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 January 24, 2009

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 or organization) 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 þ   No o

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

Large accelerated filer þ Accelerated filer o  Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company 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 as of February 18, 2009 was 386,977,387 shares.

BROCADE COMMUNICATIONS SYSTEMS, INC.

FORM 10-Q

QUARTER ENDED JANUARY 24, 2009

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations for the Three Months Ended January 24, 2009 and January 26, 2008		4
	Condensed Consolidated Balance Sheets as of January 24, 2009 and October 25, 2008		5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended January 24, 2009 and January 26, 2008		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		50
Item 4.	Controls and Procedures		52
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		53
Item 1A.	Risk Factors		53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		67
Item 6.	Exhibits		68
SIGNATURES			70
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-10.6
EX-10.7
EX-10.8
EX-10.9
EX-10.10
EX-31.1
EX-31.2
EX-32.1

2

Forward-Looking Statements

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

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended
	January 24,			January 26,
	2009			2008
	(In thousands, except per share amounts)
Net revenues
Product	$	362,600		$	297,946
Service		68,991			49,903
Total net revenues		431,591			347,849
Cost of revenues
Product		151,191			117,777
Service		37,985			33,495
Total cost of revenues		189,176			151,272
Gross margin
Product		211,409			180,169
Service		31,006			16,408
Total gross margin		242,415			196,577
Operating expenses:
Research and development		68,451			58,206
Sales and marketing		73,166			63,174
General and administrative		18,388			12,366
Legal fees associated with indemnification obligations and other related costs		19,299			9,659
Amortization of intangible assets		13,229			7,909
Acquisition and integration costs		953			—
In-process research and development		26,900			—
Total operating expenses		220,386			151,314
Income from operations		22,029			45,263
Interest and other income (loss), net		(3,811	)		11,485
Interest expense		(21,357	)		(1,521	)
Loss on sale of investments, net		(864	)		(2,225	)
Income (loss) before provision for income taxes		(4,003	)		53,002
Income tax provision		22,028			33,157
Net income (loss)	$	(26,031	)	$	19,845
Net income (loss) per share — basic	$	(0.07	)	$	0.05
Net income (loss) per share — diluted	$	(0.07	)	$	0.05
Shares used in per share calculation — basic		376,202			383,194
Shares used in per share calculation — diluted		376,202			403,279

See accompanying notes to condensed consolidated financial statements.

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BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

	January 24,			October 25,
	2009			2008
	(In thousands, except par value)
Assets
Current assets:
Cash and cash equivalents	$	190,038		$	453,884
Short-term investments		24,133			152,741
Total cash, cash equivalents and short-term investments		214,171			606,625
Accounts receivable, net of allowances of $9,911 and $5,044 at January 24, 2009 and October 25, 2008, respectively		245,308			158,935
Inventories		84,852			21,362
Deferred tax assets		126,146			104,705
Prepaid expenses and other current assets		81,709			49,931
Total current assets		752,186			941,558
Long-term marketable equity securities		—			177,380
Long-term investments		1,725			36,120
Restricted cash		—			1,075,079
Property and equipment, net		339,017			313,379
Goodwill		1,744,580			268,977
Intangible assets, net		587,670			220,567
Non-current deferred tax assets		98,978			227,795
Other assets		32,933			37,793
Total assets	$	3,557,089		$	3,298,648
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	122,218		$	167,660
Accrued employee compensation		111,367			107,994
Deferred revenue		168,763			103,372
Current liabilities associated with facilities lease losses		14,322			13,422
Liability associated with class action lawsuit		—			160,000
Revolving credit facility		14,050			—
Current portion of long-term debt		43,184			43,606
Other accrued liabilities		125,144			105,804
Total current liabilities		599,048			701,858
Long-term debt, net of current portion		1,012,759			1,011,399
Convertible subordinated debt		170,200			169,660
Non-current liabilities associated with facilities lease losses		16,746			15,007
Non-current deferred revenue		57,909			37,869
Non-current income tax liability		89,915			67,497
Other non-current liabilities		9,364			13,118
Total liabilities		1,955,941			2,016,408
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.001 par value, 800,000 shares authorized:
Issued and outstanding: 380,857 and 371,858 shares at January 24, 2009 and October 25, 2008, respectively		381			372
Additional paid-in capital		1,662,503			1,392,927
Accumulated other comprehensive loss		(10,525	)		(85,877	)
Accumulated deficit		(51,211	)		(25,182	)
Total stockholders’ equity		1,601,148			1,282,240
Total liabilities and stockholders’ equity	$	3,557,089		$	3,298,648

See accompanying notes to condensed consolidated financial statements.

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BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three Months Ended
	January 24,			January 26,
	2009			2008
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	(26,031	)	$	19,845
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Excess tax benefit from employee stock plans		336			(3,925	)
Depreciation and amortization		39,754			30,888
Loss on disposal of property and equipment		558			629
Amortization of debt issuance costs		1,623			—
Net losses on investments and marketable equity securities		860			1,667
Provision for doubtful accounts receivable and sales allowances		2,271			1,688
Non-cash compensation expense		18,080			8,472
Capitalization of interest cost		(2,043	)		—
In-process research and development		26,900			—
Changes in assets and liabilities:
Accounts receivable		(12,044	)		21,702
Inventories		14,397			2,662
Prepaid expenses and other assets		1,827			3,005
Deferred tax assets		—			306
Accounts payable		(64,080	)		(30,282	)
Accrued employee compensation		(47,057	)		(16,116	)
Deferred revenue		17,681			5,706
Other accrued liabilities		26,521			35,430
Liabilities associated with facilities lease losses		(3,321	)		(2,476	)
Liability associated with class action lawsuit		(160,000	)		—
Net cash provided by (used in) operating activities		(163,768	)		79,201
Cash flows from investing activities:
Purchases of short-term investments		—			(74,919	)
Purchases of long-term investments		—			(29,456	)
Proceeds from maturities and sale of short-term investments		136,297			177,301
Proceeds from maturities and sale of long-term investments		30,058			152
Proceeds from sale of marketable equity securities and equity investments		—			5,803
Purchases of property and equipment		(35,818	)		(17,178	)
Decrease in restricted cash		1,075,079			—
Net cash paid in connection with acquisitions		(1,297,482	)		—
Net cash provided by (used in) investing activities		(91,866	)		61,703
Cash flows from financing activities:
Payment of senior underwriting fees related to the term loan		(30,525	)		—
Common stock repurchases		—			(80,012	)
Proceeds from issuance of common stock, net		8,548			7,824
Proceeds from revolving credit facility		14,050			—
Excess tax benefit from employee stock plans		(336	)		3,925
Net cash used in financing activities		(8,263	)		(68,263	)
Effect of exchange rate fluctuations on cash and cash equivalents		51			(1,806	)
Net increase (decrease) in cash and cash equivalents		(263,846	)		70,835
Cash and cash equivalents, beginning of period		453,884			315,755
Cash and cash equivalents, end of period	$	190,038		$	386,590
Supplemental schedule of non-cash investing activities:
Fair value of stock options and awards assumed and accelerated	$	253,551		$	—

See accompanying notes to condensed consolidated financial statements.

6

BROCADE COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Operations of Brocade

     Brocade Communications Systems, Inc. (“Brocade” or the “Company”) is a leading supplier of networking solutions that help enterprises and service providers connect and manage their information. The Company offers a comprehensive line of networking hardware and software products and services that enable businesses to make their data centers more efficient, reliable and adaptable. The Company also offers a comprehensive, end-to-end suite of high-performance data networking solutions that provide performance, reliability and scalability for a wide range of infrastructure deployments in enterprise and service provider environments.

     As a result of the acquisition of Foundry Networks, Inc. (“Foundry”) in the first fiscal quarter of 2009, Brocade reorganized its four operating units. The objective of this new organization is to enable the Company to more effectively focus on growth opportunities, while being well-positioned to more rapidly scale and accommodate new business opportunities, including potential future acquisitions. The four operating units are as follows:

• The Data Storage (“Data Storage”) operating unit encompasses the Brocade Storage Area Network (“SAN”) business, which includes infrastructure products and solutions including directors, switches, routers, fabric-based software applications, distance/extension products, as well as management applications and utilities to centralize data management. Data Storage also includes the host bus adapters (“HBAs”) and Intelligent Server Adapter initiatives, as well as the SAN switch modules for bladed servers and embedded switches for blade servers. Prior to fiscal year 2009, the SAN business was referred to as Data Center Infrastructure (“DCI”). In addition, prior to fiscal year 2009, the HBAs, Intelligent Server Adapter initiatives, as well as the SAN switch modules for bladed servers and embedded switches for blade servers that are now included in Data Storage, were referred to together as Server Edge and Storage (“SES”).

• The IP Layer 2-3 operating unit includes Layer 2-3 switches and routers which enable efficient use of bandwidth-intensive network business applications and digital entertainment on both local area networks (“LANs”) and wide area networks (“WANs”).

• The Application Delivery Controller (“ADC”) operating unit includes Layer 4—7 switches which allow enterprises and service providers to build highly available network infrastructures that efficiently direct the flow of traffic. ADC also includes the Brocade File Area Network solutions (“Files”).

• The Global Services (“Global Services”) operating unit includes consulting and support services that assist customers in designing, implementing, deploying and managing advanced networking solutions, as well as post-contract customer support (“PCS”). Prior to fiscal year 2009, the Global Services operating unit was referred to as Services, Support and Solutions (“S3”).

     Pursuant to Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” as amended (“SFAS 131”), two or more operating segments may be aggregated into a single reportable segment if the operating segments have similar economic characteristics, and if the operating segments are similar in each of the following areas:

• The nature of the products and services;

• The nature of the production processes;

• The type or class of customer for their products and services;

• The methods used to distribute their products or provide their services; and

• If applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.

     As such, under the new measurements of segment financial reporting implemented in the first quarter of fiscal year 2009, IP Layer 2-3 and ADC are combined into one reportable segment (referred to together as “IP Products”). Data Storage and Global Services are individually reportable segments. Prior to fiscal year 2009, SES and Files were combined into one reportable segment (referred to together as “Other”).

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     Brocade’s products, services and solutions simplify information technology (“IT”) infrastructure, increase resource utilization, ensure availability of mission critical applications, and support advanced data, voice and video applications.

     Brocade products and services are marketed, sold and supported worldwide to end-user customers through distribution partners, including original equipment manufacturers (“OEMs”), distributors, systems integrators, value-added resellers and by the Brocade direct sales force.

2. Summary of Significant Accounting Policies

Basis of Presentation

     Brocade has prepared the accompanying financial data as of January 24, 2009, and for the three months ended January 24, 2009 and January 26, 2008, 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 25, 2008 Condensed Consolidated Balance Sheet was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 25, 2008.

     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 January 24, 2009, results of operations for the three months ended January 24, 2009 and January 26, 2008, and cash flows for the three months ended January 24, 2009 and January 26, 2008 have been made. The results of operations for the three months ended January 24, 2009 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Fiscal Year

     The Company’s fiscal year is the 52 or 53 weeks ending on the last Saturday in October. As is customary for companies that use the 52/53-week convention, every fifth year contains a 53-week year. Fiscal year 2009 is a 53-week fiscal year and fiscal year 2008 is a 52-week fiscal year. The second quarter of fiscal year 2009 consists of 14 weeks, which is one week longer than a typical quarter.

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 per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the period that have a dilutive effect on earnings per share. Potentially dilutive common shares result from the assumed exercise of outstanding stock options, assumed vesting of outstanding restricted stock units and awards and assumed issuance of stock under the employee stock purchase plan using the treasury stock method, and the assumed conversion of outstanding convertible subordinated debt using the if-converted method. In a net loss position, diluted net loss per share is computed using only the weighted-average number of common shares outstanding during the period, less shares subject to repurchase, as any additional common shares would be antidilutive.

