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 30, 2005

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
(State or other jurisdiction of incorporation) 77-0409517
(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 o No þ

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes þ No 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 28, 2005 was 267,904,702 shares.

BROCADE COMMUNICATIONS SYSTEMS, INC.

FORM 10-Q

QUARTER ENDED APRIL 30, 2005

INDEX

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three and Six Months Ended April 30, 2005 and May 1, 2004		3
Condensed Consolidated Balance Sheets as of April 30, 2005 and October 30, 2004		4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended April 30, 2005 and May 1, 2004		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3. Quantitative and Qualitative Disclosures About Market Risks		45
Item 4. Controls and Procedures		46
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		50
Item 4. Submission of Matters to a Vote of Security Holders		50
Item 6. Exhibits		51
SIGNATURES		52
EXHIBIT 3.1
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

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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 30,			May 1,			April 30,			May 1,
	2005			2004			2005			2004
				Restated (1)						Restated (1)
Net revenues	$	144,753		$	145,579		$	306,331		$	290,619
Cost of revenues		61,919			66,786			126,325			134,422
Gross margin		82,834			78,793			180,006			156,197
Operating expenses:
Research and development		31,361			34,399			63,035			71,419
Sales and marketing		25,083			27,201			49,908			54,263
General and administrative		5,692			5,876			12,355			11,945
Internal review and SEC investigation costs		1,363			—			5,104			—
Settlement of an acquisition-related claim		—			6,943			—			6,943
Amortization of deferred stock compensation		24			127			131			311
Restructuring costs		(137	)		10,461			(137	)		10,093
Lease termination charge and other, net		—			—			—			75,591
Total operating expenses		63,386			85,007			130,396			230,565
Income (loss) from operations		19,448			(6,214	)		49,610			(74,368	)
Interest and other income, net		5,592			5,039			10,782			9,564
Interest expense		(1,826	)		(2,896	)		(4,063	)		(5,566	)
Gain on repurchases of convertible subordinated debt		2,168			—			2,318			521
Income (loss) before provision for (benefit from) income taxes		25,382			(4,071	)		58,647			(69,849	)
Income tax provision (benefit)		4,025			(5,954	)		9,347			(2,247	)
Net income (loss)	$	21,357		$	1,883		$	49,300		$	(67,602	)
Net income (loss) per share — Basic	$	0.08		$	0.01		$	0.18		$	(0.26	)
Net income (loss) per share — Diluted	$	0.08		$	0.01		$	0.18		$	(0.26	)
Shares used in per share calculation — Basic		268,043			259,265			267,131			258,531
Shares used in per share calculation — Diluted		269,823			263,373			270,648			258,531

(1) See Note 3, “Restatement of Consolidated Financial Statements,” of the Notes to Condensed Consolidated Financial Statements.

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

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BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)

	April 30,			October 30,
	2005			2004
Assets
Current assets:
Cash and cash equivalents	$	81,516		$	79,375
Short-term investments		305,543			406,933
Total cash, cash equivalents and short-term investments		387,059			486,308
Accounts receivable, net of allowances of $4,286 and $3,861 at April 30, 2005 and October 30, 2004, respectively		87,264			95,778
Inventories		11,860			5,597
Prepaid expenses and other current assets		15,223			19,131
Total current assets		501,406			606,814
Long-term investments		359,593			250,600
Property and equipment, net		113,584			124,701
Convertible subordinated debt issuance costs		2,055			3,389
Other assets		2,682			1,878
Total assets	$	979,320		$	987,382
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	37,618		$	38,791
Accrued employee compensation		33,315			33,330
Deferred revenue		40,769			34,886
Current liabilities associated with lease losses		5,099			5,677
Other accrued liabilities		65,365			59,968
Total current liabilities		182,166			172,652
Non-current liabilities associated with lease losses		14,631			16,799
Convertible subordinated debt		278,883			352,279
Commitments and contingencies (Note 9)
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: 267,910 and 264,242 shares at April 30, 2005 and October 30, 2004, respectively		268			264
Additional paid-in capital		845,762			832,655
Deferred stock compensation		(3,085	)		(5,174	)
Accumulated other comprehensive income		(5,652	)		860
Accumulated deficit		(333,653	)		(382,953	)
Total stockholders’ equity		503,640			445,652
Total liabilities and stockholders’ equity	$	979,320		$	987,382

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

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BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Six Months Ended
	April 30,			May 1,
	2005			2004
				Restated (1)
Cash flows from operating activities:
Net income (loss)	$	49,300		$	(67,602	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		24,758			25,926
Loss on disposal of property and equipment		500			5,340
Amortization of debt issuance costs		741			1,018
Net gains on investments and marketable equity securities		—			(202	)
Gain on repurchases of convertible subordinated debt		(2,318	)		(521	)
Non-cash compensation expense (benefit)		(1,641	)		625
Provision for doubtful accounts receivable and sales returns		1,370			1,985
Non-cash restructuring charges		—			6,123
Settlement of an acquisition-related claim		—			6,943
Changes in operating assets and liabilities:
Accounts receivable		7,144			(6,506	)
Inventories		(6,263	)		(93	)
Prepaid expenses and other assets		2,688			2,166
Accounts payable		(1,173	)		(2,475	)
Accrued employee compensation		(15	)		(21	)
Deferred revenue		5,883			8,550
Other accrued liabilities and long-term debt		5,389			1,598
Liabilities associated with lease losses		(2,684	)		(3,069	)
Net cash provided by (used in) operating activities		83,679			(20,215	)
Cash flows from investing activities:
Purchases of property and equipment		(11,359	)		(41,496	)
Purchases of short-term investments		(198,705	)		(36,615	)
Proceeds from maturities of short-term investments		364,509			58,998
Purchases of long-term investments		(190,250	)		(198,162	)
Proceeds from other investments, net		252			—
Proceeds from maturities of long-term investments		7,500			111,078
Net cash used in investing activities		(28,053	)		(106,197	)
Cash flows from financing activities:
Purchases of convertible subordinated debt		(70,485	)		(8,580	)
Settlement of repurchase obligation		—			(9,029	)
Proceeds from issuance of common stock, net		23,891			11,685
Common stock repurchase program		(7,050	)		—
Net cash used in financing activities		(53,644	)		(5,924	)
Effect of exchange rate fluctuations on cash and cash equivalents		159			(33	)
Net increase (decrease) in cash and cash equivalents		2,141			(132,369	)
Cash and cash equivalents, beginning of period		79,375			360,012
Cash and cash equivalents, end of period	$	81,516		$	227,643

(1) See Note 3, “Restatement of Consolidated Financial Statements,” of the Notes to Condensed Consolidated Financial Statements.

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

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BROCADE COMMUNICATIONS SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Operations of Brocade

     Brocade Communications Systems, Inc. (“Brocade” or the “Company”) designs, develops, markets, sells, and supports data storage networking products and services, offering a line of storage networking products that enable companies to implement highly available, scalable, manageable, and secure environments for data storage applications. The Brocade SilkWorm® 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. In addition, the Brocade Tapestry™ family of application infrastructure solutions extends the ability to proactively manage and optimize application and information resources across the enterprise. Brocade products and services are marketed, sold, and supported worldwide to end-user customers through distribution partners, including original equipment manufacturers (“OEMs”), value-added distributors, systems integrators, and value-added resellers.

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

     Brocade, the Brocade B weave logo, Fabric OS, Secure Fabric OS, and SilkWorm are registered trademarks and Tapestry is a trademark of Brocade Communications Systems, Inc., in the United States and in other countries. All other brands, products, or service names are or may be trademarks or service marks of, and are used to identify, products or services of their respective owners.

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 52/53-week convention, every fifth year contains a 53-week year. Fiscal year 2005 is a 52-week fiscal year and fiscal year 2004 was a 53-week fiscal year. The second quarter of fiscal year 2004 consisted of 14 weeks, which is one week more than a typical quarter.

Basis of Presentation

     The accompanying financial data as of April 30, 2005, and for the three and six months ended April 30, 2005 and May 1, 2004, 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 30, 2004 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 Amended Annual Report on Form 10-K/A for the fiscal year ended October 30, 2004.

     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 30, 2005, results of operations for the three and six months ended April 30, 2005 and May 1, 2004, and cash flows for the six months ended April 30, 2005 and May 1, 2004, have been made. The results of operations for the three and six months ended April 30, 2005 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

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Cash and Cash Equivalents

     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.

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. In the first quarter of fiscal year 2005, the Company concluded that it was appropriate to classify its auction rate securities as short-term investments. These investments were previously classified as cash and cash equivalents. Accordingly, we have revised our October 30, 2004 balance sheet to report these securities totaling $35.2 million as short-term investments on the accompanying Condensed Consolidated Balance Sheets.

     Short-term and long-term investments are maintained at three 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 Operations.

     Marketable equity securities consist of equity holdings in public companies and are classified as available-for-sale when there are no restrictions on the Company’s ability to immediately liquidate such securities. 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 Operations.

     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.

     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 Operations. 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 30, 2005 and October 30, 2004, the carrying values of the Company’s equity investments in non-publicly traded companies were $1.0 million and $0.5 million, respectively.

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

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may be redeemed upon demand and may exceed the amount of insurance provided on such deposits. The Company principally invests in United States government agency debt securities, municipal government obligations, 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 30, 2005 and October 30, 2004, 83 percent and 85 percent, respectively, of accounts receivable were concentrated with five customers. 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 30, 2005 and May 1, 2004, three customers each represented ten percent or more of the Company’s total revenues for combined totals of 73 percent and 68 percent of total revenues, respectively. For the six months ended April 30, 2005 and May 1, 2004, three customers each represented ten percent or more of the Company’s total revenues for combined totals of 72 percent and 68 percent of total revenues, respectively. The level of sales to any one of these customers may 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 the production of its products. The inability of any single and limited source suppliers or the inability of the 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 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. 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, warranty, 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. Service and training revenue were not material in any of the periods presented.

     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.

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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 based upon vendor-specific objective evidence (“VSOE”) of the fair value of the element or, if VSOE is not available, by application of the residual method. 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.

Stock-Based Compensation

     The Company has several stock-based compensation plans that are described in the Company’s Annual Report on Form 10-K/A for the fiscal year ended October 30, 2004. The Company accounts 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 is recognized in the Company’s Condensed Consolidated Statements of Operations when the exercise price of the Company’s employee stock option grants 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. When the measurement date is not certain, the Company records stock 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 grant was not certain. As of April 30, 2005, 3.4 million options with a weighted average exercise price of $12.77 and a weighted average remaining life of 6.6 years remain outstanding and continue to be accounted for under variable accounting. When variable accounting is applied to stock option grants, the Company remeasures the intrinsic value of the options at the end of each reporting period until the options are exercised, cancelled or expire unexercised. Compensation expense in any given period is calculated as the difference between total earned compensation at the end of the period, less total earned compensation at the beginning of the period. Compensation earned is calculated under an accelerated vesting method in accordance with FASB Interpretation 28.

     Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”), established a fair value based method of accounting for stock-based plans. Companies that elect to account for stock-based compensation plans in accordance with APB 25 are required to disclose the pro forma net income (loss) that would have resulted from the use of the fair value based method under SFAS 123.

     Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure an Amendment of FASB Statement No. 123” (“SFAS 148”), amended the disclosure requirements of SFAS 123 to require more prominent disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The pro forma information resulting from the use of the fair value based method under SFAS 123 is as follows (in thousands except per share amounts):

	Three Months Ended						Six Months Ended
	April 30,			May 1,			April 30,			May 1,
	2005			2004			2005			2004
				(Restated)						(Restated)
Net income (loss) – as reported	$	21,357		$	1,883		$	49,300		$	(67,602	)
Add: Stock-based compensation expense (benefit) included in reported net income (loss), net of tax		(706	)		(1,574	)		(1,641	)		628
Deduct: Stock-based compensation expense determined under the fair value based method, net of tax		(4,903	)		(7,255	)		(9,539	)		(18,569	)
Pro forma net income (loss)	$	15,748		$	(6,946	)	$	38,120		$	(85,543	)
Basic net income (loss) per share:
As reported	$	0.08		$	0.01		$	0.18		$	(0.26	)
Pro forma	$	0.06		$	(0.03	)	$	0.14		$	(0.33	)
Diluted net income (loss) per share:
As reported	$	0.08		$	0.01		$	0.18		$	(0.26	)
Pro forma	$	0.06		$	(0.03	)	$	0.14		$	(0.33	)

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     The assumptions used for the three and six months ended April 30, 2005 and May 1, 2004 are as follows:

	Three Months Ended						Six Months Ended
	April 30,			May 1,			April 30,			May 1,
	2005			2004			2005			2004
Stock Options
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free interest rate		3.4 – 3.9	%		1.7 – 3.7	%		3.2 – 3.8	%		1.4 – 3.4	%
Expected volatility		47.6	%		54.9	%		47.4	%		56.1	%
Expected life (in years)		2.8			3.3			2.8			2.9

	Three Months Ended						Six Months Ended
	April 30,			May 1,			April 30,			May 1,
	2005			2004			2005			2004
Employee Stock Purchase Plan
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free interest rate		2.0 – 2.5	%		1.0 – 1.5	%		2.0 – 2.5	%		1.0 – 1.5	%
Expected volatility		50.3	%		61.7	%		50.3	%		61.7	%
Expected life (in years)		0.5			0.5			0.5			0.5

Computation of Net Income (Loss) per Share

     Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period, less shares subject to repurchase. Diluted net income (loss) 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, and from the assumed conversion of outstanding convertible debt if it has a dilutive effect on earnings per share.

Comprehensive Income (Loss)

     The components of comprehensive income (loss) are as follows (in thousands):

	Three Months Ended						Six Months Ended
	April 30,			May 1,			April 30,			May 1,
	2005			2004			2005			2004
				(Restated)						(Restated)
Net income (loss)	$	21,357		$	1,883		$	49,300		$	(67,602	)
Other comprehensive income (loss):
Change in net unrealized gains (losses) on marketable equity securities and investments		(4,372	)		(3,110	)		(6,671	)		(3,172	)
Cumulative translation adjustments		(21	)		(176	)		159			(33	)
Total comprehensive income (loss)	$	16,964		$	(1,403	)	$	42,788		$	(70,807	)

Recent Accounting Pronouncements

     In December 2004, the FASB issued a revision of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123R”). SFAS 123R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R does not change the accounting

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guidance for share-based payment transactions with parties other than employees provided in SFAS 123 as originally issued and EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” SFAS 123R is effective for the first interim or annual reporting period of the company’s first fiscal year that begins on or after June 15, 2005. The Company is in the process of determining the effect of the adoption of SFAS 123R will have on its financial position, results of operations, and cash flows.

     In March 2005, the U.S. Securities and Exchange Commission, or SEC, released Staff Accounting Bulletin 107, “Share-Based Payments,” (“SAB 107”). The interpretations in SAB 107 express views of the SEC staff, or staff, regarding the interaction between SFAS 123R and certain SEC rules and regulations, and provide the staff’s views regarding the valuation of share-based payment arrangements for public companies. In particular, SAB 107 provides guidance related to share-based payment transactions with non-employees, the transition from nonpublic to public entity status, valuation methods (including assumptions such as expected volatility and expected term), the accounting for certain redeemable financial instruments issued under share-based payment arrangements, the classification of compensation expense, non-GAAP financial measures, first-time adoption of SFAS 123R in an interim period, capitalization of compensation cost related to share-based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS 123R, the modification of employee share options prior to adoption of SFAS 123R and disclosures in Management’s Discussion and Analysis subsequent to adoption of SFAS 123R. SAB 107 requires stock-based compensation be classified in the same expense lines as cash compensation is reported for the same employees. The Company is in the process of determining the effect of the adoption of SAB 107 will have on its financial position, results of operations, and cash flows.

Reclassifications

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

3. Restatement of Consolidated Financial Statements

November 2005 Restatement

     In May 2005, Brocade determined that the Company’s financial statements for the fiscal years ended October 30, 2004, October 25, 2003, and October 26, 2002, and the interim periods contained therein, should no longer be relied upon because of errors in such financial statements. Brocade has restated those financial statements, which appear in Brocade’s Annual Report on Form 10-K/A for the year ended October 30, 2004. In addition, the Company made adjustments to its financial information for fiscal years ended October 27, 2001, October 28, 2000, and October 31, 1999.

     More specifically, following the completion of an Audit Committee review announced on January 24, 2005 and the related restatement (as described below in “January 2005 Restatement”), additional information came to Brocade’s attention that indicated that it could not rely on the documentation used to support the recorded measurement dates for stock options granted in the period from August 2003 through November 2004. As a result, Brocade recorded a cumulative increase in non-cash stock option compensation expense of approximately $0.9 million over fiscal years 2003 and 2004.

     In addition, Brocade determined that from 1999 through 2004 it had not appropriately accounted for the cost of stock-based compensation for certain employees on leaves of absences (“LOA”) and in transition or advisory roles prior to ceasing employment with Brocade. This resulted in an increase in non-cash compensation expense of approximately $0.9 million, $0.2 million and $20.0 million in fiscal years 2004, 2003 and 2002, respectively, and an aggregate of approximately $49.9 million in fiscal years 1999 through 2001. Brocade also determined that it could not rely on the documentation used to support the recorded dates for certain stock option exercises that resulted in immaterial adjustments included in the restatement, consisting of approximately $0.1 million in fiscal year 2002 and an aggregate of approximately $0.3 million in fiscal years 1999 through 2001.

Impact of the Financial Statement Adjustments on the Condensed Consolidated Statements of Operations

     The following table presents the impact of the financial statement adjustments related to the November 2005 Restatement on the Company’s previously reported condensed consolidated statements of operations for the three and six months ended May 1, 2004.

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	Three Months Ended May 1, 2004
	Previously
	Reported (1)			Adjustments (2)			As Restated
Net revenues	$	145,579		$	—		$	145,579
Cost of revenues		66,764			22			66,786
Gross margin		78,815			(22	)		78,793
Operating expenses:
Research and development		34,329			70			34,399
Sales and marketing		26,873			328			27,201
General and administrative		5,834			42			5,876
Settlement of an acquisition-related claim		6,943			—			6,943
Amortization of deferred stock
compensation		127			—			127
Restructuring costs		10,461			—			10,461
Total operating expenses		84,567			440			85,007
Loss from operations		(5,752	)		(462	)		(6,214	)
Interest and other income, net		5,039			—			5,039
Interest expense		(2,896	)		—			(2,896	)
Loss before benefit from income taxes		(3,609	)		(462	)		(4,071	)
Income tax provision (benefit)		(5,954	)		—			(5,954	)
Net income (loss)	$	2,345		$	(462	)	$	1,883
Net income (loss) per share — Basic	$	0.01		$	0.00		$	0.01
Net income (loss) per share — Diluted	$	0.01		$	0.00		$	0.01
Shares used in per share calculation — Basic		259,265			259,265			259,265
Shares used in per share calculation — Diluted		263,373			263,373			263,373

(1)

These amounts were reported in the Company’s Form 10-K filed with the SEC on January 31, 2005. Amounts reflect the Company’s January 2005 Restatement described below. In addition, certain reclassifications have been made to prior year balances in order to conform to the current year presentation. Refer to Note 3, “Restatement of Consolidated Financial Statement,” and Note 19, “Selected Quarterly Information (Unaudited),” of the Notes to Consolidated Financial Statements on the Company’s Form 10-K/A for fiscal year ended October 30, 2004.

