Days sales outstanding in receivables for the six months ended April 28, 2007 was 40 days, compared with 38 days for the six months ended April 29, 2006.

     Net cash provided by investing activities for the six months ended April 28, 2007 totaled $118.8 million and was the result of $377.8 million in proceeds resulting from maturities and sales of short-term investments, $147.4 million cash acquired in connection with the McDATA acquisition, offset by purchases of short-term and long-term investments for a total of $290.9 million.

     Net cash used in financing activities for the six months ended April 28, 2007 totaled $108.9 million. Net cash provided by financing activities was primarily the result of the redemption of the acquired CNT convertible debt.

     Net proceeds from the issuance of common stock in connection with 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 in connection with employee participation in employee stock programs will vary. As a result of our voluntary stock options exchange program, which was completed in July 2003, we expect to continue to generate significant cash flow from the issuance of common stock related to employee participation in employee stock programs during fiscal year 2007 unless our future common stock price does not exceed $6.54 per share, which is the exercise price of the stock options granted under the exchange program.

     We have manufacturing agreements with Foxconn, Sanmina and Solectron under which we provide twelve-month product forecasts and place purchase orders in advance of the scheduled delivery of products to our customers. The required lead-time for placing orders with Foxconn, Sanmina and Solectron depends on the specific product. As of April 28, 2007, our aggregate commitment for inventory components used in the manufacture of Brocade products was $178.9 million, net of purchase commitment reserves of $64.5 million, which we expect to utilize during future normal ongoing operations. Although the purchase orders we place with Foxconn, Sanmina and Solectron are cancelable, the terms of the agreements require us to purchase all inventory components not returnable or usable by, or sold to, other customers of the aforementioned contract manufacturers. Our purchase commitments reserve reflects our estimate of purchase commitments we do not expect to consume in normal operations within the next twelve months, in accordance with our policy.

     On November 18, 2003, we purchased a previously leased building located near our San Jose headquarters, and issued a $1.0 million guarantee as part of the purchase agreements.

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     The following table summarizes our contractual obligations (including interest expense) and commitments as of April 28, 2007 (in thousands):

				Less than						More than
	Total			1 Year		1—3 Years		3—5 Years		5 Years
Contractual Obligations:
Non-cancelable operating leases		115,352	(1)		25,311		47,781		17,882		24,378
Capital leases		2,566			1,989		577		—		—
Purchase commitments, gross		178,947	(2)		178,947		—		—		—
Total contractual obligations	$	296,865		$	206,247	$	48,358	$	17,882	$	24,378
Other Commitments:
Standby letters of credit	$	2,693		$	n/a	$	n/a	$	n/a	$	n/a
Guarantee	$	1,015		$	n/a	$	n/a	$	n/a	$	n/a

(1)	Amount excludes contractual sublease income of $8.7 million, which consists of $2.7 million to be received in less than 1 year, $5.3 million to be received in 1 through 3 years, and $0.7 million to be received in 3 to 5 years.
(2)	Amount reflects total gross purchase commitments under our manufacturing agreements with third party contract manufacturers. Of this amount, we have accrued $64.5 million for estimated purchase commitments that we do not expect to consume in normal operations within the next twelve months, in accordance with our policy.

     Share Repurchase Program. On January 29, 2007, the Company announced the authorization of an additional $200 million for stock repurchases, which is in addition to the $52.7 million remaining under the previously announced $100 million stock repurchase program approved by our board of directors on August 2004. The purchases may be made, from time to time, in the open market and will be funded from available working capital. The number of shares to be purchased and the timing of purchases will be based on the level of our cash balances, general business and market conditions, and other factors, including alternative investment opportunities. For the three months ended April 28, 2007, we have repurchased 6.3 million shares for an aggregate purchase price of $60 million. As such, $192.9 million remains available for future repurchases under this program.

Critical Accounting Policies

     Our discussion and analysis of financial condition and results of operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these Condensed Consolidated 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, restructuring costs, 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.

     The methods, estimates, and judgments we use in applying our most critical accounting policies have a significant impact on the results that we report in our Condensed Consolidated Financial Statements. The SEC considers an entity’s most critical accounting policies to be those policies that are both most important to the portrayal of a company’s financial condition and results of operations, and those that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about matters that are inherently uncertain at the time of estimation. We believe the following critical accounting policies, among others, require significant judgments and estimates used in the preparation of our Condensed Consolidated Financial Statements:

• Revenue recognition, and allowances for sales returns, sales programs, and doubtful accounts;

• Stock-based compensation;

• Warranty reserves;

• Inventory valuation and purchase commitment liabilities;

• Restructuring charges and lease loss liabilities;

• Goodwill and intangible assets;

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• Litigation costs; and

• Accounting for income taxes.

     Revenue recognition, and allowances for sales returns, sales programs, and doubtful accounts. Product revenue is generally recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is probable. However, for newly introduced products, many of our large OEM customers require a product qualification period during which our products are tested and approved by the OEM customer for sale to their customers. Revenue recognition, and related cost, is deferred for shipments to new OEM customers and for shipments of newly introduced products to existing OEM customers until satisfactory evidence of completion of the product qualification has been received from the OEM customer. In addition, revenue from sales to our master reseller customers is recognized in the same period in which the product is sold by the master reseller (sell-through).

     We reduce revenue for estimated sales returns, sales programs, and other allowances at the time of shipment. Sales returns, sales programs, and other allowances are estimated based on historical experience, current trends, and our expectations regarding future experience. Reductions to revenue associated with sales returns, sales programs, and other allowances include consideration of historical sales levels, the timing and magnitude of historical sales returns, claims under sales programs, and other allowances, and a projection of this experience into the future. In addition, we maintain allowances for doubtful accounts, which are also accounted for as a reduction in revenue, for estimated losses resulting from the inability of our customers to make required payments. We analyze accounts receivable, historical collection patterns, customer concentrations, customer creditworthiness, current economic trends, changes in customer payment terms and practices, and customer communication when evaluating the adequacy of the allowance for doubtful accounts. If actual sales returns, sales programs, and other allowances exceed our estimate, or if the financial condition of our customers was to deteriorate, resulting in an impairment of their ability to make payments, additional allowances and charges may be required.

     Service revenue consists of training and maintenance arrangements, including post-contract customer support (“PCS”) and other professional services. PCS services are offered under renewable, annual fee-based contracts or as part of multiple element arrangements and typically include upgrades and enhancements to our software operating system software, and telephone support. Service revenue, including revenue allocated to PCS elements, is deferred and recognized ratably over the contractual period. Service contracts are typically one to three years in length. Professional services are offered under fee based contracts or as part of multiple element arrangements. Professional service revenue is recognized as delivery of the underlying service occurs. Training revenue is recognized upon completion of the training.

     Our multiple-element product offerings include computer hardware and software products, and support services. We also sell certain software products and support services separately. Our software products, including those that are embedded in our hardware products and are essential to the functionality of our hardware products and are, therefore, accounted for in accordance with Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended. We allocate revenue to each element in a multiple element arrangement based upon vendor-specific objective evidence (“VSOE”) of the fair value of the element or, if VSOE is not available for the delivered elements, by application of the residual method. In the application of the residual method, we allocate revenue to the undelivered elements based on VSOE for those elements and allocate the residual revenue to the delivered elements. VSOE of the fair value for an element is based upon the price charged when the element is sold separately. Revenue allocated to each element is then recognized when the basic revenue recognition criteria are met for each element. Changes in the allocation of revenue to each element in a multiple element arrangement may affect the timing of revenue recognition.

     Stock-Based Compensation. Effective October 30, 2005 we began recording compensation expense associated with stock-based awards and other forms of equity compensation in accordance with SFAS 123R. We adopted the modified prospective transition method provided for under SFAS 123R. Under this transition method, compensation cost associated with stock-based awards recognized for fiscal year 2007 and fiscal year 2006 now includes 1) quarterly amortization related to the remaining unvested portion of stock-based awards granted prior to October 30, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123; and 2) quarterly amortization related to stock-based awards granted subsequent to October 30, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. In addition, we record expense over the offering period and vesting term in connection with 1) shares issued under our employee stock purchase plan and 2) stock options and restricted stock awards. The compensation expense for stock-based awards includes an estimate for forfeitures and is recognized over the expected term of the award under a graded vesting method.

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     Prior to October 30, 2005, we accounted for stock-based awards using the intrinsic value method of accounting in accordance with APB 25, whereby the difference between the exercise price and the fair market value on the date of grant is recognized as compensation expense. Under the intrinsic value method of accounting, no compensation expense was recognized in our Condensed Consolidated Statements of Income when the exercise price of our employee stock option grant equals the market price of the underlying common stock on the date of grant, and the measurement date of the option grant is certain. The measurement date is certain when the date of grant is fixed and determinable. Prior to October 30, 2005 when the measurement date was not certain, we recorded stock-based compensation expense using variable accounting under APB 25. Effective October 30 2005, for awards where the measurement date is not certain, we record stock-based compensation expense under SFAS 123R. Under SFAS 123R, we remeasure the intrinsic value of the options at the end of each reporting period until the options are exercised, cancelled or expire unexercised.

     Warranty reserves. We provide warranties on our products ranging from one to three years. Estimated future warranty costs are accrued at the time of shipment and charged to cost of revenues based upon historical experience, current trends and our expectations regarding future experience. If actual warranty costs exceed our estimate, additional charges may be required.

     Inventory valuation and purchase commitment liabilities. We write down inventory and record purchase commitment liabilities for estimated excess and obsolete inventory equal to the difference between the cost of inventory and the estimated fair value based upon forecast of future product demand, product transition cycles, 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 liabilities, and charges against earnings might be required.

     Restructuring charges and lease loss liabilities. We monitor and regularly evaluate our organizational structure and associated operating expenses. Depending on events and circumstances, we may decide to take additional actions to reduce future operating costs as our business requirements evolve. In determining restructuring charges, we analyze our future operating requirements, including the required headcount by business functions and facility space requirements. Our restructuring costs, and any resulting accruals, involve significant estimates made by management using the best information available at the time the estimates are made, some of which may be provided by third parties. In recording severance accruals, we record a liability when all of the following conditions have been met: employees’ rights to receive compensation for future absences is attributable to employees’ services already rendered; the obligation relates to rights that vest or accumulate; payment of the compensation is probable; and the amount can be reasonably estimated. In recording facilities lease loss accruals, we make various assumptions, including the time period over which the facilities are expected to be vacant, expected sublease terms, expected sublease rates, anticipated future operating expenses, and expected future use of the facilities. Our estimates involve a number of risks and uncertainties, some of which are beyond our control, including future real estate market conditions and our ability to successfully enter into subleases or lease termination agreements with terms as favorable as those assumed when arriving at our estimates. We regularly evaluate a number of factors to determine the appropriateness and reasonableness of our restructuring and lease loss accruals including the various assumptions noted above. If actual results differ significantly from our estimates, we may be required to adjust our restructuring and lease loss accruals in the future.

     Goodwill and intangible assets. We account for goodwill in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 142 requires that goodwill be capitalized at cost and tested annually for impairment. We evaluate goodwill on an annual basis during our second fiscal quarter, or whenever events and changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized to the extent that the carrying amount exceeds the assets implied fair value. Events which might indicate impairment include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of economic environment on our customer base, material negative changes in relationships with significant customers, and/or a significant decline in our stock price for a sustained period. No goodwill impairment was recorded for the periods presented.

     Intangible assets other than goodwill are amortized over their useful lives, unless these lives are determined to be indefinite. Intangible assets are carried at cost less accumulated amortization. Amortization is computed over the estimated useful life of the respective asset. Intangible assets are reviewed for impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). We perform an impairment test for long-lived assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Examples of such events or circumstances include significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of acquired assets or the strategy for our business, significant negative industry or economic trends, and/or a significant decline in the Company’s stock price for a sustained period. Impairments are recognized based on the difference between the fair value of the asset and its carrying value, and fair value is generally measured based on discounted cash flow analyses. No intangible asset impairment was recorded for the periods presented.

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     Litigation costs. We are subject to the possibility of legal actions arising in the ordinary course of business. We regularly monitor the status of pending legal actions to evaluate both the magnitude and likelihood of any potential loss. We accrue for these potential losses when it is probable that a liability has been incurred and the amount of loss, or possible range of loss, can be reasonably estimated. If actual results differ significantly from our estimates, we may be required to adjust our accruals in the future.

     Accounting for income taxes. We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts, along with net operating loss carryforwards and credit carryforwards. A valuation allowance is recognized to the extent that it is more likely than not that the tax benefits will not be realized. Income tax contingencies are accounted for in accordance with SFAS No. 5, “Accounting for Contingencies” (“SFAS 5”).

     The determination of our tax provision is subject to judgments and estimates due to operations in multiple tax jurisdictions inside and outside the United States. Sales to our international customers are principally taxed at rates that are lower than the United States statutory rates. 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, an increase in the percentage of our total revenue from international customers or in the mix of international revenue among particular tax jurisdictions could change our overall effective tax rate. Also, our current effective tax rate assumes that United States income taxes are not provided for undistributed earnings of certain non-United States subsidiaries. These earnings could become subject to United States federal and state income taxes and foreign withholding taxes, as applicable, should they be either deemed or actually remitted from our international subsidiaries to the United States.

     The carrying value of our net deferred tax assets is subject to a full valuation allowance with the exception of non-U.S. stock option expense. At some point in the future, the Company may have sufficient United States taxable income to release the valuation allowance. We evaluate the expected realization of our deferred tax assets and assess the need for valuation allowances quarterly.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

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

Interest Rate Risk

     Our exposure to market risk due to changes in the general level of United States interest rates relates primarily to our cash equivalents and short-term and long-term investment portfolios. Our cash, cash equivalents, and short-term and long-term investments are primarily maintained at five major financial institutions in the United States. As of April 28, 2007, we held an immaterial amount of cash flow derivative instruments. The primary objective of our investment activities is the preservation of principal while maximizing investment income and minimizing risk.

     The following table presents the hypothetical changes in fair values of our investments as of April 28, 2007 that are sensitive to changes in interest rates (in thousands):

	Valuation of Securities						Fair Value		Valuation of Securities
	Given an Interest Rate						As of		Given an Interest Rate
	Decrease of X Basis Points						April 28,		Increase of X Basis Points
Issuer	(150 BPS)		(100 BPS)		(50 BPS)		2007		50 BPS		100 BPS		150 BPS
U.S. government agencies and municipal obligations	$	179,824	$	177,753	$	175,839	$	174,052	$	172,461	$	170,926	$	169,493
Corporate bonds and notes	$	256,729	$	255,928	$	255,135	$	254,358	$	253,566	$	252,788	$	252,018
Total	$	436,553	$	433,681	$	430,974	$	428,410	$	426,027	$	423,714	$	421,511

     These instruments are not leveraged and are classified as available-for-sale. The modeling technique used measures the change in fair values arising from selected potential changes in interest rates. Market changes reflect immediate hypothetical parallel shifts in the yield curve of plus or minus 50 basis points (BPS), 100 BPS, and 150 BPS, which are representative of the historical movements in the Federal Funds Rate.

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     The following table (in thousands) presents our cash equivalents, short-term, restricted short-term, and long-term investments subject to interest rate risk and their related weighted average interest rates as of April 28, 2007. Carrying value approximates fair value.

			Weighted
			Average
	Amount		Interest Rate
Cash and cash equivalents	$	363,838		4.52	%
Short-term investments		391,694		4.84	%
Long-term investments		80,981		5.11	%
Total	$	836,513		4.72	%

     Our convertible subordinated debt is subject to a fixed interest rate and the notes are based on a fixed conversion ratio into common stock. The Company has an interest-rate swap agreement which covers $155.3 million of its 2.25% convertible subordinated notes and is set at six-month LIBOR minus 152 basis points. This interest-rate swap agreement has the economic effect of modifying the fixed interest obligation associated with the notes so that the interest payable on the majority of the notes effectively becomes variable. If interest rates on this variable rate debt were to increase or decrease, our annual interest expense would increase or decrease accordingly. This increased or decreased interest expense would be partially offset by the effects of these interest rate changes on our cash and investment portfolio. On April 28, 2007, the approximate bid and ask prices per $100 of our 2.25% Notes were $101.5 and $102.5, respectively, resulting in an aggregate fair value of between $175.1 million and $176.8 million.

     Our common stock is quoted on the Nasdaq National Market under the symbol “BRCD.” On April 27, 2007, the last reported sale price of our common stock on the Nasdaq National Market was $10.12 per share.

Item 4. Controls and Procedures

     (a) Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”).

     The purpose of this evaluation is to determine if, as of the Evaluation Date, our disclosure controls and procedures were operating effectively such that the information relating to Brocade, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) was recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

     Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were operating effectively.

     (b) Changes in Internal Control Over Financial Reporting.

     There were no changes in our internal controls over financial reporting during the second quarter of fiscal 2007 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Limitations on the Effectiveness of Disclosure Controls and Procedures.

     Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected. The inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     From time to time, claims are made against Brocade in the ordinary course of its business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties or injunctions prohibiting Brocade from selling one or more products or engaging in other activities. The occurrence of an

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unfavorable outcome in any specific period could have a material adverse affect on the Brocade’s results of operations for that period or future periods.

     On July 20, 2001, the first of a number of putative class actions for violations of the federal securities laws was filed in the United States District Court for the Southern District of New York against Brocade, certain of its officers and directors, and certain of the underwriters for Brocade’s initial public offering of securities. A consolidated amended class action captioned In Re Brocade Communications Systems, Inc. Initial Public Offering Securities Litigation was filed on April 19, 2002. The complaint generally alleges that various underwriters engaged in improper and undisclosed activities related to the allocation of shares in Brocade’s initial public offering and seeks unspecified damages on behalf of a purported class of purchasers of common stock from May 24, 1999 to December 6, 2000. The lawsuit against Brocade is being coordinated for pretrial proceedings with a number of other pending litigations challenging underwriter practices in over 300 cases as In Re Initial Public Offering Securities Litigation, 21 MC 92(SAS). In October 2002, the individual defendants were dismissed without prejudice from the action, pursuant to a tolling agreement. On February 19, 2003, the Court issued an Opinion and Order dismissing all of the plaintiffs’ claims against Brocade. In June 2004, a stipulation of settlement for the claims against the issuer defendants, including Brocade, was submitted to the Court for approval. On August 31, 2005, the Court granted preliminary approval of the settlement. On April 24, 2006, the Court held a fairness hearing in connection with the motion for final approval of the settlement. The Court has yet to issue a ruling on the motion for final approval. The settlement is subject to a number of conditions, including certification of the class and final approval by the Court. On December 5, 2006, the Court of Appeals for the Second Circuit reversed the court’s October 2004 order certifying a class in six test cases (of which Brocade is not one) that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. On January 5, 2007, plaintiffs filed a petition for rehearing en banc by the Second Circuit, which was denied on April 6, 2007.

     McDATA Corporation, Mr. John F. McDonnell, the former Chairman of the board of directors of McDATA, Mrs. Dee J. Perry and Mr. Thomas O. McGimpsey, both former officers of McDATA were named as defendants in purported securities class action lawsuits filed in the United States District Court, Southern District of New York. The first of these lawsuits, filed on July 20, 2001, is captioned Gutner v. McDATA Corporation, Credit Suisse First Boston (CSFB), Merrill Lynch, Pierce Fenner & Smith Incorporated, Bear, Stearns & Co., Inc., FleetBoston Robertson Stephens et al., No. 01 CIV. 6627. Three other similar suits were filed against McDATA and the individuals. The complaints are identical to numerous other complaints filed against other companies that went public in 1999 and 2000. These lawsuits generally allege, among other things, that the registration statements and prospectus filed with the SEC by such companies were materially false and misleading because they failed to disclose (a) that certain underwriters had allegedly solicited and received excessive and undisclosed commissions from certain investors in exchange for which the underwriters allocated to those investors material portions of shares in connection with the initial public offerings, or IPOs, and (b) that certain of the underwriters had allegedly entered into agreements with customers whereby the underwriters agreed to allocate IPO shares in exchange for which the customers agreed to purchase additional company shares in the aftermarket at pre-determined prices. The complaints allege claims against McDATA, the named individuals, and CSFB, the lead underwriter of McDATA’s August 9, 2000 initial public offering, under Sections 11 and 15 of the Securities Act. The complaints also allege claims solely against CSFB and the other underwriter defendants under Section 12(a) (2) of the Securities Act, and claims against the individual defendants under Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Although management believes that all of the lawsuits are without legal merit and they intend to defend against them vigorously, there is no assurance that McDATA will prevail. In September 2002, plaintiffs’ counsel in the above-mentioned lawsuits offered to individual defendants of many of the public companies being sued, including McDATA, the opportunity to enter into a Reservation of Rights and Tolling Agreement that would dismiss without prejudice and without costs, all claims against such persons if the company itself had entity coverage insurance. This agreement was signed by Mr. John F. McDonnell, the former Chairman of McDATA, Mrs. Dee J. Perry, the former chief financial officer of McDATA, and Mr. Thomas O. McGimpsey, the former General Counsel and Vice President of Business Development of McDATA and the plaintiffs’ executive committee. Under the Reservation of Rights and Tolling Agreement, the plaintiffs dismissed the claims against such individuals. On February 19, 2003, the court in the above-mentioned lawsuits entered a ruling on the pending motions to dismiss, which dismissed some, but not all, of the plaintiffs’ claims against McDATA. These lawsuits have been consolidated as part of In Re Initial Public Offering Securities Litigation (SDNY). McDATA has considered and agreed to enter into a proposed settlement offer with representatives of the plaintiffs in the consolidated proceeding. On August 31, 2005, the court preliminarily approved the proposed settlement. On April 24, 2006, the Court held a fairness hearing in connection with the motion for final approval of the settlement. The Court has yet to issue a ruling on the motion for final approval. The settlement remains subject to a number of conditions, including certification of the class and final court approval. On December 5, 2006, the Court of Appeals for the Second Circuit reversed the court’s October 2004 order certifying a class in six test cases (of which McDATA is not one) that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. On January 5, 2007, plaintiffs filed a petition for rehearing en banc by the Second Circuit, which was denied on April 6, 2007.

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     A shareholder class action lawsuit was filed against Inrange and certain of its officers on November 30, 2001, in the United States District Court for the Southern District of New York, seeking recovery of damages caused by Inrange’s alleged violation of securities laws, including section 11 of the Securities Act and section 10(b) of the Exchange Act. The complaint, which was also filed against the various underwriters that participated in Inrange’s initial public offering (IPO), is identical to hundreds of shareholder class actions pending in this court in connection with other recent IPOs and is generally referred to as In re Initial Public Offering Securities Litigation. The complaint alleges, in essence, (a) that the underwriters combined and conspired to increase their respective compensation in connection with the IPO by (i) receiving excessive, undisclosed commissions in exchange for lucrative allocations of IPO shares, and (ii) trading in Inrange’s stock after creating artificially high prices for the stock post-IPO through “tie-in” or “laddering” arrangements (whereby recipients of allocations of IPO shares agreed to purchase shares in the aftermarket for more than the public offering price for Inrange shares) and dissemination of misleading market analysis on Inrange’s prospects; and (b) that Inrange violated federal securities laws by not disclosing these underwriting arrangements in its prospectus. The defense has been tendered to the carriers of Inrange’s director and officer liability insurance, and a request for indemnification has been made to the various underwriters in the IPO. At this point, the insurers have issued a reservation of rights letter and the underwriters have refused indemnification. The court has granted Inrange’s motion to dismiss claims under section 10(b) of the Exchange Act because of the absence of a pleading of intent to defraud. The court granted plaintiffs leave to replead these claims, but no further amended complaint has been filed. The court denied Inrange’s motion to dismiss claims under section 11 of the Securities Act. The court has also dismissed Inrange’s individual officers without prejudice, after they entered into a tolling agreement with the plaintiffs. On July 25, 2003, Inrange’s board of directors conditionally approved a proposed partial settlement with the plaintiffs in this matter. The settlement would provide, among other things, a release of Inrange and of the individual defendants for the conduct alleged in the action to be wrongful in the complaint. Inrange would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential claims Inrange may have against its underwriters. In June 2004, an agreement of settlement was submitted to the court for preliminary approval. On August 31, 2005, the court preliminarily approved the proposed settlement. On April 24, 2006, the Court held a fairness hearing in connection with the motion for final approval of the settlement. The Court has yet to issue a ruling on the motion for final approval. The settlement remains subject to a number of conditions, including certification of the class and final court approval. On December 5, 2006, the Court of Appeals for the Second Circuit reversed the court’s October 2004 order certifying a class in six test cases (of which Inrange is not one) that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. On January 5, 2007, plaintiffs filed a petition for rehearing en banc by the Second Circuit, which was denied on April 6, 2007.

     On May 16, 2005, Brocade announced that the SEC and the Department of Justice, or the DOJ, at such time were conducting an investigation regarding Brocade’s historical stock option granting processes. Brocade has been cooperating with the SEC and DOJ. During the first quarter of fiscal year 2006, Brocade began active settlement discussions with the Staff of the SEC’s Division of Enforcement, or the Staff, regarding its financial restatements related to stock option accounting. As a result of these discussions, for the three months ended January 28, 2006, Brocade recorded a $7.0 million provision for an estimated settlement expense. The $7.0 million estimated settlement expense was based on an offer of settlement that Brocade made to the Staff and was subject to final approval by the SEC’s Commissioners. On May 31, 2007, the offer of settlement was approved by the SEC’s Commissioners.

     Beginning on or about May 19, 2005, several securities class action complaints were filed against Brocade and certain of its current and former officers. These actions were filed in the United States District Court for the Northern District of California on behalf of purchasers of Brocade’s stock from February 2001 to May 2005. These lawsuits followed Brocade’s restatement of certain financial results due to stock-based compensation accounting issues. On January 12, 2006, the Court appointed a lead plaintiff and lead counsel. On April 14, 2006, the lead plaintiff filed a consolidated complaint on behalf of purchasers of Brocade’s stock from May 2000 to May 2005. The consolidated complaint alleges, among other things, violations of sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The consolidated complaint generally alleges that Brocade and the individual defendants made false or misleading public statements regarding Brocade’s business and operations and seeks unspecified monetary damages and other relief against the defendants. These lawsuits followed Brocade’s restatement of certain financial results due to stock-based compensation accounting issues.

     Beginning on or about May 24, 2005, several derivative actions were also filed against certain of Brocade’s current and former directors and officers. These actions were filed in the United States District Court for the Northern District of California and in the California Superior Court in Santa Clara County. The complaints allege that certain of Brocade’s officers and directors breached their fiduciary duties to Brocade by engaging in alleged wrongful conduct including conduct complained of in the securities litigation described above. Brocade is named solely as a nominal defendant against whom the plaintiffs seek no recovery. The derivative actions pending in the District Court for the Northern District of California were consolidated and the Court created a Lead Counsel structure. The derivative plaintiffs filed a consolidated complaint in the District Court for the Northern District of California on October 7, 2005, and Brocade filed a motion to dismiss that action on October 27, 2005. On January 6, 2006, Brocade’s motion was granted and the

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consolidated complaint in the District Court for the Northern District of California was dismissed with leave to amend. The parties to this action subsequently reached a preliminary settlement, which remains subject to approval by the Court.

     The derivative actions pending in the Superior Court in Santa Clara County were consolidated. The derivative plaintiffs filed a consolidated complaint in the Superior Court in Santa Clara County on September 19, 2005. Brocade filed a motion to stay that action in deference to the substantially identical consolidated derivative action pending in the District Court for the Northern District of California, and on November 15, 2005, the Court stayed the action. In October 2006, the Court partially lifted the stay and granted plaintiffs leave to file an amended complaint. On November 13, 2006, plaintiffs filed an amended complaint.

     No amounts have been recorded in Brocade’s Consolidated Financial Statements associated with these matters as the amounts are not probable or reasonably estimable other than the $7.0 million provision for an estimated settlement expense with the SEC as noted above.

Item 1A. Risk Factors

     The failure to successfully integrate the business and operations of McDATA Corporation in the expected time frame may adversely affect the combined company’s future results.

     Brocade believes that the acquisition of McDATA will result in certain benefits, including certain cost synergies, product innovations, and operational efficiencies. However, Brocade’s ability to realize these anticipated benefits depends on successfully combining the businesses of Brocade and McDATA. Challenges of integration include the ability to incorporate acquired products and business technology into its existing product lines, including consolidating technology with duplicative functionality or designed on a different technological architecture and provide for interoperability, and its ability to sell the acquired products through Brocade’s existing or acquired sales channels. The combined company may fail to realize the anticipated benefits of the merger on a timely basis, or at all, for a variety of reasons, including the following:

• revenue attrition in excess of anticipated levels;

• failure to successfully execute on our integration plan;

• existing customers may alter or reduce their historical buying patterns;

• failure to successfully manage relationships with original equipment manufacturers, (“OEMs”), end-users, distributors and suppliers;

• failure to successfully develop interoperability between the products of Brocade and McDATA;

• failure to leverage the increased scale of the combined company quickly and effectively;

• failure to successfully integrate and harmonize financial reporting systems;

• the loss of key employees;

• failure to effectively coordinate sales and marketing efforts to communicate the capabilities of the combined company; and

• failure to combine product offerings and product lines quickly and effectively.

     The integration of McDATA into Brocade has resulted in and is expected to continue to result in, significant expenses and accounting charges that adversely affect Brocade’s operating results and financial condition. Additional costs may include: costs associated with excess or obsolete inventory; costs of employee redeployment; relocation and retention, including salary increases or bonuses; accelerated amortization of deferred equity compensation and severance payments; reorganization or closure of facilities; and taxes; advisor and professional fees and termination of contracts that provide redundant or conflicting services. Some of these costs may have to be accounted for as expenses that would decrease Brocade’s net income and earnings per share for the periods in which those adjustments are made. The price of Brocade’s common stock could decline to the extent Brocade’s financial results are materially affected by the foregoing charges and costs, or if the foregoing charges and costs are larger than anticipated. In addition, Brocade may also experience claims of unlawful termination of employment in connection with the reduction in force as part of the McDATA acquisition. Employment litigation can be costly, may distract management’s attention from the day-to-day operation of the business and is inherently unpredictable. If Brocade is not able to successfully integrate McDATA’s business and operations, or if

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there are delays in combining the businesses, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

     General customer uncertainty regarding the acquisition of McDATA Corporation could harm Brocade.

     Uncertainty about the effect of the acquisition of McDATA Corporation on customers, employees, distributors and suppliers may have an adverse effect on Brocade. Customer concerns about changes or delays in the product roadmap of the combined company may negatively affect customer purchasing decisions, such as deferral of purchase decisions or reduced purchases. Customers could be reluctant to purchase the products and services of the combined company due to uncertainty about the direction of their technology, products and services, and willingness to support and service existing products which may be discontinued. This uncertainty may also be used as a competitive advantage by Brocade’s competitors to cause customers to purchase a competitor’s products in lieu of Brocade’s products. As a result, there may be a loss of revenue opportunities and market share for the combined company. If customers delay or defer purchasing decisions, or choose to purchase from a competitor, the revenues of the combined company could materially decline or any anticipated increases in revenue could be lower than expected.

     The gross margins of the combined company’s products and services may decline, which would reduce our profitability.

     Because certain product and service offerings acquired in connection with our acquisition of McDATA have lower gross margins and higher costs than comparable product and service offerings of Brocade prior to the acquisition, the gross margins and profitability of the combined company may be adversely affected. To maintain our recent levels of gross margin, we may need to maintain or increase current shipment volumes, develop and introduce new products, product enhancements and service offerings, and reduce the costs of our products and services. Our ability to make such adjustments may be limited, particularly in the short-term. If this occurs, we could incur losses, and our revenue, gross margins and operating results may be below our expectations and those of investors and stock market analysts.

     Brocade may also elect to exit certain historical business lines of McDATA that do not provide operating margins in line with Brocade’s long-term operating model or are otherwise not deemed by Brocade to be strategic on a long-term basis. In such cases, the combined company may experience revenue shortfalls or may disrupt existing customer relationships. In addition, Brocade may not be able to exit selected business lines on a timely basis, which would reduce the Company’s overall operating margins or cause customer uncertainty, thereby reducing revenues with respect to such business lines.

     Integrating Brocade and McDATA following the merger may divert management’s attention away from the combined company’s operations.

     Successful integration of Brocade’s and McDATA’s operations, products and personnel has placed, and will continue to place, a significant burden on Brocade’s management and internal resources. Brocade may also experience difficulty in effectively integrating the different cultures and practices of McDATA, as well as in assimilating McDATA’s geographically dispersed personnel. Further, the difficulties of integrating McDATA could disrupt the combined company’s ongoing business, and distract its management focus from other opportunities and challenges. The diversion of management attention and any difficulties encountered in the transition and integration process could harm the combined company’s business, financial condition and operating results.

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

     We continue to increase the scope of our operations domestically and internationally, particularly as a result of our acquisition of McDATA which significantly increased the size of our operations, and as a result of our expanded product and service offerings. 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. Moreover, our growth in business and relationships with customers and other third parties has placed, and will continue to place, a significant strain on management systems, resources, intercompany communications and coordination. Failure to maintain and to continue to improve upon our operational, managerial and financial controls, reporting systems, processes 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.

     Brocade’s future revenue growth depends on its ability to introduce new products and services on a timely basis and achieve market acceptance of these new products and services.

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     The market for storage networks and data management is characterized by rapidly changing technology and accelerating product introduction cycles. Brocade’s future success depends largely upon its ability to address the rapidly changing needs of its customers by developing and supplying high-quality, cost-effective products, product enhancements and services on a timely basis, and by keeping pace with technological developments and emerging industry standards. This risk will become more pronounced as the storage network and data management markets becomes more competitive and as demand for new and improved technologies increases.

     Brocade has introduced a significant number of new products in recent history, including products across its SAN product family, which accounts for a substantial portion of Brocade’s revenues. Brocade has also launched a number of File Area Network solutions as well as new service and support offerings. For example, as of the third quarter of fiscal year 2006, approximately 68% of our products based on revenue had been in the market less than six quarters. New offerings in fiscal year 2006 include the Brocade 4900 64-port switch, and the enhanced Brocade 48000 director, which now supports up to 384 ports in a single chassis as well as the addition of iSCSI capabilities.

     Brocade must achieve widespread market acceptance of Brocade’s new products and service offerings in order to realize the benefits of Brocade’s investments. The rate of market adoption is also critical. The success of Brocade’s product and service offerings depends on numerous factors, including its ability to:

• properly define the new products and services;

• timely develop and introduce the new products and services;

• differentiate Brocade’s new products and services from its competitors’ technology and product offerings; and

• address the complexities of interoperability of Brocade’s products with its OEM partners’ server and storage products and its competitors’ products.

     Various factors impacting market acceptance are outside of Brocade’s control, including the availability and price of competing products, and alternative technologies; product qualification requirements by Brocade’s OEM partners, which can cause delays in the market acceptance; and the ability of its OEM partners to successfully distribute, support and provide training for its products. If Brocade is not able to successfully develop and market new and enhanced products and services, its business and results of operations will be harmed.

     Brocade is currently expanding its product and service offerings to include software applications and professional and support services, and Brocade’s operating results will suffer if these initiatives are not successful.

     Brocade has made a series of investments, and plans to continue to invest, in offerings focused on new markets that are adjacent or parallel to Brocade’s traditional market, including new and emerging markets. For instance, Brocade has recently made a series of introductions in the emerging File Area Network (FAN) market with several enhancements to existing products in its family of file management software solutions which includes Brocade StorageX, Brocade Wide Area File Services, or WAFS, and Brocade File Lifecycle Manager, or FLM. In addition, Brocade has added multiple new professional service offerings to its solution portfolio. Brocade has also recently announced new host bus adapter (HBA) product offerings.

     Part of Brocade’s growth strategy is to derive competitive advantage and drive incremental revenue growth through such investments. As a result, Brocade believes these new markets could substantially increase its total available market opportunities. However, Brocade cannot be certain that it has accurately identified and estimated these market opportunities. Moreover, Brocade cannot assure you that its new strategic offerings will achieve market acceptance, or that Brocade will benefit fully from the substantial investments it has made and plans to continue to make in them. Brocade may also have only limited experience in these new markets given that such markets are adjacent or parallel to Brocade’s core market. As a result, Brocade may not be able to successfully penetrate or realize anticipated revenue from these new potential market opportunities. Brocade also faces greater challenges in accurately forecasting its revenue and margins with respect to these other product market opportunities.

     Developing new offerings also requires significant, upfront, investments that may not result in revenue for an extended period of time, if at all. Particularly as Brocade seeks to diversify its product and service offerings, Brocade expects to incur significant costs and expenses for product development, sales, marketing and customer services, most of which are fixed in the short-term or incurred in advance of receipt of corresponding revenue. In addition, these investments have caused, and will likely continue to result in, higher operating expenses and if they are not successful, Brocade’s operating income and operating margin will deteriorate. These new

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offerings may also involve cost and revenue structures that are different from those experienced in Brocade’s historical business, which would impact Brocade’s operating results.

     Because these new offerings may address different market needs than those it has historically addressed, Brocade may face a number of additional challenges, such as:

• developing new customer relationships both with new and existing customers;

• expanding Brocade’s relationships with its existing OEM partners and end-users;

• managing different sales cycles;

• hiring qualified personnel with appropriate skill sets on a timely basis; and

• establishing effective distribution channels and alternative routes to market.

     Brocade’s new product and service offerings also may contain some features that are currently offered by Brocade’s OEM partners, which could cause conflicts with partners on whom Brocade relies to bring its current products to customers and thus negatively impact Brocade’s relationship with such partners.

     Increased market competition may lead to reduced sales, margins, profits and market share.

     The storage network and data management markets continue to be very competitive as new products, services and technologies are introduced by existing competitors and as new competitors enter the market. Increased competition in the past has resulted in greater pricing pressure, and reduced sales, margins, profits and market share. For example, Brocade expects to experience increased competition in future periods as other companies gain market acceptance with recently released 4 Gbit products that are intended to compete with Brocade’s 4 Gbit products. Moreover, new competitive products could be based on existing technologies or new technologies that may or may not be compatible with Brocade’s storage network technology. Competitive products include, but are not limited to, non-Fibre Channel based emerging products utilizing Gigabit Ethernet, 10 Gigabit Ethernet, InfiniBand, and Internet Small Computer System Interface (“iSCSI”).

     In addition to competing technology solutions, Brocade faces significant competition from providers of Fibre Channel switching products for interconnecting servers and storage. These principle competitors include Cisco Systems and QLogic Corporation. In addition, Brocade’s OEM partners, who also have relationships with some of Brocade’s current competitors, could become new competitors by developing and introducing products that compete with Brocade’s product offerings, by choosing to sell Brocade’s competitors’ products instead of Brocade’s products, or by offering preferred pricing or promotions on Brocade’s competitors’ products. Competitive pressure will likely intensify as Brocade’s industry experiences further consolidation in connection with mergers by Brocade, its competitors and its OEM partners.

     Some of Brocade’s competitors have longer operating histories and significantly greater human, financial and capital resources than Brocade does. Brocade’s competitors could adopt more aggressive pricing policies than Brocade. Brocade believes that competition based on price may become more aggressive than it has traditionally experienced. Brocade’s competitors could also devote greater resources to the development, promotion, and sale of their products than Brocade may be able to support and, as a result, be able to respond more quickly to changes in customer or market requirements. Brocade’s failure to successfully compete in the market would harm Brocade’s business and financial results.

     Brocade’s competitors may also put pressure on Brocade’s distribution model of selling products to customers through OEM solution providers by focusing a large number of sales personnel on end-user customers or by entering into strategic partnerships. For example, one of Brocade’s competitors has formed a strategic partnership with a provider of network storage systems, which includes an agreement whereby Brocade’s competitor resells the storage systems of its partner in exchange for sales by the partner of Brocade’s competitor’s products. Such strategic partnerships, if successful, may influence Brocade to change Brocade’s traditional distribution model.

     Brocade depends on OEM partners for a majority of Brocade’s revenues, and the loss of any of these OEM partners or a decrease in their purchases could significantly reduce Brocade’s revenues and negatively affect Brocade’s financial results.

     Brocade depends on recurring purchases from a limited number of large OEM partners for the majority of its revenue. As a result, these large OEM partners have a significant influence on Brocade’s quarterly and annual financial results. Brocade’s agreements with

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its OEM partners are typically cancelable, non-exclusive, have no minimum purchase requirements and have no specific timing requirements for purchases. For fiscal year 2006, three customers each represented ten percent or more of Brocade’s total revenues for a combined total of 73 percent. Brocade anticipates that its revenues and operating results will continue to depend on sales to a relatively small number of OEM partners. The loss of any one significant OEM partner, or a decrease in the level of sales to any one significant OEM partner, or unsuccessful quarterly negotiation on key terms, conditions or timing of purchase orders placed during a quarter, would likely cause serious harm to Brocade’s business and financial results.

     In addition, some of Brocade’s OEM partners purchase Brocade’s products for their inventories in anticipation of customer demand. These OEM partners make decisions to purchase inventory based on a variety of factors, including their product qualification cycles and their expectations of end customer demand, which may be affected by seasonality and their internal supply management objectives. Others require that Brocade maintain inventories of Brocade’s products in hubs adjacent to their manufacturing facilities and purchase Brocade’s products only as necessary to fulfill immediate customer demand. If more of Brocade’s OEM partners transition to a hub model, form partnerships, alliances or agreements with other companies that divert business away from Brocade; or otherwise change their business practices, their ordering patterns may become less predictable. Consequently, changes in ordering patterns may affect both the timing and volatility of Brocade’s reported revenues. The timing of sales to Brocade’s OEM partners, and consequently the timing and volatility of Brocade’s reported revenues, may be further affected by the product introduction schedules of Brocade’s OEM partners.

     Brocade’s OEM partners evaluate and qualify Brocade’s products for a limited time period before they begin to market and sell them. Assisting Brocade’s OEM partners through the evaluation process requires significant sales, marketing and engineering management efforts on Brocade’s part, particularly if Brocade’s products are being qualified with multiple distribution partners at the same time. In addition, once Brocade’s products have been qualified, its customer agreements have no minimum purchase commitments. Brocade may not be able to effectively maintain or expand its distribution channels, manage distribution relationships successfully, or market its products through distribution partners. Brocade must continually assess, anticipate and respond to the needs of its distribution partners and their customers, and ensure that its products integrate with their solutions. Brocade’s failure to successfully manage its distribution relationships or the failure of its distribution partners to sell Brocade’s products could reduce Brocade’s revenues significantly. In addition, Brocade’s ability to respond to the needs of its distribution partners in the future may depend on third parties producing complementary products and applications for Brocade’s products. If Brocade fails to respond successfully to the needs of these groups, its business and financial results could be harmed.

     The failure to accurately forecast demand for Brocade’s products or the failure to successfully manage the production of Brocade’s products could negatively affect the supply of key components for Brocade’s products and Brocade’s ability to manufacture and sell Brocade’s products.

     Brocade provides product forecasts to its contract manufacturer and places purchase orders with it in advance of the scheduled delivery of products to Brocade’s customers. Moreover, in preparing sales and demand forecasts, Brocade relies largely on input from its OEM partners. Therefore, if Brocade or its OEM partners are unable to accurately forecast demand, or if Brocade fails to effectively communicate with its distribution partners about end-user demand or other time-sensitive information, sales and demand forecasts may not reflect the most accurate, up-to-date information. If these forecasts are inaccurate, Brocade may be unable to obtain adequate manufacturing capacity from its contract manufacturer to meet customers’ delivery requirements, or Brocade may accumulate excess inventories. Furthermore, Brocade may not be able to identify forecast discrepancies until late in its fiscal quarter. Consequently, Brocade may not be able to make adjustments to its business model. If Brocade is unable to obtain adequate manufacturing capacity from its contract manufacturer, if Brocade accumulates excess inventories, or if Brocade is unable to make necessary adjustments to Brocade’s business model, revenue may be delayed or even lost to Brocade’s competitors, and Brocade’s business and financial results may be harmed.

     Brocade’s ability to accurately forecast demand also may become increasingly more difficult in the event of acquisitions of other companies or businesses. Acquired companies or businesses may offer less visibility into demand than Brocade typically has experienced, may cause customer uncertainty regarding purchasing decisions, and may use different measures to evaluate demand that are less familiar to Brocade and thus more difficult to accurately predict.

     In addition, although the purchase orders placed with Brocade’s contract manufacturer are cancelable, in certain circumstances Brocade could be required to purchase certain unused material not returnable, usable by, or sold to other customers if Brocade cancels any of Brocade’s orders. This purchase commitment exposure is particularly high in periods of new product introductions and product transitions. If Brocade is required to purchase unused material from Brocade’s contract manufacturer, Brocade would incur unanticipated expenses and Brocade’s business and financial results could be negatively affected.

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     The prices of Brocade’s products have declined in the past, and Brocade expects the price of Brocade’s products to continue to decline, which could reduce Brocade’s revenues, gross margins and profitability.

     The average selling price for Brocade’s products, including products of McDATA acquired in connection with our acquisition of McDATA, has declined in the past, and Brocade expects it to continue to decline in the future as a result of changes in product mix, competitive pricing pressure, increased sales discounts, new product introductions by Brocade or Brocade’s competitors, the entrance of new competitors or other factors. For example, in 2005, Brocade introduced and began shipping a number of new products that expand and extend the breadth of Brocade’s product offerings. Several of these new products have lower revenue per port and lower gross margin than Brocade’s traditional products. If Brocade is unable to offset any negative impact that changes in product mix, competitive pricing pressures, increased sales discounts, enhanced marketing programs, new product introductions by Brocade or Brocade’s competitors, or other factors may have on it by increasing the volume of products shipped or reducing product manufacturing cost, Brocade’s total revenues and gross margins will be negatively impacted.

     In addition, to maintain Brocade’s gross margins Brocade must maintain or increase the number of products shipped, develop and introduce new products and product enhancements, and continue to reduce the manufacturing cost of Brocade’s products. While Brocade has successfully reduced the cost of manufacturing Brocade’s products in the past, Brocade may not be able to continue to reduce cost of production at historical rates. Moreover, most of Brocade’s expenses are fixed in the short-term or incurred in advance of receipt of corresponding revenue. As a result, Brocade may not be able to decrease its spending quickly enough or in sufficient amounts to offset any unexpected shortfall in revenues. If this occurs, Brocade could incur losses, Brocade’s operating results and gross margins could be below its expectations and the expectations of investors and stock market analysts, and its stock price could be negatively affected.

     Brocade is dependent on sole source and limited source suppliers for certain key components, the loss of which may significantly impact results of operations.

     Brocade purchases certain key components used in the manufacture of its products from single or limited sources. Brocade purchases specific ASICs from a single source, and Brocade purchases microprocessors, certain connectors, small form-factor pluggable transceivers, or SFP’s, logic chips, power supplies and programmable logic devices from limited sources. Brocade also licenses certain third-party software that is incorporated into Brocade’s operating system software and other software products. If Brocade is unable to obtain these and other components when required or Brocade experiences significant component defects, Brocade may not be able to deliver Brocade’s products to Brocade’s customers in a timely manner. As a result, Brocade’s business and financial results could be harmed.

     In addition, the loss of any of Brocade’s major third party contract manufacturers, including third party manufacturers used by McDATA prior to our acquisition of McDATA, could significantly impact Brocade’s ability to produce its products for an indefinite period of time. Qualifying a new contract manufacturer and commencing volume production is a lengthy and expensive process. If Brocade is required to change its contract manufacturer or if its contract manufacturer experiences delays, disruptions, capacity constraints, component parts shortages or quality control problems in its manufacturing operations, shipment of Brocade’s products to Brocade’s customers could be delayed resulting in loss of revenues and Brocade’s competitive position and relationship with customers could be harmed.

     The failure to successfully consolidate our third party contract manufacturing could adversely affect our business.

     We currently use three third party contract manufacturers for a substantial part of our business and have only limited overlap of our products among the contract manufacturers. Particularly as a result of our acquisition of McDATA, we may seek to consolidate product manufacturing to fewer third party contract manufacturers. To the extent we elect to change or reduce contract manufacturers, we will be subject to a number of risks, including potential production problems due to delays related to the acquisition of product components, and administrative or logistical obstacles during the transition, which may result in loss of revenue and harm our customer relationships. In addition, the third party contract manufacturers would likely be located overseas, which would expose us to additional risks, including unexpected changes in regulatory requirements and tariffs, and potentially adverse tax consequences, all of which could harm our business. If we do not successfully transition our manufacturing to overseas markets, or if we are not successful in the implementation of this overseas manufacturing, our ability to manufacture and sell our products could be substantially impaired.

     Brocade’s business is subject to cyclical fluctuations and uneven sales patterns, which makes predicting results of operations difficult.

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     Many of Brocade’s OEM partners experience uneven sales patterns in their businesses due to the cyclical nature of information technology spending. For example, some of Brocade’s partners close a disproportionate percentage of their sales transactions in the last month, weeks and days of each fiscal quarter, and other partners experience spikes in sales during the fourth calendar quarter of each year. Because the majority of Brocade’s sales are derived from a small number of OEM partners, when they experience seasonality, Brocade typically experiences similar seasonality. Historically, Brocade’s first and fourth fiscal quarters are seasonally stronger quarters than its second and third fiscal quarters. In addition, Brocade has experienced quarters where uneven sales patterns of Brocade’s OEM partners have resulted in a significant portion of Brocade’s revenue occurring in the last month of Brocade’s fiscal quarter. This exposes Brocade to additional inventory risk as it has to order products in anticipation of expected future orders and additional sales risk if Brocade is unable to fulfill unanticipated demand. Brocade is not able to predict the degree to which the seasonality and uneven sales patterns of Brocade’s OEM partners or other customers will affect Brocade’s business in the future particularly as Brocade release new products.

     Brocade has been named as a party to several class action and derivative action lawsuits arising from Brocade’s internal reviews and related restatements of Brocade’s financial statements during 2005, and Brocade may be named in additional litigation, all of which could require significant management time and attention and result in significant legal expenses as well as result in an unfavorable outcome which could have a material adverse effect on Brocade’s business, financial condition, results of operations and cash flows.

     Brocade is subject to a number of lawsuits arising from Brocade’s internal reviews and the related restatements of Brocade’s financial statements in 2005, some purportedly filed on behalf of a class of Brocade’s stockholders, against Brocade and certain of its executive officers claiming violations of securities laws and others purportedly filed on behalf of Brocade against certain of Brocade’s executive officers and board members, and Brocade may become the subject of additional private or government actions. The expense of defending such litigation may be significant. The amount of time to resolve these lawsuits is unpredictable and defending Brocade may divert management’s attention from the day-to-day operations of Brocade’s business, which could adversely affect Brocade’s business, results of operations and cash flows. In addition, an unfavorable outcome in such litigation, such as a court judgment against the Company resulting in monetary damages or penalties, could have a material adverse effect on Brocade’s business, results of operations and cash flows.

     As a result of Brocade’s internal reviews and related restatements, Brocade was subject to investigations by the SEC and Department of Justice, or DOJ, and certain former employees of Brocade are subject to ongoing actions by the SEC and DOJ, and other governmental entities, which have required, and will continue to require, a significant amount of management time and attention and accounting resources and legal expense, which could adversely affect Brocade’s business, results of operations and cash flows.

     The Company has reached a settlement with the SEC regarding the previously-disclosed SEC investigation of the Company’s historical stock option granting practices. Pursuant to the terms of the settlement and without admitting or denying the allegations in the SEC’s complaint, the Company has agreed to pay a civil penalty of $7 million. While Brocade does not expect or anticipate any action by the DOJ with respect to the Company, this statement is only a prediction based on current information available to the Company and it is subject to the risk that circumstances may change with respect to the DOJ.

     In addition, the SEC and the DOJ are continuing to investigate and pursue actions against certain former executive officers of Brocade. While those actions are targeted against certain former executive officers and not Brocade, those actions may nevertheless have an adverse impact on Brocade and could require significant management and financial resources which could otherwise be devoted to the operation of Brocade’s business. In addition, Brocade has certain indemnification obligations to such former officers in connection with such actions, which may result in significant expense to Brocade.

     Brocade’s quarterly and annual revenues and operating results may fluctuate in future periods due to a number of factors, which could adversely affect the trading price of Brocade’s stock.

     Brocade’s quarterly and annual revenues and operating results may vary significantly in the future due to a number of factors, any of which may cause Brocade’s stock price to fluctuate. Factors that may affect the predictability of Brocade’s annual and quarterly results include, but are not limited to, the following:

• announcements, introductions, and transitions of new products by Brocade and its competitors or its OEM partners;

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• the timing of customer orders, product qualifications, and product introductions of Brocade’s OEM partners;

• seasonal fluctuations;

• long and complex sales cycles;

• changes, disruptions or downturns in general economic conditions, particularly in the information technology industry;

• declines in average selling prices for Brocade’s products as a result of competitive pricing pressures or new product introductions by Brocade or its competitors;

• the emergence of new competitors and new technologies in the storage network and data management markets;

• deferrals of customer orders in anticipation of new products, services, or product enhancements introduced by Brocade or its competitors;

• Brocade’s ability to timely produce products that comply with new environmental restrictions or related requirements of its OEM customers;

• Brocade’s ability to obtain sufficient supplies of sole- or limited-sourced components, including ASICs, microprocessors, certain connectors, certain logic chips, and programmable logic devices;

• increases in prices of components used in the manufacture of Brocade’s products;

• Brocade’s ability to attain and maintain production volumes and quality levels;

• variations in the mix of Brocade’s products sold and the mix of distribution channels and geographies through which they are sold;

• pending or threatened litigation;

• stock-based compensation expense that is affected by Brocade’s stock price;

• new legislation and regulatory developments; and

• other risk factors detailed in this section entitled “Risks Related to Brocade’s Business.”

     Accordingly, the results of any prior periods should not be relied upon as an indication of future performance. Brocade cannot assure you that in some future quarter Brocade’s revenues or operating results will not be below Brocade’s projections or the expectations of stock market analysts or investors, which could cause Brocade’s stock price to decline.

     Brocade may not realize the anticipated benefits of past or future mergers and strategic investments, and integration of acquired companies or technologies may negatively impact Brocade’s business.

     Brocade has in the past, and may in the future, acquire or make strategic investments in additional companies, products or technologies. Examples of recent acquisitions in addition to the acquisition of McDATA Corporation in January 2007 include the acquisition of Silverback Systems, Inc. in January 2007 and NuView, Inc. in March 2006. Brocade may not realize the anticipated benefits of these or any other mergers or strategic investments, which involve numerous risks, including:

• problems integrating the purchased operations, technologies, personnel or products over geographically disparate locations;

• assumption of debt and contingent liabilities;

• unanticipated costs, litigation and other contingent liabilities;

• diversion of management’s attention from Brocade’s daily operations and business;

• adverse effects on existing business relationships with suppliers and customers;

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• risks associated with entering into markets in which Brocade have limited, or no prior experience;

• failure to successfully manage additional remote locations, including the additional infrastructure and resources necessary to support and integrate such locations;

• incurrence of significant exit charges if products acquired in business combinations are unsuccessful;

• incurrence of merger-related costs or amortization costs for acquired intangible assets that could impact Brocade’s operating results;

• potential write-down of goodwill and/or acquired intangible assets, which are subject to impairment testing on a regular basis, and could significantly impact Brocade’s operating results;

• inability to retain key customers, distributors, vendors and other business partners of the acquired business;

• dilution of the percentage of Brocade’s stockholders to the extent equity is used as consideration or option plans are assumed; and

• potential loss of Brocade’s key employees or the key employees of an acquired organization.

     If Brocade is not able to successfully integrate businesses, products, technologies or personnel that Brocade acquires, or to realize expected benefits of Brocade’s mergers or strategic investments, Brocade’s business and financial results may be adversely affected.

     If Brocade loses key personnel or is unable to hire additional qualified personnel, Brocade’s business may be harmed.

     Brocade’s success depends to a significant degree upon the continued contributions of key management, engineering, sales and other personnel, many of whom would be difficult to replace. Brocade believes its future success will also depend, in large part, upon Brocade’s ability to attract and retain highly skilled managerial, engineering, sales and other personnel, and on the ability of management to operate effectively, both individually and as a group, in geographically disparate locations. There are only a limited number of qualified personnel in the applicable market and competition for such employees is fierce. Brocade has experienced difficulty in hiring qualified personnel in areas such as application specific integrated circuits, software, system and test, sales, marketing, service, key management and customer support. In addition, Brocade’s past reductions in force could potentially make attracting and retaining qualified employees more difficult in the future. Brocade’s ability to hire qualified personnel may also be negatively impacted by Brocade’s internal reviews and financial statement restatements in 2005, related investigations by the SEC and DOJ, and Brocade’s stock price. Brocade’s ability to retain qualified personnel may also be affected by future acquisitions, which can cause uncertainty and loss of key personnel. The loss of the services of any of Brocade’s 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 affect Brocade’s ability to sell its products or services.

     In addition, companies in the computer storage and server industry whose employees accept positions with competitors may claim that their competitors have engaged in unfair hiring practices or that there will be inappropriate disclosure of confidential or proprietary information. Brocade may be subject to such claims in the future as Brocade seeks to hire additional qualified personnel. Such claims could result in material litigation. As a result, Brocade could incur substantial costs in defending against these claims, regardless of their merits, and be subject to additional restrictions if any such litigation is resolved against Brocade.

     Brocade is subject to environmental regulations that could have a material adverse effect on Brocade’s business.

     Brocade is subject to various environmental and other regulations governing product safety, materials usage, packaging and other environmental impacts in the various countries where Brocade’s products are sold. For example, many of Brocade’s products are subject to laws and regulations that restrict the use of mercury, hexavalent chromium, cadmium and other substances, and require producers of electrical and electronic equipment to assume responsibility for collecting, treating, recycling and disposing of Brocade’s products when they have reached the end of their useful life. For example, in Europe substance restrictions apply to products sold, and certain of Brocade’s OEM partners require compliance with these or more stringent requirements. In some cases Brocade redesigned Brocade’s products to comply with these substance restrictions as well as related requirements imposed by Brocade’s OEM customers. In addition, recycling, labeling, financing and related requirements apply to products Brocade sells in Europe. China has also enacted

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similar legislation with a compliance deadline of March 1, 2007. Brocade is also coordinating with Brocade’s suppliers to provide Brocade with compliant materials, parts and components. Despite Brocade’s efforts to ensure that Brocade’s products comply with new and emerging requirements, Brocade cannot provide absolute assurance that its products will, in all cases comply with such requirements. If Brocade’s products do not comply with the substance restrictions in Europe or China or other applicable environmental laws, Brocade could become subject to fines, civil or criminal sanctions, and contract damage claims. In addition, Brocade could be prohibited from shipping non-compliant products into one or more jurisdictions, and required to recall and replace any non-compliant products already shipped, which would disrupt Brocade’s ability to ship products and result in reduced revenue, increased obsolete or excess inventories and harm to Brocade’s business and customer relationships. Brocade’s suppliers may also fail to provide it with compliant materials, parts and components despite Brocade’s requirement to them to provide compliant materials, parts and components, which could impact Brocade’s ability to timely produce compliant products and, accordingly could disrupt Brocade’s business. In addition, various other countries and states in the United States have issued, or are in the process of issuing, other environmental regulations that may impose additional restrictions or obligations and require further changes to Brocade’s products.

     Brocade’s revenues will be affected by changes in domestic and international information technology spending and overall demand for storage area network solutions.

     In the past, unfavorable or uncertain economic conditions and reduced global information technology spending rates have adversely affected Brocade’s operating results. Brocade is unable to predict changes in general economic conditions and when information technology spending rates will be affected. If there are future reductions in either domestic or international information technology spending rates, or if information technology spending rates do not improve, Brocade’s revenues, operating results and financial condition may be adversely affected.

     Even if information technology spending rates increase, Brocade cannot be certain that the market for storage network and data management solutions will be positively impacted. Brocade’s storage networking products are sold as part of storage systems and subsystems. As a result, the demand for Brocade’s storage networking products has historically been affected by changes in storage requirements associated with growth related to new applications and an increase in transaction levels. Although in the past Brocade has experienced historical growth in Brocade’s business as enterprise-class customers have adopted storage area network technology, demand for storage network products in the enterprise-class sector could be adversely affected if the overall economy weakens or experiences greater uncertainty, or if larger businesses were to decide to limit new equipment purchases. If information technology spending levels are restricted, and new products improve Brocade’s customers’ ability to utilize their existing storage infrastructure, the demand for storage network products may decline. If this occurs, Brocade’s business and financial results will be harmed.

     Brocade’s failure to successfully manage the transition between its new products and its older products may adversely affect Brocade’s financial results.

     As Brocade introduces new or enhanced products, Brocade must successfully manage the transition from older products to minimize disruption in customers’ ordering patterns, avoid excessive levels of older product inventories and provide sufficient supplies of new products to meet customer demands. For example, Brocade’s introduction of 4 Gigabit per second, or Gbit, technology solutions that replaced many of Brocade’s 2 Gbit products contributed to a quarterly drop in revenue in the third quarter of fiscal year 2005 and write-downs of $3.4 million and $1.8 million for excess and obsolete inventory during the third and fourth quarters of fiscal year 2005, respectively. When Brocade introduces new or enhanced products, Brocade faces numerous risks relating to product transitions, including the inability to accurately forecast demand, and manage different sales and support requirements due to the type or complexity of the new products. In addition, any customer uncertainty regarding the timeline for rolling out new products or Brocade’s plans for future support of existing products, may negatively impact customer purchase decisions.

     Brocade’s future operating expenses may be adversely affected by changes in Brocade’s stock price.

     A portion of Brocade’s outstanding stock options are subject to variable accounting. Under variable accounting, Brocade is required to remeasure the value of the options, and the corresponding compensation expense, at the end of each reporting period until the option is exercised, cancelled or expires unexercised. As a result, the stock-based compensation expense Brocade recognizes in any given period can vary substantially due to changes in the market value of Brocade’s common stock. Volatility associated with stock price movements has resulted in compensation benefits when Brocade’s stock price has declined and compensation expense when Brocade’s stock price has increased. For example, the market value of Brocade’s common stock at the end of the third and fourth quarters of fiscal year 2005 and the first quarter of 2006 was $4.48, $3.60 and $4.62 per share, respectively. Accordingly, Brocade recorded compensation expense (benefit) in the fourth quarter of fiscal year 2005 and the first quarter of fiscal year 2006 of

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approximately $(0.2) million and $0.3 million, respectively. Brocade is unable to predict the future market value of Brocade’s common stock and therefore is unable to predict the compensation expense or benefit that Brocade will record in future periods.

     Providing telecommunications services to our customers subjects us to new risks, such as additional governmental regulation, which may impede our business.

     As part of our acquisition of McDATA, we now offer certain telecommunication services. Our provision of telecommunications and bandwidth to our customers subjects us to various risks. The telecommunications industry is heavily regulated by state and federal governments, and changes in these regulations could make it difficult for us to compete. In addition, the regulatory framework under which we operate and new regulatory requirements or new interpretations of existing regulatory requirements could require substantial time and resources for compliance, which could make it difficult for us to operate our business. Such regulation could also impede our ability to enter into change-of-control transactions. In addition, telecommunications networks and circuits can fail which would make it difficult for us to attract and retain clients. In addition, we may experience difficulty in obtaining or developing circuits to provide to our clients.

     Brocade’s business is subject to increasingly complex corporate governance, public disclosure, accounting, and tax requirements that have increased both its costs and the risk of noncompliance.

     Brocade is subject to rules and regulations of federal and state government as well as the stock exchange on which Brocade’s common stock is listed. These entities, including the Public Company Accounting Oversight Board, (“PCAOB”), the SEC, the Internal Revenue Service and Nasdaq, have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations and requirements in response to laws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Brocade’s efforts to comply with these requirements have resulted in, and are likely to continue to result in, increased expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

     Brocade is subject to periodic audits or other reviews by such governmental agencies. For example, in November 2005, Brocade was notified by the Internal Revenue Service that Brocade’s domestic federal income tax return for the year ended October 25, 2003 was subject to audit. Additionally, in May 2006, the Franchise Tax Board notified Brocade that its California income tax returns for the years ended October 25, 2003 and October 30, 2004 are subject to audit. The SEC also periodically reviews Brocade’s public company filings. Any such examination or review frequently requires management’s time and diversion of internal resources and, in the event of an unfavorable outcome, may result in additional liabilities or adjustments to Brocade’s historical financial results.

     Brocade has extensive international operations, which subjects it to additional business risks.

     A significant portion of Brocade’s sales occur in international jurisdictions and Brocade’s contract manufacturer has significant operations in China. Brocade also plans to continue to expand its international operations and sales activities. Expansion of international operations will involve inherent risks that Brocade may not be able to control, including:

• supporting multiple languages;

• recruiting sales and technical support personnel with the skills to design, manufacture, sell, and support Brocade’s products;

• increased complexity and costs of managing international operations;

• increased exposure to foreign currency exchange rate fluctuations;

• commercial laws and business practices that favor local competition;

• multiple, potentially conflicting, and changing governmental laws, regulations and practices, including differing export, import, tax, labor, anti-bribery and employment laws;

• longer sales cycles and manufacturing lead times;

• difficulties in collecting accounts receivable;

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• reduced or limited protection of intellectual property rights;

• managing a development team in geographically disparate locations, including China and India; and

• more complicated logistics and distribution arrangements.

     In addition, international political instability may halt or hinder Brocade’s ability to do business and may increase Brocade’s costs. Various events, including the occurrence or threat of terrorist attacks, increased national security measures in the United States and other countries, and military action and armed conflicts, can suddenly increase international tensions. In addition, concerns about other international crises, such as potential pandemics, may have an adverse effect on the world economy and could adversely affect Brocade’s business operations or the operations of Brocade’s OEM partners, contract manufacturer and suppliers.

     To date, no material amount of Brocade’s international revenues and costs of revenues have been denominated in foreign currencies. As a result, an increase in the value of the United States dollar relative to foreign currencies could make Brocade’s products more expensive and, thus, not competitively priced in foreign markets. Additionally, a decrease in the value of the United States dollar relative to foreign currencies could increase Brocade’s operating costs in foreign locations. In the future, a larger portion of Brocade’s international revenues may be denominated in foreign currencies, which will subject Brocade to additional risks associated with fluctuations in those foreign currencies. Brocade currently does not have hedging program in place to offset its foreign currency risk.

     Undetected software or hardware errors could increase Brocade’s costs, reduce Brocade’s revenues and delay market acceptance of Brocade’s products.

     Networking products frequently contain undetected software or hardware errors, or bugs, when first introduced or as new versions are released. Brocade’s products are becoming increasingly complex and, particularly as Brocade continues to expand Brocade’s product portfolio to include software-centric products, including software licensed from third parties, errors may be found from time to time in Brocade’s products. In addition, through its acquisitions, Brocade has assumed, and may in the future assume, products previously developed by an acquired company that may not have been through the same product development, testing and quality control processes typically used for products developed internally by Brocade. that have known or undetected errors. Some types of errors also may not be detected until the product is installed in a heavy production or user environment. In addition, Brocade’s products are often combined with other products, including software, from other vendors. As a result, when problems occur, it may be difficult to identify the source of the problem. These problems may cause Brocade 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 storage network and data management products or Brocade’s, could delay market acceptance of Brocade’s new products.

     Brocade relies on licenses from third parties and the loss or inability to obtain any such license could harm Brocade’s business.

     Many of Brocade’s products are designed to include software or other intellectual property licensed from third parties. While it may be necessary in the future to seek or renew licenses relating to various aspects of Brocade’s products, Brocade believes that, based upon past experience and standard industry practice, such licenses generally could be obtained on commercially reasonable terms. Nonetheless, there can be no assurance that the necessary licenses would be available on acceptable terms, if at all. Brocade’s inability to obtain certain licenses or other rights on favorable terms could have a material adverse effect on Brocade’s business, operating results and financial condition. In addition, if Brocade fails to carefully manage the use of “open source” software in Brocade’s products, Brocade may be required to license key portions of Brocade’s products on a royalty free basis or expose key parts of source code.

     Third-parties may bring infringement claims against Brocade, 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. Brocade has in the past been involved in intellectual property-related disputes, including lawsuits with Vixel Corporation, Raytheon Company and McDATA, and Brocade may be involved in such disputes in the future, to protect Brocade’s intellectual property or as a result of an alleged infringement of the intellectual property of others. Brocade also may be subject to indemnification obligations with respect to infringement of third party intellectual property rights pursuant to Brocade’s agreements with OEM partners or customers. These claims and any resulting lawsuit could subject Brocade to significant liability for damages and invalidation of proprietary rights. Any such lawsuits, even if ultimately resolved in Brocade’s favor, would likely be time-consuming and expensive to resolve and

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would divert management’s time and attention. Any potential intellectual property dispute also could force Brocade 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 may require Brocade to pay royalty or license fees, or to license Brocade’s intellectual property to such owner, and which may not be available on commercially reasonable terms or at all; and

• redesign those products or services that use technology that is the subject of an infringement claim.

     If Brocade is forced to take any of the foregoing actions, Brocade’s business and results of operations could be materially harmed.

     Business interruptions could adversely affect Brocade’s business.

     Brocade’s operations and the operations of its suppliers, contract manufacturer and customers are vulnerable to interruption by fire, earthquake, hurricanes, power loss, telecommunications failure and other events beyond Brocade’s control. For example, a substantial portion of Brocade’s facilities, including its corporate headquarters, is located near major earthquake faults. In the event of a major earthquake, Brocade could experience business interruptions, destruction of facilities and loss of life. Brocade does not carry earthquake insurance and has not set aside funds or reserves to cover such potential earthquake-related losses. In addition, Brocade’s contract manufacturer has a major facility located in an area that is subject to hurricanes. In the event that a material business interruption occurs that affects Brocade or its suppliers, contract manufacturer or customers, shipments could be delayed and Brocade’s business and financial results could be harmed.

     Provisions in Brocade’s charter documents, customer agreements, and Delaware law could prevent or delay a change in control of Brocade, which could hinder stockholders’ ability to receive a premium for Brocade’s stock.

     Provisions of Brocade’s certificate of incorporation and bylaws may discourage, delay or prevent a merger or merger 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 Brocade’s certificate of incorporation and bylaws.