Fair Value Measurements

     The Company adopted the provisions of Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”), effective at the beginning of fiscal year 2009. SFAS 157 defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. In October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides guidance on the key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. Upon its adoption of SFAS 157, the Company applied the disclosure requirements related to financial assets and financial liabilities. The adoption of SFAS 157 for financial assets and financial liabilities was prospective and did not have a material impact on the Company’s results of operations or the fair values of its financial assets and liabilities (see Note 7, “Fair Value Measurements,” of the Notes to Condensed Consolidated Financial Statements).

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     In February 2008, the FASB issued FSP 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities until the beginning of fiscal year 2010, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company is currently assessing the impact that the application of SFAS 157 to nonfinancial assets and nonfinancial liabilities may have on its financial position and results of operations.

     The Company adopted the provisions of Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS 159”), effective at the beginning of fiscal year 2009. Under SFAS 159, a company may choose, at specified election dates, to measure eligible items at fair value and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Upon its adoption of SFAS 159, the Company has not elected the fair value option for any eligible financial instruments as of January 24, 2009.

Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities

     The Company adopted the provisions of EITF Issue No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities” (“EITF 07-3”), effective at the beginning of fiscal year 2009. EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized, and recognized as an expense as the related goods are delivered or the related services are performed. The adoption of EITF 07-3 did not have a material impact on the Company’s financial position and results of operations.

Concentrations

     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 January 24, 2009, two customers accounted for 15% and 11%, respectively, of total accounts receivable. As of October 25, 2008, three customers accounted for 30%, 17% and 14%, respectively, of total accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable balances. The Company has established reserves for credit losses, sales allowances, 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, particularly in light of the current economic environment.

     For the three months ended January 24, 2009 and January 26, 2008, three customers each represented ten percent or more of the Company’s total net revenues for a combined total of 56% and 66% of total net revenues, respectively. The Company’s future success depends upon the buying patterns of significant customers, such as companies within the financial services sector, the United States government or individual agencies within the United States government, their response to current and future IT investment trends and the continued demand by such customers for the Company’s products. Delays in or a reduction in information technology spending, domestically and/or internationally, could harm the Company’s business, results of operations and financial condition in a number of ways, including longer sales cycles, increased inventory provisions, increased production costs, lowered prices for Brocade’s products and reduced sales volumes. In addition, the loss of any one significant OEM partner, or a decrease in the level of sales to any one significant OEM partner, or unsuccessful quarterly negotiation on key terms, conditions or timing of purchase orders placed during a quarter, would likely cause serious harm to Brocade’s business and financial results.

     The Company currently relies on single and limited sources for multiple key components used in the manufacture of its products. Additionally, the Company relies on multiple contract manufacturers for the production of its products. The inability of any single or limited source supplier to fulfill supply, or the inability of a contract manufacturer to fulfill production requirements, could have a material adverse effect on the Company’s future operating results. Further, if the Company’s suppliers face challenges in obtaining credit or otherwise in operating their businesses, they may become unable to continue to offer the materials the Company uses to manufacture its products.

9

Revenue Recognition

     Product revenue. The Company’s products are generally integrated with software that is essential to the functionality of the equipment. Additionally, the Company provides unspecified software upgrades and enhancements related to the equipment through its maintenance contracts for most of its products. Accordingly, the Company accounts for revenue in accordance with Statement of Position 97-2, “Software Revenue Recognition,” as amended (“SOP 97-2”), and all related interpretations. For sales of products where software is incidental to the equipment, the Company applies the provisions of Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”), and all related interpretations. Product revenue is generally recognized when all of the following criteria have been met:

• Persuasive evidence of an arrangement exists;

• Delivery has occurred;

• The fee is fixed or determinable; and

• Collection is probable.

     Products related to the Company’s acquisition of Foundry are currently accounted for under SAB 104. In the future, if the Company determines that newly introduced products based on Foundry’s technology include software that is essential to the functionality of the equipment, then such new products will be accounted for using SOP 97-2 and all related interpretations.

     For newly introduced SAN 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 customers for sale to their customers. Revenue recognition and related cost are 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 allowances, sales programs, and other allowances at the time of shipment. Sales allowances, 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, changes in customer payment terms and practices, and customer communication.

     Service revenue. Service revenue consists of training and maintenance arrangements, including PCS, customer support services and other professional services. PCS services are offered under renewable, annual fee-based contracts or as part of multiple-element arrangements and typically include upgrades and enhancements to the Company’s operating system software and telephone support. Revenue related to PCS elements are deferred and recognized ratably over the contractual period. PCS contracts are typically one to three years in length.

     Customer support services are offered under renewable, fee-based contracts which provide customers with hardware repair and replacement parts, access to technical assistance, and unspecified software updates and upgrades on a when-and-if available basis. Revenue from customer support contracts is deferred and recognized ratably over the contractual support period, in accordance with FASB Technical Bulletin 90-1, “Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts” (“FTB 90-1”). Customer support services contracts are typically one to five years in length.

     Professional services are offered under fee-based contracts or as part of multiple-element arrangements. Professional service revenue is recognized when services are completed. Training revenue is recognized upon completion of the training.

     Multiple-element arrangements. The Company’s multiple-element product offerings include computer hardware and software products and support services. The Company also sells certain software products and support services separately. The Company’s software products are generally essential to the functionality of its hardware products and are, therefore, accounted for in accordance with SOP 97-2. The Company allocates revenue to each element in a multiple-element arrangement based upon vendor-specific objective evidence (“VSOE”) of the fair value of the element, or if VSOE is not available for the delivered element, by application of

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the residual method. In the application of the residual method, the Company allocates revenue to the undelivered elements based on VSOE for those elements and allocates the residual revenue to the delivered elements. VSOE of the fair value for an element is based upon the price charged when the element is sold separately. Revenue allocated to each element is then recognized when the basic revenue recognition criteria is met for each element. For sales of products that contain multiple elements and where software is incidental, the Company applies the provisions of EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”), to determine the separate units of accounting that exist within the arrangement. If more than one unit of accounting exists, the arrangement consideration is allocated to each unit of accounting using either the relative fair value method or the residual fair value method as prescribed by EITF 00-21. Revenue is recognized for each unit of accounting when all the revenue recognition criteria have been met for that unit of accounting.

Recent Accounting Pronouncements

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R requires the acquirer in a business combination to recognize assets and liabilities assumed at their fair values and to recognize acquisition-related costs separately from the acquisition. SFAS141R will be effective for the Company in fiscal year 2010, with early adoption prohibited. The Company expects the implementation of SFAS 141R will have an impact on its financial position and results of operations, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions the Company consummates after the effective date of November 1, 2009.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 will change the accounting and reporting for minority interests which will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS 160 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. The Company is currently assessing the impact of SFAS 160, but does not expect the adoption to have a material impact on its financial position, results of operations, and cash flows.

     In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 expands financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, results of operations, and cash flows. SFAS 161 also requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged, and will be adopted by the Company in the first quarter of fiscal year 2010. Because SFAS 161 only requires additional disclosure, the adoption will not impact the Company’s financial position, results of operations, and cash flows.

     In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. SFAS 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company currently adheres to the hierarchy of generally accepted accounting principles as presented in SFAS 162, and adoption of SFAS 162 is not expected to have a material impact on its financial position, results of operations, and cash flows.

     In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires issuers of convertible debt instruments that may be settled in cash upon conversion to account separately for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and will be adopted by the Company in the first quarter of fiscal year 2010. The Company has not yet adopted FSP APB 14-1, but is currently assessing the impact that FSP APB 14-1 may have on its financial position, results of operations, and cash flows.

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     In June 2008, the FASB issued EITF Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF 07-5 provides guidance on determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock. EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company has not yet adopted EITF 07-5, but is currently assessing the impact that EITF 07-5 may have on its financial position, results of operations, and cash flows.

     In November 2008, the FASB ratified EITF Issue No. 08-7, “Accounting for Defensive Intangible Assets” (“EITF 08-7”). EITF 08-7 applies to defensive intangible assets, which are acquired intangible assets that the acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. As these assets are separately identifiable, EITF 08-7 requires an acquiring entity to account for defensive intangible assets as a separate unit of accounting. Defensive intangible assets must be recognized at fair value in accordance with SFAS 141R and SFAS 157. EITF 08-7 is effective for defensive intangible assets acquired in fiscal years beginning on or after December 15, 2008 and will be adopted by the Company in the first quarter of fiscal year 2010. The Company expects EITF 08-7 will have an impact on its consolidated financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the intangible assets purchased after the effective date of November 1, 2009.

3. Acquisitions

Foundry Networks, Inc.

     On December 18, 2008, the Company completed its acquisition of Foundry in accordance with the Agreement and Plan of Merger, which the Company entered into on July 21, 2008, as well as Amendment No. 1 to the Agreement and Plan of Merger, which the Company entered into on November 7, 2008 (as amended, the “Foundry Merger Agreement”). As a result of the merger, Foundry is now a wholly-owned subsidiary of the Company.

     The Company recorded the acquisition using the purchase method of accounting and, accordingly, has included the results of operations of Foundry in the accompanying Condensed Consolidated Statements of Operations from December 18, 2008, the date the acquisition was completed.

     Pursuant to the terms of the Foundry Merger Agreement, each issued and outstanding share of Foundry common stock, other than the shares held by the Company, was canceled and converted into the right to receive $16.50 in cash, without interest. Approximately 137,061,501 shares of Foundry common stock were converted into the right to receive approximately $2.26 billion, which excluded 14,000,000 shares of Foundry common stock held by Brocade that were canceled upon effectiveness of the merger without consideration. In addition, upon the effectiveness of the merger, Brocade: (i) terminated certain outstanding unvested stock options; (ii) in certain circumstances, terminated Foundry’s outstanding vested options and granted, in lieu thereof, a right to be issued fully-vested Brocade common stock upon settlement thereof based on the excess of the per-share merger consideration set forth in the Foundry Merger Agreement over the applicable exercise price of such options; and (iii) (a) assumed certain outstanding equity awards or (b) replaced certain of Foundry’s outstanding equity awards with reasonably equivalent Brocade equity awards based on a conversion ratio derived from the per-share merger consideration as set forth in the Foundry Merger Agreement, in certain cases offsetting the number of shares (on a post-conversion basis) against Brocade’s existing share reserve under its stockholder-approved equity incentive plans.

     The total purchase price of the Foundry acquisition was $2.8 billion and is comprised of the following (in thousands):

	Amount
Cash tendered for shares of outstanding common stock of Foundry (1)	$	2,506,474
Fair value of stock options and awards assumed and accelerated		253,551
Direct transaction costs		27,395
Total purchase price	$	2,787,420

(1) This amount includes the $248.4 million paid by the Company to acquire 14.0 million shares of Foundry common stock before the consummation of the acquisition, net of $3.5 million in dividend received.

     In connection with this acquisition, the Company assumed options to purchase approximately 93.5 million shares of Brocade’s common stock at a weighted-average exercise price of approximately $3.23 per share. The Company also assumed approximately 34.7 million restricted stock units with a weighted-average grant date fair value of $3.52.

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     Direct transaction costs include investment banking, legal and accounting fees and other external costs directly related to the acquisition.

     The Company allocated the total purchase consideration to the net assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the acquisition date, resulting in initial goodwill of approximately $1,475.6 million which is not expected to be deductible for income tax purposes. The allocation of the purchase price reflects various preliminary estimates and analyses and are subject to change during the purchase price allocation period.