(2)

Adjustments reflect additional stock-based compensation expense for certain employees on LOA and in transition or advisory roles prior to ceasing employment with the Company and additional stock-based compensation expense associated with change in measurement dates for certain stock options.

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	Six Months Ended May 1, 2004
	Previously
	Reported (1)			Adjustments (2)			As Restated
Net revenues	$	290,619		$	—		$	290,619
Cost of revenues		134,384			38			134,422
Gross margin		156,235			(38	)		156,197
Operating expenses:
Research and development		71,307			112			71,419
Sales and marketing		53,453			810			54,263
General and administrative		11,767			178			11,945
Settlement of an acquisition-related claim		6,943			—			6,943
Amortization of deferred stock compensation		311			—			311
Restructuring costs		10,093			—			10,093
Lease termination charge and other, net		75,591			—			75,591
Total operating expenses		229,465			1,100			230,565
Loss from operations		(73,230	)		(1,138	)		(74,368	)
Interest and other income, net		9,564			—			9,564
Interest expense		(5,566	)		—			(5,566	)
Gain on repurchases of convertible subordinated debt		521			—			521
Loss before benefit from income taxes		(68,711	)		(1,138	)		(69,849	)
Income tax provision (benefit)		(2,247	)		—			(2,247	)
Net loss	$	(66,464	)	$	(1,138	)	$	(67,602	)
Net loss per share — Basic and Diluted	$	(0.26	)	$	(0.00	)	$	(0.26	)
Shares used in per share calculation — Basic and Diluted		258,531			258,531			258,531

(1)

These amounts were reported in the Company’s Form 10-K filed with the SEC on January 31, 2005. Amounts reflect the Company’s January 2005 Restatement described below. In addition, certain reclassifications have been made to prior year balances in order to conform to the current year presentation. Refer to Note 3, “Restatement of Consolidated Financial Statement,” and Note 19, “Selected Quarterly Information (Unaudited),” of the Notes to Consolidated Financial Statements on the Company’s Form 10-K/A for fiscal year ended October 30, 2004.

(2)

Adjustments reflect additional stock-based compensation expense for certain employees on LOA and in transition or advisory roles prior to ceasing employment with the Company and additional stock-based compensation expense associated with change in measurement dates for certain stock options.

January 2005 Restatement

     On January 24, 2005, the Company announced that its Audit Committee completed an internal review regarding the Company’s stock option granting process. As a result of certain findings of the review, the Company restated certain of its historical financial statements.

     Specifically, the Company determined that the restatement was required because it incorrectly accounted for: (A) stock option grants that were made to new hires on their offer acceptance date, rather than the date of their commencement of employment, during the period May 1999 to July 2000; (B) stock option grants that were made to persons engaged on a part-

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time basis prior to their new hire full-time employment during the period August 2000 to October 2002; and (C) stock option grants where there was insufficient basis to rely on the Company’s process and related documentation to support recorded measurement dates used to account for certain stock options granted prior to August 2003. Therefore, the Company recorded additional stock-based compensation charges relating to many of its stock option grants made during the period 1999 through the third quarter of fiscal year 2003. In addition, the Company recorded a valuation allowance associated with deferred tax assets related to previously recorded stock option tax benefits. The Company also concluded that there were improprieties in connection with the documentation of stock option grants and related employment records of a small number of employees prior to mid-2002, which resulted in immaterial adjustments included in the January 2005 restatement.

     These charges affected the previously filed financial statements for fiscal years ended October 25, 2003, and October 26, 2002, including the corresponding interim periods for fiscal year 2003, and the interim periods ended January 24, 2004, May 1, 2004 and July 31, 2004. The Company also recorded stock-based compensation and associated income tax adjustments to previously announced financial results for the fourth quarter and year ended October 30, 2004. These adjustments related solely to matters pertaining to stock options granted prior to August 2003.

     As a result of the stock compensation adjustments, the Company’s deferred tax assets previously recognized have now been fully reserved. The Company expects to realize a tax benefit in future reporting periods when it is able to utilize net operating loss carryforwards to offset future taxable income.

4. Restructuring Costs

Fiscal 2004 Second Quarter Restructuring

     During the three months ended May 1, 2004, the Company implemented a restructuring plan designed to optimize the Company’s business model to drive improved profitability through reduction of headcount as well as certain structural changes in the business. The plan announced on May 19, 2004 encompassed organizational changes, which included a reduction in force of 110 people, or nine percent of the Company’s then workforce. As a result, the Company recorded $10.5 million in restructuring costs consisting of severance and benefit charges, equipment impairment charges, and contract termination and other charges. Severance and benefits charges of $7.5 million consisted of severance and related employee termination costs, including outplacement services, associated with the reduction of the Company’s workforce. Equipment impairment charges of $1.2 million primarily consisted of excess equipment that is no longer being used as a result of the restructuring program. Contract termination and other charges of $1.7 million were primarily related to the cancellation of certain contracts in connection with the restructuring of certain business functions.

     Remaining accrued liabilities related to the Company’s fiscal 2004 second quarter restructuring program are included in other accrued liabilities on the accompanying Condensed Consolidated Balance Sheets. During the three months ended October 30, 2004, the Company recorded a reduction of $1.0 million to restructuring costs, primarily because actual payments were lower than the estimated amount. No other material changes in estimates were made to the fiscal 2004 second quarter restructuring accrual. The Company expects to pay or otherwise substantially settle the remaining accrued liabilities during the fiscal year 2005.

     The following table summarizes the total restructuring costs incurred and charged to restructuring expense during the second quarter of fiscal year 2004, costs paid or otherwise settled, and the remaining unpaid or otherwise unsettled accrued liabilities (in thousands) as of April 30, 2005:

				Contract
	Severance			Terminations			Equipment
	and Benefits			and Other			Impairment			Total
Restructuring costs incurred	$	7,480		$	1,740		$	1,241		$	10,461
Cash payments		(5,661	)		(1,692	)		—			(7,353	)
Non-cash charges		—			—			(1,241	)		(1,241	)
Adjustments		(981	)		(48	)		—			(1,029	)
Remaining accrued liabilities at October 30, 2004		838			—			—			838
Cash payments		(710	)		—			—			(710	)
Remaining accrued liabilities at April 30, 2005	$	128		$	—		$	—		$	128

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     Restructuring costs for the six months ended May 1, 2004 include a reduction of $0.4 million to restructuring costs related to our other previously recorded restructuring liability, primarily due to a lower than expected outcome related to outplacement costs.

5. Balance Sheet Details

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

	April 30,			October 30,
	2005			2004
Inventories:
Raw materials	$	5,635		$	1,950
Finished goods		6,225			3,647
Total	$	11,860		$	5,597
Property and equipment, net:
Computer equipment and software	$	66,397		$	63,524
Engineering and other equipment		114,438			111,109
Furniture and fixtures		4,396			4,429
Leasehold improvements		39,619			39,520
Land and building		30,000			30,000
		254,850			248,582
Less: Accumulated depreciation and amortization		(141,266	)		(123,881	)
Total	$	113,584		$	124,701

	April 30,		October 30,
	2005		2004
Other accrued liabilities:
Income taxes payable	$	34,565	$	27,769
Accrued warranty		1,780		4,669
Inventory purchase commitments		6,873		4,326
Accrued sales programs		9,711		8,231
Accrued restructuring		128		838
Other		12,308		14,135
Total	$	65,365	$	59,968

     Leasehold improvements as of April 30, 2005 and October 30, 2004, are shown net of estimated asset impairments related to facilities lease losses (see Note 7).

6. 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 30, 2005
U.S. government agencies and municipal obligations	$	319,876	$	11	$	(2,921	)	$	316,966
Corporate bonds and notes		351,849		42		(3,721	)		348,170
Equity securities		37		4		—			41
Total	$	671,762	$	57	$	(6,642	)	$	665,177
Reported as:
Short-term investments								$	305,543
Other current assets									41
Long-term investments									359,593
Total								$	665,177

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			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
October 30, 2004
U.S. government agencies and municipal obligations	$	526,953	$	1,307	$	(972	)	$	527,288
Corporate bonds and notes		130,604		146		(505	)		130,245
Equity securities		694		164		—			858
Total	$	658,251	$	1,617	$	(1,477	)	$	658,391
Reported as:
Short-term investments								$	406,933
Other current assets									858
Long-term investments									250,600
Total								$	658,391

     For the three months ended April 30, 2005 and May 1, 2004, there were no gains realized on the sale of investments or marketable equity securities. For the six months ended April 30, 2005 and May 1, 2004, total gains realized on the sale of investments or marketable equity securities were zero and $0.2 million, respectively. As of April 30, 2005 and October 30, 2004, net unrealized holding gains (losses) of $(6.6) million and $0.1 million, respectively, were included in accumulated other comprehensive income in the accompanying Condensed Consolidated Balance Sheets.

     The following table summarizes the maturities of the Company’s investments in debt securities issued by United States government agencies, municipal government obligations, and corporate bonds and notes as of April 30, 2005 (in thousands):

	Amortized		Fair
	Cost		Value
Less than one year	$	307,513	$	305,543
Due in 1 – 2 years		322,550		318,396
Due in 2 – 3 years		41,662		41,197
Total	$	671,725	$	665,136

7. Liabilities Associated with Facilities Lease Losses

Lease Termination Charge and Other, Net

     On November 18, 2003, the Company purchased a building located near its San Jose headquarters. This 194,000 square foot facility was previously leased, and certain unused portions of the facility were previously reserved and included in the facilities lease losses liability noted below. The total consideration for the building purchase was $106.8 million, consisting of the purchase of land and building valued at $30.0 million and a lease termination fee of $76.8 million. The fair value of the land and building as of the purchase date was determined based on the estimated fair value of the land and building. As a result of the building purchase, during the first quarter of fiscal 2004, the Company recorded adjustments of $23.7 million to the previously recorded facilities lease loss reserve, deferred rent, and leasehold improvement impairments related to the purchased facility.

     During the first quarter of fiscal 2004, 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 a charge of $20.9 million related to estimated facilities lease losses, net of expected sublease income, on the vacated facilities. These charges represented the fair value of the lease liability based on assumptions regarding the vacancy period, sublease terms, and the probability of subleasing this space. The assumptions that the Company used were based on market data, including the then current vacancy rates and lease activities for similar facilities within the area. Should there be changes in real estate market conditions or should it take longer than expected to find a suitable tenant to sublease the remaining vacant facilities, adjustments to the facilities lease losses reserve may be necessary in future periods based upon then current actual events and circumstances.

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     The following table summarizes the activity related to the lease termination charge and other, net incurred in the three months ended January 24, 2004 (in thousands):

Lease termination charge	$	76,800
Closing costs and other related charges		1,234
Reversal of previously recorded facilities lease loss reserve		(23,731	)
Additional reserve booked as a result of facilities consolidation		20,855
Asset impairments associated with facilities consolidation		433
Total lease termination charge and other, net	$	75,591

Facilities Lease Losses Liability

     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 the then estimated range of $39.8 million to $63.0 million and may be adjusted upon the occurrence of future 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.

     As previously described, 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 previously recorded facilities lease loss reserve, deferred rent and leasehold improvement impairments, and recorded additional reserves in connection with the facilities consolidation.

     The following table summarizes the activity related to the facilities lease losses reserve, net of expected sublease income (in thousands), as of April 30, 2005:

	Lease Loss
	Reserve
Reserve balance at October 30, 2004	$	22,476
Cash payments on facilities leases		(2,685	)
Non-cash charges		(61	)
Reserve balance at April 30, 2005	$	19,730

     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.

8. Convertible Subordinated Debt

     On December 21, 2001, and January 10, 2002, the Company sold, in private placements pursuant to Section 4(2) of the Securities Act of 1933, as amended, an aggregate of $550 million in principal amount, two percent convertible subordinated notes due January 2007 (the notes or convertible subordinated debt). The initial purchasers purchased the notes from the Company at a discount of 2.25 percent of the aggregate principal amount. Holders of the notes may, in whole or in part, convert the notes into shares of the Company’s common stock at a conversion rate of 22.8571 shares per $1,000 principal amount of notes (approximately 6.4 million shares may be issued upon conversion based on outstanding debt of $278.9 million as of April 30, 2005) at any time prior to maturity on January 1, 2007. At any time on or after January 5, 2005, the Company may redeem the notes in whole or in part at the following prices expressed as a percentage of the principal amount:

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

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     The Company is required to pay interest on January 1 and July 1 of each year, beginning July 1, 2002. Debt issuance costs of $12.4 million are being amortized over the term of the notes. The amortization of debt issuance costs will accelerate upon early redemption or conversion of the notes. The net proceeds remain available for general corporate purposes, including working capital and capital expenditures. As of April 30, 2005, the remaining balance of unamortized debt issuance costs was $2.1 million.

     During the three months ended April 30, 2005, the Company repurchased on the open market $69.2 million in face value of its convertible subordinated debt. The Company paid an average of $0.96 on each dollar of face value for an aggregate purchase price of $66.5 million, which resulted in a pre-tax gain of $2.2 million for the three months ended April 30, 2005. During the six months ended April 30, 2005, the Company repurchased a total of $73.4 million in face value of its convertible subordinated debt, which resulted in a pre-tax gain of $2.3 million for the six months ended April 30, 2005. To date, the Company has repurchased a total of $271.1 million in face value of its convertible subordinated notes. As of April 30, 2005, the remaining balance outstanding of the convertible subordinated debt was $278.9 million.

     The notes are not listed on any securities exchange or included in any automated quotation system; however, the notes are eligible for trading on the Portal^SM Market. On April 29, 2005, the average bid and ask price on the Portal Market of the notes was 93.0, resulting in an aggregate fair value of approximately $259.4 million.

     On August 23, 2005, the Company elected to deposit funds with the trustee, which fully collateralized the outstanding notes, and to discharge the indenture agreement with respect to the notes. Pursuant to this election, the Company provided an irrevocable letter of instruction to the trustee to issue a notice of redemption on June 26, 2006 and to redeem all of the outstanding notes on August 22, 2006. (See Note 12.)

9. Commitments and Contingencies

Leases

     The Company leases its facilities and certain equipment under various operating lease agreements expiring through August 2010. In connection with its facilities lease agreements, the Company has signed unconditional, irrevocable letters of credit totaling $8.3 million as security for the leases. Future minimum lease payments under all non-cancelable operating leases as of April 30, 2005 were $73.7 million. 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 30, 2005, the Company had recorded $19.7 million in facilities lease loss reserves related to future lease commitments, net of expected sublease income (see Note 7).

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. For the three months ended January 29, 2005, the Company recorded a warranty benefit of approximately $1.9 million as a result of a change in warranty terms with a customer. The following table summarizes the activity related to the Company’s accrued liability for estimated future warranty costs during the six months ended April 30, 2005 (in thousands):

	Accrued
	Warranty
Balance at October 30, 2004	$	4,669
Liabilities accrued for warranties issued during the period		553
Warranty claims paid during the period		(317	)
Changes in liability for pre-existing warranties during the period		(3,125	)
Balance at April 30, 2005	$	1,780

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     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 30, 2005, 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 a manufacturing agreement with Hon Hai Precision Industry Co. (“Foxconn”) 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 depends on the specific product. As of April 30, 2005, the Company’s aggregate commitment to Foxconn for inventory components used in the manufacture of Brocade products was $51.4 million, net of purchase commitment reserves of $5.8 million, which the Company expects to utilize during future normal ongoing operations. The Company’s purchase orders placed with Foxconn are cancelable, however if cancelled, the agreement with Foxconn requires the Company to purchase from Foxconn all inventory components not returnable, usable by, or sold to, other customers of Foxconn. Our purchase commitments reserve reflects our estimate of purchase commitments we do not expect to consume in normal operations.

     In addition, the Company also has a purchase commitment with another vendor totaling $10.6 million, net of purchase commitment reserves of $1.1 million.

Legal Proceedings

     From time to time, claims are made against the Company 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 the Company 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 Company’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 the Company, certain of its officers and directors, and certain of the underwriters for the Company’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 the Company’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 the Company 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 the Company. In June 2004, a stipulation of settlement for the claims against the issuer defendants, including the Company, was submitted to the Court for approval. On August 31, 2005, the Court granted preliminary approval of the settlement. The settlement is subject to a number of conditions, including final approval by the Court.

     Beginning on or about May 19, 2005, several securities class action complaints were filed against the Company and certain of its current and former officers. These actions were filed on behalf of purchasers of the Company’s stock from February 2001 to May 2005. These complaints were filed in the United States District Court for the Northern District of California. The Court is in the process of selecting Lead Plaintiff and Lead Counsel. The Court will likely require the Lead Plaintiff to file one consolidated complaint. The securities class action complaints allege, among other things, violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaints seek unspecified monetary damages and other relief against the defendants. The complaints generally allege that the Company and the individual defendants made false or misleading public statements regarding the Company’s business and operations. These lawsuits followed the Company’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 the Company’s current and former directors and officers. These actions were filed in the United States District Court for the Northern District of

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California and in the California Superior Court in Santa Clara County. The complaints allege that certain of the Company’s officers and directors breached their fiduciary duties to the Company by engaging in alleged wrongful conduct including conduct complained of in the securities litigation described above. The Company 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 on October 7, 2005. The derivative actions pending in the Superior Court in Santa Clara County were consolidated. The derivative plaintiffs filed a consolidated complaint on September 19, 2005. The Company filed a motion to stay that action in deference to the substantially identical consolidated derivative action pending in the District Court.

     No amounts have been recorded in the accompanying Condensed Consolidated Financial Statements associated with these matters.

10. Segment Information

     The Company is organized and operates as one operating segment: the design, development, marketing and selling of infrastructure for SANs. The Company’s Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”), as defined by SFAS 131, “Disclosures about Segments of an Enterprise and Related Information.” The CODM allocates resources and assesses the performance of the Company based on revenues and overall profitability.

     Revenues are attributed to geographic areas based on the location of the customer to which products are shipped. Domestic revenues include sales to certain OEM customers who take possession of Brocade products domestically and then distribute these products to their international customers. Domestic and international revenues were approximately 67 percent and 33 percent of total revenues, respectively, for the three months ended April 30, 2005 compared to 62 percent and 38 percent of total revenues, respectively, for the three months ended May 1 2004. For the six months ended April 30, 2005, domestic and international revenues were approximately 66 percent and 34 percent of total revenues, respectively, compared to 63 percent and 37 percent of total revenues, respectively, for the six months ended May 1, 2004. To date, service revenue has not exceeded 10 percent of total revenues. Identifiable assets located in foreign countries were not material as of April 30, 2005 and October 30, 2004. For the three months ended April 30, 2005 and May 1, 2004, three customers accounted for 73 percent and 68 percent of total revenues, respectively. For the six months ended April 30, 2005 and May 1, 2004, three customers accounted for 72 percent and 68 percent of total revenues, respectively.