     Certain provisions of Delaware law also may discourage, delay, or prevent someone from acquiring or merging with Brocade, and Brocade’s agreements with certain of Brocade’s customers require that Brocade give prior notice of a change of control and grant certain manufacturing rights following a change of control. Brocade’s various anti-takeover provisions could prevent or delay a change in control of Brocade, which could hinder stockholders’ ability to receive a premium for Brocade’s stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes stock repurchase activity for the three months ended April 28, 2007 (in thousands excluding per share data):

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							Approximate Dollar
					Total Number of		Value of Shares
	Total Number				Shares Purchased as		that May Yet Be
	of Shares		Average Price Paid		Part of Publicly		Purchased Under the
	Purchased (1)		Per Share		Announced Program		Program (2)
January 28, 2007 — February 24, 2007		—		—		—	$	252,737
February 25, 2007 — March 24, 2007		—	$	9.55		5,259	$	202,409
March 25, 2007 — April 28, 2007		—	$	9.55		1,000	$	192,855
Total		—	$	9.55		6,259	$	192,855

(1)

The total number of shares repurchased include those shares of Brocade common stock that employees deliver back to Brocade to satisfy tax-withholding obligations at the settlement of restricted stock exercises, and upon the termination of an employee, the forfeiture of either restricted shares or unvested common stock as a result of early exercises. As of April 28, 2007, approximately 3.2 million shares were subject to repurchase by Brocade.

(2)

On January 29, 2007, the Company announced the authorization of an additional $200 million for stock repurchases, which is in addition to the $52.7 million remaining under the previously announced a $100 million stock repurchase program approved by our board of directors in August 2004. The purchases may be made, from time to time, in the open market and will be funded from available working capital. The number of shares to be purchased and the timing of purchases will be based on the level of our cash balances, general business and market conditions, and other factors, including alternative investment opportunities.

Item 4. Submission of Matters to a Vote of Security Holders.

     Our Annual Meeting of Stockholders was held on April 19, 2007 in San Jose, California. Of the 400,706,875 shares outstanding as of the record date, 364,138,972 shares (approximately 90.87%) were present or represented by proxy at the meeting. The results of the voting on the matters submitted to the stockholders are as follows:

1. To elect two Class II Directors to serve until the 2010 Annual Meeting of Stockholders or until their successors are duly elected and qualified.

Name	Votes For	Votes Withheld
Renato A. DiPentima	358,633,792	5,505,180
L. Sanjay Vaswani	208,614,639	155,524,333

In addition, John W. Gerdelman, David L. House, Glenn C. Jones, Michael Klayko, L. William Krause, Michael J. Rose and Robert Walker continued to serve as directors of the Company after the meeting.

2. To amend Brocade’s Amended and Restated Certificate of Incorporation to effect a 1-for-100 reverse stock split immediately followed by a 100-for-1 forward stock split of Brocade’s Common Stock.

Votes For	Votes Against	Votes Abstaining	Broker Non-Vote
266,060,435	17,978,876	288,637	79,811,024

3. To ratify the appointment of KPMG LLP as independent auditors of Brocade for the fiscal year ending October 27, 2007.

Votes For	Votes Against	Votes Abstaining	Broker Non-Vote
350,935,743	12,951,714	251,515	—

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Item 6. Exhibits

Exhibit
Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 from Brocade’s Annual Report on Form 10-K for the fiscal year ended October 27, 2001)
3.2	Amended and Restated Bylaws of the Registrant amended as of April 19, 2007 (incorporated by reference to Exhibit 3.1 from Brocade’s Form 8-K filed on April 25, 2007)
3.3	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Brocade Communications Systems, Inc. (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement on Form 8-A filed on February 11, 2002)
3.4	Certificate of Elimination of Series A Participating Preferred Stock of Brocade (incorporated by reference to Exhibit 3.1 from Brocade’s Form 8-K filed on February 16, 2007)
4.1	Form of Brocade’s Common Stock certificate (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement on Form S-1 (Reg. No. 333-74711), as amended)
4.2**	First Supplemental Indenture dated as of January 29, 2007 by and among McDATA Corporation, Brocade, and Wells Fargo Bank, National Association, as successor in interest to Wells Fargo Bank Minnesota, National Association
4.3**	Second Supplemental Indenture dated as of January 29, 2007 by and among McDATA Corporation, McDATA Services Corporation, a Minnesota corporation f/k/a Computer Network Technology Corporation, Brocade, and U.S. Bank National Association
4.4**	Indenture dated February 7, 2003 by and among McDATA Corporation and Wells Fargo Bank Minnesota National Association.
4.5**	Indenture dated February 20, 2002 by and among Computer Network Technology Corporation and U.S. Bank National Association
10.1**	Guaranty by Brocade dated January 29, 2007 related to the Indenture dated February 7, 2003
10.2**	Guaranty by Brocade dated January 29, 2007 related to the Indenture dated February 20, 2002
10.3*/**	Amended and Restated 1999 Stock Plan as amended and restated November 27, 2006 and related forms of agreements
10.4*/**	Senior Leadership Plan as amended and restated as of May 11, 2007
10.5**/†	Statement of Work #5 dated April 2, 2007 between International Business Machines Corporation and Brocade
10.6**/†	Amendment #29 dated March 19, 2007 to Statement of Work #1 between International Business Machines Corporation and Brocade
10.7**/†	Amendment #19 dated April 26, 2007 to Purchase Agreement between EMC and Brocade
31.1**	Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer.
31.2**	Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer.
32.1**	Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Indicates management contract or compensatory plan required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
**	Filed herewith
†	Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission

66

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: June 5, 2007	By:	/s/ Richard Deranleau
		Richard Deranleau
		Chief Financial Officer

67

EXHIBIT INDEX

Exhibit
Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 from Brocade’s Annual Report on Form 10-K for the fiscal year ended October 27, 2001)
3.2	Amended and Restated Bylaws of the Registrant amended as of April 19, 2007 (incorporated by reference to Exhibit 3.1 from Brocade’s Form 8-K filed on April 25, 2007)
3.3	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Brocade Communications Systems, Inc. (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement on Form 8-A filed on February 11, 2002)
3.4	Certificate of Elimination of Series A Participating Preferred Stock of Brocade (incorporated by reference to Exhibit 3.1 from Brocade’s Form 8-K filed on February 16, 2007)
4.1	Form of Brocade’s Common Stock certificate (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement on Form S-1 (Reg. No. 333-74711), as amended)
4.2**	First Supplemental Indenture dated as of January 29, 2007 by and among McDATA Corporation, Brocade, and Wells Fargo Bank, National Association, as successor in interest to Wells Fargo Bank Minnesota, National Association
4.3**	Second Supplemental Indenture dated as of January 29, 2007 by and among McDATA Corporation, McDATA Services Corporation, a Minnesota corporation f/k/a Computer Network Technology Corporation, Brocade, and U.S. Bank National Association
4.4**	Indenture dated February 7, 2003 by and among McDATA Corporation and Wells Fargo Bank Minnesota National Association.
4.5**	Indenture dated February 20, 2002 by and among Computer Network Technology Corporation and U.S. Bank National Association
10.1**	Guaranty by Brocade dated January 29, 2007 related to the Indenture dated February 7, 2003
10.2**	Guaranty by Brocade dated January 29, 2007 related to the Indenture dated February 20, 2002
10.3*/**	Amended and Restated 1999 Stock Plan as amended and restated November 27, 2006 and related forms of agreements
10.4*/**	Senior Leadership Plan as amended and restated as of May 11, 2007
10.5**/†	Statement of Work #5 dated April 2, 2007 between International Business Machines Corporation and Brocade
10.6**/†	Amendment #29 dated March 19, 2007 to Statement of Work #1 between International Business Machines Corporation and Brocade
10.7**/†	Amendment #19 dated April 26, 2007 to Purchase Agreement between EMC and Brocade
31.1**	Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer.
31.2**	Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer.
32.1**	Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Indicates management contract or compensatory plan required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
**	Filed herewith
†	Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission

EX-4.2

Exhibit 4.2

FIRST SUPPLEMENTAL INDENTURE

     THIS FIRST SUPPLEMENTAL INDENTURE dated as of January 29, 2007 (this “Supplemental Indenture”) is entered into by and among McDATA Corporation, a Delaware corporation (“Company”), Brocade Communication Systems, Inc., a Delaware Corporation (“Brocade”), and Wells Fargo Bank, National Association, as successor in interest to Wells Fargo Bank Minnesota, National Association, as trustee (the “Trustee”). Capitalized terms used herein and not otherwise defined have the meanings set forth in the Indenture (as defined below).

RECITALS

     A. The Company has heretofore executed and delivered to the Trustee an indenture dated as of February 7, 2003 (the “Indenture”) providing for the issuance of 2¹/4 % Convertible Subordinated Notes due 2010 of the Company (the “Securities”).

     B. The Company has entered into an Agreement and Plan of Reorganization dated as of August 7, 2006 by and among Brocade Communication Systems, Inc., a Delaware corporation (“Brocade”), Worldcup Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of Brocade (“Merger Sub”), and the Company (the “Merger Agreement”) providing for the merger of Merger Sub with and into the Company with the Company as the surviving corporation and a wholly-owned subsidiary of Brocade (the “Merger”).

     C. Pursuant to Section 1.6(a) of the Merger Agreement, at the effective time of the Merger each outstanding share of the Company’s Class A and Class B common stock, $0.01 par value per share (“Company Stock”), shall be converted into the right to receive 0.75 shares of Brocade’s common stock, $0.001 par value per share (“Brocade Stock”), together with cash in lieu of fractional shares.

     D. Pursuant to Section 4.11 of the Indenture, as a condition precedent to any merger effecting a change in the kind and amount of shares and other property issuable upon the conversion of the Securities, the Company and Brocade shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then outstanding shall have the right to convert such Security into such other securities and property receivable in the Merger by a holder of Company Stock.

     E. In accordance with Section 11.1(a) of the Indenture, the Company and the Trustee may amend or supplement the Indenture or the Securities to comply with Section 4.11 without notice to or consent of any Securityholder.

     F. The Company and Brocade desire and have requested the Trustee to enter into this Supplemental Indenture for the purpose of amending the Indenture to provide that, upon conversion of the Securities under the Indenture, a Holder of Securities will receive Brocade Stock in lieu of Company Stock which such Holder would have been entitled to receive pursuant to the Merger Agreement had such Holder converted the Securities immediately prior to the Merger.

     G. Brocade has agreed to become a guarantor with respect to the Securities as set forth in Article Three of this Supplemental Indenture.

     H. Each of the Company and Brocade has duly authorized the execution and delivery of this Supplemental Indenture.

     NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby covenant and agree for the equal and ratable benefit of the Holders of the Securities as follows:

ARTICLE ONE
RELATION TO INDENTURE; DEFINITIONS

     Section 1.01 Relation to Indenture. This Supplemental Indenture constitutes an integral part of the Indenture. In the event of inconsistencies between the Indenture and this Supplemental Indenture, the terms of this Supplemental Indenture shall govern.

     Section 1.02. Definitions. The definitions of “Board of Directors”, “Common Stock”, “Officer” and “Officers’ Certificate” in Section 1.1 of the Indenture are hereby amended and restated in their entirety to read as follows:

     “Board of Directors” means either the board of directors of the Company (or where so specified, of Brocade) or any committee of the Board of Directors authorized to act for it with respect to this Indenture.

     “Common Stock” means the common stock of Brocade, par value $0.001 per share, as it exists on the date of the First Supplemental Indenture and any shares of any class or classes of capital stock of Brocade 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 Brocade and which are not subject to redemption by Brocade; 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 on conversion of Securities 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.

     “Officer” means the Chairman or any Co-Chairman of the Board, any Vice Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Controller, the Secretary or any Assistant Controller or any Assistant Secretary of the Company (or where so specified, of Brocade).

     “Officers’ Certificate” means a certificate signed by two Officers; provided, however, that for purposes of Sections 4.11 and 6.3, “Officers’ Certificate” means a certificate signed by the principal executive officer, principal financial officer or principal

accounting officer of the Company (or where so specified, of Brocade) and by one other Officer.

ARTICLE TWO
AMENDMENTS

     Section 2.01 Name. The first paragraph of the Indenture is amended and restated to read as follows:

     “THIS INDENTURE dated as of February 7, 2003 is between McDATA Corporation, a corporation duly organized under the laws of the State of Delaware (the “Company”), and Wells Fargo Bank, National Association, a national banking association organized and existing under the laws of the United States, as Trustee (the Trustee”).”

     Section 2.02 Conversion. Article 4 of the Indenture is hereby amended and restated in its entirety to read as set forth on Annex A hereto.

     Section 2.03 Consolidation, Etc., on Certain Terms. Section 7.1 of the Indenture is hereby amended and restated to read as follows:

     “Section 7.1 Company and Brocade May Consolidate, Etc., Only on Certain Terms

     None of the Company or Brocade shall consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless:

     (1) in the case of the Company, (A) the Company is the surviving corporation or (B) the Company shall consolidate with or merge into another Person (in a transaction in which the Company is not the surviving corporation) or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of the Company under the Securities and this Indenture, and the conversion rights shall be provided for in accordance with Article 4 by such Person under such supplemental indenture;

     (2) in the case of Brocade, (B) Brocade is the surviving corporation or (B) Brocade shall consolidate with or merge into another Person (in a transaction in which Brocade is not the surviving corporation) or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which Brocade is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of Brocade substantially as an entirety shall be a

corporation organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the obligations of Brocade under the guaranty set forth in Article Three of the First Supplemental Indenture dated as of January 29, 2007, and all of the obligations of Brocade under the Securities and this Indenture, and the conversion rights shall be provided for in accordance with Article 4 by such Person under such supplemental indenture;

     (3) immediately after giving effect to such transaction in clause (1) or (2) of this Section 7.1, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and

     (4) the Company or Brocade, as the case may be, has delivered to the Trustee an Officers’ Certificate of the Company or Brocade, as the case may be, and an Opinion of Counsel on behalf of the Company or Brocade, as the case may be, stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.”

     Section 2.04 Successor Substituted. Section 7.2 of the Indenture is hereby amended and restated in its entirety to read as follows:

     “Upon any consolidation of the Company or Brocade with, or merger of the Company or Brocade into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company or Brocade substantially as an entirety in accordance with Section 7.1, the successor Person formed by such consolidation or into which the Company or Brocade is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or Brocade, as the case may be, under this Indenture with the same effect as if such successor Person had been named as the Company or Brocade herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. Such successor Person, such predecessor Person and the Trustee shall enter into a supplemental indenture to evidence the succession and substitution of such successor Person and the release and discharge of such predecessor Person.”

     Section 2.05 Events of Default. Section 8.1 of the Indenture is hereby amended to add new clauses (9) and (10) to read as follows:

     “(9) Brocade pursuant to or within the meaning of any Bankruptcy Law:

     (A) commences a voluntary case or proceeding;

(B)	consents to the entry of an order for relief against it in an involuntary case or proceeding;
(C)	consents to the appointment of a Custodian of it or for all or substantially all of its property; or
(D)	makes a general assignment for the benefit of its creditors; or

     (10) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

(A)	is for relief against Brocade in an involuntary case or proceeding;
(B)	appoints a Custodian of Brocade or for all or substantially all of the property of Brocade; or
(C)	orders the liquidation of Brocade;”

     Section 2.06 Supplemental Indenture. Section 11.6 of the Indenture is hereby amended and restated in its entirety to read as follows:

     “The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 11 if the amendment or supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, in its sole discretion, but need not sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and, subject to Section 9.1, shall be fully protected in relying upon, an Opinion of Counsel of the Company or Brocade, as the case may be, stating that such amendment or supplemental indenture is authorized or permitted by this Indenture. Neither the Company nor Brocade may not sign an amendment or supplemental indenture until the Board of Directors of each the Company and Brocade, respectively, approves it.”

     Section 2.07 No Recourse Against Others. Section 12.10 of the Indenture is hereby amended and restated in its entirety to read as follows:

     “All liability described in paragraph 15 of the Securities of any director, officer, employee or shareholder, as such, of the Company or Brocade is waived and released.”

     Section 2.08 Form of Security. Certain provisions of Exhibit B to the Indenture are amended, restated and supplemented as set forth in Annex B attached hereto. Pursuant to Section 11.5 of the Indenture and upon the execution of this Supplemental Indenture, the Trustee shall amend, restate and supplement in the form set forth in Annex B attached hereto the terms of the then outstanding Securities, and all Securities presented or delivered to the Trustee on and after the date hereof shall be amended, restated and supplemented in the form of Annex B attached hereto to give effect to this Supplemental Indenture.

     The Trustee shall not at any time be under any responsibility to acquire or cause any Security now or hereafter outstanding to be presented or delivered to it for any purposes provided for in this Section 2.08.

ARTICLE THREE
BROCADE GUARANTY

     Section 3.01 Brocade Guaranty.

     (a) Subject to the provisions of this Article Three, Brocade fully and unconditionally guarantees to each Holder of Securities hereunder and to the Trustee on behalf of the Holders: (1) the due and punctual payment of the principal of, premium, if any, and interest on each Security, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, all in accordance with the terms of the Security and the Indenture and (2) in the case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due in accordance with the terms of the extension or renewal, at the stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (1) and (2) above, to the limitations set forth in the next succeeding paragraph (the “Brocade Guaranty”).

     (b) Brocade hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a Holder to pursue any right or take any action (including, without limitation, a presentment, protest, demand for payment, notice of dishonor or any other notice) against the Company, the benefit of discussion, protest or notice with respect to any such Security or the debt evidenced thereby and all demands whatsoever (except as specified above), and covenants that the Brocade Guaranty will not be discharged as to any such Security except by payment in full of the principal thereof, premium, if any, and interest thereon or as provided in Section 10.1 of the Indenture. In the event of any declaration of acceleration of such obligations as provided in Article 8 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by Brocade for the purposes of this Article Three. In addition, without limiting the foregoing provisions, upon the effectiveness of an acceleration under Article 8 of the Indenture, the Trustee shall promptly make a demand for payment on the Securities under the Brocade Guaranty provided for in this Article Three.

     (c) If the Trustee or any Holder is required by any court or otherwise to return to the Company or Brocade, or any custodian, receiver, liquidator, trustee, sequestrator or other similar official acting in relation to the Company or Brocade, any amount paid to the Trustee or such Holder in respect of a Security, the Brocade Guaranty, to the extent theretofore discharged, shall be reinstated in full force and effect. Brocade further agrees, to the fullest extent that it may lawfully do so, that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, the maturity of the obligations guarantied hereby may be accelerated as provided in Article 8 of the Indenture for the purposes of the Brocade Guaranty, notwithstanding any stay, injunction or other prohibition extant under any applicable bankruptcy law preventing such acceleration in respect of the obligations guarantied hereby.

     (d) Brocade shall be subrogated to the rights of the Holders of any Security against the Company but only to the extent and in the amount that a joint and several obligor with the Company would be entitled to contribution from the Company, in respect of any amount paid by Brocade to any Holder pursuant to the provisions of the Brocade Guaranty; provided, that Brocade shall not be entitled to enforce, or to receive any payments arising out of or based upon, such right of subrogation until the principal of, premium, if any, and interest on all the Securities shall have been paid in full.

     (e) The Company shall have a right of contribution against Brocade in respect of any amounts paid by the Company to any Holder pursuant to the Securities and this Supplemental Indenture but only to the extent and in the amount that a joint and several obligor with Brocade would be entitled to contribution from Brocade.

     Section 3.02 Notice to Trustee; Events of Default. Brocade shall give prompt written notice to the Trustee of any fact known to Brocade that would prohibit the making of any payment to or by the Trustee in respect of the Brocade Guaranty pursuant to the provisions of this Article Three. The failure to make a payment on account of principal of, premium, if any, or interest on the Securities by reason of any provision of Sections 3.01 and 3.02 of this Supplemental Indenture will not be construed as preventing the occurrence of an Event of Default.

ARTICLE FOUR
MISCELLANEOUS

     Section 4.01 Notices. Any notice, request or communication shall be given in writing and delivered in person or mailed by first-class mail, postage prepaid, addressed as follows:

If to the Company:

McDATA Corporation
11802 Ridge Parkway
Broomfield, Colorado 80021
Attention: General Counsel

If to Brocade:

Brocade Communication Systems, Inc.
1745 Technology Drive
San Jose, California 95110
Attention: General Counsel

If to the Trustee:

Wells Fargo Bank, National Association
213 Court Street, Suite 703
Middletown, CT 06457
Attn: CORPORATE TRUST SERVICES
Facsimile No.: (860) 704-6219

     Such notices or communications shall be effective when received.

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

     Any notice or communication mailed to a Securityholder shall be mailed by first-class mail or delivered by an overnight delivery service to it at its address shown on the register kept by the Primary Registrar.

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

     4.02 Confirmation of Original Indenture. Except as amended and supplemented hereby, the Indenture is hereby ratified, confirmed and reaffirmed in all respects. The Indenture and this Supplemental Indenture shall be read, taken and construed as one and the same instrument.

     4.03 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

     4.04 Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

     4.05 Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.

     4.06 Separability Clause. In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

     4.07 The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Company and Brocade.

     4.08 Successors. All agreements of Brocade in this Supplemental Indenture shall bind its successor.

[Remainder of Page Intentionally Left Blank]

     IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.

Dated: January 29, 2007

McDATA CORPORATION
By:	/s/ Scott A. Berman
	Name:	Scott A. Berman
	Title:	Chief Financial Officer
BROCADE COMMUNICATION SYSTEMS, INC.
By:	/s/ Richard Deranleau
	Name:	Richard Deranleau
	Title:	Chief Financial Officer
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee
By:	/s/ Joseph P. O’Donnell
	Name:	Joseph P. O’Donnell
	Title:	Vice President

Signature Page to the First Supplemental Indenture
(2¹/4% Convertible Subordinated Notes)

ANNEX A

ARTICLE IV

CONVERSION

     SECTION 4.1 CONVERSION PRIVILEGE

     (a) Subject to the further provisions of this Article 4 and paragraph 6 of the Securities, a Holder of a Security may convert the principal amount of such Security (or any portion thereof equal to $1,000 or any integral multiple of $1,000 in excess thereof) into Common Stock at any time prior to the close of business on the Final Maturity Date, at the Conversion Price then in effect; provided, however, that, if such Security is submitted or presented for purchase pursuant to Article 3, such conversion right shall terminate upon the delivery of a Change in Control Purchase Notice unless such notice has been validly withdrawn in accordance with Section 3.2, as the case may be, for such Security or such earlier date as the Holder presents such Security for purchase (unless the Company shall default in making the Change in Control Purchase Price payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Security is purchased). The number of shares of Common Stock issuable upon conversion of a Security shall be determined by dividing the principal amount of the Security or portion thereof surrendered for conversion by the Conversion Price in effect on the Conversion Date. The initial Conversion Price is set forth in paragraph 6 of the Securities and is subject to adjustment as provided in this Article 4.

     A Holder may convert a portion of a Security equal to any integral multiple of $1,000. Provisions of this Indenture that apply to conversion of all of a Security also apply to conversion of a portion of a Security.

     A Holder of a Security is not entitled to receive any accrued and unpaid interest in respect of the Security upon, or from and after, the conversion of such Security.

     A Holder of Securities is not entitled to any rights of a holder of Common Stock until such Holder has converted its Securities to Common Stock, and only to the extent such Securities are deemed to have been converted into Common Stock pursuant to this Article 4.

     SECTION 4.2 CONVERSION PROCEDURE

     To convert a Security, a Holder must (a) complete and manually sign the conversion notice on the back of the Security and deliver such notice to a Conversion Agent, (b) surrender the Security to a Conversion Agent, (c) furnish appropriate endorsements and transfer documents if required by a Registrar or a Conversion Agent, (d) pay any transfer or similar tax, if required, and (e) satisfy any additional requirement under paragraph 6 of the Security, if any. The date on which the Holder satisfies all of those requirements is the “Conversion Date.” Upon conversion of the Security, Brocade may choose to deliver shares of Common Stock, cash or a combination of shares of Common Stock and cash as set forth in Section 4.14. Anything herein to the contrary notwithstanding, in the case of Global Securities, conversion notices may be delivered

A-1

and such Securities may be surrendered for conversion in accordance with the Applicable Procedures as in effect from time to time.

     Each conversion shall be deemed to have been effected as to any Security (or portion thereof) as of the close of business on the later of (i) the Conversion Date, (ii) the expiration of the Cash Settlement Notice Period, or (iii) if the Company elects to pay cash in lieu of Common Stock pursuant to Section 4.14, the expiration of the Cash Settlement Averaging Period, and 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 in case of any such surrender of a Security on any date when the stock transfer books of Brocade shall be closed, the person or persons in whose name the certificate or certificates for such shares are to be issued shall be deemed to have become the record Holder thereof for all purposes on the next day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Securities shall be surrendered.

     No payment or adjustment will be made for dividends or distributions on Common Stock issued upon conversion of a Security.

     Except as otherwise provided in this paragraph, no payment or adjustment will be made for accrued interest on a converted Security. Securities surrendered for conversion (in whole or in part) during the period from the close of business on any record date to the opening of business on the next succeeding interest payment date (excluding Securities or portions thereof presented for purchase upon a Change in Control on a Change in Control Purchase Date during the period beginning at the close of business on a record date and ending at the opening of business on the first Business Day after the next succeeding interest payment date, or if such interest payment date is not a Business Day, the second such Business Day) shall also be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such interest payment date on the principal amount of such Security then being converted, and such interest shall be payable to such registered Holder notwithstanding the conversion of such Security, subject to the provisions of this Indenture relating to the payment of defaulted interest by the Company. If the Company defaults in the payment of interest payable on such interest payment date, the Company shall promptly repay such funds to such Holder.

     Nothing in this Section shall affect the right of a Holder in whose name any Security is registered at the close of business on a record date to receive the interest payable on such Security on the related interest payment date in accordance with the terms of this Indenture and the Securities. If a Holder converts more than one Security at the same time, the number of shares of Common Stock issuable upon the conversion shall be based on the aggregate principal amount of Securities converted.

     Upon surrender of a Security that is converted in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new Security equal in principal amount to the unconverted portion of the Security surrendered.

     For the avoidance of doubt, settlement for any conversion of a Security shall be on the first Business Day following the Cash Settlement Averaging Period.

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     SECTION 4.3 FRACTIONAL SHARES

     Brocade will not issue fractional shares of Common Stock upon conversion of Securities. In lieu thereof, the Company will pay an amount in cash for the current market value of the fractional shares. The current market value of a fractional share shall be determined (calculated to the nearest 1/1000^th of a share) by multiplying the Closing Price (determined as set forth in Section 4.6(e)) of the Common Stock on the Trading Day immediately prior to the Conversion Date by such fractional share and rounding the product to the nearest whole cent.

     SECTION 4.4 TAXES ON CONVERSION

     If a Holder converts a Security, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon such conversion. However, the Holder shall pay any such tax which is due because the Holder requests the shares to be issued in a name other than the Holder’s name. The Conversion Agent may refuse to deliver the certificate representing the Common Stock being issued in a name other than the Holder’s name until the Conversion Agent receives a sum sufficient to pay any tax which will be due because the shares are to be issued in a name other than the Holder’s name. Nothing herein shall preclude any tax withholding required by law or regulation.

     SECTION 4.5 BROCADE TO RESERVE STOCK

     Brocade shall, prior to issuance of any Securities hereunder, and from time to time as may be necessary, reserve, out of its authorized but unissued Common Stock, a sufficient number of shares of Common Stock to permit the conversion of all outstanding Securities into shares of Common Stock.

     All shares of Common Stock delivered upon conversion of the Securities shall be duly authorized, validly issued, fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim.

     Brocade will endeavor promptly to comply with all federal and state securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Securities, if any, and will list or cause to have quoted such shares of Common Stock on each national securities exchange or on the Nasdaq National Market or other over-the-counter market or such other market on which the Common Stock is then listed or quoted; provided, however, that if rules of such automated quotation system or exchange permit Brocade to defer the listing of such Common Stock until the first conversion of the Securities into Common Stock in accordance with the provisions of this Indenture, Brocade covenants to list such Common Stock issuable upon conversion of the Securities in accordance with the requirements of such automated quotation system or exchange at such time. Any Common Stock issued upon conversion of a Security hereunder which at the time of conversion was a Restricted Security will also be a Restricted Security.

     SECTION 4.6 ADJUSTMENT OF CONVERSION PRICE

     The conversion price as stated in paragraph 6 of the Securities (the “Conversion Price”) shall be adjusted from time to time by the Company as follows:

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     (a) In case Brocade shall (i) pay a dividend on its Common Stock in shares of Common Stock, (ii) make a distribution on its Common Stock in shares of Common Stock, (iii) subdivide its outstanding Common Stock into a greater number of shares, or (iv) combine its outstanding Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior thereto shall be adjusted so that the Holder of any Security thereafter surrendered for conversion shall be entitled to receive that number of shares of Common Stock which it would have owned had such Security been converted immediately prior to the record date of such event or the happening of such event, as appropriate. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of subdivision or combination.

     (b) In case Brocade shall issue rights or warrants to all or substantially all holders of its Common Stock entitling them (for a period commencing no earlier than the record date described below and expiring not more than 60 days after such record date) to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price per share (or having a conversion price per share) less than the Current Market Price per share of Common Stock (as determined in accordance with subsection (e) of this Section 4.6) on the record date for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price in effect immediately prior to the date of issuance shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered, which shall be determined by multiplying the number of shares of Common Stock issuable upon conversion of such convertible securities by the conversion price per share of Common Stock pursuant to the terms of such convertible securities) would purchase at the Current Market Price per share (as defined in subsection (e) of this Section 4.6) of Common Stock on such record date, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after such record date. If at the end of the period during which such rights or warrants are exercisable not all such rights or warrants shall have been exercised, the adjusted Conversion Price shall be immediately readjusted to what it would have been based upon the number of additional shares of Common Stock actually issued (or the number of shares of Common Stock issuable upon conversion of convertible securities actually issued).

     (c) In case Brocade shall distribute to all or substantially all of the holders of its Common Stock any shares of capital stock of Brocade (other than Common Stock), evidences of indebtedness or other non-cash assets (including securities of any person other than Brocade but excluding (1) dividends or distributions paid exclusively in cash or (2) dividends or distributions referred to in subsection (a) of this Section 4.6), or shall distribute to all or substantially all of the holders of its Common Stock rights or warrants to subscribe for or purchase any of its securities (excluding those rights and warrants referred to in subsection (b) of this Section 4.6 and also

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excluding the distribution of rights to all holders of Common Stock pursuant to a Rights Plan (as defined below)), then in each such case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the current Conversion Price by a fraction of which the numerator shall be the Current Market Price per share (as defined in subsection (e) of this Section 4.6) of the Common Stock on the record date mentioned below less the fair market value on such record date (as determined by the Board of Directors of Brocade, whose determination shall be conclusive evidence of such fair market value and which shall be evidenced by an Officers’ Certificate of Brocade delivered to the Trustee) of the portion of the capital stock, evidences of indebtedness or other non-cash assets so distributed or of such rights or warrants applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the record date), and of which the denominator shall be the Current Market Price per share (as defined in subsection (e) of this Section 4.6) of the Common Stock on such record date. Such adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution. In the event that a record date for any dividend or distribution referred to in this subsection (c) occurs, but such dividend or distribution is not then paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would have been in effect if such dividend or distribution had not been declared.

     In the event the then fair market value (as so determined) of the portion of the capital stock, evidences of indebtedness or other non-cash assets so distributed or of such rights or warrants applicable to one share of Common Stock is equal to or greater than the Current Market Price per share of the Common Stock on such record date, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of a Security shall have the right to receive upon conversion the amount of capital stock, evidences of indebtedness or other non-cash assets so distributed or of such rights or warrants such holder would have received had such holder converted each Security on such record date. If the Board of Directors of Brocade determines the fair market value of any distribution for purposes of this Section 4.6(c) 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.

     With respect to rights to purchase preferred shares that may be issued or distributed pursuant to any rights plan that Brocade implements after the date of this Indenture (any rights that may be issued pursuant to any such future rights plan being referred to as a “Rights Plan”), upon conversion of the Securities into Common Stock, to the extent that such Rights Plan is in effect upon such conversion, each holder of Securities will receive, in addition to the Common Stock, the rights described therein (whether or not the rights have separated from the Common Stock at the time of conversion), unless such holder is an acquiring person specifically excluded from securing such rights by any Rights Plan. Any distribution of rights or warrants pursuant to a Rights Plan in accordance with the requirements set forth in the immediately preceding sentence of this paragraph shall not constitute a distribution of rights or warrants pursuant to this Section 4.6(c).

     Rights or warrants, other than rights issued pursuant to a Rights Plan, distributed by Brocade to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Brocade’s Capital Stock (either initially or under certain circumstances),

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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 4.6 (and no adjustment to the Conversion Price under this Section 4.6 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 Price shall be made in accordance with this Section 4.6(c). If any such right or warrant is 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 any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants (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 Price under this Section 4.6 was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price 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 which shall have expired or been terminated without exercise by any holders thereof, the Conversion Price shall be readjusted as if such rights and warrants had not been issued.

          (i) In case Brocade shall, by dividend or otherwise, at any time distribute (a “Triggering Distribution”) to all or substantially all holders of its Common Stock cash in an aggregate amount that, together with the aggregate amount of (A) any cash and the fair market value (as determined by the Board of Directors of Brocade, whose determination shall be conclusive evidence thereof and which shall be evidenced by an Officers’ Certificate of Brocade delivered to the Trustee) of any other consideration payable in respect of any tender offer by Brocade or a Subsidiary of Brocade for Common Stock consummated within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made and (B) all other cash distributions to all or substantially all of the holders of its Common Stock made within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made, exceeds an amount equal to 10.0% of the product of the Current Market Price per share of Common Stock (as determined in accordance with subsection (e) of this Section 4.6) on the Business Day (the “Determination Date”) immediately preceding the day on which such Triggering Distribution is declared by Brocade multiplied by the number of shares of Common Stock outstanding on the Determination Date (excluding shares held in the treasury of Brocade), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying such Conversion Price in effect immediately prior to the Determination Date by a fraction of which the numerator shall be the Current Market Price per share of the Common Stock (as determined in accordance with subsection (e) of this Section 4.6) on the Determination Date less the quotient

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of (y) the sum of the aggregate amount of cash and the aggregate fair market value (determined as aforesaid in this Section 4.6(c)(i)) of any such other consideration so distributed, paid or payable within such 12 months and described in clauses (A) and (B) above and the Triggering Distribution divided by (z) the number of shares of Common Stock outstanding on the Determination Date and the denominator shall be such Current Market Price per share of the Common Stock (as determined in accordance with subsection (e) of this Section 4.6) on the Determination Date, such reduction to become effective immediately prior to the opening of business on the day following the date on which the Triggering Distribution is paid.

          (ii) In case any tender offer made by Brocade or any of its Subsidiaries for Common Stock shall expire and Brocade shall pay for Purchased Shares (as defined below) an aggregate consideration in an amount (determined as the sum of the aggregate amount of cash consideration and the aggregate fair market value (as determined by the Board of Directors of Brocade, whose determination shall be conclusive evidence thereof and which shall be evidenced by an Officers’ Certificate of Brocade delivered to the Trustee thereof) of any other consideration) that, together with the aggregate amount of (A) any cash and the fair market value (as determined by the Board of Directors of Brocade, whose determination shall be conclusive evidence thereof and which shall be evidenced by an Officers’ Certificate of Brocade delivered to the Trustee) of any other consideration payable in respect of any other tender offers by Brocade or any Subsidiary of Brocade for Common Stock consummated within the 12 months preceding the date of the Expiration Date (as defined below) and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made and (B) all cash distributions to all or substantially all of the holders of its Common Stock made within the 12 months preceding the Expiration Date and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made, exceeds an amount equal to 10.0% of the product of the Current Market Price per share of Common Stock (as determined in accordance with subsection (e) of this Section 4.6) as of the last date (the “Expiration Date”) tenders could have been made pursuant to such tender offer (as it may be amended) (the last time at which such tenders could have been made on the Expiration Date is hereinafter sometimes called the “Expiration Time”) multiplied by the number of shares of Common Stock outstanding (including Purchased Shares but excluding any shares held in the treasury of Brocade) at the Expiration Time, then, immediately prior to the opening of business on the day after the Expiration Date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Expiration Date by a fraction of which the numerator shall be the product of the number of shares of Common Stock outstanding (including Purchased Shares but excluding any shares held in the treasury of Brocade) at the Expiration Time multiplied by the Current Market Price per share of the Common Stock (as determined in accordance with subsection (e) of this Section 4.6) on the Trading Day next succeeding the Expiration Date and the denominator shall be the sum of (x) the aggregate consideration (determined as aforesaid) payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of all shares validly tendered 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 Common Stock outstanding (less any Purchased Shares and excluding any shares held in the treasury of Brocade) at the Expiration Time and the Current Market Price per share of Common Stock (as determined in accordance with subsection (e) of this Section 4.6) on the Trading Day next succeeding the Expiration Date, such reduction to become effective

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immediately prior to the opening of business on the day following the Expiration Date. In the event that Brocade is obligated to purchase shares pursuant to any such tender offer, but Brocade is permanently prevented by applicable law from effecting any or all such purchases or any or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would have been in effect based upon the number of shares actually purchased. If the application of this Section 4.6(c)(ii) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 4.6(c)(ii).

          (iii) For purposes of this Section 4.6(c), the term “tender offer” shall mean and include both tender offers and exchange offers, all references to “purchases” of shares in tender offers (and all similar references) shall mean and include both the purchase of shares in tender offers and the acquisition of shares pursuant to exchange offers, and all references to “tendered shares” (and all similar references) shall mean and include shares tendered in both tender offers and exchange offers.

     (d) After any adjustment to the Conversion Price is made in accordance with Section 4.6(c)(i) or (ii), no distribution or consideration (including the Triggering Distribution) that is taken into account in making such adjustment shall again be taken into account for any future or other adjustments made in accordance with Section 4.6.

     (e) For the purpose of any computation under subsections (b) and (c) of this Section 4.6, the current market price (the “Current Market Price”) per share of Common Stock on any date shall be deemed to be the average of the daily closing prices for the 30 consecutive Trading Days commencing 10 Trading Days before (i) the Determination Date or the Expiration Date, as the case may be, with respect to distributions or tender offers under subsection (c) of this Section 4.6 or (ii) the record date with respect to distributions, issuances or other events requiring such computation under subsection (b) or (c) of this Section 4.6. The closing price (the “Closing Price”) for each day shall be the last reported sales price or, in case no such reported sale takes place on such date, the average of the reported closing bid and asked prices in either case on The Nasdaq National Market (the “NNM”) or, if the Common Stock is not listed or admitted to trading on the NNM, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on the NNM or any national securities exchange, the last reported sales price of the Common Stock as quoted on NASDAQ or, in case no reported sales takes place, the average of the closing bid and asked prices as quoted on NASDAQ or any comparable system or, if the Common Stock is not quoted on NASDAQ or any comparable system, the closing sales price or, in case no reported sale takes place, the average of the closing bid and asked prices, as furnished by any two members of the National Association of Securities Dealers, Inc. selected from time to time by Brocade for that purpose. If no such prices are available, the Current Market Price per share shall be the fair value of a share of Common Stock as determined by the Board of Directors of Brocade (which shall be evidenced by an Officers’ Certificate of Brocade delivered to the Trustee).

     (f) In any case in which this Section 4.6 shall require that an adjustment be made following a record date or a Determination Date or Expiration Date, as the case may be, established for purposes of this Section 4.6, Brocade may elect to defer (but only until five Business Days following the filing by Brocade with the Trustee of the certificate described in Section 4.9) issuing to the Holder of any Security converted after such record date or

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Determination Date or Expiration Date the shares of Common Stock and other capital stock of Brocade issuable upon such conversion over and above the shares of Common Stock and other capital stock of Brocade issuable upon such conversion only on the basis of the Conversion Price prior to adjustment; and, in lieu of the shares the issuance of which is so deferred, Brocade shall issue or cause its transfer agents to issue due bills or other appropriate evidence prepared by Brocade of the right to receive such shares. If any distribution in respect of which an adjustment to the Conversion Price is required to be made as of the record date or Determination Date or Expiration Date therefor is not thereafter made or paid by Brocade for any reason, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect if such record date had not been fixed or such effective date or Determination Date or Expiration Date had not occurred.

     SECTION 4.7 NO ADJUSTMENT

     No adjustment in the Conversion Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price as last adjusted; provided, however, that any adjustments which by reason of this Section 4.7 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 4 shall be made to the nearest cent or to the nearest one-thousandth of a share, as the case may be.

     No adjustment need be made for issuances of Common Stock pursuant to a Brocade plan for reinvestment of dividends or interest or for a change in the par value or a change to no par value of the Common Stock.

     To the extent that the Securities become convertible into the right to receive cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash.

     SECTION 4.8 ADJUSTMENT FOR TAX PURPOSES

     Brocade shall be entitled to make such reductions in the Conversion Price, in addition to those required by Section 4.6, as it in its discretion shall determine to be advisable in order that any stock dividends, subdivisions of shares, distributions of rights to purchase stock or securities or distributions of securities convertible into or exchangeable for stock hereafter made by Brocade to its stockholders shall not be taxable.

     SECTION 4.9 NOTICE OF ADJUSTMENT

     Whenever the Conversion Price or conversion privilege is adjusted, the Company shall promptly mail to Securityholders a notice of the adjustment and file with the Trustee an Officers’ Certificate of Brocade briefly stating the facts requiring the adjustment and the manner of computing it. Unless and until the Trustee shall receive an Officers’ Certificate of Brocade setting forth an adjustment of the Conversion Price, the Trustee may assume without inquiry that the Conversion Price has not been adjusted and that the last Conversion Price of which it has knowledge remains in effect.

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     SECTION 4.10 NOTICE OF CERTAIN TRANSACTIONS

     In the event that:

     (1) Brocade takes any action which would require an adjustment in the Conversion Price;

     (2) Brocade consolidates or merges with, or transfers all or substantially all of its property and assets to, another corporation and stockholders of Brocade must approve the transaction; or

     (3) there is a dissolution or liquidation of the Company or Brocade,

the Company shall mail to Holders and file with the Trustee a notice stating the proposed record or effective date, as the case may be, of such event. The Company shall mail the notice at least ten days before such date. Failure to mail such notice or any defect therein shall not affect the validity of any transaction referred to in clause (1), (2) or (3) of this Section 4.10.

     SECTION 4.11 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE ON CONVERSION PRIVILEGE

     If any of the following shall occur, namely: (a) any reclassification or change of shares of Common Stock issuable upon conversion of the Securities (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination, or any other change for which an adjustment is provided in Section 4.6); (b) any consolidation or merger or combination to which Brocade is a party other than a merger in which Brocade is the continuing corporation and which does not result in any reclassification of, or change (other than in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of Common Stock; or (c) any sale or conveyance as an entirety or substantially as an entirety of the property and assets of Brocade, directly or indirectly, to any person, then Brocade, or such successor, purchasing or transferee corporation, as the case may be, shall, as a condition precedent to such reclassification, change, combination, consolidation, merger, sale or conveyance, execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then outstanding shall have the right to convert such Security into the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, change, combination, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock deliverable upon conversion of such Security immediately prior to such reclassification, change, combination, consolidation, merger, sale or conveyance, and that each such Holder will also receive the rights described in a Rights Plan with respect to such number of shares of Common Stock. Such supplemental indenture shall provide for adjustments of the Conversion Price which shall be as nearly equivalent, as the Board of Directors of Brocade shall reasonably consider to be practicable, to the adjustments of the Conversion Price provided for in this Article 4. If, in the case of any such consolidation, merger, combination, sale or conveyance, the stock or other securities and property (including cash) receivable thereupon by a holder of Common Stock include shares of stock or other securities and property of a person other than the successor, purchasing or transferee corporation, as the case may be, in such consolidation,

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merger, combination, sale or conveyance, then such supplemental indenture shall also be executed by such other person and shall contain such additional provisions to protect the interests of the Holders of the Securities as the Board of Directors of Brocade shall reasonably consider necessary by reason of the foregoing. The provisions of this Section 4.11 shall similarly apply to successive reclassifications, changes, combinations, consolidations, mergers, sales or conveyances.

     In the event Brocade shall execute a supplemental indenture pursuant to this Section 4.11, Brocade shall promptly file with the Trustee (x) an Officers’ Certificate of Brocade briefly stating the reasons therefor, the kind or amount of shares of stock or other securities or property (including cash) receivable by Holders of the Securities upon the conversion of their Securities after any such reclassification, change, combination, consolidation, merger, sale or conveyance, any adjustment to be made with respect thereto and that all conditions precedent have been complied with and (y) an Opinion of Counsel of Brocade that all conditions precedent have been complied with, and shall promptly mail notice thereof to all Holders.

     SECTION 4.12 TRUSTEE’S DISCLAIMER

     The Trustee shall have no duty to determine when an adjustment under this Article 4 should be made, how it should be made or what such adjustment should be, but may accept as conclusive evidence of that fact or the correctness of any such adjustment, and shall be protected in relying upon, an Officers’ Certificate including the Officers’ Certificate with respect thereto which Brocade is obligated to file with the Trustee pursuant to Section 4.9. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities, and the Trustee shall not be responsible for Brocade’s failure to comply with any provisions of this Article 4.

     The Trustee shall not be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture executed pursuant to Section 4.11, but may accept as conclusive evidence of the correctness thereof, and shall be fully protected in relying upon, the Officers’ Certificate with respect thereto which Brocade is obligated to file with the Trustee pursuant to Section 4.11.

     SECTION 4.13 VOLUNTARY REDUCTION

     Brocade from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days and if the reduction is irrevocable during the period if the Brocade’s Board of Directors determines that such reduction would be in the best interest of the Company and Brocade or to avoid or diminish income tax to holders of shares of Common Stock in connection with a dividend or distribution of stock or similar event, and Brocade provides 15 days prior notice of any reduction in the Conversion Price; provided, however, that in no event may Brocade reduce the Conversion Price to be less than the par value of a share of Common Stock.

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     SECTION 4.14 PAYMENT OF CASH IN LIEU OF COMMON STOCK

     If a Holder elects to convert all or any portion of a Security into shares of Common Stock as set forth in this Section 4 and Brocade receives such Holder’s conversion notice on or prior to the day that is 20 days prior to the Final Maturity Date (the “Final Notice Date”), Brocade may choose to satisfy all or any portion of its conversion obligation (the “Conversion Obligation”) in cash. Upon such election, Brocade will notify such Holder through the Trustee of the dollar amount to be satisfied in cash (which must be expressed either as 100% of the Conversion Obligation or as a fixed dollar amount) at any time on or before the date that is two Business Days following receipt of written notice of conversion as specified in Section 4.2 (such period, the “Cash Settlement Notice Period”). If Brocade elects to pay cash for any portion of the shares otherwise issuable to the Holder, the Holder may retract the conversion notice at any time during the two Business Day period beginning on the day after the final day of the Cash Settlement Notice Period (a “Conversion Retraction Period”); no such retraction can be made (and a conversion notice shall be irrevocable) if Brocade does not elect to deliver cash in lieu of shares (other than cash in lieu of fractional shares). If the conversion notice has not been retracted, then settlement (in cash and/or shares) will occur on the Business Day following the final day of the 20 Trading Day period beginning on the day after the final day of the Conversion Retraction Period (the “Cash Settlement Averaging Period”). Settlement amounts will be computed as follows:

     (i) if Brocade elects to satisfy the entire Conversion Obligation in shares of Common Stock, Brocade will deliver to such Holder a number of shares equal to (a) the aggregate original principal amount at maturity of the Securities to be converted divided by 1,000, multiplied by (b) the Conversion Rate;

     (ii) if Brocade elects to satisfy the entire Conversion Obligation in cash, Brocade will deliver to such Holder cash in an amount equal to the product of:

     (B) a number equal to (x) the aggregate original principal amount at maturity of Securities to be converted divided by 1,000, multiplied by (y) the Conversion Rate, and

     (C) the average Closing Price of the Common Stock during the Cash Settlement Averaging Period; and

     (iii) if Brocade elects to satisfy a fixed portion (other than 100%) of the Conversion Obligation in cash (the “Cash Amount”), Brocade will deliver to such Holder the Cash Amount and a number of shares equal to the greater of (1) zero and (2) the excess, if any, of the number of shares calculated as set forth in clause (i) above over the number of shares equal to the sum, for each day of the Cash Settlement Averaging Period, of (x) 5% of the Cash Amount, divided by (y) the closing price of the Common Stock on such day.

     Notwithstanding the foregoing, a Security in respect of which a Holder has delivered a Change in Control Purchase Notice exercising such Holder’s option to require the Company to repurchase such Security may be converted as described in this Section 4.14 only if such notice of exercise is withdrawn as required in Section 4.1 hereof.

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     If a Holder elects to convert all or any portion of a Security into shares of Common Stock as set forth in Section 4.1 and Brocade receives such Holder’s Conversion Notice after the Final Notice Date, if Brocade chooses to satisfy all or any portion of the Conversion Obligation in cash, Brocade will have previously notified the Holders through the Trustee of the dollar amount to be satisfied in cash at any time on or before the Final Notice Date. Upon such election, Brocade will have notified the Holders through the Trustee of the dollar amount to be satisfied in cash (which must be expressed either as 100% or as a fixed dollar amount) at any time on or before the Final Notice Date. Settlement amounts and settlement dates will be computed in the same manner as set forth above except that the “Cash Settlement Averaging Period” shall be the 20 Trading Day period beginning on the day after receipt of the Conversion Notice (or in the event Brocade receives the Conversion Notice on the Business Day prior to the Final Maturity Date, the 20 Trading Day period beginning on the day after the Final Maturity Date). Settlement (in cash and/or shares) will occur on the Business Day following the final day of such Cash Settlement Averaging Period.

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ANNEX B

AMENDMENT, RESTATEMENT AND SUPPLEMENT TO SECURITY

1. All references in Exhibit A to the Indenture to Wells Fargo Bank Minnesota, National Association, as trustee, shall mean Wells Fargo Bank, National Association, as successor in interest to Wells Fargo Bank Minnesota, National Association, as trustee.

2. The legends on the form of the face of the Security are amend and restated in their entirety as follows:

     “[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY 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 IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE 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.]¹

     [THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), AND THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH

¹ This paragraph should be included only if the Security is a Global Security.

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PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.]²

     THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF AVAILABLE), OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.]²

     [THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS AGREEMENT (AS SUCH TERM IS DEFINED IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF) AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT.] ²”

3. Paragraph 6 of the form of the reverse side of the Security is amended and restated in its entirety as follows:

     “6. CONVERSION

     A Holder of a Note may convert the principal amount of such Note (or any portion thereof equal to $1,000 or any integral multiple of $1,000 in excess thereof) into shares of Common Stock at any time prior to the close of business on February 15, 2010; provided, however, that the conversion right will terminate at the close of business on the Business Day immediately preceding the date the

² These paragraphs to be included only if the Security is a Transfer Restricted Security.

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Change in Control Purchase Notice has been delivered, for so long as it has not been validly withdrawn, for such Note or such earlier date as the Holder presents such Note for purchase (unless the Company shall default in making the Change in Control Purchase Price payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Note is purchased).

     The initial Conversion Price is $14.28 per share, subject to adjustment under certain circumstances as provided in the Indenture. The number of shares of Common Stock issuable upon conversion of a Note is determined by dividing the principal amount of the Note or portion thereof converted by the Conversion Price in effect on the Conversion Date. No fractional shares will be issued upon conversion; in lieu thereof, an amount will be paid in cash based upon the Closing Price (as defined in the Indenture) of Common Stock on the Trading Day immediately prior to the Conversion Date.

     To convert a Note, a Holder must (a) complete and manually sign the conversion notice set forth below and deliver such notice to a Conversion Agent, (b) surrender the Note to a Conversion Agent, (c) furnish appropriate endorsements and transfer documents if required by a Registrar or a Conversion Agent, and (d) pay any transfer or similar tax, if required.

     A Holder may convert a portion of a Note equal to $1,000 or any integral multiple thereof.

     A Note in respect of which a Holder had delivered a Change in Control Purchase Notice exercising the option of such Holder to require the Company to purchase such Note may be converted only if the Change in Control Purchase Notice is withdrawn in accordance with the terms of the Indenture.

     Upon conversion, the Company may choose to deliver, in lieu of Common Stock, cash or a combination of cash and Common Stock in accordance with the terms of the Indenture.”

4. Paragraph 13 of the form of the reverse side of the Security is amended and restated in its entirety as follows:

     “13. DEFAULTS AND REMEDIES

     Under the Indenture, an Event of Default includes: (i) default for 30 days in payment of any interest or Additional Interest on any Notes; (ii) default in payment of any principal on the Notes when due; (iii) failure by the Company for 60 days after notice to it to comply with any of its other agreements contained in the Indenture or the Notes; (iv) default in the payment of certain indebtedness of the Company or a Significant Subsidiary (all or substantially all of the voting securities of which are owned, directly or indirectly, by the Company) and (v) certain events of bankruptcy, insolvency or reorganization of the Company, or any Significant Subsidiary or Brocade. If an Event of Default (other than as a result of certain events of bankruptcy, insolvency or reorganization of the

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Company) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare all unpaid principal on the Notes then outstanding to be due and payable immediately, all as and to the extent provided in the Indenture. If an Event of Default occurs as a result of certain events of bankruptcy, insolvency or reorganization of the Company or Brocade, unpaid principal of the Notes then outstanding shall become due and payable immediately without any declaration or other act on the part of the Trustee or any Holder, all as and to the extent provided in the Indenture. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company is required to file periodic reports with the Trustee as to the absence of default.”

5. Paragraph 15 of the form of the reverse side of the Security is amended and restated in its entirety as follows:

     “15. NO RECOURSE AGAINST OTHERS

     A director, officer, employee or shareholder, as such, of the Company or Brocade shall not have any liability for any obligations of the Company or Brocade under the Notes or the Indenture nor for any claim based on, in respect of or by reason of such obligations or their creation. The Holder of this Note by accepting this Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Note.”

6. Paragraph 19 of the form of the reverse side of the Security is amended and restated in its entirety as follows:

     “19. INDENTURE TO CONTROL; GOVERNING LAW

     In the case of any conflict between the provisions of this Note and the Indenture, the provisions of the Indenture shall control. This Note shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principals of conflicts of law.

     The Company will furnish to any Holder, upon written request and without charge, a copy of the Indenture. Requests may be made to: McDATA Corporation, 11802 Ridge Parkway, Broomfield, Colorado 80021, (720) 558-4348, Attention: Chief Financial Officer.”

7. The form of the reverse side of the Security is amended and supplemented by adding a Paragraph 20 thereto as follows:

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     “20. BROCADE GUARANTY

     This Note is entitled to the benefits of the Brocade Guaranty made for the benefit of the Holders. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and obligations of Brocade thereunder.”

8. The form of Conversion Notice attached to the form of the Security is amended and restated in its entirety as follows:

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“CONVERSION NOTICE

     To convert this Note into Common Stock of Brocade, check the box: o

     To convert only part of this Note, state the principal amount to be converted (must be $1,000 or a multiple of $1,000): $                    .

     If you want the stock certificate made out in another person’s name, fill in the form below:

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

			Your Signature:
Date:
				(Sign exactly as your name appears on the other side of this Security)
	*Signature guaranteed by:
By:		”

^* The signature must be guaranteed by an institution which is a member of one of the following recognized signature guaranty programs: (i) the Securities Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guaranty program acceptable to the Trustee.

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9. The form of the Security is amended and supplemented by adding the following Guaranty thereto:

“GUARANTY

     The undersigned, Brocade Communications Systems, Inc., a Delaware corporation (“Brocade”), hereby unconditionally guaranties to the extent set forth in the Indenture, dated February 7, 2003 between McDATA Corporation, as issuer (the “Issuer”), and Wells Fargo Bank, National Association, as successor in interest to Wells Fargo Bank Minnesota, National Association, as Trustee (the “Trustee”), as supplemented by First Supplemental Indenture dated as of January 29, 2007 by and among the Issuer, the Trustee, and Brocade (as amended, restated or supplemented from time to time, the “Indenture”), and subject to the provisions of the Indenture, as supplemented, (a) the due and punctual payment of the principal of, premium, if any, and interest on the Securities, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal of, premium, if any, and, to the extent permitted by law, interest, all in accordance with the terms set forth in Article Three of the First Supplemental Indenture, and (b) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise.

     The obligations of Brocade to the Holders pursuant to this Guaranty and the Indenture, as supplemented, are expressly set forth in Article Three of the First Supplemental Indenture and reference is hereby made to the Indenture, as supplemented, for the precise terms and limitations of this Guaranty.

     Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Indenture, as supplemented.

     IN WITNESS WHEREOF, Brocade has caused this Guaranty to be duly executed as of the date set forth below.

     Dated: January 29, 2007

Brocade: BROCADE COMMUNICATION SYSTEMS, INC.
By:
	Name:
	Title: ”

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EX-4.3

Exhibit 4.3

SECOND SUPPLEMENTAL INDENTURE

     THIS SECOND SUPPLEMENTAL INDENTURE dated as of January 29, 2007 (this “Supplemental Indenture”) is entered into by and among McDATA Corporation, a Delaware corporation (“McDATA”), McDATA Services Corporation, a Minnesota corporation f/k/a Computer Network Technology Corporation (the “Company”), Brocade Communication Systems, Inc., a Delaware Corporation (“Brocade”), and U.S. Bank National Association, a national banking association, as trustee (the “Trustee”). Capitalized terms used herein and not otherwise defined have the meanings set forth in the Indenture (as defined below).

RECITALS

     A. The Company has heretofore executed and delivered to the Trustee an indenture dated as of February 20, 2002 (the “Original Indenture”) providing for the issuance of 3.00% Convertible Subordinated Notes due 2007 of the Company (the “Securities”), as supplemented by the First Supplemental Indenture dated as of June 1, 2005 by and among the Company, McDATA and the Trustee (the “First Supplemental Indenture” and collectively with the Original Indenture, the “Indenture”).

     B. McDATA has entered into an Agreement and Plan of Reorganization dated as of August 7, 2006 by and among Brocade Communication Systems, Inc., a Delaware corporation (“Brocade”), Worldcup Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of Brocade (“Merger Sub”), and McDATA (the “Merger Agreement”) providing for the merger of Merger Sub with and into McDATA with McDATA as the surviving corporation and a wholly-owned subsidiary of Brocade (the “Merger”).

     C. Pursuant to Section 1.6(a) of the Merger Agreement, at the effective time of the Merger each outstanding share of McDATA’s Class A and Class B common stock, $0.01 par value per share (“McDATA Stock”), shall be converted into the right to receive 0.75 shares of Brocade’s common stock, $0.001 par value per share (“Brocade Stock”), together with cash in lieu of fractional shares.

     D. Pursuant to Section 4.11 of the Indenture, as a condition precedent to any merger effecting a change in the kind and amount of shares and other property issuable upon the conversion of the Securities, the Company and Brocade shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then outstanding shall have the right to convert such Security into such other securities and property receivable in the merger by a holder of McDATA Stock.

     E. In accordance with Section 11.1(a) of the Indenture the Company and the Trustee may amend or supplement the Indenture or the Securities to comply with Section 4.11 without notice to or consent of any Securityholder.

     F. The Company, McDATA and Brocade desire and have requested the Trustee to enter into this Supplemental Indenture for the purpose of amending the Indenture to provide that, upon conversion of the Securities under the Indenture, a Holder of Securities will receive

Brocade Stock in lieu of McDATA Stock to which such Holder would have been entitled to receive pursuant to the Merger Agreement had such Holder converted the Securities immediately prior to the Merger.

     G. Brocade has agreed to become a guarantor with respect to the Securities as set forth in Article Three of this Supplemental Indenture.

     H. Each of the Company, McDATA and Brocade has duly authorized the execution and delivery of this Supplemental Indenture.

     NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby covenant and agree for the equal and ratable benefit of the Holders of the Securities as follows:

ARTICLE ONE
RELATION TO INDENTURE; DEFINITIONS

     Section 1.01 Relation to Indenture. This Supplemental Indenture constitutes an integral part of the Indenture. In the event of inconsistencies between the Indenture and this Supplemental Indenture, the terms of this Supplemental Indenture shall govern.

     Section 1.02. Definitions. The definitions of “Board of Directors”, “Common Stock”, “Officer” and “Officers’ Certificate” in Section 1.1 of the Indenture are hereby amended and restated in their entirety to read as follows:

     “Board of Directors” means the Board of Directors of the Company (or where so specified, of McData or Brocade) or any authorized committee of such Board of Directors.

     “Common Stock” means the common stock of Brocade, par value $0.001 per share, as it exists on the date of the Second Supplemental Indenture, and any shares of any class or classes of Capital Stock of Brocade 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 Brocade and which are not subject to redemption by Brocade; 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 on conversion of Securities 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.

     “Officer” means the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Controller, the Secretary or any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company (or where so specified, of McDATA or Brocade).

     “Officers’ Certificate” means a certificate signed by two Officers; provided, however, that for purposes of Sections 4.11 and 6.3, “Officers’ Certificate” means a certificate signed by the principal executive officer, principal financial officer or principal accounting officer of the Company (or where so specified, of McDATA or Brocade) and by one other Officer.

ARTICLE TWO
AMENDMENTS

     Section 2.01 Name. The first paragraph of the Indenture is amended and restated to read as follows:

     “THIS INDENTURE dated as of February 20, 2002 is between McDATA Services Corporation, a Minnesota corporation f/k/a Computer Network Technology Corporation (the “Company”), and U.S. Bank National Association, a national banking association, as Trustee (the Trustee”).”

     Section 2.02 Conversion. Article IV of the Indenture is hereby amended and restated in its entirety to read as set forth on Annex A hereto.

     Section 2.03 Consolidation, Etc., on Certain Terms. Section 7.1 of the Indenture is hereby amended and restated to read as follows:

     “Section 7.1 Company, McDATA and Brocade May Consolidate, Etc., Only on Certain Terms

     None of the Company, McDATA or Brocade shall consolidate with or merge into any other Person (in a transaction in which the Company, McDATA or Brocade, as the case may be, is not the surviving corporation) or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless:

     (1) in case the Company shall consolidate with or merge into another Person (in a transaction in which the Company is not the surviving corporation) or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, limited liability company, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of and any premium and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed and the conversion rights shall be provided for in accordance with Article IV, 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 which shall have acquired the Company’s assets, and any guarantor of the obligations under the Indenture;

     (2) in case McDATA shall consolidate with or merge into another Person (in a transaction in which McDATA is not the surviving corporation) or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which McDATA is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of McDATA substantially as an entirety shall be a corporation, limited liability company, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the obligations of McDATA under the guaranty set forth in Article Three of the First Supplemental Indenture dated as of June 1, 2005, and assume the performance or observance of every covenant of this Indenture on the part of McDATA to be performed or observed by it, executed and delivered to the Trustee, by the Person formed by such consolidation or into which McDATA shall have been merged or by the Person which shall have acquired McDATA’s assets and any guarantor of the obligations under the Indenture;

     (3) in case Brocade shall consolidate with or merge into another Person (in a transaction in which Brocade is not the surviving corporation) or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which Brocade is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of Brocade substantially as an entirety shall be a corporation, limited liability company, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the obligations of Brocade under the guaranty set forth in Article Three of the Second Supplemental Indenture dated as of January 29, 2007, and assume the performance or observance of every covenant of this Indenture on the part of Brocade to be performed or observed by it and the conversion rights shall be provided for in accordance with Article IV, by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee, by the Person (if other than Brocade) formed by such consolidation or into which Brocade shall have been merged or by the Person which shall have acquired Brocade’s assets and any guarantor of the obligations under the Indenture;

     (3) immediately after giving effect to such transaction in clause (1) or (2) of this Section 7.1, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and

     (4) the Company, McDATA or Brocade, as the case may be, has delivered to the Trustee an Officers’ Certificate of the Company, McDATA or Brocade, as the case may be, and an Opinion of Counsel on behalf of the Company, McDATA or Brocade, as

the case may be, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article VII and that all conditions precedent herein provided for relating to such transaction have been complied with.”

     Section 2.04 Successor Substituted. Section 7.2 of the Indenture is hereby amended and restated in its entirety to read as follows:

     “Upon any consolidation of the Company, McDATA or Brocade with, or merger of the Company, McDATA or Brocade into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company, McDATA or Brocade substantially as an entirety in accordance with Section 7.1, the successor Person formed by such consolidation or into which the Company, McDATA or Brocade is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company, McDATA or Brocade, as the case may be, under this Indenture with the same effect as if such successor Person had been named as the Company, McDATA or Brocade herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities.”

     Section 2.05 Events of Default. Section 8.1 of the Indenture is hereby amended to add new clauses (8) and (9) as follows:

     “(8) Brocade pursuant to or within the meaning of any Bankruptcy Law:

     (i) commences a voluntary case or proceeding;

     (ii) consents to the entry of an order for relief against it in an involuntary case or proceeding;

     (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property; or

     (iv) makes a general assignment for the benefit of its creditors; or

(9) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

     (i) is for relief against Brocade in an involuntary case or proceeding;

     (ii) appoints a Custodian of Brocade or for all or substantially all of the property of Brocade; or

     (iii) orders the liquidation of Brocade;”

     Section 2.06 Supplemental Indenture. Section 11.6 of the Indenture is hereby amended and restated in its entirety to read as follows:

     “The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article XI if the amendment or supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, in its sole discretion, but need not sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and, subject to Section 9.1, shall be fully protected in relying upon, an Opinion of Counsel of the Company, McDATA or Brocade, as the case may be, stating that such amendment or supplemental indenture is authorized or permitted by this Indenture. The Company may not sign an amendment or supplemental indenture until the Board of Directors of each the Company, McDATA and Brocade approves it.

     Section 2.07 No Recourse Against Others. Section 13.10 of the Indenture is hereby amended and restated in its entirety to read as follows:

     “All liability described in paragraph 18 of the Securities of any director, officer, employee or shareholder, as such, of the Company, McDATA or Brocade is waived and released.”

     Section 2.08 Form of Security. Certain provisions of Exhibit B to the Indenture are amended, restated and supplemented as set forth in Annex B attached hereto. Pursuant to Section 11.5 of the Indenture and upon the execution of this Supplemental Indenture, the Trustee shall amend, restate and supplement in the form set forth in Annex B attached hereto the terms of the then outstanding Securities, and all Securities presented or delivered to the Trustee on and after the date hereof shall be amended, restated and supplemented in the form of Annex B attached hereto to give effect to this Supplemental Indenture.

     The Trustee shall not at any time be under any responsibility to acquire or cause any Security now or hereafter outstanding to be presented or delivered to it for any purposes provided for in this Section 2.08.

ARTICLE THREE
BROCADE GUARANTY

     Section 3.01 Brocade Guaranty.

     (a) Subject to the provisions of this Article Three, Brocade fully and unconditionally guarantees to each Holder of Securities hereunder and to the Trustee on behalf of the Holders: (1) the due and punctual payment of the principal of, premium, if any, and interest on each Security, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, all in accordance with the terms of the Security and the Indenture and (2) in the case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due in accordance with the terms of the extension or renewal, at the stated maturity, by acceleration or otherwise, subject,

however, in the case of clauses (1) and (2) above, to the limitations set forth in the next succeeding paragraph (the “Brocade Guaranty”).

     (b) Brocade hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a Holder to pursue any right or take any action (including, without limitation, a presentment, protest, demand for payment, notice of dishonor or any other notice) against the Company, the benefit of discussion, protest or notice with respect to any such Security or the debt evidenced thereby and all demands whatsoever (except as specified above), and covenants that the Brocade Guaranty will not be discharged as to any such Security except by payment in full of the principal thereof and interest thereon or as provided in Section 10.1 of the Indenture. In the event of any declaration of acceleration of such obligations as provided in Article 8 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by Brocade for the purposes of this Article Three. In addition, without limiting the foregoing provisions, upon the effectiveness of an acceleration under Article 8 of the Indenture, the Trustee shall promptly make a demand for payment on the Securities under the Brocade Guaranty provided for in this Article Three.

     (c) If the Trustee or any Holder is required by any court or otherwise to return to the Company or Brocade, or any custodian, receiver, liquidator, trustee, sequestrator or other similar official acting in relation to the Company or Brocade, any amount paid to the Trustee or such Holder in respect of a Security, the Brocade Guaranty, to the extent theretofore discharged, shall be reinstated in full force and effect. Brocade further agrees, to the fullest extent that it may lawfully do so, that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, the maturity of the obligations guarantied hereby may be accelerated as provided in Article 8 of the Indenture for the purposes of the Brocade Guaranty, notwithstanding any stay, injunction or other prohibition extant under any applicable bankruptcy law preventing such acceleration in respect of the obligations guarantied hereby.

     (d) Brocade shall be subrogated to the rights of the Holders of any Security against the Company but only to the extent and in the amount that a joint and several obligor with the Company would be entitled to contribution from the Company, in respect of any amount paid by Brocade to any Holder pursuant to the provisions of the Brocade Guaranty; provided, that Brocade shall not be entitled to enforce, or to receive any payments arising out of or based upon, such right of subrogation until the principal of, premium, if any, and interest on all the Securities shall have been paid in full.

     (e) The Company shall have a right of contribution against Brocade in respect of any amounts paid by the Company to any Holder pursuant to the Securities and this Supplemental Indenture but only to the extent and in the amount that a joint and several obligor with Brocade would be entitled to contribution from Brocade.

     Section 3.02 Notice to Trustee; Events of Default. Brocade shall give prompt written notice to the Trustee of any fact known to Brocade that would prohibit the making of any payment to or by the Trustee in respect of the Brocade Guaranty pursuant to the provisions of this Article Three. The failure to make a payment on account of principal of, premium, if any, or

interest on the Securities by reason of any provision of Sections 3.01 and 3.02 of this Supplemental Indenture will not be construed as preventing the occurrence of an Event of Default.

ARTICLE FOUR
MISCELLANEOUS

     Section 4.01 Notices. Any notice, request or communication shall be given in writing and delivered in person or mailed by first-class mail, postage prepaid, addressed as follows:

     If to the Company:

McDATA Services Corporation
11802 Ridge Parkway
Broomfield, Colorado 80021
Attention: President

     If to McDATA:

McDATA Corporation
11802 Ridge Parkway
Broomfield, Colorado 80021
Attention: General Counsel

     If to Brocade:

Brocade Communication Systems, Inc.
1745 Technology Drive
San Jose, California 95110
Attention: General Counsel

     If to the Trustee:

U.S. Bank National Association
EP-MN-WS3C
60 Livingston Avenue
St. Paul, Minnesota 55107
Attention: Corporate Trust Group

     Such notices or communications shall be effective when received. The Company, McDATA, Brocade or the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications.

     4.02 Confirmation of Original Indenture. Except as amended and supplemented hereby, the Indenture is hereby ratified, confirmed and reaffirmed in all respects. The Indenture and this Supplemental Indenture shall be read, taken and construed as one and the same instrument.

     4.03 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

     4.04 Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

     4.05 Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.

     4.06 Separability Clause. In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

     4.07 The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by McDATA, Brocade and the Company.

[Remainder of Page Intentionally Left Blank]

     IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.