     The following table summarizes the initial allocation of the purchase price based on the estimated fair values of the assets acquired and liabilities assumed (in thousands):

	Amount
Assets acquired:
Cash and cash equivalents and short-term investments	$	987,956
Accounts receivable		89,831
Inventories		70,633
Identifiable intangible assets
Developed products technology		191,300
Customer contracts and relationships		194,500
In-process research and development (1)		26,900
Order backlog		6,500
Deferred tax assets		27,174
Goodwill		1,475,603
Other assets		202,804
Total assets acquired		3,273,201
Liabilities assumed:
Deferred tax liabilities		134,822
Other liabilities		350,959
Total liabilities assumed		485,781
Net assets acquired	$	2,787,420

(1) In connection with the acquisition of Foundry, the Company recorded a $26.9 million in-process research and development charge for the three months ended January 24, 2009.

     Of the total purchase price, a preliminary estimate of approximately $0.4 billion has been allocated to amortizable intangible assets acquired. The amortizable intangible assets are being amortized on a straight-line basis over their estimated useful lives as follows:

			Weighted-
			Average
	Amount		Useful Life
	(in thousands)		(in years)
Developed products technology	$	191,300		5
Customer contracts and relationships		194,500		5
Order backlog	$	6,500		0.25

     The following unaudited pro forma financial information for the three months ended January 24, 2009 and January 26, 2008 presents a summary of the results of operations of the Company assuming the acquisition of Foundry occurred at the beginning of each of the periods presented. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the merger had taken place at the beginning of each of the periods presented, nor is it indicative of future operating results:

	Three Months Ended
	January 24,		January 26,
In thousands, except per share amounts	2009 (1)		2008 (2)
Total net revenues	$	508,638	$	516,504
Pretax income		9,119		52,517
Net income		283		16,024
Basic net income per share	$	0.00	$	0.04

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(1)

The unaudited pro forma financial results for the three months ended January 24, 2009 include Brocade’s historical results for the three months ended January 24, 2009, which include Foundry’s results subsequent to December 18, 2008, and Foundry’s historical results for the period October 26, 2008 to December 18, 2008, including amortization for acquired intangible assets, elimination of the in-process research and development charge and acquisition-related fees, and related tax effects.

(2)

The unaudited pro forma financial results for the three months ended January 26, 2008 include Brocade’s historical results for the three months ended January 26, 2008 and Foundry’s historical results for the three months ended December 31, 2007, including amortization for acquired intangible assets, adjustment to interest expense, and related tax effects.

4. Goodwill and Intangible Assets

     During the second quarter of fiscal year 2008, the Company allocated goodwill to each operating unit as defined by Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). During the first quarter of fiscal year 2009, Brocade reorganized its four operating units, of which two are individually reportable segments: Data Storage and Global Services; and two are combined into one reportable segment: IP Products. Prior period allocation of goodwill activity by reportable segment has been conformed to the new measurements of segment financial reporting implemented in the first quarter of fiscal year 2009. The following table summarizes the goodwill activity by reportable segment during the three months ended January 24, 2009 (in thousands):

	Data Storage		IP Products		Global Services		Total
Balance at October 25, 2008	$	183,331	$	45,832	$	39,814	$	268,977
Acquisition of Foundry		—		1,357,855		117,748		1,475,603
Balance at January 24, 2009	$	183,331	$	1,403,687	$	157,562	$	1,744,580

     Intangible assets as of January 24, 2009 consisted of the following (in thousands):

	Gross				Net
	Carrying		Accumulated		Carrying
	Value		Amortization		Value
Tradename	$	14,873	$	7,820	$	7,053
Core/Developed technology		346,054		82,654		263,400
Customer relationships		373,912		61,284		312,628
Non-compete agreements		970		714		256
Backlog		6,580		2,247		4,333
Total intangible assets	$	742,389	$	154,719	$	587,670

     Intangible assets as of October 25, 2008 consisted of the following (in thousands):

	Gross				Net
	Carrying		Accumulated		Carrying
	Value		Amortization		Value
Tradename	$	14,873	$	6,971	$	7,902
Core/Developed technology		154,754		71,202		83,552
Customer relationships		179,412		50,654		128,758
Non-compete agreements		970		615		355
Total intangible assets	$	350,009	$	129,442	$	220,567

     Intangible assets other than goodwill are amortized over their estimated useful lives, unless the Company has determined these lives to be indefinite. The Company amortizes intangible assets over the following remaining useful lives (in years):

	Useful Life
Tradename		5.72
Core/Developed technology		4.21
Customer relationships		4.80
Non-compete agreements		0.63
Backlog		—
Total intangible assets		4.51

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     For the three months ended January 24, 2009, amortization expense related to intangible assets of $12.0 million was included in cost of revenues and $13.2 million was included in operating expenses on the Condensed Consolidated Statement of Operations. For the three months ended January 26, 2008, amortization expense related to intangible assets of $11.3 million was included in cost of revenues and $7.9 million was included in operating expenses on the Condensed Consolidated Statement of Operations.

     The following table presents the estimated future amortization of intangible assets as at January 24, 2009 (in thousands):

	Future
	Estimated
Fiscal Year	Amortization
2009 (1)	$	111,959
2010		130,390
2011		120,417
2012		107,062
2013		94,703
Thereafter		23,139
Total	$	587,670

(1) Reflects the remaining nine months of fiscal year 2009.

     Due to the recent extraordinary market and economic conditions, the Company experienced a decline in its stock price, thereby resulting in a loss of market capitalization. As of January 24, 2009 and October 25, 2008, there was no impairment of goodwill and intangible assets. The Company will continue to monitor changes in the global economy that could impact future operating results of its reporting units. If the businesses the Company acquired fail to meet its expectations as set out at the time of acquisition or if the market capitalization of its stock trades at a depressed level for an extended period of time, the Company could incur significant impairment charges which could negatively impact its financial results.

5. Balance Sheet Details

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

	January 24,			October 25,
	2009			2008
Inventories:
Raw materials	$	9,600		$	5,596
Work-in-process		23,779			—
Finished goods		51,473			15,766
Total	$	84,852		$	21,362
Property and equipment, net:
Computer equipment and software	$	119,961		$	117,167
Engineering and other equipment		218,767			208,613
Furniture and fixtures		13,961			12,066
Leasehold improvements		61,494			58,651
Land and building		81,940			80,882
Company campus (1)		123,668			103,007
Subtotal		619,791			580,386
Less: Accumulated depreciation and amortization		(280,774	)		(267,007	)
Total	$	339,017		$	313,379

(1) In connection with the purchase of the property located in San Jose, California, the Company also engaged a third party as development manager to manage the development and construction of improvements on the property, which is still in progress. Included in the $123.7 million in Company campus as of January 24, 2009 is $8.0 million that the Company has agreed to pay the developer in the event that Brocade decides to transfer any part of the Company campus project prior to May 22, 2011.

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	January 24,		October 25,
	2009		2008
Other accrued liabilities:
Income taxes payable	$	24,937	$	6,749
Accrued warranty		7,044		5,051
Inventory purchase commitments		29,354		17,332
Accrued sales programs		12,579		13,438
Other		51,230		63,234
Total	$	125,144	$	105,804

6. Investments and Equity Securities

     The following table summarizes the Company’s investments and equity securities (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
January 24, 2009
Corporate bonds and notes	$	20,726	$	216	$	—		$	20,942
Marketable equity securities		4,916		—		—			4,916
Total	$	25,642	$	216	$	—		$	25,858
Reported as:
Short-term investments								$	24,133
Long-term investments									1,725
Total								$	25,858
October 25, 2008
Debt securities issued by U.S. government and its agencies and municipal obligations	$	40,504	$	44	$	(22	)	$	40,526
Corporate bonds and notes		146,457		206		(3,274	)		143,389
Marketable equity securities		253,378		—		(71,052	)		182,326
Total	$	440,339	$	250	$	(74,348	)	$	366,241
Reported as:
Short-term investments								$	152,741
Long-term investments and marketable equity securities									213,500
Total								$	366,241

     At January 24, 2009 and October 25, 2008, net unrealized holding (gains) losses on investments of $(1.7) million and $73.6 million, respectively, were included in accumulated other comprehensive loss in the accompanying Condensed Consolidated Balance Sheets. The Company has the intent and ability to hold these investments for a period of time to allow for any anticipated recovery in market value. Marketable equity securities are held for purposes other than trading and are classified as available-for-sale. There were no impairment charges on marketable equity securities during the three months ended January 24, 2009.

     As of October 25, 2008, the Company had $71.1 million in gross unrealized losses in connection with the 14.0 million shares of Foundry common stock held by Brocade for the period then ended. Effective upon the consummation of the merger with Foundry, the Company reversed the gross unrealized losses of $71.1 million and increased its investment in Foundry to its historical cost, which is reflected in the total purchase price of the acquisition, pursuant to Statement of Financial Accounting Standards No. 141, “Business Combinations.” As such, the Company did not have any realized gains (losses) in connection with these marketable equity securities as of January 24, 2009.

7. Fair Value Measurements

     SFAS 157 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

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Fair Value Hierarchy

     SFAS 157 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. SFAS 157 establishes three levels of inputs that may be used to measure fair value:

Level 1

     Level 1 applies to assets and liabilities for which there are quoted prices in active markets for identical assets or liabilities. Valuations are based on quoted prices that are readily and regularly available in an active market and do not entail a significant degree of judgment. Brocade’s assets and liabilities utilizing Level 1 inputs include money market funds and certain of the Company’s corporate bonds that are traded in an active market with sufficient volume and frequency of transactions.

     Level 2

     Level 2 applies to assets and liabilities for which there are other than Level 1 observable inputs such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Brocade’s liabilities utilizing Level 2 inputs include derivative instruments.

     Level 2 instruments require more management judgment and subjectivity as compared to Level 1 instruments. For instance:

• Determining which instruments are most similar to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates, maturity, issuer, credit rating and instrument type, and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced; and

• Determining whether a market is considered active requires management judgment.

Level 3

     Level 3 applies to assets and liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The determination of fair value for Level 3 instruments requires the most management judgment and subjectivity. Brocade has no assets or liabilities utilizing Level 3 inputs.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

     Assets and liabilities measured at fair value on a recurring basis as of January 24, 2009 were as follows (in thousands):

			Fair Value Measurements Using
			Quoted Prices in
			Active Markets		Significant Other		Significant
	Balance as of		For Identical		Observable		Unobservable
	January 24,		Instruments		Inputs		Inputs
	2009		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	58,756	$	58,756	$	—	$	—
Corporate bonds		25,858		25,858		—		—
Total assets measured at fair value	$	84,614	$	84,614	$	—	$	—
Liabilities:
Derivative liabilities	$	2,815	$	—	$	2,815	$	—
Total liabilities measured at fair value	$	2,815	$	—	$	2,815	$	—

     The Company uses observable market prices for comparable instruments to value its derivative instruments. As of January 24, 2009, approximately $2.8 million of its derivative instruments that were measured at fair value on a recurring basis were classified as Level 2.

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     Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s condensed consolidated balance sheet as of January 24, 2009 as follows (in thousands):

	Fair Value Measurements Using
	Quoted Prices in
	Active Markets		Significant Other		Significant
	For Identical		Observable		Unobservable		Balance as of
	Instruments		Inputs		Inputs		January 24,
	(Level 1)		(Level 2)		(Level 3)		2009
Assets:
Cash equivalents	$	58,756	$	—	$	—	$	58,756
Short-term investments		24,133		—		—		24,133
Long-term investments		1,725		—		—		1,725
Total assets measured at fair value	$	84,614	$	—	$	—	$	84,614
Liabilities:
Other accrued liabilities	$	—	$	2,815	$	—	$	2,815
Total liabilities measured at fair value	$	—	$	2,815	$	—	$	2,815

8. Liabilities Associated with Facilities Lease Losses

     During the three months ended January 24, 2009, the Company recorded a purchase accounting charge of $6.0 million related to estimated facilities lease losses as a result of the acquisition of Foundry. As of January 24, 2009, the Company had $31.1 million in facilities lease loss reserve related to future lease commitments, net of expected sublease income. The Company reevaluates its estimates and assumptions on a quarterly basis and makes adjustments to the reserve balance if necessary.