11. Net Income (Loss) per Share

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

	Three Months Ended						Six Months Ended
	April 30,			May 1,			April 30,			May 1,
	2005			2004			2005			2004
Net income (loss)	$	21,357		$	1,883		$	49,300		$	(67,602	)
Basic and diluted net income (loss) per share:
Weighted-average shares of common stock outstanding		268,133			259,765			267,262			259,023
Less: Weighted-average shares of common stock subject to repurchase		(90	)		(500	)		(131	)		(492	)
Weighted-average shares used in computing basic net income (loss) per share		268,043			259,265			267,131			258,531
Dilutive effect of common share equivalents		1,780			4,108			3,517			—
Weighted-average shares used in computing diluted net loss per share		269,823			263,373			270,648			258,531
Basic net income (loss) per share	$	0.08		$	0.01		$	0.18		$	(0.26	)
Diluted net income (loss) per share	$	0.08		$	0.01		$	0.18		$	(0.26	)

     For the three and six months ended April 30, 2005, potential common shares in the form of stock options to purchase 30.0 million and 16.5 million weighted-average shares of common stock, respectively, were antidilutive and, therefore, not included in the computation of diluted earnings per share. For the three and six months ended May 1, 2004, stock options outstanding of 46.6

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million shares were antidilutive as the Company had net losses for the periods, and therefore, not included in the computation of diluted earnings per share. In addition, for the three and six months ended April 30, 2005, potential common shares resulting from the potential conversion, on a weighted average basis, of the Company’s convertible subordinated debt of 6.4 million and 7.2 million common shares, respectively, were antidilutive and therefore not included in the computation of diluted earnings per share. For the three and six months ended May 1, 2004, potential common shares resulting from the potential conversion, on a weighted average basis, of the Company's convertible subordinated debt of 9.9 million common shares were antidilutive and therefore not included in the computation of diluted earnings per share.

12. Subsequent Events

     On May 3, 2005, the Company completed its acquisition of Therion Software Corporation (“Therion”), a privately held developer of software management solutions for the automated provisioning of servers over a storage network based in Redmond, Washington. As of the acquisition date the Company owned approximately 13% of Therion’s equity interest through investments totaling $1.0 million. Therion was a development stage company with no recognized revenue and a core technology that had not yet reached technological feasibility. Accordingly, the acquisition of Therion was accounted for as an asset purchase.

     The total purchase price was $12.1 million, consisting of $9.3 million cash consideration for Therion’s preferred and common stock holders, assumed stock options valued at $1.7 million, the Company’s initial investment of $1.0 million, and direct acquisition cost of $0.1 million. Of the $9.3 million cash consideration, the Company paid $7.3 million upon closing the transaction and recorded the remaining liability of $2.0 million to be paid over the next eighteen months. The fair value of the assumed stock options was determined using the Black-Scholes option-pricing model. In connection with this acquisition, in the three months ended July 30, 2005 the Company recorded a $7.8 million in-process research and development charge, and allocated the remaining purchase price to net assets of $2.9 million, deferred stock compensation of $1.5 million, and net liabilities of $0.1 million, based on fair values.

     Also in May 2005, the Company signed an investment agreement in a non-publicly traded company, under which it may be required to make additional investments of up to $3.8 million if certain milestones are met. In addition, the Company signed a licensing agreement with the same company, under which it may be required to pay up to $5.7 million of prepaid license fees if certain milestones are met.

     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 on behalf of purchasers of Brocade’s stock from February 2001 to May 2005. The securities class action complaints allege, among other things, violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaints seek unspecified monetary damages and other relief against the defendants. The complaints generally allege that Brocade and the individual defendants made false or misleading public statements regarding Brocade’s business and operations. 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. 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.

     On June 9, 2005, Brocade received notice that the Securities and Exchange Commission’s informal inquiry regarding the Company’s previous accounting for certain stock options was now the subject of a formal order of investigation. Brocade also announced that the Department of Justice is working with the Securities and Exchange Commission in a joint investigation regarding Brocade’s stock option granting practices.

     On August 23, 2005, in accordance with the terms of the indenture agreement dated December 21, 2001 with respect to the Company’s 2% Convertible Subordinated Notes Due 2007 (the “Notes”), the Company elected to deposit funds with the trustee of the Notes (the “Trustee”) and to discharge the indenture agreement. The Company deposited an aggregate of $276.1 million in interest-bearing U.S. securities with the Trustee. Pursuant to this election, the Company provided an irrevocable letter of instruction to the Trustee to issue a notice of redemption on June 26, 2006 and to redeem the Notes on August 22, 2006 (the “Redemption Date”). Over the course of the next year, the Trustee, using the securities deposited with them, will pay to the noteholders (1) all the interest scheduled to become due per the original note prior to the Redemption Date, and (2) all the principal and remaining interest, plus a call premium of 0.4% of the face value of the Notes, on the Redemption Date. The funds will remain on the Company’s balance sheet as restricted securities until the Redemption Date. The Company expects to record a loss on investments of approximately $4.7 million in the quarter ending October 29, 2005 with respect to the disposition of certain short-term and long-term investments that was necessary to deposit the funds with the Trustee.

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     In October 2004, the American Jobs Creation Act of 2004 (“AJCA”) was signed into law. The AJCA introduces a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, provided that certain criteria are met. In the fourth fiscal quarter of 2005, the Company determined, with approval by the Company’s Chief Executive Officer and Board of Directors, to repatriate foreign earnings pursuant to the AJCA. In the fourth fiscal quarter of fiscal year 2005, the Company expects to record a tax charge of approximately $5.0 million based on a repatriation amount of approximately $78.0 million. No provision has been made for federal income taxes on the remaining balance of the unremitted earnings of the Company’s foreign subsidiaries since the Company plans to permanently reinvest all such earnings outside the U.S.

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

     This Quarterly Report on Form 10-Q (Quarterly Report) contains forward-looking statements. These forward-looking statements include predictions regarding our future:

• revenues and profits, including average selling price per port and number of ports shipped;

• gross margin;

• new products and market opportunity;

• customer concentration;

• research and development expenses;

• sales and marketing expenses;

• general and administrative expenses;

• pricing and cost reduction activities;

• income tax provision and effective tax rate;

• cash flows from employee participation in employee stock programs;

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

• purchase commitments;

• product development and transitions;

• competition and competing technology;

• stock price;

• internal controls;

• outcomes of litigation; and

• financial condition and results of operations as a result of recent accounting pronouncements.

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

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

     The following information should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included in Item 1 of this Quarterly Report, and with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and notes thereto contained in our Amended Annual Report on Form 10-K/A for the fiscal year ended October 30, 2004.

Restatement of Consolidated Financial Statements

     On January 24, 2005, we announced that our Audit Committee completed an internal review regarding our stock option granting process. As a result of certain findings of the review, on January 31, 2005 we filed our Form 10-K for the year ended October 30, 2004, which included the restatement of our historical financial statements for fiscal years ended October 25, 2003 and October 26, 2002, including the corresponding interim periods for fiscal year 2003, and the interim periods ended January 24, 2004, May 1, 2004, and July 31, 2004 (“January 2005 Restatement”). Please refer to Note 3, “Restatements of Consolidated Financial Statements,” of the Notes to Condensed Consolidated Financial Statements.

     Following the original filing of our Form 10-K on January 31, 2005, additional information came to our attention that indicated that we could not rely on the documentation used to support the recorded measurement dates for stock options granted in the period from August 2003 through November 2004. As a result, we recorded a cumulative increase in non-cash stock option compensation expense of approximately $0.9 million over fiscal years 2003 and 2004. In addition, we determined that from 1999 through 2004 we had not appropriately accounted for the cost of stock-based compensation for

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certain employees on leaves of absences (“LOA”) and in transition or advisory roles prior to ceasing employment with us. This resulted in an increase in non-cash compensation expense of approximately $0.9 million, $0.2 million and $20.0 million in fiscal years 2004, 2003 and 2002, respectively, and an aggregate of approximately $49.9 million in fiscal years 1999 through 2001. We also determined that we could not rely on the documentation used to support the recorded dates for certain stock option exercises that resulted in immaterial adjustments included in the restatement, consisting of approximately $0.1 million in fiscal year 2002 and an aggregate of approximately $0.3 million in fiscal years 1999 through 2001.

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatements of our financial statements described above. The results set forth below for the three and six months ended May 1, 2004 differ from those previously reported in our Form 10-Q for the three and six months ended May 1, 2004.

Results of Operations

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

	Three Months Ended						Six Months Ended
	April 30,			May 1,			April 30,			May 1,
	2005			2004			2005			2004
				Restated (1)						Restated (1)
Net revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues		42.8			45.9			41.2			46.3
Gross margin		57.2			54.1			58.8			53.7
Operating expenses:
Research and development		21.7			23.6			20.6			24.6
Sales and marketing		17.3			18.7			16.3			18.7
General and administrative		3.9			4.0			4.0			4.1
Internal review and SEC investigation costs		0.9			—			1.7			—
Settlement of an acquisition-related claim		—			4.8			—			2.4
Amortization of deferred stock compensation		0.1			0.1			0.0			0.1
Restructuring costs		(0.1	)		7.2			(0.0	)		3.5
Lease termination charge and other, net		—			—			—			26.0
Total operating expenses		43.8			58.4			42.6			79.4
Income (loss) from operations		13.4			(4.3	)		16.2			(25.7	)
Interest and other income, net		3.9			3.5			3.5			3.3
Interest expense		(1.3	)		(2.0	)		(1.3	)		(1.9	)
Gain on repurchases of convertible subordinated debt		1.5			0.0			0.8			0.2
Income (loss) before provision for income taxes		17.5			(2.8	)		19.2			(24.1	)
Income tax provision (benefit)		2.8			(4.1	)		3.1			(0.8	)
Net income (loss)		14.7	%		1.3	%		16.1	%		(23.3	)%

(1) See Note 3, “Restatement of Consolidated Financial Statements,” of the Notes to Condensed Consolidated Financial Statements.

     Revenues. Our revenues are derived primarily from sales of our SilkWorm family of products. Our SilkWorm products, which range in size from 8 ports to 128 ports, connect servers and storage devices creating a storage area network (“SAN”). Net revenues for the three months ended April 30, 2005 were $144.8 million, a decrease of one percent compared with net revenues of $145.6 million for the three months ended May 1, 2004. This decrease in net revenues for the period reflects an 11 percent increase in the number of ports shipped, partially offset by a 22 percent decline in average selling price per port. Net revenues for the six months ended April 30, 2005 were $306.3 million, an increase of five percent compared with net revenues of $290.6 million for the six months ended May 1, 2004. This increase in net revenues for the period reflects a 21 percent increase in the number of ports shipped, partially offset by a 21 percent decline in average selling price per port. We believe the increase in the number of ports shipped reflects higher demand for our products as end-users continue to consolidate storage and servers infrastructures using SANs, expand SANs to support more applications, and deploy SANs in new environments.

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     Historically, domestic revenues have been between 60 percent and 75 percent of total revenues. Domestic and international revenues were approximately 67 percent and 33 percent of total revenues, respectively, for the three months ended April 30, 2005 compared to 62 percent and 38 percent of total revenues, respectively, for the three months ended May 1, 2004. For the six months ended April 30, 2005, domestic and international revenues were approximately 66 percent and 34 percent of total revenues, respectively, compared to 63 percent and 37 percent of total revenues, respectively, for the six months ended May 1, 2004. International revenues primarily consist of sales to customers in Western Europe and the greater Asia Pacific region. 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.

     A significant portion of our revenues is concentrated among a relatively small number of customers. For the three months ended April 30, 2005 and May 1, 2004, three customers each represented ten percent or more of our total revenues for combined totals of 73 percent and 68 percent of total revenues, respectively. For the six months ended April 30, 2005 and May 1, 2004, three customers each represented ten percent or more of our total revenues for combined totals of 72 percent and 68 percent of total revenues, respectively. We expect that a significant portion of our future revenues will continue to come from sales of products to a relatively small number of customers. Therefore, the loss of, or a decrease in the level of sales to, any one of these customers could seriously harm our financial condition and results of operations.

     Gross margin. Gross margin for the three months ended April 30, 2005 was 57.2 percent, compared with 54.1 percent for the three months ended May 1, 2004. Gross margin for the six months ended April 30, 2005 was 58.8 percent, compared with 53.7 percent for the six months ended May 1, 2004. Cost of goods sold consists of product costs, which are variable, and manufacturing operations costs, which are generally fixed. For the three months ended April 30, 2005, product costs relative to net revenues decreased by 2.0 percent, primarily due to decreases in component and manufacturing costs. Manufacturing operations costs relative to net revenues decreased by 1.1 percent principally due to increases in the number of ports shipped and savings from the restructuring programs we implemented during the second quarter of fiscal year 2004 (see Note 4, “Restructuring Costs,” of the Notes to Condensed Consolidated Financial Statements). Stock-based compensation expense relative to net revenues in the three months ended April 30, 2005 remained consistent compared with the three months ended May 1, 2004. For the six months ended April 30, 2005, product costs relative to net revenues decreased by 2.3 percent, primarily due to decreases in component and manufacturing costs. Manufacturing operations costs relative to net revenues decreased by 2.6 percent principally due to increases in the number of ports shipped and savings from the restructuring programs we implemented during the second quarter of fiscal year 2004 (see Note 4, “Restructuring Costs,” of the Notes to Condensed Consolidated Financial Statements). In addition, gross margin increased by 0.2 percent due to lower stock-based compensation expense in the six months ended April 30, 2005 primarily as a result of changes in the market value of our common stock.

     Gross margin is primarily affected by average selling price per port, number of ports shipped, and cost of goods sold. We expect that average selling price per port for our products will continue to decline at rates consistent with the rates we experienced in the three months ended April 30, 2005, 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.

     During the six months ended April 30, 2005 and fiscal year 2004, we were able to either introduce new products at lower costs or reduce our costs to offset the decline in the average unit selling prices of our products. However, during fiscal year 2003, the average unit selling prices of our products declined at a faster pace than we had previously experienced. If this dynamic reoccurs, 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 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.

     We recently introduced several new products and expect to introduce additional new products in the future. As new or enhanced products are introduced, we must successfully manage the transition from older products in order to minimize disruption in customers’ ordering patterns, avoid excessive levels of older product inventories, and provide sufficient supplies of new products to meet customer demands. Our gross margins may be adversely affected if we fail to successfully manage the introductions of these new products.

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     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 other test equipment; and IT and facilities expenses.

     For the three months ended April 30, 2005, R&D expenses decreased by $3.0 million, or nine percent, to $31.4 million, compared with $34.4 million for the three months ended May 1, 2004. This decrease is primarily due to a $4.8 million decrease in salaries and head count related expenses as a result of the restructuring programs we implemented in the second quarter of fiscal year 2004, partially offset by a $1.7 million increase in expenses related to new product development spending and a $0.5 million increase in stock-based compensation expense as a result of changes in the market value of our common stock. In addition, the decrease in R&D expenses reflects the effect of the extra week in the second quarter of fiscal year 2004.

     For the six months ended April 30, 2005, R&D expenses decreased by $8.4 million, or 12 percent, to $63.0 million, compared with $71.4 million for the six months ended May 1, 2004. This decrease is primarily due to a $11.0 million decrease in salaries and head count related expenses as a result of the restructuring programs we implemented in the second quarter of fiscal year 2004 and a $1.0 million decrease in stock-based compensation expense as a result of changes in the market value of our common stock, partially offset by a $4.2 million increase in expenses related to new product development spending. In addition, the decrease in R&D expenses reflects the effect of the extra week in the second quarter of fiscal year 2004.

     Excluding the effect of variable stock-based compensation related charges, which will vary depending on the changes in the market value of our common stock, we currently anticipate that R&D expenses for the three months ending July 30, 2005 will increase in absolute dollars primarily resulting from additional spending related to new product development.

     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.

     For the three months ended April 30, 2005, sales and marketing expenses decreased by $2.1 million, or eight percent, to $25.1 million, compared with $27.2 million for the three months ended May 1, 2004. This decrease is primarily due to a $2.4 million decrease in salaries and head count related expenses as a result of the restructuring programs we implemented in the second quarter of fiscal year 2004, partially offset by a $0.4 million increase in sales and marketing program expenses. There was no material change in stock-based compensation expense for the three months ended April 30, 2005 when compared to the three months ended May 1, 2004.

     For the six months ended April 30, 2005, sales and marketing expenses decreased by $4.4 million, or eight percent, to $49.9 million, compared with $54.3 million for the six months ended May 1, 2004. This decrease is primarily due to a $3.7 million decrease in salaries and head count related expenses as a result of the restructuring programs we implemented in the second quarter of fiscal year 2004, a $0.6 million decrease in travel and marketing program expenses resulting from various cost-cutting actions, and a $0.7 million decrease in stock-based compensation expense as a result of changes in the market value of our common stock. In addition, the decrease in sales and marketing expenses reflects the effect of the extra week in the second quarter of fiscal year 2004.

     Excluding the effect of variable stock-based compensation related charges, which will vary depending on the changes in the market value of our common stock, we currently anticipate that sales and marketing expenses for the three months ending July 30, 2005 will remain consistent in absolute dollars.

     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, accounting and professional fees, corporate legal expenses, other corporate expenses, and IT and facilities expenses.

     G&A expenses decreased by $0.2 million, or three percent, to $5.7 million for the three months ended April 30, 2005, compared with $5.9 million for the three months ended May 1, 2004. This decrease in G&A expenses is primarily due to a reduction of expenses due to the effect of the extra week in the second quarter of fiscal year 2004. There was no material

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change in stock-based compensation expense for the three months ended April 30, 2005 when compared to the three months ended May 1, 2004.

     G&A expenses increased by $0.4 million, or three percent, to $12.4 million for the six months ended April 30, 2005, compared with $11.9 million for the six months ended May 1, 2004. This increase in G&A expenses is primarily due to a $1.0 million increase in professional service fees, partially offset by a reduction of expenses due to the effect of the extra week in the second quarter of fiscal year 2004. There was no material change in stock-based compensation expense for the six months ended April 30, 2005 when compared to the six months ended May 1, 2004.

     Excluding the effect of variable stock-based compensation related charges, which will vary depending on the changes in the market value of our common stock, we currently anticipate that G&A expenses for the three months ending July 30, 2005 will remain consistent or decrease in absolute dollars resulting from a decrease in professional service fees.

     Internal review and SEC investigation costs. 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 came to our attention that indicated that certain guidelines regarding stock option granting practices were not followed and our Audit Committee had commenced an independent review of our stock option accounting regarding LOA and transition and advisory roles. In addition, we are undergoing an SEC and Department of Justice (“DOJ”) joint investigation regarding our historical stock option granting practices. As a result, for the three and six months ended April 30, 2005, we recorded $1.4 million and $5.1 million, respectively, for ongoing professional service fees related to the internal review and SEC investigation. We did not incur any internal review or SEC investigation costs during the three or six months ended May 1, 2004.

     Settlement of an acquisition-related claim. In the three months ended May 1, 2004, we recorded a $6.9 million charge in settlement of a claim relating to our acquisition of Rhapsody Networks, Inc. (“Rhapsody”). Under the terms of the settlement, in the third quarter of fiscal year 2004 we issued 1.3 million shares of common stock to the former Rhapsody shareholders in exchange for a release of claims.

     Amortization of deferred stock compensation. Amortization of deferred stock compensation was zero and $0.1 million for the three months ended April 30, 2005 and May 1, 2004, respectively, and $0.1 million and $0.3 million for the six months ended April 30, 2005 and May 1, 2004, respectively. In the second quarter of fiscal 2003, we recorded $1.7 million of deferred stock compensation in connection with our acquisition of Rhapsody. The $1.7 million of deferred stock compensation represented the intrinsic value of unvested restricted common stock and assumed stock options, and is being amortized over the respective remaining service periods on a straight-line basis. As of April 30, 2005, the remaining unamortized balance of this deferred stock compensation was $0.1 million.