Dated: January 29, 2007

McDATA SERVICES CORPORATION
By:	/s/ Scott Berman
	Name:	Scott Berman
	Title:	Chief Financial Officer
McDATA CORPORATION
By:	/s/ Scott Berman
	Name:	Scott Berman
	Title:	Chief Financial Officer
BROCADE COMMUNICATION SYSTEMS, INC.
By:	/s/ Richard Deranleau
	Name:	Richard Deranleau
	Title:	Chief Financial Officer
U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:	/s/ Raymond S. Haverstock
	Name:	Raymond S. Haverstock
	Title:	Vice President

Signature Page to the Second Supplemental Indenture
(3.00% Convertible Subordinated Notes)

ANNEX A

ARTICLE IV

CONVERSION

Section 4.1 Conversion Privilege

     (a) Subject to and upon compliance with the provisions of this Article IV, at the option of the Holder, any Security or any portion of the principal amount thereof which is an integral multiple of $1,000 may be converted at the principal amount thereof, or of such portion thereof, into duly authorized, fully paid and nonassessable shares of Common Stock, at the Conversion Price, determined as hereinafter provided, in effect at the time of conversion; provided, however, that if such Security is called for redemption pursuant to Article III or submitted or presented for repurchase pursuant to Article XII, such conversion right shall terminate at the close of business on the second Business Day immediately preceding the Redemption Date or Change in Control Repurchase Date, as the case may be, for such Security or such earlier date as the Holder presents such Security for redemption or for purchase (unless the Company shall default in making the Redemption Price or Change in Control Repurchase Price payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Security is redeemed or purchased, as the case may be). If such Security is submitted or presented for purchase pursuant to Article III or Article XII and is then subsequently withdrawn, such conversion right shall no longer be terminated, and the Holder of such Security may convert such Security pursuant to this Section 4.1. The number of shares of Common Stock issuable upon conversion of a Security shall be determined by dividing the principal amount of the Security or portion thereof surrendered for conversion by the Conversion Price in effect on the Conversion Date. The Conversion Price is set forth in paragraph 8 of the Securities and is subject to adjustment as provided in this Article IV.

     Provisions of this Indenture that apply to conversion of all of a Security also apply to conversion of a portion of a Security.

     A Security in respect of which a Holder has delivered a Change in Control Repurchase Notice pursuant to Section 12.1(c) exercising the option of such Holder to require the Company to purchase such Security may be converted only if such Change in Control Repurchase Notice is withdrawn by a written notice of withdrawal delivered to a Paying Agent prior to the close of business on the Business Day immediately preceding the Change in Control Repurchase Date in accordance with Section 12.2.

     A Holder of Securities is not entitled to any rights of a holder of Common Stock until such Holder has converted its Securities to Common Stock, and only to the extent such Securities are deemed to have been converted into Common Stock pursuant to this Article IV.

Section 4.2 Conversion Procedure

     To convert a Security, a Holder must (a) complete and manually sign the conversion notice on the back of the Security and deliver such notice to a Conversion Agent, (b) surrender the Security to a Conversion Agent, (c) furnish appropriate endorsements and transfer documents

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if required by a Registrar or a Conversion Agent, and (d) pay any transfer or similar tax, if required. The date on which the Holder satisfies all of those requirements is the “Conversion Date.” As soon as practicable after the Conversion Date, the Company shall deliver to the Holder through a Conversion Agent a certificate for the number of whole shares of Common Stock issuable upon the conversion and cash in lieu of any fractional shares pursuant to Section 4.3. Anything herein to the contrary notwithstanding, in the case of Global Securities, conversion notices may be delivered and such Securities may be surrendered for conversion in accordance with the Applicable Procedures as in effect from time to time.

     The person in whose name the Common Stock certificate is registered shall be deemed to be a shareholder of record on the Conversion Date; provided, however, that no surrender of a Security on any date when the stock transfer books of Brocade shall be closed shall be effective to constitute the person or persons entitled to receive the shares of Common Stock upon such conversion as the record holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the person or persons entitled to receive such shares of Common Stock as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open; provided, further, that such conversion shall be at the Conversion Price in effect on the Conversion Date as if the stock transfer books of Brocade had not been closed. Upon conversion of a Security, such person shall no longer be a Holder of such Security. No payment or adjustment will be made for dividends or distributions on shares of Common Stock issued upon conversion of a Security.

     Securities so surrendered for conversion (in whole or in part) during the period from the close of business on any regular record date to the opening of business on the next succeeding interest payment date (excluding Securities or portions thereof called for redemption on a Redemption Date during the period beginning at the close of business on a regular record date and ending at the opening of business on the first Business Day after the next succeeding interest payment date, or if such interest payment date is not a Business Day, the second such Business Day) shall also be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such interest payment date on the principal amount of such Security then being converted, and such interest shall be payable to such registered Holder notwithstanding the conversion of such Security, subject to the provisions of this Indenture relating to the payment of defaulted interest by the Company. Except as otherwise provided in this Section 4.2, no payment or adjustment will be made for accrued interest on a converted Security. If the Company defaults in the payment of interest payable on such interest payment date, the Company shall promptly repay such funds to such Holder.

     Nothing in this Section shall affect the right of a Holder in whose name any Security is registered at the close of business on a record date to receive the interest payable on such Security on the related interest payment date in accordance with the terms of this Indenture and the Securities. If a Holder converts more than one Security at the same time, the number of shares of Common Stock issuable upon the conversion shall be based on the aggregate principal amount of Securities converted.

     Upon surrender of a Security that is converted in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new Security equal in principal amount to the unconverted portion of the Security surrendered.

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Section 4.3 Fractional Shares

     Brocade will not issue fractional shares of Common Stock upon conversion of Securities. In lieu thereof, the Company will pay an amount in cash based upon the current market price (determined as set forth in Section 4.6(f)) of the Common Stock on the Trading Day immediately prior to the Conversion Date.

Section 4.4 Taxes on Conversion

     If a Holder converts a Security, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon such conversion. However, the Holder shall pay any such tax which is due because the Holder requests the shares to be issued in a name other than the Holder’s name. The Conversion Agent may refuse to deliver the certificate representing the Common Stock being issued in a name other than the Holder’s name until the Conversion Agent receives a sum sufficient to pay any tax which will be due because the shares are to be issued in a name other than the Holder’s name. Nothing herein shall preclude any tax withholding required by law or regulation.

Section 4.5 Brocade to Provide Stock

     Brocade shall, prior to issuance of any Securities hereunder, and from time to time as may be necessary, reserve, out of its authorized but unissued Common Stock, a sufficient number of shares of Common Stock to permit the conversion of all outstanding Securities into shares of Common Stock.

     All shares of Common Stock delivered upon conversion of the Securities shall be newly issued shares, shall be duly authorized, validly issued, fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim.

     Brocade will endeavor promptly to comply with all federal and state securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Securities, if any, and will list or cause to have quoted such shares of Common Stock on each national securities exchange or on the Nasdaq Global Select Market or Nasdaq Global Market (collectively, “NNM”) or other over-the-counter market or such other market on which the Common Stock is then listed or quoted; provided, however, that if rules of such automated quotation system or exchange permit Brocade to defer the listing of such Common Stock until the first conversion of the Securities into Common Stock in accordance with the provisions of this Indenture, Brocade covenants to list such Common Stock issuable upon conversion of the Securities in accordance with the requirements of such automated quotation system or exchange at such time.

Section 4.6 Adjustment of Conversion Price

     The conversion price as stated in paragraph 8 of the Securities (the “Conversion Price”) shall be adjusted from time to time by the Company as follows:

     (a) In case Brocade shall (i) pay a dividend on its Common Stock in shares of Common Stock, (ii) make a distribution on its Common Stock in shares of Common Stock, (iii)

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subdivide its outstanding Common Stock into a greater number of shares, or (iv) combine its outstanding Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior thereto shall be adjusted so that the Holder of any Security thereafter surrendered for conversion shall be entitled to receive that number of shares of Common Stock which it would have owned had such Security been converted immediately prior to the happening of such event. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of subdivision or combination.

     (b) In case Brocade shall issue rights or warrants to all or substantially all holders of its Common Stock entitling them (for a period commencing no earlier than the record date described below and expiring not more than 60 days after such record date) to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price per share (or having a conversion price per share) less than the current market price per share of Common Stock (as determined in accordance with subsection (f) of this Section 4.6) on the record date for the determination of shareholders entitled to receive such rights or warrants, the Conversion Price in effect immediately prior thereto shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered, which shall be determined by multiplying the number of shares of Common Stock issuable upon conversion of such convertible securities by the conversion price per share of Common Stock pursuant to the terms of such convertible securities) would purchase at the current market price per share (as determined in accordance with subsection (f) of this Section 4.6) of Common Stock on such record date, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after such record date. If at the end of the period during which such rights or warrants are exercisable not all rights or warrants shall have been exercised, the adjusted Conversion Price shall be immediately readjusted to what it would have been based upon the number of additional shares of Common Stock actually issued (or the number of shares of Common Stock issuable upon conversion of convertible securities actually issued).

     (c) In case Brocade shall distribute to all or substantially all holders of its Common Stock any shares of Capital Stock of Brocade (other than Common Stock), evidences of indebtedness or other non-cash assets (including securities of any person other than Brocade but excluding (i) dividends or distributions paid exclusively in cash or (ii) dividends or distributions referred to in subsection (a) of this Section 4.6), or shall distribute to all or substantially all holders of its Common Stock rights or warrants to subscribe for or purchase any of its securities (excluding those rights and warrants referred to in subsection (b) of this Section 4.6), then in each such case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the current Conversion Price by a fraction of which the numerator shall be the current market price per share (as determined in accordance with subsection (f) of this Section 4.6) of the Common Stock on the record date described below less the fair market

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value on such record date (as determined by the Board of Directors of Brocade, whose determination shall be conclusive evidence of such fair market value and which shall be evidenced by an Officers’ Certificate of Brocade delivered to the Trustee) of the portion of the Capital Stock, evidences of indebtedness or other non-cash assets so distributed or of such rights or warrants applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the record date), and of which the denominator shall be the current market price per share (as determined in accordance with subsection (f) of this Section 4.6) of the Common Stock on such record date. Such adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution.

     (d) In case Brocade shall, by dividend or otherwise, at any time distribute (a “Triggering Distribution”) to all or substantially all holders of its Common Stock cash in an aggregate amount that, together with the aggregate amount of (i) any cash and the fair market value (as determined by the Board of Directors of Brocade, whose determination shall be conclusive evidence thereof and which shall be evidenced by an Officers’ Certificate of Brocade delivered to the Trustee) of any other consideration payable in respect of any tender offer by Brocade or a Subsidiary of Brocade for Common Stock consummated within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made and (ii) all other cash distributions to all or substantially all holders of its Common Stock made within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made, exceeds an amount equal to 10.0% of the product of the current market price per share of Common Stock (as determined in accordance with subsection (f) of this Section 4.6) on the Business Day (the “Determination Date”) immediately preceding the day on which such Triggering Distribution is declared by Brocade multiplied by the number of shares of Common Stock outstanding on the Determination Date (excluding shares held in the treasury of Brocade), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying such Conversion Price in effect immediately prior to the Determination Date by a fraction of which the numerator shall be the current market price per share of the Common Stock (as determined in accordance with subsection (f) of this Section 4.6) on the Determination Date less the sum of the aggregate amount of cash and the aggregate fair market value (determined as aforesaid in this Section 4.6(d)) of any such other consideration so distributed, paid or payable within such 12 months (including, without limitation, the Triggering Distribution) applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the Determination Date) and the denominator shall be such current market price per share of the Common Stock (as determined in accordance with subsection (f) of this Section 4.6) on the Determination Date, such reduction to become effective immediately prior to the opening of business on the day next following the date on which the Triggering Distribution is paid.

     (e) In case any tender offer made by Brocade or any of its Subsidiaries for Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall involve the payment of aggregate consideration in an amount (determined as the sum of the aggregate amount of cash consideration and the aggregate fair market value (as determined by the Board of Directors of Brocade, whose determination shall be conclusive evidence thereof and which shall be evidenced by an Officers’ Certificate of Brocade delivered to the Trustee thereof) of any other

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consideration) that, together with the aggregate amount of (i) any cash and the fair market value (as determined by the Board of Directors of Brocade, whose determination shall be conclusive evidence thereof and which shall be evidenced by an Officers’ Certificate of Brocade delivered to the Trustee) of any other consideration payable in respect of any other tender offers by Brocade or any Subsidiary of Brocade for Common Stock consummated within the 12 months preceding the Expiration Date (as defined below) and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made and (ii) all cash distributions to all or substantially all holders of its Common Stock made within the 12 months preceding the Expiration Date and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made, exceeds an amount equal to 10.0% of the product of the current market price per share of Common Stock (as determined in accordance with subsection (f) of this Section 4.6) as of the last date (the “Expiration Date”) at which tenders could have been made pursuant to such tender offer (as it may be amended) (the last time at which such tenders could have been made on the Expiration Date is hereinafter sometimes called the “Expiration Time”) multiplied by the number of shares of Common Stock outstanding (including tendered shares but excluding any shares held in the treasury of Brocade) at the Expiration Time, then, immediately prior to the opening of business on the day after the Expiration Date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to close of business on the Expiration Date by a fraction of which the numerator shall be the product of the number of shares of Common Stock outstanding (including tendered shares but excluding any shares held in the treasury of Brocade) at the Expiration Time multiplied by the current market price per share of the Common Stock (as determined in accordance with subsection (f) of this Section 4.6) on the Trading Day next succeeding the Expiration Date and the denominator shall be the sum of (x) the aggregate consideration (determined as aforesaid) payable to shareholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of all shares validly tendered 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 Common Stock outstanding (less any Purchased Shares and excluding any shares held in the treasury of Brocade) at the Expiration Time and the current market price per share of Common Stock (as determined in accordance with subsection (f) of this Section 4.6) on the Trading Day next succeeding the Expiration Date, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Date. In the event that Brocade is obligated to purchase shares pursuant to any such tender offer, but Brocade is permanently prevented by applicable law from effecting any or all such purchases or any or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would have been in effect based upon the number of shares actually purchased. If the application of this Section 4.6(e) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 4.6(e). For purposes of this Section 4.6(e), the term “tender offer” shall mean and include both tender offers and exchange offers, all references to “purchases” of shares in tender offers (and all similar references) shall mean and include both the purchase of shares in tender offers and the acquisition of shares pursuant to exchange offers, and all references to “tendered shares” (and all similar references) shall mean and include shares tendered in both tender offers and exchange offers.

     (f) For the purpose of any computation under subsections (b), (c), (d) and (e) of this Section 4.6, the current market price per share of Common Stock on any date shall be deemed to

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be the average of the daily closing prices for the 30 consecutive Trading Days commencing 45 Trading Days before (i) the Determination Date or the Expiration Date, as the case may be, with respect to distributions or tender offers under subsections (c), (d) and (e) of this Section 4.6 or (ii) the record date with respect to distributions, issuances or other events requiring such computation under subsection (b), (c), (d) or (e) of this Section 4.6. The closing price for each day shall be the last reported sales price or, in case no such reported sale takes place on such date, the average of the reported closing bid and asked prices in either case on the NNM or, if the Common Stock is not listed or admitted to trading on the NNM, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on the NNM or any national securities exchange, the last reported sales price of the Common Stock as quoted on the NNM or, in case no reported sales takes place, the average of the closing bid and asked prices as quoted on the NNM or any comparable system or, if the Common Stock is not quoted on the NNM or any comparable system, the closing sales price or, in case no reported sale takes place, the average of the closing bid and asked prices, as furnished by any two members of the National Association of Securities Dealers, Inc. selected from time to time by Brocade for that purpose. If no such prices are available, the current market price per share shall be the fair value of a share of Common Stock as determined by the Board of Directors of Brocade (which shall be evidenced by an Officers’ Certificate of Brocade delivered to the Trustee).

     (g) In any case in which this Section 4.6 shall require that an adjustment be made following a record date or a Determination Date or Expiration Date, as the case may be, established for purposes of this Section 4.6, Brocade may elect to defer (but only until five Business Days following the filing by the Company with the Trustee of the certificate described in Section 4.9) issuing to the Holder of any Security converted after such record date or Determination Date or Expiration Date the shares of Common Stock and other Capital Stock of Brocade issuable upon such conversion over and above the shares of Common Stock and other Capital Stock of Brocade issuable upon such conversion only on the basis of the Conversion Price prior to adjustment; and, in lieu of the shares the issuance of which is so deferred, Brocade shall issue or cause its transfer agents to issue due bills or other appropriate evidence prepared by Brocade of the right to receive such shares. If any distribution in respect of which an adjustment to the Conversion Price is required to be made as of the record date or Determination Date or Expiration Date therefor is not thereafter made or paid by Brocade for any reason, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect if such record date had not been fixed or such effective date or Determination Date or Expiration Date had not occurred.

Section 4.7 No Adjustment

     No adjustment in the Conversion Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price as last adjusted; provided, however, that any adjustments which by reason of this Section 4.7 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article IV shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be.

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     No adjustment need be made for issuances of Common Stock pursuant to a Brocade plan for reinvestment of dividends or interest or for a change in the par value or a change to no par value of the Common Stock.

     To the extent that the Securities become convertible into the right to receive cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash.

Section 4.8 Adjustment for Tax Purposes

     The Company shall be entitled to make such reductions in the Conversion Price, in addition to those required by Section 4.6, as it in its discretion shall determine to be advisable in order that any stock dividends, subdivisions of shares, distributions of rights to purchase stock or securities or distributions of securities convertible into or exchangeable for stock hereafter made by Brocade to its shareholders shall not be taxable.

Section 4.9 Notice of Adjustment

     Whenever the Conversion Price or conversion privilege is adjusted, Brocade shall promptly mail to Securityholders a notice of the adjustment and file with the Trustee an Officers’ Certificate of Brocade briefly stating the facts requiring the adjustment and the manner of computing it. Unless and until the Trustee shall receive an Officers’ Certificate of Brocade setting forth an adjustment of the Conversion Price, the Trustee may assume without inquiry that the Conversion Price has not been adjusted and that the last Conversion Price of which it has knowledge remains in effect.

Section 4.10 Notice of Certain Transactions

     In the event that:

     (1) Brocade takes any action which would require an adjustment in the Conversion Price;

     (2) Brocade consolidates or merges with, or transfers all or substantially all of its property and assets to, another corporation and shareholders of Brocade must approve the transaction; or

     (3) there is a dissolution or liquidation of the Company or Brocade,

the Company shall mail to Holders and file with the Trustee a notice stating the proposed record or effective date, as the case may be. The Company shall mail the notice at least ten days before such date. Failure to mail such notice or any defect therein shall not affect the validity of any transaction referred to in clause (1), (2) or (3) of this Section 4.10.

Section 4.11 Effect of Reclassification, Consolidation, Merger or Sale on Conversion Privilege

     If any of the following shall occur, namely: (a) any reclassification or change of shares of Common Stock issuable upon conversion of the Securities (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a

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subdivision or combination, or any other change for which an adjustment is provided in Section 4.6); (b) any consolidation or merger or combination to which Brocade is a party other than a merger in which Brocade is the continuing corporation and which does not result in any reclassification of, or change (other than in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of Common Stock; or (c) any sale or conveyance as an entirety or substantially as an entirety of the property and assets of Brocade (determined on a consolidated basis), directly or indirectly, to any person, then Brocade, or such successor, purchasing or transferee corporation, as the case may be, shall, as a condition precedent to such reclassification, change, combination, consolidation, merger, sale or conveyance, execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then outstanding shall have the right to convert such Security into the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, change, combination, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock deliverable upon conversion of such Security immediately prior to such reclassification, change, combination, consolidation, merger, sale or conveyance. Such supplemental indenture shall provide for adjustments of the Conversion Price which shall be as nearly equivalent as may be practicable to the adjustments of the Conversion Price provided for in this Article IV. If, in the case of any such consolidation, merger, combination, sale or conveyance, the stock or other securities and property (including cash) receivable thereupon by a holder of Common Stock include shares of stock or other securities and property of a person other than the successor, purchasing or transferee corporation, as the case may be, in such consolidation, merger, combination, sale or conveyance, then such supplemental indenture shall also be executed by such other person and by any guarantor of the Company’s obligations pursuant to the Indenture and shall contain such additional provisions to protect the interests of the Holders of the Securities as the Board of Directors of Brocade shall reasonably consider necessary by reason of the foregoing. The provisions of this Section 4.11 shall similarly apply to successive reclassifications, changes, combinations, consolidations, mergers, sales or conveyances.

     In the event the Company, McDATA and Brocade shall execute a supplemental indenture pursuant to this Section 4.11, Brocade shall promptly file with the Trustee (x) an Officers’ Certificate of Brocade briefly stating the reasons therefor, the kind or amount of shares of stock or other securities or property (including cash) receivable by Holders of the Securities upon the conversion of their Securities after any such reclassification, change, combination, consolidation, merger, sale or conveyance, any adjustment to be made with respect thereto and that all conditions precedent have been complied with and (y) an Opinion of Counsel on behalf of Brocade that all conditions precedent have been complied with, and shall promptly mail notice thereof to all Holders.

Section 4.12 Trustee’s Disclaimer

     The Trustee shall have no duty to determine when an adjustment under this Article IV should be made, how it should be made or what such adjustment should be, but may accept as conclusive evidence of that fact or the correctness of any such adjustment, and shall be protected in relying upon, an Officers’ Certificate of Brocade including the Officers’ Certificate with respect thereto which Brocade is obligated to file with the Trustee pursuant to Section 4.9. The Trustee makes no representation as to the validity or value of any securities or assets issued upon

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conversion of Securities, and the Trustee shall not be responsible for Brocade’s failure to comply with any provisions of this Article IV.

     The Trustee shall not be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture executed pursuant to Section 4.11, but may accept as conclusive evidence of the correctness thereof, and shall be fully protected in relying upon, the Officers’ Certificate of Brocade with respect thereto which the Company is obligated to file with the Trustee pursuant to Section 4.11.

Section 4.13 Voluntary Reduction

     Brocade from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days and if the reduction is irrevocable during the period if the Board of Directors determines that such reduction would be in the best interest of the Company and Brocade and Brocade provides 15 days prior notice of any such reduction in the Conversion Price; provided, however, that in no event may Brocade reduce the Conversion Price to be less than the par value of a share of Common Stock.

10

ANNEX B

AMENDMENT, RESTATEMENT AND SUPPLEMENT TO SECURITY

1. All references in Exhibit A to the Indenture to Computer Network Technology Corporation, as trustee, shall mean McDATA Services Corporation, a Minnesota corporation f/k/a Computer Network Technology Corporation.

2. The legends on the form of the face of the Security are amend and restated in their entirety as follows:

     “[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY 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 IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE 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.]¹

     [THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), AND THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH

¹ This paragraph should be included only if the Security is a Global Security.

1

PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.]²

     THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (II) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF AVAILABLE), OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (II) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.]²

     [THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS AGREEMENT (AS SUCH TERM IS DEFINED IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF) AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT.]”

3. Paragraph 8 of the form of the reverse side of the Security is amended and restated in its entirety as follows:

     “8. Conversion

     Subject to compliance with the provisions of the Indenture, a Holder of a Security may convert the principal amount of such Security (or any portion thereof equal to $1,000 or any integral multiple of $1,000 in excess thereof) into shares of Common Stock at the Conversion Price in effect at the time of conversion under certain circumstances described in the Indenture; provided, however, that if the Security is called for redemption pursuant to Article III of the Indenture or upon a Change in Control, the conversion right will terminate at the close of business on the Business Day immediately preceding the redemption date

² These paragraphs to be included only if the Security is a Transfer Restricted Security.

2

or the Change in Control Repurchase Date, as the case may be, for such Security or such earlier date as the Holder presents such Security for redemption or purchase (unless the Company shall default in making the redemption payment or Change in Control Repurchase Price, as the case may be, when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Security is redeemed or purchased).

     A Security in respect of which a Holder has delivered a Change in Control Repurchase Notice exercising the option of such Holder to require the Company to repurchase such Security may be converted only if such notice of exercise is withdrawn in accordance with the terms of the Indenture.

     The Conversion Price is $19.67 per share, subject to adjustment under certain circumstances. The number of shares of Common Stock issuable upon conversion of a Security is determined by dividing the principal amount of the Security or portion thereof converted by the Conversion Price in effect on the Conversion Date. No fractional shares will be issued upon conversion; in lieu thereof, an amount will be paid in cash based upon the closing price (as defined in the Indenture) of the Common Stock on the Trading Day immediately prior to the Conversion Date.

     To convert a Security, a Holder must (a) complete and manually sign the conversion notice set forth below and deliver such notice to a Conversion Agent, (b) surrender the Security to a Conversion Agent, (c) furnish appropriate endorsements and transfer documents if required by a Registrar or a Conversion Agent, and (d) pay any transfer or similar tax, if required. Securities so surrendered for conversion (in whole or in part) during the period from the close of business on any Record Date to the opening of business on the next succeeding Interest Payment Date (excluding Securities or portions thereof called for redemption or upon a Change in Control on a Redemption Date or Change in Control Repurchase Date, as the case may be, during the period beginning at the close of business on a Record Date and ending at the opening of business on the first Business Day after the next succeeding Interest Payment Date, or if such Interest Payment Date is not a Business Day, the second such Business Day) shall also be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of such Security then being converted, and such interest shall be payable to such registered Holder notwithstanding the conversion of such Security, subject to the provisions of this Indenture relating to the payment of defaulted interest by the Company. If the Company defaults in the payment of interest payable on such Interest Payment Date, the Company shall promptly repay such funds to such Holder. A Holder may convert a portion of a Security equal to $1,000 or any integral multiple thereof.

     A Security in respect of which a Holder had delivered a Change in Control Purchase Notice exercising the option of such Holder to require the Company to

3

purchase such Security may be converted only if the Change in Control Purchase Notice is withdrawn in accordance with the terms of the Indenture.”

4. Paragraph 16 of the form of the reverse side of the Security is amended and restated in its entirety as follows:

     “16. Defaults and Remedies

     Under the Indenture, an Event of Default includes: (i) default for 30 days in payment of any interest on any Securities; (ii) default in payment of any principal (including, without limitation, any premium, if any) on the Securities when due; (iii) failure by the Company for 60 days after notice to it to comply with any of its other agreements contained in the Indenture or the Securities; and (iv) certain events of bankruptcy, insolvency or reorganization of the Company, McDATA Corporation, a Delaware corporation (“McDATA”), or Brocade Communication Systems, Inc., a Delaware corporation (“Brocade”). If an Event of Default (other than as a result of certain events of bankruptcy, insolvency or reorganization of the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities then outstanding may declare all unpaid principal to the date of acceleration on the Securities then outstanding to be due and payable immediately, all as and to the extent provided in the Indenture. If an Event of Default occurs as a result of certain events of bankruptcy, insolvency or reorganization of the Company, McDATA or Brocade, unpaid principal of the Securities then outstanding shall become due and payable immediately without any declaration or other act on the part of the Trustee or any Holder, all as and to the extent provided in the Indenture. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company is required to file periodic reports with the Trustee as to the absence of default.”

5. Paragraph 18 of the form of the reverse side of the Security is amended and restated in its entirety as follows:

     “18. No Recourse Against Others

     A director, officer, employee or shareholder, as such, of the Company, McDATA or Brocade shall not have any liability for any obligations of the Company, McDATA or Brocade, as the case may be, under the Securities or the Indenture nor for any claim based on, in respect of or by reason of such obligations or their creation. The Holder of this Security by accepting this Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Security.”

4

6. Paragraph 22 of the form of the reverse side of the Security is amended and restated in its entirety as follows:

     “22. Indenture to Control; Governing Law

     In the case of any conflict between the provisions of this Security and the Indenture, the provisions of the Indenture, as amended or supplemented from time to time, shall control. This Security shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of law.

     The Company will furnish to any Holder, upon written request and without charge, a copy of the Indenture. Requests may be made to: McDATA Services Corporation, 11802 Ridge Parkway, Broomfield, Colorado 80021, Attention: Chief Financial Officer.”

7. The form of the reverse side of the Security is amended and supplemented by adding a Paragraph 23 thereto as follows:

     “23. Brocade Guaranty

     This Security is entitled to the benefits of the Brocade Guaranty made for the benefit of the Holders. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and obligations of Brocade thereunder.”

8. The form of Conversion Notice attached to the form of the Security is amended and restated in its entirety as follows:

5

“CONVERSION NOTICE

     To convert this Security into Common Stock, check the box: o

     To convert only part of this Security, state the principal amount to be converted (must be $1,000 or a multiple of $1,000): $___.

     If you want the stock certificate made out in another person’s name, fill in the form below:

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

			Your Signature:
Date:
				(Sign exactly as your name appears on the other side of this Security)
	*Signature guaranteed by:
By:		”

^* The signature must be guaranteed by an institution which is a member of one of the following recognized signature guaranty programs: (i) the Securities Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guaranty program acceptable to the Trustee.

6

7. The form of the Security is amended and supplemented by adding the following Guaranty thereto:

“GUARANTY

     The undersigned (“Brocade”) hereby unconditionally guaranties to the extent set forth in the Indenture, dated February 20, 2002 between McDATA Services Corporation f/k/a Computer Network Technology Corporation, as issuer (the “Issuer”), and U.S. Bank National Association, a national banking association, as Trustee (the “Trustee”), as supplemented by First Supplemental Indenture dated as of June 1, 2005 by and among the Issuer, the Trustee and McDATA Corporation (“McDATA”) and that Second Supplemental Indenture dated as of January 29, 2007 by and among the Issuer, the Trustee, McDATA and Brocade (as amended, restated or supplemented from time to time, the “Indenture”), and subject to the provisions of the Indenture, as supplemented, (a) the due and punctual payment of the principal of, and premium, if any, and interest on the Securities, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal of, premium, if any, and, to the extent permitted by law, interest, all in accordance with the terms set forth in Article Three of the Second Supplemental Indenture, and (b) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise.

     The obligations of Brocade to the Holders pursuant to this Guaranty and the Indenture, as supplemented, are expressly set forth in Article Three of the Second Supplemental Indenture and reference is hereby made to the Indenture, as supplemented, for the precise terms and limitations of this Guaranty.

     Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Indenture.

     IN WITNESS WHEREOF, Brocade has caused this Guaranty to be duly executed as of the date set forth below.

     Dated: January 29, 2007

Brocade: BROCADE COMMUNICATION SYSTEMS, INC.
By:
	Name:
	Title: ”

7

EX-4.4

Exhibit 4.4

McDATA CORPORATION

2¹/4% CONVERTIBLE SUBORDINATED NOTE DUE 2010

INDENTURE
DATED AS OF FEBRUARY 7, 2003

WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION,
AS TRUSTEE

TABLE OF CONTENTS

	Page
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE		1
SECTION 1.1 DEFINITIONS		1
SECTION 1.2 OTHER DEFINITIONS		6
SECTION 1.3 TRUST INDENTURE ACT PROVISIONS		7
SECTION 1.4 RULES OF CONSTRUCTION		8
ARTICLE 2 THE SECURITIES		9
SECTION 2.1 FORM AND DATING		9
SECTION 2.2 EXECUTION AND AUTHENTICATION		10
SECTION 2.3 REGISTRAR, PAYING AGENT AND CONVERSION AGENT		11
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST		12
SECTION 2.5 SECURITYHOLDER LISTS		12
SECTION 2.6 TRANSFER AND EXCHANGE		12
SECTION 2.7 REPLACEMENT SECURITIES		13
SECTION 2.8 OUTSTANDING SECURITIES		14
SECTION 2.9 TREASURY SECURITIES		14
SECTION 2.10 TEMPORARY SECURITIES		14
SECTION 2.11 CANCELLATION		15
SECTION 2.12 LEGEND; ADDITIONAL TRANSFER AND EXCHANGE REQUIREMENTS		15
SECTION 2.13 CUSIP NUMBERS		17
ARTICLE 3 PURCHASES		18
SECTION 3.1 PURCHASE OF SECURITIES AT OPTION OF THE HOLDER UPON CHANGE IN CONTROL		18
SECTION 3.2 EFFECT OF CHANGE IN CONTROL PURCHASE NOTICE		21
SECTION 3.3 DEPOSIT OF CHANGE IN CONTROL PURCHASE PRICE		21
SECTION 3.4 SECURITIES PURCHASED IN PART		22
SECTION 3.5 COMPLIANCE WITH SECURITIES LAWS UPON PURCHASE OF SECURITIES		22
SECTION 3.6 REPAYMENT TO THE COMPANY		22
ARTICLE 4 CONVERSION		22
SECTION 4.1 CONVERSION PRIVILEGE		22
SECTION 4.2 CONVERSION PROCEDURE		23
SECTION 4.3 FRACTIONAL SHARES		24
SECTION 4.4 TAXES ON CONVERSION		24
SECTION 4.5 COMPANY TO RESERVE STOCK		25
SECTION 4.6 ADJUSTMENT OF CONVERSION PRICE		25
SECTION 4.7 SECTION 4.7. NO ADJUSTMENT		31
-i-

	Page
SECTION 4.8 ADJUSTMENT FOR TAX PURPOSES		31
SECTION 4.9 NOTICE OF ADJUSTMENT		31
SECTION 4.10 NOTICE OF CERTAIN TRANSACTIONS		31
SECTION 4.11 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE ON CONVERSION PRIVILEGE		32
SECTION 4.12 TRUSTEE’S DISCLAIMER		33
SECTION 4.13 VOLUNTARY REDUCTION		33
SECTION 4.14 PAYMENT OF CASH IN LIEU OF CLASS A COMMON STOCK		33
ARTICLE 5 SUBORDINATION		35
SECTION 5.1 AGREEMENT OF SUBORDINATION		35
SECTION 5.2 PAYMENTS TO HOLDERS		35
SECTION 5.3 SUBROGATION OF SECURITIES		37
SECTION 5.4 AUTHORIZATION TO EFFECT SUBORDINATION		38
SECTION 5.5 NOTICE TO TRUSTEE		39
SECTION 5.6 TRUSTEE’S RELATION TO SENIOR INDEBTEDNESS		39
SECTION 5.7 NO IMPAIRMENT OF SUBORDINATION		40
SECTION 5.8 CERTAIN CONVERSIONS DEEMED PAYMENT		40
SECTION 5.9 ARTICLE APPLICABLE TO PAYING AGENTS		40
SECTION 5.10 SENIOR INDEBTEDNESS ENTITLED TO RELY		41
SECTION 5.11 AGREEMENT TO SUBORDINATE UNAFFECTED		41
ARTICLE 6 COVENANTS		41
SECTION 6.1 PAYMENT OF SECURITIES		41
SECTION 6.2 SEC REPORTS		41
SECTION 6.3 COMPLIANCE CERTIFICATES		42
SECTION 6.4 FURTHER INSTRUMENTS AND ACTS		42
SECTION 6.5 MAINTENANCE OF CORPORATE EXISTENCE		42
SECTION 6.6 RULE 144A INFORMATION REQUIREMENT		42
SECTION 6.7 STAY, EXTENSION AND USURY LAWS		42
SECTION 6.8 PAYMENT OF ADDITIONAL INTEREST		43
ARTICLE 7 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE		43
SECTION 7.1 COMPANY MAY CONSOLIDATE, ETC, ONLY ON CERTAIN TERMS		43
SECTION 7.2 SUCCESSOR SUBSTITUTED		44
ARTICLE 8 DEFAULT AND REMEDIES		44
SECTION 8.1 EVENTS OF DEFAULT		44
SECTION 8.2 ACCELERATION		46
SECTION 8.3 OTHER REMEDIES		46
SECTION 8.4 WAIVER OF DEFAULTS AND EVENTS OF DEFAULT		46
SECTION 8.5 CONTROL BY MAJORITY		47
SECTION 8.6 LIMITATIONS ON SUITS		47
SECTION 8.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO CONVERT		47
-ii-

	Page
SECTION 8.8 COLLECTION SUIT BY TRUSTEE		48
SECTION 8.9 TRUSTEE MAY FILE PROOFS OF CLAIM		48
SECTION 8.10 PRIORITIES		48
SECTION 8.11 UNDERTAKING FOR COSTS		49
ARTICLE 9 TRUSTEE		49
SECTION 9.1 DUTIES OF TRUSTEE		49
SECTION 9.2 RIGHTS OF TRUSTEE		50
SECTION 9.3 INDIVIDUAL RIGHTS OF TRUSTEE		51
SECTION 9.4 TRUSTEE’S DISCLAIMER		51
SECTION 9.5 NOTICE OF DEFAULT OR EVENTS OF DEFAULT		51
SECTION 9.6 REPORTS BY TRUSTEE TO HOLDERS		52
SECTION 9.7 COMPENSATION AND INDEMNITY		52
SECTION 9.8 REPLACEMENT OF TRUSTEE		53
SECTION 9.9 SUCCESSOR TRUSTEE BY MERGER, ETC.		54
SECTION 9.10 ELIGIBILITY; DISQUALIFICATION		54
SECTION 9.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY		54
ARTICLE 10 SATISFACTION AND DISCHARGE OF INDENTURE		54
SECTION 10.1 SATISFACTION AND DISCHARGE OF INDENTURE		54
SECTION 10.2 APPLICATION OF TRUST MONEY		55
SECTION 10.3 REPAYMENT TO COMPANY		55
SECTION 10.4 REINSTATEMENT		56
ARTICLE 11 AMENDMENTS, SUPPLEMENTS AND WAIVERS		56
SECTION 11.1 WITHOUT CONSENT OF HOLDERS		56
SECTION 11.2 WITH CONSENT OF HOLDERS		56
SECTION 11.3 COMPLIANCE WITH TRUST INDENTURE ACT		58
SECTION 11.4 REVOCATION AND EFFECT OF CONSENTS		58
SECTION 11.5 NOTATION ON OR EXCHANGE OF SECURITIES		58
SECTION 11.6 TRUSTEE TO SIGN AMENDMENTS, ETC		58
SECTION 11.7 EFFECT OF SUPPLEMENTAL INDENTURES		59
ARTICLE 12 MISCELLANEOUS		59
SECTION 12.1 TRUST INDENTURE ACT CONTROLS		59
SECTION 12.2 NOTICES		59
SECTION 12.3 COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS		60
SECTION 12.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT		60
SECTION 12.5 RECORD DATE FOR VOTE OR CONSENT OF SECURITYHOLDERS		61
SECTION 12.6 RULES BY TRUSTEE, PAYING AGENT, REGISTRAR AND CONVERSION AGENT		61
SECTION 12.7 LEGAL HOLIDAYS		61
SECTION 12.8 GOVERNING LAW		61
-iii-

	Page
SECTION 12.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS		61
SECTION 12.10 NO RECOURSE AGAINST OTHERS		61
SECTION 12.11 SUCCESSORS		62
SECTION 12.12 MULTIPLE COUNTERPARTS		62
SECTION 12.13 SEPARABILITY		62
SECTION 12.14 TABLE OF CONTENTS, HEADINGS, ETC.		62
-iv-

CROSS REFERENCE TABLE^*

		INDENTURE
TIA SECTION		SECTION
Section	310(a)(1)	9.10
	(a)(2)	9.10
	(a)(3)	N.A.**
	(a)(4)	N.A.
	(a)(5)	9.10
	(b)	9.8; 9.10
	(c)	N.A.
Section	311(a)	9.11
	(b)	9.11
	(c)	N.A.
Section	312(a)	2.5
	(b)	12.3
	(c)	12.3
Section	313(a)	9.6
	(b)(1)	N.A.
	(b)(2)	9.6
	(c)	9.6; 12.2
	(d)	9.6
Section	314(a)	6.2; 6.4; 12.2
	(b)	N.A.
	(c)(1)	12.4(a)
	(c)(2)	12.4(a)
	(c)(3)	N.A.
	(d)	N.A.
	(e)	12.4(b)
	(f)	N.A.
Section	315(a)	9.1(b)
	(b)	9.5; 12.2
	(c)	9.1(a)
	(d)	9.1(c)
	(e)	8.11
Section	316(a)(last sentence)	2.9
	(a)(1)(A)	8.5
	(a)(1)(B)	8.4
	(a)(2)	N.A.
	(b)	8.7
	(c)	12.5
Section	317(a)(1)	8.8
	(a)(2)	8.9
	(b)	2.4

*	This Cross-Reference Table shall not, for any purpose, be deemed a part of this Indenture.
**	N.A. means Not Applicable.

-v-

     THIS INDENTURE dated as of February 7, 2003 is between McDATA Corporation, a corporation duly organized under the laws of the State of Delaware (the “Company”), and Wells Fargo Bank Minnesota, National Association, a national banking association organized and existing under the laws of the United States, as Trustee (the “Trustee”).

     In consideration of the premises and the purchase of the Securities (as defined below) by the Holders (as defined below) thereof, both parties agree as follows for the benefit of the other and for the equal and ratable benefit of the registered Holders of the Company’s 2¹/₄% Convertible Subordinated Notes Due 2010.

ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE

     SECTION 1.1 DEFINITIONS.

     “Additional Interest” has the meaning specified in Section 5 of the Registration Rights Agreement. All references herein to interest accrued or payable as of any date shall include any Additional Interest accrued or payable as of such date as provided in the Registration Rights Agreement.

     “Affiliate” means, with respect to any specified person, 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 person means the power to direct 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.

     “Agent” means any Registrar, Paying Agent or Conversion Agent.

     “Applicable Procedures” means, with respect to any transfer or exchange of beneficial ownership interests in a Global Security, the rules and procedures of the Depositary, in each case to the extent applicable to such transfer or exchange.

     “Board of Directors” means either the board of directors of the Company or any committee of the Board of Directors authorized to act for it with respect to this Indenture.

     “Business Day” means each day that is not a Legal Holiday.

     “Capital Stock” of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, but excluding any debt securities convertible into such equity.

     “Cash” or “cash” means such coin or currency of the United States as at any time of payment is legal tender for the payment of public and private debts.

     “Certificated Security” means a Security that is in substantially the form attached hereto as Exhibit A and that does not include the information or the schedule called for by footnotes 1, 3 and 4 thereof.

     “Common Stock” means the Class A Common Stock of the Company, $0.01 par value, as it exists on the date of this Indenture and any shares of any class or classes of capital stock of the Company 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 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 on conversion of Securities 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 party named as such in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor Company.

     “Conversion Rate” means $1,000 divided by the then-current Conversion Price.

     “Corporate Trust Office” means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered which office at the date of the execution of this Indenture is located at 213 Court Street, Suite 703, Middletown, CT 06457, Attention: Corporate Trust Services or at any other time at such other address as the Trustee may designate from time to time by notice to the Company.

     “Default” or “default” means, when used with respect to the Securities, any event which is or, after notice or passage of time or both, would be an Event of Default.

     “Designated Senior Indebtedness” means any particular Senior Indebtedness of the Company in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or any 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.

     “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.

     “Final Maturity Date” means February 15, 2010.

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     “GAAP” means generally accepted accounting principles in the United States of America as in effect as of the date of this Indenture, including those set forth in (1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (2) the statements and pronouncements of the Financial Accounting Standards Board, (3) such other statements by such other entity as approved by a significant segment of the accounting profession and (4) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in registration statements filed under the Securities Act and periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC.

     “Global Security” means a permanent Global Security that is in substantially the form attached hereto as Exhibit A and that includes the information and schedule called for by footnotes 1, 3 and 4 thereof and which is deposited with the Depositary or its custodian and registered in the name of the Depositary or its nominee.

     “Holder” or “Securityholder” means the person in whose name a Security is registered on the Primary Registrar’s books.

     “Indebtedness” means, with respect to any Person, without duplication, (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person (i) for borrowed money (including obligations of such Person 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 (ii) evidenced by credit or loan agreements, 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 accounts 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) of such Person (i) in respect of leases of such Person required, in conformity with GAAP, to be accounted for as capitalized lease obligations on the balance sheet of such Person (as determined by the Company), or (ii) under any lease or related document (including a purchase agreement, conditional sale or other title retention agreement) in connection with the lease of real property or improvement thereon (or any personal property included as part of any such lease) which provides that such Person is contractually obligated to purchase or cause a third party to purchase the leased property or pay an agreed upon residual value of the leased property to the lessor (whether or not such lease transaction is characterized as an operating lease or a capitalized lease in accordance with GAAP), (d) all obligations (contingent or otherwise) of such Person with respect to any interest rate or other swap, cap, floor or collar agreement, hedge agreement, forward contract, or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement; (e) all direct or indirect guaranties, agreements to be jointly liable or similar agreements by such Person in respect of, and obligations or liabilities 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), and (f) any and all deferrals, renewals, extensions, refinancings and refundings of, or amendments, modifications or

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supplements to, any indebtedness, obligation or liability of the kind described in clauses (a) through (e); provided, however, that the descriptions in (a), (b), (c) and (e) above shall only constitute “Indebtedness” hereunder to the extent they would appear as a liability upon a balance sheet of such Person that is prepared in accordance with GAAP.

     “Indenture” means this Indenture as amended or supplemented from time to time pursuant to the terms of this Indenture.

     “Initial Purchasers” mean Banc of America Securities LLC, Credit Suisse First Boston LLC and Salomon Smith Barney Inc.

     “Officer” means the Chairman or any Co-Chairman of the Board, any Vice Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Controller, the Secretary or any Assistant Controller or Assistant Secretary of the Company.

     “Officers’ Certificate” means a certificate signed by two Officers; provided, however, that for purposes of Sections 4.11 and 6.3, “Officers’ Certificate” means a certificate signed by the principal executive officer, principal financial officer or principal accounting officer of the Company and by one other Officer.

     “Opinion of Counsel” means a written opinion from legal counsel. The counsel may be an employee of or counsel to the Company or the Trustee.

     “Person” or “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

     “Principal” or “principal” of a debt security, including the Securities, means the principal of the security.

     “Registration Rights Agreement” means the Registration Rights Agreement dated, as of February 7, 2003, between the Company and the Initial Purchasers.

     “Representative” means the (a) 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.

     “Restricted Global Security” means a Global Security that is a Restricted Security.

     “Restricted Security” means a Security required to bear the restrictive legend set forth in the form of Security set forth in Exhibit A of this Indenture.

     “Rule 144” means Rule 144 under the Securities Act or any successor to such Rule.

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     “Rule 144A” means Rule 144A under the Securities Act or any successor to such Rule.

     “SEC” means the Securities and Exchange Commission.

     “Securities” means the 2¹/₄% Convertible Subordinated Notes Due 2010 or any of them (each, a “Security”), as amended or supplemented from time to time, that are issued under this Indenture.

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

     “Securities Custodian” means the Trustee, as custodian with respect to the Securities in global form, or any successor thereto.

     “Senior Indebtedness” means the principal of, 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 allowed 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 Securities or expressly provides that such Indebtedness is “pari passu” or “junior” to the Securities. Notwithstanding the foregoing, the term Senior Indebtedness shall not include (i) any Indebtedness of the Company to any Subsidiary of the Company (other than Indebtedness of the Company to such Subsidiary arising by reason of guarantees by the Company of Indebtedness of such Subsidiary to a Person that is not a Subsidiary of the Company); or (ii) the Securities. 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, in respect of any Person, a Subsidiary of such Person that would constitute a “significant subsidiary” as such term is defined under Rule 1-02 of Regulation S-X under the Securities Act and the Exchange Act.

     “Subsidiary” means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, general partners or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person; (ii) such Person and one or more Subsidiaries of such Person; or (iii) one or more Subsidiaries of such Person.

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     “TIA” means the Trust Indenture Act of 1939, as amended, and the rules and regulations thereunder as in effect on the date of this Indenture, except as provided in Section 11.3, and except to the extent any amendment to the Trust Indenture Act expressly provides for application of the Trust Indenture Act as in effect on another date.

     “Trading Day” means, with respect to any security, each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not generally traded on the principal exchange or market in which such security is traded.

     “Trustee” means the party named as such in the first paragraph of this Indenture until a successor replaces it in accordance with the provisions of this Indenture, and thereafter means the successor.

     “Trust Officer”, with respect to the Trustee, any officer assigned to the Corporate Trust Office to administer its corporate trust matters.

     “Voting Stock” of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof.

     SECTION 1.2 OTHER DEFINITIONS.

	Defined in
Term	Section
“Agent Members”		2.1	(c)
“Bankruptcy Law”		8.1
“Cash Amount”		4.14
“Cash Settlement Averaging Period”		4.14
“Cash Settlement Notice Period”		4.14
“Change in Control”		3.8	(a)
“Change in Control Purchase Date”		3.8	(a)
“Change in Control Purchase Notice”		3.8	(c)
“Change in Control Purchase Price”		3.8	(a)
“Closing Price”		4.6	(c)
“Company Order”		2.2
“Conversion Agent”		2.3
“Conversion Date”		4.2
“Conversion Price”		4.6
“Conversion Obligation”		4.14

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	Defined in
Term	Section
“Conversion Retraction Period”		4.14
“Current Market Price”		4.6	(e)
“Custodian”		8.1
“DTC”		2.1	(b)
“Depositary”		2.1	(b)
“Determination Date”		4.6	(c)
“Event of Default”		8.1
“Expiration Date”		4.6	(c)
“Expiration Time”		4.6	(c)
“Final Notice Date”		4.14
“Instrument”		8.1	(6)
“Legal Holiday”		12.7
“Legend”		2.12	(a)
“NNM”		4.6	(c)
“Paying Agent”		2.3
“Payment Blockage Notice”	5.2(ii)
“Primary Registrar”		2.3
“Purchase Agreement”		2.1
“Purchased Shares”		4.6	(c)
“QIB”		2.1	(b)
“Registrar”		2.3
“Rights Plan”		4.6	(c)
“Triggering Distribution”		4.6	(c)
“Trigger Event”		4.6	(c)
“Unissued Shares”		3.8	(a)

     SECTION 1.3 TRUST INDENTURE ACT PROVISIONS.

     Whenever this Indenture refers to a provision of the TIA, that provision is incorporated by reference in and made a part of this Indenture. The Indenture shall also include those provisions of the TIA required to be included herein by the provisions of the Trust Indenture Reform Act of 1990. The following TIA terms used in this Indenture have the following meanings:

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     “indenture securities” means the Securities;

     “indenture security holder” means a Securityholder;

     “indenture to be qualified” means this Indenture;

     “indenture trustee” or “institutional trustee” means the Trustee; and “obligor” on the indenture securities means the Company or any other obligor on the Securities.

     All other terms used in this Indenture that are defined in the TIA, defined by TIA reference to another statute or defined by any SEC rule and not otherwise defined herein have the meanings assigned to them therein.

     SECTION 1.4 RULES OF CONSTRUCTION.

     Unless the context otherwise requires:

          (A) a term has the meaning assigned to it;

          (B) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;

          (C) words in the singular include the plural, and words in the plural include the singular;

          (D) “or” is not exclusive;

          (E) provisions apply to successive events and transactions;

          (F) the term “merger” includes a statutory share exchange and the term “merged” has a correlative meaning;

          (G) the masculine gender includes the feminine and the neuter;

          (H) references to agreements and other instruments include subsequent amendments thereto;

          (I) references to sections of or rules promulgated under the Securities Act or the TIA shall include subsequent amendments, replacements, successor or substitute sections or rules thereto as adopted by the SEC from time to time; and

          (J) “herein,” “hereof” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

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ARTICLE 2
THE SECURITIES

     SECTION 2.1 FORM AND DATING.

     The Securities and the Trustee’s certificate of authentication shall be substantially in the respective forms set forth in Exhibit A, which Exhibit is incorporated in and made part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company shall provide any such notations, legends or endorsements to the Trustee in writing. Each Security shall be dated the date of its authentication. The Securities are being offered and sold by the Company pursuant to an Amended and Restated Purchase Agreement dated February 4, 2003 (the “Purchase Agreement”), between the Company and the Initial Purchasers, in transactions exempt from, or not subject to, the registration requirements of the Securities Act.

     (a) The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture and 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. In case of any conflict between the provisions of any Security with the provisions of this Indenture, the provisions of this Indenture shall control.

     (b) All of the Securities are initially being offered and sold to qualified institutional buyers as defined in Rule 144A (collectively, “QIBs” or individually, each a “QIB”) in reliance on Rule 144A under the Securities Act and shall be issued initially in the form of one or more Restricted Global Securities, which shall be deposited on behalf of the purchasers of the Securities represented thereby with the Trustee, at its Corporate Trust Office, as custodian for the depositary, The Depository Trust Company (“DTC”) (such depositary, or any successor thereto, being hereinafter referred to as the “Depositary”), and registered in the name of its nominee, Cede & Co., duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Restricted Global Securities may from time to time be increased or decreased by adjustments made on the records of the Securities Custodian as hereinafter provided, subject in each case to compliance with the Applicable Procedures.

     (c) Each Global Security shall represent such of the outstanding Securities as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Securities from time to time endorsed thereon and that the aggregate amount of outstanding Securities represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges, purchases or conversions of such Securities. Any endorsement of a Global Security for adjustment of the aggregate principal amount of a Global Security to reflect the amount of any increase or decrease in the amount of outstanding Securities represented thereby shall be made by the Trustee in accordance with instructions given by the Holder thereof as required by Section 2.12 hereof and shall be made on the records of the Trustee and the Depositary.

     Members of, or participants in, the Depositary (“Agent Members”) shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or under the Global Security, and the Depositary (including, for this purpose, its nominee) may be treated by the

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Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and Holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall (A) prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or (B) impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Security.

     (d) The Company shall execute and the Trustee shall, in accordance with this Section 2.1(d), authenticate and deliver initially one or more Global Securities that (i) shall be registered in the name of the Depositary, (ii) shall be delivered by the Trustee to the Depositary or pursuant to the Depositary’s instructions and (iii) shall bear legends substantially to the following effect:

“UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO McDATA CORPORATION (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 IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN ARTICLE TWO OF THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.”

     SECTION 2.2 EXECUTION AND AUTHENTICATION.

     An Officer shall sign the Securities for the Company by manual or facsimile signature attested by the manual or facsimile signature of the Secretary or an Assistant Secretary of the Company. Typographic and other minor errors or defects in any such facsimile signature shall not affect the validity or enforceability of any Security which has been authenticated and delivered by the Trustee.

     If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless.

     A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture.

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     The Trustee shall authenticate and make available for delivery Securities for original issue in the aggregate principal amount of up to $172,500,000 upon receipt of a written order or orders of the Company signed by two Officers of the Company (a “Company Order”). The Company Order shall specify the amount of Securities to be authenticated, shall provide that all such Securities will be represented by a Restricted Global Security and the date on which each original issue of Securities is to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed $172,500,000 except as provided in Section 2.7.

     The Trustee shall act as the initial authenticating agent. Thereafter, the Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent shall have the same rights as an Agent to deal with the Company or an Affiliate of the Company.

     The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 principal amount and any integral multiple thereof.

     SECTION 2.3 REGISTRAR, PAYING AGENT AND CONVERSION AGENT.

     The Company shall maintain one or more offices or agencies where Securities may be presented for registration of transfer or for exchange (each, a “Registrar”), one or more offices or agencies where Securities may be presented for payment (each, a “Paying Agent”), one or more offices or agencies where Securities may be presented for conversion (each, a “Conversion Agent”) and one or more offices or agencies where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will at all times maintain a Paying Agent, Conversion Agent, Registrar and an office or agency where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served in the City of New York. One of the Registrars (the “Primary Registrar”) shall keep a register of the Securities and of their transfer and exchange.

     The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to maintain a Registrar, Paying Agent, Conversion Agent or agent for service of notices and demands in any place required by this Indenture, or fails to give the foregoing notice, the Trustee shall act as such. The Company or any Affiliate of the Company may act as Registrar, Paying Agent (except for the purposes of Section 6.1 and Article 10) or Conversion Agent.

     The Company hereby initially designates the Trustee as Paying Agent, Registrar, Custodian and Conversion Agent, and each of the Corporate Trust Office of the Trustee and the office or agency of the Trustee in The City of New York (which shall initially be Wells Fargo Bank Minnesota, N.A., an Affiliate of the Trustee, as agent of the Trustee located at Wells Fargo Bank Minnesota, N.A., c/o Banker’s Trust Company, 16 Wall Street, 4th Floor, New York, NY 10015, Attention: Window No. 72, one such office or agency of the Company for each of the aforesaid purposes.

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     SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.

     Prior to 11:00 a.m., New York City time, on each due date of the principal of or interest, if any, on any Securities, the Company shall deposit with a Paying Agent a sum sufficient to pay such principal or interest, if any, so becoming due. Subject to Section 5.2, a Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest, if any, on the Securities, and shall notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such payment. If the Company or an Affiliate of the Company acts as Paying Agent, it shall, before 11:00 a.m., New York City time, on each due date of the principal of or interest on any Securities, segregate the money and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee, and the Trustee may at any time during the continuance of any default, upon written request to a Paying Agent, require such Paying Agent to pay forthwith to the Trustee all sums so held in trust by such Paying Agent. Upon doing so, the Paying Agent (other than the Company) shall have no further liability for the money.

     SECTION 2.5 SECURITYHOLDER LISTS.

     The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders and shall otherwise comply with Section 312(a) of the TIA. If the Trustee is not the Primary Registrar, the Company shall furnish to the Trustee five (5) Business Days prior to each semiannual interest payment date, and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders.

     SECTION 2.6 TRANSFER AND EXCHANGE.

     (a) Subject to compliance with any applicable additional requirements contained in Section 2.12, when a Security is presented to a Registrar with a request to register a transfer thereof or to exchange such Security for an equal principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested; provided, however, that every Security presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by an assignment form and, if applicable, a transfer certificate each in the form included in Exhibit A, and in form satisfactory to the Registrar duly executed by the Holder thereof or its attorney duly authorized in writing. To permit registration of transfers and exchanges, upon surrender of any Security for registration of transfer or exchange at an office or agency maintained pursuant to Section 2.3, the Company shall execute and the Trustee shall authenticate Securities of a like aggregate principal amount at the Registrar’s request. Any exchange or transfer shall be without charge, except that the Company or the Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto, and provided, that this sentence shall not apply to any exchange pursuant to Section 2.10, 4.2 (last paragraph) or 11.5.

     Neither the Company, any Registrar nor the Trustee shall be required to exchange or register a transfer of any Securities or portions thereof in respect of which a Change in Control Purchase

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Notice has been delivered and not withdrawn by the Holder thereof (except, in the case of the purchase of a Security in part, the portion thereof not to be purchased).

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

     (b) Any Registrar appointed pursuant to Section 2.3 hereof shall provide to the Trustee such information as the Trustee may reasonably require in connection with the delivery by such Registrar of Securities upon transfer or exchange of Securities.

     (c) Each Holder of a Security agrees to indemnify the Company and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder’s Security in violation of any provision of this Indenture and/or applicable United States federal or state securities law.

     The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Agent Members or other beneficial owners of interests in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

     SECTION 2.7 REPLACEMENT SECURITIES.

     If any mutilated Security is surrendered to the Company, a Registrar or the Trustee, or the Company, a Registrar and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company, the applicable Registrar and the Trustee such security or indemnity as will be required by them to save each of them harmless, then, in the absence of notice to the Company, such Registrar or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute, and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding.

     In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, or is about to be purchased by the Company pursuant to Article 3, the Company in its discretion may, instead of issuing a new Security, pay or purchase such Security, as the case may be.

     Upon the issuance of any new Securities under this Section 2.7, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the reasonable fees and expenses of the Trustee or the Registrar) in connection therewith.

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     Every new Security issued pursuant to this Section 2.7 in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder.

     The provisions of this Section 2.7 are (to the extent lawful) exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.

     SECTION 2.8 OUTSTANDING SECURITIES.

     Securities outstanding at any time are all Securities authenticated by the Trustee, except for those canceled by it, those converted pursuant to Article 4, those delivered to it for cancellation or surrendered for transfer or exchange and those described in this Section 2.8 as not outstanding.

     If a Security is replaced pursuant to Section 2.7, it ceases to be outstanding unless the Company receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser.

     If a Paying Agent (other than the Company or an Affiliate of the Company) holds on a Change in Control Purchase Date or the Final Maturity Date money sufficient to pay the principal of and accrued interest on Securities (or portions thereof) payable on that date, then on and after such Change in Control Purchase Date or the final Maturity Date, as the case may be, such Securities (or portions thereof, as the case may be) shall cease to be outstanding and interest on them shall cease to accrue.

     Subject to the restrictions contained in Section 2.9, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security.

     SECTION 2.9 TREASURY SECURITIES.

     In determining whether the Holders of the required principal amount of Securities have concurred in any notice, direction, waiver or consent, Securities owned by the Company or any other obligor on the Securities or by any Subsidiary of the Company or of such other obligor shall be disregarded, except that, for purposes of determining whether the Trustee shall be protected in relying on any such notice, direction, waiver or consent, only Securities which a Trust Officer of the Trustee actually knows are so owned shall be so disregarded. Securities so owned which have been pledged in good faith shall not be disregarded if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to the Securities and that the pledgee is not the Company or any other obligor on the Securities or any Subsidiary of the Company or of such other obligor.

     SECTION 2.10 TEMPORARY SECURITIES.

     Until definitive Securities are ready for delivery, the Company may prepare and execute, and, upon receipt of a Company Order, the Trustee shall authenticate and deliver, temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have

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variations that the Company considers appropriate for temporary Securities and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate and deliver definitive Securities in exchange for temporary Securities.

     SECTION 2.11 CANCELLATION.

     The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar, the Paying Agent and the Conversion Agent shall forward to the Trustee or its agent any Securities surrendered to them for transfer, exchange, payment or conversion. The Trustee and no one else shall promptly cancel, in accordance with its standard procedures, all Securities surrendered for transfer, exchange, payment, conversion or cancellation and shall deliver the canceled Securities to the Company. All Securities which are purchased or otherwise acquired by the Company or any of its Subsidiaries prior to the Final Maturity Date shall be delivered to the Trustee for cancellation, and the Company may not hold or resell such Securities or issue any new Securities to replace any such Securities or any Securities that any Holder has converted pursuant to Article 4.

     SECTION 2.12 LEGEND; ADDITIONAL TRANSFER AND EXCHANGE REQUIREMENTS.

     (a) If Securities are issued upon the transfer, exchange or replacement of Securities subject to restrictions on transfer and bearing the legends set forth on the forms of Securities attached hereto as Exhibit A or additional legends required by law, stock exchange rules or usage (collectively, the “Legend”), or if a request is made to remove the Legend on a Security, the Securities so issued shall bear the Legend, or the Legend shall not be removed, as the case may be, unless there is delivered to the Company and the Registrar such satisfactory evidence, which shall include an opinion of counsel if so requested by the Company or such Registrar, as may be reasonably acceptable to the Company and the Registrar, that neither the Legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A or Rule 144 under the Securities Act or that such Securities are not “restricted” within the meaning of Rule 144 under the Securities Act; provided that no such evidence need be supplied in connection with the sale of such Security pursuant to a registration statement under the Securities Act that is effective at the time of such sale. Upon (i) provision of such satisfactory evidence if requested, or (ii) notification by the Company to the Trustee and Registrar of the sale of such Security pursuant to a registration statement that is effective at the time of such sale, the Trustee, at the written direction of the Company, shall authenticate and deliver a Security that does not bear the Legend or any portion thereof. If the Legend is removed from the face of a Security and the Security is subsequently held by an Affiliate of the Company, the Legend may be reinstated by the Company.

     (b) A Global Security may not be transferred, in whole or in part, to any Person other than the Depositary or a nominee or any successor thereof, and no such transfer to any such other Person may be registered; provided that the foregoing shall not prohibit any transfer of a Security that is issued in exchange for a Global Security but is not itself a Global Security in accordance with the terms of such Security. No transfer of a Security to any Person shall be effective unless and until such Security has been registered in the name of such Person. Notwithstanding any other provisions of this Indenture or the Securities, transfers of a Global Security, in whole or in part, shall be made only in accordance with this Section 2.12.

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     (c) Subject to the succeeding paragraph, every Security shall be subject to the restrictions on transfer provided in the Legend. Whenever any Restricted Security other than a Restricted Global Security is presented or surrendered for registration of transfer or for exchange for a Security registered in a name other than that of the Holder, such Security must be accompanied by a certificate in substantially the form set forth in Exhibit A, dated the date of such surrender and signed by the Holder of such Security, as to compliance with such restrictions on transfer. The Registrar shall not be required to accept for such registration of transfer or exchange any Security not so accompanied by a properly completed certificate.

     (d) The restrictions imposed by the Legend upon the transferability of any Security shall cease and terminate when such Security has been sold pursuant to an effective registration statement under the Securities Act or transferred in compliance with Rule 144 under the Securities Act (or any successor provision thereto) or, if earlier, upon the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), unless otherwise required by law or stock exchange rules. Any Security as to which such restrictions on transfer shall have expired in accordance with their terms or shall have terminated may, upon a surrender of such Security for exchange to the Registrar in accordance with the provisions of this Section 2.12 (accompanied, in the event that such restrictions on transfer have terminated by reason of a transfer in compliance with Rule 144 or any successor provision, by, if requested, an opinion of counsel reasonably acceptable to the Company, addressed to the Company and in form acceptable to the Company, to the effect that the transfer of such Security has been made in compliance with Rule 144 or such successor provision), be exchanged for a new Security, of like tenor and aggregate principal amount, which shall not bear the restrictive Legend. The Company shall inform the Trustee of the effective date of any registration statement registering the Securities under the Securities Act. The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the aforementioned opinion of counsel or registration statement.

     (e) As used in the preceding two paragraphs of this Section 2.12, the term “transfer” encompasses any sale, pledge, transfer, hypothecation or other disposition of any Security.

     (f) The provisions of clauses (i), (ii), (iii) and (iv) below shall apply only to Global Securities:

          (i) Notwithstanding any other provisions of this Indenture or the Securities, a Global Security shall not be exchanged in whole or in part for a Security registered in the name of any Person other than the Depositary or one or more nominees thereof, provided that a Global Security may be exchanged for Securities registered in the names of any person designated by the Depositary in the event that (A) the Depositary has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or such Depositary has ceased to be a “clearing agency” registered under the Exchange Act, and a successor Depositary is not appointed by the Company within 90 days, (B) the Company has provided the Depositary with written notice that it has decided to discontinue use of the system of book-entry transfer through the Depositary or any successor Depositary or (C) an Event of Default has occurred and is continuing with respect to the Securities. Any Global Security exchanged pursuant to clauses (A) or (B) above shall be so exchanged in whole and not in part, and any Global Security exchanged pursuant to clause (C) above may be exchanged in whole or from time to time in part as directed by the Depositary. Any Security

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issued in exchange for a Global Security or any portion thereof shall be a Global Security; provided that any such Security so issued that is registered in the name of a Person other than the Depositary or a nominee thereof shall not be a Global Security.

          (ii) Securities issued in exchange for a Global Security or any portion thereof shall be issued in definitive, fully registered form, without interest coupons, shall have an aggregate principal amount equal to that of such Global Security or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the Depositary shall designate and shall bear the applicable legends provided for herein. Only Restricted Securities shall be issued in exchange for Global Restricted Securities. Any Global Security to be exchanged in whole shall be surrendered by the Depositary to the Trustee, as Registrar. With regard to any Global Security to be exchanged in part, either such Global Security shall be so surrendered for exchange or, if the Trustee is acting as custodian for the Depositary or its nominee with respect to such Global Security, the principal amount thereof shall be reduced, by an amount equal to the portion thereof to be so exchanged, by means of an appropriate adjustment made on the records of the Trustee. Upon any such surrender or adjustment, the Trustee shall authenticate and deliver the Security issuable on such exchange to or upon the order of the Depositary or an authorized representative thereof.

          (iii) Subject to the provisions of clause (v) below, the registered Holder may grant proxies and otherwise authorize any Person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities.

          (iv) In the event of the occurrence of any of the events specified in clause (i) above, the Company will promptly make available to the Trustee a reasonable supply of Certificated Securities in definitive, fully registered form, without interest coupons.

          (v) Neither Agent Members nor any other Persons on whose behalf Agent Members may act shall have any rights under this Indenture with respect to any Global Security registered in the name of the Depositary or any nominee thereof, or under any such Global Security, and the Depositary or such nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or such nominee, as the case may be, or impair, as between the Depositary, its Agent Members and any other person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a holder of any Security.

     SECTION 2.13 CUSIP NUMBERS.

     The Company in issuing the Securities may use one or more “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of purchase as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of purchase and that reliance may be placed only on the other identification numbers printed on the

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Securities, and any such purchase 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 3
PURCHASES

     SECTION 3.1 PURCHASE OF SECURITIES AT OPTION OF THE HOLDER UPON CHANGE IN CONTROL.

     (a) If at any time that Securities remain outstanding there shall occur a Change in Control, Securities shall be purchased by the Company at the option of the Holders, as of the date that is 30 Business Days after the occurrence of the Change in Control (the “Change in Control Purchase Date”) at a purchase price equal to 100% of the principal amount of the Securities, together with accrued and unpaid interest to, but excluding, the Change in Control Purchase Date (the “Change in Control Purchase Price”), subject to satisfaction by or on behalf of any Holder of the requirements set forth in subsection (c) of this Section 3.1.

     A “Change in Control” shall be deemed to have occurred if any of the following occurs after the date hereof:

          (1) any “person” or “group” (as such terms are defined below) is or becomes the “beneficial owner” (as defined below), directly or indirectly, of shares of Voting Stock of the Company representing 50% or more of the total voting power of all outstanding classes of Voting Stock of the Company or has the power, directly or indirectly, to elect a majority of the members of the Board of Directors of the Company; or

          (2) the Company consolidates with, or merges with or into, another Person or the Company sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of the assets of the Company, or any Person consolidates with, or merges with or into, the Company, in any such event other than pursuant to a transaction in which the Persons that “beneficially owned” (as defined below), directly or indirectly, shares of Voting Stock of the Company immediately prior to such transaction “beneficially own” (as defined below), directly or indirectly, shares of Voting Stock of the surviving or transferee Person immediately after the transaction that represent at least a majority of the total voting power of all then outstanding classes of Voting Stock of such surviving or transferee Person; or

          (3) the holders of Capital Stock of the Company approve any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the terms hereof).

For the purpose of the definition of “Change in Control”, (i) “person” and “group” have the meanings given such terms under Section 13(d) and 14(d) of the Exchange Act or any successor provision to either of the foregoing, and the term “group” includes any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act (or any successor provision thereto), (ii) a “beneficial owner” shall be determined in accordance with Rule 13d-3 under the Exchange Act, as in effect on the date of this Indenture, except that the

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number of shares of Voting Stock of the Company shall be deemed to include, in addition to all outstanding shares of Voting Stock of the Company and Unissued Shares deemed to be held by the “person” or “group” (as such terms are defined above) or other Person with respect to which the Change in Control determination is being made, all Unissued Shares deemed to be held by all other Persons, and (iii) the terms “beneficially owned” and “beneficially own” shall have meanings correlative to that of “beneficial owner”. The term “Unissued Shares” means shares of Voting Stock not outstanding that are subject to options, warrants, rights to purchase or conversion privileges exercisable within 60 days of the date of determination of a Change in Control.