     The following table summarizes the activity related to the facilities lease loss reserve, net of expected sublease income (in thousands):

	Lease Loss
	Reserve
Reserve balance at October 25, 2008	$	28,429
Additional reserve related to acquisition of Foundry		5,960
Cash payments on facilities leases		(3,356	)
Non-cash charges and other adjustments, net		35
Reserve balance at January 24, 2009	$	31,068

     Cash payments for facilities leases related to the above noted facilities lease losses will be paid over the respective lease terms through fiscal year 2017.

9. Borrowings

Senior Secured Credit Facility

     On October 7, 2008, the Company entered into a credit agreement with the following lenders, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, Morgan Stanley Senior Funding, Inc., as syndication agent, Banc of America Securities LLC and Morgan Stanley Senior Funding, Inc., as joint lead arrangers and joint bookrunners, HSBC Bank USA National Association and Keybank National Association, as co-documentation agents. The credit agreement provides for (i) a five-year $1,100.0 million term loan facility and (ii) a five-year $125.0 million revolving credit facility, which includes a $25.0 million swing line loan subfacility and a $25.0 million letter of credit subfacility.

     The net proceeds of the term loan facility were used to finance a portion of the Company’s acquisition of Foundry. In addition to the term loan facility, during the three months ended January 24, 2009, the Company drew $14.1 million from the $125.0 million revolving credit facility to finance a small portion of the merger. The Company may draw additional proceeds from the revolving credit facility in the future for ongoing working capital and other general corporate purposes. The term loan facility and revolving credit facility are referred to together as the “Senior Secured Credit Facility.” As of January 24, 2009, $14.1 million was outstanding under the revolving credit facility. No amount was outstanding under the revolving credit facility as of October 25, 2008.

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     Loans under the Senior Secured Credit Facility bear interest, at the Company’s option, at a rate equal to either the LIBOR rate, plus an applicable margin equal to 4.0% per annum or the prime lending rate, plus an applicable margin equal to 3.0% per annum. The applicable margin with respect to revolving loans is subject to adjustment based on the Company’s consolidated senior secured leverage ratio, as defined in the credit agreement. The LIBOR rate floor is 3.0% per annum and the prime lending rate floor is 4.0% per annum, in each case, for the life of the Senior Secured Credit Facility.

     The proceeds of the term loan were deposited in a restricted securities account pending the closing of the merger and other release conditions, and are reported as long-term restricted cash on the Condensed Consolidated Balance Sheet as of October 25, 2008. On December 19, 2008, the proceeds of the term loan were released from the restricted securities account to fund the merger. As of January 24, 2009, the Company recorded the current portion of the liability associated with the term loan of $43.2 million, net of the debt discount of $11.8 million, as “Current portion of long-term debt” and the Company recorded the long-term portion of the liability associated with the term loan of $1,012.8 million, net of the debt discount of $32.2 million, as “Long-term debt, net of current portion” on the Condensed Consolidated Balance Sheet. As of October 25, 2008, the Company recorded the current portion of the liability associated with the term loan of $43.6 million, net of the debt discount of $11.4 million, as “Current portion of long-term debt” and the Company recorded the long-term portion of the liability associated with the term loan of $1,011.4 million, net of the debt discount of $34.2 million, as “Long-term debt, net of current portion” on the Condensed Consolidated Balance Sheet.

     The Company is permitted to make voluntary prepayments at any time (without payment of a premium, other than in the case of a repricing transaction in respect of the term loan facility), and is required to make mandatory prepayments on the term loan (without payment of a premium) with (1) net cash proceeds from non-ordinary course asset sales (subject to reinvestment rights and other exceptions), (2) net cash proceeds from issuances of debt (other than certain permitted debt), (3) a percentage of 50% or 0% of Brocade’s excess cash flow, based on Brocade’s consolidated senior secured leverage ratio, beginning with the fiscal year ending October 27, 2009, and (4) casualty proceeds and condemnation awards (subject to reinvestment rights and other exceptions). The Company is required to pay quarterly installments on the term loan equal to an aggregate annual amount of 5% of the original principal amount thereof in the first and second year, 10% in the third year, 20% in the fourth year and 60% in the fifth year, with any remaining balance payable on the final maturity date of the term loan. Upon a repricing of the term loan (including through a refinancing) that results in the weighted-average yield or applicable rate of such term loan immediately after such repricing being lower than such yield or rate immediately prior to such repricing, a 2.0% premium is payable during the first year following the closing and a 1.0% premium is payable during the second year following the closing.

     The obligations of the Company and its subsidiary guarantors under the Senior Secured Credit Facility and the related guarantees thereunder are secured, subject to customary permitted liens and other agreed upon exceptions, by (1) a first priority pledge of all of the equity interests of each of the Company’s direct and indirect subsidiaries, and (2) a perfected first priority interest in and mortgages on all tangible and intangible assets of the Company and each subsidiary guarantor, except, in the case of a foreign subsidiary, to the extent such pledge would be prohibited by applicable law or would result in materially adverse tax consequences (limited, in the case of a first-tier foreign subsidiary, to 65% of the voting stock and 100% of non-voting stock of such first-tier foreign subsidiary). In addition, the term loan has not been registered as of January 24, 2009.

     The credit agreement contains financial covenants that require the Company to maintain a minimum consolidated fixed charge coverage ratio, a maximum consolidated leverage ratio and a maximum consolidated senior secured leverage ratio, each as defined in the credit agreement. The credit agreement also includes customary events of default, including cross-defaults on the Company’s material indebtedness and change of control. The Company was in compliance with all applicable covenants as of January 24, 2009 and October 25, 2008. The financial and other covenants agreed to by Brocade in connection with such indebtedness and the increased indebtedness and higher debt-to-equity ratio of Brocade in comparison to that of Brocade on a recent historical basis will have the effect, among other things, of reducing the flexibility of Brocade to respond to changing business and economic conditions and increasing borrowing costs, and may adversely affect Brocade’s operations and financial results. In addition, the Company’s failure to comply with these covenants could result in a default under the Senior Secured Credit Facility and its other debt, which could permit the holders to accelerate such debt, or demand payment in exchange for a waiver of such default. If any of the Company’s debt is accelerated, the Company may not have sufficient funds available to repay such debt.

     Fees totaling $27.5 million associated with the acquisition have been capitalized as deferred financing costs, with $1.9 million amortized as of January 24, 2009. As of January 24, 2009, the short-term portion of the deferred financing costs was $6.9 million and is reported within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet. As of January 24, 2009, the long-term portion of the deferred financing costs was $18.7 million and is reported within other assets on the Condensed Consolidated Balance Sheet. As of October 25, 2008, the short-term portion of the deferred financing costs was $7.9 million and is reported within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet. As of October 25, 2008, the long-term portion of the deferred financing costs was $23.2 million and is reported within other assets on the Condensed Consolidated Balance Sheet. All fees capitalized are related to the term loan facility. The deferred financing costs are being amortized using the effective interest method over the five-year term of the debt.

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Convertible Subordinated Debt

     On January 29, 2007, effective upon the consummation of the merger with McDATA Corporation (“McDATA”), the Company fully and unconditionally guaranteed and became a co-obligor of the 2.25% Notes of McDATA (“2.25% Notes”). The 2.25% Notes were convertible into McDATA’s Class A common stock at a conversion rate of 93.3986 shares per $1,000 principal amount of notes (aggregate of approximately 16.1 million shares) at any time prior to February 15, 2010, subject to adjustments. Pursuant to the merger agreement, at the effective time of the merger, each outstanding share of McDATA’s Class A common stock, $0.01 par value per share, was converted into the right to receive 0.75 of a share of Brocade’s common stock, $0.001 par value per share, together with cash in lieu of fractional shares. As a result, an approximate aggregate of 12.1 million shares are subject to conversion at any time prior to February 15, 2010, subject to adjustments. For the three months ended January 24, 2009, 12.1 million shares were antidilutive and therefore not included in the calculation of diluted net loss per share. For the three months ended January 26, 2008, 12.1 million shares were dilutive and therefore included in the calculation of diluted net income per share.

     As of January 24, 2009 and October 25, 2008, convertible subordinated debt included $172.5 million of outstanding 2.25% convertible subordinated notes due February 15, 2010, previously issued by McDATA.

     As of January 24, 2009, the approximate aggregate fair value of the outstanding convertible subordinated debt was between $154.4 million and $152.9 million. The Company estimated the fair value of the outstanding convertible subordinated debt by using the high and low prices per $100 of the Company’s 2.25% Notes as of the last day of trading for the first fiscal 2009 quarter, which were $89.50 and $88.63, respectively.

     Concurrent with the issuance of the 2.25% Notes, McDATA entered into share option transactions using approximately $20.5 million of net proceeds. As part of these share option transactions, McDATA purchased options that cover approximately 12.1 million shares of common stock, at a strike price of $14.28. McDATA also sold options that cover approximately 12.7 million shares of common stock, at a strike price of $20.11. The net cost of the share option transactions was recorded against additional paid-in capital in accordance with EITF Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.”

10. Commitments and Contingencies

Operating and Capital Leases

     The Company leases certain facilities and certain equipment under various operating and capital lease agreements expiring through January 2017. In connection with its facilities lease agreements, the Company has signed unconditional, irrevocable letters of credit totaling $2.0 million as security for the leases.

     Future minimum lease payments under all non-cancelable operating leases as of January 24, 2009 total $70.2 million, net of contractual sublease income of $21.1 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.

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Product Warranties

     The Company provides warranties on its products ranging from one to five 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 the Company’s expectations regarding future experience. The Company’s accrued liability for estimated future warranty costs is included in other accrued liabilities on the accompanying Condensed Consolidated Balance Sheets. The following table summarizes the activity related to the Company’s accrued liability for estimated future warranty costs during the three months ended January 24, 2009 and January 26, 2008 (in thousands):

	Accrued Warranty
	Three Months Ended
	January 24,			January 26,
	2009			2008
Beginning balance	$	5,051		$	5,923
Liabilities accrued for warranties issued during the period (1)		2,639			1,308
Warranty claims paid and uses during the period		(379	)		(1,065	)
Changes in liability for pre-existing warranties during the period		(267	)		(184	)
Ending balance	$	7,044		$	5,982

(1) Included in the $2.6 million in liabilities accrued for warranties issued during the three months ended January 24, 2009 is $1.9 million in warranty liabilities resulting from the Foundry acquisition.

     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 January 24, 2009, there have been no known material events or circumstances that have resulted in a customer contract related indemnification liability to the Company.

Manufacturing and Purchase Commitments

     The Company has manufacturing agreements with Hon Hai Precision Industry Co., Ltd. (“Foxconn”), Sanmina-SCI Corporation (“Sanmina”), Flextronics International Ltd. (“Flextronics”) and Celestica, Inc. (“Celestica”) under which the Company provides twelve-month product forecasts and places purchase orders in advance of the scheduled delivery of products to the Company’s customers. The required lead-time for placing orders with Foxconn, Sanmina, Flextronics and Celestica depends on the specific product. As of January 24, 2009, the Company’s aggregate commitment to Foxconn, Sanmina, Flextronics and Celestica for inventory components used in the manufacture of Brocade products was $236.0 million, net of a purchase commitments reserve of $29.4 million, which the Company expects to utilize during future normal ongoing operations. The Company’s purchase orders placed with Foxconn, Sanmina, Flextronics and Celestica are cancelable, however if canceled, the agreements require the Company to purchase all inventory components not returnable, usable by, or sold to, other customers of the aforementioned contract manufacturers. The Company’s purchase commitments reserve reflects the Company’s estimate of purchase commitments it does not expect to consume in normal operations within the next twelve months.