     In addition to the deferred stock compensation connected with our acquisition of Rhapsody, we have recorded deferred stock compensation arising from stock option grants subject to variable accounting, change in measurement date and restricted stock award grants to certain employees. Compensation expense resulting from these non-acquisition related grants are included in cost of sales, R&D, sales and marketing, or G&A, based on the department of the employee receiving the award. Accordingly, amortization of deferred stock compensation does not include the compensation expense arising from these awards.

     Total stock-based compensation benefit recognized for the three months ended April 30, 2005 and May 1, 2004 was $0.7 million and $1.6 million, respectively. Total stock-based compensation expense (benefit) recognized for the six months ended April 30, 2005 and May 1, 2004 was $(1.6) million and $0.6 million, respectively. Stock-based compensation expense related to stock options subject to variable accounting will vary significantly as a result of changes in the market value of our common stock. The change in stock-based compensation during the three and six months ended April 30, 2005 as compared to the three and six months ended May 1, 2004 is due to a change in market values of our common stock during the reported periods.

     Restructuring costs. During the three months ended April 30, 2005, we recorded a reduction of $0.1 million to restructuring costs related to recovery of previously recorded restructuring costs. During the three months ended May 1, 2004, we implemented a restructuring plan, which was designed to optimize our business model to drive improved profitability. The plan encompassed organizational changes including a reduction in force (see Note 4, “Restructuring Costs,” of the Notes to Condensed Consolidated Financial Statements). Accordingly, we recorded $10.5 million in restructuring costs consisting of severance and benefit charges, equipment impairment charges, and contract termination and other charges.

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     Restructuring costs for the six months ended April 30, 2005 and May 1, 2004 were $(0.1) million and $10.1 million, respectively. Restructuring costs for the six months ended May 1, 2004 include a reduction of $0.4 million to restructuring costs related to our other previously recorded restructuring liability, primarily due to a lower than expected outcome related to outplacement costs.

     Lease termination charge and other, net. During the three months ended January 24, 2004, we purchased a previously leased building located near our San Jose headquarters for $106.8 million in cash plus transaction costs, consisting of the purchase of land and building valued at $30.0 million and a lease termination fee of $76.8 million. The 194,000 square foot facility, which houses our engineering organization and development, test and interoperability laboratories, was previously leased. As a result of the building purchase, during the first quarter of fiscal year 2004, we recorded adjustments to the previously recorded facilities lease loss reserve and recorded a charge of $75.6 million primarily related to lease termination, facilities consolidation and other associated costs (see Note 7, “Liabilities Associated with Facilities Lease Losses,” of the Notes to Condensed Consolidated Financial Statements). We did not incur any lease termination charge during the three or six months ended April 30, 2005.

     Interest and other income, net. Interest and other income, net increased to $5.6 million for the three months ended April 30, 2005, compared with $5.0 million for the three months ended May 1, 2004, and $10.8 million and $9.6 million for the six months ended April 30, 2005 and May 1, 2004, respectively. The increases for the three and six months ended April 30, 2005 are primarily the result of higher average rates of return due to investment mix, increase in interest rates, and higher average cash, cash equivalent and investment balances.

     Interest expense. Interest expense was $1.8 million and $2.9 million for the three months ended April 30, 2005 and May 1, 2004, respectively, and $4.1 million and $5.6 million for the six months ended April 30, 2005 and May 1, 2004, respectively. Interest expense primarily represents the interest cost associated with our two percent convertible subordinated notes due 2007. The decrease was primarily the result of the repurchases of our convertible subordinated debt, resulting in a lower aggregate amount of debt outstanding as of April 30, 2005. The balance outstanding of our convertible subordinated debt as of April 30, 2005 and May 1, 2004 was $278.9 million and $433.7 million, respectively.

     Gain on repurchases of convertible subordinated debt. During the three months ended April 30, 2005 and May 1, 2004, we repurchased $69.2 million and none in face value of our two percent convertible subordinated notes due 2007 (the notes or convertible subordinated debt), respectively, on the open market. For the three months ended April 30, 2005, we paid an average of $0.96 on each dollar of face value for an aggregate purchase price of $66.5 million, which resulted in a pre-tax gain of $2.2 million.

     During the six months ended April 30, 2005 and May 1, 2004, we repurchased $73.4 million and $9.2 million in face value of our convertible subordinated debt, respectively, on the open market. For the six months ended April 30, 2005, we paid an average of $0.96 on each dollar of face value for an aggregate purchase price of $70.5 million, which resulted in a pre-tax gain of $2.3 million. For the six months ended May 1, 2004, we paid an average of $0.93 on each dollar of face value for an aggregate purchase price of $8.6 million, which resulted in a pre-tax gain of $0.5 million.

     Provision for income taxes. For the three months ended April 30, 2005, we recorded an income tax provision of $4.0 million, compared to a benefit of $6.0 million for the three months ended May 1, 2004. For the six months ended April 30, 2005, we recorded an income tax provision of $9.3 million, compared to a benefit of $2.2 million for the six months ended May 1, 2004. Our income tax provision is composed of US and foreign income taxes. Brocade has a full valuation allowance against its deferred tax assets. We expect to continue to record an income tax provision for US and foreign income taxes. 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.

Liquidity and Capital Resources

     Cash, cash equivalents, short-term investments and long-term investments were $746.7 million as of April 30, 2005. For the six months ended April 30, 2005, we generated $83.7 million in cash from operating activities, primarily related to net income, non-cash expense items, including depreciation and amortization, and a decrease in accounts receivable. Days sales outstanding in accounts receivable for the six months ended April 30, 2005 and May 1, 2004 was 52 days.

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     Net cash used in investing activities for the six months ended April 30, 2005 totaled $28.1 million and was the result of $16.7 million in net purchases of short, long-term, and other investments, and $11.4 million cash invested in capital equipment.

     Net cash used in financing activities for the six months ended April 30, 2005 was $53.6 million, and was the result of $70.5 million cash used for repurchases of our convertible subordinated debt, $7.1 million cash used to repurchase our common stock under the stock repurchase program approved in August 2004 by our Board of Directors, partially offset by $23.9 million in net proceeds from the issuance of common stock related to employee participation in employee stock programs and exercises of stock options.

     Net proceeds from the issuance of common stock related to employee participation in employee stock programs have historically been a significant component of our liquidity. The employee participation level in these programs generally increases or decreases based upon changes in the market price of our common stock. Accordingly, our cash flows resulting from the issuance of common stock related to employee participation in employee stock programs will vary and cannot be predicted. Further more, as a result of our voluntary stock option exchange program, which was completed in July 2003, we do not expect to generate significant cash flow from the issuance of common stock related to the employee participation in employee stock programs during fiscal year 2005 unless our future common stock price exceeds $6.54 per share, which is the exercise price of the stock options granted under the exchange program.

     Manufacturing and Purchase Commitments. We have a manufacturing agreement with Hon Hai Precision Industry Co. (“Foxconn”) 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 depends on the specific product. As of April 30, 2005, our aggregate commitment to Foxconn for inventory components used in the manufacture of Brocade products was $51.4 million, net of purchase commitment reserves of $5.8 million, which we expect to utilize during future normal ongoing operations. Although the purchase orders we place with Foxconn are cancelable, the terms of the agreement require us to purchase from Foxconn all inventory components not returnable or usable by, or sold to, other customers of Foxconn. Our purchase commitments reserve reflects our estimate of purchase commitments we do not expect to consume in normal operations.

     In addition, the Company also has a purchase commitment with another vendor totaling $10.6 million, net of purchase commitment reserves of $1.1 million.

     Convertible Subordinated Debt. On December 21, 2001, and January 10, 2002, we sold $550 million in aggregate principal amount of our convertible subordinated debt (see note 8, “Convertible Subordinated Debt,” of the Notes to Condensed Consolidated Financial Statements). Holders of the notes may, in whole or in part, convert the notes into shares of our common stock at a conversion rate of 22.8571 shares per $1,000 principal amount of notes (aggregate of approximately 6.4 million shares based on outstanding debt of $278.9 million as of April 30, 2005) at any time prior to maturity on January 1, 2007. At any time on or after January 5, 2005, we may redeem the notes in whole or in part at the following prices expressed as a percentage of the principal amount:

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

     We are required to pay interest on January 1 and July 1 of each year, beginning July 1, 2002. Debt issuance costs of $12.4 million are being amortized over the term of the notes. The amortization of debt issuance costs will accelerate upon early redemption or conversion of the notes. The net proceeds remain available for general corporate purposes, including working capital and capital expenditures. As of April 30, 2005, the remaining balance of unamortized debt issuance costs was $2.1 million.

     During the three months ended April 30, 2005, the Company repurchased on the open market $69.2 million in face value of its convertible subordinated debt. The Company paid an average of $0.96 on each dollar of face value for an aggregate purchase price of $66.5 million, which resulted in a pre-tax gain of $2.2 million for the three months ended April 30, 2005. During the six months ended April 30, 2005, the Company repurchased a total of $73.4 million in face value of its convertible subordinated debt, which resulted in a pre-tax gain of $2.3 million for the six months ended April 30, 2005. To date, the

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Company has repurchased a total of $271.1 million in face value of its convertible subordinated notes. As of April 30, 2005, the remaining balance outstanding of the convertible subordinated debt was $278.9 million.

     On August 23, 2005, in accordance with the terms of the indenture agreement dated December 21, 2001 with respect to the Company’s 2% Convertible Subordinated Notes Due 2007 (the “Notes”), the Company elected to deposit funds with the trustee of the Notes (the “Trustee”) and to discharge the indenture agreement. The Company deposited an aggregate of $276.1 million in interest-bearing U.S. securities with the Trustee. Pursuant to this election, the Company provided an irrevocable letter of instruction to the Trustee to issue a notice of redemption on June 26, 2006 and to redeem the Notes on August 22, 2006 (the “Redemption Date”). Over the course of the next year, the Trustee, using the securities deposited with them, will pay to the noteholders (1) all the interest scheduled to become due per the original note prior to the Redemption Date, and (2) all the principal and remaining interest, plus a call premium of 0.4% of the face value of the Notes, on the Redemption Date. The funds will remain on the Company’s balance sheet as restricted securities until the Redemption Date.

     Other Contractual Obligations. In November 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.

     The following table summarizes our contractual obligations (including interest expense) and commitments as of April 30, 2005 (in thousands):

			Less than				After
	Total		1 year		1 – 3 years		3 years
Contractual Obligations:
Convertible subordinated notes, including interest	$	290,038	$	5,578	$	284,460	$	—
Non-cancelable operating leases		73,703		16,131		26,614		30,958
Unconditional purchase obligations, gross		68,905		68,905		—		—
Total contractual cash obligations	$	432,646	$	90,614	$	311,074	$	30,958
Other Commitments:
Standby letters of credit	$	8,343	$	n/a	$	n/a	$	n/a
Guarantee	$	1,015	$	n/a	$	n/a	$	n/a

     Share Repurchase Program. In August 2004, our board of directors approved a share repurchase program for up to $100.0 million of our common stock. 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. To date, we have repurchased 1.15 million shares and $92.9 million remains available for future repurchases under this program.

     We believe that our existing cash, cash equivalents, short-term and long-term investments, and cash expected to be generated from future operations will be sufficient to meet our capital requirements at least through the next 12 months. Our future capital requirements will depend on many factors, including: the rate of revenue growth; the timing and extent of spending to support product development efforts and the expansion of sales and marketing; the timing of introductions of new products and enhancements to existing products; and the market acceptance of our products.

Critical Accounting Policies and Estimates

     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, 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.

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     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 and purchase commitment reserves;

• Restructuring charges and lease loss reserves;

• 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, 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 actually 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, warranty, 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 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. 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 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 based upon vendor-specific objective evidence (“VSOE”) of the fair value of the element or, if VSOE is not available, by application of the residual method. 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. The Company accounts for its stock option plans and its Employee Stock Purchase Plan in accordance with the provisions of Accounting Principles Board Opinion 25, “Accounting for Stock Issued To Employees,” (“APB 25”), whereby the difference between the exercise price and the fair market value on the date of grant is recognized as

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compensation expense. Under the intrinsic value method of accounting, no compensation expense is recognized in the Company’s Condensed Consolidated Statements of Operations when the exercise price of the Company’s employee stock option grants 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. When the measurement date is not certain, then the Company records stock compensation expense using variable accounting under APB 25. When variable accounting is applied to stock option grants, the Company remeasures the intrinsic value of the options at the end of each reporting period or until the options are exercised, cancelled or expire unexercised. Compensation expense in any given period is calculated as the difference between total earned compensation at the end of the period, less total earned compensation at the beginning of the period. Compensation earned is calculated under an accelerated vesting method in accordance with FASB Interpretation 28. As a result, changes in stock prices will change the intrinsic value of the options and compensation expense or benefit recognized in any given period.

     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 and purchase commitment reserves. We write down inventory and record purchase commitment reserves for estimated excess and obsolete inventory equal to the difference between the cost of inventory and the estimated fair value based upon assumptions about future 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 reserves, and charges against earnings might be required.

     Restructuring charges and lease loss reserves. We monitor and regularly evaluate our organizational structure and associated operating expenses. Depending on events and circumstances, we may decide to restructure our operations to reduce future operating costs as our business requirements evolve. In determining the 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 facilities lease loss reserves, we make various assumptions, including the time period over which the facilities will 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.

     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. The determination of our tax provision is subject to judgments and estimates due to operations in multiple tax jurisdictions 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.

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

Recent Accounting Pronouncements

     In December 2004, the FASB issued a revision of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123R”). SFAS 123R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS 123 as originally issued and EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” SFAS 123R is effective for the first interim or annual reporting period of the company’s first fiscal year that begins on or after June 15, 2005. We are in the process of determining the effect of the adoption of SFAS 123R will have on our financial position, results of operations, and cash flows.

     In March 2005, the U.S. Securities and Exchange Commission, or SEC, released Staff Accounting Bulletin 107, “Share-Based Payments,” (“SAB 107”). The interpretations in SAB 107 express views of the SEC staff, or staff, regarding the interaction between SFAS 123R and certain SEC rules and regulations, and provide the staff’s views regarding the valuation of share-based payment arrangements for public companies. In particular, SAB 107 provides guidance related to share-based payment transactions with non-employees, the transition from nonpublic to public entity status, valuation methods (including assumptions such as expected volatility and expected term), the accounting for certain redeemable financial instruments issued under share-based payment arrangements, the classification of compensation expense, non-GAAP financial measures, first-time adoption of SFAS 123R in an interim period, capitalization of compensation cost related to share-based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS 123R, the modification of employee share options prior to adoption of SFAS 123R and disclosures in Management’s Discussion and Analysis subsequent to adoption of SFAS 123R. SAB107 requires stock-based compensation be classified in the same expense lines as cash compensation is reported for the same employees. We are in the process of determining the effect of the adoption of SAB 107 will have on our financial position, results of operations, and cash flows.

Risk Factors

Our future revenue growth depends on our ability to introduce new products on a timely basis and achieve market acceptance of these new products.

     The market for SANs is characterized by rapidly changing technology and accelerating product introduction cycles. Our future success depends upon our ability to address the rapidly changing needs of our customers by developing and manufacturing high-quality, cost-effective products and product enhancements on a timely basis, and by keeping pace with technological developments and emerging industry standards. This risk will become more pronounced as the SAN market becomes more competitive and subject to increased demand for new and improved technologies.

     We have recently introduced a significant number of new products, primarily in our SilkWorm product family, which accounts for a substantial portion of our revenues. For example, during the first nine months of fiscal year 2005 we introduced five new SilkWorm products: the SilkWorm 48000 Director, the SilkWorm 200E entry level fabric switch, four new switch modules for bladed server solutions, and a new release of Fabric Manager software. We also launched two new software products, the Tapestry Application Resource Manager solution and the Tapestry Wide Area File Services solution, as well as new service and support offerings. We must achieve widespread market acceptance of our new products in order to realize the benefits of our investments in these products. The rate of market adoption is also critical. The success of our products depends on numerous factors, including our ability:

• to properly define the new products,

• to timely develop and introduce the new products,

• to differentiate our new products from the products of our competitors, and

• to address the complexities of interoperability of our products with our OEM partners’ server and storage products and our competitors’ products.

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     Some factors impacting market acceptance are also outside of our control, including the availability and price of competing products and technologies, product qualification requirements by our OEM partners which can cause delays in the market acceptance, and the ability of our OEM partners to successfully distribute, support and provide training for our products. If we are not able to successfully develop and market new and enhanced products, our business and results of operations will be harmed.

Our failure to successfully manage the transition between our new products and our older products may adversely affect our financial results.

     As we introduce new or enhanced products, we 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. When we introduce new or enhanced products, we face 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.

     We recently introduced 4 Gigabit per second (“Gbit”) technology solutions that replace many of our 2 Gbit products. If our 4 Gigabit products are not adopted, or are adopted more slowly by our customers than we expect, we risk overproduction of 4 Gbit technology components, and if these new products are adopted more quickly by our customers than we expect, we could be left with excess inventory of 2 Gbit technology components that are obsolete, either of which would harm our business and financial results. In addition to performance advantages, certain of our 4 Gbit switch products also offer flexible port configurations that allow our customers to service their historical demand needs with lower inventories. Because our customers may be able to have the same market coverage with significantly fewer products, less inventory on hand is required.

We are currently diversifying our product and service offerings to include software applications and support services, and our operating income and gross margin will suffer if these initiatives are not successful.

     Starting in the second half of fiscal year 2004, we began making a series of investments in the development and acquisition of new technologies and services, including new switch modules for bladed server solutions, new hardware and software solutions for information technology infrastructure management and new service and support offerings. Our strategy is to derive competitive advantage and drive incremental revenue growth through such investments. However, we cannot be certain that our new strategic offerings will achieve market acceptance, or that we will benefit fully from the substantial investments we have made and plan to continue to make in them. In addition, these investments have caused, and will likely continue to result in, higher operating expenses and if they are not successful, our operating income and operating margin will deteriorate.

     For instance, we have hired a number of additional employees and spent considerable resources in the development of software applications used in two recently introduced solutions, a Tapestry Application Resource Manager solution and a Tapestry Wide Area File Services solution. In addition, our acquisition of Therion Software Corporation and our investment in a strategic partnership contributed to the software applications associated with these two solutions. In addition, because some of these offerings may be different from the areas that we have historically focused on, we may face a number of additional challenges, such as:

• successfully identifying market opportunities;

• developing new customer relationships;

• expanding our relationship with our existing OEM partners and end-users

• managing different sales cycles; and

• establishing effective distribution channels.

     These new product offerings also may contain some features that are currently offered by our OEM partners, which could cause conflicts with partners on whom we rely to bring our current products to customers and thus negatively impact our relationship with such partners. In addition, if we are unable to successfully integrate new offerings that we develop, license or otherwise acquire into our existing base of products and services, our business and results of operations may be harmed.

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     We are also investing in an expanded service initiative, which may be costly and may not gain market acceptance. For instance, we recently announced the availability of new professional services designed to assist customers in designing, installing, operating and supporting shared storage infrastructures. Traditionally, we have relied on our OEM partners and third parties to provide such support for end-users of our products and services, and we cannot be sure that this change in our business model will result in anticipated revenues. For instance, staffing support centers involves cost and revenue structures that are different from those used in selling hardware and licensing software. We also may need to increase headcount to staff support centers. Revenue will be dependent on our ability to utilize service providers, and if we do not effective manage costs relative to revenue, our services initiative will not be successful. In addition, bringing the service initiative to market may be competitive with our OEM partners and other distribution channel partners.