     Notwithstanding anything to the contrary set forth in this Section 3.1, a Change in Control will not be deemed to have occurred if either:

          (1) the Closing Price (determined in accordance with Section 4.6(e) of this Indenture) of the Common Stock for any five Trading Days during the ten Trading Days immediately preceding the Change in Control is at least equal to 105% of the Conversion Price in effect on such Trading Day; or

          (2) in the case of a merger or consolidation, all of the consideration (excluding cash payments for fractional shares and cash payments pursuant to dissenters’ appraisal rights) to be received in the merger or consolidation constituting the Change in Control by holders of Common Stock consists of common stock traded on a United States national securities exchange or quoted on the Nasdaq National Market (or which will be so traded or quoted when issued or exchanged in connection with such Change in Control) and as a result of such transaction or transactions the Securities become convertible solely into such common stock.

     (b) Within 10 Business Days after the occurrence of a Change in Control, the Company shall mail a written notice of the Change in Control to the Trustee and to each Holder (and to beneficial owners as required by applicable law). The notice shall include the form of a Change in Control Purchase Notice to be completed by the Holder and shall state:

          (1) the date of such Change in Control and, briefly, a description of such Change in Control;

          (2) the date by which the Change in Control Purchase Notice pursuant to this Section 3.1 must be given;

          (3) the Change in Control Purchase Date;

          (4) the Change in Control Purchase Price;

          (5) the Holder’s right to require the Company to purchase the Securities;

          (6) briefly, information about the Holder’s right to convert the Securities;

          (7) the name and address of each Paying Agent and Conversion Agent;

          (8) the Conversion Price and any adjustments thereto;

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          (9) that Securities as to which a Change in Control Purchase Notice has been given may be converted into Common Stock pursuant to Article 4 of this Indenture only to the extent that the Change in Control Purchase Notice has been withdrawn in accordance with the terms of this Indenture;

          (10) the procedures that the Holder must follow to exercise rights under this Section 3.1;

          (11) the procedures for withdrawing a Change in Control Purchase Notice, including a form of notice of withdrawal; and

          (12) that the Holder must satisfy the requirements set forth in the Securities in order to convert the Securities.

     If any of the Securities is in the form of a Global Security, then the Company shall modify such notice to the extent necessary to accord with the procedures of the Depositary applicable to the repurchase of Global Securities.

     (c) A Holder may exercise its rights specified in subsection (a) of this Section 3.1 upon delivery of a written notice (which shall be in substantially the form included in Exhibit A hereto and which may be delivered by letter, overnight courier, hand delivery, facsimile transmission or in any other written form and, in the case of Global Securities, may be delivered electronically or by other means in accordance with the Depositary’s customary procedures) of the exercise of such rights (a “Change in Control Purchase Notice”) to any Paying Agent at any time prior to the close of business on the Business Day next preceding the Change in Control Purchase Date.

     The delivery of such Security to any Paying Agent (together with all necessary endorsements) at the office of such Paying Agent shall be a condition to the receipt by the Holder of the Change in Control Purchase Price therefor.

     The Company shall purchase from the Holder thereof, pursuant to this Section 3.1, a portion of a Security if so directed in the Change in Control Purchase Notice and if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of the Indenture that apply to the purchase of all of a Security pursuant to Sections 3.1 through 3.6 also apply to the purchase of such portion of such Security.

     Notwithstanding anything herein to the contrary, any Holder delivering to a Paying Agent the Change in Control Purchase Notice contemplated by this subsection (c) shall have the right to withdraw such Change in Control Purchase Notice in whole or in a portion thereof that is a principal amount of $1,000 or in an integral multiple thereof by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 3.2 which is received by the Paying Agent at any time prior to the close of business on the Business Day next preceding the Change in Control Purchase Date.

     A Paying Agent shall promptly notify the Company of the receipt by it of any Change in Control Purchase Notice or written withdrawal thereof.

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     Anything herein to the contrary notwithstanding, in the case of Global Securities, any Change in Control Purchase Notice may be delivered or withdrawn and such Securities may be surrendered or delivered for purchase in accordance with the Applicable Procedures as in effect from time to time.

     SECTION 3.2 EFFECT OF CHANGE IN CONTROL PURCHASE NOTICE.

     Upon receipt by any Paying Agent of the Change in Control Purchase Notice specified in Section 3.1(c), the Holder of the Security in respect of which such Change in Control Purchase Notice was given shall (unless such Change in Control Purchase Notice is withdrawn as specified below) thereafter be entitled to receive the Change in Control Purchase Price with respect to such Security. Such Change in Control Purchase Price shall be paid to such Holder promptly following the later of (i) the Change in Control Purchase Date with respect to such Security (provided the conditions in Section 3.1 (c) have been satisfied) and (ii) the time of delivery of such Security to a Paying Agent by the Holder thereof in the manner required by Section 3.1 (c). Securities in respect of which a Change in Control Purchase Notice has been given by the Holder thereof may not be converted into shares of Common Stock pursuant to Article 4 on or after the date of the delivery of such Change in Control Purchase Notice unless such Change in Control Purchase Notice has first been validly withdrawn.

     A Change in Control Purchase Notice may be withdrawn by means of a written notice (which may be delivered by mail, overnight courier, hand delivery, facsimile transmission or in any other written form and, in the case of Global Securities, may be delivered electronically or by other means in accordance with the Depositary’s customary procedures) of withdrawal delivered by the Holder to a Paying Agent at any time prior to the close of business on the Business Day immediately preceding the Change in Control Purchase Date, specifying the principal amount of the Security or portion thereof (which must be a principal amount of $1,000 or an integral multiple of $1,000 in excess thereof) with respect to which such notice of withdrawal is being submitted.

     SECTION 3.3 DEPOSIT OF CHANGE IN CONTROL PURCHASE PRICE.

     On or before 11:00 a.m. New York City time on the Change in Control Purchase Date, the Company shall deposit with the Trustee or with a Paying Agent (other than the Company or an Affiliate of the Company) an amount of money (in immediately available funds if deposited on such Change in Control Purchase Date) sufficient to pay the aggregate Change in Control Purchase Price of all the Securities or portions thereof that are to be purchased as of such Change in Control Purchase Date. The manner in which the deposit required by this Section 3.3 is made by the Company shall be at the option of the Company, provided that such deposit shall be made in a manner such that the Trustee or a Paying Agent shall have immediately available funds on or before 11:00 a.m. New York City time on the Change in Control Purchase Date.

     If a Paying Agent holds, in accordance with the terms hereof, money sufficient to pay the Change in Control Purchase Price of any Security for which a Change in Control Purchase Notice has been tendered and not withdrawn in accordance with this Indenture then, on the Change in Control Purchase Date, such Security will cease to be outstanding and the rights of the Holder in respect thereof shall terminate (other than the right to receive the Change in Control Purchase Price

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as aforesaid). The Company shall publicly announce the principal amount of Securities purchased as a result of such Change in Control on or as soon as practicable after the Change in Control Purchase Date.

     SECTION 3.4 SECURITIES PURCHASED IN PART.

     Any Security that is to be purchased only in part shall be surrendered at the office of a Paying Agent, and promptly after the Change in Control Purchase Date the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge except that the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto, a new Security or Securities, of such authorized denomination or denominations as may be requested by such Holder, in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered that is not purchased.

     SECTION 3.5 COMPLIANCE WITH SECURITIES LAWS UPON PURCHASE OF SECURITIES.

     In connection with any offer to purchase or purchase of Securities under Section 3.1, the Company shall (a) comply with Rule 13e-4 and Rule 14e-1 (or any successor to either such Rule), if applicable, under the Exchange Act, (b) file the related Schedule TO (or any successor or similar schedule, form or report) if required under the Exchange Act, and (c) otherwise comply with all federal and state securities laws in connection with such offer to purchase or purchase of Securities, all so as to permit the rights of the Holders and obligations of the Company under Sections 3.1 through 3.4 to be exercised in the time and in the manner specified therein.

     SECTION 3.6 REPAYMENT TO THE COMPANY.

     To the extent that the aggregate amount of cash deposited by the Company pursuant to Section 3.3 exceeds the aggregate Change in Control Purchase Price together with accrued and unpaid interest, if any, thereon of the Securities or portions thereof that the Company is obligated to purchase, then promptly after the Change in Control Purchase Date the Trustee or a Paying Agent, as the case may be, shall return any such excess cash to the Company.

ARTICLE 4
CONVERSION

     SECTION 4.1 CONVERSION PRIVILEGE.

     Subject to the further provisions of this Article 4 and paragraph 6 of the Securities, a Holder of a Security may convert the principal amount of such Security (or any portion thereof equal to $1,000 or any integral multiple of $1,000 in excess thereof) into Common Stock at any time prior to the close of business on the Final Maturity Date, at the Conversion Price then in effect; provided, however, that, if such Security is submitted or presented for purchase pursuant to Article 3, such conversion right shall terminate upon the delivery of a Change in Control Purchase Notice unless such notice has been validly withdrawn in accordance with Section 3.2, as the case may be, for such Security or such earlier date as the Holder presents such Security for purchase (unless the Company

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shall default in making the Change in Control Purchase Price payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Security is purchased). The number of shares of Common Stock issuable upon conversion of a Security shall be determined by dividing the principal amount of the Security or portion thereof surrendered for conversion by the Conversion Price in effect on the Conversion Date. The initial Conversion Price is set forth in paragraph 6 of the Securities and is subject to adjustment as provided in this Article 4.

     A Holder may convert a portion of a Security equal to any integral multiple of $1,000. Provisions of this Indenture that apply to conversion of all of a Security also apply to conversion of a portion of a Security.

     A Holder of a Security is not entitled to receive any accrued and unpaid interest in respect of the Security upon, or from and after, the conversion of such Security.

     A Holder of Securities is not entitled to any rights of a holder of Common Stock until such Holder has converted its Securities to Common Stock, and only to the extent such Securities are deemed to have been converted into Common Stock pursuant to this Article 4.

     SECTION 4.2 CONVERSION PROCEDURE.

     To convert a Security, a Holder must (a) complete and manually sign the conversion notice on the back of the Security and deliver such notice to a Conversion Agent, (b) surrender the Security to a Conversion Agent, (c) furnish appropriate endorsements and transfer documents if required by a Registrar or a Conversion Agent, (d) pay any transfer or similar tax, if required, and (e) satisfy any additional requirement under paragraph 6 of the Security, if any. The date on which the Holder satisfies all of those requirements is the “Conversion Date.” Upon conversion of a Security, the Company may choose to deliver shares of Common Stock, cash or a combination of shares of Common Stock and cash as set forth in Section 4.14. Anything herein to the contrary notwithstanding, in the case of Global Securities, conversion notices may be delivered and such Securities may be surrendered for conversion in accordance with the Applicable Procedures as in effect from time to time.

     Each conversion shall be deem to have been effected as to any Security (or portion thereof) as of the close of business on the later of (i) the Conversion Date, (ii) the expiration of the Cash Settlement Notice Period, or (iii) if the Company elects to pay cash in lieu of Common Stock pursuant to Section 4.14, the expiration of the Cash Settlement Averaging Period, and 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 in case of any such surrender of a Security on any date when the stock transfer books of the Company shall be closed, the person or persons in whose name the certificate or certificates for such shares are to be issued shall be deemed to have become the record Holder thereof for all purposes on the next day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Securities shall be surrendered.

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     No payment or adjustment will be made for dividends or distributions on Common Stock issued upon conversion of a Security.

     Except as otherwise provided in this paragraph, no payment or adjustment will be made for accrued interest on a converted Security. Securities surrendered for conversion (in whole or in part) during the period from the close of business on any record date to the opening of business on the next succeeding interest payment date (excluding Securities or portions thereof presented for purchase upon a Change in Control on a Change in Control Purchase Date during the period beginning at the close of business on a record date and ending at the opening of business on the first Business Day after the next succeeding interest payment date, or if such interest payment date is not a Business Day, the second such Business Day) shall also be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such interest payment date on the principal amount of such Security then being converted, and such interest shall be payable to such registered Holder notwithstanding the conversion of such Security, subject to the provisions of this Indenture relating to the payment of defaulted interest by the Company. If the Company defaults in the payment of interest payable on such interest payment date, the Company shall promptly repay such funds to such Holder.

     Nothing in this Section shall affect the right of a Holder in whose name any Security is registered at the close of business on a record date to receive the interest payable on such Security on the related interest payment date in accordance with the terms of this Indenture and the Securities. If a Holder converts more than one Security at the same time, the number of shares of Common Stock issuable upon the conversion shall be based on the aggregate principal amount of Securities converted.

     Upon surrender of a Security that is converted in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new Security equal in principal amount to the unconverted portion of the Security surrendered.

     For the avoidance of doubt, settlement for any conversion of a Security shall be on the first Business Day following the Cash Settlement Averaging Period.

     SECTION 4.3 FRACTIONAL SHARES.

     The Company will not issue fractional shares of Common Stock upon conversion of Securities. In lieu thereof, the Company will pay an amount in cash for the current market value of the fractional shares. The current market value of a fractional share shall be determined (calculated to the nearest 1/1000^th of a share) by multiplying the Closing Price (determined as set forth in Section 4.6(e)) of the Common Stock on the Trading Day immediately prior to the Conversion Date by such fractional share and rounding the product to the nearest whole cent.

     SECTION 4.4 TAXES ON CONVERSION.

     If a Holder converts a Security, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon such conversion. However, the Holder shall pay any such tax which is due because the Holder requests the shares to be issued in

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a name other than the Holder’s name. The Conversion Agent may refuse to deliver the certificate representing the Common Stock being issued in a name other than the Holder’s name until the Conversion Agent receives a sum sufficient to pay any tax which will be due because the shares are to be issued in a name other than the Holder’s name. Nothing herein shall preclude any tax withholding required by law or regulation.

     SECTION 4.5 COMPANY TO RESERVE STOCK.

     The Company shall, prior to issuance of any Securities hereunder, and from time to time as may be necessary, reserve, out of its authorized but unissued Common Stock, a sufficient number of shares of Common Stock to permit the conversion of all outstanding Securities into shares of Common Stock.

     All shares of Common Stock delivered upon conversion of the Securities shall be duly authorized, validly issued, fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim.

     The Company will endeavor promptly to comply with all federal and state securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Securities, if any, and will list or cause to have quoted such shares of Common Stock on each national securities exchange or on the Nasdaq National Market or other over-the-counter market or such other market on which the Common Stock is then listed or quoted; provided, however, that if rules of such automated quotation system or exchange permit the Company to defer the listing of such Common Stock until the first conversion of the Securities into Common Stock in accordance with the provisions of this Indenture, the Company covenants to list such Common Stock issuable upon conversion of the Securities in accordance with the requirements of such automated quotation system or exchange at such time. Any Common Stock issued upon conversion of a Security hereunder which at the time of conversion was a Restricted Security will also be a Restricted Security.

     SECTION 4.6 ADJUSTMENT OF CONVERSION PRICE.

     The conversion price as stated in paragraph 6 of the Securities (the “Conversion Price”) shall be adjusted from time to time by the Company as follows:

     (a) In case the Company shall (i) pay a dividend on its Common Stock in shares of Common Stock, (ii) make a distribution on its Common Stock in shares of Common Stock, (iii) subdivide its outstanding Common Stock into a greater number of shares, or (iv) combine its outstanding Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior thereto shall be adjusted so that the Holder of any Security thereafter surrendered for conversion shall be entitled to receive that number of shares of Common Stock which it would have owned had such Security been converted immediately prior to the record date of such event or the happening of such event, as appropriate. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of subdivision or combination.

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     (b) In case the Company shall issue rights or warrants to all or substantially all holders of its Common Stock entitling them (for a period commencing no earlier than the record date described below and expiring not more than 60 days after such record date) to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price per share (or having a conversion price per share) less than the Current Market Price per share of Common Stock (as determined in accordance with subsection (e) of this Section 4.6) on the record date for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price in effect immediately prior to the date of issuance shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered, which shall be determined by multiplying the number of shares of Common Stock issuable upon conversion of such convertible securities by the conversion price per share of Common Stock pursuant to the terms of such convertible securities) would purchase at the Current Market Price per share (as defined in subsection (e) of this Section 4.6) of Common Stock on such record date, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after such record date. If at the end of the period during which such rights or warrants are exercisable not all such rights or warrants shall have been exercised, the adjusted Conversion Price shall be immediately readjusted to what it would have been based upon the number of additional shares of Common Stock actually issued (or the number of shares of Common Stock issuable upon conversion of convertible securities actually issued).

     (c) In case the Company shall distribute to all or substantially all of the holders of its Common Stock any shares of capital stock of the Company (other than Common Stock), evidences of indebtedness or other non-cash assets (including securities of any person other than the Company but excluding (1) dividends or distributions paid exclusively in cash or (2) dividends or distributions referred to in subsection (a) of this Section 4.6), or shall distribute to all or substantially all of the holders of its Common Stock rights or warrants to subscribe for or purchase any of its securities (excluding those rights and warrants referred to in subsection (b) of this Section 4.6 and also excluding the distribution of rights to all holders of Common Stock pursuant to a Rights Plan (as defined below)), then in each such case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the current Conversion Price by a fraction of which the numerator shall be the Current Market Price per share (as defined in subsection (e) of this Section 4.6) of the Common Stock on the record date mentioned below less the fair market value on such record date (as determined by the Board of Directors, whose determination shall be conclusive evidence of such fair market value and which shall be evidenced by an Officers’ Certificate delivered to the Trustee) of the portion of the capital stock, evidences of indebtedness or other non-cash assets so distributed or of such rights or warrants applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the record date), and of which the denominator shall be the Current Market Price per share (as defined in subsection (e) of this Section 4.6) of the Common Stock on such record date. Such adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date

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for the determination of shareholders entitled to receive such distribution. In the event that a record date for any dividend or distribution referred to in this subsection (c) occurs, but such dividend or distribution is not then paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would have been in effect if such dividend or distribution had not been declared.

     In the event the then fair market value (as so determined) of the portion of the capital stock, evidences of indebtedness or other non-cash assets so distributed or of such rights or warrants applicable to one share of Common Stock is equal to or greater than the Current Market Price per share of the Common Stock on such record date, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of a Security shall have the right to receive upon conversion the amount of capital stock, evidences of indebtedness or other non-cash assets so distributed or of such rights or warrants such holder would have received had such holder converted each Security on such record date. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 4.6(c) 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.

     With respect to rights to purchase preferred shares issued pursuant to the Rights Agreement, dated as of May 18, 2001, between the Company and The Bank of New York, as Rights Agent (the “Existing Rights Plan”), and any rights that may be issued or distributed pursuant to any similar rights plan that the Company implements after the date of this Indenture (each of the Existing Rights Plan and any rights that may be issued pursuant to any such similar future rights plan being referred to as a “Rights Plan”), upon conversion of the Securities into Common Stock, to the extent that such Rights Plan is in effect upon such conversion, each holder of Securities will receive, in addition to the Common Stock, the rights described therein (whether or not the rights have separated from the Common Stock at the time of conversion), unless such holder is an Acquiring Person (as defined in the Existing Rights Plan) or a similar Person specifically excluded from securing such rights by any other Rights Plan. Any distribution of rights or warrants pursuant to the Rights Plan in accordance with the requirements set forth in the immediately preceding sentence of this paragraph shall not constitute a distribution of rights or warrants pursuant to this Section 4.6(c).

     Rights or warrants, other than rights issued pursuant to a Rights Plan, 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 4.6 (and no adjustment to the Conversion Price under this Section 4.6 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 Price shall be made in accordance with this Section 4.6(c). If any such right or warrant is 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 any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants (and a termination or expiration of the existing rights or

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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 Price under this Section 4.6 was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price 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 which shall have expired or been terminated without exercise by any holders thereof, the Conversion Price shall be readjusted as if such rights and warrants had not been issued.

          (i) In case the Company shall, by dividend or otherwise, at any time distribute (a “Triggering Distribution”) to all or substantially all holders of its Common Stock cash in an aggregate amount that, together with the aggregate amount of (A) any cash and the fair market value (as determined by the Board of Directors, whose determination shall be conclusive evidence thereof and which shall be evidenced by an Officers’ Certificate delivered to the Trustee) of any other consideration payable in respect of any tender offer by the Company or a Subsidiary of the Company for Common Stock consummated within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made and (B) all other cash distributions to all or substantially all of the holders of its Common Stock made within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made, exceeds an amount equal to 10.0% of the product of the Current Market Price per share of Common Stock (as determined in accordance with subsection (e) of this Section 4.6) on the Business Day (the “Determination Date”) immediately preceding the day on which such Triggering Distribution is declared by the Company multiplied by the number of shares of Common Stock outstanding on the Determination Date (excluding shares held in the treasury of the Company), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying such Conversion Price in effect immediately prior to the Determination Date by a fraction of which the numerator shall be the Current Market Price per share of the Common Stock (as determined in accordance with subsection (e) of this Section 4.6) on the Determination Date less the quotient of (y) the sum of the aggregate amount of cash and the aggregate fair market value (determined as aforesaid in this Section 4.6(c)(i)) of any such other consideration so distributed, paid or payable within such 12 months and described in clauses (A) and (B) above and the Triggering Distribution divided by (z) the number of shares of Common Stock outstanding on the Determination Date and the denominator shall be such Current Market Price per share of the Common Stock (as determined in accordance with subsection (e) of this Section 4.6) on the Determination Date, such reduction to become effective immediately prior to the opening of business on the day following the date on which the Triggering Distribution is paid.

          (ii) In case any tender offer made by the Company or any of its Subsidiaries for Common Stock shall expire and the Company shall pay for Purchased Shares (as defined below) an aggregate consideration in an amount (determined as the sum of the aggregate amount of cash

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consideration and the aggregate fair market value (as determined by the Board of Directors, whose determination shall be conclusive evidence thereof and which shall be evidenced by an Officers’ Certificate delivered to the Trustee thereof) of any other consideration) that, together with the aggregate amount of (A) any cash and the fair market value (as determined by the Board of Directors, whose determination shall be conclusive evidence thereof and which shall be evidenced by an Officers’ Certificate delivered to the Trustee) of any other consideration payable in respect of any other tender offers by the Company or any Subsidiary of the Company for Common Stock consummated within the 12 months preceding the date of the Expiration Date (as defined below) and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made and (B) all cash distributions to all or substantially all of the holders of its Common Stock made within the 12 months preceding the Expiration Date and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made, exceeds an amount equal to 10.0% of the product of the Current Market Price per share of Common Stock (as determined in accordance with subsection (e) of this Section 4.6) as of the last date (the “Expiration Date”) tenders could have been made pursuant to such tender offer (as it may be amended) (the last time at which such tenders could have been made on the Expiration Date is hereinafter sometimes called the “Expiration Time”) multiplied by the number of shares of Common Stock outstanding (including Purchased Shares but excluding any shares held in the treasury of the Company) at the Expiration Time, then, immediately prior to the opening of business on the day after the Expiration Date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Expiration Date by a fraction of which the numerator shall be the product of the number of shares of Common Stock outstanding (including Purchased Shares but excluding any shares held in the treasury of the Company) at the Expiration Time multiplied by the Current Market Price per share of the Common Stock (as determined in accordance with subsection (e) of this Section 4.6) on the Trading Day next succeeding the Expiration Date and the denominator shall be the sum of (x) the aggregate consideration (determined as aforesaid) payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of all shares validly tendered 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 Common Stock outstanding (less any Purchased Shares and excluding any shares held in the treasury of the Company) at the Expiration Time and the Current Market Price per share of Common Stock (as determined in accordance with subsection (e) of this Section 4.6) on the Trading Day next succeeding the Expiration Date, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Date. In the event that the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any or all such purchases or any or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would have been in effect based upon the number of shares actually purchased. If the application of this Section 4.6(c)(ii) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 4.6(c)(ii).

          (iii) For purposes of this Section 4.6(c), the term “tender offer” shall mean and include both tender offers and exchange offers, all references to “purchases” of shares in tender offers (and all similar references) shall mean and include both the purchase of shares in tender offers and the acquisition of shares pursuant to exchange offers, and all references to “tendered shares”

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(and all similar references) shall mean and include shares tendered in both tender offers and exchange offers.

     (d) After any adjustment to the Conversion Price is made in accordance with Section 4.6(c)(i) or (ii), no distribution or consideration (including the Triggering Distribution) that is taken into account in making such adjustment shall again be taken into account for any future or other adjustments made in accordance with Section 4.6.

     (e) For the purpose of any computation under subsections (b) and (c) of this Section 4.6, the current market price (the “Current Market Price”) per share of Common Stock on any date shall be deemed to be the average of the daily closing prices for the 30 consecutive Trading Days commencing 10 Trading Days before (i) the Determination Date or the Expiration Date, as the case may be, with respect to distributions or tender offers under subsection (c) of this Section 4.6 or (ii) the record date with respect to distributions, issuances or other events requiring such computation under subsection (b) or (c) of this Section 4.6. The closing price (the “Closing Price”) for each day shall be the last reported sales price or, in case no such reported sale takes place on such date, the average of the reported closing bid and asked prices in either case on The Nasdaq National Market (the “NNM”) or, if the Common Stock is not listed or admitted to trading on the NNM, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on the NNM or any national securities exchange, the last reported sales price of the Common Stock as quoted on NASDAQ or, in case no reported sales takes place, the average of the closing bid and asked prices as quoted on NASDAQ or any comparable system or, if the Common Stock is not quoted on NASDAQ or any comparable system, the closing sales price or, in case no reported sale takes place, the average of the closing bid and asked prices, as furnished by any two members of the National Association of Securities Dealers, Inc. selected from time to time by the Company for that purpose. If no such prices are available, the Current Market Price per share shall be the fair value of a share of Common Stock as determined by the Board of Directors (which shall be evidenced by an Officers’ Certificate delivered to the Trustee).

     (f) In any case in which this Section 4.6 shall require that an adjustment be made following a record date or a Determination Date or Expiration Date, as the case may be, established for purposes of this Section 4.6, the Company may elect to defer (but only until five Business Days following the filing by the Company with the Trustee of the certificate described in Section 4.9) issuing to the Holder of any Security converted after such record date or Determination Date or Expiration Date the shares of Common Stock and other capital stock of the Company issuable upon such conversion over and above the shares of Common Stock and other capital stock of the Company issuable upon such conversion only on the basis of the Conversion Price prior to adjustment; and, in lieu of the shares the issuance of which is so deferred, the Company shall issue or cause its transfer agents to issue due bills or other appropriate evidence prepared by the Company of the right to receive such shares. If any distribution in respect of which an adjustment to the Conversion Price is required to be made as of the record date or Determination Date or Expiration Date therefor is not thereafter made or paid by the Company for any reason, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect if such record date had not been fixed or such effective date or Determination Date or Expiration Date had not occurred.

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     SECTION 4.7 NO ADJUSTMENT.

     No adjustment in the Conversion Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price as last adjusted; provided, however, that any adjustments which by reason of this Section 4.7 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 4 shall be made to the nearest cent or to the nearest one-1/1000^th of a share, as the case may be.

     No adjustment need be made for issuances of Common Stock pursuant to a Company plan for reinvestment of dividends or interest or for a change in the par value or a change to no par value of the Common Stock.

     To the extent that the Securities become convertible into the right to receive cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash.

     SECTION 4.8 ADJUSTMENT FOR TAX PURPOSES.

     The Company shall be entitled to make such reductions in the Conversion Price, in addition to those required by Section 4.6, as it in its discretion shall determine to be advisable in order that any stock dividends, subdivisions of shares, distributions of rights to purchase stock or securities or distributions of securities convertible into or exchangeable for stock hereafter made by the Company to its stockholders shall not be taxable.

     SECTION 4.9 NOTICE OF ADJUSTMENT.

     Whenever the Conversion Price or conversion privilege is adjusted, the Company shall promptly mail to Securityholders a notice of the adjustment and file with the Trustee an Officers’ Certificate briefly stating the facts requiring the adjustment and the manner of computing it. Unless and until the Trustee shall receive an Officers’ Certificate setting forth an adjustment of the Conversion Price, the Trustee may assume without inquiry that the Conversion Price has not been adjusted and that the last Conversion Price of which it has knowledge remains in effect.

     SECTION 4.10 NOTICE OF CERTAIN TRANSACTIONS.

     In the event that:

          (1) the Company takes any action which would require an adjustment in the Conversion Price;

          (2) the Company consolidates or merges with, or transfers all or substantially all of its property and assets to, another corporation and shareholders of the Company must approve the transaction; or

          (3) there is a dissolution or liquidation of the Company,

the Company shall mail to Holders and file with the Trustee a notice stating the proposed record or effective date, as the case may be, of such event. The Company shall mail the notice at least ten

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days before such date. Failure to mail such notice or any defect therein shall not affect the validity of any transaction referred to in clause (1), (2) or (3) of this Section 4.10.

     SECTION 4.11 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE ON CONVERSION PRIVILEGE.

     If any of the following shall occur, namely: (a) any reclassification or change of shares of Common Stock issuable upon conversion of the Securities (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination, or any other change for which an adjustment is provided in Section 4.6); (b) any consolidation or merger or combination to which the Company is a party other than a merger in which the Company is the continuing corporation and which does not result in any reclassification of, or change (other than in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of Common Stock; or (c) any sale or conveyance as an entirety or substantially as an entirety of the property and assets of the Company, directly or indirectly, to any person, then the Company, or such successor, purchasing or transferee corporation, as the case may be, shall, as a condition precedent to such reclassification, change, combination, consolidation, merger, sale or conveyance, execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then outstanding shall have the right to convert such Security into the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, change, combination, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock deliverable upon conversion of such Security immediately prior to such reclassification, change, combination, consolidation, merger, sale or conveyance, and that each such Holder will also receive the rights described in a Rights Plan with respect to such number of shares of Common Stock. Such supplemental indenture shall provide for adjustments of the Conversion Price which shall be as nearly equivalent, as the Board of Directors shall reasonably consider to be practicable, to the adjustments of the Conversion Price provided for in this Article 4. If, in the case of any such consolidation, merger, combination, sale or conveyance, the stock or other securities and property (including cash) receivable thereupon by a holder of Common Stock include shares of stock or other securities and property of a person other than the successor, purchasing or transferee corporation, as the case may be, in such consolidation, merger, combination, sale or conveyance, then such supplemental indenture shall also be executed by such other person and shall contain such additional provisions to protect the interests of the Holders of the Securities as the Board of Directors shall reasonably consider necessary by reason of the foregoing. The provisions of this Section 4.11 shall similarly apply to successive reclassifications, changes, combinations, consolidations, mergers, sales or conveyances.

     In the event the Company shall execute a supplemental indenture pursuant to this Section 4.11, the Company shall promptly file with the Trustee (x) an Officers’ Certificate briefly stating the reasons therefor, the kind or amount of shares of stock or other securities or property (including cash) receivable by Holders of the Securities upon the conversion of their Securities after any such reclassification, change, combination, consolidation, merger, sale or conveyance, any adjustment to be made with respect thereto and that all conditions precedent have been complied with and (y) an Opinion of Counsel that all conditions precedent have been complied with, and shall promptly mail notice thereof to all Holders.

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     SECTION 4.12 TRUSTEE’S DISCLAIMER.

     The Trustee shall have no duty to determine when an adjustment under this Article 4 should be made, how it should be made or what such adjustment should be, but may accept as conclusive evidence of that fact or the correctness of any such adjustment, and shall be protected in relying upon, an Officers’ Certificate including the Officers’ Certificate with respect thereto which the Company is obligated to file with the Trustee pursuant to Section 4.9. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities, and the Trustee shall not be responsible for the Company’s failure to comply with any provisions of this Article 4.

     The Trustee shall not be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture executed pursuant to Section 4.11, but may accept as conclusive evidence of the correctness thereof, and shall be fully protected in relying upon, the Officers’ Certificate with respect thereto which the Company is obligated to file with the Trustee pursuant to Section 4.11.

     SECTION 4.13 VOLUNTARY REDUCTION.

     The Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days and if the reduction is irrevocable during the period if the Company’s Board of Directors determines that such reduction would be in the best interest of the Company or to avoid or diminish income tax to holders of shares of Common Stock in connection with a dividend or distribution of stock or similar event, and the Company provides 15 days prior notice of any reduction in the Conversion Price; provided, however, that in no event may the Company reduce the Conversion Price to be less than the par value of a share of Common Stock.

     SECTION 4.14 PAYMENT OF CASH IN LIEU OF CLASS A COMMON STOCK

     If a Holder elects to convert all or any portion of a Security into shares of Common Stock as set forth in this Section 4 and the Company receives such Holder’s conversion notice on or prior to the day that is 20 days prior to the Final Maturity Date (the “Final Notice Date”), the Company may choose to satisfy all or any portion of its conversion obligation (the “Conversion Obligation”) in cash. Upon such election, the Company will notify such Holder through the Trustee of the dollar amount to be satisfied in cash (which must be expressed either as 100% of the Conversion Obligation or as a fixed dollar amount) at any time on or before the date that is two Business Days following receipt of written notice of conversion as specified in Section 4.2 (such period, the “Cash Settlement Notice Period”). If the Company elects to pay cash for any portion of the shares otherwise issuable to the Holder, the Holder may retract the conversion notice at any time during the two Business Day period beginning on the day after the final day of the Cash Settlement Notice Period (a “Conversion Retraction Period”); no such retraction can be made (and a conversion notice shall be irrevocable) if the Company does not elect to deliver cash in lieu of shares (other than cash in lieu of fractional shares). If the conversion notice has not been retracted, then settlement (in cash and/or shares) will occur on the Business Day following the final day of the 20 Trading Day period beginning on the day after the final day of the Conversion Retraction Period (the “Cash Settlement Averaging Period”). Settlement amounts will be computed as follows:

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          (i) if the Company elects to satisfy the entire Conversion Obligation in shares of Common Stock, the Company will deliver to such Holder a number of shares equal to (a) the aggregate original principal amount at maturity of the Securities to be converted divided by 1,000, multiplied by (b) the Conversion Rate;

          (ii) if the Company elects to satisfy the entire Conversion Obligation in cash, the Company will deliver to such Holder cash in an amount equal to the product of:

               (B) a number equal to (x) the aggregate original principal amount at maturity of Securities to be converted divided by 1,000, multiplied by (y) the Conversion Rate, and

               (C) the average Closing Price of the Common Stock during the Cash Settlement Averaging Period; and

          (iii) if the Company elects to satisfy a fixed portion (other than 100%) of the Conversion Obligation in cash (the “Cash Amount”), the Company will deliver to such Holder the Cash Amount and a number of shares equal to the greater of (1) zero and (2) the excess, if any, of the number of shares calculated as set forth in clause (i) above over the number of shares equal to the sum, for each day of the Cash Settlement Averaging Period, of (x) 5% of the Cash Amount, divided by (y) the closing price of the Common Stock on such day.

     Notwithstanding the foregoing, a Security in respect of which a Holder has delivered a Change in Control Purchase Notice exercising such Holder’s option to require the Company to repurchase such Security may be converted as described in this Section 4.14 only if such notice of exercise is withdrawn as required in Section 4.1 hereof.

     If a Holder elects to convert all or any portion of a Security into shares of Common Stock as set forth in Section 4.1 and the Company receives such Holder’s Conversion Notice after the Final Notice Date, if the Company chooses to satisfy all or any portion of the Conversion Obligation in cash, the Company will have previously notified the Holders through the Trustee of the dollar amount to be satisfied in cash at any time on or before the Final Notice Date. Upon such election, the Company will have notified the Holders through the Trustee of the dollar amount to be satisfied in cash (which must be expressed either as 100% or as a fixed dollar amount) at any time on or before the Final Notice Date. Settlement amounts and settlement dates will be computed in the same manner as set forth above except that the “Cash Settlement Averaging Period” shall be the 20 Trading Day period beginning on the day after receipt of the Conversion Notice (or in the event the Company receives the Conversion Notice on the Business Day prior to the Final Maturity Date, the 20 Trading Day period beginning on the day after the Final Maturity Date). Settlement (in cash and/or shares) will occur on the Business Day following the final day of such Cash Settlement Averaging Period.

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ARTICLE 5
SUBORDINATION

     SECTION 5.1 AGREEMENT OF SUBORDINATION.

     The Company agrees and each Securityholder by accepting a Security agrees that the payment of the principal of and interest (including Additional Interest, if any) on all Securities (including, but not limited to, the Change in Control Purchase Price with respect to the Securities subject to purchase in accordance with Article 3 of 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 payment satisfactory to the holders of Senior Indebtedness of all Senior Indebtedness, whether outstanding at the date of this Indenture or thereafter incurred and that the subordination is for the benefit of the holders of the Senior Indebtedness.

     No provision of this Article 5 shall prevent the occurrence of any default or Event of Default hereunder.

     SECTION 5.2 PAYMENTS TO HOLDERS.

     No payment shall be made with respect to the principal of or interest (including Additional Interest, if any) on the Securities (including, but not limited to, the Change in Control Purchase Price with respect to the Securities subject to purchase in accordance with Article 3 of this Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 5.5, if:

          (i) a default in the payment of principal, interest, rent or other obligations due on any Designated Senior Indebtedness occurs and is continuing (or, in the case of Designated Senior Indebtedness for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Designated Senior Indebtedness), unless and until such default shall have been cured or waived or shall have ceased to exist; or

          (ii) a default, other than a payment default, on a 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 Representative or holder of Designated Senior Indebtedness or the Company.

     Subject to the provisions of Section 5.5, 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 unless and until at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee (unless such default was waived, cured or otherwise ceased to exist and thereafter subsequently reoccurred) 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 Securities upon the earlier of:

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     (a) in the case of a default referred to in clause (i) above, the date upon which the default is cured or waived or ceases to exist, or

     (b) in the case of a default referred to in clause (ii) above, the earlier of the date on which such default is cured or waived or ceases to exist or 179 days pass after the date on which the applicable Payment Blockage Notice is received, if the maturity of such Designated Senior Indebtedness has not been accelerated, unless this Article 5 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 similar proceedings relating to the Company or its property or in an assignment for the benefit of creditors or any marshalling of the Company’s assets and liabilities, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full in cash, or other payments satisfactory to the holders of Senior Indebtedness before any payment is made on account of the principal of or interest (including Additional Interest, if any) on the Securities (including, but not limited to, the Change of Control Purchase Price with respect to the Securities subject to purchase in accordance with Article 3 of this Indenture) (and except payments made pursuant to Article 10 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 Securities or the Trustee would be entitled except for the provision of this Article 5, 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 Securities 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, 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, to the extent necessary to pay all Senior Indebtedness in full in cash, or other payment satisfactory to the holders of 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 Securities or to the Trustee.

     For purposes of this Article 5, 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 5 with respect to the Securities to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior Indebtedness is assumed by the new corporation, if any, resulting from any reorganization or readjustment, and (ii) the rights of the holders of Senior Indebtedness (other than leases which are not assumed by the Company or the new corporation, as the case may be) are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the

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Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance, transfer or lease of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article 7 shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 5.2 if such other corporation shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions stated in Article 7.

     In the event of the acceleration of the Securities because of an Event of Default, no payment or distribution shall be made to the Trustee or any Holder of Securities in respect of the principal of or interest (including Additional Interest, if any) on the Securities by the Company (including, but not limited to, the Change in Control Purchase Price with respect to the Securities subject to purchase in accordance with Article 3 of this Indenture), except payments and distributions made by the Trustee as permitted by Section 5.5, 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 Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Indebtedness of such 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, shall be received by the Trustee or the Holders of the Securities before all Senior Indebtedness is paid in full, in cash or other payment satisfactory to the holders of 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 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 all 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 Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness.

     Nothing in this Section 5.2 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 9.7. This Section 5.2 shall be subject to the further provisions of Section 5.5.

     SECTION 5.3 SUBROGATION OF SECURITIES.

     After payment in full, in cash or other payment satisfactory to the holders of Senior Indebtedness, of all Senior Indebtedness, the rights of the Holders of the Securities shall be subrogated (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to other indebtedness of the Company to substantially the same extent as the Securities are subordinated and is entitled to like rights of subrogation), to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article 5, 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

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until the principal and interest (including Additional Interest, if any) on the Securities shall be paid in full in cash or other payment satisfactory to the holders of the Securities; 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 Securities or the Trustee would be entitled except for the provisions of this Article 5, and no payment pursuant to the provisions of this Article 5, to or for the benefit of the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness, and the Holders of the Securities, 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 Securities pursuant to the subrogation provisions of this Article 5, 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 Securities. It is understood that the provisions of this Article 5 are, and are intended solely for, the purposes of defining the relative rights of the Holders of the Securities, on the one hand, and the holders of the Senior Indebtedness, on the other hand.

     Nothing contained in this Article 5 or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Indebtedness, and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of and interest (including Additional Interest, if any) on the Securities 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 Securities 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 Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article 5 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 5, the Trustee, subject to the provisions of Section 9.1, and the Holders of the Securities 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 Securities, 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 5.

     SECTION 5.4 AUTHORIZATION TO EFFECT SUBORDINATION.

     Each Holder of a Security by the Holder’s 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 5 and appoints the Trustee to act as the Holder’s attorney-in-fact for any and 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 Section 5.3 hereof at least 30 days before the expiration of the time to file such claim, the holders of any Senior Indebtedness or

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their representatives are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Securities.

     SECTION 5.5 NOTICE TO TRUSTEE.

     The Company shall give prompt written notice in the form of an Officers’ Certificate to a Trust Officer of the Trustee and to any Paying Agent of any fact known to the Company which would prohibit the making of any payment of monies to or by the Trustee or any Paying Agent in respect of the Securities pursuant to the provisions of this Article 5. Notwithstanding the provisions of this Article 5 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities pursuant to the provisions of this Article 5, unless and until a Trust 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 or otherwise have actual knowledge thereof; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 9.1, shall be entitled in all respects to assume that no such facts exist; provided that if on a date not less than one Business Day 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 interest on any Security) the Trustee shall not have received, with respect to such monies, the notice provided for in this Section 5.5, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. Notwithstanding anything in this Article 5 to the contrary, nothing shall prevent any payment by the Trustee to the Holders of monies deposited with it pursuant to Article 10, and any such payment shall not be subject to the provisions of Article 5.

     The Trustee, subject to the provisions of Section 9.1, 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. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article 5, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee 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 5, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment.

     SECTION 5.6 TRUSTEE’S RELATION TO SENIOR INDEBTEDNESS.

     The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article 5 in respect of any Senior Indebtedness at any time held by it, to the same extent as any other

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holder of Senior Indebtedness, and nothing in Section 9.11 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 5, 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 9.1, the Trustee shall not be liable to any holder of Senior Indebtedness if it shall pay over or deliver to Holders of Securities, the Company or any other person money or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article 5 or otherwise.

     SECTION 5.7 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 5.8 CERTAIN CONVERSIONS DEEMED PAYMENT.

     For the purposes of this Article 5 only, (1) the issuance and delivery of junior securities upon conversion of Securities in accordance with Article 4 shall not be deemed to constitute a payment or distribution on account of the principal of or interest on Securities or on account of the purchase or other acquisition of Securities, and (2) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 4.3), property or securities (other than junior securities) upon conversion of a Security shall be deemed to constitute payment on account of the principal of such Security. For the purposes of this Section 5.8, the term “junior securities” means (a) shares of any stock of any class of the Company, or (b) securities of the Company which are subordinated in right of payment to all Senior Indebtedness which 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 Securities are so subordinated as provided in this Article. Nothing contained in this Article 5 or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders, the right, which is absolute and unconditional, of the Holder of any Security to convert such Security in accordance with Article 4.

     SECTION 5.9 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 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 in addition to or in place of the Trustee; provided, however, that the first paragraph of Section 5.5 shall

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not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent.

     SECTION 5.10 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 5, 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 5.11 AGREEMENT TO SUBORDINATE UNAFFECTED.

     The provisions of this Article 5 shall remain in full force and effect irrespective of (a) any amendment, modification, or supplement of, or any waiver or consent to, any of the terms of any Senior Indebtedness or the agreement or instrument governing any Senior Indebtedness, (b) the release or non-perfection of any collateral securing any Senior Indebtedness or (c) the manner of sale or other disposition of the collateral securing any Senior Indebtedness or the application of the proceeds upon such sale.

ARTICLE 6
COVENANTS

     SECTION 6.1 PAYMENT OF SECURITIES.

     The Company shall promptly make all payments in respect of the Securities on the dates and in the manner provided in the Securities and this Indenture. An installment of principal, interest, Additional Interest or Change in Control Purchase Price shall be considered paid on the date it is due if the Paying Agent (other than the Company or an Affiliate thereof) holds by 11:00 a.m., New York City time, on that date money, deposited by the Company or an Affiliate thereof, sufficient to pay the installment. The Company shall, to the fullest extent permitted by law, pay (in immediately available funds) interest on overdue principal and overdue installments of interest at the rate borne by the Securities per annum.

     SECTION 6.2 SEC REPORTS.

     The Company shall file all reports and other information and documents which it is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, and within 15 days after it files them with the SEC, the Company shall file copies of all such reports, information and other documents with the Trustee.

     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).

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     SECTION 6.3 COMPLIANCE CERTIFICATES.

     The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company (beginning with the fiscal year ending January 31, 2004), an Officers’ Certificate as to the signer’s knowledge of the Company’s compliance with all conditions and covenants on its part contained in this Indenture and stating whether or not the signer knows of any default or Event of Default. If such signer knows of such a default or Event of Default, the Officers’ Certificate shall describe the default or Event of Default and the efforts to remedy the same. For the purposes of this Section 6.3, compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture.

     SECTION 6.4 FURTHER INSTRUMENTS AND ACTS.

     Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture.

     SECTION 6.5 MAINTENANCE OF CORPORATE EXISTENCE.

     Subject to Article 7, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence.

     SECTION 6.6 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, upon the request of any Holder or beneficial holder of the Securities or any Common Stock issued upon conversion thereof which continue to be Restricted Securities, make available to such Holder or beneficial holder of Securities or such Common Stock in connection with any sale thereof and any prospective purchaser of Securities or such Common Stock designated by such Holder or beneficial holder, the information required pursuant to Rule 144A(d)(4) under the Securities Act and it will take such further action as any Holder or beneficial holder of such Securities 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 Securities 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.

     SECTION 6.7 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 or interest (including Additional Interest, if any) on the Securities 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

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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 6.8 PAYMENT OF ADDITIONAL INTEREST.

     If Additional Interest is 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 Additional Interest that is payable and (ii) the date on which such Additional Interest is payable. Unless and until a Trust Officer of the Trustee receives such a certificate, the Trustee may assume without inquiry that no such Additional Interest is payable. If the Company has paid Additional Interest directly to the Persons entitled to it, the Company shall deliver to the Trustee a certificate setting forth the particulars of such payment.

ARTICLE 7
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

     SECTION 7.1 COMPANY MAY CONSOLIDATE, ETC, ONLY ON CERTAIN TERMS.

     The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless:

          (1) (A) the Company is the surviving corporation or (B) in case the Company shall consolidate with or merge into another Person (in a transaction in which the Company is not the surviving corporation) or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of the Company under the Securities and this Indenture, and the conversion rights shall be provided for in accordance with Article 4 by such Person under such supplemental indenture;

          (2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and

          (3) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.

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     SECTION 7.2 SUCCESSOR SUBSTITUTED.

     Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 7.1, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. Such successor Person, such predecessor Person and the Trustee shall enter into a supplemental indenture to evidence the succession and substitution of such successor Person and the release and discharge of such predecessor Person.

ARTICLE 8
DEFAULT AND REMEDIES

     SECTION 8.1 EVENTS OF DEFAULT.

     An “Event of Default” shall occur if:

          (1) the Company defaults in the payment of any interest or Additional Interest, if any, payable on any Security when the same becomes due and payable and the default continues for a period of 30 days, whether or not such payment shall be prohibited by the provisions of Article 5 hereof;

          (2) the Company defaults in the payment of any principal of any Security when the same becomes due and payable (whether at maturity, upon a Change of Control Purchase Date or otherwise), whether or not such payment shall be prohibited by the provisions of Article 5 hereof;

          (3) the Company fails to comply with any of its other agreements contained in the Securities or this Indenture and the default continues for the period and after the notice specified below;

          (4) the Company defaults in the payment of the purchase price of any Security when the same becomes due and payable, whether or not such payment shall be prohibited by the provisions of Article 5 hereof; or

          (5) the Company fails to provide notice of a Change in Control when required by Section 3.1; or

          (6) any indebtedness under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company or any Significant Subsidiary (all or substantially all of the outstanding voting securities of which are owned, directly or indirectly, by the Company) or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or any Significant Subsidiary (all or substantially all of the outstanding voting securities of which are

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owned, directly or indirectly, by the Company) (an “Instrument”) with a principal amount then outstanding in excess of U.S. $40, 000,000, whether such indebtedness now exists or shall hereafter be created, is not paid at final maturity of the Instrument (either at its stated maturity or upon acceleration thereof), and such indebtedness is not discharged, or such acceleration is not rescinded or annulled, within a period of 30 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Securities then outstanding a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such default to be cured or waived or such acceleration to be rescinded or annulled and stating that such notice is a “Notice of Default” hereunder; or

          (7) the Company or any Significant Subsidiary, pursuant to or within the meaning of any Bankruptcy Law:

               (A) commences a voluntary case or proceeding;

               (B) consents to the entry of an order for relief against it in an involuntary case or proceeding;

               (C) consents to the appointment of a Custodian of it or for all or substantially all of its property; or

               (D) makes a general assignment for the benefit of its creditors; or

          (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

               (A) is for relief against the Company or any Significant Subsidiary in an involuntary case or proceeding;

               (B) appoints a Custodian of the Company or any Significant Subsidiary or for all or substantially all of the property of the Company or any Significant Subsidiary; or

               (C) orders the liquidation of the Company or any Significant Subsidiary;

and in each case the order or decree remains unstayed and in effect for 60 consecutive days.

     The term “Bankruptcy Law” means Title 11 of the United States Code (or any successor thereto) or any similar federal or state law for the relief of debtors. The term “Custodian” means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law.

     A default under clause (3) above is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding notify the Company and the Trustee, in writing of the default, and the Company does not cure the default within 60 days after receipt of such notice. The notice given pursuant to this Section 8.1 must specify the default, demand that it be remedied and state that the notice is a “Notice of Default.” When any default under this Section 8.1 is cured, it ceases.

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     The Trustee shall not be charged with knowledge of any Event of Default unless written notice thereof shall have been given to a Trust Officer at the Corporate Trust Office of the Trustee by the Company, a Paying Agent, any Holder or any agent of any Holder.

     SECTION 8.2 ACCELERATION.

     If an Event of Default (other than an Event of Default specified in clause (7) or (8) of Section 8.1) occurs and is continuing, the Trustee may, by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may, by notice to the Company and the Trustee, declare all unpaid principal, together with all accrued and unpaid interest, to the date of acceleration on the Securities then outstanding (if not then due and payable) to be due and payable upon any such declaration, and the same shall become and be immediately due and payable. If an Event of Default specified in clause (7) or (8) of Section 8.1 occurs, all unpaid principal, together with all accrued and unpaid interest, of the Securities then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of a majority in aggregate principal amount of the Securities then outstanding by notice to the Trustee may rescind an acceleration and its consequences if (a) all existing Events of Default, other than the nonpayment of the principal of the Securities which has become due solely by such declaration of acceleration, have been cured or waived; (b) to the extent the payment of such interest is lawful, interest (calculated at the rate per annum borne by the Securities) on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid; (c) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (d) all payments due to the Trustee and any predecessor Trustee under Section 9.7 have been made. No such rescission shall affect any subsequent default or impair any right consequent thereto.

     SECTION 8.3 OTHER REMEDIES.

     If an Event of Default occurs and is continuing, the Trustee may, but shall not be obligated to, pursue any available remedy by proceeding at law or in equity to collect the payment of the principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture.

     The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law.

     SECTION 8.4 WAIVER OF DEFAULTS AND EVENTS OF DEFAULT.

     Subject to Sections 8.7 and 11.2, the Holders of a majority of the aggregate principal amount of the Securities then outstanding by notice to the Trustee may waive an existing default or Event of Default and its consequence, except a default or Event of Default in the payment of the principal of or interest on any Security (including payment of the Change in Control Purchase Price in connection with a Change in Control), a failure by the Company to convert any Securities into

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Common Stock or any default or Event of Default in respect of any provision of this Indenture or the Securities which, under Section 11.2, cannot be modified or amended without the consent of the Holder of each Security affected. When a default or Event of Default is waived, it is cured and ceases.

SECTION 8.5 CONTROL BY MAJORITY.

     The Holders of a majority in aggregate principal amount of the Securities then outstanding may 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 it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Holder or the Trustee, or that may involve the Trustee in personal liability unless the Trustee is offered indemnity satisfactory to it; provided, however, that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.

SECTION 8.6 LIMITATIONS ON SUITS.

     A Holder may not pursue any remedy with respect to this Indenture or the Securities (except actions for payment of overdue principal or interest or for the conversion of the Securities pursuant to Article 4) unless:

          (1) the Holder gives to the Trustee written notice of a continuing Event of Default;

          (2) the Holders of at least a majority in aggregate principal amount of the then outstanding Securities make a written request to the Trustee to pursue the remedy;

          (3) such Holder or Holders offer to the Trustee reasonable indemnity to the Trustee against any loss, liability or expense;

          (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and

          (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in aggregate principal amount of the Securities then outstanding.

     A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder.

     SECTION 8.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO CONVERT.

     Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of the principal of and interest on the Security, on or after the respective due dates expressed in the Security and this Indenture, to convert such Security in accordance with

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Article 4 and to bring suit for the enforcement of any such payment on or after such respective dates or the right to convert, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder.

     SECTION 8.8 COLLECTION SUIT BY TRUSTEE.

     If an Event of Default in the payment of principal or interest specified in clause (1) or (2) of Section 8.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or another obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with, to the extent that payment of such interest is lawful, interest on overdue principal and on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

     SECTION 8.9 TRUSTEE MAY FILE PROOFS OF CLAIM.

     The Trustee may 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 (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor on the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any money or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceeding is hereby authorized by each Holder 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 Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 9.7, and to the extent that such payment of the reasonable compensation, expenses, disbursements and advances 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, money, securities and other property which the Holders may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to, or, on behalf of any Holder, to authorize, accept or adopt any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

     SECTION 8.10 PRIORITIES.

     If the Trustee collects any money pursuant to this Article 8, it shall pay out the money in the following order:

     First, to the Trustee for amounts due under Section 9.7;

     Second, to the holders of Senior Indebtedness to the extent required by Article 5;

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     Third, to Holders for amounts due and unpaid on the Securities for principal and interest (including Additional Interest, if any), ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest (including Additional Interest, if any), respectively; and

     Fourth, the balance, if any, to the Company.

     The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 8.10.

     SECTION 8.11 UNDERTAKING FOR COSTS.

     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, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 8.11 does not apply to a suit made by the Trustee, a suit by a Holder pursuant to Section 8.7, or a suit by Holders of more than 25% in aggregate principal amount of the Securities then outstanding.

ARTICLE 9

TRUSTEE

     SECTION 9.1 DUTIES OF TRUSTEE.

     (a) If an Event of Default has occurred and is continuing, 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 its exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

     (b) Except during the continuance of an Event of Default:

          (1) the Trustee need perform only those duties as are specifically set forth in this Indenture and no others; and

          (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. The Trustee, however, shall examine any certificates and opinions which by any provision hereof are specifically required to be delivered to the Trustee to determine whether or not they conform to the requirements of this Indenture.

     (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:

          (1) this paragraph does not limit the effect of subsection (b) of this Section 9.1;

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          (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and

          (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 8.5.

     (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers unless the Trustee shall have received adequate indemnity in its opinion against potential costs and liabilities incurred by it relating thereto.

     (e) Every provision of this Indenture that in any way relates to the Trustee is subject to subsections (a), (b), (c) and (d) of this Section 9.1.

     (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.

SECTION 9.2 RIGHTS OF TRUSTEE.

     Subject to Section 9.1 and its duties and responsibilities under the TIA:

     (a) The Trustee may rely conclusively on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document.

     (b) Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate or an Opinion of Counsel, or both, which shall conform to Section 12.4(b). The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers’ Certificate or Opinion.

     (c) The Trustee may act through its agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.

     (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers.

     (e) The Trustee may consult with counsel, of its selection, and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection in respect of any such action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel.

     (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to

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the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.

     (g) 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, note, other evidence of indebtedness 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 sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.

     (h) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Trust Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office, and such notice references the Securities and this Indenture.

     (i) 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 9.3 INDIVIDUAL RIGHTS OF TRUSTEE.

     The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or an Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 9.10 and 9.11.

     SECTION 9.4 TRUSTEE’S DISCLAIMER.

     The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company’s use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than its certificate of authentication.

     SECTION 9.5 NOTICE OF DEFAULT OR EVENTS OF DEFAULT.

     If a default or an Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the default or Event of Default within 90 days after it occurs. However, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding notice is in the interests of Securityholders, except in the case of a default or an Event of Default in payment of the principal of or interest on any Security.

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     SECTION 9.6 REPORTS BY TRUSTEE TO HOLDERS.

     If such report is required by TIA Section 313, within 60 days after each May 15, beginning with the May 15 following the date of this Indenture, the Trustee shall mail to each Securityholder a brief report dated as of such May 15 that complies with TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b)(2) and (c).

     A copy of each report at the time of its mailing to Securityholders shall be mailed to the Company and filed with the SEC and each stock exchange, if any, on which the Securities are listed. The Company shall notify the Trustee whenever the Securities become listed on any stock exchange or listed or admitted to trading on any quotation system and any changes in the stock exchanges or quotation systems on which the Securities are listed or admitted to trading and of any delisting thereof.

     SECTION 9.7 COMPENSATION AND INDEMNITY.

     The Company shall pay to the Trustee from time to time such compensation (as agreed to from time to time by the Company and the Trustee in writing) for its services (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust). The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such expenses may include the reasonable compensation, disbursements and expenses of the Trustee’s agents and counsel.

     The Company shall indemnify the Trustee or any predecessor Trustee (which for purposes of this Section 9.7 shall include its officers, directors, employees and agents) for, and hold it harmless against, any and all loss, liability or expense, including taxes (other than taxes based upon, measured by or determined by the income of the Trustee) and reasonable legal fees and expenses incurred by it in connection with the acceptance or administration of its duties under this Indenture or any action or failure to act as authorized or within the discretion or rights or powers conferred upon the Trustee hereunder including the reasonable costs and expenses of the Trustee and its counsel in defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company need not pay for any settlement of any such claim without its prior written consent, which shall not be unreasonably withheld.

     Notwithstanding anything to the contrary herein, the Company need not reimburse the Trustee for any expense or indemnify it against any loss or liability incurred by it resulting from its negligence, bad faith or willful misconduct.

     To secure the Company’s payment obligations in this Section 9.7, the Trustee shall have a senior claim to which the Securities are hereby made subordinate on all money or property held or collected by the Trustee, except such money or property held in trust to pay the principal of and interest on the Securities. The obligations of the Company under this Section 9.7 shall survive the satisfaction and discharge of this Indenture or the resignation or removal of the Trustee.

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     When the Trustee incurs expenses or renders services after an Event of Default specified in clause (7) or (8) of Section 8.1 occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. The provisions of this Section 9.7 shall survive the termination of this Indenture.

     SECTION 9.8 REPLACEMENT OF TRUSTEE.

     The Trustee may resign by so notifying the Company. The Holders of a majority in aggregate principal amount of the Securities then outstanding may remove the Trustee by so notifying the Trustee and may, with the Company’s written consent, appoint a successor Trustee. The Company may remove the Trustee if:

          (1) the Trustee fails to comply with Section 9.10;

          (2) the Trustee is adjudged a bankrupt or an insolvent;

          (3) a receiver or other public officer takes charge of the Trustee or its property; or

          (4) the Trustee becomes incapable of acting.

     If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. The resignation or removal of a Trustee shall not be effective until a successor Trustee shall have delivered the written acceptance of its appointment as described below.

     If a successor Trustee does not take office within 45 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of 25% in principal amount of the Securities then outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee at the expense of the Company.

     If the Trustee fails to comply with Section 9.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

     A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee and be released from its obligations (exclusive of any liabilities that the retiring Trustee may have incurred while acting as Trustee) hereunder, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder.

     A retiring Trustee shall not be liable for the acts or omissions of any successor Trustee after its succession.

     Notwithstanding replacement of the Trustee pursuant to this Section 9.8, the Company’s obligations under Section 9.7 shall continue for the benefit of the retiring Trustee.

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     SECTION 9.9 SUCCESSOR TRUSTEE BY MERGER, ETC.

     If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust assets (including the administration of this Indenture) to, another Person, the resulting, surviving or transferee entity, without any further act, shall be the successor Trustee, provided such transferee entity shall qualify and be eligible under Section 9.10. Such successor Trustee shall promptly mail notice of its succession to the Company and each Holder.

     SECTION 9.10 ELIGIBILITY; DISQUALIFICATION.

     The Trustee shall always satisfy the requirements of paragraphs (1), (2) and (5) of TIA Section 310(a). The Trustee (or its parent holding company) shall have a combined capital and surplus of at least $50,000,000. If at any time the Trustee shall cease to satisfy any such requirements, it shall resign immediately in the manner and with the effect specified in this Article 9.

     The Trustee shall be subject to the provisions of TIA Section 310(b). Nothing herein shall prevent the Trustee from filing with the SEC the application referred to in the penultimate paragraph of TIA Section 310(b).

     SECTION 9.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.

     The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein.

ARTICLE 10

SATISFACTION AND DISCHARGE OF INDENTURE

     SECTION 10.1 SATISFACTION AND DISCHARGE OF INDENTURE.

     This Indenture shall cease to be of further effect (except as to any surviving rights of conversion, registration of transfer or exchange of Securities herein expressly provided for and except as further provided below), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when

          (1) either

               (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.7 and (ii) Securities for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company as provided in Section 10.3) have been delivered to the Trustee for cancellation; or

               (B) all such Securities not theretofore delivered to the Trustee for cancellation

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                      (i) have become due and payable, or

                      (ii) will become due and payable at the Final Maturity Date within one year,

and the Company, in the case of clause (i), (ii) or (iii) above, has irrevocably deposited or caused to be irrevocably deposited with the Trustee or a Paying Agent (other than the Company or any of its Affiliates) as trust funds in trust, cash in an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and interest (including Additional Interest, if any) to the date of such deposit (in the case of Securities which have become due and payable) or to the Final Maturity Date;

          (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and

          (3) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.

     Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 9.7 shall survive and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the provisions of Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.12, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 and 12.5, Article 4, the last paragraph of Section 6.2 and this Article 10, shall survive until the Securities have been paid in full.

     SECTION 10.2 APPLICATION OF TRUST MONEY.

     Subject to the provisions of Section 10.3, the Trustee or a Paying Agent shall hold in trust, for the benefit of the Holders, all money deposited with it pursuant to Section 10.1 and shall apply the deposited money in accordance with this Indenture and the Securities to the payment of the principal of and interest on the Securities. Money so held in trust shall not be subject to the subordination provisions of Article 5.

     SECTION 10.3 REPAYMENT TO COMPANY.

     The Trustee and each Paying Agent shall promptly pay to the Company upon request any excess money (i) deposited with them pursuant to Section 10.1 and (ii) held by them at any time.

     The Trustee and each Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years after a right to such money has matured; provided, however, that the Trustee or such Paying Agent, before being required to make any such payment, may at the expense of the Company cause to be mailed to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein, which shall be at least 30 days from the date of such mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person.

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     SECTION 10.4 REINSTATEMENT.

     If the Trustee or any Paying Agent is unable to apply any money in accordance with Section 10.2 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company’s obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 10.1 until such time as the Trustee or such Paying Agent is permitted to apply all such money in accordance with Section 10.2; provided, however, that if the Company has made any payment of the principal of or interest on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive any such payment from the money held by the Trustee or such Paying Agent.

ARTICLE 11

AMENDMENTS, SUPPLEMENTS AND WAIVERS

     SECTION 11.1 WITHOUT CONSENT OF HOLDERS.

     The Company and the Trustee may amend or supplement this Indenture or the Securities without notice to or consent of any Securityholder:

     (a) to comply with Sections 4.11, 7.1 and 7.2;

     (b) to cure any ambiguity, omission, defect or inconsistency;

     (c) to make any other change that does not adversely affect the rights of any Securityholder;

     (d) to comply with the provisions of the TIA, to comply with any requirement of the SEC in connection with the qualification of the Indenture under the TIA or to make any change necessary for the registration under the Securities Act of the Securities or the Common Stock issuable upon conversion of the Securities;

     (e) to add to the covenants of the Company for the equal and ratable benefit of the Securityholders or to surrender any right, power or option conferred upon the Company; or

     (f) to appoint a successor Trustee.

     SECTION 11.2 WITH CONSENT OF HOLDERS.

     The Company and the Trustee may amend or supplement this Indenture or the Securities with the written consent of the Holders of at least a majority of the aggregate principal amount of the Securities then outstanding. The Holders of at least a majority in aggregate principal amount of the Securities then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Securities without notice to any Securityholder. However, notwithstanding the foregoing but subject to Section 11.4, without the written consent of each

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Securityholder affected, an amendment, supplement or waiver, including a waiver pursuant to Section 8.4, may not:

     (a) change the record or payment dates for interest payments or stated maturity of the principal of, or interest on, any Security;

     (b) reduce the principal amount of or interest on any Security;

     (c) reduce the amount of principal payable upon acceleration of the maturity of any Security or purchase price payable in connection with a Change in Control;

     (d) change the place or currency of payment of principal of or interest on any Security;

     (e) extend time for payment or otherwise waive a payment of default with respect to any Security;

     (f) impair the right to institute suit for the enforcement of any payment on, or with respect to, any Security;

     (g) modify the provisions with respect to the purchase right of Holders pursuant to Article 3 upon a Change in Control in a manner adverse to Holders;

     (h) modify the subordination provisions of Article 5 in a manner materially adverse to the Holders of Securities;

     (i) adversely affect the right of Holders to convert Securities other than as provided in or under Article 4 of this Indenture;

     (j) reduce the percentage of the aggregate principal amount of the outstanding Securities whose Holders must consent to a modification or amendment;

     (k) reduce the percentage of the aggregate principal amount of the outstanding Securities necessary for the waiver of compliance with certain provisions of this Indenture or the waiver of certain defaults under this Indenture; and

     (l) modify any of the provisions of this Section or Section 8.4, except to increase any such percentage or to provide that certain provisions of this Indenture cannot be modified or waived without the consent of the Holder of each outstanding Security affected thereby.

     It shall not be necessary for the consent of the Holders under this Section 11.2 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof.

     After an amendment, supplement or waiver under this Section 11.2 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment, supplement or

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waiver. An amendment or supplement under this Section 11.2 or under Section 11.1 may not make any change that adversely affects the rights under Article 5 of any holder of any Senior Indebtedness unless such holder consents to the change.

     SECTION 11.3 COMPLIANCE WITH TRUST INDENTURE ACT.

     Every amendment to or supplement of this Indenture or the Securities shall comply with the TIA as in effect at the date of such amendment or supplement. In the event of any conflict between this Indenture and the TIA, the terms of the TIA shall govern.

     SECTION 11.4 REVOCATION AND EFFECT OF CONSENTS.

     Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to its Security or portion of a Security if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective.

     After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder, unless it makes a change described in any of clauses (a) through (k) of Section 11.2. In that case the amendment, supplement or waiver shall bind each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security.

     SECTION 11.5 NOTATION ON OR EXCHANGE OF SECURITIES.

     If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms.

     SECTION 11.6 TRUSTEE TO SIGN AMENDMENTS, ETC.

     The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 11 if the amendment or supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, in its sole discretion, but need not sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and, subject to Section 9.1, shall be fully protected in relying upon, an Opinion of Counsel stating that such amendment or supplemental indenture is authorized or permitted by this Indenture. The Company may not sign an amendment or supplement indenture until the Board of Directors approves it.

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     SECTION 11.7 EFFECT OF SUPPLEMENTAL INDENTURES.

     Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.

ARTICLE 12

MISCELLANEOUS

     SECTION 12.1 TRUST INDENTURE ACT CONTROLS.

     If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by any of Sections 310 to 317, inclusive, of the TIA through operation of Section 318(c) thereof, such imposed duties shall control.

     SECTION 12.2 NOTICES.

     Any demand, authorization notice, request, consent or communication shall be given in writing and delivered in person or mailed by first-class mail, postage prepaid, addressed as follows or transmitted by facsimile transmission (confirmed by delivery in person or mail by first-class mail, postage prepaid, or by guaranteed overnight courier) to the following facsimile numbers:

If to the Company, to:
McDATA Corporation
380 Interlocken Crescent
Broomfield, Colorado 80021
Attention: General Counsel
Facsimile No.: (303) 460-3235

if to the Trustee, to:
Wells Fargo Bank Minnesota, National Association
213 Court Street, Suite 703
Middletown, CT 06457
Attn: CORPORATE TRUST SERVICES
Facsimile No.: (860) 704-6219

     Such notices or communications shall be effective when received.

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

     Any notice or communication mailed to a Securityholder shall be mailed by first-class mail or delivered by an overnight delivery service to it at its address shown on the register kept by the Primary Registrar.

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

     SECTION 12.3 COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.

     Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and any other person shall have the protection of TIA Section 312(c).

     SECTION 12.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.

     (a) Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee at the request of the Trustee:

          (1) an Officers’ Certificate stating that, in the opinion of the signers, all conditions precedent (including any covenants, compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with; and

          (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent (including any covenants, compliance with which constitutes a condition precedent) have been complied with.

     (b) Each Officers’ Certificate and Opinion of Counsel 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 statements or opinions contained in such certificate or opinion are based;

          (3) a statement that, in the opinion of such person, he or she has made such examination or investigation as is necessary to enable him or her 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;

provided however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers’ Certificate or certificates of public officials.

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     SECTION 12.5 RECORD DATE FOR VOTE OR CONSENT OF SECURITYHOLDERS.

     The Company (or, in the event deposits have been made pursuant to Section 10.1, the Trustee) may set a record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture, which record date shall not be more than thirty (30) days prior to the date of the commencement of solicitation of such action. Notwithstanding the provisions of Section 11.4, if a record date is fixed, those persons who were Holders of Securities at the close of business on such record date (or their duly designated proxies), and only those persons, shall be entitled to take such action by vote or consent or to revoke any vote or consent previously given, whether or not such persons continue to be Holders after such record date.

     SECTION 12.6 RULES BY TRUSTEE, PAYING AGENT, REGISTRAR AND CONVERSION AGENT.

     The Trustee may make reasonable rules (not inconsistent with the terms of this Indenture) for action by or at a meeting of Holders. Any Registrar, Paying Agent or Conversion Agent may make reasonable rules for its functions.