Income Taxes

     In May 2008, the Internal Revenue Service (“IRS”) completed its field examination of Brocade’s federal income tax return for the year ended October 25, 2003 and issued a Revenue Agent’s Report (“RAR”). The IRS is contesting the Company’s transfer pricing for the cost sharing and buy-in arrangements with its foreign subsidiaries. The IRS’ proposed adjustment would offset approximately $306.0 million of the Company’s net operating loss carryforwards. The IRS’ proposed adjustment resulted in a tax assessment of approximately $6.4 million, excluding penalties and interest. The IRS may make similar claims against the Company’s transfer pricing arrangements in future examinations. In June 2008, the Company filed a protest with the Appeals Office of the IRS to challenge the IRS’ proposed adjustment and assessment. In addition, the IRS is currently examining the Company’s federal income tax returns for the three tax years ended October 28, 2006. Due to the net operating loss and credit carryforwards, the Company’s U.S. federal, state and local income tax returns remain open for examination. The Company is generally not subject to non-U.S. income tax examinations for years before 2000. In February 2009, the IRS commenced an examination of Foundry’s federal income tax returns for the years ended December 31, 2006 and 2007. As the audit has just begun, the Company is not aware of any proposed adjustments. Brocade believes it has adequate reserves for all open tax years.

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Integration Costs

     In connection with the acquisition of Foundry, the Company recorded acquisition and integration costs of $1.0 million for the three months ended January 24, 2009, which consisted primarily of costs incurred for consulting services and other professional fees. There were no acquisition and integration costs for the three months ended January 26, 2008.

Legal Proceedings

IPO Litigation

     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, No. 01 Civ. 6613, was filed on April 19, 2002. The initial 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 for claims under the Exchange Act on behalf of a purported class of purchasers of common stock from May 24, 1999 to December 6, 2000. The lawsuit against Brocade is 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).

     Also part of these coordinated proceedings are actions against McDATA Corporation, certain of its officers and directors, and the underwriters for McDATA’s initial public offering of securities, No. 01 Civ. 6627, and Inrange Technologies Corporation (which was first acquired by CNT and subsequently acquired by McDATA as part of the CNT acquisition), certain of its officers and directors, and the underwriters for Inrange’s initial public offering of securities, No. 01 Civ. 10800. The complaints in these actions asserted claims under the Securities Act and Exchange Act. In October 2002, the individual defendants in the Brocade, McDATA and Inrange actions 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 and some but not all of the claims against McDATA and Inrange. In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including Brocade, McDATA and Inrange, was submitted to the Court for approval. In August 2005, the Court granted preliminary approval of the settlement. In December 2006, the appellate Court overturned the certification of classes in the six test cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. Neither Brocade, McDATA nor Inrange is a test case. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs filed amended master allegations and amended complaints and moved for class certification in the six test cases, which the defendants in those cases opposed. On March 26, 2008, the Court denied the defendants’ motion to dismiss with respect to a substantial portion of the claims and granted the defendants’ motion to dismiss with respect to certain limited Section 11 claims. Plaintiffs later withdrew their motion for class certification in the six test cases. It is uncertain whether there will be any revised or future settlement.

     On November 27, 2001, a class action lawsuit was filed in the United States District Court for the Southern District of New York (the “District Court”) on behalf of purchasers of common stock of Foundry alleging violations of federal securities laws. The case was designated as In re Foundry Networks, Inc. Initial Public Offering Securities Litigation, No. 01-CV-10640 (SAS)(S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, No. 21 MC 92 (SAS)(S.D.N.Y.). The case is brought purportedly on behalf of all persons who purchased Foundry’s common stock from September 27, 1999 through December 6, 2000. The operative amended complaint names as defendants Foundry and two current and one former Foundry officers (the “Foundry Defendants”), including Foundry’s former Chief Executive Officer and former Chief Financial Officer, and investment banking firms that served as underwriters for Foundry’s initial public offering in September 1999 (the “IPO”). The amended complaint alleged violations of Sections 11 and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, on the grounds that the registration statement for the IPO failed to disclose that (i) the underwriters agreed to allow certain customers to purchase shares in the IPO in exchange for excess commissions to be paid to the underwriters, and (ii) the underwriters arranged for certain customers to purchase additional shares in the aftermarket at predetermined prices. The amended complaint also alleges that false or misleading analyst reports were issued and seeks unspecified damages. Similar allegations were made in lawsuits challenging over 300 other initial public offerings conducted in 1999 and 2000. The cases were consolidated for pretrial purposes.

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     In 2004, Foundry accepted a settlement proposal presented to all issuer defendants. Under the terms of this settlement, the plaintiffs would have dismissed and released all claims against the Foundry Defendants in exchange for a contingent payment by the insurance companies collectively responsible for insuring the issuers in all of the IPO cases and for the assignment or surrender of control of certain claims Foundry may have against the underwriters. However, the settlement required approval by the District Court. Prior to a final decision by the District Court, the Second Circuit Court of Appeals vacated the class certification of plaintiffs’ claims against the underwriters in six cases designated as focus or test cases. In re Initial Public Offering Securities Litigation, 471 F.3d 24 (2d Cir. Dec. 5, 2006). In response, on December 14, 2006, the District Court ordered a stay of all proceedings in all of the lawsuits pending the outcome of plaintiffs’ petition to the Second Circuit for rehearing en banc and resolution of the class certification issue. On April 6, 2007, the Second Circuit denied plaintiffs’ petition for rehearing, but clarified that the plaintiffs may seek to certify a more limited class in the District Court. In view of that decision, the parties withdrew the prior settlement. The plaintiffs have filed amended complaints in an effort to comply with the Second Circuit decision. Foundry, and the previously named officers, are still named defendants in the amended complaint. On March 26, 2008, the District Court issued an order granting in part and denying in part defendants’ motions to dismiss the amended complaints in the six focus cases. In particular, the District Court denied the motions to dismiss as to the Section 10(b) claims. The District Court also denied the motions to dismiss as to the Section 11 claims except for those claims raised by two different classes of plaintiffs. More specifically, the District Court dismissed the Section 11 claims raised by (1) those plaintiffs who had no conceivable damages because they sold their securities above the offering price; and (2) those plaintiffs whose claims were time barred because they purchased their securities outside the previously certified class period. It is uncertain whether there will be any revised or future settlement.

Securities Litigation

     Beginning on or about May 19, 2005, several securities class action complaints were filed against Brocade and certain of its then current and former officers. These actions were filed in the United States District Court for the Northern District of California on behalf of purchasers of Brocade’s stock from February 21, 2001 to May 15, 2005. These lawsuits followed and relate to Brocade’s restatement of certain financial results due to stock-based compensation accounting issues. On January 12, 2006, the Court appointed a lead plaintiff and lead counsel. On April 14, 2006, the lead plaintiff filed a consolidated complaint on behalf of purchasers of Brocade’s stock from May 18, 2000 to May 15, 2005. On November 3, 2006, the Court denied Brocade’s motion to dismiss the consolidated complaint and granted certain individual defendants’ motions to dismiss the consolidated complaint with leave to amend. On January 2, 2007, the lead plaintiffs filed an amended consolidated complaint on behalf of purchasers of Brocade’s stock from May 18, 2000 to May 15, 2005. The amended consolidated complaint names Brocade and certain of its former officers and directors and alleges, among other things, violations of sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The amended consolidated complaint alleges, among other things, that Brocade and the individual defendants made false or misleading public statements regarding Brocade’s business and operations and seeks unspecified monetary damages and other relief against the defendants. On January 29, 2007, Brocade filed its answer to the amended consolidated complaint. On August 7, 2007, a federal jury convicted Brocade’s former Chief Executive Officer, Gregory Reyes, on ten criminal counts related to Brocade’s historical stock option practices. On August 27, 2007, the Court denied certain individual defendants’ motions to dismiss the amended consolidated complaint. On October 12, 2007, the Court granted lead plaintiffs’ motion for class certification and certified a class in this action consisting of all persons and entities who purchased or otherwise acquired the securities of Brocade between May 18, 2000 to May 15, 2005, inclusive, and who were damaged thereby. The Court also partially granted plaintiffs’ motion for partial summary judgment against Mr. Reyes, who is a defendant in this action, prohibiting him from re-litigating in this class action the jury’s finding from Mr. Reyes’ criminal case that he knowingly and willfully made material misrepresentations in Brocade’s Annual Report on Form 10-K for 2001, 2002 and 2003. On December 5, 2007, a federal jury convicted Brocade’s former human resources director, Stephanie Jensen, on two criminal counts related to Brocade’s historical stock option practices. (Ms. Jensen is not a defendant in the class action.) On May 13, 2008, the Court granted plaintiffs’ motion for partial summary judgment that Gregory Reyes was acting within the course and scope of his employment at Brocade when he signed Brocade’s Form 10-Ks for 2001, 2002 and 2003. On May 30, 2008, Brocade reached an agreement in principle with the lead plaintiffs to settle the federal securities class action that would result in a payment by Brocade of $160.0 million to the plaintiff class in exchange for the dismissal with prejudice of all claims against all defendants in the litigation. The parties filed final documentation of the settlement with the Court and the Court granted preliminary approval of the settlement on November 18, 2008. In December 2008, Brocade deposited $160.0 million into an escrow account on behalf of the plaintiff class to be released upon final approval of the proposed settlement by the Federal District Court. On January 26, 2009, the Federal District Court granted final approval of the settlement.

     Beginning on or about May 24, 2005, several derivative actions were also filed against certain of Brocade’s current and former officers and directors. 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 alleged, among other things, that those current and former officers

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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 was named solely as a nominal defendant against whom the plaintiffs sought no monetary recovery (other than the award of attorneys’ fees). 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 federal derivative plaintiffs filed a consolidated complaint in the District Court for the Northern District of California on October 7, 2005 and Brocade filed a motion to dismiss that action on October 27, 2005. On January 6, 2006, Brocade’s motion was granted, and the consolidated complaint in the District Court for the Northern District of California was dismissed with leave to amend. The parties to this action subsequently reached a preliminary settlement, and, on February 14, 2007, the Court entered an Order granting preliminary approval of the settlement. On April 27, 2007, the Court refused to grant final approval of the settlement at that time.

     The derivative actions pending in the Superior Court in Santa Clara County were consolidated, and the derivative plaintiffs filed a consolidated complaint on September 19, 2005. Brocade filed a motion to stay the state derivative action in deference to the substantially identical consolidated derivative action pending in the District Court for the Northern District of California, and, on November 15, 2005, the State Court stayed the action. In October 2006, the Court partially lifted the stay and granted plaintiffs leave to file an amended complaint. On November 13, 2006, plaintiffs filed an amended complaint, and Brocade filed a demurrer to the action on March 9, 2007, and on September 4, 2007, a motion to dismiss due to plaintiffs’ lack of standing.

     On February 22, 2008, Brocade’s Board of Directors appointed a Special Litigation Committee of the Board (“SLC”) with plenary authority to, among other things, evaluate and resolve the claims asserted in the federal and state derivative actions. On April 25, 2008, the Court in the federal derivative litigation held a hearing at which Brocade informed the Court that Brocade was no longer seeking approval of the previously proposed federal derivative settlement.