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

     The SAN market is becoming increasingly more competitive. Increased competition has in the past resulted in greater pricing pressure, and reduced sales, margins, profits and market share. Currently, we believe that we principally face competition from providers of Fibre Channel switching products for interconnecting servers and storage. These competitors include Cisco Systems, McDATA Corporation (which completed its acquisition of Computer Network Technology Corporation (“CNT”) on June 1, 2005) and QLogic Corporation. In addition, our OEM partners, who also have relationships with some of our current competitors, could become new competitors by developing and introducing products competitive with our product offerings, choosing to sell our competitors’ products instead of our products, or offering preferred pricing or promotions on our competitors’ products.

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

     The SAN market is likely to become even more competitive as new products and technologies are introduced by existing competitors and as new competitors enter the market. These new competitive products could be based on existing technologies or new technologies that may or may not be compatible with our SAN technology. Competitive products might include, but are not limited to, non-Fibre Channel based emerging products utilizing Gigabit Ethernet, 10 Gigabit Ethernet, InfiniBand or iSCSI (Internet Small Computer System Interface).

     Our competitors may also pressure our 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 our competitors has formed a strategic partnership with a provider of network storage systems, which includes an agreement whereby our competitor resells the storage systems of its partner in exchange for sales by the partner of our competitor’s products. Such strategic partnerships, if successful, may influence us to change our traditional distribution model.

The prices of our products have declined in the past, and we expect the price of our products to continue to decline, which would reduce our revenues, gross margins and profitability.

     The average selling price per port for our products has declined in the past, and we expect 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 us or our competitors, the entrance of new competitors or other factors. For example, since the second half of fiscal year 2004, we have introduced and began shipping a number of new products that expand and extend the breadth of our product offerings. Several of these new products have lower revenues, gross margin, and profitability characteristics than our traditional products. If we are unable to offset any negative impact that changes in product mix, competitive pricing pressures, increased sales discounts, enhanced marketing programs, new product introductions by us or our competitors, or other factors may have on us by increasing the number of ports shipped or reducing product manufacturing cost, our total revenues and gross margins will decline.

     In addition, to maintain our gross margins we must maintain or increase the number of ports shipped, develop and introduce new products and product enhancements, and continue to reduce the manufacturing cost of our products. While we have successfully reduced the cost of manufacturing our products in the past, we may not be able to continue to reduce cost of

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production at historical rates. Moreover, most of our expenses are fixed in the short-term or incurred in advance of receipt of corresponding revenue. As a result, we may not be able to decrease our spending to offset any unexpected shortfall in revenues. If this occurs, we could incur losses, our operating results and gross margins would be below our expectations and the expectations of investors and stock market analysts, and our stock price would be negatively affected.

We depend on OEM partners for a majority of our revenues, and the loss of any of these OEM partners or a decrease in the levels of their purchases could significantly reduce our revenues and negatively affect our financial results.

     We depend on recurring purchases from a limited number of large OEM partners for the majority of our revenue. As a result, these large OEM partners have a significant influence on our quarterly and annual financial results. Our agreements with our OEM partners are typically cancelable, non-exclusive, have no minimum purchase requirements and have no specific timing requirements for purchases. For the three months ended April 30, 2005, three customers each represented ten percent or more of our total revenues for a combined total of 73 percent. We anticipate that our revenues and operating results will continue to depend on sales to a relatively small number of customers. The loss of any one significant customer, or a decrease in the level of sales to any one significant customer, or unsuccessful quarterly negotiation on key terms, conditions or timing of purchase orders placed during a quarter, could seriously harm our business and financial results.

     In addition, some of our OEM partners purchase our 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 we maintain inventories of our products in hubs adjacent to their manufacturing facilities and purchase our products only as necessary to fulfill immediate customer demand. If more of our OEM partners transition into a hub model, form partnerships, alliances or agreements with other companies that diverts business away from us; 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 our reported revenues. The timing of sales to our OEM partners, and consequently the timing and volatility of our reported revenues, may be further affected by the product introduction schedules of our OEM partners. We also may be exposed to higher risks of obsolete or excess inventories.

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

Our 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 our stock.

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

• announcements, introductions, and transitions of new products by us and our competitors or our OEM partners;

• the timing of customer orders, product qualifications, and product introductions of our OEM partners;

• seasonal fluctuations;

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

• declines in average selling price per port for our products as a result of competitive pricing pressures or new product introductions by us or our competitors;

• the emergence of new competitors in the SAN market;

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

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• our 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 our products;

• our ability to attain and maintain production volumes and quality levels;

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

• pending or threatened litigation;

• new legislation and regulatory developments; and

• other risk factors detailed in this section entitled “Risk Factors.”

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

If our assumptions regarding our revenues and margins do not materialize, our future profitability could be adversely affected.

     We did not attain profitability for the full fiscal years 2004 or 2003, and we may not be able to attain profitability in the future. We make our investment decisions and plan our operating expenses based in part on future revenue projections. However, our ability to accurately forecast quarterly and annual revenues is limited, as discussed above in “Our 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 our stock.” If our projected revenues and margins do not materialize, our future profitability could be adversely affected. Moreover, we expect to incur significant costs and expenses for product development, sales, marketing and customer support, most of which are fixed in the short-term or incurred in advance of receipt of corresponding revenue. As a result, we may not be able to decrease our spending to offset any unexpected shortfall in revenues.

The loss of our third-party contract manufacturer would adversely affect our ability to manufacture and sell our products.

     The loss of our third-party contract manufacturer could significantly impact our ability to produce our products for an indefinite period of time. Qualifying a new contract manufacturer and commencing volume production is a lengthy and expensive process. If we are required to change contract manufacturers, we fail to effectively manage our contract manufacturer, or if our contract manufacturer experiences delays, disruptions, capacity constraints, component parts shortages or quality control problems in its manufacturing operations, shipment of our products to our customers could be delayed resulting in loss of revenues and our competitive position and relationship with customers could be harmed.

If we lose key personnel or are unable to hire additional qualified personnel, our business may be harmed.

     Our 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. We believe our future success will also depend, in large part, upon our 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. We have experienced difficulty in hiring qualified personnel in areas such as application specific integrated circuits, software, system and test, sales, marketing, key management and customer support. In addition, our past reductions in force could potentially make attracting and retaining qualified employees more difficult in the future. Our ability to hire qualified personnel may also be negatively impacted by our recent internal reviews and restatements, related investigations by the SEC and Department of Justice (“DOJ”), listing status with The Nasdaq National Market and current level of our stock price. The loss of the services of any of our key employees, the inability to attract or retain qualified personnel in the future, or delays in hiring required personnel, particularly engineers and sales personnel, could delay the development and introduction of, and negatively affect our ability to sell, our products.

     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. We may be subject to such claims in the future as we seek to hire additional qualified personnel. Such claims could result in material litigation. As a result, we 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 us.

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

We provide product forecasts to our contract manufacturer and place purchase orders with it in advance of the scheduled delivery of products to our customers. In preparing sales and demand forecasts, we rely largely on input from our distribution partners. Therefore, if our distribution partners are unable to accurately forecast demand, or if we fail to effectively communicate with our 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, we may be unable to obtain adequate manufacturing capacity from our contract manufacturer to meet customers’ delivery requirements, or we may accumulate excess inventories. Furthermore, we may not be able to identify forecast discrepancies until late in our fiscal quarter. Consequently, we may not be able to make adjustments to our business model. If we are unable to obtain adequate manufacturing capacity from our contract manufacturer, if we accumulate excess inventories, or if we are unable to make necessary adjustments to our business model, our business and financial results may be negatively affected. In addition, although the purchase orders placed with our contract manufacturer are cancelable, in certain circumstances we could be required to purchase certain unused material not returnable, usable by, or sold to other customers if we cancel any of our orders. This purchase commitment exposure is particularly high in periods of new product introductions and product transitions, for example, the ones we experienced during the first nine months of fiscal year 2005 and in the third quarter of fiscal year 2004 with the introduction of our 3250 and 3850 switch products. If we are required to purchase unused material from our contract manufacturer, we would incur unanticipated expenses and our business and financial results could be negatively affected.

Our business is subject to cyclical fluctuations and uneven sales patterns.

     Many of our OEM partners experience uneven sales patterns in their businesses due to the cyclical nature of information technology spending. For example, some of our 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 our sales are derived from a small number of OEM partners, when they experience seasonality, we experience similar seasonality. For instance, we were exposed to significant seasonality in the second fiscal quarter of fiscal year 2005 in part due to weaker spending in the enterprise product line during the first calendar quarter of 2005. In addition, we have experienced quarters where uneven sales patterns of our OEM partners have resulted in a significant portion of our revenue occurring in the last month of our fiscal quarter. This exposes us to additional inventory risk as we have to order products in anticipation of expected future orders. We are not able to predict the degree to which the seasonality and uneven sales patterns of our OEM partners or other customers will affect our business in the future particularly as we release new products.

We are dependent on sole source and limited source suppliers for certain key components.

     We purchase certain key components used in the manufacture of our products from single or limited sources. We purchase ASICs from a single source, and we purchase microprocessors, certain connectors, logic chips, power supplies and programmable logic devices from limited sources. We also license certain third-party software that is incorporated into our operating system software and other software products. If we are unable to timely obtain these and other components or experience significant component defects, we may not be able to deliver our products to our customers in a timely manner. As a result, our business and financial results could be harmed.

     We use rolling forecasts based on anticipated product orders to determine component requirements. If we overestimate component requirements, we may have excess inventory, which would increase our costs. If we underestimate component requirements, we may have inadequate inventory, which could interrupt the manufacturing process and result in lost or deferred revenue. In addition, lead times for components vary significantly and depend on factors such as the specific supplier, contract terms, and demand for a component at a given time. We also may experience shortages of certain components from time to time, which also could delay the manufacturing and sales processes. If we overestimate or underestimate our component requirements, or if we experience shortages, our business and financial results could be harmed.

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

     We are subject to a number of lawsuits arising from our recent internal reviews and related restatements that have been filed, some purportedly on behalf of a class of our stockholders against us and certain of our executive officers claiming violations of securities laws and others purportedly on behalf of Brocade against certain of our executive officers and board members, and we 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 ourselves may divert management’s attention from the day-to-day operations of our business, which could adversely affect our business, results of operations and cash flows. In addition, an unfavorable outcome in such litigation could have a material adverse effect on our business, results of operations and cash flows.

We are subject to investigation by the SEC and DOJ arising from our recent internal reviews and related restatements, which investigation may not be resolved favorably and has required, and may continue to require, a significant amount of management time and attention and accounting and legal resources, which could adversely affect our business, results of operations and cash flows.

     The SEC and the DOJ are currently conducting an investigation of the Company. We have been, and continue to respond to, inquiries from the SEC and DOJ. The period of time necessary to resolve the SEC and DOJ investigation is uncertain, and these matters could require significant management and financial resources which could otherwise be devoted to the operation of our business. If we are subject to an adverse finding resulting from the SEC and DOJ investigation, we could be required to pay damages or penalties or have other remedies imposed upon us. The recent restatements of our financial results, the ongoing SEC and DOJ investigations and any negative outcome that may occur from these investigations could impact our relationships with customers and our ability to generate revenue. In addition, considerable legal and accounting expenses related to these matters have been incurred to date and significant expenditures may continue to be incurred in the future. The SEC and DOJ investigation could adversely affect our business, results of operations, financial position and cash flows.

We may engage in future acquisitions and strategic investments that dilute our stockholders and cause us to use cash, incur debt or assume contingent liabilities. In addition, we may not realize the anticipated benefits of past or future acquisitions and strategic investments, and integration of acquisitions may disrupt our business and management.

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

• incur significant unplanned expenses and personnel costs;

• issue stock, or assume stock option plans that would dilute our current stockholders’ percentage ownership;

• use cash, which may result in a reduction of our liquidity;

• incur debt; or

• assume liabilities.

In addition, we are not currently eligible to file registration statements on Form S-3, which could increase the cost of future acquisitions involving the issuance of stock until such time that we regain eligibility.

     We have in the past and may in the future acquire or make strategic investments in additional companies, products or technologies. Most recently, we completed the acquisition of Therion Software Corporation and a strategic investment in Tacit Networks in May 2005. We may not realize the anticipated benefits of these or any other acquisitions or strategic investments, which involve numerous risks, including:

• problems integrating the purchased operations, technologies, personnel or products over geographically disparate locations, including San Jose, California; Redmond, Washington; and India;

• unanticipated costs, litigation and other contingent liabilities;

• diversion of management’s attention from our core business;

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

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

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

• incurrence of acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;

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

• unconsummated transactions; and

• potential loss of our key employees or the key employees of an acquired organization.

If we are not be able to successfully integrate businesses, products, technologies or personnel that we acquire, or to realize expected benefits of our acquisitions or strategic investments, our business and financial results may be adversely affected.

Our revenues may be affected by changes in domestic and international information technology spending levels 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 our operating results and have led to a decline in our growth rates. We are 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, our revenues, operating results and financial condition may be adversely affected.

     Even if information technology spending rates are positively affected, we cannot be certain that the market for SAN solutions will be positively impacted. Our storage networking products are sold as part of storage systems and subsystems. As a result, the demand for our 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 we have experienced historical growth in our business as enterprise-class customers have adopted SAN technology, demand for SAN products in the enterprise-class sector continues to be adversely affected by weak or uncertain economic conditions, and because larger businesses are focusing on using their existing information technology infrastructure more efficiently rather than making new equipment purchases. If information technology spending levels are restricted, and new products improve our customers’ ability to utilize their existing storage infrastructure, the demand for SAN products may decline. If this occurs, our business and financial results will be harmed.

Our business is subject to changing regulation of corporate governance and public disclosure that has increased both our costs and the risk of noncompliance.

     We are subject to rules and regulations of federal, state and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the SEC and NASDAQ, have issued a significant number of new 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. Our efforts to comply with these new regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

     In particular, we are evaluating our internal controls in order to allow management to report on, and our independent auditors to attest to, our internal controls, as required by Section 404 of Sarbanes-Oxley Act of 2002. The requirement to comply with Section 404 of the Sarbanes-Oxley Act of 2002 will become effective for our fiscal year ending October 29, 2005. We may encounter unexpected delays in implementing the requirements relating to internal controls, therefore, we cannot be certain about the timing of completion of our evaluation, testing and remediation actions or the impact that these activities will have on our operations since there is no precedent available by which to measure the adequacy of our compliance. We also expect to incur additional expenses and diversion of management’s time as a result of performing the system and process evaluation, testing and remediation required in order to comply with the management certification and auditor attestation requirements. If we are not able to timely comply with the requirements set forth in Section 404, we might be subject to sanctions or investigation by regulatory authorities. Any such action could adversely affect our business and financial results.

     In addition, in our system of internal controls we may rely on the internal controls of third parties including, but not limited to:

• payroll service providers;

• financial institutions;

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• contract manufacturers;

• master resellers; and

• certain OEM customers.

In our evaluation of our internal controls, we will consider the implication of our reliance on the internal controls of third parties. Until we have completed our evaluation, we are unable to determine the extent of our reliance on those controls, the extent and nature of the testing of those controls, and remediation actions necessary where that reliance cannot be adequately evaluated and tested.

Recent changes in accounting for equity compensation, including the expensing of stock options granted to our employees, could have a material impact on our reported business and financial results.

     Accounting principles generally accepted in the United States are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the PCAOB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results.

     We currently record any compensation expense associated with stock option grants to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25. On December 15, 2004, the FASB issued SFAS 123R, Share-Based Payment, which will require us to measure compensation expense for employee stock options using the fair value method beginning the first quarter of fiscal year 2006, which is the quarter ended January 28, 2006. SFAS 123R applies to all outstanding stock options that are not vested at the effective date and grants of new stock options made subsequent to the effective date. As a result of SFAS 123R we will record higher levels of stock based compensation due to differences between the valuation methods of SFAS 123R and APB 25.

Our future operating expenses may be adversely affected by changes in our stock price.

     A portion of our outstanding stock options are subject to variable accounting under Accounting Principles Board Opinion No. 25. Under variable accounting, we are 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 we recognize in any given period can vary substantially due to changes in the market value of our common stock. For example, volatility associated with stock price movements has resulting in compensation benefits when our stock price has declined and higher compensation expense when our stock price has increased. For example, the market value of our common stock at the end of the first quarter of fiscal year 2005 was $5.99 per share, compared to $4.35 per share at the end of the second quarter of fiscal year 2005. Accordingly, we recorded compensation benefit in the second quarter of fiscal year 2005 of approximately $1.5 million. We are unable to predict the future market value of our common stock and therefore are unable to predict the compensation expense or benefit that we will record in future periods.

International political instability and concerns about other international crises may increase our cost of doing business and disrupt our business.

     International political instability may halt or hinder our ability to do business and may increase our 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. Increases in energy prices will also impact our costs and could harm our operating results. In addition, concerns about other international crises, such as the spread of severe acute respiratory syndrome (or SARS), avian influenza (or bird flu) and West Nile viruses, may have an adverse effect on the world economy and could adversely affect our business operations or the operations of our OEM partners, contract manufacturer and suppliers. This political instability and concerns about other international crises may, for example:

• negatively affect the reliability and cost of transportation;

• negatively affect the desire and ability of our employees and customers to travel;

• disrupt the production capabilities of our OEM partners, contract manufacturers and suppliers;

• adversely affect our ability to obtain adequate insurance at reasonable rates; and

• require us to take extra security precautions for our operations.

Furthermore, to the extent that air or sea transportation is delayed or disrupted, the operations of our contract manufacturers and suppliers may be disrupted, particularly if shipments of components and raw materials are delayed.

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We have extensive international operations, which subjects us to additional business risks.

     A significant portion of our sales occur in international jurisdictions and our contract manufacturer has significant operations in China. We also plan to continue to expand our international operations and sales activities. Expansion of international operations will involve inherent risks that we may not be able to control, including:

• supporting multiple languages;

• recruiting sales and technical support personnel with the skills to design, manufacture, sell, and support our 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 and regulations, including differing export, import, tax, labor and employment laws;

• longer sales cycles and manufacturing lead times;

• difficulties in collecting accounts receivable;

• reduced or limited protections of intellectual property rights;

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

• more complicated logistics and distribution arrangements; and

• political and economic instability.

     To date, no material amount of our 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 our 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 our operating costs in foreign locations. In the future, a larger portion of our international revenues may be denominated in foreign currencies, including the Euro, which will subject us to additional risks associated with fluctuations in those foreign currencies.

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

     Networking products frequently contain undetected software or hardware errors, or “bugs,” when first introduced or as new versions are released. Our products are becoming increasingly complex, and errors may be found from time to time in our products. Some types of errors also may not be detected until the product is installed in a heavy production environment. In addition, our products are combined with products from other vendors. As a result, when problems occur, it may be difficult to identify the source of the problem. These problems may cause us to incur significant warranty and repair costs, divert the attention of engineering personnel from product development efforts and cause significant customer relations problems. Moreover, the occurrence of hardware and software errors, whether caused by another vendor’s SAN products, or ours, could delay market acceptance of our new products.

We rely on licenses from third parties and the loss or inability to obtain any such license could harm our business.

     Many of our products are designed to include software or other intellectual property licensed from third parties. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, we believe, based upon past experience and standard industry practice, that 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. Our inability to obtain certain licenses or other rights on favorable terms could have a material adverse effect on our business, operating results and financial condition.

If we fail to carefully manage the use of “open source” software in our products, we may be required to license key portions of our products on a royalty free basis or expose key parts of source code.