     SECTION 12.7 LEGAL HOLIDAYS.

     A “Legal Holiday” is a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York and the state in which the Corporate Trust Office is located are not required to be open. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected.

     SECTION 12.8 GOVERNING LAW.

     This Indenture and the Securities shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws.

     SECTION 12.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.

     This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.

     SECTION 12.10 NO RECOURSE AGAINST OTHERS.

     All liability described in paragraph 15 of the Securities of any director, officer, employee or shareholder, as such, of the Company is waived and released.

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     SECTION 12.11 SUCCESSORS.

     All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor.

     SECTION 12.12 MULTIPLE COUNTERPARTS.

     The parties may sign multiple counterparts of this Indenture. Each signed counterpart shall be deemed an original, but all of them together represent the same agreement.

     SECTION 12.13 SEPARABILITY.

     In case any provisions in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

     SECTION 12.14 TABLE OF CONTENTS, HEADINGS, ETC.

     The table of contents, cross-reference sheet 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.

[SIGNATURE PAGE FOLLOWS]

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     IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the date and year first above written.

McDATA Corporation
By:	/s/ Tom McGimpsey
Name:	Tom McGimpsey
Title:
Wells Fargo Bank Minnesota, National Association, as Trustee
By:	/s/ Joseph P. O’Donnell
Name:	Joseph P. O’Donnell
Title:	Corporate Trust Officer

EXHIBIT A
[FORM OF FACE OF SECURITY]

     [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY 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 IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE 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.](1)

(1) These paragraphs should be included only if the Security is a Global Security.

     [THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), AND THIS SECURITY AND THE SHARES OF CLASS A COMMON STOCK OF THE COMPANY ISSUABLE UPON CONVERSION THEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.] (2)

(2) These paragraphs to be included only if the Security is a Restricted Security.

     THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY AND THE SHARES OF THE COMPANY’S CLASS A COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY BE OFFERED, RESOLD,

PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.](2)

(2) These paragraphs to be included only if the Security is a Restricted Security.

     [THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS AGREEMENT (AS SUCH TERM IS DEFINED IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF) AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT.] (2)

McDATA CORPORATION

CUSIP: 580 031 AC6 R-

2¹/4% CONVERTIBLE SUBORDINATED NOTES DUE 2010

     McDATA Corporation, a Delaware corporation (the “Company”, which term shall include any successor corporation under the Indenture referred to on the reverse hereof), promises to pay to ___, or registered assigns, the principal sum of ___Dollars ($___) on February 15, 2010 [or such greater or lesser amount as is indicated on the Schedule of Exchanges of Notes on the other side of this Note].(3)

(3) This phrase should be included only if the Security is a Global Security.

Interest Payment Dates: February 15 and August 15

Record Dates: February 1 and August 1

     This Note is convertible as specified on the other side of this Note. Additional provisions of this Note are set forth on the other side of this Note.

SIGNATURE PAGE FOLLOWS

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

McDATA Corporation

By:

Name:

Title:

Attest:

Name:

Title:

Dated:

Trustee’s Certificate of Authentication: This is one of the
Securities referred to in the within-mentioned Indenture.

Wells Fargo Bank Minnesota, National Association, as Trustee

Authorized Signatory

By:

[FORM OF REVERSE SIDE OF SECURITY]

McDATA CORPORATION
2¹/4% CONVERTIBLE SUBORDINATED NOTES DUE 2010

1. INTEREST

     McDATA Corporation, a Delaware corporation (the “Company”, which term shall include any successor corporation under the Indenture hereinafter referred to), promises to pay interest on the principal amount of this Note at the rate of 2¹/4% per annum. The Company shall pay interest semiannually on February 15 and August 15 of each year, commencing August 15, 2003. Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from February 7, 2003; provided, however, that if there is not an existing default in the payment of interest and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding interest payment date, interest shall accrue from such interest payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Any reference herein to interest accrued or payable as of any date shall include any Additional Interest accrued or payable on such date as provided in the Registration Rights Agreement.

2. METHOD OF PAYMENT

     The Company shall pay interest on this Note (except defaulted interest) to the person who is the Holder of this Note at the close of business on February 1 or August 1, as the case may be, next preceding the related interest payment date. The Holder must surrender this Note to a Paying Agent to collect payment of principal. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company may, however, pay principal and interest in respect of any Certificated Security by check or wire payable in such money; provided, however, that a Holder with an aggregate principal amount in excess of $2,000,000 will be paid by wire transfer in immediately available funds at the election of such Holder if such Holder has provided wire transfer instructions to the Company. The Company may mail an interest check to the Holder’s registered address. Notwithstanding the foregoing, so long as this Note is registered in the name of a Depositary or its nominee, all payments hereon shall be made by wire transfer of immediately available funds to the account of the Depositary or its nominee.

3. PAYING AGENT, REGISTRAR AND CONVERSION AGENT

     Initially, Wells Fargo Bank Minnesota, National Association (the “Trustee”, which term shall include any successor trustee under the Indenture hereinafter referred to) will act as Paying Agent, Registrar and Conversion Agent. The Company may change any Paying Agent, Registrar or Conversion Agent without notice to the Holder. The Company or any of its Affiliates may, subject to certain limitations set forth in the Indenture, act as Paying Agent or Registrar.

4. INDENTURE, LIMITATIONS

     This Note is one of a duly authorized issue of Securities of the Company designated as its 2¹/4% Convertible Subordinated Notes Due 2010 (the “Notes”), issued under an Indenture dated as of February 7, 2003 (together with any supplemental indentures thereto, the “Indenture”), between the

Company and the Trustee. The terms of this Note include those stated in the Indenture and those required by or made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended, as in effect on the date of the Indenture. This Note is subject to all such terms, and the Holder of this Note is referred to the Indenture and said Act for a statement of them. Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture.

     The Notes are subordinated unsecured obligations of the Company limited to $172,500,000 aggregate principal amount. The Indenture does not limit other debt of the Company, secured or unsecured, including Senior Indebtedness.

5. PURCHASE OF NOTES AT OPTION OF HOLDER UPON A CHANGE IN CONTROL

     At the option of the Holder and subject to the terms and conditions of the Indenture, the Company shall become obligated to purchase all or any part specified by the Holder (so long as the principal amount of such part is $1,000 or an integral multiple of $1,000 in excess thereof) of the Notes held by such Holder on the date that is 30 Business Days after the occurrence of a Change in Control, at a purchase price equal to 100% of the principal amount thereof together with accrued and unpaid interest, if any, up to, but excluding, the Change in Control Purchase Date. The Holder shall have the right to withdraw any Change in Control Purchase Notice (in whole or in a portion thereof that is $1,000 or an integral multiple of $1,000 in excess thereof) at any time prior to the close of business on the Business Day next preceding the Change in Control Purchase Date by delivering a written notice of withdrawal to the Paying Agent in accordance with the terms of the Indenture.

6. CONVERSION

     A Holder of a Note may convert the principal amount of such Note (or any portion thereof equal to $1,000 or any integral multiple of $1,000 in excess thereof) into shares of Common Stock at any time prior to the close of business on February 15, 2010; provided, however, that the conversion right will terminate at the close of business on the Business Day immediately preceding the date the Change in Control Purchase Notice has been delivered, for so long as it has not been validly withdrawn, for such Note or such earlier date as the Holder presents such Note for purchase (unless the Company shall default in making the Change in Control Purchase Price payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Note is purchased).

     The initial Conversion Price is $10.7068 per share, subject to adjustment under certain circumstances as provided in the Indenture. The number of shares of Common Stock issuable upon conversion of a Note is determined by dividing the principal amount of the Note or portion thereof converted by the Conversion Price in effect on the Conversion Date. No fractional shares will be issued upon conversion; in lieu thereof, an amount will be paid in cash based upon the Closing Price (as defined in the Indenture) of Common Stock on the Trading Day immediately prior to the Conversion Date.

     To convert a Note, a Holder must (a) complete and manually sign the conversion notice set forth below and deliver such notice to a Conversion Agent, (b) surrender the Note to a Conversion

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Agent, (c) furnish appropriate endorsements and transfer documents if required by a Registrar or a Conversion Agent, and (d) pay any transfer or similar tax, if required.

     A Holder may convert a portion of a Note equal to $1,000 or any integral multiple thereof.

     A Note in respect of which a Holder had delivered a Change in Control Purchase Notice exercising the option of such Holder to require the Company to purchase such Note may be converted only if the Change in Control Purchase Notice is withdrawn in accordance with the terms of the Indenture.

     Upon conversion, the Company may choose to deliver, in lieu of Common Stock, cash or a combination of cash and Common Stock in accordance with the terms of the Indenture.

7. SUBORDINATION

     The indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness of the Company. Any Holder by accepting this Note agrees to and shall be bound by such subordination provisions and authorizes the Trustee to give them effect. In addition to all other rights of Senior Indebtedness described in the Indenture, the Senior Indebtedness shall continue to be Senior Indebtedness and entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any terms of any instrument relating to the Senior Indebtedness or any extension or renewal of the Senior Indebtedness or increase in amount thereof.

8. DENOMINATIONS, TRANSFER, EXCHANGE

     The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes or other governmental charges that may be imposed in relation thereto by law or permitted by the Indenture.

9. PERSONS DEEMED OWNERS

     The Holder of a Note may be treated as the owner of it for all purposes.

10. UNCLAIMED MONEY

     If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Company at its written request, subject to applicable unclaimed property law. After that, Holders entitled to money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person.

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11. AMENDMENT, SUPPLEMENT AND WAIVER

     Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority of the aggregate principal amount of the Notes then outstanding, and an existing default or Event of Default and its consequence or compliance with any provision of the Indenture or the Notes may be waived in a particular instance with the consent of the Holders of a majority of the aggregate principal amount of the Notes then outstanding. Without the consent of or notice to any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, omission, defect or inconsistency or make any other change that does not adversely affect the rights of any Holder.

12. SUCCESSOR ENTITY

     When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture in accordance with the terms and conditions of the Indenture, the predecessor corporation (except in certain circumstances specified in the Indenture) will be released from those obligations.

13. DEFAULTS AND REMEDIES

     Under the Indenture, an Event of Default includes: (i) default for 30 days in payment of any interest or Additional Interest on any Notes; (ii) default in payment of any principal on the Notes when due; (iii) failure by the Company for 60 days after notice to it to comply with any of its other agreements contained in the Indenture or the Notes; (iv) default in the payment of certain indebtedness of the Company or a Significant Subsidiary (all or substantially all of the voting securities of which are owned, directly or indirectly, by the Company) and (v) certain events of bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary. If an Event of Default (other than as a result of certain events of bankruptcy, insolvency or reorganization of the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare all unpaid principal on the Notes then outstanding to be due and payable immediately, all as and to the extent provided in the Indenture. If an Event of Default occurs as a result of certain events of bankruptcy, insolvency or reorganization of the Company, unpaid principal of the Notes then outstanding shall become due and payable immediately without any declaration or other act on the part of the Trustee or any Holder, all as and to the extent provided in the Indenture. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company is required to file periodic reports with the Trustee as to the absence of default.

14. TRUSTEE DEALINGS WITH THE COMPANY

     Wells Fargo Bank Minnesota, National Association, the Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for

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the Company or an Affiliate of the Company, and may otherwise deal with the Company or an Affiliate of the Company, as if it were not the Trustee.

15. NO RECOURSE AGAINST OTHERS

     A director, officer, employee or shareholder, as such, of the Company shall not have any liability for any obligations of the Company under the Notes or the Indenture nor for any claim based on, in respect of or by reason of such obligations or their creation. The Holder of this Note by accepting this Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Note.

16. AUTHENTICATION

     This Note shall not be valid until the Trustee or an authenticating agent manually signs the certificate of authentication on the other side of this Note.

17. ABBREVIATIONS AND DEFINITIONS

     Customary abbreviations may be used in the name of the Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and UGMA (= Uniform Gifts to Minors Act).

     All terms defined in the Indenture and used in this Note but not specifically defined herein are defined in the Indenture and are used herein as so defined.

18. INDENTURE TO CONTROL; GOVERNING LAW

     In the case of any conflict between the provisions of this Note and the Indenture, the provisions of the Indenture shall control. This Note shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principals of conflicts of law.

     The Company will furnish to any Holder, upon written request and without charge, a copy of the Indenture. Requests may be made to: McDATA Corporation, 380 Interlocken Crescent, Broomfield, Colorado 80021, (303) 460-9200, Attention: Investor Relations.

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ASSIGNMENT FORM

     To assign this Note, fill in the form below:

     I or we assign and transfer this Note to

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

and irrevocably appoint

agent to transfer this Note on the books of the Company. The agent may substitute another to act for him or her.

		Your Signature:
Date:
		(Sign exactly as your name appears on the other side of this Note)
*Signature	guaranteed by:
By:

^* The signature must be guaranteed by an institution which is a member of one of the following recognized signature guaranty programs: (i) the Securities Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guaranty program acceptable to the Trustee.

CONVERSION NOTICE

     To convert this Note into Common Stock of the Company, check the box: o

     To convert only part of this Note, state the principal amount to be converted (must be $1,000 or a integral multiple of $1,000): $ .

     If you want the stock certificate made out in another person’s name, fill in the form below:

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

		Your Signature:
Date:
		(Sign exactly as your name appears on the other side of this Note)
*Signature	guaranteed by:
By:

^* The signature must be guaranteed by an institution which is a member of one of the following recognized signature guaranty programs: (i) the Securities Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guaranty program acceptable to the Trustee.

OPTION TO ELECT REPURCHASE

UPON A CHANGE OF CONTROL

To: McDATA Corporation

     The undersigned registered owner of this Security hereby irrevocably acknowledges receipt of a notice from McDATA Corporation (the “Company”) as to the occurrence of a Change in Control with respect to the Company and requests and instructs the Company to redeem the entire principal amount of this Security, 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 Security at the Change in Control Purchase Price, together with accrued interest to, but excluding, such date, to the registered Holder hereof.

Dated:
	Signature(s)
	Signature(s) must be guaranteed by a qualified guarantor institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934.
	Signature Guaranty
Principal amount to be redeemed (in an integral multiple of $1,000, if less than all):

NOTICE: The signature to the foregoing Election must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever.

SCHEDULE OF EXCHANGES OF NOTES(4)

     The following exchanges, repurchases or conversions of a part of this global Note have been made:

Principal Amount of this
Global Note Following		Amount of Decrease in	Amount of Increase in
Such Decrease Date of	Authorized Signatory of	Principal Amount of this	Principal Amount of this
Exchange (or Increase)	Securities Custodian	Global Note	Global Note

(4) This schedule should be included only if the Security is a Global Security.

CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION

OF TRANSFER OF RESTRICTED SECURITIES(5)

(5) This certificate should only be included if this Security is a Restricted Security.

Re: 2¹/4% Convertible Subordinated Notes Due 2010 (the “Notes”) of McDATA Corporation

     This certificate relates to $            principal amount of Notes owned in (check applicable box)

     o book-entry or o definitive form by                               (the “Transferor”).

     The Transferor has requested a Registrar or the Trustee to exchange or register the transfer of such Notes.

     In connection with such request and in respect of each such Note, the Transferor does hereby certify that the Transferor is familiar with transfer restrictions relating to the Notes as provided in Section 2.12 of the Indenture dated as of February 7, 2003 between McDATA Corporation and Wells Fargo Bank Minnesota, National Association, as trustee (the “Indenture”), and the transfer of such Note is being made pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”) (check applicable box) or the transfer or exchange, as the case may be, of such Note does not require registration under the Securities Act because (check applicable box):

o Such Note is being transferred pursuant to an effective registration statement under the Securities Act.

o Such Note is being acquired for the Transferor’s own account, without transfer.

o Such Note is being transferred to the Company or a Subsidiary (as defined in the Indenture) of the Company.

o Such Note is being transferred to a person the Transferor reasonably believes is a “qualified institutional buyer” (as defined in Rule 144A or any successor provision thereto (“Rule 144A”) under the Securities Act) that is purchasing for its own account or for the account of a “qualified institutional buyer”, in each case to whom notice has been given that the transfer is being made in reliance on such Rule 144A, and in each case in reliance on Rule 144A.

o Such Note is being transferred pursuant to and in compliance with an exemption from the registration requirements under the Securities Act in accordance with Rule 144 (or any successor thereto) (“Rule 144”) under the Securities Act.

     Such Note is being transferred pursuant to and in compliance with an exemption from the registration requirements of the Securities Act (other than an exemption referred to above) and as a

result of which such Note will, upon such transfer, cease to be a “restricted security” within the meaning of Rule 144 under the Securities Act.

     The Transferor acknowledges and agrees that, if the transferee will hold any such Notes in the form of beneficial interests in a global Note which is a “restricted security” within the meaning of Rule 144 under the Securities Act, then such transfer can only be made pursuant to Rule 144A under the Securities Act and such transferee must be a “qualified institutional buyer” (as defined in Rule 144A).

Date:
	(Insert Name of Transferor)

EX-4.5

Exhibit 4.5

COMPUTER NETWORK TECHNOLOGY CORPORATION

3.00% CONVERTIBLE SUBORDINATED NOTES
DUE 2007

INDENTURE

DATED AS OF FEBRUARY 20, 2002

U.S. BANK NATIONAL ASSOCIATION,
AS TRUSTEE

CROSS-REFERENCE TABLE*

TIA SECTION		INDENTURE SECTION
Section 310	(a)(1)		9.10
	(a)(2)		9.10
	(a)(3)		N.A.**
	(a)(4)		N.A.
	(a)(5)		9.10
	(b)		9.8; 9.10
	(c)		N.A.
Section 311	(a)		9.11
	(b)		9.11
	(c)		N.A.
Section 312	(a)		2.5
	(b)		13.3
	(c)		13.3
Section 313	(a)		9.6
	(b)(1)		N.A.
	(b)(2)		9.6
	(c)		9.6; 13.2
	(d)		9.6
Section 314	(a)		6.2; 6.3, 6.4; 13.2
	(b)		N.A.
	(c)(1)		13.4(a)
	(c)(2)		13.4(a)
	(c)(3)		N.A.
	(d)		N.A.
	(e)		13.4(b)
	(f)		N.A.
Section 315	(a)		9.1(b)
	(b)		9.5; 13.2
	(c)		9.1(a)
	(d)		9.1(c)
	(e)		8.11
Section 316	(a)(last sentence)		2.9
	(a)(1)(A)		8.5
	(a)(1)(B)		8.4
	(a)(2)		N.A.
	(b)		8.7
	(c)		13.5
Section 317	(a)(1)		8.8
	(a)(2)		8.9
	(b)		2.4

*	This Cross-Reference Table shall not, for any purpose, be deemed a part of this Indenture.
**	N.A. means Not Applicable.

ii 

TABLE OF CONTENTS

	ARTICLE I
	DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1	Definitions	1
Section 1.2	Other Definitions	4
Section 1.3	Trust Indenture Act Provisions	5
Section 1.4	Rules of Construction	5
	ARTICLE II
	THE SECURITIES
Section 2.1	Form and Dating	5
Section 2.2	Execution and Authentication	6
Section 2.3	Registrar, Paying Agent and Conversion Agent	6
Section 2.4	Paying Agent To Hold Money in Trust	7
Section 2.5	Securityholder Lists	7
Section 2.6	Transfer and Exchange	7
Section 2.7	Replacement Securities	8
Section 2.8	Outstanding Securities	8
Section 2.9	Treasury Securities	8
Section 2.10	Temporary Securities	8
Section 2.11	Cancellation	8
Section 2.12	Additional Transfer and Exchange Requirements	9
Section 2.13	CUSIP Numbers	12
	ARTICLE III
	PROVISIONAL REDEMPTION
Section 3.1	Right to Provisionally Redeem; Notice to Trustee	12
Section 3.2	Selection of Securities to be Redeemed	13
Section 3.3	Notice of Redemption	13
Section 3.4	Effect of Notice of Redemption	13
Section 3.5	Deposit of Redemption Price	14
Section 3.6	Securities Redeemed in Part	14
Section 3.7	Conversion Arrangement on Call For Redemption	14
	ARTICLE IV
	CONVERSION
Section 4.1	Conversion Privilege	14
Section 4.2	Conversion Procedure	15
Section 4.3	Fractional Shares	16
Section 4.4	Taxes on Conversion	16
Section 4.5	Company to Provide Stock	16
Section 4.6	Adjustment of Conversion Price	16
Section 4.7	No Adjustment	19
Section 4.8	Adjustment for Tax Purposes	19
Section 4.9	Notice of Adjustment	19
Section 4.10	Notice of Certain Transactions	19
Section 4.11	Effect of Reclassification, Consolidation, Merger or Sale on Conversion Privilege	19
Section 4.12	Trustee’s Disclaimer	20
Section 4.13	Voluntary Reduction	20
	ARTICLE V
	SUBORDINATION
Section 5.1	Agreement of Subordination	20
Section 5.2	Payments to Holders	20
Section 5.3	Subrogation of Securities	22
Section 5.4	Authorization to Effect Subordination	23
Section 5.5	Notice to Trustee	23
Section 5.6	Trustee’s Relation to Senior Indebtedness	23
Section 5.7	No Impairment of Subordination	24
Section 5.8	Certain Conversions Deemed Payment	24
Section 5.9	Article Applicable to Paying Agents	24
Section 5.10	Senior Indebtedness Entitled to Rely	24
	ARTICLE VI
	COVENANTS
Section 6.1	Payment of Securities	24
Section 6.2	SEC Reports	24
Section 6.3	Compliance Certificates	25
Section 6.4	Further Instruments and Acts	25
Section 6.5	Maintenance of Corporate Existence	25
Section 6.6	Rule 144A Information Requirement	25
Section 6.7	Stay, Extension and Usury Laws	25
Section 6.8	Payment of Liquidated Damages	25
Section 6.9	Resale of Certain Securities	25

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	ARTICLE VII
	CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 7.1	Company May Consolidate, Etc. Only on Certain Terms	26
Section 7.2	Successor Substituted	26
	ARTICLE VIII
	DEFAULT AND REMEDIES
Section 8.1	Events of Default	26
Section 8.2	Acceleration	27
Section 8.3	Other Remedies	27
Section 8.4	Waiver of Defaults and Events of Default	28
Section 8.5	Control By Majority	28
Section 8.6	Limitations on Suits	28
Section 8.7	Rights of Holders to Receive Payment and to Convert	28
Section 8.8	Collection Suit By Trustee	28
Section 8.9	Trustee May File Proofs of Claim	28
Section 8.10	Priorities	29
Section 8.11	Undertaking for Costs	29
	ARTICLE IX
	TRUSTEE
Section 9.1	Duties of Trustee	29
Section 9.2	Rights of Trustee	29
Section 9.3	Individual Rights of Trustee	30
Section 9.4	Trustee’s Disclaimer	30
Section 9.5	Notice of Default or Events of Default	30
Section 9.6	Reports By Trustee To Holders	30
Section 9.7	Compensation and Indemnity	31
Section 9.8	Replacement of Trustee	31
Section 9.9	Successor Trustee By Merger, Etc.	32
Section 9.10	Eligibility; Disqualification	32
Section 9.11	Preferential Collection of Claims Against Company	32
	ARTICLE X
	SATISFACTION AND DISCHARGE OF INDENTURE
Section 10.1	Satisfaction and Discharge of Indenture	32
Section 10.2	Application of Trust Money	32
Section 10.3	Repayment To Company	33
Section 10.4	Reinstatement	33
	ARTICLE XI
	AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 11.1	Without Consent of Holders	33
Section 11.2	With Consent of Holders	33
Section 11.3	Compliance With Trust Indenture Act	34
Section 11.4	Revocation and Effect of Consents	34
Section 11.5	Notation on or Exchange of Securities	34
Section 11.6	Trustee To Sign Amendments, Etc	34
	ARTICLE XII
	REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE IN CONTROL
Section 12.1	Change in Control Put	34
Section 12.2	Effect of Change in Control Repurchase Notice	36
Section 12.3	Deposit of Change in Control Repurchase Price	36
Section 12.4	Securities Purchased in Part	37
Section 12.5	Compliance with Securities Laws Upon Purchase of Securities	37
Section 12.6	Repayment to the Company	37
	ARTICLE XIII
	MISCELLANEOUS
Section 13.1	Trust Indenture Act Controls	37
Section 13.2	Notices	37
Section 13.3	Communications By Holders With Other Holders	37
Section 13.4	Certificate and Opinion as to Conditions Precedent	38
Section 13.5	Record Date for Vote or Consent of Securityholders	38
Section 13.6	Rules By Trustee, Paying Agent, Registrar and Conversion Agent	38
Section 13.7	Legal Holidays	38
Section 13.8	Governing Law	38
Section 13.9	No Adverse Interpretation of Other Agreements	38
Section 13.10	No Recourse Against Others	38
Section 13.11	Successors	38
Section 13.12	Multiple Counterparts	38
Section 13.13	Separability	38
Section 13.14	Table of Contents, Headings, Etc.	39

iv 

EXHIBITS

Form of Security A-1

v 

THIS INDENTURE dated as of February 20, 2002 is between Computer Network Technology Corporation, a Minnesota corporation (the “Company”), and U.S. Bank National Association, a national banking association, as Trustee (the “Trustee”).

In consideration of the premises and the purchase of the Securities by the Holders thereof, both parties agree as follows for the benefit of the other and for the equal and ratable benefit of the registered Holders of the Company’s 3.00% Convertible Subordinated Notes due 2007.

DEFINITIONS AND INCORPORATION BY REFERENCE

DEFINITIONS.

“Affiliate” means, with respect to any specified person, 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 person means the power to direct 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.

“Agent” means any Registrar, Paying Agent or Conversion Agent.

“Applicable Procedures” means, with respect to any transfer or exchange of beneficial ownership interests in a Global Security, the rules and procedures of the Depositary that are applicable to such transfer or exchange.

“Board of Directors” means the board of directors of the Company or any authorized committee of the Board of Directors.

“Business Day” means each day that is not a Legal Holiday.

“Capital Stock” of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, but excluding any debt securities convertible into such equity.

“Cash” or “cash” means such coin or currency of the United States as at any time of payment is legal tender for the payment of public and private debts.

“Certificated Security” means a Security that is in substantially the form attached hereto as Exhibit A and that does not include the information or the schedule called for by footnotes 1, 3 and 4 thereof.

“Closing Price” means the closing price per share of the Company’s Common Stock determined in accordance with Section 4.6(f) hereof.

“Common Stock” means the common stock of the Company, par value $0.01 per share, as it exists on the date of this Indenture and any shares of any class or classes of Capital Stock of the Company 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 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 on conversion of Securities 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 party named as such in this Indenture until a successor replaces it pursuant to this Indenture, and thereafter means the successor.

1

“Corporate Trust Office” means the corporate trust office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of the execution of this Indenture is located at 180 East Fifth Street, St. Paul, Minnesota 55101, Attention: Corporate Trust Group, or at any other time at such other address as the Trustee may designate from time to time by notice to the Company.

“Default” or “default” means, when used with respect to the Securities, any event which is or, after notice or passage of time or both, would be an Event of Default.

“Designated Senior Indebtedness” means any particular Senior Indebtedness in 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 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.

“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.

“Final Maturity Date” means February 15, 2007.

“GAAP” means generally accepted accounting principles in the United States of America as in effect as of the date of this Indenture, including those set forth in (1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (2) the statements and pronouncements of the Financial Accounting Standards Board, (3) such other statements by such other entity as approved by a significant segment of the accounting profession and (4) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in registration statements filed under the Securities Act and periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC.

“Global Security” means a permanent Global Security that is in substantially the form attached hereto as Exhibit A and that includes the information and schedule called for by footnotes 1, 3, 4 and 5 thereof and which is deposited with the Depositary or its custodian and registered in the name of the Depositary or its nominee.

“Holder” or “Securityholder” means the person in whose name a Security is registered on the Primary Registrar’s books.

“Indebtedness” means, with respect to any Person, without duplication, (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money, including without limitation obligations of such Person in respect of overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, loans or advances from banks, whether or not evidenced by notes or similar instruments or evidenced by credit or loan agreements, and 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) but excluding any trade accounts payable or other accrued current expense 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

2

otherwise) of such Person with respect to letters of credit, bank guarantees, bankers’ acceptances, or similar facilities, (c) all obligations and liabilities (contingent or otherwise) of such Person (i) in respect of leases of such Person required, in conformity with GAAP, to be accounted for as capitalized lease obligations on the balance sheet of such Person, (ii) as lessee under other leases for facilities equipment (and related assets leased together therewith), whether or not capitalized, entered into or leased for financing purposes (as determined by the Company) or (iii) under any lease or related document (including a purchase agreement) in connection with the lease of real property or improvements thereon (or any personal property included as part of any such lease) 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 (whether or not such lease transaction is characterized as an operating lease or a capitalized lease in accordance with GAAP), (d) all obligations (contingent or otherwise) of such Person with respect to any interest rate, currency or other swap, cap, floor or collar agreement, hedge agreement, forward contract, or other similar instrument or foreign currency hedge, exchange, purchase or similar instrument or agreement, (e) all direct or indirect guaranties, agreements to be jointly liable 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, 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 Indenture as amended or supplemented from time to time pursuant to the terms of this Indenture.

“Liquidated Damages” has the meaning specified in Section 3(a) of the Registration Rights Agreement. All references herein or in the Securities to interest accrued or payable as of any date shall include any Liquidated Damages accrued or payable as of such date as provided in the Registration Rights Agreement.

“Maturity” means the date on which the outstanding principal amount, Redemption Price or Change in Control Repurchase Price with respect to such Securities becomes due and payable as therein or herein provided, whether at the Final Maturity Date or by acceleration, conversion, call for redemption, exercise of a repurchase right or otherwise.

“Officer” means the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Controller, the Secretary or any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company.

“Officers’ Certificate” means a certificate signed by two Officers; provided, however, that for purposes of Sections 4.11 and 6.3, “Officers’ Certificate” means a certificate signed by the principal executive officer, principal financial officer or principal accounting officer of the Company and by one other Officer.

“Opinion of Counsel” means a written opinion from legal counsel. The counsel may be an employee of or counsel to the Company or the Trustee.

“Person” or “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

3

“Principal” or “principal” of a debt security, including the Securities, means the principal of the security plus, when appropriate, the premium, if any, on the security.

“Redemption Date” or “redemption date,” when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture.

“Redemption Price” or “redemption price,” when used with respect to any Security to be redeemed, means the price fixed for such redemption pursuant to this Indenture, as set forth in the form of Security annexed as Exhibit A hereto.

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of February 20, 2002, among the Company, Bear, Stearns & Co. Inc., SG Cowen and SoundView Technology Group, as the initial purchasers.

“Regulation S” means Regulation S under the Securities Act.

“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.

“Restricted Certificated Security” means a Certificated Security which is a Transfer Restricted Security.

“Restricted Global Security” means a Global Security that is a Transfer Restricted Security.

“Restricted Security” means a Restricted Certificated Security or a Restricted Global Security.

“Rule 144” means Rule 144 under the Securities Act or any successor to such Rule.

“Rule 144A” means Rule 144A under the Securities Act or any successor to such Rule.

“Securities” means the 3.00% Convertible Subordinated Notes due 2007 or any of them (each, a “Security”), as amended or supplemented from time to time, that are issued under this Indenture.

“SEC” means the Securities and Exchange Commission.

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

“Securities Custodian” means the Trustee, as custodian with respect to the Securities in global form, or any successor thereto.

“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

4

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 Securities or expressly provides that such Indebtedness is “pari passu” or “junior” to the Securities. Notwithstanding the foregoing, the term Senior Indebtedness shall not include any Indebtedness of the Company to any Subsidiary of 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.

“Subsidiary” means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, general partners or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person; (ii) such Person and one or more Subsidiaries of such Person; or (iii) one or more Subsidiaries of such Person.

“TIA” means the Trust Indenture Act of 1939, as amended, as in effect on the date of this Indenture, except as provided in Section 11.3, and except to the extent any amendment to the Trust Indenture Act expressly provides for application of the Trust Indenture Act as in effect on another date.

“Trading Day” means:

IF THE APPLICABLE SECURITY IS LISTED OR ADMITTED FOR TRADING ON THE NEW YORK STOCK EXCHANGE, A DAY ON WHICH THE NEW YORK STOCK EXCHANGE IS OPEN FOR BUSINESS;

IF THAT SECURITY IS NOT LISTED ON THE NEW YORK STOCK EXCHANGE, A DAY ON WHICH TRADES MAY BE MADE ON

THE NNM;

IF THAT SECURITY IS NOT SO LISTED ON THE NEW YORK STOCK EXCHANGE AND NOT QUOTED ON THE NNM, A DAY ON WHICH THE PRINCIPAL U.S. SECURITIES EXCHANGE ON WHICH THE SECURITIES ARE LISTED IS OPEN FOR BUSINESS; OR

IF THE APPLICABLE SECURITY IS NOT SO LISTED, ADMITTED FOR TRADING OR QUOTED, ANY DAY OTHER THAN A SATURDAY OR A 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.

“Trustee” means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture, and thereafter means the successor.

“Trust Officer” means, with respect to the Trustee, any officer assigned to the Corporate Trust Office, and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer’s knowledge of and familiarity with the particular subject.

“Unrestricted Certificated Security” means a Certificated Security that is not a Transfer Restricted Security.

“Unrestricted Global Security” means a Global Security that is not a Transfer Restricted Security.

“Voting Stock” of a Person means any class or classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and entitled under ordinary circumstances (without regard to the occurrence of any

5

contingency) to vote in the election of directors, managers or trustees thereof or other persons performing similar functions.

OTHER DEFINITIONS

TERM	DEFINED IN SECTION
“Agent Members”		2.1(a)
“Bankruptcy Law”		8.1
“Change in Control”		12.1(a)
“Change in Control Repurchase Date”		12.1(a)
“Change in Control Repurchase Notice”		12.1(c)
“Change in Control Repurchase Price”		12.1(a)
“Change in Control Repurchase Right”		12.1(a)
“Company Order”		2.2
“Conversion Agent”		2.3
“Conversion Date”		4.2
“Conversion Price”		4.6
“current market price”		4.6(f)
“Custodian”		8.1
“DTC”		2.1(a)
“Depositary”		2.1(a)
“Determination Date”		4.6(d)
“Event of Default”		8.1
“Expiration Date”		4.6(e)
“Expiration Time”		4.6(e)
“Legal Holiday”		13.7
“Make-Whole Payment”		3.1
“NNM”		4.5
“Notice Date”		3.1
“Paying Agent”		2.3
“Payment Blockage Notice”		5.2(b)
“Primary Registrar”		2.3
“Purchased Shares”		4.6(e)
“QIB”		2.1(a)
“Redemption Price”		3.1
“Registrar”		2.3
“Transfer Certificate”		2.12(f)
“Transfer Restricted Security”		2.12(f)
“Triggering Distribution”		4.6(d)
“Unissued Shares”		12.1(a)

TRUST INDENTURE ACT PROVISIONS

Whenever this Indenture refers to a provision of the TIA, that provision is incorporated by reference in and made a part of this Indenture. The Indenture shall also include those provisions of the TIA required to be included herein by the provisions of the Trust Indenture Reform Act of 1990. The following TIA terms used in this Indenture have the following meanings:

“indenture securities” means the Securities;

“indenture security holder” means a Securityholder;

“indenture to be qualified” means this Indenture;

“indenture trustee” or “institutional trustee” means the Trustee; and “obligor” on the indenture securities means the Company or any other obligor on the Securities.

All other terms used in this Indenture that are defined in the TIA, defined by TIA reference to another statute or defined by any SEC rule and not otherwise defined herein have the meanings assigned to them therein.

RULES OF CONSTRUCTION

Unless the context otherwise requires:

A TERM HAS THE MEANING ASSIGNED TO IT;

6

AN ACCOUNTING TERM NOT OTHERWISE DEFINED HAS THE MEANING ASSIGNED TO IT IN ACCORDANCE WITH GAAP;

WORDS IN THE SINGULAR INCLUDE THE PLURAL, AND WORDS IN THE PLURAL INCLUDE THE SINGULAR;

PROVISIONS APPLY TO SUCCESSIVE EVENTS AND TRANSACTIONS;

THE TERM “MERGER” INCLUDES A STATUTORY SHARE EXCHANGE AND THE TERM “MERGED” HAS A CORRELATING

MEANING;

THE MASCULINE GENDER INCLUDES THE FEMININE AND THE NEUTER;

REFERENCES TO AGREEMENTS AND OTHER INSTRUMENTS INCLUDE SUBSEQUENT AMENDMENTS
THERETO; AND

“HEREIN,” “HEREOF” AND OTHER WORDS OF SIMILAR IMPORT REFER TO THIS INDENTURE AS A WHOLE AND NOT TO ANY PARTICULAR ARTICLE, SECTION OR OTHER SUBDIVISION.

THE SECURITIES

FORM AND DATING

The Securities and the Trustee’s certificate of authentication shall be substantially in the respective forms set forth in Exhibit A, which Exhibit is incorporated in and made part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Security shall be dated the date of its authentication. The Securities are being offered and sold by the Company in transactions exempt from, or not subject to, the registration requirements of the Securities Act.

Restricted Global Securities. All of the Securities are initially being offered and sold to qualified institutional buyers as defined in Rule 144A (collectively, “QIBs” or individually, each a “QIB”) in reliance on Rule 144A under the Securities Act and shall be issued initially in the form of one or more Restricted Global Securities, which shall be deposited on behalf of the purchasers of the Securities represented thereby with the Trustee, at its Corporate Trust Office, as custodian for the depositary, The Depository Trust Company (“DTC”) (such depositary, or any successor thereto, being hereinafter referred to as the “Depositary”), and registered in the name of its nominee, Cede & Co., duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Restricted Global Security may from time to time be increased or decreased by adjustments made on the records of the Securities Custodian as hereinafter provided, subject in each case to compliance with the Applicable Procedures.

Global Securities in General. Each Global Security shall represent such of the outstanding Securities as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Securities from time to time endorsed thereon and that the aggregate amount of outstanding Securities represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges, redemptions, purchases or conversions of such Securities. Any endorsement of a Global Security to reflect the amount of any increase or decrease in the amount of outstanding Securities represented thereby shall be made by the Securities Custodian in accordance with the standing instructions and procedures existing between the Depositary and the Securities Custodian.

Members of, or participants in, the Depositary (“Agent Members”) shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or under any Global Security, and the Depositary (including, for this purpose, its nominee) may be treated by the Company, the Trustee and any agent of the

7

Company or the Trustee as the absolute owner and Holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall (A) prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or (B) impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Security.

Certificated Securities. Certificated Securities shall be issued only under the limited circumstances provided in Section 2.12(a)(1) hereof.

EXECUTION AND AUTHENTICATION

An Officer shall sign the Securities for the Company by manual or facsimile signature attested by the manual or facsimile signature of the Secretary or an Assistant Secretary of the Company. Typographic and other minor errors or defects in any such facsimile signature shall not affect the validity or enforceability of any Security which has been authenticated and delivered by the Trustee.

If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless.

A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture.

The Trustee shall authenticate and make available for delivery Securities for original issue in the aggregate principal amount of up to $150,000,000 upon receipt of a written order or orders of the Company signed by an Officer of the Company (a “Company Order”). The Company Order shall specify the amount of Securities to be authenticated, shall provide that all such Securities will be represented by a Restricted Global Security and the date on which each original issue of Securities is to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed $150,000,000 except as provided in Section 2.7.

The Trustee shall act as the initial authenticating agent. Thereafter, the Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent shall have the same rights as an Agent to deal with the Company or an Affiliate of the Company.

The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof.

REGISTRAR, PAYING AGENT AND CONVERSION AGENT

The Company shall maintain one or more offices or agencies where Securities may be presented for registration of transfer or for exchange (each, a “Registrar”), one or more offices or agencies where Securities may be presented for payment (each, a “Paying Agent”), one or more offices or agencies where Securities may be presented for conversion (each, a “Conversion Agent”) and one or more offices or agencies where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will at all times maintain a Paying Agent, Conversion Agent, Registrar and an office or agency where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served in the Borough of Manhattan, the City of New York. One of the Registrars (the “Primary Registrar”) shall keep a register of the Securities and of their transfer and exchange.

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The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to maintain a Registrar, Paying Agent, Conversion Agent or agent for service of notices and demands in any place required by this Indenture, or fails to give the foregoing notice, the Trustee shall act as such. The Company or any Affiliate of the Company may act as Paying Agent (except for the purposes of Section 6.1 and Article X).

The Company hereby initially designates the Trustee as Paying Agent, Registrar, Securities Custodian and Conversion Agent (which shall initially be located at 180 East Fifth Street, St. Paul, Minnesota 55101, Attention: Corporate Trust Operations), one such office or agency of the Company for each of the aforesaid purposes.

PAYING AGENT TO HOLD MONEY IN TRUST

Prior to 11:00 a.m., New York City time, on each due date of the principal of or interest, if any, on any Securities, the Company shall deposit with a Paying Agent a sum sufficient to pay such principal or interest, if any, so becoming due. Subject to Section 5.9, a Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest, if any, on the Securities, and shall notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such payment. If the Company or an Affiliate of the Company acts as Paying Agent, it shall, before 11:00 a.m., New York City time, on each due date of the principal of or interest on any Securities, segregate the money and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee, and the Trustee may at any time during the continuance of any Default, upon written request to a Paying Agent, require such Paying Agent to forthwith pay to the Trustee all sums so held in trust by such Paying Agent. Upon doing so, the Paying Agent (other than the Company) shall have no further liability for the money.

SECURITYHOLDER LISTS

The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Primary Registrar, the Company shall furnish to the Trustee on or before each semiannual interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders.

TRANSFER AND EXCHANGE

Subject to compliance with any applicable additional requirements contained in Section 2.12, when a Security is presented to a Registrar with a request to register a transfer thereof or to exchange such Security for an equal principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested; provided, however, that every Security presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by an assignment form and, if applicable, a transfer certificate each in the form included in Exhibit A, and in form satisfactory to the Registrar duly executed by the Holder thereof or its attorney duly authorized in writing. To permit registration of transfers and exchanges, upon surrender of any Security for registration of transfer or exchange at an office or agency maintained pursuant to Section 2.3, the Company shall execute and the Trustee shall authenticate Securities of a like aggregate principal amount at the Registrar’s request. Any exchange or transfer shall be without charge, except that the Company or the Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto, and provided, that this sentence shall not apply to any exchange pursuant to Section 2.7, 2.10, 2.12(a)(1), 3.6, 4.2 (last paragraph), 11.5 or 12.4.

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Neither the Company, any Registrar nor the Trustee shall be required to exchange or register a transfer of (a) any Securities for a period of 15 days next preceding any mailing of a notice of Securities to be redeemed, (b) any Securities or portions thereof selected or called for redemption (except, in the case of redemption of a Security in part, the portion not to be redeemed) or (c) any Securities or portions thereof in respect of which a Change in Control Repurchase Notice has been delivered and not withdrawn by the Holder thereof (except, in the case of the purchase of a Security in part, the portion not to be purchased).

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

Any Registrar appointed pursuant to Section 2.3 hereof shall provide to the Trustee such information as the Trustee may reasonably require in connection with the delivery by such Registrar of Securities upon transfer or exchange of Securities.

Each Holder of a Security agrees to indemnify the Company, the Registrar and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder’s Security in violation of any provision of this Indenture and/or applicable United States federal or state securities law.

The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Agent Members or other beneficial owners of interests in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

REPLACEMENT SECURITIES

If any mutilated Security is surrendered to the Company, a Registrar or the Trustee, or the Company, a Registrar and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company, the applicable Registrar and the Trustee such security or indemnity as will be required by any of them to save each of them harmless, then, in the absence of notice to the Company, such Registrar or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute, and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, or is about to be redeemed or purchased by the Company pursuant to Article III or Article XII, the Company in its discretion may, instead of issuing a new Security, pay, redeem or purchase such Security, as the case may be. Upon the issuance of any new Securities under this Section 2.7, the Company shall require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the reasonable fees and expenses of the Trustee or the Registrar) in connection therewith.

Every new Security issued pursuant to this Section 2.7 in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder.

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The provisions of this Section 2.7 are (to the extent lawful) exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen
Securities.

OUTSTANDING SECURITIES

Securities outstanding at any time are all Securities authenticated by the Trustee, except for those canceled by it, those delivered to it for cancellation and those described in this Section 2.8 as not outstanding.

If a Security is replaced pursuant to Section 2.7, it ceases to be outstanding unless the Company receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser.

If a Paying Agent (other than the Company or an Affiliate of the Company) holds on a redemption date, a Change in Control Repurchase Date or the Final Maturity Date money sufficient to pay the principal of (including premium, if any) and accrued interest on Securities (or portions thereof) payable on that date, then on and after that date such Securities (or portions thereof, as the case may be) cease to be outstanding and interest on them ceases to accrue.

Subject to the restrictions contained in Section 2.9, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security.

TREASURY SECURITIES

In determining whether the Holders of the required principal amount of Securities have concurred in any notice, direction, waiver or consent, Securities owned by the Company or any other obligor on the Securities or by any Affiliate of the Company or of such other obligor shall be disregarded, except that, for purposes of determining whether the Trustee shall be protected in relying on any such notice, direction, waiver or consent, only Securities which a Trust Officer of the Trustee actually knows are so owned shall be so disregarded. Securities so owned which have been pledged in good faith shall not be disregarded if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to the Securities and that the pledgee is not the Company or any other obligor on the Securities or any Affiliate of the Company or of such other obligor.

TEMPORARY SECURITIES

Until definitive Securities are ready for delivery, the Company may prepare and execute, and, upon receipt of a Company Order, the Trustee shall authenticate and deliver, temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company with the consent of the Trustee considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate and deliver definitive Securities in exchange for temporary Securities.

CANCELLATION

The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar, the Paying Agent and the Conversion Agent shall forward to the Trustee or its agent any Securities surrendered to them for transfer, exchange, payment or conversion. The Trustee and no one else shall cancel, in accordance with its standard procedures, all Securities surrendered for transfer, exchange, redemption, payment, conversion or cancellation and shall deliver the canceled Securities to the Company. All Securities which are redeemed, purchased or otherwise acquired by the Company or any of its Subsidiaries prior to the Final Maturity Date shall be delivered to the Trustee for cancellation and the Company may not hold or

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resell such Securities or issue any new Securities to replace any such Securities or any Securities that any Holder has converted pursuant to Article IV. Without limitation to the foregoing, any Securities acquired by any investment bankers or other purchasers pursuant to Section 3.7 shall be surrendered for conversion and thereafter canceled, and may not be reoffered, sold or otherwise transferred.

ADDITIONAL TRANSFER AND EXCHANGE REQUIREMENTS

Transfer and Exchange of Global Securities.

CERTIFICATED SECURITIES SHALL BE ISSUED IN EXCHANGE FOR INTERESTS IN THE GLOBAL SECURITIES ONLY IF (x) THE DEPOSITARY NOTIFIES THE COMPANY THAT IT IS UNWILLING OR UNABLE TO CONTINUE AS DEPOSITARY FOR THE GLOBAL SECURITIES OR IF IT AT ANY TIME CEASES TO BE A “CLEARING AGENCY” REGISTERED UNDER THE EXCHANGE ACT, IF SO REQUIRED BY APPLICABLE LAW OR REGULATION AND A SUCCESSOR DEPOSITARY IS NOT APPOINTED BY THE COMPANY WITHIN 90 DAYS, OR (y) AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING. IN EITHER CASE, THE COMPANY SHALL EXECUTE, AND THE TRUSTEE SHALL, UPON RECEIPT OF A COMPANY ORDER (WHICH THE COMPANY AGREES TO DELIVERY PROMPTLY), AUTHENTICATE AND DELIVER CERTIFICATED SECURITIES IN AN AGGREGATE PRINCIPAL AMOUNT EQUAL TO THE PRINCIPAL AMOUNT OF SUCH GLOBAL SECURITIES IN EXCHANGE THEREFOR. ONLY RESTRICTED CERTIFICATED SECURITIES SHALL BE ISSUED IN EXCHANGE FOR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL SECURITIES, AND ONLY UNRESTRICTED CERTIFICATED SECURITIES SHALL BE ISSUED IN EXCHANGE FOR BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL SECURITIES. CERTIFICATED SECURITIES ISSUED IN EXCHANGE FOR BENEFICIAL INTERESTS IN GLOBAL SECURITIES SHALL BE REGISTERED IN SUCH NAMES AND SHALL BE IN SUCH AUTHORIZED DENOMINATIONS AS THE DEPOSITARY, PURSUANT TO INSTRUCTIONS FROM ITS DIRECT OR INDIRECT PARTICIPANTS OR OTHERWISE, SHALL INSTRUCT THE TRUSTEE. THE TRUSTEE SHALL DELIVER OR CAUSE TO BE DELIVERED SUCH CERTIFICATED SECURITIES TO THE PERSONS IN WHOSE NAMES SUCH SECURITIES ARE SO REGISTERED. SUCH EXCHANGE SHALL BE EFFECTED IN ACCORDANCE WITH THE APPLICABLE PROCEDURES.

NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS INDENTURE OTHER THAN THE PROVISIONS SET FORTH IN SECTION 2.12(a)(1), A GLOBAL SECURITY MAY NOT BE TRANSFERRED AS A WHOLE 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.

Transfer and Exchange of Certificated Securities. In the event that Certificated Securities are issued in exchange for beneficial interests in Global Securities in accordance with Section 2.12(a)(1) of this Indenture, on or after such event when Certificated Securities are presented by a Holder to a Registrar with a request:

                 (x) to register the transfer of the Certificated Securities to a person who will take delivery thereof in the form of Certificated Securities only; or

                 (y) to exchange such Certificated Securities for an equal principal amount of Certificated Securities of other authorized denominations, such Registrar shall register the transfer or make the exchange as requested; provided, however, that the Certificated Securities presented or surrendered for register of transfer or exchange:

SHALL BE DULY ENDORSED OR ACCOMPANIED BY A WRITTEN INSTRUMENT OF TRANSFER IN ACCORDANCE WITH THE PROVISO TO THE FIRST PARAGRAPH OF SECTION 2.6; AND

IN THE CASE OF A RESTRICTED CERTIFICATED SECURITY, SUCH REQUEST SHALL BE ACCOMPANIED BY THE FOLLOWING ADDITIONAL INFORMATION AND DOCUMENTS, AS APPLICABLE:

if such Restricted Certificated Security is being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, or such Restricted Certificated Security is being transferred to the Company or a Subsidiary

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of the Company, a certification to that effect from such Holder (in substantially the form set forth in the Transfer Certificate);

if such Restricted Certificated Security is being transferred to a person the Holder reasonably believes is a QIB in accordance with Rule 144A or pursuant to an effective registration statement under the Securities Act, a certification to that effect from such Holder (in substantially the form set forth in the Transfer Certificate); or

if such Restricted Certificated Security is being transferred (i) pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 or (ii) pursuant to an exemption from the registration requirements of the Securities Act (other than pursuant to Rule 144A or Rule 144) and as a result of which, in the case of a Security transferred pursuant to this clause (ii), such Security shall cease to be a “restricted security” within the meaning of Rule 144, a certification to that effect from the Holder (in substantially the form set forth in the Transfer Certificate) and, if the Company or such Registrar so requests, a customary Opinion of Counsel, certificates and other information reasonably acceptable to the Company and such Registrar to the effect that such transfer is in compliance with the registration requirements of the Securities Act.

Transfer of a Beneficial Interest in a Restricted Global Security for a Beneficial Interest in an Unrestricted Global Security. Any person having a beneficial interest in a Restricted Global Security may upon request, subject to the Applicable Procedures, transfer such beneficial interest to a person who is required or permitted to take delivery thereof in the form of an Unrestricted Global Security. Upon receipt by the Trustee of written instructions, or such other form of instructions as is customary for the Depositary, from the Depositary or its nominee on behalf of any person having a beneficial interest in a Restricted Global Security and the following additional information and documents in such form as is customary for the Depositary from the Depositary or its nominee on behalf of the person having such beneficial interest in the Restricted Global Security (all of which may be submitted by facsimile or electronically):

IF SUCH BENEFICIAL INTEREST IS BEING TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, A CERTIFICATION TO THAT EFFECT FROM THE TRANSFEROR (IN SUBSTANTIALLY THE FORM SET FORTH IN THE TRANSFER CERTIFICATE); OR

IF SUCH BENEFICIAL INTEREST IS BEING TRANSFERRED (i) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IN ACCORDANCE WITH RULE 144 OR (ii) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (OTHER THAN PURSUANT TO RULE 144A OR RULE 144) AND AS A RESULT OF WHICH, IN THE CASE OF A SECURITY TRANSFERRED PURSUANT TO THIS CLAUSE (ii), SUCH SECURITY SHALL CEASE TO BE A “RESTRICTED SECURITY” WITHIN THE MEANING OF RULE 144, A CERTIFICATION TO THAT EFFECT FROM THE TRANSFEROR (IN SUBSTANTIALLY THE FORM SET FORTH IN THE TRANSFER CERTIFICATE) AND, IF THE COMPANY OR THE TRUSTEE SO REQUESTS, A CUSTOMARY OPINION OF COUNSEL, CERTIFICATES AND OTHER INFORMATION REASONABLY ACCEPTABLE TO THE COMPANY AND THE TRUSTEE TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, THE TRUSTEE, AS A REGISTRAR AND SECURITIES CUSTODIAN, SHALL REDUCE OR CAUSE TO BE REDUCED THE AGGREGATE PRINCIPAL AMOUNT OF THE RESTRICTED GLOBAL SECURITY BY THE APPROPRIATE PRINCIPAL AMOUNT AND SHALL INCREASE OR CAUSE TO BE INCREASED THE AGGREGATE PRINCIPAL AMOUNT OF THE UNRESTRICTED GLOBAL SECURITY BY A LIKE PRINCIPAL AMOUNT. SUCH TRANSFER SHALL OTHERWISE BE EFFECTED IN ACCORDANCE WITH THE APPLICABLE PROCEDURES. IF NO UNRESTRICTED GLOBAL SECURITY IS THEN OUTSTANDING, THE COMPANY SHALL EXECUTE AND THE TRUSTEE SHALL, UPON RECEIPT OF A COMPANY ORDER (WHICH THE COMPANY AGREES TO DELIVER PROMPTLY), AUTHENTICATE AND DELIVER AN UNRESTRICTED GLOBAL SECURITY.

Transfer of a Beneficial Interest in an Unrestricted Global Security for a Beneficial Interest in a Restricted Global Security. Any person having a beneficial interest in an Unrestricted Global Security may upon request, subject to the Applicable Procedures, transfer such beneficial interest to a person who is required or permitted

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to take delivery thereof in the form of a Restricted Global Security (it being understood that only QIBs may own beneficial interests in Restricted Global Securities). Upon receipt by the Trustee of written instructions or such other form of instructions as is customary for the Depositary, from the Depositary or its nominee, on behalf of any person having a beneficial interest in an Unrestricted Global Security and, in such form as is customary for the Depositary, from the Depositary or its nominee on behalf of the person having such beneficial interest in the Unrestricted Global Security (all of which may be submitted by facsimile or electronically) a certification from the transferor (in substantially the form set forth in the Transfer Certificate) to the effect that such beneficial interest is being transferred to a person that the transferor reasonably believes is a QIB in accordance with Rule 144A. The Trustee, as a Registrar and Securities Custodian, shall reduce or cause to be reduced the aggregate principal amount of the Unrestricted Global Security by the appropriate principal amount and shall increase or cause to be increased the aggregate principal amount of the Restricted Global Security by a like principal amount. Such transfer shall otherwise be effected in accordance with the Applicable Procedures. If no Restricted Global Security is then outstanding, the Company shall execute and the Trustee shall, upon receipt of a Company Order (which the Company agrees to deliver promptly), authenticate and deliver a Restricted Global Security.

Transfers of Certificated Securities for Beneficial Interest in Global Securities. In the event that Certificated Securities are issued in exchange for beneficial interests in Global Securities and, thereafter, the events or conditions specified in Section 2.12(a)(1) which required such exchange shall cease to exist, the Company shall mail notice to the Trustee and to the Holders stating that Holders may exchange Certificated Securities for interests in Global Securities by complying with the procedures set forth in this Indenture and briefly describing such procedures and the events or circumstances requiring that such notice be given. Thereafter, if Certificated Securities are presented by a Holder to a Registrar with a request:

                 (x) to register the transfer of such Certificated Securities to a person who will take delivery thereof in the form of a beneficial interest in a Global Security, which request shall specify whether such Global Security will be a Restricted Global Security or an Unrestricted Global Security; or

                 (y) to exchange such Certificated Securities for an equal principal amount of beneficial interests in a Global Security, which beneficial interests will be owned by the Holder transferring such Certificated Securities (provided that in the case of such an exchange, Restricted Certificated Securities may be exchanged only for Restricted Global Securities and Unrestricted Certificated Securities may be exchanged only for Unrestricted Global Securities), the Registrar shall register the transfer or make the exchange as requested by canceling such Certificated Security and causing, or directing the Securities Custodian to cause, the aggregate principal amount of the applicable Global Security to be increased accordingly and, if no such Global Security is then outstanding, the Company shall issue and the Trustee shall, upon receipt of a Company Order (which the Company agrees to deliver promptly) authenticate and deliver a new Global Security;

provided, however, that the Certificated Securities presented or surrendered for registration of transfer or exchange:

SHALL BE DULY ENDORSED OR ACCOMPANIED BY A WRITTEN INSTRUMENT OF TRANSFER IN ACCORDANCE WITH THE PROVISO TO THE FIRST PARAGRAPH OF SECTION 2.6;

IN THE CASE OF A RESTRICTED CERTIFICATED SECURITY TO BE TRANSFERRED FOR A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL SECURITY, SUCH REQUEST SHALL BE ACCOMPANIED BY THE FOLLOWING ADDITIONAL INFORMATION AND DOCUMENTS, AS APPLICABLE:

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if such Restricted Certificated Security is being transferred pursuant to an effective registration statement under the Securities Act, a certification to that effect from such Holder (in substantially the form set forth in the Transfer Certificate); or

if such Restricted Certificated Security is being transferred pursuant to (A) an exemption from the registration requirements of the Securities Act in accordance with Rule 144 or (B) pursuant to an exemption from the registration requirements of the Securities Act (other than pursuant to Rule 144A or Rule 144) and as a result of which, in the case of a Security transferred pursuant to this clause (B), such Security shall cease to be a “restricted security” within the meaning of Rule 144, a certification to that effect from such Holder (in substantially the form set forth in the Transfer Certificate), and, if the Company or the Registrar so requests, a customary Opinion of Counsel, certificates and other information reasonably acceptable to the Company and the Trustee to the effect that such transfer is in compliance with the registration requirements of the Securities Act;

IN THE CASE OF A RESTRICTED CERTIFICATED SECURITY TO BE TRANSFERRED OR EXCHANGED FOR A BENEFICIAL INTEREST IN A RESTRICTED GLOBAL SECURITY, SUCH REQUEST SHALL BE ACCOMPANIED BY A CERTIFICATION FROM SUCH HOLDER (IN SUBSTANTIALLY THE FORM SET FORTH IN THE TRANSFER CERTIFICATE) TO THE EFFECT THAT SUCH RESTRICTED CERTIFICATED SECURITY IS BEING TRANSFERRED TO A PERSON THE HOLDER REASONABLY BELIEVES IS A QIB (WHICH, IN THE CASE OF AN EXCHANGE, SHALL BE SUCH HOLDER) IN ACCORDANCE WITH RULE 144A;

IN THE CASE OF AN UNRESTRICTED CERTIFICATED SECURITY TO BE TRANSFERRED OR EXCHANGED FOR A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL SECURITY, SUCH REQUEST NEED NOT BE ACCOMPANIED BY ANY ADDITIONAL INFORMATION OR DOCUMENTS; AND

IN THE CASE OF AN UNRESTRICTED CERTIFICATED SECURITY TO BE TRANSFERRED OR EXCHANGED FOR A BENEFICIAL INTEREST IN A RESTRICTED GLOBAL SECURITY, SUCH REQUEST SHALL BE ACCOMPANIED BY A CERTIFICATION FROM SUCH HOLDER (IN SUBSTANTIALLY THE FORM SET FORTH IN THE TRANSFER CERTIFICATE) TO THE EFFECT THAT SUCH UNRESTRICTED CERTIFICATED SECURITY IS BEING TRANSFERRED TO A PERSON THE HOLDER REASONABLY BELIEVES IS A QIB (WHICH, IN THE CASE OF AN EXCHANGE, SHALL BE SUCH HOLDER) IN ACCORDANCE WITH RULE 144A.

Legends.

EXCEPT AS PERMITTED BY THE FOLLOWING PARAGRAPHS (2) AND (3), EACH GLOBAL SECURITY AND CERTIFICATED SECURITY (AND ALL SECURITIES ISSUED IN EXCHANGE THEREFOR OR UPON REGISTRATION OF TRANSFER OR REPLACEMENT THEREOF) SHALL BEAR A LEGEND IN SUBSTANTIALLY THE FORM CALLED FOR BY FOOTNOTE 2 TO EXHIBIT A HERETO (EACH A “TRANSFER RESTRICTED SECURITY” FOR SO LONG AS IT IS REQUIRED BY THIS INDENTURE TO BEAR SUCH LEGEND). EACH TRANSFER RESTRICTED SECURITY SHALL HAVE ATTACHED THERETO A CERTIFICATE (A “TRANSFER CERTIFICATE”) IN SUBSTANTIALLY THE FORM CALLED FOR BY FOOTNOTE 5 TO EXHIBIT A HERETO.

UPON ANY SALE OR TRANSFER OF A TRANSFER RESTRICTED SECURITY (w) AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITIES UNDER RULE 144(K) OF THE SECURITIES ACT, (x) PURSUANT TO RULE 144, (y) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (z) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION (OTHER THAN RULE 144A) FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND AS A RESULT OF WHICH, IN THE CASE OF A SECURITY TRANSFERRED PURSUANT TO THIS CLAUSE (z), SUCH SECURITY SHALL CEASE TO BE A “RESTRICTED SECURITY” WITHIN THE MEANING OF RULE 144:

in the case of any Restricted Certificated Security, any Registrar shall permit the Holder thereof to exchange such Restricted Certificated Security for an Unrestricted Certificated Security, or (under the circumstances described in Section 2.12(e)) to transfer such Restricted Certificated Security to a transferee who shall take such Security in the form of a beneficial interest in an Unrestricted Global Security, and in each case shall rescind any restriction on the transfer of such Security; provided,

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however, that the Holder of such Restricted Certificated Security shall, in connection with such exchange or transfer, comply with the other applicable provisions of this Section 2.12; and

in the case of any beneficial interest in a Restricted Global Security, the Trustee shall permit the beneficial owner thereof to transfer such beneficial interest to a transferee who shall take such interest in the form of a beneficial interest in an Unrestricted Global Security and shall rescind any restriction on transfer of such beneficial interest; provided, that such Unrestricted Global Security shall continue to be subject to the provisions of Section 2.12(a)(2); and provided, further, that the owner of such beneficial interest shall, in connection with such transfer, comply with the other applicable provisions of this Section 2.12.

UPON THE EXCHANGE, REGISTRATION OF TRANSFER OR REPLACEMENT OF SECURITIES NOT BEARING THE LEGEND DESCRIBED IN PARAGRAPH (1) ABOVE, THE COMPANY SHALL EXECUTE, AND THE TRUSTEE SHALL AUTHENTICATE AND DELIVER SECURITIES THAT DO NOT BEAR SUCH LEGEND AND THAT DO NOT HAVE A TRANSFER CERTIFICATE ATTACHED THERETO.

AFTER THE EXPIRATION OF THE HOLDING PERIOD PURSUANT TO RULE 144(k) OF THE SECURITIES ACT, THE COMPANY MAY WITH THE CONSENT OF THE HOLDER OF A RESTRICTED GLOBAL SECURITY OR RESTRICTED CERTIFICATED SECURITY, REMOVE ANY RESTRICTION OF TRANSFER ON SUCH SECURITY, AND THE COMPANY SHALL EXECUTE, AND THE TRUSTEE SHALL AUTHENTICATE AND DELIVER SECURITIES THAT DO NOT BEAR SUCH LEGEND AND THAT DO NOT HAVE A TRANSFER CERTIFICATE ATTACHED THERETO.

Transfers to the Company. Nothing in this Indenture or in the Securities shall prohibit the sale or other transfer of any Securities (including beneficial interests in Global Securities) to the Company or any of its Subsidiaries, which Securities shall thereupon be canceled in accordance with Section 2.11.

CUSIP NUMBERS

The Company in issuing the Securities may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption or purchase as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption or purchase and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption or purchase 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.

PROVISIONAL REDEMPTION

RIGHT TO PROVISIONALLY REDEEM; NOTICE TO TRUSTEE

The Securities may be redeemed at the election of the Company, as a whole or from time to time in part, at any time prior to the Maturity Date on at least 20 days and no more than 60 days notice at a redemption price equal to $1,000 per $1,000 principal amount of the Securities redeemed plus the “Make-Whole Payment” described below (the “Redemption Price”) if (a) the Closing Price of the Common Stock has exceeded 175% of the Conversion Price for at least 20 Trading Days within a period of any 30 consecutive Trading Days ending on the Trading Day prior to the date of mailing of the notice of provisional redemption (the “Notice Date”), and (b) a shelf registration statement covering resales of the Securities and the Common Stock issuable upon conversion thereof is effective and available for use and is expected to remain effective and available for use until the Redemption Date unless registration is no longer required.

Upon any such redemption, the Company shall make an additional payment in cash (the “Make-Whole Payment”) with respect to the Securities called for redemption to holders

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on the Notice Date in an amount equal to the aggregate amount of interest that would have been payable on such Securities from the last day through which interest was paid on the Securities (or February 20, 2002, if no interest has been paid) to the Maturity Date.

If the Company elects to redeem Securities pursuant to this Section 3.1 and paragraph 5 of the Securities, it shall notify the Trustee in writing, not less than 20 days prior to the redemption date as fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), of the redemption date and the principal amount of Securities to be redeemed. If fewer than all of the Securities are to be redeemed, the record date relating to such redemption shall be selected by the Company and given to the Trustee, which record date shall not be less than ten days after the date of notice to the Trustee.

SELECTION OF SECURITIES TO BE REDEEMED

If less than all of the Securities are to be redeemed, the Trustee shall, not more than 60 days prior to the redemption date, select the Securities to be redeemed. The Trustee shall make the selection from the Securities outstanding and not previously called for redemption, by lot. Securities in denominations of $1,000 may only be redeemed in whole. The Trustee may select for redemption portions (equal to $1,000 or any multiple thereof) of the principal of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption.

If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed shall be treated by the Trustee as outstanding for the purpose of such selection.

NOTICE OF REDEMPTION

At least 20 days but not more than 60 days before a Redemption Date, the Company shall mail or cause to be mailed a notice of redemption to each Holder of Securities to be redeemed at such Holder’s address as it appears on the Primary Registrar’s books.

The notice shall identify the Securities (including CUSIP numbers) to be redeemed and shall state:

the Redemption Date;

the Redemption Price;

the then current Conversion Price;

the name and address of each Paying Agent and Conversion Agent;

that Securities called for redemption must be presented and surrendered to a Paying Agent to collect the redemption price;

that Holders who wish to convert Securities must surrender such Securities for conversion no later than the close of business on the second Business Day immediately preceding the redemption date and must satisfy the other requirements in paragraph 8 of the Securities;

that, unless the Company defaults in making the redemption payment, interest on Securities called for redemption shall cease accruing on and after the redemption date and the only remaining right of the Holder shall be to receive payment of the

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redemption price, plus accrued and unpaid interest, if any upon presentation and surrender to a Paying Agent of the Securities; and

if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the redemption date, upon presentation and surrender of such Security, a new Security or Securities in aggregate principal amount equal to the unredeemed portion thereof will be issued.

If any of the Securities to be redeemed is in the form of a Global Security, then the Company shall modify such notice to the extent necessary to accord with the procedures of the Depositary applicable to redemptions. At the Company’s written request, which request shall (i) be given at least 30 days prior to the redemption date, (ii) be irrevocable once given and (iii) set forth all relevant information required by clauses (1) through (8) of the preceding paragraph, the Trustee shall give the notice of redemption in the Company’s name and at the Company’s expense.

EFFECT OF NOTICE OF REDEMPTION

Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price stated in the notice, together with accrued and unpaid interest, if any, except for Securities that are converted in accordance with the provisions of Article IV. Upon presentation and surrender to a Paying Agent, Securities called for redemption shall be paid at the redemption price, plus accrued interest up to but not including the redemption date; provided if the redemption date is an interest payment date, interest will be payable to the Holders in whose names the Securities are registered at the close of business on the relevant record dates for payment of such interest.

DEPOSIT OF REDEMPTION PRICE

The Company, prior to 11:00 a.m. New York City time, on the Redemption Date, shall deposit with a Paying Agent (or, if the Company acts as Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date, other than Securities or portions thereof called for redemption on that date which have been delivered by the Company to the Trustee for cancellation or have been converted. The Paying Agent shall return to the Company any money not required for that purpose because of the conversion of Securities pursuant to Article IV or, if such money is then held by the Company in trust and is not required for such purpose, it shall be discharged from the trust.

SECURITIES REDEEMED IN PART

Upon presentation and surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder a new Security equal in principal amount to the unredeemed portion of the Security surrendered.

CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION

In connection with any redemption of Securities, the Company may arrange for the purchase and conversion of any Securities called for redemption by an agreement with one or more investment bankers or other purchasers to purchase such Securities by paying to a Paying Agent (other than the Company or any of its Affiliates) in trust for the Holders, on or before 11:00 a.m., New York City time on the Redemption Date, an amount that, together with any amounts deposited with such Paying Agent by the Company for the redemption of such Securities, is not less than the Redemption Price, together with interest accrued to, but not including, the Redemption Date, of such Securities. Notwithstanding anything to the contrary contained in this Article III, the obligation of the Company to pay the Redemption Price of such Securities, including all accrued interest, shall be deemed to be satisfied and discharged to the

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extent such amount is so paid by such purchasers; provided, however, that nothing in this Section 3.7 shall relieve the Company of its obligation to pay the Redemption Price, plus accrued interest to but excluding the relevant redemption date, on Securities called for redemption. If such an agreement with one or more investment banks or other purchasers is entered into, any Securities called for redemption and not surrendered for conversion by the Holders thereof prior to the relevant redemption date may, at the option of the Company upon written notice to the Trustee, 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 IV) surrendered by such purchasers for conversion, all as of 11:00 a.m., New York City time on the Redemption Date, subject to payment of the above amount as aforesaid. The Paying Agent shall hold and pay to the Holders whose Securities are selected for redemption any such amount paid to it for purchase in the same manner as it would money deposited with it by the Company for the redemption of Securities. Without the Paying Agent’s prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Securities shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Paying Agent as set forth in this Indenture, and the Company agrees to indemnify the Paying Agent from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase and conversion of any Securities between the Company and such purchasers, including the costs and expenses incurred by the Paying Agent in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture.