     On April 15, 2008, another related, but not consolidated, derivative action was filed in the United States District Court for the Northern District of California. The complaint alleged, among other things, that certain of Brocade’s officers and directors breached their fiduciary duties to Brocade and violated federal law by engaging in allegedly wrongful conduct, including conduct complained of in the securities litigation and the other derivative litigations described above. Brocade was named solely as a nominal defendant against whom the plaintiff sought no monetary recovery (other than the award of attorneys’ fees).

     On August 1, 2008, Brocade, acting through the SLC, filed a Second Amended Complaint (the “SLC’s Complaint”) in the consolidated federal derivative action against ten former officers or directors of Brocade, asserting claims for breach of fiduciary duty and violations of federal and state laws in connection with the matters at issue in the derivative actions and the securities litigation. Brocade also moved (i) to be realigned as plaintiff in the three pending derivative actions, (ii) to dismiss or stay the unconsolidated federal derivative action, and (iii) to stay the state court derivative action.

     On August 12, 2008, the State Court granted Brocade’s motion to be realigned as a plaintiff in the state court derivative actions, dismissed the shareholder plaintiff, and stayed the state court action pending further proceedings in the consolidated federal derivative action.

     On August 27, 2008, the Court entered an order in the consolidated federal derivative action realigning Brocade as the sole party-plaintiff substituted for the shareholder plaintiff in the action and dismissing the shareholder plaintiff from the case. That same day, the Court entered an order in the unconsolidated federal derivative action realigning Brocade as the sole party-plaintiff, substituted for the shareholder plaintiff in the action, dismissing the shareholder plaintiff from the case, and staying the action pending further developments in the consolidated federal derivative action and other related proceedings.

     On October 6, 2008, the defendants in the consolidated federal derivative action filed motions to dismiss the SLC’s Complaint. Brocade opposed the defendants’ motions. On December 12, 2008, the Federal Court granted the motions in part and denied them in part. The Federal Court dismissed all of the federal claims and certain of the state law claims asserted against five of the ten defendants (the “Federal Court Defendants”), but retained other state law claims, including claims for breach of fiduciary duty. The Federal Court dismissed all claims against the remaining five defendants (the “State Court Defendants”) based on statute of limitations grounds in light of the pendency of the state court derivative action.

     In January 2009, the SLC, on behalf of Brocade, reached settlements with two of the five Federal Court Defendants in the consolidated federal derivative action and presented those settlements to the Federal Court for approval. The settlements involve monetary payments from the two defendants to Brocade and, in one case, surrender of certain Brocade shares to Brocade. On February 23, 2009, Brocade and the three remaining Federal Court Defendants signed an agreement to submit Brocade’s claims against those defendants to binding arbitration.

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     On October 23, 2007, a class action complaint was filed against Brocade and certain of its former officers and current and former directors. This action was filed in the California Superior Court in Santa Clara County on behalf of individuals who owned Brocade stock between February 21, 2001 and May 16, 2005. The complaint generally alleges that Brocade and the individual defendants breached the duty of disclosure by failing to disclose alleged wrongful conduct, including conduct complained of in the securities litigation described above, and seeks unspecified monetary damages and other relief against the defendants. On November 26, 2007, this action was removed from State Court to the United States District Court for the Northern District of California. On December 3, 2007, Brocade filed a motion to dismiss the action in its entirety on the ground that it is preempted by the Securities Litigation Uniform Standards Act of 1998. On March 6, 2008, Brocade’s motion to dismiss was denied and the case was remanded to State Court. On May 29, 2008, Brocade filed a demurrer to the complaint. On July 10, 2008, plaintiffs filed an amended complaint, and Brocade filed a demurrer to the amended complaint on August 4, 2008. On September 12, 2008, Brocade’s demurrer was granted, and the amended complaint was dismissed with leave to amend. On October 15, 2008, plaintiffs filed a second amended complaint. The second amended complaint generally alleges that Brocade and the individual defendants violated or conspired to violate the Racketeering Influenced and Corrupt Organizations Act and seeks unspecified monetary damages and other relief against the defendants. Brocade filed a motion to dismiss the second amended complaint on November 17, 2008. On January 30, 2009, the Court granted Brocade’s motion and dismissed the complaint with prejudice.

     In August and September 2006, purported Foundry stockholders filed two putative derivative actions against certain of Foundry’s current and former officers, directors and employees in the Superior Court of the State of California County of Santa Clara. Both actions were consolidated into In re Foundry Networks, Inc. Derivative Litigation, Superior Court of the State of California, Santa Clara County, Lead Case. No. 1-06-CV 071651 (the “California State Action”). On February 5, 2007, plaintiffs served a Consolidated Amended Shareholder Derivative Complaint (the “CAC”). The CAC names 19 defendants and Foundry as a nominal defendant. In general, the CAC alleges that certain stock option grants made by Foundry were improperly backdated and that such alleged backdating resulted in alleged violations of generally accepted accounting principles, the dissemination of false financial statements and potential tax ramifications. The CAC asserts 11 causes of action against certain and/or all of the defendants, including, among others, breach of fiduciary duty, unjust enrichment and violations of California Corporations Code Sections 25402 and 25403. On February 13, 2007, Foundry filed a motion to stay the CAC pending resolution of a substantially similar derivative action pending in the United States District Court for the Northern District of California, San Jose Division. On March 20, 2007, the Court granted the motion to stay. On October 28, 2008, the parties entered into the Stipulation of Settlement described below.

     On March 9, 2007, a purported Foundry stockholder served Foundry’s registered agent for service of process with a putative derivative action against Foundry and certain of its current and former officers, directors and employees. The action was filed on February 28, 2007, in the Superior Court of the State of California, Santa Clara County, and captioned Patel v. Akin, et al. (Case No. l-07-CV 080813). The Patel action generally asserted similar claims as those in the Consolidated Action as well as a cause of action for violation of Section 1507 of the California Corporations Code which is not asserted in the Consolidated Action. On April 4, 2007 the plaintiff filed a Request for Voluntary Dismissal of the action. On June 19, 2007, plaintiff re-filed the action Patel v. Akin, et al. (Civil Action No. 3036-VCL), in the Court of Chancery of the State of Delaware, New Castle County (the “Delaware Action”). The complaint again generally asserts similar claims as those in the California State Action and seeks judgment against the individual defendants for damages purportedly sustained by Foundry as a result of the alleged misconduct, as well as unspecified equitable relief to remedy the individual defendants’ alleged breaches of fiduciary duties. The complainant further seeks an award of attorney’s fees and costs, accountants’ and experts’ fees, cost and expenses, and such other relief as the Court might deem proper. On October 28, 2008, the parties entered into the Stipulation of Settlement described below.

     In September and October 2006, purported Foundry stockholders filed four putative derivative actions against Foundry and certain of its current and former officers, directors and employees in the United States District Court for the Northern District of California. The four actions were captioned Desai v. Johnson, et al. (Case No. C-06-05598 PVT), McDonald v. Johnson, et al. (Case No. C06 06099 HRL), Jackson v. Akin, et al. (C06 06509 JCS) and Edrington v. Johnson, Jr., et al. (C06 6752 RMW). On December 8, 2006, the actions were consolidated into In re Foundry Networks, Inc. Derivative Litigation, U.S.D.C. No. Dist. Cal. (San Jose Division), Case No. 5:06-CV-05598-RMW (the “California Federal Action”). A hearing on certain plaintiffs’ motion to appoint lead plaintiff and lead counsel was held on February 2, 2007, and, on February 12, 2007, the Court appointed lead plaintiff and lead counsel. On February 15, 2007, Edrington v. Johnson, Jr., et al was voluntarily dismissed. Pursuant to a stipulation among the parties, on March 26, 2007, plaintiffs filed and served a Consolidated Derivative Complaint (the “CDC”). The CDC generally alleges that certain stock option grants made by Foundry were improperly backdated and that such alleged backdating resulted in alleged violations of generally accepted accounting principles, dissemination of false financial statements and potential tax ramifications. The CDC pleads a combination of causes of action, including, among others, breach of fiduciary duty, unjust enrichment and violations of Sections 10(b), 14(a) and 20(a) of the Securities and Exchange Act of 1934. On May 10, 2007, Foundry filed a motion to dismiss the CDC. Pursuant to a stipulation among the parties and an order of the Court, the hearing on Foundry’s motion to dismiss occurred on May 23, 2008, and the Court has not yet ruled on the motion. On October 28, 2008, the parties entered into the Stipulation of Settlement described below.

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     On October 28, 2008, a Stipulation of Settlement was executed to settle each of the California State Action, the California Federal Action and the Delaware Action. On October 29, 2008, the Stipulation of Settlement was filed with the Court in the California Federal Action. On February 20, 2009, the Court in the California Federal Action granted final approval of the Stipulation. Pursuant to the Stipulation of Settlement, counsel for plaintiffs and defendants in the California State Action and Delaware Action will cooperate to effectuate the dismissal with prejudice of the California State Action and the Delaware Action. Under the Stipulation of Settlement, Foundry will receive cash payments totaling $1.9 million. The Stipulation of Settlement further provides that Foundry would adopt certain corporate governance measures and Foundry will pay Lead Plaintiffs’ Counsel $1.2 million for their fees and expenses. The Stipulation of Settlement also provides for a release of claims against the defendants by Lead Plaintiffs in connection with the matters alleged in the lawsuits and Foundry and a release of claims against Lead Plaintiffs, Lead Plaintiffs’ Counsel and Foundry by the defendants. The Stipulation of Settlement provides that it is not an admission by the defendants of any wrongdoing, liability, fault or omission by them.

     On October 3, 2007, a purported Foundry stockholder filed a lawsuit naming Foundry as a nominal defendant in the United States District Court, Western District of Washington in Seattle. The action is captioned Vanessa Simmonds v. Deutsche Bank AG, Merrill Lynch & Co and JPMorgan Chase & Co. Defendants, and Foundry Networks, Inc., Nominal Defendant (Case No. 2:07-CV-01566-JCC). On February 28, 2008, the plaintiff filed a first amended complaint. The action alleges that Deutsche Bank, Merrill Lynch and JPMorgan profited from transactions in Foundry stock by engaging in short-swing trades.

     On July 23, 2008, an action, Doug Edrington v. Bobby R. Johnson, Jr., et al (Case No. 1:08-CV-118013), was filed in the Superior Court of the State of California for the County of Santa Clara. On September 19, 2008, the plaintiff filed a first amended complaint. In this action, the plaintiff named as defendants the former members of the board of directors of Foundry. The complaint asserts claims on behalf of Foundry’s stockholders who are similarly situated with the plaintiff. Among other things, the complaint alleges that the members of Foundry’s board of directors have breached their fiduciary duties to Foundry’s stockholders in connection with the acquisition of Foundry by Brocade (the “Merger”) and engaged in self-dealing in connection with approval of the Merger, allegedly resulting in an unfair process and unfair price to Foundry’s stockholders. The complaint seeks class certification and certain forms of equitable relief. On October 6, 2008, Plaintiff filed a motion for preliminary injunction of the Merger, requesting that the Court order that additional disclosure be made to stockholders prior to proceeding with the stockholder vote on the Merger scheduled for October 24, 2008. On October 22, 2008, the Court denied Plaintiff’s motion for a preliminary injunction. On December 9, 2008, Plaintiff filed a second amended complaint. The second amended complaint names as defendants Foundry and the former members of the board of directors of Foundry. The second amended complaint asserts claims similar to the claims asserted in the first amended complaint and includes additional allegations, including, among others, that the former members of Foundry’s board of directors breached their fiduciary duties to Foundry’s stockholders and engaged in self-dealing in connection with the approval of an amendment to terms of the Merger announced by Foundry on November 7, 2008, allegedly resulting in an unfair process and unfair price to Foundry’s stockholders. On December 11, 2008, the parties entered into a Memorandum of Understanding regarding a settlement of the action, which provides for a monetary payment by the Company to Plaintiff for certain attorneys’ fees and expenses. The parties currently are negotiating the final documentation of the settlement, which would be subject to Court approval. As of January 24, 2009, the Company accrued for the settlement in accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“SFAS 5”).