     Certain of our products or technologies acquired, licensed or developed by us may incorporate so-called “open source” software. Open source software is typically licensed for use at no initial charge, but certain open source software licenses impose on the licensee of the applicable open source software certain requirements to license or make available to others both the open source software as well as the software that relates to, or interacts with, the open source software. Our ability to

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commercialize products or technologies incorporating open source software or otherwise fully realize the anticipated benefits of any such acquisition may be restricted as a result of using such open source software.

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

     We rely on a combination of patent, copyright, trademark, and trade secret laws, confidentiality agreements, and other contractual restrictions on disclosure to protect our intellectual property rights. We also enter into confidentiality or license agreements with our employees, consultants, and corporate partners, and control access to and distribution of our technology, software, documentation, and other confidential information. These measures may not preclude the disclosure of our confidential or propriety information, or prevent competitors from independently developing products with functionality or features similar to our products. Despite efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our products is difficult, and we cannot be certain that the steps we take to prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect proprietary rights as fully as in the United States, will be effective.

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

     In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. We have in the past been involved in intellectual property-related disputes, including lawsuits with Vixel Corporation, Raytheon Company and McData Corporation, and we may be involved in such disputes in the future, to protect our intellectual property or as a result of an alleged infringement of the intellectual property of others. We also may be subject to indemnification obligations with respect to infringement of third party intellectual property rights pursuant to our agreements with customers. These claims and any resulting lawsuit could subject us to significant liability for damages and invalidation of proprietary rights. Any such lawsuits, even if ultimately resolved in our favor, would likely be time-consuming and expensive to resolve and would divert management’s time and attention. Any potential intellectual property dispute also could force us to do one or more of the following:

• stop selling, incorporating or using products or services that use the challenged intellectual property;

• obtain from the owner of the infringed intellectual property a license to the relevant intellectual property, which may require us to license our intellectual property to such owner, or may not be available on reasonable terms or at all; and

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

If we are forced to take any of the foregoing actions, our business and results of operations could be materially harmed.

Our failure, or the failure of our customers, to comply with evolving industry standards and government regulations could harm our business.

     Industry standards for SAN products are continuing to evolve and achieve acceptance. To remain competitive, we must continue to introduce new products and product enhancements that meet these industry standards. All components of the SAN must interoperate together. Industry standards are in place to specify guidelines for interoperability and communication based on standard specifications. Our products encompass only a part of the entire SAN solution utilized by the end-user, and we depend on the companies that provide other components of the SAN solution, many of whom are significantly larger than we are, to support the industry standards as they evolve. The failure of these providers to support these industry standards could adversely affect the market acceptance of our products.

     In addition, in the United States, our products comply with various regulations and standards defined by the Federal Communications Commission and Underwriters Laboratories. Internationally, products that we develop will be required to comply with standards established by authorities in various countries. Failure to comply with existing or evolving industry standards or to obtain timely domestic or foreign regulatory approvals or certificates could materially harm our business.

     We are also subject to various environmental and other regulations governing product safety, materials usage, packaging and other environmental impacts in the various countries where our products are sold. For example, many of our 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 our products when they have reached the end of their useful life. In Europe, substance restrictions will apply to products sold after July 1, 2006, and one or more of our OEM partners may require compliance with these or more stringent requirements by an earlier date. In addition, recycling, labeling, financing and related requirements have already begun to

-43-

apply to products we sell in Europe. We are redesigning some of products to ensure that they comply with these requirements, and working with our suppliers to provide us with compliant materials, parts and components. If our products do not comply with the European substance restrictions, we could become subject to fines, civil or criminal sanctions, and contract damage claims. In addition, we could be prohibited from shipping non-compliant products into the EU, and required to recall and replace any products already shipped, if such products were found to be non-compliant, which could harm our business and customer relationships. 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 our products.

Business interruptions could adversely affect our business.

     Our operations and the operations of our suppliers, contract manufacturer and customers are vulnerable to interruption by fire, earthquake, hurricanes, power loss, telecommunications failure and other events beyond our control. For example, a substantial portion of our facilities, including our corporate headquarters, is located near major earthquake faults. In the event of a major earthquake, we could experience business interruptions, destruction of facilities and loss of life. We do not carry earthquake insurance and have not set aside funds or reserves to cover such potential earthquake-related losses. In addition, our 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 us or our suppliers, contract manufacturer or customers, shipments could be delayed and our business and financial results could be harmed.

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

     Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable. These provisions include:

• authorizing the issuance of preferred stock without stockholder approval;

• providing for a classified board of directors with staggered, three-year terms;

• prohibiting cumulative voting in the election of directors;

• limiting the persons who may call special meetings of stockholders;

• prohibiting stockholder actions by written consent; and

• requiring super-majority voting to effect amendments to the foregoing provisions of our certificate of incorporation and bylaws.

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

We expect to experience volatility in our stock price, which could negatively affect stockholders’ investments.

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

• macroeconomic conditions;

• actual or anticipated fluctuations in our operating results;

• changes in financial estimates and ratings by securities analysts;

• changes in market valuations of other technology companies;

• announcements of financial results by us or other technology companies;

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

• losses of major OEM partners;

• additions or departures of key personnel;

• sales by us of common stock or convertible securities;

• incurring additional debt; and

• other risk factors detailed in this section.

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     In addition, the stock market has experienced extreme volatility that often has been unrelated to the performance of particular companies. These market fluctuations may cause our stock price to fall regardless of how the business performs.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

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

Interest Rate Risk

     Our exposure to market risk due to changes in the general level of 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 30, 2005, we did not hold any derivative instruments. The primary objective of our investment activities is the preservation of principal while maximizing investment income and minimizing risk.

     The following table presents the hypothetical changes in fair values of our investments as of April 30, 2005 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 30,		Increase of X Basis Points
Issuer	(150 BPS)		(100 BPS)		(50 BPS)		2005		50 BPS		100 BPS		150 BPS
U.S. government agencies and municipal obligations	$	324,225	$	321,786	$	319,374	$	316,966	$	314,852	$	312,761	$	310,697
Corporate bonds and notes	$	354,316	$	352,332	$	350,222	$	348,170	$	346,130	$	344,130	$	342,151
Total	$	678,541	$	674,118	$	669,596	$	665,136	$	660,982	$	656,891	$	652,848

     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.

     The following table (in thousands) presents our cash equivalents and short-term and long-term investments subject to interest rate risk and their related weighted average interest rates as of April 30, 2005. Carrying value approximates fair value.

			Weighted
			Average
	Amount		Interest Rate
Cash and cash equivalents	$	81,516		2.5	%
Short-term investments		305,543		3.4	%
Long-term investments		359,593		4.1	%
Total	$	746,652		3.6	%

     Our convertible subordinated debt is subject to a fixed interest rate and the notes are based on a fixed conversion ratio into common stock. Therefore, we are not exposed to changes in interest rates related to our long-term debt instruments. The notes are not listed on any securities exchange or included in any automated quotation system; however, the notes are eligible for trading on the Portal^SM Market. On April 29, 2005, the average bid and ask price on the Portal Market of our convertible subordinated notes due 2007 was 93.0, resulting in an aggregate fair value of approximately $259.4 million. Our common stock is quoted on the Nasdaq National Market under the symbol “BRCD.” On April 29, 2005, the last reported sale price of our common stock on the Nasdaq National Market was $4.35 per share.

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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, as of the Evaluation Date, our Chief Executive Officer and Chief Financial Officer concluded that there existed material weaknesses in our disclosure controls and procedures as of April 30, 2005 and, therefore, our disclosure controls and procedures were not operating effectively as of such date, for the reasons discussed below.

     Review of Prior Material Weaknesses.

     In January 2005, following an internal review by our Audit Committee, we determined that we had not correctly accounted for: (A) stock option grants that were made to new hires on their offer acceptance date, rather than the date of their commencement of employment, during the period May 1999 to July 2000; (B) stock option grants that were made to persons engaged on a part-time basis prior to their new hire full-time employment during the period August 2000 to October 2002; and (C) stock option grants where there was insufficient basis to rely on our internal process and related documentation to support recorded measurement dates used to account for certain stock options granted prior to August 2003. As a result, we restated our financial statements to record additional stock-based compensation charges relating to many stock option grants from the periods 1999 though the third quarter of fiscal 2003 as well as a valuation allowance associated with deferred tax assets related to previously recorded stock option tax benefits (the “January 2005 Restatement”). In addition, it was concluded that there were improprieties in connection with the documentation of stock option grants and related employment records of a small number of employees prior to mid-2002, which resulted in immaterial adjustments included in this restatement.

     Following the January 2005 Restatement, we discovered additional information that caused us to identify a material weakness relating to failure to adhere to our stock option granting policies during the period from August 2003 through November 2004. As a result, we determined that we could not rely on the documentation used to support the recorded measurement dates for the stock options granted during such period. We also identified a material weakness relating to failure to adhere to our policy regarding leaves of absence (“LOA”) and transition and advisory roles. Specifically, we determined that from 1999 through 2004, we had not appropriately accounted for the cost of stock-based compensation for certain employees on LOA and in transition or advisory roles. As a result, in connection with an internal review by the Audit Committee, we determined to further restate our financial statements to record additional charges for stock-based compensation expense (the “November 2005 Restatement”).

     In connection with each of the January 2005 Restatement and November 2005 Restatement, our Audit Committee, with the assistance of independent legal counsel who engaged a forensic accounting firm, undertook a review of the matters referenced above.

     Please refer to Note 3 to the accompanying condensed consolidated financial statements for additional information on the January 2005 Restatement and November 2005 Restatement.

     (b) Changes in Internal Control Over Financial Reporting.

     Since the beginning of fiscal year 2003, we have implemented numerous measures in connection with our ongoing effort to improve our control processes and corporate governance, many of which have been enhanced further as a result of the findings of our Audit Committee internal reviews and the determination that material weaknesses existed. As discussed below, there have been changes to our internal control over financial reporting during the quarter ended April 30, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Changes from December 2002 through January 29, 2005

     1. Improvements in Disclosure Controls and Internal Control over Financial Reporting:

• We improved the documentation of our significant accounting policies, which are reviewed with our Audit Committee.

• Improvements have been made to the Audit Committee charter and committee functions. The Audit Committee charter was expanded to include in its scope the responsibility to review and approve all new or changes to, significant accounting policies and positions. In addition, we expanded both the number of Audit Committee meetings from four to eight standing meetings, and the duration of those meetings. This allows a more in-depth review of complex accounting issues.

• We formed a Disclosure Committee composed of representatives from our accounting, legal and investor relations departments, and our financial management, the minutes of which are reviewed with the Audit Committee.

     2. Improvements in stock option granting process and related Internal Controls:

• We implemented cross functional teams composed of members of our legal, accounting and human resources departments to develop improvements in the stock option granting process.

• We formalized guidelines relating to the size and vesting schedule of stock option grants for all new employee and on-going employee grants.

• We improved the documentation of the actions of the Compensation Committee and grant subcommittee regarding stock option granting.

• We made personnel changes in areas associated with the stock option granting process to increase the levels of experience of the personnel involved.

• We increased the frequency of stock option grants, moving to grants on a two to three week routine cycle, and significantly reduced the processing time between grant dates and the delivery of option paperwork to employees.

• Increased the Compensation Committee of the Board of Directors to three independent members.

• The Compensation Committee refined and limited delegation of authority to a subcommittee to grant stock options.

• Documented into a formal written policy our stock option granting process.

• Created a pre-determined schedule for employee stock option grants, including enhancements with respect to the grant routine cycle.

• Adopted a policy not to grant executive officers options when trading is restricted for executives under the Company’s Insider Trading Policy.

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Changes from January 29, 2005 through April 30, 2005

     Between January 29, 2005 and April 30, 2005, we took a number of steps to strengthen our disclosure controls and procedures and internal control over financial reporting. These remedial measures include personnel and procedural changes to improve the employee change in status process. Specifically, we have implemented the following additional internal control improvements:

• Improved the documentation and revised the approval process for initial, or changes to, policies associated with change in employee status, including leaves of absence.

• Established cross-functional teams comprised of members of our accounting, information technology and human resource departments to develop improvements in the employee change of status systems and processes.

• Performed additional training for personnel in areas associated with employee change in status process to increase competency levels of the personnel involved.

Changes Subsequent to April 30, 2005

     Following April 30, 2005, we have taken additional measures to further strengthen our disclosure controls and procedures and internal control over financing reporting to improve the stock option granting and employee change in status processes. Specifically, we implemented the following additional internal control improvements:

• Made additional improvements to the approval process for initial, or changes to, policies associated with change in employee status, including in transition and advisory roles.

• Performed further training for personnel in areas associated with the stock option granting and employee change in status processes to enhance competency levels of the personnel involved.

We also completed further testing of the policies and procedures and related controls that we recently implemented as discussed above.

     Based on the above changes and related testing, we believe we have remedied the material weaknesses indicated above as of July 30, 2005.

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 error 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 us in the ordinary course of our 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 us 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 our 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. The settlement is subject to a number of conditions, including final approval by the Court.

     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 on behalf of purchasers of Brocade’s stock from February 2001 to May 2005. These complaints were filed in the United States District Court for the Northern District of California. The Court is in the process of selecting Lead Plaintiff and Lead Counsel. The Court will likely require the Lead Plaintiff to file one consolidated complaint. The securities class action complaints allege, among other things, violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaints seek unspecified monetary damages and other relief against the defendants. The complaints generally allege that Brocade and the individual defendants made false or misleading public statements regarding Brocade’s business and operations. 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 on October 7, 2005. The derivative actions pending in the Superior Court in Santa Clara County were consolidated. The derivative plaintiffs filed a consolidated complaint 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.

     No amounts have been recorded in the accompanying Condensed Consolidated Financial Statements associated with these matters.

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

The following table summarizes employee stock repurchase activity for the three months ended April 30, 2005 (shares in thousands):

					Total Number		Approximate
					of Shares		Dollar Value of
					Purchased as		Shares that May
	Total Number				Part of Publicly		Yet Be Purchased
	of Shares		Average Price		Announced		Under the
	Purchased(1)		Paid Per Share		Program		Program (2)
January 30, 2005 — February 26, 2005		657	$	6.19		650	$	95,975
February 27, 2005 — March 26, 2005		513	$	6.03		500	$	92,950
March 27, 2005 — April 30, 2005		—		—		—	$	92,950
Total		1,170	$	6.12		1,150	$	92,950

(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 30, 2005, approximately 90,000 shares are subject to repurchase by Brocade.

(2)

In August 2004, our board of directors approved a share repurchase program for up to $100.0 million of our common stock. 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. As of April 30, 2005, we have purchased 1,150,000 shares at an average price of $6.13 per share, and under this program $92.9 million remains available for future repurchases.

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

     Our Annual Meeting of Stockholders was held on April 22, 2005 in San Jose, California. Of the 268,552,818 shares outstanding as of the record date, 245,494,546 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 III Directors to serve until the 2008 Annual Meeting of Stockholders or until their successors are duly elected and qualified.

Name	Votes For		Votes Withheld
Michael Klayko		223,603,966		21,890,580
Nicholas G. Moore		223,595,200		21,899,346

In addition, the terms of office of the following directors continued after the 2005 meeting:

David L. House
L. William Krause
Seth D. Neiman
Christopher B. Paisley
Neal Dempsey
Sanjay Vaswani

2. To ratify the appointment of KPMG LLP as independent auditors of Brocade for the fiscal year ending October 29, 2005.

Votes For	Votes Against	Votes Abstaining	Broker Non-Vote
243,402,554	1,962,819	129,173	-0-

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Item 6. Exhibits

Exhibit
Number	Description of Document
3.1	Amended and Restated Bylaws of the Registrant amended as of April 22, 2005
10.1 +	Amendment #10 dated March 20, 2005 to EMC Purchase Agreement between Brocade and EMC
10.2 +	Amendment #11 dated March 25, 2005 to EMC Purchase Agreement between Brocade and EMC
10.3*	Senior Leadership Plan as amended February 9, 2005
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 or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
#	Confidential treatment granted as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission.
+	Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission.

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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: November 14, 2005	By:	/s/ ANTONIO CANOVA
		Antonio Canova
		Vice President, Administration and
		Chief Financial Officer

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EXHIBIT INDEX

Exhibit
Number	Description of Document
3.1	Amended and Restated Bylaws of the Registrant amended as of April 22, 2005
10.1 +	Amendment #10 dated March 20, 2005 to EMC Purchase Agreement between Brocade and EMC
10.2 +	Amendment #11 dated March 25, 2005 to EMC Purchase Agreement between Brocade and EMC
10.3*	Senior Leadership Plan as amended February 9, 2005
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 or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
#	Confidential treatment granted as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission.
+	Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission.

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED BYLAWS

OF

BROCADE COMMUNICATIONS SYSTEMS, INC.
a Delaware Corporation

Amended as of April 22, 2005

TABLE OF CONTENTS

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

i 

			Page
ARTICLE IV COMMITTEES				10
	4.1	COMMITTEES OF DIRECTORS		10
	4.2	COMMITTEE MINUTES		11
	4.3	MEETINGS AND ACTION OF COMMITTEES		11
ARTICLE V OFFICERS				11
	5.1	OFFICERS		11
	5.2	APPOINTMENT OF OFFICERS		12
	5.3	REMOVAL AND RESIGNATION OF OFFICERS		12
	5.4	CHAIRMAN OF THE BOARD		12
	5.5	CHIEF EXECUTIVE OFFICER		12
	5.6	PRESIDENT		13
	5.7	VICE PRESIDENT		13
	5.8	SECRETARY		13
	5.9	CHIEF FINANCIAL OFFICER		14
	5.10	ASSISTANT SECRETARY		14
	5.11	AUTHORITY AND DUTIES OF OFFICERS		14
ARTICLE VI INDEMNITY				14
	6.1	THIRD PARTY ACTIONS		14
	6.2	ACTIONS BY OR IN THE RIGHT OF THE CORPORATION		15
	6.3	SUCCESSFUL DEFENSE		15
	6.4	DETERMINATION OF CONDUCT		15
	6.5	PAYMENT OF EXPENSES IN ADVANCE		16
	6.6	INDEMNITY NOT EXCLUSIVE		16
	6.7	INSURANCE INDEMNIFICATION		16
	6.8	THE CORPORATION		16
	6.9	EMPLOYEE BENEFIT PLANS		17
	6.10	CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES		17
ARTICLE VII RECORDS AND REPORTS				17
	7.1	MAINTENANCE AND INSPECTION OF RECORDS		17
	7.2	INSPECTION BY DIRECTORS		17
	7.3	REPRESENTATION OF SHARES OF OTHER CORPORATIONS		18
ARTICLE VIII GENERAL MATTERS				18
	8.1	CHECKS		18
	8.2	EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS		18
	8.3	STOCK CERTIFICATES; PARTLY PAID SHARES		18
	8.4	SPECIAL DESIGNATION ON CERTIFICATES		19
	8.5	LOST CERTIFICATES		19
	8.6	CONSTRUCTION; DEFINITIONS		20

ii 

			Page
	8.7	DIVIDENDS		20
	8.8	FISCAL YEAR		20
	8.9	SEAL		20
	8.10	TRANSFER OF STOCK		20
	8.11	STOCK TRANSFER AGREEMENTS		20
	8.12	REGISTERED STOCKHOLDERS		21
ARTICLE IX AMENDMENTS				21
ARTICLE X DISSOLUTION				21
ARTICLE XI CUSTODIAN				22
	11.1	APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES		22
	11.2	DUTIES OF CUSTODIAN		22
ARTICLE XII LOANS TO OFFICERS				22

iii 

AMENDED AND RESTATED BYLAWS

OF

BROCADE COMMUNICATIONS SYSTEMS, INC.