CONVERSION

CONVERSION PRIVILEGE

Subject to and upon compliance with the provisions of this Article IV, at the option of the Holder, any Security or any portion of the principal amount thereof which is an integral multiple of $1,000 may be converted at the principal amount thereof, or of such portion thereof, into duly authorized, fully paid and nonassessable shares of Common Stock, at the Conversion Price, determined as hereinafter provided, in effect at the time of conversion; provided, however, that if such Security is called for redemption pursuant to Article III or submitted or presented for repurchase pursuant to Article XII, such conversion right shall terminate at the close of business on the second Business Day immediately preceding the Redemption Date or Change in Control Repurchase Date, as the case may be, for such Security or such earlier date as the Holder presents such Security for redemption or for purchase (unless the Company shall default in making the Redemption Price or Change in Control Repurchase Price payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Security is redeemed or purchased, as the case may be). If such Security is submitted or presented for purchase pursuant to Article III or Article XII and is then subsequently withdrawn, such conversion right shall no longer be terminated, and the Holder of such Security may convert such Security pursuant to this Section 4.1. The number of shares of Common Stock issuable upon conversion of a Security shall be determined by dividing the principal amount of the Security or portion thereof surrendered for conversion by the Conversion Price in effect on the Conversion Date. The initial Conversion Price is set forth in paragraph 8 of the Securities and is subject to adjustment as provided in this Article IV.

Provisions of this Indenture that apply to conversion of all of a Security also apply to conversion of a portion of a Security.

A Security in respect of which a Holder has delivered a Change in Control Repurchase Notice pursuant to Section 12.1(c) exercising the option of such Holder to require the Company to purchase such Security may be converted only if such Change in Control Repurchase Notice is withdrawn by a written notice of withdrawal delivered to a Paying Agent prior to the close of business on the Business Day immediately preceding the Change in Control Repurchase Date in accordance with Section 12.2.

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A Holder of Securities is not entitled to any rights of a holder of Common Stock until such Holder has converted its Securities to Common Stock, and only to the extent such Securities are deemed to have been converted into Common Stock pursuant to this Article IV.

CONVERSION PROCEDURE

To convert a Security, a Holder must (a) complete and manually sign the conversion notice on the back of the Security and deliver such notice to a Conversion Agent, (b) surrender the Security to a Conversion Agent, (c) furnish appropriate endorsements and transfer documents if required by a Registrar or a Conversion Agent, and (d) pay any transfer or similar tax, if required. The date on which the Holder satisfies all of those requirements is the “Conversion Date.” As soon as practicable after the Conversion Date, the Company shall deliver to the Holder through a Conversion Agent a certificate for the number of whole shares of Common Stock issuable upon the conversion and cash in lieu of any fractional shares pursuant to Section 4.3. Anything herein to the contrary notwithstanding, in the case of Global Securities, conversion notices may be delivered and such Securities may be surrendered for conversion in accordance with the Applicable Procedures as in effect from time to time.

The person in whose name the Common Stock certificate is registered shall be deemed to be a shareholder of record on the Conversion Date; provided, however, that no surrender of a Security on any date when the stock transfer books of the Company shall be closed shall be effective to constitute the person or persons entitled to receive the shares of Common Stock upon such conversion as the record holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the person or persons entitled to receive such shares of Common Stock as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open; provided, further, that such conversion shall be at the Conversion Price in effect on the Conversion Date as if the stock transfer books of the Company had not been closed. Upon conversion of a Security, such person shall no longer be a Holder of such Security. No payment or adjustment will be made for dividends or distributions on shares of Common Stock issued upon conversion of a Security.

Securities so surrendered for conversion (in whole or in part) during the period from the close of business on any regular record date to the opening of business on the next succeeding interest payment date (excluding Securities or portions thereof called for redemption on a Redemption Date during the period beginning at the close of business on a regular record date and ending at the opening of business on the first Business Day after the next succeeding interest payment date, or if such interest payment date is not a Business Day, the second such Business Day) shall also be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such interest payment date on the principal amount of such Security then being converted, and such interest shall be payable to such registered Holder notwithstanding the conversion of such Security, subject to the provisions of this Indenture relating to the payment of defaulted interest by the Company. Except as otherwise provided in this Section 4.2, no payment or adjustment will be made for accrued interest on a converted Security. If the Company defaults in the payment of interest payable on such interest payment date, the Company shall promptly repay such funds to such Holder.

Nothing in this Section shall affect the right of a Holder in whose name any Security is registered at the close of business on a record date to receive the interest payable on such Security on the related interest payment date in accordance with the terms of this Indenture and the Securities. If a Holder converts more than one Security at the same time, the number of shares of Common Stock issuable upon the conversion shall be based on the aggregate principal amount of Securities converted.

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Upon surrender of a Security that is converted in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new Security equal in principal amount to the unconverted portion of the Security surrendered.

FRACTIONAL SHARES

The Company will not issue fractional shares of Common Stock upon conversion of Securities. In lieu thereof, the Company will pay an amount in cash based upon the current market price (determined as set forth in Section 4.6(f)) of the Common Stock on the Trading Day immediately prior to the Conversion Date.

TAXES ON CONVERSION

If a Holder converts a Security, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon such conversion. However, the Holder shall pay any such tax which is due because the Holder requests the shares to be issued in a name other than the Holder’s name. The Conversion Agent may refuse to deliver the certificate representing the Common Stock being issued in a name other than the Holder’s name until the Conversion Agent receives a sum sufficient to pay any tax which will be due because the shares are to be issued in a name other than the Holder’s name. Nothing herein shall preclude any tax withholding required by law or regulation.

COMPANY TO PROVIDE STOCK

The Company shall, prior to issuance of any Securities hereunder, and from time to time as may be necessary, reserve, out of its authorized but unissued Common Stock, a sufficient number of shares of Common Stock to permit the conversion of all outstanding Securities into shares of Common Stock.

All shares of Common Stock delivered upon conversion of the Securities shall be newly issued shares, shall be duly authorized, validly issued, fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim.

The Company will endeavor promptly to comply with all federal and state securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Securities, if any, and will list or cause to have quoted such shares of Common Stock on each national securities exchange or on the Nasdaq National Market (“NNM”) or other over-the-counter market or such other market on which the Common Stock is then listed or quoted; provided, however, that if rules of such automated quotation system or exchange permit the Company to defer the listing of such Common Stock until the first conversion of the Securities into Common Stock in accordance with the provisions of this Indenture, the Company covenants to list such Common Stock issuable upon conversion of the Securities in accordance with the requirements of such automated quotation system or exchange at such time.

ADJUSTMENT OF CONVERSION PRICE

The conversion price as stated in paragraph 8 of the Securities (the “Conversion Price”) shall be adjusted from time to time by the Company as follows:

In case the Company shall (i) pay a dividend on its Common Stock in shares of Common Stock, (ii) make a distribution on its Common Stock in shares of Common Stock, (iii) subdivide its outstanding Common Stock into a greater number of shares, or (iv) combine its outstanding Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior thereto shall be adjusted so that the Holder of any Security thereafter surrendered for conversion shall be entitled to receive that number of shares of Common Stock which it would have owned had such Security been converted immediately prior to the happening of such event. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record

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date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of subdivision or combination.

In case the Company shall issue rights or warrants to all or substantially all holders of its Common Stock entitling them (for a period commencing no earlier than the record date described below and expiring not more than 60 days after such record date) to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price per share (or having a conversion price per share) less than the current market price per share of Common Stock (as determined in accordance with subsection (f) of this Section 4.6) on the record date for the determination of shareholders entitled to receive such rights or warrants, the Conversion Price in effect immediately prior thereto shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered, which shall be determined by multiplying the number of shares of Common Stock issuable upon conversion of such convertible securities by the conversion price per share of Common Stock pursuant to the terms of such convertible securities) would purchase at the current market price per share (as determined in accordance with subsection (f) of this Section 4.6) of Common Stock on such record date, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after such record date. If at the end of the period during which such rights or warrants are exercisable not all rights or warrants shall have been exercised, the adjusted Conversion Price shall be immediately readjusted to what it would have been based upon the number of additional shares of Common Stock actually issued (or the number of shares of Common Stock issuable upon conversion of convertible securities actually issued).

In case the Company shall distribute to all or substantially all holders of its Common Stock any shares of Capital Stock of the Company (other than Common Stock), evidences of indebtedness or other non-cash assets (including securities of any person other than the Company but excluding (i) dividends or distributions paid exclusively in cash or (ii) dividends or distributions referred to in subsection (a) of this Section 4.6), or shall distribute to all or substantially all holders of its Common Stock rights or warrants to subscribe for or purchase any of its securities (excluding those rights and warrants referred to in subsection (b) of this Section 4.6), then in each such case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the current Conversion Price by a fraction of which the numerator shall be the current market price per share (as determined in accordance with subsection (f) of this Section 4.6) of the Common Stock on the record date described below less the fair market value on such record date (as determined by the Board of Directors, whose determination shall be conclusive evidence of such fair market value and which shall be evidenced by an Officers’ Certificate delivered to the Trustee) of the portion of the Capital Stock, evidences of indebtedness or other non-cash assets so distributed or of such rights or warrants applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the record date), and of which the denominator shall be the current market price per share (as determined in accordance with subsection (f) of this Section 4.6) of the Common Stock on such record date. Such adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution.

In case the Company shall, by dividend or otherwise, at any time distribute (a “Triggering Distribution”) to all or substantially all holders of its Common Stock cash in an aggregate amount that, together with the aggregate amount of (i) any cash

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and the fair market value (as determined by the Board of Directors, whose determination shall be conclusive evidence thereof and which shall be evidenced by an Officers’ Certificate delivered to the Trustee) of any other consideration payable in respect of any tender offer by the Company or a Subsidiary of the Company for Common Stock consummated within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made and (ii) all other cash distributions to all or substantially all holders of its Common Stock made within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made, exceeds an amount equal to 10.0% of the product of the current market price per share of Common Stock (as determined in accordance with subsection (f) of this Section 4.6) on the Business Day (the “Determination Date”) immediately preceding the day on which such Triggering Distribution is declared by the Company multiplied by the number of shares of Common Stock outstanding on the Determination Date (excluding shares held in the treasury of the Company), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying such Conversion Price in effect immediately prior to the Determination Date by a fraction of which the numerator shall be the current market price per share of the Common Stock (as determined in accordance with subsection (f) of this Section 4.6) on the Determination Date less the sum of the aggregate amount of cash and the aggregate fair market value (determined as aforesaid in this Section 4.6(d)) of any such other consideration so distributed, paid or payable within such 12 months (including, without limitation, the Triggering Distribution) applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the Determination Date) and the denominator shall be such current market price per share of the Common Stock (as determined in accordance with subsection (f) of this Section 4.6) on the Determination Date, such reduction to become effective immediately prior to the opening of business on the day next following the date on which the Triggering Distribution is paid.

In case any tender offer made by the Company or any of its Subsidiaries for Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall involve the payment of aggregate consideration in an amount (determined as the sum of the aggregate amount of cash consideration and the aggregate fair market value (as determined by the Board of Directors, whose determination shall be conclusive evidence thereof and which shall be evidenced by an Officers’ Certificate delivered to the Trustee thereof) of any other consideration) that, together with the aggregate amount of (i) any cash and the fair market value (as determined by the Board of Directors, whose determination shall be conclusive evidence thereof and which shall be evidenced by an Officers’ Certificate delivered to the Trustee) of any other consideration payable in respect of any other tender offers by the Company or any Subsidiary of the Company for Common Stock consummated within the 12 months preceding the Expiration Date (as defined below) and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made and (ii) all cash distributions to all or substantially all holders of its Common Stock made within the 12 months preceding the Expiration Date and in respect of which no Conversion Price adjustment pursuant to this Section 4.6 has been made, exceeds an amount equal to 10.0% of the product of the current market price per share of Common Stock (as determined in accordance with subsection (f) of this Section 4.6) as of the last date (the “Expiration Date”) tenders could have been made pursuant to such tender offer (as it may be amended) (the last time at which such tenders could have been made on the Expiration Date is hereinafter sometimes called the “Expiration Time”) multiplied by the number of shares of Common Stock outstanding (including tendered shares but excluding any shares held in the treasury of the Company) at the Expiration Time, then, immediately prior to the opening of business on the day after the Expiration Date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to close of business on the Expiration Date by a fraction of which the numerator shall be the product of the number of shares of Common Stock outstanding (including tendered shares but excluding any shares held in the treasury of the Company) at the Expiration Time multiplied by the current market price per share of the Common Stock (as determined in

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accordance with subsection (f) of this Section 4.6) on the Trading Day next succeeding the Expiration Date and the denominator shall be the sum of (x) the aggregate consideration (determined as aforesaid) payable to shareholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of all shares validly tendered 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 Common Stock outstanding (less any Purchased Shares and excluding any shares held in the treasury of the Company) at the Expiration Time and the current market price per share of Common Stock (as determined in accordance with subsection (f) of this Section 4.6) on the Trading Day next succeeding the Expiration Date, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Date. In the event that the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any or all such purchases or any or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would have been in effect based upon the number of shares actually purchased. If the application of this Section 4.6(e) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 4.6(e). For purposes of this Section 4.6(e), the term “tender offer” shall mean and include both tender offers and exchange offers, all references to “purchases” of shares in tender offers (and all similar references) shall mean and include both the purchase of shares in tender offers and the acquisition of shares pursuant to exchange offers, and all references to “tendered shares” (and all similar references) shall mean and include shares tendered in both tender offers and exchange offers.

For the purpose of any computation under subsections (b), (c), (d) and (e) of this Section 4.6, the current market price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices for the 30 consecutive Trading Days commencing 45 Trading Days before (i) the Determination Date or the Expiration Date, as the case may be, with respect to distributions or tender offers under subsections (c), (d) and (e) of this Section 4.6 or (ii) the record date with respect to distributions, issuances or other events requiring such computation under subsection (b), (c), (d) or (e) of this Section 4.6. The closing price for each day shall be the last reported sales price or, in case no such reported sale takes place on such date, the average of the reported closing bid and asked prices in either case on the NNM or, if the Common Stock is not listed or admitted to trading on the NNM, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on the NNM or any national securities exchange, the last reported sales price of the Common Stock as quoted on NASDAQ or, in case no reported sales takes place, the average of the closing bid and asked prices as quoted on NASDAQ or any comparable system or, if the Common Stock is not quoted on NASDAQ or any comparable system, the closing sales price or, in case no reported sale takes place, the average of the closing bid and asked prices, as furnished by any two members of the National Association of Securities Dealers, Inc. selected from time to time by the Company for that purpose. If no such prices are available, the current market price per share shall be the fair value of a share of Common Stock as determined by the Board of Directors (which shall be evidenced by an Officers’ Certificate delivered to the Trustee).

In any case in which this Section 4.6 shall require that an adjustment be made following a record date or a Determination Date or Expiration Date, as the case may be, established for purposes of this Section 4.6, the Company may elect to defer (but only until five Business Days following the filing by the Company with the Trustee of the certificate described in Section 4.9) issuing to the Holder of any Security converted after such record date or Determination Date or Expiration Date the shares of Common Stock and other Capital Stock of the Company issuable upon such conversion over and above the shares of Common Stock and other Capital Stock of the Company issuable upon such conversion only on the basis of the Conversion Price prior to adjustment; and, in lieu of the shares the issuance of which is so deferred, the Company shall issue or cause its transfer agents to issue due bills or other

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appropriate evidence prepared by the Company of the right to receive such shares. If any distribution in respect of which an adjustment to the Conversion Price is required to be made as of the record date or Determination Date or Expiration Date therefor is not thereafter made or paid by the Company for any reason, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect if such record date had not been fixed or such effective date or Determination Date or Expiration Date had not occurred.

NO ADJUSTMENT

No adjustment in the Conversion Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price as last adjusted; provided, however, that any adjustments which by reason of this Section 4.7 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article IV shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be.

No adjustment need be made for issuances of Common Stock pursuant to a Company plan for reinvestment of dividends or interest or for a change in the par value or a change to no par value of the Common Stock. To the extent that the Securities become convertible into the right to receive cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash.

ADJUSTMENT FOR TAX PURPOSES

The Company shall be entitled to make such reductions in the Conversion Price, in addition to those required by Section 4.6, as it in its discretion shall determine to be advisable in order that any stock dividends, subdivisions of shares, distributions of rights to purchase stock or securities or distributions of securities convertible into or exchangeable for stock hereafter made by the Company to its shareholders shall not be taxable.

NOTICE OF ADJUSTMENT

Whenever the Conversion Price or conversion privilege is adjusted, the Company shall promptly mail to Securityholders a notice of the adjustment and file with the Trustee an Officers’ Certificate briefly stating the facts requiring the adjustment and the manner of computing it. Unless and until the Trustee shall receive an Officers’ Certificate setting forth an adjustment of the Conversion Price, the Trustee may assume without inquiry that the Conversion Price has not been adjusted and that the last Conversion Price of which it has knowledge remains in effect.

NOTICE OF CERTAIN TRANSACTIONS

In the event that:

THE COMPANY TAKES ANY ACTION WHICH WOULD REQUIRE AN ADJUSTMENT IN THE CONVERSION PRICE;

THE COMPANY CONSOLIDATES OR MERGES WITH, OR TRANSFERS ALL OR SUBSTANTIALLY ALL OF ITS PROPERTY AND ASSETS TO, ANOTHER CORPORATION AND SHAREHOLDERS OF THE COMPANY MUST APPROVE THE TRANSACTION; OR

THERE IS A DISSOLUTION OR LIQUIDATION OF THE COMPANY,

the Company shall mail to Holders and file with the Trustee a notice stating the proposed record or effective date, as the case may be. The Company shall mail the notice at least ten days before such date. Failure to mail such notice or any defect therein shall not affect the validity of any transaction referred to in clause (1), (2) or (3) of this Section 4.10.

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EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE ON CONVERSION PRIVILEGE

If any of the following shall occur, namely: (a) any reclassification or change of shares of Common Stock issuable upon conversion of the Securities (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination, or any other change for which an adjustment is provided in Section 4.6); (b) any consolidation or merger or combination to which the Company is a party other than a merger in which the Company is the continuing corporation and which does not result in any reclassification of, or change (other than in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of Common Stock; or (c) any sale or conveyance as an entirety or substantially as an entirety of the property and assets of the Company (determined on a consolidated basis), directly or indirectly, to any person, then the Company, or such successor, purchasing or transferee corporation, as the case may be, shall, as a condition precedent to such reclassification, change, combination, consolidation, merger, sale or conveyance, execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then outstanding shall have the right to convert such Security into the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, change, combination, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock deliverable upon conversion of such Security immediately prior to such reclassification, change, combination, consolidation, merger, sale or conveyance. Such supplemental indenture shall provide for adjustments of the Conversion Price which shall be as nearly equivalent as may be practicable to the adjustments of the Conversion Price provided for in this Article IV. If, in the case of any such consolidation, merger, combination, sale or conveyance, the stock or other securities and property (including cash) receivable thereupon by a holder of Common Stock include shares of stock or other securities and property of a person other than the successor, purchasing or transferee corporation, as the case may be, in such consolidation, merger, combination, sale or conveyance, then such supplemental indenture shall also be executed by such other person and shall contain such additional provisions to protect the interests of the Holders of the Securities as the Board of Directors shall reasonably consider necessary by reason of the foregoing. The provisions of this Section 4.11 shall similarly apply to successive reclassifications, changes, combinations, consolidations, mergers, sales or conveyances. In the event the Company shall execute a supplemental indenture pursuant to this Section 4.11, the Company shall promptly file with the Trustee (x) an Officers’ Certificate briefly stating the reasons therefor, the kind or amount of shares of stock or other securities or property (including cash) receivable by Holders of the Securities upon the conversion of their Securities after any such reclassification, change, combination, consolidation, merger, sale or conveyance, any adjustment to be made with respect thereto and that all conditions precedent have been complied with and (y) an Opinion of Counsel that all conditions precedent have been complied with, and shall promptly mail notice thereof to all Holders.

TRUSTEE’S DISCLAIMER

The Trustee shall have no duty to determine when an adjustment under this Article IV should be made, how it should be made or what such adjustment should be, but may accept as conclusive evidence of that fact or the correctness of any such adjustment, and shall be protected in relying upon, an Officers’ Certificate including the Officers’ Certificate with respect thereto which the Company is obligated to file with the Trustee pursuant to Section 4.9. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities, and the Trustee shall not be responsible for the Company’s failure to comply with any provisions of this Article IV.

The Trustee shall not be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture executed pursuant to Section 4.11,

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but may accept as conclusive evidence of the correctness thereof, and shall be fully protected in relying upon, the Officers’ Certificate with respect thereto which the Company is obligated to file with the Trustee pursuant to Section 4.11.

VOLUNTARY REDUCTION

The Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days and if the reduction is irrevocable during the period if the Board of Directors determines that such reduction would be in the best interest of the Company and the Company provides 15 days prior notice of any such reduction in the Conversion Price; provided, however, that in no event may the Company reduce the Conversion Price to be less than the par value of a share of Common Stock.

SUBORDINATION

AGREEMENT OF SUBORDINATION

The Company covenants and agrees, and each Holder of Securities issued hereunder by its acceptance thereof likewise covenants and agrees, that all Securities shall be issued subject to the provisions of this Article V; and each Person holding any Security, whether upon original issue or upon 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 Securities (including, but not limited to, the redemption price with respect to the Securities called for redemption or the Change in Control Purchase Price with respect to the Securities subject to purchase in accordance with Article III or Article XII, as applicable, as provided in this Indenture) issued hereunder, and any other payment with respect to the Securities, 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 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 V shall prevent the occurrence of any default or
Event of Default hereunder.

PAYMENTS TO HOLDERS

No payment shall be made with respect to the principal of, or premium, if any, or interest (including Liquidated Damages, if any) on the Securities (including, but not limited to, the redemption price with respect to the Securities to be called for redemption or the Change in Control Purchase Price with respect to the Securities subject to purchase in accordance with Article III or Article XII, as applicable, as provided in this Indenture or any other purchase or acquisition with respect to the Securities), or any other payment with respect to the Securities, except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 5.5, if:

a default in the payment of principal, premium, interest, rent or other obligations due on any Designated Senior Indebtedness occurs and is continuing (or, in the case of Designated Senior Indebtedness for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Designated Senior Indebtedness), unless and until such default shall have been cured or waived or shall have ceased to exist; or

a default, other than a default referred to in clause (a) of this Section 5.2, on a Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to accelerate its maturity and the Trustee

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receives a notice of the default (a “Payment Blockage Notice”) from a Representative or holder of Designated Senior Indebtedness.

Subject to the provisions of Section 5.5, if the Trustee receives any Payment Blockage Notice pursuant to clause (b) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee (unless such default was waived, cured or otherwise ceased to exist and thereafter subsequently reoccurred) 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 Securities upon the earlier of:

     (i) the date upon which the default is cured or waived or ceases to exist, or

     (ii) in the case of a default referred to in clause (b) above, 179 days pass after a Payment Blockage Notice is received, unless this Article V 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 similar proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full in cash, or other payments satisfactory to the holders of 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 Securities (including, but not limited to, the redemption price with respect to the Securities called for redemption or the Change in Control Purchase Price with respect to the Securities subject to purchase in accordance with Article III or Article XII, as applicable, as provided in this Indenture, but excluding payments made pursuant to Article X from monies deposited with the Trustee pursuant thereto prior to commencement of proceedings for such dissolution, winding-up, liquidation or reorganization), or any other payment with respect to the Securities; 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 Securities or the Trustee would be entitled, except for the provision of this Article V, 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 Securities 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, 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, to the extent necessary to pay all Senior Indebtedness in full in cash, or other payment satisfactory to the holders of 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 Securities or to the Trustee.

For purposes of this Article V, 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 V with respect to the Securities to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior

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Indebtedness is assumed by the new corporation, if any, resulting from any reorganization or readjustment, and (ii) the rights of the holders of Senior Indebtedness (other than leases which are not assumed by the Company or the new corporation, as the case may be) are not, without the consent of such Holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation 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 corporation upon the terms and conditions provided for in Article VII shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 5.2 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article VII.

In the event of the acceleration of the Securities because of an Event of Default, no payment or distribution shall be made to the Trustee or any Holder of Securities in respect of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Securities (including, but not limited to, the redemption price with respect to the Securities called for redemption or the Change in Control Purchase Price with respect to the Securities subject to purchase in accordance with Article III or Article XII, as applicable, as provided in this Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 5.5, 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 Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Indebtedness of such 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, shall be received by the Trustee or the Holders of the Securities before all Senior Indebtedness is paid in full, in cash or other payment satisfactory to the holders of 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 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 all 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 Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness.

Nothing in this Section 5.2 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 9.7. This Section 5.2 shall be subject to the further provisions of Section 5.5.

SUBROGATION OF SECURITIES

Subject to the payment in full, in cash or other payment satisfactory to the holders of Senior Indebtedness, of all Senior Indebtedness, the rights of the Holders of the Securities 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 V (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to other indebtedness of the Company to substantially the same extent as the Securities 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

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Liquidated Damages, if any) on the Securities, and any other obligation with respect to the Securities, shall be paid in full in cash or other payment satisfactory to the holders of Senior Indebtedness; 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 Securities or the Trustee would be entitled except for the provisions of this Article V, and no payment over pursuant to the provisions of this Article V, to or for the benefit of the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness, and the Holders of the Securities, 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 Securities pursuant to the subrogation provisions of this Article V, 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 Securities. It is understood that the provisions of this Article V are and are intended solely for the purposes of defining the relative rights of the Holders of the Securities, on the one hand, and the holders of the Senior Indebtedness, on the other hand.

Nothing contained in this Article V or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Indebtedness, and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of (and premium, if any) and interest on the Securities 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 Securities 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 Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article V 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 V, the Trustee, subject to the provisions of Section 9.1, and the Holders of the Securities 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 Securities, 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 V.

AUTHORIZATION TO EFFECT SUBORDINATION

Each Holder of a Security by the Holder’s 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 V and appoints the Trustee to act as the Holder’s attorney-in-fact for any and 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 Section 5.3 hereof at least 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 Securities.

NOTICE TO TRUSTEE

The Company shall give prompt written notice in the form of an Officers’ Certificate to a Trust Officer of the Trustee and to any Paying Agent of any fact known to the Company which would prohibit the making of any payment of monies to or by the Trustee

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or any Paying Agent in respect of the Securities pursuant to the provisions of this Article V. Notwithstanding the provisions of this Article V or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities pursuant to the provisions of this Article V, unless and until a Trust 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 shall be entitled in all respects to assume that no such facts exist; provided that if on a date not fewer than one Business Day 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 on any Security) the Trustee shall not have received, with respect to such monies, the notice provided for in this Section 5.5, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. Notwithstanding anything in this Article V to the contrary, nothing shall prevent any payment by the Trustee to the Holders of monies deposited with it pursuant to Article X, and any such payment shall not be subject to the provisions of this Article V.

The Trustee, subject to the provisions of Section 9.1, 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. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article V, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee 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 V, and if such evidence is not furnished the Trustee may defer any payment to such person pending judicial determination as to the right of such Person to receive such payment.

TRUSTEE’S RELATION TO SENIOR INDEBTEDNESS

The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article V 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 9.11 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 V, 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 9.1, the Trustee shall not be liable to any holder of Senior Indebtedness if it shall pay over or deliver to Holders of Securities, the Company or any other person, money or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article V or otherwise.

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

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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.

CERTAIN CONVERSIONS DEEMED PAYMENT

For the purposes of this Article V only, (a) the issuance and delivery of junior securities upon conversion of Securities in accordance with Article IV shall not be deemed to constitute a payment or distribution on account of the principal of (or premium, if any) or interest on Securities or on account of the purchase or other acquisition of Securities, and (b) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 4.3), property or securities (other than junior securities) upon conversion of a Security shall be deemed to constitute payment on account of the principal of such Security. For the purposes of this Section 5.8, the term “junior securities” means (i) shares of any stock of any class of the Company, or (ii) securities of the Company which are subordinated in right of payment to all Senior Indebtedness which 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 Securities are so subordinated as provided in this Article V. Nothing contained in this Article V or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders, the right, which is absolute and unconditional, of the Holder of any Security to convert such Security in accordance with Article IV.

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 V 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 V in addition to or in place of the Trustee; provided, however, that the first paragraph of Section 5.5 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent.

SENIOR INDEBTEDNESS ENTITLED TO RELY

The holders of Senior Indebtedness (including, without limitation, Designated Senior Indebtedness) and their representatives shall have the right to rely upon this Article V, and no provision contained herein may be amended, supplemented or otherwise modified without the prior written consent of such holders or their representatives in accordance with the documents governing the terms of such Senior Indebtedness.

COVENANTS

PAYMENT OF SECURITIES

The Company shall promptly make all payments in respect of the Securities on the dates and in the manner provided in the Securities and this Indenture. An installment of principal or interest shall be considered paid on the date it is due if the Paying Agent (other than the Company) holds by 11:00 a.m., New York City time, on that date money, deposited by the Company or an Affiliate thereof, sufficient to pay the installment. The Company shall, to the fullest extent permitted by law, pay interest on overdue principal (including premium, if any) and overdue installments of interest at the rate borne by the Securities per annum. All references in this Indenture or the Securities to interest shall be deemed to include Liquidated Damages, if any, payable pursuant to the Registration Rights Agreement.

Payment of the principal of (and premium, if any) and any interest on the Securities shall be made at the Corporate Trust Office of the Paying Agent specified in Section 2.3 in such coin or currency of the United States of America as at the time of payment

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is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address appears in the Register; provided further that a Holder with an aggregate principal amount in excess of $2,000,000 will be paid by wire transfer in immediately available funds at the election of such Holder.

SEC REPORTS

The Company shall file all reports and other information and documents which it is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, and within 15 days after it files them with the SEC, the Company shall file copies of all such reports, information and other documents with the Trustee.

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).

COMPLIANCE CERTIFICATES

The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year of the Company (beginning with the fiscal year ending January 31, 2003), an Officers’ Certificate as to the signer’s knowledge of the Company’s compliance with all conditions and covenants on its part contained in this Indenture and stating whether or not the signer knows of any default or Event of Default. If such signer knows of such a default or Event of Default, the Officers’ Certificate shall describe the default or Event of Default and the efforts to remedy the same. For the purposes of this Section 6.3, compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture.

FURTHER INSTRUMENTS AND ACTS

Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture.

MAINTENANCE OF CORPORATE EXISTENCE

Subject to Article VII, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence.

RULE 144A INFORMATION REQUIREMENT

Within the period prior to the expiration of the holding period applicable to sales of Restricted Securities 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 Securities 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 Securities 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 Securities or such Common Stock and it will take such further action as any Holder or beneficial holder of such Securities 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 Securities 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

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the Securities or such Common Stock, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements.

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 Securities 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.

PAYMENT OF 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 is payable and (ii) the date on which such Liquidated Damages are payable. Unless and until a Trust Officer of the Trustee actually receives such a certificate, the Trustee may assume without inquiry that no such Liquidated Damages are payable. If the Company has paid Liquidated Damages directly to the Persons entitled to it, the Company shall deliver to the Trustee a certificate setting forth the particulars of such payment.

RESALE OF CERTAIN SECURITIES

During the period of two years after the last date of original issuance of any Securities, the Company shall not, and shall not permit any of its “affiliates” (as defined under Rule 144 under the Securities Act) to, resell any Securities, or shares of Common Stock issuable upon conversion of the Securities, which constitute “restricted securities” under Rule 144, that are acquired by any of them within the United States or to “U.S. persons” (as defined in Regulation S) except pursuant to an effective registration statement under the Securities Act or an applicable exemption therefrom. The Trustee shall have no responsibility or liability in respect of the Company’s performance of its agreement in the preceding sentence.

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS

The Company shall not consolidate with or merge into any other Person (in a transaction in which the Company is not the surviving corporation) or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless:

in case the Company shall consolidate with or merge into another Person (in a transaction in which the Company is not the surviving corporation) or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, limited liability company, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of and any premium and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed and the conversion rights shall be provided for in accordance

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with Article IV, 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 which shall have acquired the Company’s assets;

immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and

the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article VII and that all conditions precedent herein provided for relating to such transaction have been complied with.

SUCCESSOR SUBSTITUTED

Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 7.1, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities.

DEFAULT AND REMEDIES

EVENTS OF DEFAULT

An “Event of Default” shall occur if:

THE COMPANY DEFAULTS IN THE PAYMENT OF ANY INTEREST (INCLUDING LIQUIDATED DAMAGES) ON ANY SECURITY WHEN THE SAME BECOMES DUE AND PAYABLE AND THE DEFAULT CONTINUES FOR A PERIOD OF 30 DAYS, WHETHER OR NOT SUCH PAYMENT SHALL BE PROHIBITED BY THE PROVISIONS OF ARTICLE V;

THE COMPANY DEFAULTS IN THE PAYMENT OF ANY PRINCIPAL OF (INCLUDING, WITHOUT LIMITATION, ANY PREMIUM, IF ANY, ON) ANY SECURITY WHEN THE SAME BECOMES DUE AND PAYABLE (WHETHER AT MATURITY, UPON REDEMPTION, A CHANGE IN CONTROL PURCHASE DATE OR OTHERWISE), WHETHER OR NOT SUCH PAYMENT SHALL BE PROHIBITED BY THE PROVISIONS OF ARTICLE V;

THE COMPANY FAILS TO COMPLY WITH ANY OF ITS OTHER AGREEMENTS CONTAINED IN THE SECURITIES OR THIS INDENTURE AND THE DEFAULT CONTINUES FOR THE PERIOD AND AFTER THE NOTICE SPECIFIED BELOW;

THE COMPANY PURSUANT TO OR WITHIN THE MEANING OF ANY BANKRUPTCY LAW:

commences a voluntary case or proceeding;

consents to the entry of an order for relief against it in an involuntary case or proceeding;

consents to the appointment of a Custodian of it or for all or substantially all of its property; or

makes a general assignment for the benefit of its creditors; or

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A COURT OF COMPETENT JURISDICTION ENTERS AN ORDER OR DECREE UNDER ANY BANKRUPTCY LAW THAT:

is for relief against the Company in an involuntary case or proceeding;

appoints a Custodian of the Company or for all or substantially all of the property of the Company; or

orders the liquidation of the Company;

and in each case such order or decree remains unstayed and in effect for 60 days.

The term “Bankruptcy Law” means Title 11 of the United States Code (or any successor thereto) or any similar federal or state law for the relief of debtors. The term “Custodian” means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law.

A default under clause (3) above is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding notify the Company and the Trustee, of the default, and the Company does not cure the default within 60 days after receipt of such notice. The notice given pursuant to this Section 8.1 must specify the default, demand that it be remedied and state that the notice is a “Notice of Default.” When any default under this Section 8.1 is cured, it ceases.

The Trustee shall not be charged with knowledge of any Event of Default unless written notice thereof shall have been given to a Trust Officer at the Corporate Trust Office of the Trustee by the Company, a Paying Agent, any Holder or any agent of any Holder.

ACCELERATION

If an Event of Default (other than an Event of Default specified in clause (4) or (5) of Section 8.1) occurs and is continuing, the Trustee may, by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may, by notice to the Company and the Trustee, declare all unpaid principal on the Securities then outstanding (if not then due and payable) to be due and payable upon any such declaration, and the same shall become and be immediately due and payable. If an Event of Default specified in clause (4) or (5) of Section 8.1 occurs, all unpaid principal of the Securities then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of a majority in aggregate principal amount of the Securities then outstanding by notice to the Trustee may rescind an acceleration and its consequences if (a) all existing Events of Default, other than the nonpayment of the principal of the Securities which has become due solely by such declaration of acceleration, have been cured or waived; (b) to the extent the payment of such interest is lawful, interest (calculated at the rate per annum borne by the Securities) on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid; (c) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (d) all payments due to the Trustee and any predecessor Trustee under Section 9.7 have been made. No such rescission shall affect any subsequent default or impair any right consequent thereto.

OTHER REMEDIES

If an Event of Default occurs and is continuing, the Trustee may, but shall not be obligated to, pursue any available remedy by proceeding at law or in equity to collect the payment of the principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture.

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The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law.

WAIVER OF DEFAULTS AND EVENTS OF DEFAULT

Subject to Sections 8.7 and 11.2, the Holders of a majority in principal amount of the Securities then outstanding by notice to the Trustee may waive an existing default or Event of Default and its consequence, except a default or Event of Default in the payment of the principal of or interest on any Security, a failure by the Company to convert any Securities into Common Stock or any default or Event of Default in respect of any provision of this Indenture or the Securities which, under Section 11.2, cannot be modified or amended without the consent of the Holder of each Security affected. When a default or Event of Default is waived, it is cured and ceases.

CONTROL BY MAJORITY

The Holders of a majority in principal amount of the Securities then outstanding may 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 it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Holder or the Trustee, or that may involve the Trustee in personal liability unless the Trustee is furnished indemnity satisfactory to it; provided, however, that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.

LIMITATIONS ON SUITS

A Holder may not pursue any remedy with respect to this Indenture or the Securities (except actions for payment of overdue principal or interest or for the conversion of the Securities pursuant to Article IV) unless:

the Holder gives to the Trustee written notice of a continuing Event of Default;

the Holders of at least 25% in principal amount of the then outstanding Securities make a written request to the Trustee to pursue the remedy;

such Holder or Holders furnishes to the Trustee reasonable indemnity to the Trustee against any loss, liability or expense;

the Trustee does not comply with the request within 60 days after receipt of the request and the furnishing of indemnity; and

no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Securities then outstanding.

A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder.

RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO CONVERT

Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of the principal of and interest on the Security, on or after the respective due dates expressed in the Security and this Indenture, to convert such Security in accordance with Article IV and to bring suit for the enforcement of any such payment on or after such respective dates or the right to

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convert, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder.

COLLECTION SUIT BY TRUSTEE

If an Event of Default in the payment of principal or interest specified in clause (1) or (2) of Section 8.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or another obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with, to the extent that payment of such interest is lawful, interest on overdue principal and on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

TRUSTEE MAY FILE PROOFS OF CLAIM

The Trustee may 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 (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor on the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any money or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceeding is hereby authorized by each Holder 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 Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 9.7, and to the extent that such payment of the reasonable compensation, expenses, disbursements and advances 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, money, securities and other property which the Holders may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to, or on behalf of any Holder, to authorize, accept or adopt any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

PRIORITIES

If the Trustee collects any money pursuant to this Article VIII, it shall pay out the money in the following order:

First, to the Trustee for amounts due under Section 9.7;

Second, to the holders of Senior Indebtedness to the extent required by Article V;

Third, to Holders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and

Fourth, to the Company.

The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 8.10.

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UNDERTAKING FOR COSTS

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, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 8.11 does not apply to a suit made by the Trustee, a suit by a Holder pursuant to Section 8.7, or a suit by Holders of more than 10% in principal amount of the Securities then outstanding.

TRUSTEE

DUTIES OF TRUSTEE

If an Event of Default has occurred and is continuing, 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 its exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

Except during the continuance of an Event of Default:

THE TRUSTEE NEED PERFORM ONLY THOSE DUTIES AS ARE SPECIFICALLY SET FORTH IN THIS INDENTURE AND NO OTHERS; AND IN THE ABSENCE OF BAD FAITH ON ITS PART, THE TRUSTEE MAY CONCLUSIVELY RELY, AS TO THE TRUTH OF THE STATEMENTS AND THE CORRECTNESS OF THE OPINIONS EXPRESSED THEREIN, UPON CERTIFICATES OR OPINIONS FURNISHED TO THE TRUSTEE AND CONFORMING TO THE REQUIREMENTS OF THIS INDENTURE. THE TRUSTEE, HOWEVER, SHALL EXAMINE ANY CERTIFICATES AND OPINIONS WHICH BY ANY PROVISION HEREOF ARE SPECIFICALLY REQUIRED TO BE DELIVERED TO THE TRUSTEE TO DETERMINE WHETHER OR NOT THEY CONFORM TO THE REQUIREMENTS OF THIS INDENTURE.

The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:

THIS PARAGRAPH DOES NOT LIMIT THE EFFECT OF SUBSECTION (b) OF THIS SECTION 9.1;

THE TRUSTEE SHALL NOT BE LIABLE FOR ANY ERROR OF JUDGMENT MADE IN GOOD FAITH BY A TRUST OFFICER, UNLESS IT IS PROVED THAT THE TRUSTEE WAS NEGLIGENT IN ASCERTAINING THE PERTINENT FACTS; AND THE TRUSTEE SHALL NOT BE LIABLE WITH RESPECT TO ANY ACTION IT TAKES OR OMITS TO TAKE IN GOOD FAITH IN ACCORDANCE WITH A DIRECTION RECEIVED BY IT PURSUANT TO SECTION 8.5.

No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers unless the Trustee shall have received adequate indemnity in its opinion against potential costs and liabilities incurred by it relating thereto.

Every provision of this Indenture that in any way relates to the Trustee is subject to subsections (a), (b), (c) and (d) of this Section 9.1.

The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by applicable law.

RIGHTS OF TRUSTEE

Subject to Section 9.1:

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The Trustee may rely conclusively on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document.

Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate or an Opinion of Counsel, which shall conform to Section 13.4(b). The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Certificate or Opinion.

The Trustee may act through its agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.

The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers.

The Trustee may consult with counsel of its selection, and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection in respect of any such action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel.

The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have furnished to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.

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, note, other evidence of indebtedness 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 sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.

The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Trust Officer of the Trustee has actual knowledge thereof or unless written notice from the Company or the Holders of at least 25% of the Securities of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office, and such notice references the Securities and this Indenture.

Except with respect to Sections 6.1, 6.2 and 6.3, the Trustee shall have no duty to inquire as to the performance of the Company with respect to the covenants contained in Article VI.

Delivery of reports, information and documents to the Trustee under Section 6.2 is for informational purposes only and the Trustee’s receipt of the foregoing shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any covenants hereunder (as to which the Trustee is entitled to rely conclusively on Officers’ Certificates).

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 by it to act hereunder.

INDIVIDUAL RIGHTS OF TRUSTEE

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The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or an Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 9.10 and 9.11.

TRUSTEE’S DISCLAIMER

The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company’s use of the proceeds from the Securities, and it shall not be responsible for any statement in the Indenture or the Securities other than its certificate of authentication.

NOTICE OF DEFAULT OR EVENTS OF DEFAULT

If a default or an Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the default or Event of Default within 90 days after it occurs. However, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding notice is in the interests of Securityholders, except in the case of a default or an Event of Default in payment of the principal, premium, if any or interest (including Liquidated Damages) on any Security.

REPORTS BY TRUSTEE TO HOLDERS

If such report is required by TIA Section 313, within 60 days after each May 15, beginning with the May 15 following the date of this Indenture, the Trustee shall mail to each Securityholder a brief report dated as of such May 15 that complies with TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b)(2) and (c).

A copy of each report at the time of its mailing to Securityholders shall be mailed to the Company and filed with the SEC and each stock exchange, if any, on which the Securities are listed. The Company promptly shall notify the Trustee whenever the Securities become listed on any stock exchange or listed or admitted to trading on any quotation system and any changes in the stock exchanges or quotation systems on which the Securities are listed or admitted to trading and of any delisting thereof.

COMPENSATION AND INDEMNITY

The Company shall pay to the Trustee from time to time such compensation (as agreed to from time to time by the Company and the Trustee in writing) for its services (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust). The Company shall reimburse the Trustee upon request for all reasonable, actual disbursements, expenses and advances incurred or made by it. Such expenses may include the reasonable, actual compensation, disbursements and expenses of the Trustee’s agents and counsel.

The Company shall indemnify the Trustee or any predecessor Trustee (which for purposes of this Section 9.7 shall include its officers, directors, employees and agents) for, and hold it harmless against, any and all loss, liability or expense including taxes (other than taxes based upon, measured by or determined by the income of the Trustee) and reasonable legal fees and expenses incurred by it in connection with the acceptance or administration of its duties under this Indenture or any action or failure to act as authorized or within the discretion or rights or powers conferred upon the Trustee hereunder including the reasonable costs and expenses of the Trustee and its counsel in defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company need not pay for any settlement without its written consent, which shall not be unreasonably withheld.

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The Company need not reimburse the Trustee for any expense or indemnify it against any loss or liability incurred by it resulting from its gross negligence or bad faith.

To secure the Company’s payment obligations in this Section 9.7, the Trustee shall have a senior claim to which the Securities are hereby made subordinate on all money or property held or collected by the Trustee, except such money or property held in trust to pay the principal of and interest on the Securities. The obligations of the Company under this Section 9.7 shall survive the satisfaction and discharge of this Indenture or the resignation or removal of the Trustee.

When the Trustee incurs expenses or renders services after an Event of Default specified in clause (4) or (5) of Section 8.1 occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. The provisions of this Section shall survive the termination of this Indenture.

REPLACEMENT OF TRUSTEE

The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the Securities then outstanding may remove the Trustee by so notifying the Trustee and may, with the Company’s written consent, appoint a successor Trustee. The Company may remove the Trustee if:

the Trustee fails to comply with Section 9.10;

the Trustee is adjudged a bankrupt or an insolvent;

a receiver or other public officer takes charge of the Trustee or its property; or

the Trustee becomes incapable of acting.

If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. The resignation or removal of a Trustee shall not be effective until a successor Trustee shall have delivered the written acceptance of its appointment as described below.

If a successor Trustee does not take office within 45 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of 10% in principal amount of the Securities then outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee at the expense of the Company.

If the Trustee fails to comply with Section 9.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee and be released from its obligations (exclusive of any liabilities that the retiring Trustee may have incurred while acting as Trustee) hereunder, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture.

A successor Trustee shall mail notice of its succession to each Holder.

A retiring Trustee shall not be liable for the acts or omissions of any successor Trustee after its succession.

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Notwithstanding replacement of the Trustee pursuant to this Section 9.8, the Company’s obligations under Section 9.7 shall continue for the benefit of the retiring Trustee.

SUCCESSOR TRUSTEE BY MERGER, ETC.

If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust assets (including the administration of this Indenture) to, another corporation, the resulting, surviving or transferee corporation, without any further act, shall be the successor Trustee, provided such transferee corporation shall qualify and be eligible under Section 9.10. Such successor Trustee shall promptly mail notice of its succession to the Company and each Holder.

ELIGIBILITY; DISQUALIFICATION

The Trustee shall always satisfy the requirements of paragraphs (1), (2) and (5) of TIA Section 310(a). The Trustee (or its parent holding company) shall have a combined capital and surplus of at least $50,000,000. If at any time the Trustee shall cease to satisfy any such requirements, it shall resign immediately in the manner and with the effect specified in this Article IX. The Trustee shall be subject to the provisions of TIA Section 310(b). Nothing herein shall prevent the Trustee from filing with the SEC the application referred to in the penultimate paragraph of TIA Section 310(b).

PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY

The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein.

SATISFACTION AND DISCHARGE OF INDENTURE

SATISFACTION AND DISCHARGE OF INDENTURE

This Indenture shall cease to be of further effect (except as to any surviving rights of conversion, registration of transfer or exchange of Securities herein expressly provided for and except as further provided below), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when

EITHER

all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.7 and (ii) Securities for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company as provided in Section 10.3) have been delivered to the Trustee for cancellation; or

all such Securities not theretofore delivered to the Trustee for cancellation

     have become due and payable, or

     will become due and payable at the Final Maturity Date 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 by the
Trustee in the name, and at the expense, of the Company,

and the Company, in the case of clause (a), (b) or (c) above, has irrevocably deposited or caused to be irrevocably deposited with the Trustee or a Paying Agent (other than the Company or any of its Affiliates) as trust funds in trust for the purpose cash in an

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amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Final Maturity Date or Redemption Date, as the case may be;

THE COMPANY HAS PAID OR CAUSED TO BE PAID ALL OTHER SUMS PAYABLE HEREUNDER BY THE COMPANY; AND

THE COMPANY HAS DELIVERED TO THE TRUSTEE AN OFFICERS’ CERTIFICATE AND AN OPINION OF COUNSEL, EACH STATING THAT ALL CONDITIONS PRECEDENT HEREIN PROVIDED FOR RELATING TO THE SATISFACTION AND DISCHARGE OF THIS INDENTURE HAVE BEEN COMPLIED WITH.

Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 9.7 shall survive and, if money shall have been deposited with the Trustee pursuant to clause (1)(ii) of this Section, the provisions of Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.12, Article IV, the last paragraph of Section 6.2, this Article X, Article XII and Section 13.5, shall survive until the Securities have been paid in full.

APPLICATION OF TRUST MONEY

Subject to the provisions of Section 10.3, the Trustee or a Paying Agent shall hold in trust, for the benefit of the Holders, all money deposited with it pursuant to Section 10.1 and shall apply the deposited money in accordance with this Indenture and the Securities to the payment of the principal of and interest on the Securities. Money so held in trust shall not be subject to the subordination provisions of Article V.

REPAYMENT TO COMPANY

The Trustee and each Paying Agent shall promptly pay to the Company upon request any excess money (i) deposited with them pursuant to Section 10.1 and (ii) held by them at any time.

The Trustee and each Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years after a right to such money has matured; provided, however, that the Trustee or such Paying Agent, before being required to make any such payment, may at the expense of the Company cause to be mailed to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein, which shall be at least 30 days from the date of such mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to money must look to the Company for payment as general creditors.

REINSTATEMENT

If the Trustee or any Paying Agent is unable to apply any money in accordance with Section 10.2 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company’s obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 10.1 until such time as the Trustee or such Paying Agent is permitted to apply all such money in accordance with Section 10.2; provided, however, that if the Company has made any payment of the principal of or interest on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive any such payment from the money held by the Trustee or such Paying Agent.

AMENDMENTS, SUPPLEMENTS AND WAIVERS

WITHOUT CONSENT OF HOLDERS

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The Company and the Trustee may amend or supplement this Indenture or the Securities without notice to or consent of any Securityholder:

to comply with Sections 4.11 and 7.1;

to cure any ambiguity, defect or inconsistency;

to make any other change that does not adversely effect the rights of any Securityholder;

to comply with the provisions of the TIA; or

to appoint a successor Trustee.

WITH CONSENT OF HOLDERS

The Company and the Trustee may amend or supplement this Indenture or the Securities with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding. The Holders of at least a majority in aggregate principal amount of the Securities then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Securities without notice to any Securityholder. However, notwithstanding the foregoing but subject to Section 11.4, without the written consent of each Securityholder affected, an amendment, supplement or waiver, including a waiver pursuant to Section 8.4, may not:

extend the Maturity of the principal of, or interest on, any Security;

reduce the principal amount of, or any premium or interest on, any Security;

reduce the amount of principal payable upon acceleration of the maturity of any Security;

change the place or currency of payment of principal of, or any premium or interest on, any Security;

impair the right to institute suit for the enforcement of any payment on, or with respect to, any Security;

adversely affect the right of Holders to convert Securities other than as provided in or under Article IV of this Indenture;

reduce the percentage of the aggregate principal amount of the outstanding Securities whose Holders must consent to a supplement or amendment;

reduce the percentage of the aggregate principal amount of the outstanding Securities necessary for the waiver of compliance with certain provisions of this Indenture or the waiver of certain defaults under this Indenture; and

modify any of the provisions of this Section or Section 8.4, except to increase any such percentage or to provide that certain provisions of this Indenture cannot be modified or waived without the consent of the Holder of each outstanding Security affected thereby.

It shall not be necessary for the consent of the Holders under this Section 11.2 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof.

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After an amendment, supplement or waiver under this Section 11.2 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment, supplement or waiver. An amendment or supplement under this Section 11.2 or under Section 11.1 may not make any charge that adversely affects the rights under Article V of any holder of Senior Indebtedness, unless the holders of that issue of Senior Indebtedness, pursuant to its terms, consent to such change.

COMPLIANCE WITH TRUST INDENTURE ACT

Every amendment to or supplement of this Indenture or the Securities shall comply with the TIA as in effect at the date of such amendment or supplement.

REVOCATION AND EFFECT OF CONSENTS

Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to its Security or portion of a Security if the Trustee receives the notice of revocation in writing before the date the amendment, supplement or waiver becomes effective.

After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder, unless it makes a change described in any of clauses (a) through (i) of Section 11.2. In that case the amendment, supplement or waiver shall bind each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security.

NOTATION ON OR EXCHANGE OF SECURITIES

If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms.

TRUSTEE TO SIGN AMENDMENTS, ETC.

The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article XI if the amendment or supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, in its sole discretion, but need not sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and, subject to Section 9.1, shall be fully protected in relying upon, an Opinion of Counsel stating that such amendment or supplemental indenture is authorized or permitted by this Indenture. The Company may not sign an amendment or supplemental indenture until the Board of Directors approves it.

REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE IN CONTROL

CHANGE IN CONTROL PUT

In the event that a Change in Control shall occur, each Holder shall have the right (a “Change in Control Repurchase Right”), at the Holder’s option, but subject to the provisions of this Section 12.1(a), to require the Company to repurchase, and upon the

46

exercise of such right the Company shall repurchase, all of such Holder’s Securities not theretofore called for redemption, or any portion of the principal amount thereof that is equal to $1,000 or an integral multiple thereof as directed by such Holder pursuant to Section 12.31(c) (provided that no single Securities may be repurchased in part unless the portion of the principal amount of such Securities to be outstanding after such repurchase is equal to $1,000 or an integral multiple thereof), on the date (the “Change in Control Repurchase Date”) that is the 30th Business Day after the occurrence of the Change in Control at a purchase price in cash equal to 100% of the principal amount of the Securities to be repurchased, plus accrued and unpaid interest (including Liquidated Damages) to, but excluding, the Change in Control Repurchase Date (the “Change in Control Repurchase Price”), subject to satisfaction by or on behalf of any Holder of the requirements set forth in subsection (c) of this Section 12.1.

A “Change in Control” shall be deemed to have occurred if any of the following occurs after the date hereof:

ANY “PERSON” OR “GROUP” (AS SUCH TERMS ARE DEFINED BELOW) IS OR BECOMES THE “BENEFICIAL OWNER” (AS DEFINED BELOW), DIRECTLY OR INDIRECTLY, OF SHARES OF VOTING STOCK OF THE COMPANY REPRESENTING MORE THAN 50% OF THE TOTAL VOTING POWER OF ALL OUTSTANDING CLASSES OF VOTING STOCK OF THE COMPANY (EXCLUDING ACQUISITIONS OF SUCH SHARES BY THE COMPANY, ITS SUBSIDIARIES OR ANY OF ITS EMPLOYEE BENEFIT PLANS) OR HAS THE POWER, DIRECTLY OR INDIRECTLY, TO ELECT A MAJORITY OF THE MEMBERS OF THE BOARD OF DIRECTORS OF THE COMPANY; OR

THE COMPANY CONSOLIDATES WITH, OR MERGES WITH OR INTO, ANOTHER PERSON OR THE COMPANY SELLS, ASSIGNS, CONVEYS, TRANSFERS, LEASES OR OTHERWISE DISPOSES OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE COMPANY (DETERMINED ON A CONSOLIDATED BASIS), OR ANY PERSON CONSOLIDATES WITH, OR MERGES WITH OR INTO, THE COMPANY,

IN ANY SUCH EVENT OTHER THAN PURSUANT TO A TRANSACTION IN WHICH THE PERSONS THAT “BENEFICIALLY OWNED” (AS DEFINED BELOW), DIRECTLY OR INDIRECTLY, SHARES OF VOTING STOCK OF THE COMPANY IMMEDIATELY PRIOR TO SUCH TRANSACTION “BENEFICIALLY OWN” (AS DEFINED BELOW), DIRECTLY OR INDIRECTLY, SHARES OF VOTING STOCK OF THE COMPANY REPRESENTING AT LEAST A MAJORITY OF THE TOTAL VOTING POWER OF ALL OUTSTANDING CLASSES OF VOTING STOCK OF THE SURVIVING OR TRANSFEREE PERSON; OR

THERE SHALL OCCUR THE LIQUIDATION OR DISSOLUTION OF THE COMPANY.

Notwithstanding anything to the contrary set forth in this Section 12.1, a Change in Control will not be deemed to have occurred if either:

       (A) THE CLOSING PRICE (DETERMINED IN ACCORDANCE WITH SECTION 4.6(F)) OF THE COMMON STOCK FOR ANY FIVE TRADING DAYS WITHIN:

the period of the ten Trading Days immediately after the later of the Change in Control or the public announcement of the Change in Control, in the case of a Change in Control resulting solely from a Change in Control under Section 12.1(a)(1); or

the period of the ten Trading Days immediately preceding the Change in Control, in the case of a Change in Control resulting from a Change in Control under Section 12.1(a)(2) or (3), is at least equal to 105% of the Conversion Price in effect on such Trading Day; or

(B) IN THE CASE OF A MERGER OR CONSOLIDATION, AT LEAST 90% OF THE CONSIDERATION EXCLUDING CASH PAYMENTS FOR FRACTIONAL SHARES IN THE MERGER OR CONSOLIDATION CONSTITUTING THE CHANGE IN CONTROL CONSISTS OF COMMON STOCK TRADED ON A UNITED STATES NATIONAL SECURITIES EXCHANGE OR QUOTED ON THE NNM (OR WHICH WILL BE SO TRADED OR QUOTED WHEN ISSUED OR EXCHANGED IN CONNECTION WITH SUCH CHANGE IN CONTROL) AND AS A RESULT OF SUCH TRANSACTION OR TRANSACTIONS THE SECURITIES BECOME CONVERTIBLE SOLELY INTO SUCH COMMON STOCK AND SUCH OTHER PERMITTED CONSIDERATION.

47

     For the purpose of the definition of “Change in Control”, (i) “person” and “group” have the meanings given such terms under Section 13(d) and 14(d) of the Exchange Act or any successor provision to either of the foregoing, and the term “group” includes any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act (or any successor provision thereto), (ii) a “beneficial owner” shall be determined in accordance with Rule 13d-3 under the Exchange Act, as in effect on the date of this Indenture, except that the number of shares of Voting Stock of the Company shall be deemed to include, in addition to all outstanding shares of Voting Stock of the Company and Unissued Shares deemed to be held by the “person” or “group” (as such terms are defined above) or other Person with respect to which the Change in Control determination is being made, all Unissued Shares deemed to be held by all other Persons, and (iii) the terms “beneficially owned” and “beneficially own” shall have meanings correlative to that of “beneficial owner”. The term “Unissued Shares” means shares of Voting Stock not outstanding that are subject to options, warrants, rights to purchase or conversion privileges exercisable within 60 days of the date of determination of a Change in Control.

Within 10 Business Days after the occurrence of a Change in Control, the Company shall mail a written notice of the Change in Control to the Trustee (and the Paying Agent if the Trustee is not then acting as Paying Agent) and to each Holder (and to beneficial owners as required by applicable law). The notice shall include the form of a Change in Control Repurchase Notice to be completed by the Holder and shall state:

THE DATE OF SUCH CHANGE IN CONTROL AND, BRIEFLY, THE EVENTS CAUSING SUCH CHANGE IN CONTROL;

THE DATE BY WHICH THE CHANGE IN CONTROL REPURCHASE NOTICE PURSUANT TO THIS SECTION 12.1 MUST BE GIVEN;

THE CHANGE IN CONTROL REPURCHASE DATE;

THE CHANGE IN CONTROL REPURCHASE PRICE;

BRIEFLY, THE CONVERSION RIGHTS OF THE SECURITIES;

THE NAME AND ADDRESS OF EACH PAYING AGENT AND CONVERSION AGENT;

THE CONVERSION PRICE AND ANY ADJUSTMENTS THERETO;

THAT SECURITIES AS TO WHICH A CHANGE IN CONTROL REPURCHASE NOTICE HAS BEEN GIVEN MAY BE CONVERTED INTO COMMON STOCK PURSUANT TO ARTICLE IV OF THIS INDENTURE ONLY TO THE EXTENT THAT THE CHANGE IN CONTROL REPURCHASE NOTICE HAS BEEN WITHDRAWN IN ACCORDANCE WITH THE TERMS OF THIS INDENTURE;

THE PROCEDURES THAT THE HOLDER MUST FOLLOW TO EXERCISE RIGHTS UNDER THIS SECTION 12.1;

THE PROCEDURES FOR WITHDRAWING A CHANGE IN CONTROL REPURCHASE NOTICE, INCLUDING A FORM OF NOTICE OF WITHDRAWAL; AND

THAT THE HOLDER MUST SATISFY THE REQUIREMENTS SET FORTH IN THE SECURITIES IN ORDER TO CONVERT THE SECURITIES.

If any of the Securities is in the form of a Global Security, then the Company shall modify such notice to the extent necessary to accord with the procedures of the Depositary applicable to the repurchase of Global Securities.

A Holder may exercise its rights specified in subsection (a) of this Section 12.1 upon delivery of a written notice (which shall be in substantially the form included in Exhibit A hereto and which may be delivered by letter, overnight courier, hand

48

delivery, facsimile transmission or in any other written form and, in the case of Global Securities, may be delivered electronically or by other means in accordance with the Depositary’s customary procedures) of the exercise of such rights (a “Change in Control Repurchase Notice”) to any Paying Agent at any time prior to the close of business on the Business Day next preceding the Change in Control Repurchase Date.

The delivery of such Security to any Paying Agent (together with all necessary endorsements) at the office of such Paying Agent shall be a condition to the receipt by the Holder of the Change in Control Repurchase Price therefor.

The Company shall purchase from the Holder thereof, pursuant to this Section 12.1, a portion of a Security if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of the Indenture that apply to the purchase of all of a Security pursuant to Sections 12.1 through 12.6 also apply to the purchase of such portion of such Security.

Notwithstanding anything herein to the contrary, any Holder delivering to a Paying Agent the Change in Control Repurchase Notice contemplated by this subsection (c) shall have the right to withdraw such Change in Control Repurchase Notice in whole or in a portion thereof that is a principal amount of $1,000 or in an integral multiple thereof at any time prior to the close of business on the Business Day next preceding the Change in Control Repurchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 12.2.

A Paying Agent shall promptly notify the Company of the receipt by it of any Change in Control Repurchase Notice or written withdrawal thereof.

Anything herein to the contrary notwithstanding, in the case of Global Securities, any Change in Control Repurchase Notice may be delivered or withdrawn and such Securities may be surrendered or delivered for purchase in accordance with the Applicable Procedures as in effect from time to time.

EFFECT OF CHANGE IN CONTROL REPURCHASE NOTICE

Upon receipt by any Paying Agent of the Change in Control Repurchase Notice specified in Section 12.1(c), the Holder of the Security in respect of which such Change in Control Repurchase Notice was given shall (unless such Change in Control Repurchase Notice is withdrawn as specified below) thereafter be entitled to receive the Change in Control Repurchase Price with respect to such Security. Such Change in Control Repurchase Price shall be paid to such Holder promptly following the later of (a) the Change in Control Repurchase Date with respect to such Security (provided the conditions in Section 12.1(c) have been satisfied) and (b) the time of delivery of such Security to a Paying Agent by the Holder thereof in the manner required by Section 12.1(c). Securities in respect of which a Change in Control Repurchase Notice has been given by the Holder thereof may not be converted into shares of Common Stock on or after the date of the delivery of such Change in Control Repurchase Notice unless such Change in Control Repurchase Notice has first been validly withdrawn.

A Change in Control Repurchase Notice may be withdrawn by means of a written notice (which may be delivered by letter, overnight courier, hand delivery, facsimile transmission or in any other written form and, in the case of Global Securities, may be delivered electronically or by other means in accordance with the Depositary’s customary procedures) of withdrawal delivered by the Holder to a Paying Agent at any time prior to the close of business on the Business Day immediately preceding the Change in Control Repurchase Date, specifying the principal amount of the Security or portion thereof (which must be a principal amount of $1,000 or an integral multiple of $1,000 in excess thereof) with respect to which such notice of withdrawal is being submitted.

DEPOSIT OF CHANGE IN CONTROL REPURCHASE PRICE

49

On or before 11:00 a.m., New York City time, on the Change in Control Repurchase Date, the Company shall deposit with the Trustee or with a Paying Agent (other than the Company or an Affiliate of the Company) an amount of money (in immediately available funds if deposited on such Business Day) sufficient to pay the aggregate Change in Control Repurchase Price of all the Securities or portions thereof that are to be purchased as of such Change in Control Repurchase Date. The manner in which the deposit required by this Section 12.3 is made by the Company shall be at the option of the Company, provided that such deposit shall be made in a manner such that the Trustee or a Paying Agent shall have immediately available funds on the Change in Control Repurchase Date.

If a Paying Agent holds, in accordance with the terms hereof, money sufficient to pay the Change in Control Repurchase Price of any Security for which a Change in Control Repurchase Notice has been tendered and not withdrawn in accordance with this Indenture then, on the Change in Control Repurchase Date, such Security will cease to be outstanding and the rights of the Holder in respect thereof shall terminate (other than the right to receive the Change in Control Repurchase Price as aforesaid). The Company shall publicly announce the
principal amount of Securities purchased as a result of such Change in Control on or as soon as practicable after the Change in Control Repurchase Date.

SECURITIES PURCHASED IN PART

Any Security that is to be purchased only in part shall be surrendered at the office of a Paying Agent and promptly after the Change in Control Repurchase Date the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a new Security or Securities, of such authorized denomination or denominations as may be requested by such Holder, in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered that is not purchased.

COMPLIANCE WITH SECURITIES LAWS UPON PURCHASE OF SECURITIES

In connection with any offer to purchase or purchase of Securities under Section 12.1, the Company shall (a) comply with Rule 13e-4 and Rule 14e-1 (or any successor to either such Rule), if applicable, under the Exchange Act, (b) file the related Schedule TO (or any successor or similar schedule, form or report) if required under the Exchange Act, and (c) otherwise comply with all federal and state securities laws in connection with such offer to purchase or purchase of Securities, all so as to permit the rights of the Holders and obligations of the Company under Sections 12.1 through 12.6 to be exercised in the time and in the manner specified therein.

REPAYMENT TO THE COMPANY

To the extent that the aggregate amount of cash deposited by the Company pursuant to Section 12.3 exceeds the aggregate Change in Control Repurchase Price together with interest (including Liquidated Damages), if any, thereon of the Securities or portions thereof that the Company is obligated to purchase, then promptly after the Change in Control Repurchase Date the Trustee or a Paying Agent, as the case may be, shall return any such excess cash to the Company.

MISCELLANEOUS

TRUST INDENTURE ACT CONTROLS

If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by any of Sections 310 to 317, inclusive, of the TIA through operation of Section 318(c) thereof, such imposed duties shall control.

NOTICES

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Any notice, request or communication shall be given in writing and delivered in person or mailed by first-class mail, postage prepaid, addressed as follows:

If to the Company:

Computer Network Technology Corporation
6000 Nathan Lane North
Plymouth, Minnesota 55442
Attention: Chief Financial Officer

If to the Trustee:

U.S. Bank National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Corporate Trust Group

Such notices or communications shall be effective when received.

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

Any notice or communication mailed to a Securityholder shall be mailed by first-class mail to it at its address shown on the register kept by the Primary Registrar.

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

COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS

Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and any other person shall have the protection of TIA Section 312(c).

CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT

Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee at the request of the Trustee:

AN OFFICERS’ CERTIFICATE STATING THAT, IN THE OPINION OF THE SIGNERS, ALL CONDITIONS PRECEDENT (INCLUDING ANY COVENANTS, COMPLIANCE WITH WHICH CONSTITUTES A CONDITION 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 (INCLUDING ANY COVENANTS, COMPLIANCE WITH WHICH CONSTITUTES A CONDITION PRECEDENT) HAVE BEEN COMPLIED WITH.

Each Officers’ Certificate and Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture shall include:

A STATEMENT THAT THE PERSON MAKING SUCH CERTIFICATE OR OPINION HAS READ SUCH COVENANT OR CONDITION;

A BRIEF STATEMENT AS TO THE NATURE AND SCOPE OF THE EXAMINATION OR INVESTIGATION UPON WHICH THE STATEMENTS OR OPINIONS CONTAINED IN SUCH CERTIFICATE OR OPINION ARE BASED;

51

A STATEMENT THAT, IN THE OPINION OF SUCH PERSON, HE OR SHE HAS MADE SUCH EXAMINATION OR INVESTIGATION AS IS NECESSARY TO ENABLE HIM OR HER TO EXPRESS AN INFORMED OPINION AS TO WHETHER OR NOT SUCH COVENANT OR CONDITION HAS BEEN COMPLIED WITH; AND

A STATEMENT AS TO WHETHER OR NOT, IN THE OPINION OF SUCH PERSON, SUCH CONDITION OR COVENANT HAS BEEN COMPLIED WITH; PROVIDED, HOWEVER, THAT WITH RESPECT TO MATTERS OF FACT AN OPINION OF COUNSEL MAY RELY ON AN OFFICERS’ CERTIFICATE OR CERTIFICATES OF PUBLIC OFFICIALS.

RECORD DATE FOR VOTE OR CONSENT OF SECURITYHOLDERS

The Company (or, in the event deposits have been made pursuant to Section 10.1, the Trustee) may set a record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture, which record date shall not be more than 30 days prior to the date of the commencement of solicitation of such action. Notwithstanding the provisions of Section 11.4, if a record date is fixed, those persons who were Holders of Securities at the close of business on such record date (or their duly designated proxies), and only those persons, shall be entitled to take such action by vote or consent or to revoke any vote or consent previously given, whether or not such persons continue to be Holders after such record date.

RULES BY TRUSTEE, PAYING AGENT, REGISTRAR AND CONVERSION AGENT

The Trustee may make reasonable rules (not inconsistent with the terms of this Indenture) for action by or at a meeting of Holders. Any Registrar, Paying Agent or Conversion Agent may make reasonable rules for its functions.

LEGAL HOLIDAYS

A “Legal Holiday” is a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York and the state in which the Corporate Trust Office is located are not required to be open. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a Record Date is a Legal Holiday, the Record Date shall not be affected.

GOVERNING LAW

This Indenture and the Securities shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws.

NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS

This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.

NO RECOURSE AGAINST OTHERS

All liability described in paragraph 18 of the Securities of any director, officer, employee or shareholder, as such, of the Company is waived and released.

SUCCESSORS

All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor.

MULTIPLE COUNTERPARTS

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The parties may sign multiple counterparts of this Indenture. Each signed counterpart shall be deemed an original, but all of them together represent the same agreement.

SEPARABILITY

In case any provisions in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

TABLE OF CONTENTS, HEADINGS, ETC.