     United States Attorney’s Office Subpoena for Production of Documents. On June 26, 2006, Foundry received a subpoena from the United States Attorney’s Office for the production of documents relating to its historical stock option granting practices. Foundry has produced certain documents to the United States Attorney’s Office in October of 2006, but has not received correspondence from the United States Attorney’s Office since Foundry’s production of documents. Foundry has cooperated with the United States Attorney’s Office and will continue to do so if requested by the United States Attorney’s Office.

Intellectual Property Litigation

     On June 21, 2005, Enterasys Networks, Inc. (“Enterasys”) filed a lawsuit against Foundry (and Extreme Networks, Inc.) in the United States District Court for the District of Massachusetts alleging that certain of Foundry’s products infringe six of Enterasys’ patents and seeking injunctive relief, as well as unspecified damages. On August 22, 2005, Foundry filed a response to the complaint denying the allegations. On November 3, 2005 the Court severed Enterasys’ claim against Foundry and Extreme into two separate

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cases. The discovery process began, and proceeded through August 2007. Opening briefs for a Markman claim construction hearing were filed on August 17, 2007, which was to be held on October 15, 2007. However, on August 28, 2007, before responsive Markman briefs were filed by the parties, Foundry filed a motion to stay the case, which was assented to by Enterasys in view of petitions that Foundry had filed with the U.S. Patent and Trademark Office (“USPTO”) requesting that the USPTO reexamine the validity of five of the six Enterasys patent given certain prior art. On August 28, 2007, the Court granted Foundry’s motion to stay the case. All activity in the case is now on hold, while the USPTO reexamination process proceeds. To date, the USPTO has issued initial Office Actions (which are published on the USPTO website) on each of the five Enterasys patents submitted for reexamination. In the Office Actions, the USPTO sustained Foundry’s reasons for alleging that the broadest patent claims of the various patents were invalid, but held that some of the narrower claims of four of the patents were valid. Enterasys has filed its initial responses to all five Office Actions. The reexamination proceedings are ex parte, meaning that Foundry cannot participate in the reexamination proceedings between Enterasys and the USPTO concerning the Office Actions.

     On September 6, 2006, Chrimar Systems, Inc. (“Chrimar”) filed a lawsuit against Foundry in the United States District Court for the Eastern District of Michigan alleging that certain of Foundry’s products infringe Chrimar’s U.S. Patent 5,406,260 and seeking injunctive relief, as well as unspecified damages. Foundry filed an answer (denying the allegations) and counterclaims, on September 27, 2006. Subsequently, Chrimar identified claim 17 of the patent as the exemplary claim being asserted against Foundry. The Court appointed a special master for the case, Professor Mark Lemley of Stanford University Law School. On March 6, 2008, the Special Master held a Markman claim construction hearing and, on March 31, 2008, the Special Master filed a report and recommendation with the Court on how the claims should be construed. On May 1, 2008, the parties filed objections to the Special Master’s report. On July 30, 2008, the Court issued a claim construction order. On August 13, 2008, Chrimar filed a motion with the Court for reconsideration of the Court’s claim construction order, but the Court stayed the motion for future consideration until the parties file motions for summary judgment.

     On February 7, 2008, Network-1 Security Solutions, Inc. (“Network-1”) filed a lawsuit against Foundry and other networking companies, namely, Cisco Systems, Inc., Cisco-Linksys, LLC, Adtran, Inc., Enterasys, Extreme Networks, Inc., Netgear, Inc, and 3Com Corporation in the United States District Court for the Eastern District of Texas, Tyler Division, alleging that certain of Foundry’s products infringe Network-1’s U.S. Patent No 6,218,930 and seeking injunctive relief, as well as unspecified damages. On March 3, 2008, Foundry filed an answer to the complaint denying the allegations, and asserting various counterclaims. The other defendants filed answers in April 2008. On June 17, 2008, the Court issued a scheduling order for the case and scheduled a Markman claim construction hearing for December 3, 2009 and trial for July 12, 2010.

     On February 26, 2008, Fenner Investments, Ltd. (“Fenner”) filed a lawsuit against Foundry, 3Com Corporation, Extreme Networks, Inc., Netgear, Inc., Zyxel Communications, Inc., D-Link Systems, Inc., and SMC Networks, Inc. in the United States District Court for the Eastern District of Texas, Tyler Division, alleging that certain of Foundry’s products infringe Fenner’s U.S. Patent No. 7,145,906 and seeking injunctive relief, as well as unspecified damages. On February 28, 2008, Fenner filed an amended complaint that added three additional defendants, namely, Tellabs, Inc., Tellabs North America, Inc., and Enterasys. Subsequently, on May 8, 2008, Fenner filed a second amended complaint, which added infringement claims concerning a second Fenner patent, U.S. Patent No. 5,842,224, against Foundry and the other defendants. Foundry’s answer to the second amended complaint was filed on May 16, 2008 denying the allegations and asserting counterclaims. On December 12, 2008, Fenner filed a notice of settlement notifying the Court that it had reached a settlement with Foundry as a result of negotiations between the parties. On January 8, 2009, Fenner and Foundry filed a joint motion to dismiss with prejudice notifying the Court that Fenner and Foundry had executed a settlement agreement providing for a monetary payment by Foundry to Fenner in exchange for a license, which became effective on or before December 15, 2008. On January 12, 2009, the Court dismissed, with prejudice, all claims for relief asserted by the parties or which could have been asserted by the parties and ordered that each party bear its own attorneys’ fees, costs of court and expenses. As of January 24, 2009, the aforementioned settlement has been paid.

General

     From time to time, the Company is subject to other legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks, copyrights, patents and/or other intellectual property rights. Third parties assert patent infringement claims against the Company from time to time in the form of letters, lawsuits and other forms of communication. In addition, from time to time, the Company receives notification from customers claiming that they are entitled to indemnification or other obligations from the Company related to infringement claims made against them by third parties. Litigation, even if the Company is ultimately successful, can be costly and divert management’s attention away from the day-to-day operations of the Company. In the event of a result adverse to the Company, the Company could incur substantial monetary liability and/or be required to change its business practices. Any unfavorable determination could have a material adverse effect on the Company’s financial position, results of operations, cash flows or business.

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     In accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“SFAS 5”), the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company reviews the need for any such liability on a quarterly basis. As of January 24, 2009, the Company has not recorded any such liabilities in accordance with SFAS 5, except as noted above with respect to the Edrington Memorandum of Understanding.

11. Derivative Accounting

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

     As of January 24, 2009, an unrealized loss of $2.9 million, net, which represented effective hedges, was reported as a component of accumulated other comprehensive loss. Hedge ineffectiveness, which is reported in the Condensed Consolidated Statements of Operations, was not significant.

12. Comprehensive Income

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

	Three Months Ended
	January 24,			January 26,
	2009			2008
Net income (loss)	$	(26,031	)	$	19,845
Other comprehensive income:
Change in net unrealized gains (losses) on marketable equity securities, cash flow hedges and investments		75,600			(1,345	)
Change in cumulative translation adjustments		(248	)		(1,809	)
Total comprehensive income	$	49,321		$	16,691

     As of October 25, 2008, the Company had $71.1 million in gross unrealized losses in connection with the 14.0 million shares of Foundry common stock held by Brocade. Effective upon the consummation of the merger with Foundry, the Company reversed the gross unrealized losses of $71.1 million, thereby resulting in gross unrealized gains of $71.1 million as of January 24, 2009 (see Note 6, “Investments and Equity Securities,” of the Notes to Condensed Consolidated Financial Statements).

13. Employee Stock Plans and Stock-Based Compensation

     The Company has several stock-based compensation plans that are described in the Company’s Annual Report on Form 10-K for the fiscal year ended October 25, 2008 (the “Plans”). At January 24, 2009, an aggregate of 230.8 million shares were authorized for future issuance under the Plans, which include stock options, shares issued pursuant to the Brocade Employee Stock Purchase Plan (“ESPP”), restricted stock units and other awards, and shares of Brocade common stock that became issuable in connection with the assumption or substitution of Foundry equity awards. A total of 64.9 million shares of common stock were available for grant under the Plans as of January 24, 2009. Awards that expire, or are canceled without delivery of shares, generally become available for issuance under the Plans.

Stock Options

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

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	Three Months Ended
	January 24,			January 26,
Stock Options	2009			2008
Expected dividend yield		0.0	%		0.0	%
Risk-free interest rate		0.5 - 2.4	%		3.1 - 4.1	%
Expected volatility		65.3	%		44.2	%
Expected term (in years)		4.0			4.0

     The Company recorded $4.6 million and $5.2 million of compensation expense related to stock options for the three months ended January 24, 2009 and January 26, 2008, respectively, in accordance with Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123R”). Compensation expense computed under the fair value method for stock options issued is being amortized under a graded vesting method over the options’ vesting period. A summary of stock option activity under the Plans for the three months ended January 24, 2009 is presented as follows:

						Weighted-Average
						Remaining		Aggregate Intrinsic
	Shares			Weighted-Average		Contractual Term		Value
	(in thousands)			Exercise Price		(in years)		(in thousands)
Outstanding at October 25, 2008		35,036		$	8.05		4.17	$	701
Assumed under the Foundry acquisition		93,509		$	3.23
Granted		2,875		$	3.34
Exercised		(590	)	$	2.07
Forfeited or expired		(1,334	)	$	6.75
Outstanding at January 24, 2009		129,496		$	4.51		3.62	$	47,872
Vested and expected to vest at January 24, 2009		120,998		$	4.54		3.60	$	46,013
Exercisable and vested at January 24, 2009		93,862		$	4.70		3.45	$	40,348

     The weighted-average grant date fair value of employee stock options granted during the three months ended January 24, 2009 and January 26, 2008 was $1.66 and $2.67, respectively. The total intrinsic value of stock options exercised for the three months ended January 24, 2009 and January 26, 2008 was $88.0 thousand and $1.6 million, respectively.

     As of January 24, 2009, there was $30.5 million of unrecognized compensation expense related to stock options that is expected to be recognized over a weighted-average period of 1.33 years.

     From May 1999 through July 2003, the Company granted 98.8 million options subject to variable accounting as the measurement date of the options granted was not certain. As of January 24, 2009, 1.2 million options with a weighted-average exercise price of $19.70 and a weighted-average remaining life of 1.77 years remain outstanding and continue to be accounted for under variable accounting.

Employee Stock Purchase Plan

     Under the Brocade ESPP, eligible employees can participate and purchase shares semi-annually at the lower of 85% of the fair market value of the Company’s common stock at the commencement or end of the offering period. The Brocade ESPP permits eligible employees to purchase common stock through payroll deductions for up to 15% of qualified compensation. The Company accounts for the Brocade ESPP as a compensatory plan and recorded compensation expense of $1.3 million for both the three months ended January 24, 2009 and January 26, 2008, respectively, in accordance with SFAS 123R.

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     The fair value of the option component of Brocade ESPP shares was estimated using the Black-Scholes option pricing model using the following weighted-average assumptions:

	Three Months Ended
	January 24,			January 26,
Employee Stock Purchase Plan	2009			2008
Expected dividend yield		0.0	%		0.0	%
Risk-free interest rate		0.3 - 1.6	%		3.3 - 5.0	%
Expected volatility		80.9	%		44.8	%
Contractual term (in years)		0.5			0.5

     As of January 24, 2009, there was $3.5 million of unrecognized compensation expense related to employee stock purchases under the Brocade ESPP. This expense is expected to be recognized over a weighted-average period of 0.33 years.