ARTICLE I

CORPORATE OFFICES

     1.1 REGISTERED OFFICE

     The registered office of the Corporation shall be 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware, 19801. The name of the registered agent of the Corporation at such location is The Corporation Trust Company.

     1.2 OTHER OFFICES

     The board of directors may at any time establish other offices at any place or places where the Corporation is qualified to do business.

ARTICLE II

MEETINGS OF STOCKHOLDERS

     2.1 PLACE OF MEETINGS

     Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders’ meetings shall be held at the registered office of the Corporation.

     2.2 ANNUAL MEETING

     The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. At the meeting, directors shall be elected and any other proper business may be transacted.

     2.3 SPECIAL MEETING

     A special meeting of the stockholders may be called at any time by the (i) board of directors, (ii) the chairman of the board, (iii) the president, or (iv) the chief executive officer.

     If a special meeting is called by any person other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to

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be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons who called the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the board of directors may be held.

     2.4 NOTICE OF STOCKHOLDERS’ MEETINGS

     All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.6 of these Bylaws not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.

     2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS

     To be properly brought before an annual meeting or special meeting, nominations for the election of director or other business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. For such nominations or other business to be considered properly brought before the meeting by a stockholder, such stockholder must have given timely notice and in proper form of his intent to bring such business before such meeting. To be timely, such stockholder’s notice must be delivered to or mailed and received by the secretary of the Corporation not less than 90 days prior to the meeting; provided, however, that in the event that less than 100 days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. To be in proper form, a stockholder’s notice to the secretary shall set forth:

(i) the name and address of the stockholder who intends to make the nominations, propose the business, and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed;

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(ii)	a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in the notice;
(iii)	if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder;
(iv)	such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and
(v)	if applicable, the consent of each nominee to serve as director of the Corporation if so elected.

     The chairman of the meeting may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure.

     2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE

     Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

     2.7 QUORUM

     The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting, or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.

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     When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provisions of the statutes or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of the question.

     2.8 ADJOURNED MEETING; NOTICE

     When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

     2.9 VOTING

     The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Sections 2.12 and 2.14 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements).

     Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.

     2.10 WAIVER OF NOTICE

     Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws.

     2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING

     Except as otherwise provided in this Section 2.11, any action required by this chapter to be taken at any annual or special meeting of stockholders of a Corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is

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signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

     Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware.

     Notwithstanding the foregoing, effective upon the listing of the Common Stock of the Corporation on the Nasdaq Stock Market and the registration of any class of securities of the Corporation pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the stockholders of the Corporation may not take action by written consent without a meeting but must take any such actions at a duly called annual or special meeting.

     2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS

     In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action.

     If the board of directors does not so fix a record date, the fixing of such record date shall be governed by the provisions of Section 213 of the General Corporation Law of Delaware.

     A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting.

     2.13 PROXIES

     Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the Corporation, but no such proxy shall be voted or acted upon after 3 years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder’s attorney-in-fact. The revocability of a proxy that states on its face that it is

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irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware.

     2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE

     The officer who has charge of the stock ledger of a Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The stock ledger shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders and of the number of shares held by each such stockholder.

     2.15 CONDUCT OF BUSINESS

     Meetings of stockholders shall be presided over by the chairman of the board, if any, or in his absence by the president, or in his absence by a vice president, or in the absence of the foregoing persons by a chairman designated by the board of directors, or in the absence of such designation by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and conduct of business.

ARTICLE III

DIRECTORS

     3.1 POWERS

     Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors.

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     3.2 NUMBER

     The authorized number of directors of the Corporation shall be nine (9). No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

     3.3 CLASSES OF DIRECTORS

     At such time as a Registration Statement regarding the sale of the Corporation’s Common Stock to the public is declared effective by the Securities and Exchange Commission, the Directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I Directors shall expire and Class I Directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class II Directors shall expire and Class II Directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class III Directors shall expire and Class III Directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, Directors shall be elected for a full term of three years to succeed the Directors of the class whose terms expire at such annual meeting.

     Notwithstanding the foregoing provisions of this Article, each Director shall serve until his successor is duly elected and qualified or until his earlier death, resignation or removal. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.

     3.4 RESIGNATION AND VACANCIES

     Any director may resign at any time upon written notice to the Corporation. Stockholders may remove directors with or without cause. Any vacancy occurring in the board of directors with or without cause may be filled by a majority of the remaining members of the board of directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced.

     Unless otherwise provided in the certificate of incorporation or these Bylaws:

(i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.

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(ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.

     If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware.

     If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.

     3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE

     The board of directors of the Corporation may hold meetings, both regular and special, either within or outside the State of Delaware.

     Unless otherwise restricted by the certificate of incorporation or these Bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

     3.6 REGULAR MEETINGS

     Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board.

     3.7 SPECIAL MEETINGS; NOTICE

     Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors.

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     Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director’s address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least 4 days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least 48 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the Corporation.

     3.8 QUORUM

     At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation.

     3.9 WAIVER OF NOTICE

     Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws.

     3.10 ADJOURNED MEETING; NOTICE

     If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

     3.11 CONDUCT OF BUSINESS

     Meetings of the board of directors shall be presided over by the chairman of the board, if any, or in his absence by the chief executive officer, or in their absence by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting shall determine the order of business and the procedures at the meeting.

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     3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING

     Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee.

     3.13 FEES AND COMPENSATION OF DIRECTORS

     Unless otherwise restricted by the certificate of incorporation or these Bylaws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

     3.14 REMOVAL OF DIRECTORS

     Unless otherwise restricted by statute, by the certificate of incorporation or by these Bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. If at any time a class or series of shares is entitled to elect one or more directors, the provisions of this Article 3.14 shall apply to the vote of that class or series and not to the vote of the outstanding shares as a whole.

ARTICLE IV

COMMITTEES

     4.1 COMMITTEES OF DIRECTORS

     The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the Bylaws of the Corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of

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incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation’s property and assets, (iv) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or (v) amend the Bylaws of the Corporation; and, unless the board resolution establishing the committee, the Bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware.

     4.2 COMMITTEE MINUTES

     Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.

     4.3 MEETINGS AND ACTION OF COMMITTEES

     Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment and notice of adjournment), Section 3.11 (conduct of business) and 3.12 (action without a meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.

ARTICLE V

OFFICERS

     5.1 OFFICERS

     The officers of the Corporation shall be a chief executive officer, one or more vice presidents, a secretary and a chief financial officer. The Corporation may also have, at the discretion of the board of directors, a chairman of the board, a president, a chief operating officer, one or more executive, senior or assistant vice presidents, assistant secretaries and any such other officers as may

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be appointed in accordance with the provisions of Section 5.2 of these Bylaws. Any number of offices may be held by the same person.

     5.2 APPOINTMENT OF OFFICERS

     Except as otherwise provided in this Section 5.2, the officers of the Corporation shall be appointed by the board of directors, subject to the rights, if any, of an officer under any contract of employment. The board of directors may appoint, or empower an officer to appoint, such officers and agents of the business as the Corporation may require (whether or not such officer or agent is described in this Article V), each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the board of directors may from time to time determine. Any vacancy occurring in any office of the Corporation shall be filled by the board of directors or may be filled by the officer, if any, who appointed such officer.

     5.3 REMOVAL AND RESIGNATION OF OFFICERS

     Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors or, in the case of an officer appointed by another officer, by such other officer.

     Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.

     5.4 CHAIRMAN OF THE BOARD

     The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these Bylaws. If there is no chief executive officer, then the chairman of the board shall also be the chief executive officer of the Corporation and shall have the powers and duties prescribed in Section 5.5 of these Bylaws.

     5.5 CHIEF EXECUTIVE OFFICER

     The Chief Executive Officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and the officers of the Corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board at all meetings of the Board of Directors. He or she shall have the general powers and duties of management usually vested in the chief executive officer of a Corporation, including general supervision, direction and control of the business and supervision of

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other officers of the Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

     The Chief Executive Officer shall, without limitation, have the authority to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.

     5.6 PRESIDENT

     Subject to such supervisory powers as may be given by these Bylaws or the Board of Directors to the Chairman of the Board or the Chief Executive Officer, if there be such officers, the president shall have general supervision, direction and control of the business and supervision of other officers of the Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. In the event a Chief Executive Officer shall not be appointed, the President shall have the duties of such office.

     5.7 VICE PRESIDENT

     In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the chief executive officer and when so acting shall have all the powers of, and be subject to all the restrictions upon, the chief executive officer. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these Bylaws, the chief executive officer or the chairman of the board.

     5.8 SECRETARY

     The secretary shall keep or cause to be kept, at the principal executive office of the Corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors’ meetings or committee meetings, the number of shares present or represented at stockholders’ meetings, and the proceedings thereof.

     The secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation’s transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.

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     The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these Bylaws. He shall keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these Bylaws.

     5.9 CHIEF FINANCIAL OFFICER

     The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director.

     The chief financial officer shall deposit all money and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the Corporation as may be ordered by the board of directors, shall render to the chief executive officer and directors, whenever they request it, an account of all of his transactions as treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these Bylaws.

     5.10 ASSISTANT SECRETARY

     The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe.

     5.11 AUTHORITY AND DUTIES OF OFFICERS

     In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the board of directors or the stockholders.

ARTICLE VI

INDEMNITY

     6.1 THIRD PARTY ACTIONS

     The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal,

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administrative or investigative (other than an action by or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

     6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION

     The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper.

     6.3 SUCCESSFUL DEFENSE

     To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.

     6.4 DETERMINATION OF CONDUCT

     Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that the indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made

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(1) by the board of Directors or the Executive Committee by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) or if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders.

     6.5 PAYMENT OF EXPENSES IN ADVANCE

     Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI.

     6.6 INDEMNITY NOT EXCLUSIVE

     The indemnification and advancement of expenses provided or granted pursuant to the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another while holding such office.

     6.7 INSURANCE INDEMNIFICATION

     The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VI.

     6.8 THE CORPORATION

     For purposes of this Article VI, references to “the Corporation” shall include, in addition to the resulting Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation the provisions of Section 6.4) with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

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     6.9 EMPLOYEE BENEFIT PLANS

     For purposes of this Article VI, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VI.

     6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES

     The indemnification and advanced of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

ARTICLE VII

RECORDS AND REPORTS

     7.1 MAINTENANCE AND INSPECTION OF RECORDS

     The Corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records.

     Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation’s stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal place of business.

     7.2 INSPECTION BY DIRECTORS

     Any director shall have the right to examine the Corporation’s stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his position as a

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director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.

     7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS

     The chairman of the board, the chief executive officer, any vice president, the chief financial officer, the secretary or assistant secretary of this Corporation, or any other person authorized by the board of directors or the chief executive officer or a vice president, is authorized to vote, represent, and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

ARTICLE VIII

GENERAL MATTERS

     8.1 CHECKS

     From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the Corporation, and only the persons so authorized shall sign or endorse those instruments.

     8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS

     The board of directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

     8.3 STOCK CERTIFICATES; PARTLY PAID SHARES

     The shares of a corporation shall be represented by certificates, provided that the board of directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation.

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Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

     The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

     8.4 SPECIAL DESIGNATION ON CERTIFICATES

     If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and“or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and“or rights.

     8.5 LOST CERTIFICATES

     Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and cancelled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

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     8.6 CONSTRUCTION; DEFINITIONS

     Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a Corporation and a natural person.

     8.7 DIVIDENDS

     The directors of the Corporation, subject to any restrictions contained in the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property, or in shares of the Corporation’s capital stock.

     The directors of the Corporation may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies.

     8.8 FISCAL YEAR

     The fiscal year of the Corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors.

     8.9 SEAL

     The Corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

     8.10 TRANSFER OF STOCK

     Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.

     8.11 STOCK TRANSFER AGREEMENTS

     The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware.

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     8.12 REGISTERED STOCKHOLDERS

     The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE IX

AMENDMENTS

     The original or other Bylaws of the Corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the Corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws.

ARTICLE X

DISSOLUTION

     If it should be deemed advisable in the judgment of the board of directors of the Corporation that the Corporation should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution.

     At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the Corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate’s becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the Corporation shall be dissolved.

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ARTICLE XI

CUSTODIAN

     11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES

     The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the Corporation is insolvent, to be receivers, of and for the Corporation when:

(i)	at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or
(ii)	the business of the Corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the Corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division; or
(iii)	the Corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets.

     11.2 DUTIES OF CUSTODIAN

     The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of the Corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.

ARTICLE XII

LOANS TO OFFICERS

     The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer or employee who is a Director of the Corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the Corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this Bylaw shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.

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EX-10.1

Exhibit 10.1

Amendment #10
to Purchase Agreement

This Amendment No. 10 (“the Amendment”) to the Purchase Agreement (the “Agreement”) dated January 25, 2000 by and among 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”), and 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”), (collectively “SUPPLIER”) and EMC Corporation, (“EMC”), a Massachusetts corporation, is made this 30^th day of March 2005 by and between SUPPLIER and EMC and commences on the date accepted and executed by SUPPLIER (“Effective Date”). [**].

WHEREAS, the parties wish to amend the Agreement to 1) amend Section 7.8 of the Agreement [**] to add fulfillment model changes to accommodate inclusion of the EMC Cork factory in the [**].

NOW THEREFORE, in consideration of the above and the other respective promises of the parties set forth herein, the parties agree as follows:

A. [**].

1. Background. SUPPLIER and EMC have established certain standard [**] and [**] in Amendment [**] to the Agreement (collectively, the [**]); and have added to and established certain alternative procedures for [**], and [**] based on the EMC so-called [**], in Amendment 5. SUPPLIER and EMC now wish to add elements to the [**] to define certain conditions relating to establishment of the process at EMC’s Cork, Ireland facility.

2. Section 7.8. Section 7.8 is hereby amended as follows:

For Section 7.8: SUPPLIER is defined as Brocade Communications Systems, Inc. or their logistics provider, acting as their agent.

7.8 [**]. The [**] and [**] (the [**]) established herein shall be [**] the [**]. The parties agree to discuss the appropriateness of [**] the [**] at quarterly business reviews. EMC may order Products [**] a SUPPLIER [**] subject to issuance of [**] and [**]; in which case the procedures set forth [**] shall apply. Notwithstanding anything herein to the contrary, EMC may continue to [**] pursuant to the [**], provided that a [**], (or less if agreed to by the parties), advance [**] in writing is provided to the SUPPLIER.

[**] 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.

Page 1 of 12

(a)	A [**] shall be a [**] Products in a [**] as defined by EMC’s [**] EMC may [**] the [**] by the [**] solely as required to [**] EMC’s remaining [**] demand. Such [**] will be made via [**] communicated to Supplier. An example for reference purposes only is provided in Exhibit [**]. The [**] uses the following [**] to [**]:
	[**]
	[**] for product shipping to EMC, Franklin, MA or Apex NC, is made up of Brocade process [**]. Brocade process [**] is defined as the [**] from [**] Brocade [**] the [**] the [**] product is [**] to be [**] by the [**]. [**] is the [**] from [**] to [**] at [**]
	For product shipping to EMC, Cork, Ireland, [**] is made up of Brocade process [**]. Brocade process [**] is defined as [**]. [**] is defined as the [**] from [**] to[**] at the [**].
	[**] which is EMC’s [**] quantity divided by [**].
	[**], a pre-determined number that [**] may [**] to [**].[**] Currently [**]. EMC agrees that this [**] will not [**] without the SUPPLIER’s mutual consent.
	[**] is determined by [**] size and [**].
	Products to be stocked in:
	[**] products that are [**] to EMC for [**] in one of the [**] for the purpose of [**] EMC’s requirements for Products. A [**] shall mean the [**] locations identified in Exhibit [**]. The parties may mutually agree to amend Exhibit [**]. to add or remove [**] from time to time.
(b)	Upon execution of this Amendment, EMC will establish a [**] and SUPPLIER will [**] as detailed in EMC’s [**] to the [**] within [**] of receipt of EMC’s written [**] to do so. EMC will maintain a minimum of [**] of purchase order coverage. EMC will also issue a [**] which will include EMC’s [**] that will match EMC’s [**]. SUPPLIER will fill in its [**] and return the [**] to EMC within [**]. SUPPLIER will make [**] available to [**] its supply [**] within the [**] detailed in Paragraph [**]below regardless of the [**] through this [**]. Supplier will be [**] on making [**] available per EMC’s [**] and actual [**]. EMC will communicate [**] to its [**] via the [**] and update its [**] to [**] the [**] of changes to the [**]. Supplier will respond to [**] within a maximum of [**]. Supplier will provide [**] updates via the [**] between 8pm ET Friday and 12:00 noon ET each [**] that will include any changes to Supplier’s [**] and [**] from the previous [**]. SUPPLIER will promptly communicate any [**] in [**] via the [**]. [**] is [**] to the following which shall [**] the [**] terms set forth in Section [**] of the Agreement, when the parties are utilizing the [**]:

[**] 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.

Page 2 of 12

•	[**] of [**] for Products located in [**] and [**] in process that do not [**] the [**], which Products [**] is [**] to [**] to [**] using commercially reasonable efforts. EMC’s [**] such Products shall be [**] using the [**] in effect as of the [**] such Products were [**] the [**]. [**] will use commercially reasonable efforts to [**] Products and [**] be [**] a [**] if SUPPLIER is [**].
•	[**] of EMC [**] detailed in Exhibit P that is [**] the [**] and within [**] of EMC’s purchase order [**].
•	[**] beyond [**] of EMC’s [**] order [**].
•	In the event that EMC’s [**] the total amount of [**] in the [**], then the [**] in will be stated in sheet [**] of the [**]. EMC will be [**] for the [**] Products detailed in [**] of the [**], per terms [**].
(c)	EMC may [**] only complete [**] from a [**] and shall thereby [**] of the applicable [**] to support its [**]. EMC is not required to take [**] of [**] has a customer [**] such Products. These terms [**] the [**] terms set forth in Section [**] of the Agreement, when the parties are utilizing the [**]. EMC shall [**] from the [**] on a [**] basis. EMC shall notify SUPPLIER within [**] after EMC [**] a complete [**] from a [**] (each such occurrence a [**]), and such notice shall be deemed a [**] for [**]. EMC notification will be sent to Brocade by 12:00 noon Eastern Time every day as needed. The parties agree that [**] notifications will be sent two times per day during the [**] days of the SUPPLIER’s [**], one by 12:00 noon Eastern time and one by 5 pm Eastern time. If EMC [**] material from the [**] during the [**] of SUPPLIER’s [**], notification will be sent per the previously defined [**] end notification schedule above. SUPPLIER shall apply the [**] against the then-open [**]. SUPPLIER will [**] Products per [**] and [**] within the following [**]:

• [**] will be [**] and [**] within [**] business days if product is [**] type [**] from [**] or [**] business days if product is [**] type [**] from [**], and [**] business days for [**] from [**], from receipt of EMC’s [**] and [**], if within EMC’s [**].

• [**] will be [**] per SUPPLIER’s [**] via the [**], from receipt of EMC’s [**] if such [**] are in excess of EMC’s [**]. If EMC’s [**] SUPPLIER’s current [**] commitment, the [**] will be [**] per the [**] overall [**].