The table of contents, cross-reference sheet 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.

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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the date and year first above written.

COMPUTER NETWORK TECHNOLOGY CORPORATION
By:	/s/ Gregory T. Barnum
	Name:	Gregory T. Barnum
	Title:	CFO
U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:	/s/ Frank Leslie
	Name:	Frank Leslie
	Title:	Vice President

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[FORM OF FACE OF SECURITY]

[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY 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 IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE 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.](1)

[THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), AND THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.](2)

THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (II) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF AVAILABLE), OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (II) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.](2)

[THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS AGREEMENT (AS SUCH TERM IS DEFINED IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF) AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT.]

(1)	This paragraph should be included only if the Security is a Global Security.
(2)	These paragraphs to be included only if the Security is a Transfer Restricted Security.

COMPUTER NETWORK TECHNOLOGY CORPORATION

 CUSIP: 204-925-AB7 R-                    

3.00% CONVERTIBLE SUBORDINATED NOTES DUE 2007

Computer Network Technology Corporation, a Minnesota corporation (the “Company”, which term shall include any successor corporation under the Indenture referred to on the reverse hereof), promises to pay to                     , or registered assigns, the principal sum of                      Dollars ($                    ) on February 15, 2007 [or such greater or lesser amount as is indicated on the Schedule of Exchanges of Securities on the other side of this Security]. (1)

Interest Payment Dates: February 15 and August 15

Record Dates: February 1 and August 1

     This Security is convertible as specified on the other side of this Security. Additional provisions of this Security are set forth on the other side of this Security.

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

COMPUTER NETWORK TECHNOLOGY CORPORATION
By:
	Name:
	Title:

Attest:

By:
	Name:
	Title:
Dated:

Trustee’s Certificate of Authentication: This is one of the Securities referred to in the within-mentioned Indenture.

U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:
	Authorized Signatory

(1) This phrase should be included only if the Security is a Global Security.

                     [FORM OF REVERSE SIDE OF SECURITY]

                     COMPUTER NETWORK TECHNOLOGY CORPORATION

3.00% CONVERTIBLE SUBORDINATED NOTES DUE 2007

     1. Interest

Computer Network Technology Corporation, a Minnesota corporation (the “Company”, which term shall include any successor corporation under the Indenture hereinafter referred to), promises to pay interest on the principal amount of this Security at the rate of 3.00% per annum. The Company shall pay interest semiannually on February 15 and August 15 of each year, commencing August 15, 2002. Interest on the Securities shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from February 20, 2002; provided, however, that if there is not an existing default in the payment of interest and if this Security is authenticated between a Record Date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Any reference herein to interest accrued or payable as of any date shall include any Liquidated Damages accrued or payable on such date as provided in the Registration Rights Agreement.

     2. Method of Payment

The Company shall pay interest on this Security (except defaulted interest) to the person who is the Holder of this Security at the close of business on February 1 or August 1, as the case may be, next preceding the related Interest Payment Date. The Holder must surrender this Security to a Paying Agent to collect payment of principal. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company may, however, pay principal and interest in respect of any Certificated Security by check or wire payable in such money; provided, however, that a Holder with an aggregate principal amount in excess of $2,000,000 will be paid by wire transfer in immediately available funds at the election of such Holder. The Company may mail an interest check to the Holder’s registered address. Notwithstanding the foregoing, so long as this Security is registered in the name of a Depositary or its nominee, all payments hereon shall be made by wire transfer of immediately available funds to the account of the Depositary or its nominee.

     3. Paying Agent, Registrar and Conversion Agent

Initially, U.S. Bank National Association (the “Trustee,” which term shall include any successor trustee under the Indenture hereinafter referred to) will act as Paying Agent, Registrar and Conversion Agent. The Company may change any Paying Agent, Registrar or Conversion Agent without notice to the Holder. The Company or any of its Subsidiaries may, subject to certain limitations set forth in the Indenture, act as Paying Agent or Registrar.

     4. Indenture, Limitations

This Security is one of a duly authorized issue of Securities of the Company designated as its 3.00% Convertible Subordinated Notes due 2007 (the “Securities”), issued under an Indenture dated as of February 20, 2002 (together with any supplemental indentures thereto, the “Indenture”), between the Company and the Trustee. The terms of this Security include those stated in the Indenture and those required by or made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended, as in effect on the date of the Indenture. This Security is subject to all such terms, and the Holder of this Security is referred to the Indenture and said Act for a statement of them. The Securities are subordinated unsecured obligations of the Company limited to $150,000,000 aggregate principal amount, subject to Section 2.2 of the Indenture. The Indenture does not limit other debt of the Company, secured or unsecured, including Senior Indebtedness.

     5. Provisional Redemption

The Securities may be redeemed on at least 20 days and no more than 60 days notice, in whole or in part, at the election of the Company, at a redemption price equal to 100% of the principal amount thereof plus the “Make-Whole Payment” described below (the “Redemption Price”) if (a) the Closing Price of the Common Stock has exceeded 175% of the Conversion Price for at least 20 Trading Days within a period of any 30 consecutive Trading Days ending on the Trading Day prior to the date of mailing of the notice of provisional redemption (the “Notice Date”), and (b) a shelf registration statement covering resales of the Securities and the Common Stock issuable upon conversion thereof is effective and available for use and is expected to remain effective and available for use until the Redemption Date unless registration is no longer required. Upon any such redemption, the Company shall pay an amount in cash (the “Make-Whole Payment”) with respect to the Securities called for redemption to holders on the Notice Date in an amount equal to the aggregate amount of interest that would have been payable on such Securities from the last day through which interest was paid on the Securities (or February 20, 2002, if no interest has been paid) to the Maturity Date. If the Redemption Date is an Interest Payment Date, interest will be payable to the Holders in whose names the Securities are registered at the close of business on the relevant record dates.

     6. Notice of Redemption

Notice of redemption will be mailed by first-class mail at least 20 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at its registered address. Securities in denominations larger than $1,000 may be redeemed in part, but only in whole multiples of $1,000. On and after the Redemption Date, subject to the deposit with the Paying Agent of funds sufficient to pay the Redemption Price plus accrued interest, if any, accrued to, but excluding, the Redemption Date, interest shall cease to accrue on Securities or portions of them called for redemption.

     7. Purchase of Securities at Option of Holder Upon a Change in Control

Subject to the terms and conditions of the Indenture and at the option of the Holder, following the occurrence of a Change in Control, the Company shall become obligated to purchase all of such Holder’s Securities, or any portion of the principal amount thereof that is equal to any integral multiple of $1,000, on the date that is the 30th Business Day after the occurrence of a Change in Control at a repurchase price equal to 100% of the principal amount of the Securities to be repurchased, plus accrued and unpaid interest to, but excluding, the Change in Control Repurchase Date. The Holder shall have the right to withdraw any Change in Control Purchase Notice (in whole or in a portion thereof that is $1,000 or an integral multiple of $1,000 in excess thereof) at any time prior to the close of business on the Business Day next preceding the Change in Control Purchase Date by delivering a written notice of withdrawal to the Paying Agent in accordance with the terms of the Indenture.

     8. Conversion

Subject to compliance with the provisions of the Indenture, a Holder of a Security may convert the principal amount of such Security (or any portion thereof equal to $1,000 or any integral multiple of $1,000 in excess thereof) into shares of Common Stock at the Conversion Price in effect at the time of conversion under certain circumstances described in the Indenture; provided, however, that if the Security is called for redemption pursuant to Article III of the Indenture or upon a Change in Control, the conversion right will terminate at the close of business on the Business Day immediately preceding the redemption date or the Change in Control Repurchase Date, as the case may be, for such Security or such earlier date as the Holder presents such Security for redemption or purchase (unless the Company shall default in making the redemption payment or Change in Control Repurchase Price, as the case may be, when

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due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Security is redeemed or purchased).

A Security in respect of which a Holder has delivered a Change in Control Repurchase Notice exercising the option of such Holder to require the Company to repurchase such Security may be converted only if such notice of exercise is withdrawn in accordance with the terms of the Indenture.

The initial Conversion Price is $19.17 per share, subject to adjustment under certain circumstances. The number of shares of Common Stock issuable upon conversion of a Security is determined by dividing the principal amount of the Security or portion thereof converted by the Conversion Price in effect on the Conversion Date. No fractional shares will be issued upon conversion; in lieu thereof, an amount will be paid in cash based upon the closing price (as defined in the Indenture) of the Common Stock on the Trading Day immediately prior to the Conversion Date.

To convert a Security, a Holder must (a) complete and manually sign the conversion notice set forth below and deliver such notice to a Conversion Agent, (b) surrender the Security to a Conversion Agent, (c) furnish appropriate endorsements and transfer documents if required by a Registrar or a Conversion Agent, and (d) pay any transfer or similar tax, if required. Securities so surrendered for conversion (in whole or in part) during the period from the close of business on any Record Date to the opening of business on the next succeeding Interest Payment Date (excluding Securities or portions thereof called for redemption or upon a Change in Control on a Redemption Date or Change in Control Repurchase Date, as the case may be, during the period beginning at the close of business on a Record Date and ending at the opening of business on the first Business Day after the next succeeding Interest Payment Date, or if such Interest Payment Date is not a Business Day, the second such Business Day) shall also be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of such Security then being converted, and such interest shall be payable to such registered Holder notwithstanding the conversion of such Security, subject to the provisions of this Indenture relating to the payment of defaulted interest by the Company. If the Company defaults in the payment of interest payable on such Interest Payment Date, the Company shall promptly repay such funds to such Holder. A Holder may convert a portion of a Security equal to $1,000 or any integral multiple thereof.

A Security in respect of which a Holder had delivered a Change in Control Purchase Notice exercising the option of such Holder to require the Company to purchase such Security may be converted only if the Change in Control Purchase Notice is withdrawn in accordance with the terms of the Indenture.

     9. Conversion Arrangement on Call for Redemption

Any Securities called for redemption, unless surrendered for conversion before the close of business on the Business Day immediately preceding the Redemption Date, may be deemed to be purchased from the Holders of such Securities at an amount not less than the Redemption Price, together with accrued interest, if any, to, but not including, the Redemption Date, by one or more investment bankers or other purchasers who may agree with the Company to purchase such Securities from the Holders, to convert them into Common Stock of the Company and to make payment for such Securities to the Paying Agent in trust for such Holders.

The indebtedness evidenced by the Securities is, to the extent and in the manner provided in the Indenture, subordinate and junior in right of payment to the prior payment in full in cash of all Senior Indebtedness. Any Holder by accepting this Security agrees to and shall be bound by such subordination provisions and authorizes the Trustee to give them effect. In addition to all other rights of Senior Indebtedness described in the Indenture, the Senior Indebtedness shall continue to be

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Senior Indebtedness and entitled to the benefits of the subordinated provisions irrespective of any amendment, modification or waiver of any terms of any instrument relating to the Senior Indebtedness or any extension or renewal of the Senior Indebtedness.

     10. SUBORDINATION

     The indebtedness evidenced by the Securities is, to the extent and in the manner provided in the Indenture, subordinate and junior in right of payment to the prior payment in full in cash of all Senior Indebtedness. Any Holder by accepting this Security agrees to and shall be bound by such subordination provisions and authorizes the Trustee to give them effect. In addition to all other rights of Senior Indebtedness described in the Indenture, the Senior Indebtedness shall continue to be Senior Indebtedness and entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any terms of any instrument relating to the Senior Indebtedness or any extension or renewal of the Senior Indebtedness.

     11. Denominations, Transfer, Exchange

The Securities are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. A Holder may register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes or other governmental charges that may be imposed in relation thereto by law or permitted by the Indenture.

     12. Persons Deemed Owners

The Holder of a Security may be treated as the owner of it for all purposes.

     13. Unclaimed Money

If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Company at its written request. After that, Holders entitled to money must look to the Company for payment.

     14. Amendment, Supplement and Waiver

Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding, and an existing default or Event of Default and its consequence or compliance with any provision of the Indenture or the Securities may be waived in a particular instance with the consent of the Holders of a majority in principal amount of the Securities then outstanding. Without the consent of or notice to any Holder, the Company and the Trustee may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency or make any other change that does not adversely affect the rights of any Holder.

     15. Successor Corporation

When a successor corporation assumes all the obligations of its predecessor under the Securities and the Indenture in accordance with the terms and conditions of the Indenture, the predecessor corporation will (except in certain circumstances specified in the Indenture) be released from those obligations.

     16. Defaults and Remedies

Under the Indenture, an Event of Default includes: (i) default for 30 days in payment of any interest on any Securities; (ii) default in payment of any principal

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(including, without limitation, any premium, if any) on the Securities when due; (iii) failure by the Company for 60 days after notice to it to comply with any of its other agreements contained in the Indenture or the Securities; and (iv) certain events of bankruptcy, insolvency or reorganization of the Company. If an Event of Default (other than as a result of certain events of bankruptcy, insolvency or reorganization of the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities then outstanding may declare all unpaid principal to the date of acceleration on the Securities then outstanding to be due and payable immediately, all as and to the extent provided in the Indenture. If an Event of Default occurs as a result of certain events of bankruptcy, insolvency or reorganization of the Company, unpaid principal of the Securities then outstanding shall become due and payable immediately without any declaration or other act on the part of the Trustee or any Holder, all as and to the extent provided in the Indenture. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company is required to file periodic reports with the Trustee as to the absence of default.

     17. Trustee Dealings with the Company

U.S. Bank National Association, the Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company or an Affiliate of the Company, and may otherwise deal with the Company or an Affiliate of the Company, as if it were not the Trustee.

     18. No Recourse Against Others

A director, officer, employee or shareholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture nor for any claim based on, in respect of or by reason of such obligations or their creation. The Holder of this Security by accepting this Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Security.

     19. Authentication

This Security shall not be valid until the Trustee or an authenticating agent manually signs the certificate of authentication on the other side of this Security.

     20. Abbreviations and Definitions

Customary abbreviations may be used in the name of the Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and UGMA (= Uniform Gifts to Minors Act). All terms defined in the Indenture and used in this Security but not specifically defined herein are defined in the Indenture and are used herein as so defined.

     21. Indenture to Control; Governing Law

In the case of any conflict between the provisions of this Security and the Indenture, the provisions of the Indenture shall control. This Security shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of law.

The Company will furnish to any Holder, upon written request and without charge, a copy of the Indenture. Requests may be made to: Computer Network Technology Corporation, 6000 Nathan Lane North, Plymouth, Minnesota 55442, Attention: Chief Financial Officer.

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ASSIGNMENT FORM

To assign this Security, fill in the form below:

I or we assign and transfer this Security to

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

and irrevocably appoint agent to transfer this

Security on the books of the Company. The agent may substitute another to act for him or her.

	Your Signature:
Date:
	(Sign exactly as your name appears on the other side of this Security)

*Signature guaranteed by:

By:

* The signature must be guaranteed by an institution which is a member of one of the following recognized signature guaranty programs: (i) the Securities Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guaranty program acceptable to the Trustee.

CONVERSION NOTICE

To convert this Security into Common Stock of the Company, check the box: o

To convert only part of this Security, state the principal amount to be converted (must be $1,000 or a multiple of $1,000): $                    .

If you want the stock certificate made out in another person’s name, fill in the form below:

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

	Your Signature:
Date:
	(Sign exactly as your name appears on the other side of this Security)

*Signature guaranteed by:

By:

* The signature must be guaranteed by an institution which is a member of one of the following recognized signature guaranty programs: (i) the Securities Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guaranty program acceptable to the Trustee.

OPTION TO ELECT REPURCHASE UPON A CHANGE IN CONTROL OR ON SPECIFIC DATES

     To: Computer Network Technology Corporation

The undersigned registered owner of this Security hereby irrevocably acknowledges receipt of a notice from Computer Network Technology Corporation (the “Company”) as to the occurrence of a Change in Control with respect to the Company and requests and instructs the Company to redeem the entire principal amount of this Security, 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 Security at the Change in Control Purchase Price, together with accrued interest to, but excluding, such date, to the registered Holder hereof.

Date:

Signature(s)

Signature(s) must be guaranteed by a qualified guarantor institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934.

Signature Guaranty

Principal amount to be redeemed (in an integral multiple of $1,000, if less than all):

Notice: The signature to the foregoing Election must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever.

SCHEDULE OF EXCHANGES OF NOTES (1)

The following exchanges, redemptions, repurchases or conversions of a part of this global Security have been made:

PRINCIPAL AMOUNT
OF THIS GLOBAL
SECURITY	AMOUNT OF	AMOUNT OF
FOLLOWING SUCH	AUTHORIZED	DECREASE IN	INCREASE IN
DECREASE DATE OF	SIGNATORY OF	PRINCIPAL AMOUNT	PRINCIPAL AMOUNT
EXCHANGE (OR	SECURITIES	OF THIS GLOBAL	OF THIS GLOBAL
INCREASE)	CUSTODIAN	SECURITY	SECURITY

(1) This schedule should be included only if the Security is a Global Security.

CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION
OF TRANSFER OF TRANSFER RESTRICTED SECURITIES (1)

          Re: 3.00% Convertible Subordinated Notes due 2007 (the “Securities”) of Computer Network Technology Corporation

This certificate relates to $                     principal amount of Securities owned in (check applicable box)

o book-entry or
o definitive form by                      (the “Transferor”).

The Transferor has requested a Registrar or the Trustee to exchange or register the transfer of such Securities. In connection with such request and in respect of each such Security, the Transferor does hereby certify that the Transferor is familiar with transfer restrictions relating to the Securities as provided in Section 2.6 of the Indenture dated as of February 20, 2002 between Computer Network Technology Corporation and U.S. Bank National Association (the “Indenture”), and the transfer of such Security is being made pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”) (check applicable box) or the transfer or exchange, as the case may be, of such Security does not require registration under the Securities Act because (check applicable box):

o Such Security is being transferred pursuant to an effective registration statement under the Securities Act.

o Such Security is being acquired for the Transferor’s own account, without transfer.

o Such Security is being transferred to the Company or a Subsidiary (as defined in the Indenture) of the Company.

o Such Security is being transferred to a person the Transferor reasonably believes is a “qualified institutional buyer” (as defined in Rule 144A or any successor provision thereto (“Rule 144A”) under the Securities Act) that is purchasing for its own account or for the account of a “qualified institutional buyer”, in each case to whom notice has been given that the transfer is being made in reliance on such Rule 144A, and in each case in reliance on Rule 144A.

o Such Security is being transferred pursuant to and in compliance with an exemption from the registration requirements under the Securities Act in accordance with Rule 144 (or any successor thereto) (“Rule 144”) under the Securities Act.

The Transferor acknowledges and agrees that, if the transferee will hold any such Securities in the form of beneficial interests in a global Security which is a “restricted security” within the meaning of Rule 144 under the Securities Act, then such transfer can only be made pursuant to Rule 144A under the Securities Act and such transferee must be a “qualified institutional buyer” (as defined in Rule 144A).

Date:

(Insert Name of Transferor)

(1) This certificate should only be included if this Security is a Transfer Restricted Security.

EX-10.1

Exhibit 10.1

GUARANTY

     The undersigned, Brocade Communications Systems, Inc., a Delaware corporation (“Brocade”), hereby unconditionally guaranties to the extent set forth in the Indenture, dated February 7, 2003 between McDATA Corporation, as issuer (the “Issuer”), and Wells Fargo Bank, National Association, as successor in interest to Wells Fargo Bank Minnesota, National Association, as Trustee (the “Trustee”), as supplemented by First Supplemental Indenture dated as of January 29, 2007 by and among the Issuer, the Trustee, and Brocade (as amended, restated or supplemented from time to time, the “Indenture”), and subject to the provisions of the Indenture, as supplemented, (a) the due and punctual payment of the principal of, premium, if any, and interest on the Securities, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal of, premium, if any, and, to the extent permitted by law, interest, all in accordance with the terms set forth in Article Three of the First Supplemental Indenture, and (b) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise.

     The obligations of Brocade to the Holders pursuant to this Guaranty and the Indenture, as supplemented, are expressly set forth in Article Three of the First Supplemental Indenture and reference is hereby made to the Indenture, as supplemented, for the precise terms and limitations of this Guaranty.

     Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Indenture, as supplemented.

[Signature on Following Page]

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     IN WITNESS WHEREOF, Brocade has caused this Guaranty to be duly executed as of the date set forth below.

Dated: January 29, 2007

Brocade: BROCADE COMMUNICATION SYSTEMS, INC.
By:	/s/ Richard Deranleau
	Name:	Richard Deranleau
	Title:	Chief Financial Officer

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EX-10.2

Exhibit 10.2

GUARANTY

     The undersigned (“Brocade”) hereby unconditionally guaranties to the extent set forth in the Indenture, dated February 20, 2002 between McDATA Services Corporation f/k/a Computer Network Technology Corporation, as issuer (the “Issuer”), and U.S. Bank National Association, a national banking association, as Trustee (the “Trustee”), as supplemented by First Supplemental Indenture dated as of June 1, 2005 by and among the Issuer, the Trustee and McDATA Corporation (“McDATA”) and that Second Supplemental Indenture dated as of January 29, 2007 by and among the Issuer, the Trustee, McDATA and Brocade (as amended, restated or supplemented from time to time, the “Indenture”), and subject to the provisions of the Indenture, as supplemented, (a) the due and punctual payment of the principal of, and premium, if any, and interest on the Securities, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal of, premium, if any, and, to the extent permitted by law, interest, all in accordance with the terms set forth in Article Three of the Second Supplemental Indenture, and (b) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise.

     The obligations of Brocade to the Holders pursuant to this Guaranty and the Indenture, as supplemented, are expressly set forth in Article Three of the Second Supplemental Indenture and reference is hereby made to the Indenture, as supplemented, for the precise terms and limitations of this Guaranty.

     Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Indenture.

[Signature on Following Page]

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     IN WITNESS WHEREOF, Brocade has caused this Guaranty to be duly executed as of the date set forth below.

Dated: January 29, 2007

Brocade: BROCADE COMMUNICATION SYSTEMS, INC.
By:	/s/ Richard Deranleau
	Name:	Richard Deranleau
	Title:	Chief Financial Officer

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EX-10.3

Exhibit 10.3

BROCADE COMMUNICATIONS SYSTEMS, INC.
1999 STOCK PLAN
(as amended and restated on November 17, 2006)

     1. Purposes of the Plan. The purposes of this 1999 Stock Plan are:

• to attract and retain the best available personnel for positions of substantial responsibility,

• to provide additional incentive to Employees, Directors and Consultants, and

• to promote the success of the Company’s business.

     Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights and Restricted Stock Units may also be granted under the Plan.

     2. Definitions. As used herein, the following definitions shall apply:

          (a) “Administrator” means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan.

          (b) “Applicable Laws” means the requirements relating to the administration of equity-based award plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.

          (c) “Award” means, individually or collectively, a grant under the Plan of Options, Stock Purchase Rights or Restricted Stock Units and other stock or cash awards as the Administrator may determine.

          (d) “Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan, including an Option Agreement. The Award Agreement is subject to the terms and conditions of the Plan.

          (e) “Board” means the Board of Directors of the Company.

          (f) “Code” means the Internal Revenue Code of 1986, as amended.

          (g) “Committee” means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan.

          (h) “Common Stock” means the common stock of the Company.

          (i) “Company” means Brocade Communications Systems, Inc., a Delaware corporation.

          (j) “Consultant” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

          (k) “Director” means a member of the Board.

          (l) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.

          (m) “Employee” means any individual, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual (i) is on any bona fide leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

          (n) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          (o) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

               (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day on the date of such determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

               (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

               (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator.

          (p) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

          (q) “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

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          (r) “Notice of Grant” means a written or electronic notice evidencing certain terms and conditions of an individual Award grant. The Notice of Grant is part of the Award Agreement.

          (s) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

          (t) “Option” means a stock option granted pursuant to the Plan.

          (u) “Option Agreement” means an agreement between the Company and a Participant evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.

          (v) “Option Exchange Program” means a program whereby outstanding Options are surrendered in exchange for Options with a lower exercise price.

          (w) “Optioned Stock” means the Common Stock subject to an Award.

          (x) “Optionee” means the holder of an outstanding Option or Stock Purchase Right granted under the Plan.

          (y) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

          (z) “Participant” means the holder of an outstanding Award, including an Optionee.

          (aa) “Plan” means this 1999 Stock Plan.

          (bb) “Restricted Stock” means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

          (cc) “Restricted Stock Purchase Agreement” means a written agreement between the Company and the Participant evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant.

          (dd) “Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 12. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.

          (ee) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

          (ff) “Section 16(b)” means Section 16(b) of the Exchange Act.

          (gg) “Service Provider” means an Employee, Director or Consultant.

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          (hh) “Share” means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.

          (ii) “Stock Purchase Right” means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

          (jj) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

     3. Stock Subject to the Plan. Subject to the provisions of Section 14 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 7,607,000 Shares [60,856,000 Shares as adjusted for three 2:1 stock splits effective on or prior to 12/21/00], plus an annual increase to be added on the first day of the Company’s fiscal year beginning in 2000 equal to the lesser of (i) 5,000,000 shares [40,000,000 shares as adjusted for three 2:1 stock splits effective on or prior to 12/21/00], (ii) 5% of the outstanding shares on such date or (iii) a lesser amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock.

     If an Award expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares (or for Awards other than Options, the forfeited or repurchased Shares), which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan upon exercise of an Award, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock or Shares acquired pursuant to Restricted Stock Units are repurchased by the Company at their original purchase price or are forfeited to the Company, such Shares shall become available for future grant under the Plan.

     4. Administration of the Plan.

          (a) Procedure.

               (i) Multiple Administrative Bodies. The Plan may be administered by different Committees with respect to different groups of Service Providers.

               (ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Awards granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more “outside directors” within the meaning of Section 162(m) of the Code.

               (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.

               (iv) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws.

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          (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion:

               (i) to determine the Fair Market Value;

               (ii) to select the Service Providers to whom Awards may be granted hereunder;

               (iii) to determine the number of shares of Common Stock to be covered by each Award granted hereunder;

               (iv) to approve forms of agreement for use under the Plan;

               (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

               (vi) to reduce the exercise price of any Award to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Award shall have declined since the date the Award was granted;

               (vii) to institute an Option Exchange Program;

               (viii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;

               (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;

               (x) to modify or amend each Award (subject to Section 16(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Awards longer than is otherwise provided for in the Plan;

               (xi) to allow Participants to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Award that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable;

               (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;

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               (xiii) to make all other determinations deemed necessary or advisable for administering the Plan.

          (c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations shall be final and binding on all Participants and any other holders of Awards.

     5. Eligibility. Nonstatutory Stock Options, Stock Purchase Rights and Restricted Stock Units may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.

     6. Limitations.

          (a) Each Option shall be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

          (b) Neither the Plan nor any Award shall confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company, nor shall they interfere in any way with the Participant’s right or the Company’s right to terminate such relationship at any time, with or without cause.

          (c) The following limitations shall apply to grants of Options:

               (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 1.5 million Shares.

               (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 1.5 million Shares which shall not count against the limit set forth in subsection (i) above.

               (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 14.

               (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 14), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option.

     7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 16 of the Plan.

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     8. Term of Option. The term of each Option shall be stated in the Award Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.

     9. Option Exercise Price and Consideration.

          (a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following:

               (i) In the case of an Incentive Stock Option

                    (A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.

                    (B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

               (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

               (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction.

          (b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised.

          (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of:

               (i) cash;

               (ii) check;

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               (iii) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Participant for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised;

               (iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan;

               (v) a reduction in the amount of any Company liability to the Participant, including any liability attributable to the Participant’s participation in any Company-sponsored deferred compensation program or arrangement;

               (vi) any combination of the foregoing methods of payment; or

               (vii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws.

     10. Exercise of Option.

          (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share.

     An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan.

     Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

          (b) Termination of Relationship as a Service Provider. If a Participant ceases to be a Service Provider, other than upon the Participant’s death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in

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the Award Agreement, the Option shall remain exercisable for three (3) months following the Participant’s termination. If, on the date of termination, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Participant does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

          (c) Disability of Participant. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option shall remain exercisable for twelve (12) months following the Participant’s termination. If, on the date of termination, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Participant does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

          (d) Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Award Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Participant’s estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Award Agreement, the Option shall remain exercisable for twelve (12) months following the Participant’s termination. If, at the time of death, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Participant’s estate or, if none, by the person(s) entitled to exercise the Option under the Participant’s will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

          (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Participant at the time that such offer is made.

     11. Stock Purchase Rights.

          (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.

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          (b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser’s service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator.

          (c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.

          (d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 14 of the Plan.

     12. Restricted Stock Units.

          (a) Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. Each Restricted Stock Unit grant will be evidenced by an Award Agreement that will specify such other terms and conditions as the Administrator, in its sole discretion, will determine, including all terms, conditions, and restrictions related to the grant, the number of Restricted Stock Units and the form of payout, which, subject to Section 12(d), may be left to the discretion of the Administrator.

          (b) Vesting Criteria and Other Terms. The Administrator will set vesting criteria (which may include performance objectives based upon the achievement of Company-wide, departmental or individual goals, Company performance relative to selected other companies, or any other basis determined by the Administrator) in its discretion, which, depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. After the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any restrictions for such Restricted Stock Units. Each Award of Restricted Stock Units will be evidenced by an Award Agreement that will specify the vesting criteria, and such other terms and conditions as the Administrator, in its sole discretion, will determine.

          (c) Earning Restricted Stock Units. Upon meeting the applicable vesting criteria (including without limitation, achievement of any applicable performance objectives), the Participant will be entitled to receive a payout as specified in the Award Agreement. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.

          (d) Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) set forth in the Award Agreement. The Restricted Stock Units will be paid in Shares.

          (e) Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company.

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     13. Non-Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award shall contain such additional terms and conditions as the Administrator deems appropriate.

     14. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

          (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Award, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Award, as well as the price per share of Common Stock covered by each such outstanding Award, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Award.

          (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Participant as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for a Participant to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Award shall lapse as to all such Shares or, with respect to Restricted Stock Units, all Shares shall vest, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.

          (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Award shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Award, the Participant shall fully vest in and have the right to exercise the Award as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable, all restrictions on Restricted Stock shall lapse, and all outstanding Restricted Stock Units shall fully vest. If an Award becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Participant in writing or electronically that the Award shall be fully vested and exercisable for a period of fifteen

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(15) days from the date of such notice, and the Award shall terminate upon the expiration of such period. For the purposes of this paragraph, the Award shall be considered assumed if, following the merger or sale of assets, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Award, for each Share of Optioned Stock subject to the Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets.

     15. Date of Grant. The date of grant of an Award shall be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Participant within a reasonable time after the date of such grant.

     16. Amendment and Termination of the Plan.

          (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.

          (b) Shareholder Approval. The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

          (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.

     17. Conditions Upon Issuance of Shares.

          (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.

          (b) Investment Representations. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

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     18. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

     19. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

     20. Shareholder Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws.

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Notice of Grant of Stock Options
and Option Agreement

Brocade Communications Systems, Inc.
ID: 77-0409517
1745 Technology Drive
San Jose, CA 95110

Name:	Option Number:
Address:	Plan:	1999
	ID:

Effective [DATE], you have been granted a(n) Non-Qualified Stock Option to buy [SHARES] shares of Brocade Communications Systems, Inc. (the Company) stock at $[PRICE] per share.

The total option price of the shares granted is $[PRICE].

Shares in each period will become fully vested on the date shown.

Shares Vest Type Full Vest Expiration

By your signature and the Company’s signature below, you and the Company agree that these options are granted under and governed by the terms and conditions of the Company’s Stock Option Plan as amended and the Option Agreement, all of which are attached and made a part of this document.

Brocade Communications Systems, Inc.	Date
[EMPLOYEE NAME]	Date

BROCADE COMMUNICATIONS SYSTEMS, INC.
1999 STOCK OPTION PLAN
STOCK OPTION AGREEMENT

Termination Period:

          This Option may be exercised for three months after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for one year after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above.

I.      AGREEMENT

          A.      Grant of Option.

          The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the “Optionee”) an option (the “Option”) to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail.

          If designated in the Notice of Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option (“NSO”).

          B.      Exercise of Option.

                    (a)      Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement.

                    (b)      Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the “Exercise Notice”), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to Elizabeth Moore, Stock Administrator, of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.

                    No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.

          C.      Method of Payment.

          Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

                    1.      cash; or

                    2.      check; or

                    3.      consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or

                    4.      surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares; or

                    5.      with the Administrator’s consent, delivery of Optionee’s promissory note (the “Note”) in the form attached hereto as Exhibit C, in the amount of the aggregate Exercise Price of the Exercised Shares together with the execution and delivery by the Optionee of the Security Agreement attached hereto as Exhibit B. The Note shall bear interest at the “applicable federal rate” prescribed under the Code and its regulations at time of purchase, and shall be secured by a pledge of the Shares purchased by the Note pursuant to the Security Agreement.

          D.      Non-Transferability of Option.

          This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

          E.      Term of Option.

          This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.

          F.      Tax Consequences.

          Some of the federal tax consequences relating to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

          G.      Exercising the Option.

                    1.      Nonstatutory Stock Option. The Optionee may incur regular federal income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

                    2.      Incentive Stock Option. If this Option qualifies as an ISO, the Optionee will have no regular federal income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the event that the Optionee ceases to be an Employee but remains a Service Provider, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the date three (3) months and one (1) day following such change of status.

                    3.      Disposition of Shares.

                              (a)      NSO. If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes.

                              (b)      ISO. If the Optionee holds ISO Shares for at least one year after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held.

                              (c)      Notice of Disqualifying Disposition of ISO Shares. If the Optionee sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Optionee.

          H.      Entire Agreement; Governing Law.

                    The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Delaware.

          I.      NO GUARANTEE OF CONTINUED SERVICE.

                    OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

          By your signature and the signature of the Company’s representative, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated on page one.

[FORM OF PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT]

BROCADE COMMUNICATIONS SYSTEMS, INC.
1999 STOCK PLAN (AS AMENDED AND RESTATED)
PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT

NOTICE OF GRANT

[GRANTEE NAME]
[GRANTEE ADDRESS]

     You (“Grantee”) have been granted an award of Restricted Stock Units under the Company’s Amended and Restated 1999 Stock Plan (the “Plan”). The date of this Restricted Stock Units Agreement (the “Agreement”) is the Grant Date defined below. Subject to the provisions of Appendices A and B (attached) and the Plan, the principal features of this award are as follows:

Grant Date:	[                    ] (the “Grant Date”)
Target Number of Restricted Stock Units:	[                    ] (the “Target Number of Restricted Stock Units”)
Performance Period:	Three year period beginning [PERFORMANCE PERIOD BEGIN DATE] through [PERFORMANCE PERIOD END DATE] (subject to Section 4(c) of Appendix A) (the “Performance Period”).
Performance Matrix:	The number of Restricted Stock Units in which you may vest in accordance with the Vesting Schedule will depend upon achievement of targets in Revenue Growth, Operating Income Growth, Free Cash Flow Growth, and Stock Price Performance for the Performance Period as set forth in Section 1 of Appendix A.
Vesting Schedule:	The Restricted Stock Units will vest on the final day of the Performance Period, unless vested earlier in accordance with the terms of this Award (the “Vesting Date”); provided, that Grantee remains a Service Provider to the Company through the Vesting Date (or as otherwise set forth in this Agreement).

     Your signature below indicates your agreement and understanding that this award is subject to all of the terms and conditions contained in Appendices A and B and the Plan. For example, important additional information on vesting and forfeiture of the Restricted Stock Units is contained in Sections 3 through 5 and Section 7 of Appendix A. PLEASE BE SURE TO READ ALL OF APPENDICES A AND B AND THE PLAN, WHICH CONTAIN THE SPECIFIC TERMS AND CONDITIONS OF THIS AWARD.

BROCADE COMMUNICATIONS SYSTEMS, INC.	GRANTEE
Signature	Signature
Print Name	Print Name
Title

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APPENDIX A

TERMS AND CONDITIONS OF PERFORMANCE-BASED RESTRICTED STOCK UNITS

     Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Plan.

     1. Grant.

          (a) The Company hereby grants to the Grantee under the Plan an award of the Target Number of Restricted Stock Units set forth on the Notice of Grant, subject to all of the terms and conditions in this Agreement and the Plan. For each Restricted Stock Unit that vests, the Grantee will be entitled to receive one (1) Share (subject to automatic adjustment for stock splits, combinations and other adjustments as contemplated in the Plan).

          (b) The number of Restricted Stock Units in which the Grantee may vest shall be measured based on the Company’s relative performance versus a Peer Group as defined on Appendix B for the Performance Period with respect to the following metrics measured at the beginning and end of the Performance Period (or most readily available dates closest in time prior to such beginning and end dates for the Peer Group companies):

Metrics	Weighting
Revenue Growth		25	%
Operating Income Growth		25	%
Free Cash Flow Growth		25	%
Stock Price Performance		25	%

          (c) Definitions.

               (i) “Revenue Growth” shall be the measure of revenue on a GAAP basis for each of the twelve month periods as of the beginning and end of the Performance Period (or most readily available dates closest in time prior to such beginning and end dates for the Peer Group companies)

               (ii) “Operating Income Growth” shall be the measure of income from operations on a GAAP basis, for each of the twelve month periods as of the beginning and end of the Performance Period (or most readily available dates closest in time prior to such beginning and end dates for the Peer Group companies).

               (iii) “Free Cash Flow Growth” shall be the measure of cash flows from operating activities less purchases of property and equipment on a GAAP basis, for each of the twelve month periods as of the beginning and end of the Performance Period (or most readily available dates closest in time prior to such beginning and end dates for the Peer Group companies).

               (iv) “Stock Price Performance” shall be the measure of the average daily price of one share of common stock (as adjusted for stock splits, combinations and the like) as reported on the applicable primary stock exchange on which such shares are listed for the ten (10) trading days prior to (and including) the beginning and end of the Performance Period.

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          (d) The number of the Restricted Stock Units in which the Grantee may vest will range from zero percent (0%) of the Target Number of Restricted Stock Units to two hundred percent (200%) of the Target Number of Restricted Stock Units and shall be determined as follows:

Threshold				Target				Maximum
Average Percentile				Average Percentile				Average Percentile
Performance				Performance				Performance
v.				v.				v.
Peer Group	Payout			Peer Group	Payout			Peer Group	Payout
35th		25	%	50th		100	%	75th (or higher)		200	%

NOTE: The actual amount of the payout shall be interpolated on a straight line basis between (i) the Threshold and Target, or (ii) the Target and Maximum, as the case may be. An Average Percentile Performance v. Peer Group of less than the 35^th percentile shall not be entitled to any payout under this Award. An Average Percentile Performance v. Peer Group of greater than the 75^th percentile shall be entitled to a payout of 200% of the Target Number of Restricted Stock Units.

     Example(s) for illustration purposes only:

Performance Metric	Example 1	Example 2
Revenue Growth	25th percentile	50th percentile
Operating Income Growth	50th percentile	80th percentile
Free Cash Flow Growth	35th percentile	75th percentile
Stock Price Performance	90th percentile	35th percentile
Overall Average Percentile Performance	50th percentile	60th percentile
Percent of Target Award Earned	100% of Target	140% of Target

          (e) When Shares are paid to the Grantee in payment for the Restricted Stock Units, par value ($.001 per share) will be deemed paid by the Grantee for each Restricted Stock Unit by services rendered by the Grantee, and will be subject to the appropriate tax withholdings.

     2. Company’s Obligation to Pay. Each Restricted Stock Unit has a value equal to the Fair Market Value of a Share on the date that the Restricted Stock Unit is granted. Unless and until the Restricted Stock Units have vested in the manner set forth in Sections 3 through 5, the Grantee will have no right to payment of such Restricted Stock Units. Prior to actual payment of Shares upon the vesting of any Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation. Payment of any vested Restricted Stock Units shall be made in whole Shares only and any fractional Shares will be forfeited at the time of payment.

     3. Vesting Schedule/Period of Restriction. Except as provided in Sections 4 and 5, and subject to Section 7, the Restricted Stock Units awarded by this Agreement shall vest in accordance with the vesting provisions set forth on the Notice of Grant and Section 1 of this Agreement. Restricted Stock Units shall not vest in accordance with any of the provisions of this Agreement unless the Grantee shall have been continuously employed by the Company or by its Parent or other successor or a Subsidiary from the Grant Date until the Vesting Date occurs.

4. Modifications to Vesting Schedule.

          (a) Vesting upon Leave of Absence. In the event that the Grantee takes an authorized leave of absence (“LOA”), the Restricted Stock Units awarded by this Agreement that are

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eligible to be earned shall either: (i) not be affected, or (ii) shall be deferred for a period of time equal to the duration of such LOA, based on the Company’s LOA policy in effect at such time as determined by the Company in its sole discretion.

          (b) Death or Disability of Grantee. In the event that the Grantee’s relationship with the Company or its Parent or other successor or a Subsidiary as a Service Provider is terminated prior to full vesting of the Restricted Stock Units due to his or her death or Disability, the unvested portion of the Restricted Stock Units subject to this Restricted Stock Unit award shall be forfeited on the date of the Grantee’s death or Disability.

          (c) Change in Control.

               (i) In the event of a Change in Control during the Performance Period, the Performance Period shall be deemed to end immediately prior to the Change in Control for purposes of calculating the performance of the Company against the Peer Group. The Vesting Date shall remain based on the original term of the Performance Period as set forth in the Notice of Grant (unless vested earlier in accordance with the terms of this Award and provided that Grantee remains a Service Provider to the Company (or its successor(s)) through the Vesting Date or as otherwise set forth in this Agreement).

[NOTE: Include the following if change of control arrangements are applicable to the grant:]

               [(ii) Notwithstanding Section 4(c)(i), if Grantee’s employment with the Company (or any Parent or Subsidiary of the Company) is terminated by the Company (or the Parent or Subsidiary of the Company) without Cause or by Grantee for Good Reason in Connection with a Change of Control, then the greater of: (a) [AMOUNT OF ACCELERATION]% of the original number of Target Number of Restricted Stock Units set forth in the Notice of Grant, or (b) the number of Restricted Stock Units which would vest in accordance with Section 4(c)(i), shall immediately vest as of the date of Grantee’s termination of employment with the Company (or any Parent or Subsidiary of the Company).

               (iii) Any additional vesting of Restricted Stock Units pursuant to Section 4(c)(i)(a) and payment to Grantee of such underlying Shares shall be contingent on the following: (i) receipt by the Company of a signed release of claims in form and substance satisfactory to the Company (or its successor(s)) and expiration of any applicable revocation period with respect to such release; (ii) Grantee agrees not to knowingly disparage, criticize or otherwise make any derogatory statements regarding the Company, its directors or officers (other than statements made truthfully in response to a subpoena or other compulsory legal process); and (iii) Grantee agrees to continue to comply with the terms of the Company’s Employment, Confidential Information and Invention Assignment Agreement entered into by Grantee.

               (iv) Definitions.

                    (A) Cause. For purposes of this Agreement, “Cause” means (i) Grantee’s willful and continued failure to perform the duties and responsibilities of his position that is not corrected within a thirty (30) day correction period that begins upon delivery to Grantee of a written demand for performance from the Board that describes the basis for the Board’s belief that Grantee has not substantially performed his duties; (ii) any act of personal dishonesty taken by Grantee in connection with his or her responsibilities as an employee of the Company with the intention or reasonable expectation that such may result in substantial personal enrichment of

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Grantee; (iii) Grantee’s conviction of, or plea of nolo contendre to, a felony that the Board reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business, or (iv) Grantee materially breaching Grantee’s Confidential Information Agreement, which breach is (if capable of cure) not cured within thirty (30) days after the Company delivers written notice to Grantee of the breach.

                    (B) Change of Control. For purposes of this Agreement, “Change of Control” shall mean the occurrence of any of the following events:

                         (1) the consummation by the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;

                         (2) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

                         (3) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities; or

                         (4) a change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those directors whose election or nomination was not in connection with any transactions described in subsections (i), (ii), or (iii) or in connection with an actual or threatened proxy contest relating to the election of directors of the Company.

                    (C) Good Reason. For purposes of this Agreement, “Good Reason” means the occurrence of any of the following, without Grantee’s consent: (i) a material reduction of Grantee’s duties, title, authority or responsibilities in effect immediately prior to a Change of Control; (ii) a reduction in Grantee’s base salary or target annual cash incentive compensation; (iii) the failure of the Company to obtain the assumption of the Agreement by the successor, or (iv) the Company requiring Grantee to relocate his or her principal place of business or the Company relocating its headquarters, in either case to a facility or location outside of a thirty-five (35) mile radius from Grantee’s current principal place of employment; provided, however, that Grantee only will have Good Reason if the Executive gives written notice to the Chief Executive Officer of the Company of the event or circumstances constituting Good Reason specified in any of the preceding clauses within ninety (90) days of its initial occurrence and such event or circumstance is not cured within thirty (30) days after Grantee gives such written notice to the Board. Grantee’s actions approving any of the foregoing changes (that otherwise may be considered Good Reason) will be considered consent for the purposes of this Good Reason definition.

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                    (D) In Connection with a Change of Control. For purposes of this Agreement, a termination of Grantee’s employment with the Company is “in Connection with a Change of Control” if Grantee’s employment is terminated at any time from thirty (30) days prior to a Change of Control through the remainder of the original Performance Period following a Change of Control.]

     5. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units at any time, subject to the terms of the Plan. Such acceleration may result in tax or other consequences to the Grantee. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator. If the Administrator, in its discretion, accelerates the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units, the payment of such accelerated Restricted Stock Units nevertheless shall be made at the same time or times as if such Restricted Stock Units had vested in accordance with the vesting schedule set forth on the Notice of Grant and Section 1 of this Agreement or as otherwise provided herein (whether or not the Grantee remains employed by the Company or by one of its Subsidiaries as of such date(s)). The Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

     6. Payment after Vesting. Any Restricted Stock Units that vest in accordance with Sections 3 through 4 of this Agreement will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) as soon as practicable following the Vesting Date, subject to Section 9, but no later than March 15^th of the calendar year following the Vesting Date.

     7. Forfeiture. The balance of the Restricted Stock Units that have not vested pursuant to Sections 3 through 5 at the time of the termination of the Grantee’s relationship with the Company as a Service Provider for any or no reason will be forfeited.

     8. [Reserved.]

     9. Withholding of Taxes.

          (a) General. Regardless of any action the Company and/or the Grantee’s employer (the “Employer”) take with respect to any or all income tax (including U.S. federal, state, local and/or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholdings (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Grantee is and remains the Grantee’s responsibility and that the Company and/or the Employer (i) make no guarantees or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the award, including the grant of the Restricted Stock Units, the vesting of the Restricted Stock Units, the delivery of Shares, the subsequent sale of any Shares received at vesting and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant or any aspect of the award to reduce or eliminate the Grantee’s liability for Tax-Related Items.

          (b) Payment of Tax-Related Items. The Grantee authorizes the Company and/or the Employer, at its discretion, to satisfy the obligations with regard to all Tax-Related Items by withholding a portion of the Shares issued as payment for vested Restricted Stock Units that have an aggregate market value sufficient to pay all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance

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of the Shares, unless the Company, in its sole discretion, either requires or otherwise permits the Grantee to make alternate arrangements satisfactory to the Company for such withholdings in advance of the arising of any withholding obligations. The number of Shares withheld pursuant to the prior sentence will be rounded up to the nearest whole Share, with no refund for any value of the Shares withheld in excess of the tax obligation as a result of such rounding.

          If the obligation of Tax-Related Items is satisfied by reducing the number of Shares delivered as described herein, the Grantee is deemed to have been issued the full number of Shares subject to the award of Restricted Stock Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the award.

          If the foregoing method of withholding is prohibited or insufficient to satisfy all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares or if the Company, in its discretion, determines not to apply the foregoing method of withholding, then the Grantee hereby authorizes the Company and/or the Employer to satisfy such obligations by one or a combination of the following: (i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer, to the maximum extent permitted by law; or (ii) selling the applicable number of Shares or arranging for the sale of the applicable number of Shares (in either case on the Grantee’s behalf and at the Grantee’s discretion pursuant to this authorization) issued in settlement of vested Restricted Stock Units and retaining the requisite proceeds from such sale.

          Finally, the Grantee shall pay to the Company and/or the Employer any amount of Tax-Related Items that the Company and/or the Employer may be required to withhold as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to deliver to the Grantee any Shares pursuant to the award if the Grantee fails to comply with the Grantee’s obligations in connection with the Tax-Related Items, as described in this Section 9.

     10. Rights as Stockholder. Neither the Grantee nor any person claiming under or through the Grantee will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Grantee (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, the Grantee will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

     11. No Effect on Employment. Subject to any employment contract with the Grantee, the terms of such employment will be determined from time to time by the Company, or the Subsidiary employing the Grantee, as the case may be, and the Company, or the Subsidiary employing the Grantee, as the case may be, will have the right, which is hereby expressly reserved, to terminate or change the terms of the employment of the Grantee at any time for any reason whatsoever, with or without good cause. The transactions contemplated hereunder and the vesting schedule set forth on the first page of this Agreement do not constitute an express or implied promise of continued employment for any period of time. A leave of absence or an interruption in service (including an interruption during military service) authorized or acknowledged by the Company or the Subsidiary employing the Grantee, as the case may be, shall not be deemed a termination of the Grantee’s relationship with the Company as a Service Provider for the purposes of this Agreement.

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     12. Address for Notices. Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company, in care of Stock Administrator, at 1745 Technology Drive, San Jose, California 95110, USA or at such other address as the Company may hereafter designate in writing, with a copy to the Company, C/O General Counsel, 1745 Technology Drive, San Jose, California 95110, USA.

     13. Grant is Not Transferable. Except to the limited extent provided in this Agreement or the Plan, this grant of Restricted Stock Units and the rights and privileges conferred hereby will not be sold, pledged, assigned, hypothecated, transferred or disposed of any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process, until the Grantee has been issued Shares in payment of the Restricted Stock Units. Upon any attempt to sell, pledge, assign, hypothecate, transfer or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.

     14. Restrictions on Sale of Securities. The Shares issued as payment for vested Restricted Stock Units under this Agreement will be registered under U.S. federal securities laws and will be freely tradable upon receipt. However, a Grantee’s subsequent sale of the Shares may be subject to any market blackout-period that may be imposed by the Company and must comply with the Company’s insider trading policies, and any other U.S. securities laws or other Applicable Laws.

     15. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

     16. Additional Conditions to Issuance of Certificates for Shares. The Company shall not be required to issue any certificate or certificates for Shares hereunder prior to fulfillment of all the following conditions: (a) the admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (b) the completion of any registration or other qualification of such Shares under any U.S. state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; (c) the obtaining of any approval or other clearance from any U.S. state or federal governmental agency, which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and (d) the lapse of such reasonable period of time following the Vesting Date of the Restricted Stock Units as the Administrator may establish from time to time for reasons of administrative convenience.

     17. Plan Governs. This Agreement is subject to all the terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern.

     18. Administrator Authority. The Administrator will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon the Grantee, the Company and all other interested persons. No member of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

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     19. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

     20. Agreement Severable. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

     21. Modifications to the Agreement. This Agreement, including Appendix A, together with the Plan, constitutes the entire understanding of the parties on the subjects covered, subject to any applicable pre-existing agreement or agreement entered into after the date hereof relating to full or partial acceleration of vesting in the event of a change of control of the Company (or similar event). The Grantee expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein or expressly contemplated above. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Agreement, the Company reserves the right to revise this Agreement as it deems necessary or advisable, in its sole discretion and without the consent of the Grantee, to comply with Section 409A of the Code or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code prior to the actual payment of Shares pursuant to this award of Restricted Stock Units. Notwithstanding the foregoing, if required by Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), no Restricted Stock Units will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) earlier than six (6) months and one (1) day following the date of the Termination of the Grantee’s relationship with the Company as a Service Provider, subject to Section 9.

     22. Amendment, Suspension or Termination of the Plan. By accepting this Restricted Stock Units award, the Grantee expressly warrants that he or she has received a right to receive stock under the Plan, and has received, read and understood a description of the Plan. The Grantee understands that the Plan is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, except as otherwise provided in the Plan and/or the Agreement.

     23. Labor Law and Nature of Grant. In accepting the award of Restricted Stock Units, the Grantee acknowledges that:

          (a) the Plan is established voluntarily by the Company;

          (b) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units even if Restricted Stock Units have been awarded repeatedly in the past;

          (c) all decisions with respect to future awards, if any, will be at the sole discretion of the Company;

          (d) the Grantee’s participation in the Plan is voluntary;

          (e) the award is an extraordinary item that is outside the scope of the Grantee’s employment or service contract, if any;

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          (f) the award is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

          (g) in the event that the Grantee is not an employee of the Company, the award will not be interpreted to form an employment or service contract or relationship with the Company; and, furthermore, the award will not be interpreted to form an employment or service contract or relationship with the Employer or any Parent or other successor or a Subsidiary of the Company;

          (h) the future value of the underlying Shares is unknown and cannot be predicted with certainty;

          (i) the Company is not providing any tax, legal, or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan or the acquisition or sale of Shares; and

          (j) the Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

     24. Data Privacy. The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in the Notice of Grant and this Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

          The Grantee understands that the Company and the Employer may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, vested, unvested or outstanding in the Grantee’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”).

          The Grantee understands that Data will be transferred to E*Trade or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee understands the recipients of Data may be located in the Grantee’s country, in the United States or elsewhere, and that the recipients’ country may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that the Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting the Grantee’s local human resources representative. The Grantee authorizes the Company, E*Trade and any other potential recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Grantee’s local human resources representative. The Grantee

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understands, however, that refusing or withdrawing consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.

     25. Notice of Governing Law. This award of Restricted Stock Units shall be governed by, and construed in accordance with, the laws of the State of California, without regard to principles of conflict of laws. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the award of Restricted Stock Units, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted on in the courts of Santa Clara County, California or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed.

     26. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Restricted Stock Units awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means, or to request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

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APPENDIX B

PEER GROUP

[NOTE: THE LIST OF PEER GROUP COMPANIES SHALL BE DETERMINED BY THE COMPENSATION COMMITTEE IN CONNECTION WITH PERFORMANCE RSU GRANTS.]

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[FORM OF TIME-BASED RESTRICTED STOCK UNIT AGREEMENT]

BROCADE COMMUNICATIONS SYSTEMS, INC.
1999 STOCK PLAN (AS AMENDED AND RESTATED)
RESTRICTED STOCK UNIT AGREEMENT

NOTICE OF GRANT

[GRANTEE NAME]
[GRANTEE ADDRESS]

     You (“Grantee”) have been granted an award of Restricted Stock Units under the Company’s Amended and Restated 1999 Stock Plan (the “Plan”). The date of this Restricted Stock Units Agreement (the “Agreement”) is the Grant Date defined below. Subject to the provisions of Appendix A and the Plan, which are attached hereto and incorporated herein in their entirety, the principal features of this award are as follows:

Grant Date:	[GRANT DATE] (the “Grant Date”)
Number of Restricted Stock Units:	[NUMBER OF RSUs] (the “Number of Restricted Stock Units”)
Vesting Schedule:	The Restricted Stock Units will vest in accordance with the following Vesting Schedule; provided, Grantee remains a Service Provider to the Company through the applicable vesting dates (the “Vesting Schedule”):
	[INSERT VESTING SCHEDULE]

     Your signature below indicates your agreement and understanding that this award is subject to all of the terms and conditions contained in Appendix A and the Plan. For example, important additional information on vesting and forfeiture of the Restricted Stock Units is contained in Sections 3 through 5 and Section 7 of Appendix A. PLEASE BE SURE TO READ ALL OF APPENDIX A AND THE PLAN, WHICH CONTAIN THE SPECIFIC TERMS AND CONDITIONS OF THIS AWARD.

BROCADE COMMUNICATIONS SYSTEMS, INC.	GRANTEE
Signature	Signature
Print Name	Print Name
Title

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APPENDIX A

TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS

     Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Plan.

          1. Grant.

               (a) The Company hereby grants to the Grantee under the Plan an award of the Number of Restricted Stock Units set forth on the Notice of Grant, subject to all of the terms and conditions in this Agreement and the Plan. For each Restricted Stock Unit that vests, the Grantee will be entitled to receive one (1) Share (subject to automatic adjustment for stock splits, combinations and other adjustments contemplated in the Plan).

               (b) When Shares are paid to the Grantee in payment for the Restricted Stock Units, par value ($.001 per share) will be deemed paid by the Grantee for each Restricted Stock Unit by services rendered by the Grantee, and will be subject to the appropriate tax withholdings.

     2. Company’s Obligation to Pay. Each Restricted Stock Unit has a value equal to the Fair Market Value of a Share on the date that the Restricted Stock Unit is granted. Unless and until the Restricted Stock Units have vested in the manner set forth in Sections 3 through 5, the Grantee will have no right to payment of such Restricted Stock Units. Prior to actual payment of Shares upon the vesting of any Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation. Payment of any vested Restricted Stock Units shall be made in whole Shares only and any fractional Shares will be forfeited at the time of payment.

     3. Vesting Schedule/Period of Restriction. Except as provided in Sections 4 and 5, and subject to Section 7, the Restricted Stock Units awarded by this Agreement shall vest in accordance with the vesting provisions set forth on the Notice of Grant. Restricted Stock Units shall not vest in accordance with any of the provisions of this Agreement unless the Grantee shall have been continuously employed by the Company or by its Parent or other successor or a Subsidiary from the Grant Date through the dates the Restricted Stock Units are otherwise scheduled to vest.

4. Modifications to Vesting Schedule.

          (a) Vesting upon Leave of Absence. In the event that the Grantee takes an authorized leave of absence (“LOA”), the Restricted Stock Units awarded by this Agreement that are eligible to be earned shall either: (i) not be affected, or (ii) shall be deferred for a period of time equal to the duration of such LOA, based on the Company’s LOA policy in effect at such time as determined by the Company in its sole discretion.

          (b) Death or Disability of Grantee. In the event that the Grantee’s relationship with the Company or its Parent or other successor or a Subsidiary as a Service Provider is terminated prior to full vesting of the Restricted Stock Units due to his or her death or Disability, the unvested portion of the Restricted Stock Units subject to this Restricted Stock Unit award shall be forfeited on the date of the Grantee’s death or Disability.

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[NOTE: Include the following if change of control arrangements are applicable to the grant:]

          [(c) Change in Control.

               (i) If Grantee’s employment with the Company (or any Parent or Subsidiary of the Company) is terminated by the Company (or the Parent or Subsidiary of the Company) without Cause or by Grantee for Good Reason in Connection with a Change of Control, then [AMOUNT OF ACCELERATION]% of the Number of Restricted Stock Units set forth in the Notice of Grant then unvested shall immediately vest as of the date of Grantee’s termination of employment with the Company (or any Parent or Subsidiary of the Company).

               (ii) Any additional vesting of Restricted Stock Units pursuant to Section 4(c)(i) and payment to Grantee of such underlying Shares shall be contingent on the following: (i) receipt by the Company of a signed release of claims in form and substance satisfactory to the Company (or its successor(s)) and expiration of any applicable revocation period with respect to such release; (ii) Grantee agrees not to knowingly disparage, criticize or otherwise make any derogatory statements regarding the Company, its directors or officers (other than statements made truthfully in response to a subpoena or other compulsory legal process); and (iii) Grantee agrees to continue to comply with the terms of the Company’s Employment, Confidential Information and Invention Assignment Agreement entered into by Grantee.

               (iii) Definitions.

                    (A) Cause. For purposes of this Agreement, “Cause” means (i) Grantee’s willful and continued failure to perform the duties and responsibilities of his position that is not corrected within a thirty (30) day correction period that begins upon delivery to Grantee of a written demand for performance from the Board that describes the basis for the Board’s belief that Grantee has not substantially performed his duties; (ii) any act of personal dishonesty taken by Grantee in connection with his or her responsibilities as an employee of the Company with the intention or reasonable expectation that such may result in substantial personal enrichment of Grantee; (iii) Grantee’s conviction of, or plea of nolo contendre to, a felony that the Board reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business, or (iv) Grantee materially breaching Grantee’s Confidential Information Agreement, which breach is (if capable of cure) not cured within thirty (30) days after the Company delivers written notice to Grantee of the breach.

                    (B) Change of Control. For purposes of this Agreement, “Change of Control” shall mean the occurrence of any of the following events:

                         (1) the consummation by the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;

                         (2) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

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                         (3) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities; or

                         (4) a change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those directors whose election or nomination was not in connection with any transactions described in subsections (i), (ii), or (iii) or in connection with an actual or threatened proxy contest relating to the election of directors of the Company.

                    (C) Good Reason. For purposes of this Agreement, “Good Reason” means the occurrence of any of the following, without Grantee’s consent: (i) a material reduction of Grantee’s duties, title, authority or responsibilities in effect immediately prior to a Change of Control; (ii) a reduction in Grantee’s base salary or target annual cash incentive compensation; (iii) the failure of the Company to obtain the assumption of the Agreement by the successor, or (iv) the Company requiring Grantee to relocate his or her principal place of business or the Company relocating its headquarters, in either case to a facility or location outside of a thirty-five (35) mile radius from Grantee’s current principal place of employment; provided, however, that Grantee only will have Good Reason if the Executive gives written notice to the Chief Executive Officer of the Company of the event or circumstances constituting Good Reason specified in any of the preceding clauses within ninety (90) days of its initial occurrence and such event or circumstance is not cured within thirty (30) days after Grantee gives such written notice to the Board. Grantee’s actions approving any of the foregoing changes (that otherwise may be considered Good Reason) will be considered consent for the purposes of this Good Reason definition.

                    (D) In Connection with a Change of Control. For purposes of this Agreement, a termination of Grantee’s employment with the Company is “in Connection with a Change of Control” if Grantee’s employment is terminated at any time from thirty (30) days prior to a Change of Control through the last vesting date under the Vesting Schedule following a Change of Control.]

     5. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units at any time, subject to the terms of the Plan. Such acceleration may result in tax or other consequences to the Grantee. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator. If the Administrator, in its discretion, accelerates the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units, the payment of such accelerated Restricted Stock Units nevertheless shall be made at the same time or times as if such Restricted Stock Units had vested in accordance with the vesting schedule set forth on the Notice of Grant and Section 1 of this Agreement or as otherwise provided herein (whether or not the Grantee remains employed by the Company or by one of its Subsidiaries as of such date(s)). The Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

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     6. Payment after Vesting. Any Restricted Stock Units that vest in accordance with Sections 3 through 4 of this Agreement will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) as soon as practicable following the applicable vesting date, subject to Section 9, but no later than March 15^th of the calendar year following the applicable vesting date.

     7. Forfeiture. The balance of the Restricted Stock Units that have not vested pursuant to Sections 3 through 5 at the time of the termination of the Grantee’s relationship with the Company as a Service Provider for any or no reason will be forfeited.

     8. [Reserved.]

     9. Withholding of Taxes.

          (a) General. Regardless of any action the Company and/or the Grantee’s employer (the “Employer”) take with respect to any or all income tax (including U.S. federal, state, local and/or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholdings (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Grantee is and remains the Grantee’s responsibility and that the Company and/or the Employer (i) make no guarantees or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the award, including the grant of the Restricted Stock Units, the vesting of the Restricted Stock Units, the delivery of Shares, the subsequent sale of any Shares received at vesting and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant or any aspect of the award to reduce or eliminate the Grantee’s liability for Tax-Related Items.

          (b) Payment of Tax-Related Items. The Grantee authorizes the Company and/or the Employer, at its discretion, to satisfy the obligations with regard to all Tax-Related Items by withholding a portion of the Shares issued as payment for vested Restricted Stock Units that have an aggregate market value sufficient to pay all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares, unless the Company, in its sole discretion, either requires or otherwise permits the Grantee to make alternate arrangements satisfactory to the Company for such withholdings in advance of the arising of any withholding obligations. The number of Shares withheld pursuant to the prior sentence will be rounded up to the nearest whole Share, with no refund for any value of the Shares withheld in excess of the tax obligation as a result of such rounding.

          If the obligation of Tax-Related Items is satisfied by reducing the number of Shares delivered as described herein, the Grantee is deemed to have been issued the full number of Shares subject to the award of Restricted Stock Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the award.

          If the foregoing method of withholding is prohibited or insufficient to satisfy all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares or if the Company, in its discretion, determines not to apply the foregoing method of withholding, then the Grantee hereby authorizes the Company and/or the Employer to satisfy such obligations by one or a combination of the following: (i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer, to the maximum extent permitted by law; or (ii) selling the applicable number of Shares or arranging for the sale of the applicable number of Shares (in either

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case on the Grantee’s behalf and at the Grantee’s discretion pursuant to this authorization) issued in settlement of vested Restricted Stock Units and retaining the requisite proceeds from such sale.

          Finally, the Grantee shall pay to the Company and/or the Employer any amount of Tax-Related Items that the Company and/or the Employer may be required to withhold as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to deliver to the Grantee any Shares pursuant to the award if the Grantee fails to comply with the Grantee’s obligations in connection with the Tax-Related Items, as described in this Section 9.

     10. Rights as Stockholder. Neither the Grantee nor any person claiming under or through the Grantee will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Grantee (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, the Grantee will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

     11. No Effect on Employment. Subject to any employment contract with the Grantee, the terms of such employment will be determined from time to time by the Company, or the Subsidiary employing the Grantee, as the case may be, and the Company, or the Subsidiary employing the Grantee, as the case may be, will have the right, which is hereby expressly reserved, to terminate or change the terms of the employment of the Grantee at any time for any reason whatsoever, with or without good cause. The transactions contemplated hereunder and the vesting schedule set forth on the first page of this Agreement do not constitute an express or implied promise of continued employment for any period of time. A leave of absence or an interruption in service (including an interruption during military service) authorized or acknowledged by the Company or the Subsidiary employing the Grantee, as the case may be, shall not be deemed a termination of the Grantee’s relationship with the Company or its Subsidiary as a Service Provider for the purposes of this Agreement.

     12. Address for Notices. Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company, in care of Stock Administrator, at 1745 Technology Drive, San Jose, California, 95110, USA, or at such other address as the Company may hereafter designate in writing, with a copy to the Company, C/O General Counsel, 1745 Technology Drive, San Jose, California, 95110, USA.

     13. Grant is Not Transferable. Except to the limited extent provided in this Agreement or the Plan, this grant of Restricted Stock Units and the rights and privileges conferred hereby will not be sold, pledged, assigned, hypothecated, transferred or disposed of any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process, until the Grantee has been issued Shares in payment of the Restricted Stock Units. Upon any attempt to sell, pledge, assign, hypothecate, transfer or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.

     14. Restrictions on Sale of Securities. The Shares issued as payment for vested Restricted Stock Units under this Agreement will be registered under U.S. federal securities laws and

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will be freely tradable upon receipt. However, a Grantee’s subsequent sale of the Shares may be subject to any market blackout-period that may be imposed by the Company and must comply with the Company’s insider trading policies, and any other U.S. securities laws or other Applicable Laws.

     15. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

     16. Additional Conditions to Issuance of Certificates for Shares. The Company shall not be required to issue any certificate or certificates for Shares hereunder prior to fulfillment of all the following conditions: (a) the admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (b) the completion of any registration or other qualification of such Shares under any U.S. state or federal or non-U.S. law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; (c) the obtaining of any approval or other clearance from any U.S. state or federal or non-U.S. governmental agency, which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and (d) the lapse of such reasonable period of time following the Vesting Date of the Restricted Stock Units as the Administrator may establish from time to time for reasons of administrative convenience.

     17. Plan Governs. This Agreement is subject to all the terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern.

     18. Administrator Authority. The Administrator will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon the Grantee, the Company and all other interested persons. No member of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

     19. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

     20. Agreement Severable. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

     21. Modifications to the Agreement. This Agreement, including Appendix A, together with the Plan, constitutes the entire understanding of the parties on the subjects covered, subject to any applicable pre-existing agreement or agreement entered into after the date hereof relating to full or partial acceleration of vesting in the event of a change of control of the Company (or similar event). The Grantee expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein or expressly contemplated above. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Agreement, the Company reserves the right to revise this Agreement

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as it deems necessary or advisable, in its sole discretion and without the consent of the Grantee, to comply with Section 409A of the Code or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code prior to the actual payment of Shares pursuant to this award of Restricted Stock Units. Notwithstanding the foregoing, if required by Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), no Restricted Stock Units will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) earlier than six (6) months and one (1) day following the date of the Termination of the Grantee’s relationship with the Company as a Service Provider, subject to Section 9.

     22. Amendment, Suspension or Termination of the Plan. By accepting this Restricted Stock Units award, the Grantee expressly warrants that he or she has received a right to receive stock under the Plan, and has received, read and understood a description of the Plan. The Grantee understands that the Plan is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, except as otherwise provided in the Plan and/or the Agreement.

     23. Labor Law and Nature of Grant. In accepting the award of Restricted Stock Units, the Grantee acknowledges that:

          (a) the Plan is established voluntarily by the Company;

          (b) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units even if Restricted Stock Units have been awarded repeatedly in the past;

          (c) all decisions with respect to future awards, if any, will be at the sole discretion of the Company;

          (d) the Grantee’s participation in the Plan is voluntary;

          (e) the award is an extraordinary item that is outside the scope of the Grantee’s employment or service contract, if any;

          (f) the award is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

          (g) in the event that the Grantee is not an employee of the Company, the award will not be interpreted to form an employment or service contract or relationship with the Company; and, furthermore, the award will not be interpreted to form an employment or service contract or relationship with the Employer or any Parent or other successor or a Subsidiary of the Company;

          (h) the future value of the underlying Shares is unknown and cannot be predicted with certainty;

          (i) the Company is not providing any tax, legal, or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan or the acquisition or sale of Shares; and

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          (j) the Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

     24. Data Privacy. The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in the Notice of Grant and this Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

          The Grantee understands that the Company and the Employer may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, vested, unvested or outstanding in the Grantee’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”).

          The Grantee understands that Data will be transferred to E*Trade or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee understands the recipients of Data may be located in the Grantee’s country, in the United States or elsewhere, and that the recipients’ country may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that the Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting the Grantee’s local human resources representative. The Grantee authorizes the Company, E*Trade and any other potential recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Grantee’s local human resources representative. The Grantee understands, however, that refusing or withdrawing consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.

     25. Notice of Governing Law. This award of Restricted Stock Units shall be governed by, and construed in accordance with, the laws of the State of California, without regard to principles of conflict of laws. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the award of Restricted Stock Units, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted on in the courts of Santa Clara County, California or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed.