[**] 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.

Page 3 of 12

• An example of a [**] which will be E-mailed to SUPPLIER is provided in Exhibit [**]. SUPPLIER will respond via E-mail with confirmation of receipt, and [**], if within SUPPLIER’s [**] via the [**], within [**] normal business [**] of receipt of EMC’s [**]. SUPPLIER will [**] the applicable [**] for [**] the applicable [**].

(d)	SUPPLIER shall [**] to be placed in a SUPPLIER [**], via [**] point of [**] where [**] is defined in section [**], including [**], provided that EMC has [**] the [**] and [**] in advance. Notwithstanding the foregoing, in the event of [**], SUPPLIER may [**] the [**] at its [**].
(e)	In Franklin and Apex, EMC shall provide the [**] for the [**]. For Cork, the [**] will be provided by [**]. All Products in the [**] shall be and [**] the [**] of [**] as they are [**] to EMC, as defined below. In Franklin and Apex, EMC will [**] each [**] in EMC’s facilities in a manner such that the [**] shall be segregated by a clear and durable physical delineation, separating the [**] from the other parts of the EMC location and from EMC’s other products, supplies, inventory, and equipment, and EMC shall conspicuously mark the area of each [**] to indicate [**]. EMC shall have [**] of [**] or [**] the [**]. EMC will exercise the same degree of care to keep and maintain the [**] as [**] uses with respect to [**]. EMC will implement and maintain [**] to prevent any loss, theft, damage, or destruction of the [**]. For Cork, SUPPLIER will store each [**] in a [**] in a manner such that the [**] shall be segregated by a clear and durable physical delineation, separating the [**] from other parts of the warehouse, and SUPPLIER shall conspicuously mark the area of each [**] to indicate [**] [**]. EMC shall have [**] of [**] or [**] the [**]. SUPPLIER will exercise the same degree of care to keep and maintain the [**] as [**]. SUPPLIER will implement and maintain [**] to prevent any loss, theft, damage, or destruction of the [**].
(f)	Products contained in a [**] shall be deemed to be [**] EMC for purposes of this Amendment when the Products are [**]. Upon [**], EMC shall be deemed to be in receipt of the Products for purposes of Section [**] of the Agreement, and the [**] shall equal the [**] the [**] was communicated to [**] for purposes of Section [**] of the Agreement. [**] shall [**] for such [**] as detailed in EMC’s [**] in accordance with Section [**] of the Agreement. At such time, [**] shall also [**] for the [**] of [**] and [**] such Products (and applicable only to such products [**] in Cork — Supplier shall also [**]), at agreed upon [**], from the SUPPLIER’s [**] the [**]. Once a [**] has been [**], no [**] may be [**] into any [**], and the [**] may only be [**] by EMC in accordance with the terms set forth in Section [**] or Section [**] of the Agreement.
(g)	At all times the [**] will be kept [**] by [**] from all [**] and [**] of any kind.

[**] 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.

Page 4 of 12

(h)	EMC will allow access to a SUPPLIER representative to perform a count of [**] held in each [**] once per [**] at a time scheduled no less than [**] hours in advance to [**] weekly activity and numbers of [**] on hand. SUPPLIER may, at its option, conduct an on-site audit to [**] the count of [**] and physically inspect the [**].
(i)	During the term of this Agreement and for as long as any [**] are [**] facilities, EMC shall maintain policies of insurance for the Products to cover [**] and shall provide site access and inspection rights to SUPPLIER. SUPPLIER shall provide EMC no less than [**] hour notification prior to a requested audit and inspection.

3. Exhibits N, and O are modified. See Attachment 1.

B. Except as expressly amended herein, the terms of the Agreement continues unchanged, shall remain in full force and effect, and shall govern all transactions for Products hereunder.

[**] 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.

Page 5 of 12

IN WITNESS WHEREOF, the Parties have caused this Amendment be executed by their duly authorized representatives, as of the Effective Date.

Brocade Communication Systems, Inc.		EMC Corporation
By:	/s/ Ric Pepe	By:	/s/ William Monagle 3/31/05
	(Signature)		(Signature)
Name:	Ric Pepe	Name:	William Monagle
	(Please Print or Type)		(Please Print or Type)
Title:	Vice President	Title:	Vice President Corporate
			Procurement EMC Corporation
Date:	4/11/05	Date:
Brocade Communication Switzerland, SarL.
By:	/s/ Kevin McKenna
	(Signature)
Name:	Kevin McKenna
	(Please Print or Type)
Title:	International Controller
Date:	14-April-2005

Page 6 of 12

Attachment 1
To Amendment 5
Purchase Agreement

Exhibit N
Location of [**]

[**] Address:

	EMC Corporation One Technology Drive Apex, NC 27502
	EMC Corporation 176 Grove Street Franklin, MA 02038
	Bax Global
	Smithstown Industrial Estate,
	[**]
	[**]
[**]:	[**] warehouse — pole #,
location:	which is an area designated as
	[**] inventory.
	Franklin Grove St. facility, first floor, — a caged location in the incoming area, which is an area designated as [**] inventory.
	Bax Global

[**] 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.

Page 7 of 12

Exhibit O

[**] Example

[**]

[**]

[**] 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.

Page 8 of 12

[**]

[**] 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.

Page 9 of 12

Exhibit P

EMC Unique Material

The complete list of EMC unique material that EMC [**] pursuant to Paragraph [**] of this Amendment is as follows:

[**]

[**]

[**] 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.

Page 10 of 12

Exhibit Q

Release Notice Example

[**]

[**] 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.

Page 11 of 12

[**]

[**] 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.

Page 12 of 12

EX-10.2

Exhibit 10.2

Amendment No. 11
Purchase Agreement

This Amendment No. 11 (“the Amendment”) to the Purchase Agreement (the “Agreement”) dated January 25, 2000 by and among 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”), and 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”), (collectively “SUPPLIER”) and EMC Corporation, (“EMC”), a Massachusetts corporation, is made as of March 31, 2005 by and between SUPPLIER and EMC and commences on the last date accepted and executed by SUPPLIER (“Effective Date”). [**].

WHEREAS, the parties wish to amend the Agreement to [**];

NOW THEREFORE, in consideration of the above and the other respective promises of the parties set forth herein, the parties hereto agree as follows:

1) Exhibit A, [**], is hereby deleted and replaced with the attached Exhibit A which [**].

2) No Other Changes. All Other terms and conditions of the Agreement shall remain unchanged.

3) Counterparts. This Amendment may be executed in two or more counterparts, all of which, taken together, shall be regarded as one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 11 to OEM Purchase and License Agreement by their duly authorized representatives. Such execution of the Amendment may be in three counterparts, each of which shall be an original and together which shall constitute one and the same instrument.

Executed and agreed to:		Executed and agreed to:
Brocade Communications Systems, Inc.		EMC Corporation
(“Supplier”)		(“EMC”)
Signature:	/s/ Ric Pepe	Signature:	/s/ William Monagle 4/1/05
Name:	Ric Pepe	Name:	William Monagle
			Vice President
Title:	Vice President	Title:	Corporate Procurement
			EMC Corporation
Date:	4/11/05	Date:
Brocade Communications Switzerland, SarL.
(“Supplier”)
Signature:	/s/ Kevin McKenna
Name:	Ian Whiting      Kevin McKenna for Ian Whiting
	International Controller
Title:	Vice President — EMEA
Place:	Geneva, Switzerland

[**] 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.

EMC/BROCADE CONFIDENTIAL

Page 1 of 2

EXHIBIT A

[**]

[**] 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.

EMC/BROCADE CONFIDENTIAL

Page 2 of 2

EMC EXHIBIT A: [**]
[**]

[**]	[**]	[**]	DESCRIPTION	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	2GB, 8 PORT SW3200 ENTRY-FABRIC SWITCH	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	2GB, 8 PORT SW3200 FULL-FABRIC SWITCH	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	2GB, 8 PORT SW3250 ENTRY-FABRIC SWITCH (US FED ONLY)	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	2GB, 8 PORT 3250-VL2E EZSWITCH (US FED ONLY)	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	2GB, 8 PORT SW3250 FULL-FABRIC SWITCH (US FED ONLY)	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW32X0 OPTIONAL SOFTWARE, TRUNKING	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW32X0 OPTIONAL SOFTWARE, FABRIC WATCH	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW32X0 OPTIONAL SOFTWARE, EXTENDED FABRIC	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW32X0 OPTIONAL SOFTWARE, PERFORMANCE MONITOR	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW3220 OPTIONAL SOFTWARE, QUICKLOOP	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW32X0 OPTIONAL SOFTWARE, EMC BUNDLE (TRK, FWH, EXF, PRF)	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW3220 OPTIONAL SOFTWARE UPGRADE ENTRY-FULL: BUNDLED	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW3220 OPTIONAL SOFTWARE UPGRADE ENTRY-FULL: POST SALE	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW32X0 OPTIONAL SOFTWARE, SECURE OS	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW3252 TWO DOMAIN TO FULL FABRIC UPGRADE LICENSE KEY — POST SALE	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW3252 TWO DOMAIN TO FULL FABRIC UPGRADE LICENSE KEY — BUNDLED	[**]	[**]	[**]	[**]	[**]
Note (A): The [**] Software Maintenance is [**]. The above price includes the purchase of Software Maintenance for an [**], commencing on the date of purchase, and [**]. Fees for Software Maintenance [**] are non-refundable. Thereafter, Software Maintenance may be renewed [**], at EMC’s discretion, for an [**]. The above price also [**] for [**].
[**]	[**]	[**]	2GB, 16 PORT SW3800 FULL-FABRIC SWITCH	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	2GB, 16 PORT SW3852 ENTRY-FABRIC SWITCH (US FED ONLY)	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	2GB, 16 PORT SW3850 FULL-FABRIC SWITCH (US FED ONLY)	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW3800 FRU, POWER SUPPLY	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW3800 FRU, FAN	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW38XX OPTIONAL SOFTWARE, TRUNKING	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW38XX OPTIONAL SOFTWARE, FABRIC WATCH	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW38XX OPTIONAL SOFTWARE, EXTENDED FABRIC	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW38XX OPTIONAL SOFTWARE, PERFORMANCE MONITOR	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW38XX OPTIONAL SOFTWARE, EMC BUNDLE (TRK, FWH, EXF, PRF)	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW38XX OPTIONAL SOFTWARE, SECURE OS	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	SW3852 TWO DOMAIN TO FULL FABRIC UPGRADE LICENSE KEY — BUNDLED	[**]	[**]	[**]	[**]	[**]
Note (B): The [**] Software Maintenance is [**]. The above price includes the purchase of Software Maintenance for [**], commencing on the date of purchase, [**]. Fees for Software Maintenance [**] are non-refundable. Thereafter, Software Maintenance may be renewed [**], at EMC’s discretion, for [**]. The above price also [**] for [**].
[**]	[**]	[**]	2GB, 32 PORT SWITCH (WEBTOOLS, ZONING)	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, POWER SUPPLY	[**]	[**]	[**]	[**]	[**]

[**] 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.

[**]	[**]	[**]	DESCRIPTION	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, FAN	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, TRUNKING	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, FABRIC WATCH	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, EXTENDED FABRIC	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, PERFORMANCE MONITOR	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, EMC BUNDLE (TRK, FWH, EXF, PRF)	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, SECURE OS	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, MIDRANGE CUP (SW3900/4100)	[**]	[**]	[**]	[**]	[**]
Note (C): The [**] Software Maintenance is [**]. The above price includes the purchase of Software Maintenance for [**], commencing on the date of purchase, [**]. Fees for Software Maintenance [**] are non-refundable. Thereafter, Software Maintenance may be renewed [**], at EMC’s discretion, for an [**]. The above price also [**] for [**].
[**]	[**]	[**]	32 ports w/16 active, 2 PS, 16 SFP (COO US) — EMC version	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	32 ports w/16 active, 2 PS, 16 SFP (COO US) — Dell version	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	8port Port-On-Demand License Upgrade Kit with 8 SFPs — EMC version	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	8port Port-On-Demand License Upgrade Kit with 8 SFPs — Dell version	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, POWER SUPPLY	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, FAN	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, MIDRANGE CUP (SW3900/4100)	[**]	[**]	[**]	[**]	[**]
Note (H): The [**] for Software Maintenance is [**]. The above price includes the purchase of Software Maintenance for an [**], commencing on the date of purchase, and [**]. Fees for Software Maintenance [**] are non-refundable. Thereafter, Software Maintenance may be renewed [**], at EMC’s discretion, for an [**]. The above price also [**] for [**].
[**]	[**]	[**]	2GB, 64 PORT ENTERPRISE (WEBTOOLS, ZONING)	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	2GB, 0 PORT, 2 CP, 2PS CONFIGURED CHASSIS	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	UPGRADE KIT, SW12000 TO 24000 CONSISTS OF 2CPs	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, SW12000 CHASSIS	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, DIRECTOR UNIVERSAL CHASSIS	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, SW12000 PORT CARD WITH OPTICS	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, SW24000 PORT CARD WITH OPTICS	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, SW12000 CP	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, SW24000 CP	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, POWER SUPPLY	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, POWER CORD, NO AMERICAN	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, POWER CORD, UK/IRE	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, POWER CORD, CONT EU	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, POWER CORD, AUST/NZ	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, POWER CORD, OTHER 230V	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, BROCADE RACKMOUNT KIT	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, BLOWER	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, WWN BEZEL	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, WWN CARD	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, CHASSIS DOOR	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, PORT CARD SLOT FILLER	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, POWER SUPPLY SLOT FILLER	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, CABLE MANAGEMENT TRAY	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, BLADE BOX PACKAGING ONLY	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, BLOWER BOX PACKAGING ONLY	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, EMC CUSTOM DOOR KIT SW12000	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FRU, EMC CUSTOM DOOR KIT SW24000	[**]	[**]	[**]	[**]	[**]

[**] 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.

[**]	[**]	[**]	DESCRIPTION	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, TRUNKING	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, FABRIC WATCH	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, EXTENDED FABRIC	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, PERFORMANCE MONITOR	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, EMC BUNDLE (TRK, FWH, EXF, PRF)	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, SECURE OS	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	OPTIONAL SOFTWARE, DIRECTOR CUP (SW12000/24000)	[**]	[**]	[**]	[**]	[**]
Note (D): The [**] Software Maintenance is [**]. The above price includes the purchase of Software Maintenance for [**], commencing on the date of purchase, and [**]. Fees for Software Maintenance [**] are non-refundable. Thereafter, Software Maintenance may be renewed [**], at EMC’s discretion, for an [**]. The above price also [**] for [**].
Note (E): The [**] for Software Maintenance is [**]. The above price includes the purchase of Software Maintenance for [**], commencing on the date of purchase, and [**]. Fees for Software Maintenance [**] are non-refundable. Thereafter, Software Maintenance may be renewed [**] periods, at EMC’s discretion, for an [**]. The above price also [**] for [**].
Note (F): The [**] Software Maintenance is [**]. The above price includes the purchase of Software Maintenance for [**], commencing on the date of purchase, and [**]. Fees for Software Maintenance [**] are non-refundable. Thereafter, Software Maintenance may be renewed [**], at EMC’s discretion, for an [**]. The above price also [**] for [**].
[**]	[**]	[**]	[**]	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	Router Fan FRU	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	Router Power Supply FRU	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	XPATH FCIP	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	XPATH Fibre Channel Routing Service	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	Router/FCIP Bundle	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	Router Railkit	[**]	[**]	[**]	[**]	[**]
Note (G): The [**] the purchase of Software Maintenance for an [**], commencing on the date of purchase, and [**]. Fees for Software Maintenance [**] are non-refundable. Thereafter, Software Maintenance may be renewed [**], at EMC’s discretion, for an [**]. The above price also [**] for [**].
FABRIC MANAGER
[**]	[**]	[**]	FM 4.0 BASE	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FM 4.0 STANDARD	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FM 4.0 ENTERPRISE	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FM 3.0 UPGRADE	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FM 4.0 BASE TO STANDARD UPGRADE	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FM 4.0 BASE TO ENTERPRISE UPGRADE	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	FM 4.0 STANDARD TO ENTERPRISE UPGRADE	[**]	[**]	[**]	[**]	[**]
Note: [**] include the purchase of Software Maintenance for [**], commencing on the date of purchase, and [**]. Fees for Software Maintenance [**] are non-refundable. Thereafter, Software Maintenance may be renewed [**], at EMC’s discretion, for [**] as follows: [**].
Note (I): The [**] Software Maintenance is as follows: [**]. The [**] includes the purchase of Software Maintenance for [**], commencing on the date of purchase, and [**]. Fees for Software Maintenance [**] are non-refundable. Thereafter, Software Maintenance may be renewed for [**], at EMC’s discretion, for an [**].
Note (J): The [**] Software Maintenance is [**]. The above price includes the purchase of Software Maintenance for [**], commencing on the date of purchase, and [**]. Fees for Software Maintenance [**] are non-refundable. Thereafter, Software Maintenance may be renewed [**], at EMC’s discretion, for [**].

[**] 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.

EX-10.3

Exhibit 10.3

BROCADE SENIOR LEADERSHIP PLAN

Revised: February 9, 2005

PURPOSE

The Brocade Senior Leadership Plan is designed to link incentive compensation with Company performance.

TIMING

Performance against Company objectives is measured on six-month cycles (Plan Periods), which run concurrently with the first and second halves of Brocade’s fiscal year. 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.

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 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 are final, they are to be reviewed and approved by Finance, Human Relations, and the Chief Executive Officer (CEO).

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.

COMPANY PERFORMANCE & SENIOR LEADERSHIP PLAN FUNDING

Each Plan Period, Brocade will set a target Operating Margin 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 Operating Margin achieved by Brocade during the Plan Period (Actual OM) relative to the Target OM (Actual Contribution).

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
X	75%
A&B	50%
C&D	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.

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)

Participant	Revenue	Operating Margin	Individual Goals	Total
CEO	50%	50%	—	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 FEBRUARY 9, 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 2005:

• Participants must continue to be regular employees as of December 15, 2005 to be eligible to receive a Senior Leadership Plan Payout for fiscal 2005. In addition, any references to the end of the 12-month Plan Period or fiscal year for purposes of the Senior Leadership Plan for fiscal 2005 (including without limitation, the subsections entitled “Termination” and “Performance Improvement Plan/Disciplinary Situations (Development Needed)”) shall be deemed to refer to December 15, 2005.

• The Bonus Payout shall be calculated as follows:

Bonus Payout = (Individual CEO/VP Goal Points Earned for the year) x (Annual Incentive Target) x (Annual Salary)

• Each participant shall also be eligible to receive an additional cash bonus (the “Additional Bonus”) equal to the amount of such individual’s actual Bonus Payout for fiscal 2005. The Additional Bonus for Mr. Jaworski shall be equal to the actual Bonus Payout for fiscal 2005, multiplied by 1.67.

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 second fiscal quarter ended April 30, 2005 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)) 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. 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

     c. 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: November 14, 2005

/s/ MICHAEL KLAYKO

Michael Klayko

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Antonio Canova, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the second fiscal quarter ended April 30, 2005 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)) 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. 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

     c. 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: November 14, 2005

/s/ ANTONIO CANOVA

Antonio Canova

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 30, 2005 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, Antonio Canova, 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 30, 2005 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/ ANTONIO CANOVA
	Antonio Canova
	Vice President, Administration and
	Chief Financial Officer