     26. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Restricted Stock Units awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means, or to request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

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[FORM OF TIME-BASED RESTRICTED STOCK UNIT AGREEMENT]

BROCADE COMMUNICATIONS SYSTEMS, INC.
1999 STOCK PLAN (AS AMENDED AND RESTATED)
RESTRICTED STOCK UNIT AGREEMENT
FOR NON-U.S. EMPLOYEES

NOTICE OF GRANT

[GRANTEE NAME]
[GRANTEE ADDRESS]

     You (“Grantee”) have been granted an award of Restricted Stock Units under the Company’s Amended and Restated 1999 Stock Plan (the “Plan”). The date of this Restricted Stock Units Agreement (the “Agreement”) is the Grant Date defined below. Subject to the provisions of Appendix A (attached), any appendix to the Agreement for the Grantee’s country of residence (“Appendix B”) and the Plan, all of which are attached hereto and incorporated herein in their entirety, the principal features of this award are as follows:

Grant Date:	[GRANT DATE] (the “Grant Date”)
Number of Restricted Stock Units:	[NUMBER OF RSUs] (the “Number of Restricted Stock Units”)
Vesting Schedule:	The Restricted Stock Units will vest in accordance with the following Vesting Schedule; provided, Grantee remains a Service Provider to the Company through the applicable vesting dates (the “Vesting Schedule”):
	[INSERT VESTING SCHEDULE]

     Your signature below indicates your agreement and understanding that this award is subject to all of the terms and conditions contained in Appendix A, Appendix B and the Plan. For example, important additional information on vesting and forfeiture of the Restricted Stock Units is contained in Sections 3 through 5 and Section 7 of Appendix A. PLEASE BE SURE TO READ ALL OF APPENDIX A, APPENDIX B AND THE PLAN, WHICH CONTAIN THE SPECIFIC TERMS AND CONDITIONS OF THIS AWARD.

BROCADE COMMUNICATIONS SYSTEMS, INC.	GRANTEE
Signature	Signature
Print Name	Print Name
Title

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APPENDIX A
TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS
FOR NON-U.S. EMPLOYEES

     Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Plan.

          1. Grant.

               (a) The Company hereby grants to the Grantee under the Plan an award of the Number of Restricted Stock Units set forth on the Notice of Grant, subject to all of the terms and conditions in this Agreement, Appendix B and the Plan. For each Restricted Stock Unit that vests, the Grantee will be entitled to receive one (1) Share (subject to automatic adjustment for stock splits, combinations and other adjustments contemplated in the Plan).

               (b) When Shares are paid to the Grantee in payment for the Restricted Stock Units, par value ($.001 per share) will be deemed paid by the Grantee for each Restricted Stock Unit by services rendered by the Grantee, and will be subject to the appropriate tax withholdings.

     2. Company’s Obligation to Pay. Each Restricted Stock Unit has a value equal to the Fair Market Value of a Share on the date that the Restricted Stock Unit is granted. Unless and until the Restricted Stock Units have vested in the manner set forth in Sections 3 through 5, the Grantee will have no right to payment of such Restricted Stock Units. Prior to actual payment of Shares upon the vesting of any Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation. Payment of any vested Restricted Stock Units shall be made in whole Shares only and any fractional Shares will be forfeited at the time of payment.

     3. Vesting Schedule/Period of Restriction. Except as provided in Sections 4 and 5, and subject to Section 7, the Restricted Stock Units awarded by this Agreement shall vest in accordance with the vesting provisions set forth on the Notice of Grant. Restricted Stock Units shall not vest in accordance with any of the provisions of this Agreement unless the Grantee shall have been continuously employed by the Company or by its Parent or other successor or a Subsidiary from the Grant Date through the dates the Restricted Stock Units are otherwise scheduled to vest.

     4. Modifications to Vesting Schedule.

          (a) Vesting upon Leave of Absence. In the event that the Grantee takes an authorized leave of absence (“LOA”), the Restricted Stock Units awarded by this Agreement that are eligible to be earned shall either: (i) not be affected, or (ii) shall be deferred for a period of time equal to the duration of such LOA, based on the Company’s LOA policy in effect at such time as determined by the Company in its sole discretion.

          (b) Death or Disability of Grantee. In the event that the Grantee’s relationship with the Company or its Parent or other successor or a Subsidiary as a Service Provider is terminated prior to full vesting of the Restricted Stock Units due to his or her death or Disability, the unvested portion of the Restricted Stock Units subject to this Restricted Stock Unit award shall be forfeited on the date of the Grantee’s death or Disability.

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     5. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units at any time, subject to the terms of the Plan. Such acceleration may result in tax or other consequences to the Grantee. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator. If the Administrator, in its discretion, accelerates the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units, the payment of such accelerated Restricted Stock Units nevertheless shall be made at the same time or times as if such Restricted Stock Units had vested in accordance with the vesting schedule set forth on the Notice of Grant and Section 1 of this Agreement or as otherwise provided herein (whether or not the Grantee remains employed by the Company or by one of its Subsidiaries as of such date(s)). The Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

     6. Payment after Vesting. Any Restricted Stock Units that vest in accordance with Sections 3 through 4 of this Agreement will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) as soon as practicable following the applicable vesting date, subject to Section 9, but no later than March 15^th of the calendar year following the applicable vesting date.

     7. Forfeiture. The balance of the Restricted Stock Units that have not vested pursuant to Sections 3 through 5 at the time of the termination of the Grantee’s relationship with the Company as a Service Provider for any or no reason will be forfeited.

     8. [Reserved.]

     9. Withholding of Taxes.

          (a) General. Regardless of any action the Company and/or the Grantee’s employer (the “Employer”) take with respect to any or all income tax (including U.S. federal, state, local and/or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholdings (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Grantee is and remains the Grantee’s responsibility and that the Company and/or the Employer (i) make no guarantees or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the award, including the grant of the Restricted Stock Units, the vesting of the Restricted Stock Units, the delivery of Shares, the subsequent sale of any Shares received at vesting and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant or any aspect of the award to reduce or eliminate the Grantee’s liability for Tax-Related Items.

          (b) Payment of Tax-Related Items. The Grantee authorizes the Company and/or the Employer, at its discretion, to satisfy the obligations with regard to all Tax-Related Items by withholding a portion of the Shares issued as payment for vested Restricted Stock Units that have an aggregate market value sufficient to pay all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares, unless the Company, in its sole discretion, either requires or otherwise permits the Grantee to make alternate arrangements satisfactory to the Company for such withholdings in advance of the arising of any withholding obligations. The number of Shares withheld pursuant to the prior sentence will be no greater than the minimum statutory rate of withholding and will be rounded up to the nearest whole Share, with no refund for any value of the Shares withheld in excess of the tax obligation as a result of such rounding.

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          If the obligation of Tax-Related Items is satisfied by reducing the number of Shares delivered as described herein, the Grantee is deemed to have been issued the full number of Shares subject to the award of Restricted Stock Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the award.

          If the foregoing method of withholding is prohibited or insufficient to satisfy all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares or if the Company, in its discretion, determines not to apply the foregoing method of withholding, then the Grantee hereby authorizes the Company and/or the Employer to satisfy such obligations by one or a combination of the following: (a) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer, to the maximum extent permitted by law; or (b) selling the applicable number of Shares or arranging for the sale of the applicable number of Shares (in either case on the Grantee’s behalf and at the Grantee’s discretion pursuant to this authorization) issued in settlement of vested Restricted Stock Units and retaining the requisite proceeds from such sale.

          Finally, the Grantee shall pay to the Company and/or the Employer any amount of Tax-Related Items that the Company and/or the Employer may be required to withhold as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to deliver to the Grantee any Shares pursuant to the award if the Grantee fails to comply with the Grantee’s obligations in connection with the Tax-Related Items, as described in this Section 9.

     10. Rights as Stockholder. Neither the Grantee nor any person claiming under or through the Grantee will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Grantee (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, the Grantee will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

     11. No Effect on Employment. Subject to any employment contract with the Grantee, the terms of such employment will be determined from time to time by the Company, or the Subsidiary employing the Grantee, as the case may be, and the Company, or the Subsidiary employing the Grantee, as the case may be, will have the right, which is hereby expressly reserved, to terminate or change the terms of the employment of the Grantee at any time for any reason whatsoever, with or without good cause. The transactions contemplated hereunder and the vesting schedule set forth on the first page of this Agreement do not constitute an express or implied promise of continued employment for any period of time. A leave of absence or an interruption in service (including an interruption during military service) authorized or acknowledged by the Company or the Subsidiary employing the Grantee, as the case may be, shall not be deemed a termination of the Grantee’s relationship with the Company or its Subsidiary as a Service Provider for the purposes of this Agreement.

     12. Address for Notices. Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company, in care of Stock Administrator, at 1745 Technology Drive, San Jose, California, 95110, USA, or at such other address as the Company may hereafter

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designate in writing, with a copy to the Company, C/O General Counsel, 1745 Technology Drive, San Jose, California, 95110, USA.

     13. Grant is Not Transferable. Except to the limited extent provided in this Agreement or the Plan, this grant of Restricted Stock Units and the rights and privileges conferred hereby will not be sold, pledged, assigned, hypothecated, transferred or disposed of any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process, until the Grantee has been issued Shares in payment of the Restricted Stock Units. Upon any attempt to sell, pledge, assign, hypothecate, transfer or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.

     14. Restrictions on Sale of Securities. The Shares issued as payment for vested Restricted Stock Units under this Agreement will be registered under U.S. federal securities laws and will be freely tradable upon receipt. However, a Grantee’s subsequent sale of the Shares may be subject to any market blackout-period that may be imposed by the Company and must comply with the Company’s insider trading policies, and any other U.S. securities laws or other Applicable Laws.

     15. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

     16. Additional Conditions to Issuance of Certificates for Shares. The Company shall not be required to issue any certificate or certificates for Shares hereunder prior to fulfillment of all the following conditions: (a) the admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (b) the completion of any registration or other qualification of such Shares under any U.S. state or federal or non-U.S. law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; (c) the obtaining of any approval or other clearance from any U.S. state or federal or non-U.S. governmental agency, which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and (d) the lapse of such reasonable period of time following the Vesting Date of the Restricted Stock Units as the Administrator may establish from time to time for reasons of administrative convenience.

     17. Plan Governs. This Agreement and the Appendix B are subject to all the terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement or the Appendix B and one or more provisions of the Plan, the provisions of the Plan will govern.

     18. Administrator Authority. The Administrator will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon the Grantee, the Company and all other interested persons. No member of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

     19. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

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     20. Agreement Severable. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

     21. Modifications to the Agreement. This Agreement, including Appendix A and B, together with the Plan, constitutes the entire understanding of the parties on the subjects covered, subject to any applicable pre-existing agreement or agreement entered into after the date hereof relating to full or partial acceleration of vesting in the event of a change of control of the Company (or similar event). The Grantee expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein or expressly contemplated above. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Agreement, the Company reserves the right to revise this Agreement as it deems necessary or advisable, in its sole discretion and without the consent of the Grantee, to comply with Section 409A of the Code or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code prior to the actual payment of Shares pursuant to this award of Restricted Stock Units. Notwithstanding the foregoing, if required by Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), no Restricted Stock Units will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) earlier than six (6) months and one (1) day following the date of the Termination of the Grantee’s relationship with the Company as a Service Provider, subject to Section 9.

     22. Amendment, Suspension or Termination of the Plan. By accepting this Restricted Stock Units award, the Grantee expressly warrants that he or she has received a right to receive stock under the Plan, and has received, read and understood a description of the Plan. The Grantee understands that the Plan is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, except as otherwise provided in the Plan and/or the Agreement.

     23. Labor Law and Nature of Grant. In accepting the award of Restricted Stock Units, the Grantee acknowledges that:

          (a) the Plan is established voluntarily by the Company;

          (b) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units even if Restricted Stock Units have been awarded repeatedly in the past;

          (c) all decisions with respect to future awards, if any, will be at the sole discretion of the Company;

          (d) the Grantee’s participation in the Plan is voluntary;

          (e) the award is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or the Employer, and that is outside the scope of the Grantee’s employment or service contract, if any;

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          (f) the award is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or the Employer;

          (g) in the event that the Grantee is not an employee of the Company, the award will not be interpreted to form an employment or service contract or relationship with the Company; and, furthermore, the award will not be interpreted to form an employment or service contract or relationship with the Employer or any Parent or other successor or a Subsidiary of the Company;

          (h) the future value of the underlying Shares is unknown and cannot be predicted with certainty;

          (i) in consideration of the award of Restricted Stock Units, no claim or entitlement to compensation or damages shall arise from termination of the award or from any diminution in value of the award or Shares received upon vesting of the award resulting from termination of the Grantee’s employment or service by the Company or the Employer (for any reason whatsoever and whether or not in breach of local labor laws) and the Grantee irrevocably releases the Company and/or the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing this Agreement, the Grantee shall be deemed irrevocably to have waived the Grantee’s entitlement to pursue such claim;

          (j) the Company is not providing any tax, legal, or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan or the acquisition or sale of Shares; and

          (k) the Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

     24. Data Privacy. The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in the Notice of Grant and this Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

          The Grantee understands that the Company and the Employer may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, vested, unvested or outstanding in the Grantee’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”).

          The Grantee understands that Data will be transferred to E*Trade or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee

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understands the recipients of Data may be located in the Grantee’s country, in the United States or elsewhere, and that the recipients’ country may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that the Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting the Grantee’s local human resources representative. The Grantee authorizes the Company, E*Trade and any other potential recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Grantee’s local human resources representative. The Grantee understands, however, that refusing or withdrawing consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.

     25. Notice of Governing Law. This award of Restricted Stock Units shall be governed by, and construed in accordance with, the laws of the State of California, without regard to principles of conflict of laws. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the award of Restricted Stock Units, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted on in the courts of Santa Clara County, California or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed.

     26. Language. If the Grantee has received this Agreement or any other document related to the Plan translated into a language other than English and if the translated version is different than the English version, the English version will control, unless otherwise prescribed by local law.

     27. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Restricted Stock Units awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means, or to request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

     28. Appendix B. Notwithstanding any provision in this Agreement or any other Plan documents to the contrary, the award of Restricted Stock Units shall be subject to any special terms and conditions as set forth in the Appendix B to this Agreement for the Grantee’s country of residence, if any. The Appendix B, if any, constitutes part of this Agreement.

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APPENDIX B
TO TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS
SPECIAL PROVISIONS FOR GRANTEES OUTSIDE THE UNITED STATES

     This Appendix B, which is part of the Agreement, includes additional terms and conditions of the award of Restricted Stock Units that will apply to Grantees in the countries listed below. Please note that the exchange control information provided below is current as of April 2007. However, exchange controls are subject to change and the Grantee should consult his or her personal advisor(s) with respect to the applicable exchange controls (if any) which may apply to the vesting of the Restricted Stock Units, acquisition and/or sale of the Shares. Capitalized terms used but not defined herein shall have the same meanings assigned to them in the Plan, the Agreement and the Notice of Grant.

Australia

     No special provisions.

Austria

Consumer Protection Act Notice

     The Grantee acknowledges that he or she may be entitled to revoke the Agreement on the basis of the Austrian Consumer Protection Act according the following rules:

(i)	If the Grantee receives the award of Restricted Stock Units under the Plan outside the business premises of the Company, the Grantee may be entitled to revoke his or her acceptance of the Agreement. The revocation must be made within one week after the Grantee has signed the Notice of Grant.
(ii)	The revocation must be in written form to be valid. It is sufficient if the Grantee returns the Agreement to the Company or the Company’s representative with language that can be understood as his or her refusal to conclude or honor the Agreement. It is sufficient if the revocation is sent within the period discussed above.

Belgium

Tax Compliance

     The Grantee is required to report any taxable income attributable to the award of Restricted Stock Units on his or her annual tax return. In addition, the Grantee is required to report any bank accounts opened and maintained outside Belgium on his or her annual tax return.

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Brazil

Intent to Comply with Law

     By accepting this award of Restricted Stock Units, the Grantee acknowledges that he or she agrees to comply with applicable Brazilian laws and pay any and all applicable taxes associated with the vesting of the Restricted Stock Units and the sale of Shares.

Exchange Control Reporting

     A Grantee resident or domiciled in Brazil will be required to submit annually a declaration of assets and rights held outside of Brazil to the Central Bank of Brazil if the aggregate value of such assets and rights is equal to or greater than US$100,000. Assets and rights that must be reported include Shares of Company stock.

Canada

Consent to Receive Information in English for Quebec Grantees

     The parties acknowledge that it is their express wish that the Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.

     Les parties reconnaissent avoir exigé la rédaction en anglais de cette convention, ainsi que de tous documents exécutés, avis donnés et procédures judiciaries intentées, directement ou indirectement, relativement à ou suite à la présente convention.

Securities Law Information

     The Grantee is permitted to sell Shares acquired in settlement of the Restricted Stock Units through the designated broker appointed under the Plan provided the resale of Shares acquired in settlement of the Restricted Stock Units takes place outside of Canada through facilities of a stock exchange on which the Shares are listed. The Shares are currently listed on the Nasdaq Global Select market in the United States.

China

Exchange Control Information

     Exchange control approval/reporting requirements may apply when the Grantee sells Shares and repatriates the proceeds to China. As a result, the Grantee should consult with his/her personal advisor as to the process for repatriating the proceeds to China.

Germany

No special provisions.

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Hong Kong

Restricted Stock Units Payable Only in Shares

     Restricted Stock Units awarded to Grantees in Hong Kong shall be paid in Shares only. In no event shall any of such Restricted Stock Units be paid in cash, notwithstanding any discretion contained in the Plan or any provisions in the Agreement to the contrary.

Securities Law Notice

     This offer of Restricted Stock Units and the Shares subject to the Restricted Stock Units is not a public offer of securities and is available only for employees of the Company or any parent or Subsidiary participating in the Plan. The contents of this Appendix B, the Agreement and the Plan have not been reviewed by any regulatory authority in Hong Kong. The Grantee is advised to exercise caution in relation to this offer of Restricted Stock Units. If the Grantee has any doubt as to the contents of this Appendix B, the Agreement or the Plan, the Grantee should obtain independent professional advice.

Israel

Data Privacy Consent

     Grantee’s right to protect his or her personal data in connection with the Plan might be restricted under certain circumstances. Specifically, the Company or the Company’s Israeli Subsidiary may be required to disclose to the Israeli tax authorities information on grants, vesting and sales under the Plan.

Italy

Plan Document Acknowledgement

     By accepting the award of Restricted Stock Units, the Grantee acknowledges that he or she has received a copy of the Plan, has review the Plan and the Agreement in their entirety and fully understands and accepts all provisions of the Plan and the Agreement.

     The Grantee further acknowledges that he or she has read and specifically and expressly approves the following clauses in the Agreement: Paragraph 9: Withholding of Taxes; Paragraph 13: Grant is Not Transferable; Paragraph 23: Labor Law and Nature of Grant; Paragraph 25: Notice of Governing Law; and the Data Privacy Consent below.

Data Privacy Consent

     Notwithstanding Paragraph 24 or any other provision of the Agreement, Grantee agrees that the following shall apply with regard to data privacy in Italy:

     Grantee hereby explicitly and unambiguously consents to the collection, use, processing and transfer, in electronic or other form, of personal data as described in this section of Appendix B by and among, as applicable, the Employer and the Company and any

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of its Subsidiaries for the exclusive purpose of implementing, administering and managing Grantee’s participation in the Plan.

     Grantee understands that the Employer, the Company and any of its Subsidiaries may hold certain personal information about Grantee, including, Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of the award of Restricted Stock Units or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Grantee’s favor, for the exclusive purpose of managing and administering the Plan (“Data”).

     Grantee also understands that providing the Company with Grantee’s Data is necessary for the performance of the Plan and that Grantee’s denial to provide such Data would make it impossible for the Company to perform its contractual obligations and may affect Grantee’s ability to participate in the Plan. The Controller of personal data processing is Brocade Communications Systems, Inc., with registered offices at 1745 Technology Drive, San Jose, California, 95110, United States of America, and, pursuant to Legislative Decree no. 196/2003, its representative in Italy is [insert name of Brocade’s Italian subsidiary] with registered offices at [insert address], Italy. Grantee understands that Grantee’s Data will not be publicized, but it may be transferred to E*Trade or other third parties, banks, other financial institutions or brokers involved in the management and administration of the Plan. Grantee further understands that the Company and/or its Subsidiaries will transfer Data amongst themselves as necessary for the purpose of implementation, administration and management of Grantee’s participation in the Plan, and that the Company and/or its Subsidiaries may each further transfer Data to third parties assisting the Company in the implementation, administration and management of the Plan, including any requisite transfer to E*Trade            or another            third party with whom Grantee may elect to deposit any Shares acquired under the Plan. Such recipients may receive, possess, use, retain and transfer the Data in electronic or other form, for the purposes of implementing, administering and managing Grantee’s participation in the Plan. Grantee understands that these recipients may be located in the European Economic Area, or elsewhere, such as the U.S. or Asia. Should the Company exercise its discretion in suspending all necessary legal obligations connected with the management and administration of the Plan, it will delete Grantee’s Data as soon as it has accomplished all the necessary legal obligations connected with the management and administration of the Plan.

     Grantee understands that Data processing related to the purposes specified above shall take place under automated or non-automated conditions, anonymously when possible, that comply with the purposes for which Data are collected and with confidentiality and security provisions as set forth by applicable laws and regulations, with specific reference to Legislative Decree no. 196/2003.

     The processing activity, including communication, the transfer of Grantee’s Data abroad, including outside of the European Union, as herein specified and pursuant to applicable laws and regulations, does not require Grantee’s consent thereto as the processing is necessary to performance of contractual obligations related to implementation, administration and management of the Plan. Grantee understands that, pursuant to Section 7

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of the Legislative Decree no. 196/2003, Grantee has the right to, including but not limited to, access, delete, update, ask for rectification of Grantee’s Data and estop, for legitimate reason, the Data processing. Furthermore, Grantee is aware that Grantee’s Data will not be used for direct marketing purposes. In addition, the Data provided can be reviewed and questions or complaints can be addressed by contacting Grantee’s local human resources department.

Japan

     No special provisions.

Korea

Exchange Control Information

     If Grantee realizes US$500,000 or more from the sale of Shares acquired in settlement of the Restricted Stock Units, Grantee will be required to repatriate the sale proceeds back to Korea within 18 months of sale.

Mexico

     Policy Statement. La invitación que la Compañía hace en relación con el Plan es unilateral y discrecional, por lo tanto, la Compañía se reserva el derecho absoluto para modificar o terminar el mismo en cualquier momento, sin ninguna responsabilidad para el Opcionante. Esta invitación y, en el caso del Opcionante, la adquisición de acciones, de ninguna manera establecen relación laboral alguna entre el Opcionante y la Compañía. Tampoco establece derecho alguno entre el Opcionante y su empleador.

     English Translation. The invitation the Company is making under the Plan is unilateral and discretionary and, therefore, the Company reserves the absolute right to amend it and discontinue it at any time without any liability to the Grantee. This invitation and, in the Grantee’s case, the acquisition of Shares does not, in any way, establish a labor relationship between the Grantee and the Company and it does not establish any rights between the Grantee and the Employer.

Netherlands

Notification For Dutch Grantees

     The Grantee has been granted Restricted Stock Units under the Plan, pursuant to which the Grantee may acquire shares of the Company’s Shares. Grantees that are residents of the Netherlands should be aware of the Dutch insider trading rules, which may impact the sale of Shares issued upon vesting of the Restricted Stock Units. In particular, the Grantee may be prohibited from effecting certain Share transactions if he or she has insider information regarding the Company.

     Below is a discussion of the applicable restrictions. The Grantee is advised to read the discussion carefully to determine whether the insider rules could apply to him or her. If it is uncertain whether the insider rules apply, we recommend that the Grantee consults with his or

5

her legal advisor. Please note that the Company cannot be held liable if a Grantee violates the Dutch insider rules. The Grantee is responsible for ensuring his or her compliance with these rules.

     By entering into the Agreement and participating in the Plan, the Grantee acknowledges having read and understood the Notification and acknowledges that it is his or her responsibility to comply with the Dutch insider trading rules, as discussed herein.

Prohibition Against Insider Trading

     Dutch securities laws prohibit insider trading. Under Article 46 of the Act on the Supervision of the Securities Trade 1995, anyone who has “inside information” related to the Company is prohibited from effectuating a transaction in securities in or from the Netherlands. “Inside information” is knowledge of a detail concerning the issuer to which the securities relate that is not public and which, if published, would reasonably be expected to affect the stock price, regardless of the development of the price. The insider could be any employee of the Company or its Dutch Subsidiary who has inside information as described above.

     Given the broad scope of the definition of inside information, certain employees of the Company working at its Dutch Subsidiary may have inside information and thus, would be prohibited from effectuating a transaction in securities in the Netherlands at a time when he or she had such inside information.

Singapore

Securities Law Notification

     The grant of the award of Restricted Stock Units under the Plan is being made on a private basis and is, therefore, exempt from registration in Singapore.

Director Notification

     If the Grantee is a director, associate director or shadow director of a Singapore Subsidiary or affiliate of the Company, the Grantee is subject to certain notification requirements under the Singapore Companies Act. Among these requirements is an obligation to notify the Singapore Subsidiary or affiliate in writing when the Grantee receives an interest (e.g., Restricted Stock Units, Shares) in the Company or any related companies. Please contact the Company to obtain a copy of the notification form. In addition, the Grantee must notify the Singapore Subsidiary or affiliate when the Grantee sells Shares of the Company or any related company (including when the Grantee sells Shares acquired pursuant to this award). These notifications must be made within two days of acquiring or disposing of any interest in the Company or any related company. In addition, a notification must be made of the Grantee’s interests in the Company or any related company within two days of becoming a director.

6

Spain

Labor Law Acknowledgement

     In accepting the Restricted Stock Unit award, the Grantee acknowledges that he or she consents to participation in the Plan and has received a copy of the Plan and the Agreement. The Grantee understands that the Company has unilaterally, gratuitously and discretionally decided to grant Restricted Stock Units under the Plan to individuals who may be employees of the Company or its Subsidiaries or affiliates throughout the world. The decision is a limited decision that is entered into upon the express assumption and condition that the grant will not bind the Company or any of its Subsidiaries or affiliates. Consequently, the Grantee understands that the Restricted Stock Units are granted on the assumption and condition that the Restricted Stock Units or the Shares acquired pursuant to the award shall not become a part of any employment contract (either with the Company or any of its Subsidiaries) and shall not be considered a mandatory benefit, salary for any purposes (including severance compensation) or any other right whatsoever. In addition, the Grantee understands that this award would not be made to the Grantee but for the assumptions and conditions referred to above; thus, the Grantee acknowledges and freely accepts that should any or all of the assumptions be mistaken or should any of the conditions not be met for any reason, then any grant of Restricted Stock Units shall be null and void.

Exchange Control Requirements

     To participate in the Plan, the Grantee must comply with exchange control regulations in Spain. The acquisition of Shares under the Plan must be declared for statistical purposes to the Spanish Dirección General de Política Comercial e Inversiones Exteriores (the “DGPCIE”), the Bureau for Commercial Policy and Foreign Investments, which is a department of the Ministry of the Economy. The Grantee must make the declaration himself or herself by filing a form with the DGPCIE. When receiving foreign currency payments derived from the ownership of Shares (i.e., dividends or sale proceeds), the Grantee must inform the financial institution receiving the payment of the basis upon which such payment is made. The Grantee will need to provide the institution with the following information: (i) the Grantee’s name, address, and fiscal identification number; (ii) the name and corporate domicile of the Company; (iii) the amount of the payment; (iv) the currency used; (v) the country of origin; (vi) the reasons for the payment; and (vii) further information that may be required. If the Grantee acquires Shares under the Plan and wishes to import the ownership title of such Shares (i.e., share certificates) into Spain, the Grantee must declare the importation of such securities to the DGPCIE.

Securities Law Notice

     The grant of Restricted Stock Units and the Shares issued pursuant to the award are considered a private placement outside of the scope of Spanish laws on public offerings and issuances.

Switzerland

     No special provisions.

7

Taiwan

     No special provisions.

UAE

     No special provisions.

* * * * *

8

EX-10.4

Exhibit 10.4

BROCADE SENIOR LEADERSHIP PLAN

Revised: May 11, 2007

PURPOSE

The Brocade Senior Leadership Plan is designed to link incentive compensation with Company performance.

PERFORMANCE PERIOD AND PAYOUT PERIOD

Performance against Company and individual objectives is measured annually (according to the Company’s fiscal year) (Plan Period), but will be reviewed semi-annually. Payout of earned cash bonuses, if any, occurs on an annual basis.

ELIGIBILITY

Regular full-time and part-time Vice President (VP) level employees are eligible to participate in the Senior Leadership Plan Program. To the extent a VP is eligible to and participates in the Company’s Sales Incentive Plan, then that VP shall not be eligible to participate in this Senior Leadership Plan.

Participants must be regular (full-time or part-time) employees at the end of the fiscal year to be eligible to receive a Senior Leadership Plan Payout.

PARTICIPANT PERFORMANCE

As each Plan Period begins, participants must complete a CEO or VP Performance Contract. Performance contracts should be tied to company and departmental goals as outlined by the board of directors (i.e., company priorities and initiatives). All goals must be tied to overall company objectives and have defined measurements.

Before Performance Contracts for Executive VPs are final, they are to be reviewed and approved by Finance, Human Resources, and the Chief Executive Officer (CEO). Performance Contracts for Functional VPs are reviewed and approved by the applicable Executive VP. The CEO’s Performance Contract shall be reviewed by the Chair of the Board of Directors and the Chair of the Compensation Committee.

At the end of each Plan Period, actual performance against the plan’s financial metric goals is determined by Finance and provided to the plan participants. Performance against goals is then assessed by the Participant and then reviewed and assessed by the VP’s manager, in order to determine each participant’s bonus payout for the period. The Compensation Committee reviews and approves all Section 16 Officers’ performance and bonus payouts annually. The CEO reviews and approves all other VP cash bonus payouts. The Compensation Committee shall review and approve the CEO’s bonus payouts.

COMPANY PERFORMANCE & SENIOR LEADERSHIP PLAN FUNDING

Each Plan Period, Brocade will set an Operating Margin target for the Company to achieve during the Plan Period (Target OM).

At the end of each Plan Period, Brocade will fund the Senior Leadership Plan based on the actual performance achieved by Brocade during the Plan Period (Actual OM) relative to the Target OM (Actual Funding).

The Actual OM will be communicated following the end of each Plan Period.

PARTICIPANT INCENTIVE TARGET

A Participant’s Incentive Target is determined by the Participant’s pay grade at the end of the 12-month Plan Period, unless otherwise indicated in writing by Brocade.

Participant Pay Grade	Annual Incentive Target
CEO	100%
CEO Direct Reports and Select VPs	50%
Other VPs	40%

SENIOR LEADERSHIP PLAN PAYOUTS

On an annual basis, the Compensation Committee reviews and approves Section 16 Officers’ performance and cash bonus payouts. The CEO reviews and approves all other VP cash bonuses. Program payouts are made within eight (8) weeks following the conclusion of the 12-month Plan Period. Payouts will be pro-rated for Participants who are hired or transferred into the Senior Leadership Plan during any Plan Period.

Except as otherwise agreed upon by the Company and the Participant, for each Participant, the cash bonus payout is calculated based on the following formula (less applicable taxes and deductions):

Bonus Payout = (Actual Funding) x (Individual VP Goal Points Earned for the year) x (Annual Incentive Target) x (Annual Salary)

				Non-GAAP
Participant	Revenue			Operating Income			Individual Goals			Total
CEO		37.5	%		37.5	%		25	%		100	%
VPs		50	%		40	%		10	%		100	%

Bonuses will be calculated using the salary as of the last day of the Plan Period.

Departmental budgets are communicated at the beginning of each fiscal year and may be updated quarterly throughout the year by the CEO and CFO. Adherence to the individual’s departmental

budget is a gate for the individual to qualify for the Senior Leadership Plan bonus. Failure to adhere to the agreed upon budget disqualifies the individual from a bonus payout.

ADMINISTRATIVE PROCEDURES

Compensation Committee Approval

The Compensation Committee reserves the right to decrease or eliminate bonus otherwise indicated.

New Hires and Promotions

Participants new to the company or who are promoted into the Senior Leadership Plan must complete a VP Performance Contract within 60 days of beginning in the new position.

Grade/Salary Factor

Payout will be based on the Participant’s salary and pay grade on the last day of the Plan Period. Bonuses will be pro-rated if Participant received a cash bonus on another bonus program.

Terminations: Anyone who is not on the payroll as of the end of the fiscal year is not eligible to receive a cash bonus payout.

Leaves of Absences, Disability or Death: In the event of the Participant death, disability time off, or leave of absence, Payouts will be made on a pro-rated basis, based on the number of days the Participant was actively working at Brocade. If the Participant is on a legally protected leave of absence (e.g. Family Medical Leave or Military Leave), the Participant’s eligibility for participation in Plan may be extended beyond the time above, in accordance with the laws governing the legally protected leave. In the event of death, any cash bonus payments will be paid to the Participant’s primary beneficiary as designated in the Participant’s Brocade life insurance plan documentation, if any.

Performance Improvement Plan/Disciplinary Situations (Development Needed): If a Participant, at anytime prior to the cash bonus payout 12-month Plan Period, is subject to a performance improvement plan, discipline or demotion, Brocade may, in its sole discretion, reduce or eliminate the Cash Payment that the Participant would otherwise have been eligible to receive. If, at the time prior to the Payout for a 12-month Plan Period, it is determined that a Participant may be subject to corrective action, discipline or demotion, then Brocade may withhold the entire Cash Bonus Payout, or a portion thereof, until after a final decision on such corrective action has been made. If a Participant is given a performance rating of Development Needed, the Participant will not be eligible to receive a Payout. Only the VP of Human Resources or CEO may approve exceptions to this policy.

Other Provisions: Participation in the Senior Leadership Plan does not constitute an agreement (express or implied) between the Participant and Brocade that the Participant will be employed by Brocade for any specific period of time, nor is there any agreement for continuing or long- term employment. Terms and conditions regarding the Senior Leadership Plan and any participation therein, including but not limited to Senior Leadership Plan eligibility, Senior Leadership Plan funding, and performance and payout criteria and determinations, are subject to change by Brocade at any time in its sole discretion. Brocade and its Board of Directors retain the absolute right to interpret, revise, modify or terminate the Senior Leadership Plan at any time in its sole discretion.

ADDENDUM TO BROCADE SENIOR LEADERSHIP PLAN
(DATED OCTOBER 21, 2005)

Notwithstanding any terms to the contrary in the Brocade Senior Leadership Plan, the following terms shall apply to the Bonus Payout under the Senior Leadership Plan for fiscal 2006 and 2007:

	2006	2007
Executive Officers and Certain Other Officers
Cash Bonus Premium1	Up to 1.0x of 2006 Bonus Target	Up to 0.5x of 2007 Bonus Target
Restricted Stock2	1.5x of 2005 Base Salary	N/A
Other Officers
Cash Bonus Premium1	Up to 0.35x of 2006 Bonus Target	Up to 0.35x of 2007 Bonus Target

1	In addition to normal bonus and subject to achievement of revenue and operating margin/profit targets determined by the Board of Directors and other Company and departmental financial, strategic and operational metrics.
2	The number of shares of restricted stock to be issued is multiplied by such employee’s 2005 base salary, divided by then fair market value on the date of grant. The grants will be subject to 2-year cliff vesting. These grants will be in lieu of any 2006 focal option grants for such employees.

EX-10.5

Exhibit 10.5

Statement of Work No. 5 to Goods Agreement ROC-P-68

Base Agreement ROC-P-68
SOW# 4907RL0149

This Statement of Work #5 (“SOW”) adopts and incorporates by reference the terms and conditions of Goods Agreement, as amended, # ROC-P-68 (“GA”) between International Business Machines Corporation (hereinafter “Buyer”) and Brocade Communications Systems, Inc with offices at 1745 Technology Drive, San Jose, CA 95110 and Brocade Communications Switzerland, SarL, with an office located at 29 Route de l’Aeroport, Case Postale 105, CH-1215, Geneva 15, Switzerland (individually and collectively hereinafter “Supplier”). This SOW is effective beginning on April 2, 2007 (“Effective Date”). For the purposes of interpreting this SOW only, any conflicting, additional or different terms contained in this SOW will be deemed to supersede and replace those in the GA.

WHEREAS, the parties wish to amend the Agreement to allow Buyer to license Supplier’s courseware materials for direct license;

WHEREAS, Supplier offers certain educational and training classes for Supplier products and services. Buyer desires to integrate certain Supplier training class materials into Buyer’s own educational and training classes. Subject to the terms and conditions of the Agreement, Supplier and Buyer agree as follows:

THEREFORE, in consideration of the above and the other respective promises of the parties set forth herein, the parties hereto agree as follows and such agreement is incorporated into the Agreement.

DIRECT LICENSE OF SUPPLIER TRAINING MATERIALS

1. Term and Termination.

     A. Term. This SOW will commence on the Effective Date and will remain in full force and effect for a term of [**], unless earlier terminated as set forth in the Goods Agreement or this SOW.

     B. Termination for Convenience. Either party may terminate this SOW, in whole or in part, for any or no reason upon one hundred eighty (180) days prior written notice to the other party.

     C. Termination for Cause. If either party defaults in the performance of any material provision of this SOW, then the non-defaulting party may give written notice to the defaulting party that if the default is not cured within thirty (30) business days (“Cure Period”), the SOW will be terminated. If the non-defaulting party gives such notice and the default is not cured during the Cure Period, then the non-defaulting party may terminate this SOW by written notice effective immediately at the end of the Cure Period.

     D. Effect of Termination. In addition to any payment or confidentiality obligations, the provisions of this SOW that naturally survive will survive the termination or expiration of this SOW for any reason. All other rights and obligations of the parties will cease upon termination of this SOW. Buyer will return to Supplier, or ensure the destruction of, all copies of the Training Materials and any other confidential information disclosed under this SOW.

2. Limited License to Supplier Training Materials.

     A. Subject to the terms of this Agreement and the fees listed in Exhibit 1A, Supplier grants Buyer a non-exclusive perpetual license under Supplier’s copyrights to use, reproduce, modify, display, prepare derivative works, and distribute the Supplier training class materials and derivative works of same listed on Exhibit 1A hereto (“Training Materials”), solely to the extent necessary for Buyer to provide training on Supplier products and services. Supplier reserves all rights not expressly granted herein, and no other licenses are granted by implication, estoppel, or otherwise. Buyer agrees

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work	Page 1 of 5	Form Release: 8/98
(LWA_SOW)
Form Owner: Global Procurement		Revision: 2/06

Statement of Work No. 5 to Goods Agreement ROC-P-68

Base Agreement ROC-P-68
SOW# 4907RL0149

that the foregoing license does not grant to Buyer any title or other right of ownership to the Training Materials, in whole or in part.

     B. Restrictions. If Buyer modifies any content in the Training Materials, Buyer shall remove all Supplier trademark, copyright, patent, and notices of other proprietary rights (“Marks”) included with such modified content.

     C. Translation. Supplier will provide Buyer with the Training Materials in US English. Buyer will be responsible for translating the Training Materials as necessary.

3. Expenses. Buyer is solely responsible for all expenses incurred in modifying, reproducing and using the Training Materials. At Buyer’s request, Supplier may assist Buyer with the integration of the Training Materials into Buyer’s training materials at a fee to be determined by Supplier at Supplier’s sole discretion.

4. Liability. The parties agree that Supplier shall have no liability for errors introduced by Buyer into any portion of the Training Materials in the process of modifying, reproducing and using such portion, and Buyer agrees to indemnify Supplier for all costs relating to any such errors.

5. Changes to Training Materials. From time to time, Supplier may provide updates to the Training Materials (“Updates”) in its sole discretion at no additional charge to Buyer. Any Updates shall be forwarded via CD media to the assigned Buyer contact. Buyer shall not be required to replace or supplement the Training Materials with Updates, provided however that Supplier shall have no liability for any use by Buyer of the Training Materials without such Updates provided by Supplier to Buyer.

6. Additional Terms.

     A. Course Descriptions

Descriptions for the Course Materials shall be set forth in Exhibit 1A, and any new exhibits agreed by the parties and attached to this Agreement.

     B. Verify Authorship

Supplier will maintain records to verify authorship of Training Materials for [**] after the termination or expiration of this SOW. On request, Supplier will deliver or otherwise make available this information in a form specified by Buyer.

     C. Importation Requirements

If applicable, Supplier will provide to Buyer on the commercial invoice:

     1. the Harmonized Tariff Code of the importing country for Training Materials; and

     2. an invoice description that provides enough detail to verify the categorical classification of Training Materials.

     D. Technical Support

Supplier will make available a member of Brocade Education Services’s curriculum development team via telephone during reasonable US business hours at no additional charge during the term of the Agreement.

     E. Marketing Support

Supplier will provide at least [**] on the features, functionality, operation, and use of the Training Materials to Buyer. [**]. Such training session shall be provided via the internet, phone, in person, or as otherwise agreed to by the parties and shall be provided at no charge to Buyer. Additional training sessions may be requested by Buyer, details of such request will be agreed to by the parties in an amendment to this SOW.

     F. Direct Marketing

Supplier will not conduct any direct marketing to Buyer’s personnel whom Buyer grants access to Supplier’s Training Materials without Buyer’s prior written consent. In addition, Supplier will not contact other Buyer organizations or geographies for the purpose of marketing Supplier’s services or products without contacting the Buyer’s Technical Coordinator as stated in this SOW in advance to review, coordinate, and approve any such proposed marketing activity.

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work	Page 2 of 5	Form Release: 8/98
(LWA_SOW)
Form Owner: Global Procurement		Revision: 2/06

Statement of Work No. 5 to Goods Agreement ROC-P-68

Base Agreement ROC-P-68
SOW# 4907RL0149

     G. Press Release

Supplier will not provide any information to the media, or issue any press releases or other publicity, regarding this Agreement or the parties’ relationship under it, without Buyer’s prior written consent.

     H. Use of Data

Supplier shall use the data it receives from Buyer or Buyer’s customer, or as otherwise received in support of this SOW, only for the purposes as permitted for in the Base Agreement and this SOW.

     I. Payment of Fees

Buyer shall pay fees to Supplier as detailed in Exhibit 1A of this SOW. Supplier will invoice Buyer, in accordance with the instructions on the Buyer Purchase Order, for any fees due Supplier pursuant to this SOW. Buyer will pay Supplier’s invoice, in US Dollars, within [**] of receipt of Supplier’s accepted invoice by Buyer. Such fees will be less refunds and adjustments, if any, in accordance with Buyer’s Customer Satisfaction Policy. Upon reasonable notice to Supplier, Buyer reserves the right to reasonably change the method and timing of payments to accommodate its worldwide operations.

     J. End User Relationship

Buyer will manage the relationships and process all billings to the end users for all Training Materials provided under this SOW.

     K. Pricing

Buyer shall have full freedom and flexibility in pricing the Training Materials for Buyers end users.

     L. Future Business

The execution of this SOW is no guarantee of future business. Neither party makes any representation or guarantee as to the success, if any, of any course, program, or other offering, contemplated herein.

Buyer will grant individual users access to Supplier’s Training Materials on a per user basis. The decision to grant (or not grant) users access to the Training Materials is at Buyer’s sole discretion. Buyer makes no representations or guarantees as to the number of individuals granted access to the Training Materials or the amount of fees that will be paid to Supplier under the Agreement.

     M. Communications

All communications between the parties will be carried out through the following designated coordinators. All notices required in writing under this Agreement will be made to the appropriate contact listed below at the following addresses and will be effective upon actual receipt. Notices may be transmitted electronically, by registered or certified mail, or courier. All notices, with the exception of legal notices, may also be provided by facsimile.

Business Coordinators
FOR SUPPLIER		FOR BUYER
Name	[**]	Name	[**]
Title	[**]	Title	[**]
Address	[**]	Address	[**]
Phone	[**]	Phone	[**]
Fax		Fax	[**]
E-mail	[**]	E-mail	[**]

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work	Page 3 of 5	Form Release: 8/98
(LWA_SOW)
Form Owner: Global Procurement		Revision: 2/06

Statement of Work No. 5 to Goods Agreement ROC-P-68

Base Agreement ROC-P-68
SOW# 4907RL0149

Technical Coordinators
FOR SUPPLIER		FOR BUYER
Name	[**]	Name	[**]
Title	[**]	Title	[**]
Address	[**]	Address	[**]
Phone	[**]	Phone	[**]
Fax		Fax	[**]
E-mail	[**]	E-mail	[**]

     N. Electronic Commerce

To initiate electronic transfer of payments associated with this SOW, Supplier has completed the form entitled “Authorization for Electronic Funds Transfer” and such form is recorded with Buyer.

     O. Entire Agreement

The Base Agreement and this SOW comprise the complete understanding between the parties concerning the subject matter hereof, and supersede any prior or contemporaneous agreements or understandings, whether oral or written, regarding the subject matter of the Agreement. There are no conditions, understandings, agreements, representations, or warranties between the parties, whether expressed or implied, which are not specified herein. This SOW may only be modified by a written document executed by the parties hereto.

     P. Survival

Those terms which by their nature extend beyond the term of this SOW will remain in effect after the termination of this SOW until fulfilled, and apply to both parties and their respective successors and assignees.

     Q. Reservation of Rights. All right, title and interest in and to any intellectual property embodied within the Training Materials will remain with Supplier. Supplier hereby reserves all rights not explicitly granted herein.

ACCEPTED AND AGREED TO:		ACCEPTED AND AGREED TO:
International Business Machines Corporation		Brocade Communication Systems, Inc.
By: /s/ Malcolm McDonald	4/26/07	By: /s/ Tom Buiocchi
Buyer Signature	Date	Supplier Signature	Date
Malcolm McDonald			4/26/07
Printed Name		Printed Name
Malcolm McDonald		Tom Buiocchi
Title & Organization		Title & Organization
Team Lead – OEM Storage Procurement		VP, WW Marketing and Support
Buyer Address:		Supplier Address:
3039 E. Cornwallis Road		1745 Technology Drive
PO Box 12195		San Jose, CA 95110
Research Triangle Park, NC 27709		USA
USA

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work	Page 4 of 5	Form Release: 8/98
(LWA_SOW)
Form Owner: Global Procurement		Revision: 2/06

Statement of Work No. 5 to Goods Agreement ROC-P-68

Base Agreement ROC-P-68
SOW# 4907RL0149

EXHIBIT 1A

COMPANY LICENSE TO SUPPLIER TRAINING MATERIALS

The following Training Material is licensed by Supplier to Company subject to the terms of this Agreement and payment of the fees listed below:

Training Materials:
[**]

Fee for Training Materials: $[**]

Description

This Web-based training course provides the technical and process information needed to implement, deploy, and manage the [**]. Online recorded modules introduce the main concepts with a minimum of theory and a maximum of practical applications. Online demonstrations and simulations provide examples of the tasks described.

Audience

This course is for switch administrators, system integrators, support personnel, and anyone responsible for implementing the [**].

Duration

This course is designed for [**].

Objectives
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]
[**]

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work	Page 5 of 5	Form Release: 8/98
(LWA_SOW)
Form Owner: Global Procurement		Revision: 2/06

EX-10.6

Exhibit 10.6

3039 Cornwallis Road
RTP, NC 27709

March 19, 2007

Mr. Michael Harrison
Brocade Communications Systems, Inc.
1745 Technology Drive
San Jose, CA 95110

Subject: Amendment 29 to SOW#1 of the IBM/Brocade Goods Agreement ROC-P-68

This letter (the “Amendment”) serves as Amendment Number 29 to SOW#1, including all amendments thereto (“SOW#1”) of the Goods Agreement ROC-P-68 (the “Agreement”), which the parties hereto do mutually agree to amend as follows

1. Delete the table in its entirety in Section 1.1, “Specifications” and replace with the following

IBM Specification/Attachments
(if applicable)	Engineering Change Level	Description
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Amendment 29 to SOW 1	Page 1 of 18
Confidential Information

IBM Specification/Attachments
(if applicable)	Engineering Change Level	Description
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]
[**]	[**]	[**]

2. Update pricing with the attached Exhibit A.

The effective date of this Amendment shall be the date on the top of this Amendment (the “Effective Date”).

The parties acknowledge that they have read this Amendment, understand it, and agree to be bound by its terms and conditions. All capitalized terms not defined herein shall have the meaning set forth in the Goods Agreement or the SOW #1. All other terms and conditions of the Goods Agreement and SOW#1 that are unaffected by the revisions set forth in this Amendment shall remain in full force and effect. Further, the parties agree that this Amendment and the Goods Agreement and SOW#1 are the complete and exclusive statement of the agreement between the parties, superseding all proposals or other prior agreement, oral or written, and all other communications between the parties relating to this subject.

Accepted and Agreed To:			Accepted and Agreed To:
International Business Machines Corporation			Brocade Communications Systems, Inc.
By:	/s/ R. Murphy	3/26/07	By:	/s/ Jill Cameron	3-29-07
Authorized Signature		Date	Authorized Signature		Date
Robert Murphy			Jill Cameron
Type or Print Name			Type or Print Name
VP Production Procurement			Dir. WW Sales Operations
Title & Organization			Title & Organization

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Amendment 29 to SOW 1	Page 2 of 18
Confidential Information

AMENDMENT #29 to SOW-1
EXHIBIT A

Supplier Part Number		Buyer Part Number
						**13 months Software
		IBM				Maintenance	Out of
Brocade		Model or FC	IBM PN /			(included in unit	Warranty
Model	Brocade P/N	#	NUMA-Q PN	Description	Unit Price	price of product)	Pricing
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Amendment 29 to SOW 1	Page 3 of 18
Confidential Information

Supplier Part Number		Buyer Part Number
						**13 months Software
		IBM				Maintenance	Out of
Brocade		Model or FC	IBM PN /			(included in unit	Warranty
Model	Brocade P/N	#	NUMA-Q PN	Description	Unit Price	price of product)	Pricing
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Amendment 29 to SOW 1	Page 4 of 18
Confidential Information

Supplier Part Number		Buyer Part Number
						**13 months Software
		IBM				Maintenance	Out of
Brocade		Model or FC	IBM PN /			(included in unit	Warranty
Model	Brocade P/N	#	NUMA-Q PN	Description	Unit Price	price of product)	Pricing
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Amendment 29 to SOW 1	Page 5 of 18
Confidential Information

Supplier Part Number		Buyer Part Number
						**13 months Software
		IBM				Maintenance	Out of
Brocade		Model or FC	IBM PN /			(included in unit	Warranty
Model	Brocade P/N	#	NUMA-Q PN	Description	Unit Price	price of product)	Pricing
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Amendment 29 to SOW 1	Page 6 of 18
Confidential Information

Supplier Part Number		Buyer Part Number
						**13 months Software
		IBM				Maintenance	Out of
Brocade		Model or FC	IBM PN /			(included in unit	Warranty
Model	Brocade P/N	#	NUMA-Q PN	Description	Unit Price	price of product)	Pricing
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Amendment 29 to SOW 1	Page 7 of 18
Confidential Information

Supplier Part Number		Buyer Part Number
						**13 months Software
		IBM				Maintenance	Out of
Brocade		Model or FC	IBM PN /			(included in unit	Warranty
Model	Brocade P/N	#	NUMA-Q PN	Description	Unit Price	price of product)	Pricing
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Amendment 29 to SOW 1	Page 8 of 18
Confidential Information

Supplier Part Number		Buyer Part Number
						**13 months Software
		IBM				Maintenance	Out of
Brocade		Model or FC	IBM PN /			(included in unit	Warranty
Model	Brocade P/N	#	NUMA-Q PN	Description	Unit Price	price of product)	Pricing
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Amendment 29 to SOW 1	Page 9 of 18
Confidential Information

Supplier Part Number		Buyer Part Number
						**13 months Software
		IBM				Maintenance	Out of
Brocade		Model or FC	IBM PN /			(included in unit	Warranty
Model	Brocade P/N	#	NUMA-Q PN	Description	Unit Price	price of product)	Pricing
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Amendment 29 to SOW 1	Page 10 of 18
Confidential Information

Supplier Part Number		Buyer Part Number
						**13 months Software
		IBM				Maintenance	Out of
Brocade		Model or FC	IBM PN /			(included in unit	Warranty
Model	Brocade P/N	#	NUMA-Q PN	Description	Unit Price	price of product)	Pricing
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Amendment 29 to SOW 1	Page 11 of 18
Confidential Information

Supplier Part Number		Buyer Part Number
						**13 months Software
		IBM				Maintenance	Out of
Brocade		Model or FC	IBM PN /			(included in unit	Warranty
Model	Brocade P/N	#	NUMA-Q PN	Description	Unit Price	price of product)	Pricing
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Amendment 29 to SOW 1	Page 12 of 18
Confidential Information

Supplier Part Number		Buyer Part Number
						**13 months Software
		IBM				Maintenance	Out of
Brocade		Model or FC	IBM PN /			(included in unit	Warranty
Model	Brocade P/N	#	NUMA-Q PN	Description	Unit Price	price of product)	Pricing
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Amendment 29 to SOW 1	Page 13 of 18
Confidential Information

Supplier Part Number		Buyer Part Number
						**13 months Software
		IBM				Maintenance	Out of
Brocade		Model or FC	IBM PN /			(included in unit	Warranty
Model	Brocade P/N	#	NUMA-Q PN	Description	Unit Price	price of product)	Pricing
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Amendment 29 to SOW 1	Page 14 of 18
Confidential Information

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Amendment 29 to SOW 1	Page 15 of 18
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Amendment 29 to SOW 1	Page 16 of 18
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Amendment 29 to SOW 1	Page 17 of 18
Confidential Information

EX-10.7

Exhibit 10.7

Amendment No. 19

To the Purchase Agreement

This Amendment No. 19 (“the Amendment”) to the Purchase Agreement dated January 25, 2000 (“Agreement”) by and among EMC Corporation, a Massachusetts corporation (“EMC”), and Brocade Communications Systems, Inc., a corporation organized under the laws of the State of Delaware, U.S.A., and having its principal place of business at 1745 Technology Drive, San Jose, California 95110 (“Brocade-US”), Brocade Communications Switzerland SarL, a corporation organized under the laws of Geneva, and having its principal place of business at 29-31 Route de l’Aeroport, Case Postale 105 CH-1215 Geneva 15, Switzerland (“Brocade-Switzerland I”) and Brocade Communications Services Switzerland SarL, a Swiss corporation, with headquarters 29, Route de l’Aéroport, Case Postale 105, CH-1215 Geneva 15, Switzerland (“Brocade-Switzerland II”), (collectively “SUPPLIER”) is made as of the last date signed below (“Effective Date”).

RECITALS

A. EMC provides certain support to its End Users (as defined in the Agreement), and has existing support agreements with the End Users for the SUPPLIER hardware and software products.

B. SUPPLIER provides certain backline support to EMC pursuant to the Agreement where EMC escalates certain support related issues to SUPPLIER for resolution, but SUPPLIER does not provide support directly to the End User.

C. SUPPLIER and EMC desire to expand SUPPLIER’s level of support so that the End Users may contact SUPPLIER directly for certain support issues after contacting EMC (“Enterprise Support”).

D. SUPPLIER and EMC desire to facilitate offering certain SUPPLIER professional services to End Users, including also an “Onsite Engineer” where SUPPLIER will be placing a dedicated engineer at the EMC location (“Professional Services”).

NOW, THEREFORE, in consideration of the foregoing and the following terms and conditions, the parties hereby agree as follows:

AGREEMENT

1. Scope of the Agreement.

1.1 Acquiring Enterprise Support and Professional Services. To facilitate purchases under this Amendment, from time to time, the parties may enter into individually negotiated and mutually agreed to statements of work for the purchase of the Enterprise Support or Professional Services (“SOW”). All purchases under this Amendment shall be documented by a SOW. Each SOW is an individual agreement between the parties and this Amendment and the applicable portions of the Agreement are hereby incorporated into each SOW, as applicable. In the event of any conflict among the terms, the following order of precedence shall apply to any Enterprise Support or Professional Services: (a) this Amendment, (b) the Agreement, (c) a SOW. Any terms or conditions of any order that are inconsistent with or in addition to the terms and conditions of this Amendment are deemed rejected and shall not be effective, notwithstanding an acknowledgement or acceptance of such order.

1.2 Subcontracted Services. This Amendment is a subcontractor relationship where EMC purchases Enterprise Support and Professional Services on its own behalf for SUPPLIER’s delivery to the End User. Nothing herein, express or implied, is intended to nor shall be construed to confer upon or give to any person, other than the parties to this Amendment, any interests, rights, remedies or other benefits with respect to or in connection with any agreement or provision contained herein or contemplated hereby. In particular, SUPPLIER will provide the Enterprise Support or Professional Services to End Users on behalf of EMC only. SUPPLIER shall have no contractual relationship, implied or otherwise, and no liability to such End User by virtue of this Amendment or any delivery of any Enterprise Support or Professional Services provided hereunder. [**]

1.3 SUPPLIER Entity for SOW. With respect to any Enterprise Support or Professional Services to be delivered within the United States or its territories, this Amendment is entered into, and all Enterprise Support and Professional Services shall be

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1

performed by or on behalf of Brocade-US. When the Enterprise Support is to be delivered outside the United States or its territories or when Professional Services are bundled with Enterprise Support or a Product, this Amendment is entered into, and shall be performed by or on behalf of Brocade-Switzerland I. For Professional Services to be delivered outside the United States or its territories at an End User location on a standalone basis (without accompanying Products or Enterprise Support bundled with the Professional Services), this Amendment is entered into, and shall be performed by or on behalf of Brocade-Switzerland II.

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2. Enterprise Support Terms.

2.1 [**]

2.2 Covered Software and Covered Hardware. For each purchase of Enterprise Support, SUPPLIER and EMC shall complete an SOW to designate the Covered SAN, software covered under this Amendment (“Covered Software”), the hardware covered under this Amendment (“Covered Hardware”) (the Covered Software and Covered Hardware shall be collectively referred to as the “Covered Product(s)”. SUPPLIER has no obligation to support any Products not specifically set forth in an SOW provided however in certain emergency situations Brocade may register such Products when an End User calls for support and immediately begin providing support to such Products, subject to payment of the applicable fees and the terms of this Amendment. If the parties desire to add additional current or future Products to this Amendment, the parties shall sign a new SOW for such additional Products and EMC shall pay the corresponding fees.

2.3 [**]

2.4 Tech Enterprise Support. Provided that EMC has paid the applicable fees, SUPPLIER will provide Enterprise Support for the Covered Products in the Covered SAN, as is described in an SOW. Provided that EMC has paid the applicable Enterprise Support fees and subject to the terms and conditions set forth below, SUPPLIER will provide telephone, email and online assistance for the Covered Products listed on an SOW based on the applicable Severity and Priority levels as described below (“Tech Enterprise Support”). Whenever EMC submits a Tech Enterprise Support issue to SUPPLIER related to the Covered Products (“Problem”), SUPPLIER will classify the Problem according to the “Customer Priority” level that defines the Problem, based on the Customer Priority level descriptions located in the Service Plan Policies Document at SUPPLIER’s website, which document may be updated from time to time in SUPPLIER’s discretion. The target response times and resolution efforts will be tied to the applicable Severity and Priority levels assigned to the Problem. Additional charges may apply if EMC contacts SUPPLIER when it is later determined that the cause was not related to the Covered Products. SUPPLIER will only provide Enterprise Support for the baseline licensed Software, and will not support any customizations or unique implementations of the Software under its general Enterprise Support obligations, and any such support will be provided on a time and material basis. EMC will not be responsible to pay SUPPLIER for any travel and expenses that SUPPLIER incurs when providing on-site Enterprise Support. If SUPPLIER determines that an on-site visit is required, SUPPLIER shall agree directly with the End User as to whether SUPPLIER will be reimbursement for its travel and expenses.

2.5 Third Party Product Enterprise Support. As part of the Products, SUPPLIER may provide certain third party products bundled with the Product or as a standalone product. SUPPLIER’s obligation (if any) to provide EMC with support for third party products is subject to this Amendment and is limited to providing EMC with support that SUPPLIER receives from the applicable third party product provider. SUPPLIER will provide details of such support to EMC upon request. To the extent that an agreement authorizing SUPPLIER to sell or Enterprise Support the third party product is terminated or expires prior to termination of SUPPLIER’s support obligations for such third party product, then SUPPLIER’ obligation to provide Enterprise Support to EMC for such third party product, and EMC’s obligation to pay SUPPLIER for such Enterprise Support, shall automatically terminate simultaneously with the termination or expiration of the relevant third party product agreement.

2.6 Third Party Product Interoperability. Due to interoperability requirements and the nature of SAN environments, EMC agrees that the use of any third party products which have not been recommended or certified by SUPPLIER may cause errors in the operation of the Products or may cause additional resolution time for SUPPLIER under its Enterprise Support obligations hereunder. EMC acknowledges that use of any such third party products shall release SUPPLIER from the performance of SUPPLIER’s Enterprise Support obligations related thereto. SUPPLIER may be prepared in SUPPLIER’ absolute discretion to provide additional services to resolve any such problems in such circumstances, but shall not be obliged to do so.

3. Professional Services Specific Terms.

3.1 Scope of Agreement. Provided that EMC has paid for the Professional Services, SUPPLIER will perform the Professional Services as described in the applicable SOW or on the SUPPLIER price list.

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3.2 Working Hours. Except for any Professional Services with explicitly stated extended work hours, all Professional Services shall be performed during normal business hours (Monday to Friday, 8:30 am to 5:30 pm, local time). EMC shall inform SUPPLIER in advance if any off-shift services will be required and SUPPLIER shall inform EMC of any additional charges that may be associated with performing Professional Services outside of normal business hours. EMC agrees to pay SUPPLIER any applicable additional charges for such off-shift Professional Services performed.

3.3 Facilities. EMC agrees to provide the facilities reasonably necessary for SUPPLIER to perform the Professional Services, including a safe and suitable workspace for the SUPPLIER employees or contractors performing the Professional Services, as well any required equipment and software. For security and safety reasons, an EMC representative shall be available on-site whenever SUPPLIER employees or contractors are performing the Professional Services at such facilities.

3.4 Prerequisites. Prior to the commencement of the Professional Services, EMC agrees to take all the prerequisite steps identified by SUPPLIER prior to SUPPLIER performing the Professional Services, including without limitation, (a) ensuring that all manufacturers’ labels (such as serial numbers) are in place, accessible, and legible, (b) obtaining authorization to have SUPPLIER service a Covered Product that EMC or End User do not own, (c) purchasing and installing the required software and obtain a license for SUPPLIER to use such software, and (d) testing all hardware and software necessary to perform the Professional Services, and all such hardware and software documentation shall be made available to SUPPLIER, and (e) any other prerequisites identified by SUPPLIER. EMC acknowledges that any failure to perform the prerequisites may result in voiding the warranty for the particular service, delays and/or cause additional charges to apply. IT IS END USER’S RESPONSIBILITY TO ENSURE THAT END USER HAS COMPLETE BACKUPS OF ALL DATA PRIOR TO COMMENCEMENT OF ANY SERVICES. BROCADE ASSUMES NO RESPONSIBILITY FOR LOST DATA.

3.5 Scheduling Professional Services. Promptly following receipt and execution of an SOW, SUPPLIER shall contact EMC’s representative to schedule the Professional Services. All Professional Services must be started within one hundred eighty (180) days of the date of the SOW. If EMC is unable or unwilling to have SUPPLIER perform the Professional Services during this period, or if SUPPLIER is unable to perform the Professional Services owing to EMC’s failure to make the appropriate facilities available or to perform the necessary prerequisites, SUPPLIER shall have no further obligation to EMC with respect to the Professional Services.

3.6 Acceptance Procedures. Upon completion of the Professional Services which require acceptance, [*] following the delivery date to evaluate the Professional Services. On or before the tenth (10th) day following such delivery, EMC (or an End User where EMC is not onsite) shall provide SUPPLIER with either (1) a written acceptance of the Professional Services; or (2) written notice of rejection describing in detail the deficiency that is the basis for the rejection. A deficiency is a material non-conformity of the Professional Services to the acceptance criteria stated in the applicable SOW, or in the absence of such criteria, a material non-conformity to the description of the Professional Services set forth in the SOW. In the event that EMC rejects the Professional Services in accordance with the afore-described procedure, SUPPLIER will use diligent efforts to correct the deficiency promptly. The Professional Services and any associated deliverables that are re-performed or redelivered shall be subject to EMC’s acceptance in accordance with this provision. In the event EMC fails to accept or reject the Professional Services within 10 days after SUPPLIER’s completion of the applicable Professional Services, or accept or reject re-performed Professional Services within 10 days after SUPPLIER’s completion of the applicable Professional Services, the Professional Services shall be deemed accepted by EMC, and EMC shall have no further right to reject the Professional Services.

3.7 Onsite Engineer Specific Terms. SUPPLIER has a specific Professional Service offering where SUPPLIER provides an onsite engineer (OSE) to perform ongoing Professional Services at the customer facilitates. For each OSE SOW completed by the parties, the following terms shall apply. The OSE shall not provide any Enterprise Support for the Products unless EMC has purchased Enterprise Support directly from SUPPLIER. If the OSE provides certain Enterprise Support related services, then such services shall be provided pursuant to the Enterprise Support section of this Amendment. Any Professional Services provided by an OSE shall not be subject to the acceptance and warranty provisions set forth above; and such Professional Services shall be billed monthly on an “as occurred” basis, unless another billing time frame is set forth in the applicable SOW. For OSE’s purchased on an annual basis, the availability of an OSE is subject to the local employment laws and SUPPLIER shall have the right to substitute certain OSE(s) in order to comply with such laws.

3.8 Subcontractors. SUPPLIER may engage subcontractors to perform Professional Services under this Amendment, and SUPPLIER shall be responsible for the satisfactory performance of the Professional Services of all such subcontractors it may engage.

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4. Consideration.

4.1 Prices of Professional Services and Enterprise Support. SUPPLIER’s base pricing is set forth in Attachment C or in the then-current SUPPLIER price list. The pricing in Attachment C is separate from the pricing terms set forth in the Agreement. [**] Payment shall be made to the applicable SUPPLIER entity signing the SOW.

4.2 Enterprise Support Term and Renewal. As it applies to each SOW for Enterprise Support, the initial term will begin on the effective date of such Enterprise Support and shall continue until the next anniversary of the Effective Date of the Agreement (“Partial Year”) so that the yearly term of the Enterprise Support SOW will be coterminous with the yearly renewal term for the Agreement. Thereafter, each Enterprise Support SOW will be automatically renewed on a yearly basis unless either party notifies the other in writing of its election to terminate an individual Enterprise Support SOW at least ninety (90) days prior to the termination of the Partial Year or for any subsequent year. [**]

4.3 Audit Rights. SUPPLIER shall have the right to audit compliance with the terms herein upon reasonable notice to the EMC. In the event that an End User’s actual number of ports and/or users exceeds its authorized numbers (with the difference being the “Unauthorized Access”), EMC shall within thirty (30) days from the date of the invoice pay SUPPLIER all license and Support fees due for the Unauthorized Access at SUPPLIER then-current list rates. Payment of such late fees shall not limit any other rights SUPPLIER may have against EMC for such Unauthorized Access.

5. Warranties and Disclaimers.

5.1 Professional Services Warranty. SUPPLIER warrants [**]: (a) following the completion of the Professional Services, in the case where no acceptance procedure is applicable and (b) following acceptance of the Professional Services, otherwise, that all Professional Services will be performed in a professional and workman-like manner by appropriately trained personnel, using generally accepted industry standards and practices. As SUPPLIER’s sole liability and EMC’s exclusive remedy for a breach of this warranty, if the Professional Services are not provided as warranted, SUPPLIER will, at its sole discretion, either: (1) correct any material non-conformances in the Professional Services deliverables; (2) re-perform the Professional Services; or (3) credit EMC for the amount paid for the nonconforming Professional Services. This warranty does not apply to the extent they relate to (a) any specifications, code, diagnostic or other tools, or any other materials provided by EMC or the End User; (b) the integration, operation, modification, or use of the Professional Services or any deliverables in any manner not authorized by SUPPLIER, (c) any Professional Services or Enterprise Support provided by an Onsite Engineer, and (d) any changes to the storage area network (“SAN”) environment after the services were rendered.

5.2 No Other Warranties. EXCEPT AS EXPRESSLY SET FORTH HEREIN OR PROVIDED FOR IN THE AGREEMENT, THE PRODUCTS AND SERVICES PROVIDED UNDER THIS AMENDMENT ARE DELIVERED “AS IS” AND NEITHER BROCADE NOR ITS SUPPLIERS MAKES ANY WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE PRODUCTS, ANY RELATED DOCUMENTATION OR SERVICES, AND BROCADE SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, SATISFACTORY QUALITY AND NON-INFRINGEMENT WITH RESPECT THERETO.

6. Effect of Termination and Survival. Notwithstanding any other obligation hereunder, upon any termination of this Amendment, EMC shall return to SUPPLIER each and every copy, and EMC shall not retain any copies, of any SUPPLIER Confidential Information. The following provisions shall survive termination or expiration of the Agreement: 4 (“Consideration”), 5.2 (“No Other Warranties”), and 6 (“Effect of Termination and Survival”).

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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized representatives set forth below as of the Effective Date.

BROCADE COMMUNICATIONS SYSTEMS INC	EMC CORPORATION
By:	By:
Signature /s/ Jill Cameron	Signature /s/ Michael P. Kerovac
Name (Print)	Name (Print)
Jill Cameron	Michael P. Kerovac
Title	Title
Dir WW Sales Operations	Sr. Vice President GMO
Date 4/25/07	Date 3/12/07
BROCADE COMMUNICATIONS	BROCADE COMMUNICATIONS SERVICES
SWITZERLAND SÀRL	SWITZERLAND SÀRL
By:	By:
Signature /s/ Kevin McKenna	Signature /s/ Kevin McKenna
Name (Print)	Name (Print)
Kevin McKenna	Kevin McKenna
Title	Title
Director	Director
Date 26 April 2007	Date 26 April 2007

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ATTACHMENT A

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ATTACHMENT B

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ATTACHMENT C

PRICING

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Michael Klayko, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended April 28, 2007 of Brocade Communications Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 5, 2007

/s/ Michael Klayko  

Michael Klayko 

Chief Executive Officer
(Principal Executive Officer) 

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Richard Deranleau, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended April 28, 2007 of Brocade Communications Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 5, 2007

/s/ Richard Deranleau  

Richard Deranleau 

Chief Financial Officer
(Principal Accounting Officer) 

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     I, Michael Klayko, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Brocade Communications Systems, Inc. on Form 10-Q for the fiscal quarter ended April 28, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Brocade Communications Systems, Inc.

By:	/s/ Michael Klayko
	Michael Klayko
	Chief Executive Officer

     I, Richard Deranleau, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Brocade Communications Systems, Inc. on Form 10-Q for the fiscal quarter ended April 28, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Brocade Communications Systems, Inc.

By:	/s/ Richard Deranleau
	Richard Deranleau
	Chief Financial Officer