     In addition, as part of its acquisition of Foundry, the Company became the administrator of Foundry’s 1999 Employee Stock Purchase Plan (“Foundry ESPP”). Under Brocade’s adoption of the Foundry ESPP, Foundry employees are granted the right to purchase shares of the Company’s common stock at the lower of 85% of the fair market value of the Company’s common stock at (i) the beginning of a rolling two-year offering period or (ii) the end of each semi-annual offering period, subject to a plan limit on the number of shares that may be purchased in an offering period. During the three months ended January 24, 2009, the Company issued no shares under the Foundry ESPP. The Company accounts for the Foundry ESPP as a compensatory plan and recorded compensation expense of $0.9 million for the three months ended January 24, 2009, in accordance with SFAS 123R.

     The fair value of the option component of Foundry ESPP shares was estimated using the Black-Scholes option pricing model using the following weighted-average assumptions:

	Three Months Ended
	January 24,
Employee Stock Purchase Plan	2009
Expected dividend yield		0.0	%
Risk-free interest rate		0.03	%
Expected volatility		81.1	%
Contractual term (in years)		0.13

     As of January 24, 2009, there was $0.2 million of unrecognized compensation expense related to employee stock purchases under the Foundry ESPP. This expense is expected to be recognized over a weighted-average period of 0.02 years.

Restricted Stock Awards

     No restricted stock awards were issued for the three months ended January 24, 2009 and January 26, 2008. When and if granted, restricted stock awards are not transferable until fully vested and all unvested shares upon termination are subject to repurchase. The fair value of each award is based on the Company’s closing stock price on the date of grant.

     Compensation expense computed under the fair value method for restricted stock awards issued is being amortized under a graded vesting method over the awards’ vesting period and was $0.2 million and $0.1 million, respectively, for the three months ended January 24, 2009 and January 26, 2008. The total fair value of restricted stock awards vested during the three months ended January 24, 2009 was immaterial. The total fair value of restricted stock awards vested during the three months ended January 26, 2008 was $13.7 million.

     In connection with the acquisition of Foundry, the Company will convert any unvested restricted stock awards into the right to receive $3.22 per share in cash. Such rights will vest according to the original restricted stock awards’ vesting schedule.

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     As of January 24, 2009, unrecognized compensation expense related to restricted stock awards totaled approximately $2.0 million and was expected to be recognized over a weighted-average period of 1.01 years. A summary of the nonvested restricted stock awards for the three months ended January 24, 2009 is presented as follows:

	Shares			Weighted-Average
	(in thousands)			Grant Date Fair Value
Nonvested at October 25, 2008		14		$	0.01
Granted		—		$	—
Vested		(14	)	$	0.01
Forfeited		—		$	—
Nonvested at January 24, 2009		—		$	—
Expected to vest at January 24, 2009		—		$	—

Restricted Stock Units

     For the three months ended January 24, 2009 and January 26, 2008, Brocade issued 1.7 million and 1.0 million restricted stock units, respectively. Typically, vesting of restricted stock units occurs over one to four years and is subject to the employee’s continuing service to Brocade. The compensation expense related to these awards of $10.9 million and $3.2 million for the three months ended January 24, 2009 and January 26, 2008, respectively, was determined using the fair market value of Brocade’s common stock on the date of the grant and is recognized under a graded vesting method over the awards’ vesting period.

     A summary of the changes in restricted stock units outstanding under Brocade’s employee stock plans during the three months ended January 24, 2009 is presented as follows:

	Shares			Weighted-Average
	(in thousands)			Grant Date Fair Value
Nonvested at October 25, 2008		8,306		$	7.87
Assumed under the Foundry acquisition		26,050		$	3.54
Granted		1,660		$	3.31
Vested		(280	)	$	3.33
Forfeited		(617	)	$	6.92
Nonvested at January 24, 2009		35,119		$	4.50
Vested and expected to vest at January 24, 2009		28,300		$	4.50

     The aggregate intrinsic value of restricted stock units outstanding at January 24, 2009 was $113.4 million.

     On July 30, 2007, the Board of Directors approved a long-term, performance-based equity incentive plan (“Incentive Plan”) under the Company’s 1999 Stock Plan. The Incentive Plan provides for the grant of restricted stock units to certain Company executive officers and other selected employees. For each restricted stock unit that vests, the plan participant will be entitled to receive one share of the Company’s common stock. The restricted stock units that vest are subject to the Company’s performance compared to the NASDAQ-100 Index over an initial 27-month performance period. The plan participants must also remain a service provider to the Company during the performance period. No restricted stock units would have been granted as of January 24, 2009.

     Under the principal terms of the Incentive Plan, the plan participants are entitled to receive restricted stock units representing up to an aggregate of 2.0% of the amount the Company’s market capitalization growth rate exceeds the growth rate of the NASDAQ-100 Index for the performance period, subject to certain adjustments. The ultimate amount that vests is subject to the discretion of the Board of Directors. The restricted stock units are expected to vest simultaneously with the end of the performance period, which is from August 1, 2007 to October 31, 2009.

     As of January 24, 2009, Brocade had $84.2 million of unrecognized compensation expense, net of estimated forfeitures, related to restricted stock unit grants that is equity classified and $0.8 million of unrecognized compensation expense related to the Incentive Plan that is liability classified. These expenses are expected to be recognized over a weighted-average period of 1.57 years. As of January 24, 2009, $1.5 million in compensation expense related to the Incentive Plan has been recognized to date.

14. Income Taxes

     The Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”), effective at the beginning of fiscal year 2008. As a result, the cumulative effect of applying FIN 48

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was a $3.1 million decrease to accumulated deficit at the beginning of fiscal year 2008. Historically, the Company classified unrecognized tax benefits as current income taxes payable. Under FIN 48, the Company now classifies unrecognized tax benefits as non-current income tax liability except to the extent it anticipates cash payment within the following year. The amount of gross unrecognized tax benefits at the beginning of fiscal year 2008 was $88.1 million. The amount of gross unrecognized tax benefits at the end of fiscal year 2008 was $118.3 million. The total gross unrecognized tax benefits of $118.3 million at October 25, 2008 include $85.7 million that, if recognized, would affect the Company’s effective tax rate.

     During the three months ended January 24, 2009, the Company recorded a net increase of approximately $28.0 million in its total unrecognized tax benefits, of which $16.0 million are as a result of the Foundry acquisition, that if recognized, would affect goodwill. The total amount of gross unrecognized tax benefits on January 24, 2009 was $146.2 million, which include $86.6 million that, if recognized, would affect the Company’s effective tax rate. During each of the three months ended January 24, 2009 and January 26, 2008, the Company expensed an additional amount of $0.3 million for net interest and penalties related to income tax liabilities through income tax expense. The total net interest and penalties as of January 24, 2009 was $5.3 million.

     As of April 26, 2008, the Company believed that sufficient positive evidence existed from historical operations and projections of taxable income in future years to conclude that it was more likely than not that the Company would realize its deferred tax assets. Accordingly, the Company released the valuation allowance of its deferred tax assets during the three months ended April 26, 2008. The Company continues to apply a valuation allowance on the deferred tax assets relating to capital loss carryforwards, foreign tax credits, investments and foreign operating loss carryforwards due to limited carryforward periods and the character of such tax attributes. The release of the valuation allowance for the year ended October 25, 2008 resulted in a tax benefit of $174.4 million and a reduction of goodwill of $134.6 million.

     The Company is subject to taxation in the United States, various states and several foreign jurisdictions. Due to the net operating loss and credit carryforwards, the Company’s U.S. federal, state and local income tax returns generally remain open for examination. The Company is generally not subject to non-U.S. income tax examinations for years before 2000.

     In November 2005, the Company was notified by the IRS that the Company’s domestic federal income tax return for the year ended October 25, 2003 was subject to audit. In May 2008, the IRS completed its field examination of the Company’s federal income tax return for the year ended October 25, 2003 and issued an RAR. The IRS is contesting the Company’s transfer pricing for the cost sharing and buy-in arrangements with its foreign subsidiaries. The IRS’ proposed adjustment would offset approximately $306.0 million of the Company’s net operating loss carryforwards. The IRS’ proposed adjustment resulted in a tax assessment of approximately $6.4 million, excluding penalties and interest. The IRS may make similar claims against the Company’s transfer pricing arrangements in future examinations. In June 2008, the Company filed a protest with the Appeals Office of the IRS to challenge the IRS’ proposed adjustment and assessment. In addition, the IRS is currently examining the Company’s income tax returns for the three tax years ended 2004 through 2006. In May 2006, the Franchise Tax Board notified the Company that its California income tax returns for the years ended October 25, 2003 and October 30, 2004 were subject to audit. The IRS and Franchise Tax Board audits are ongoing and the Company believes its reserves are adequate to cover any potential assessments that may result from the examination. However, given the unpredictable nature of the appeals process, it is reasonably possible that our unrecognized tax benefits related to these tax positions could change within the next twelve months. The Company is unable to estimate the range of this possible change.

     In February 2009, the IRS commenced an examination of Foundry’s federal income tax returns for the years ended December 31, 2006 and 2007. As the audit has just begun, the Company is not aware of any proposed adjustments. The Company believes its reserves are adequate to cover any potential assessments that may result from the examination.

     For the three months ended January 24, 2009 and January 26, 2008, the Company recorded income tax expense of $22.0 million and $33.2 million, respectively. The tax expense for the three months ended January 24, 2009 is primarily attributable to the effect of acquisition-related items not deductible for tax purposes, offset by the tax benefit of losses generated.

15. Segment Information

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

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     During the first quarter of fiscal year 2008, Brocade was reorganized into four operating units, which resulted in changing both its internal and external reporting structure, of which two were individually reportable segments: DCI and S3; and two, which did not meet the quantitative thresholds as defined in SFAS 131, were combined into one reportable segment: Other. These segments were organized principally by product category. The objective of the reorganization was to allow the Company to more effectively focus on growth opportunities, while being well-positioned to rapidly scale and accommodate new business opportunities, including potential future acquisitions.

     As a result of the Foundry acquisition during the first quarter of fiscal year 2009, Brocade reorganized its four operating units, of which two are individually reportable segments: Data Storage and Global Services; and two are combined into one reportable segment: IP Products. These segments are organized principally by product category.

     Although the Company had four operating segments at January 24, 2009, under the aggregation criteria set forth in SFAS 131, the Company operates in three reportable segments: Data Storage, IP Products (which is the aggregate of IP Layer 2-3 and ADC operating segments) and Global Services. Under SFAS 131, two or more operating segments may be aggregated into a single reportable segment if the operating segments have similar economic characteristics, and if the operating segments are similar in each of the following areas:

• The nature of the products and services;

• The nature of the production processes;

• The type or class of customer for their products and services;

• The methods used to distribute their products or provide their services; and

• If applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.

     As such, under the new measurements of segment financial reporting implemented in the first quarter of fiscal year 2009, IP Layer 2-3 and ADC are combined into one reportable segment (referred to together as “IP Products”). The types of products and services from which each reportable segment derives its revenues are as follows:

• Data Storage includes a majority of the Company’s storage area network products and software, embedded blades and host bus adapter products;

• IP Products include Layer 2-3 switches and routers, Layer 4-7 application delivery controllers, file area network products and associated management solutions; and

• Global Services includes break/fix maintenance, extended warranty, installation, consulting, network management, related software maintenance and support revenue, and telecommunications services.

     Financial decisions and the allocation of resources are based on the information from the Company’s management reporting system. At this point in time, the Company does not track any of its assets by operating segments. Consequently, it is not practical to show assets by operating segments. The majority of the Company’s assets as of January 24, 2009 were attributable to its United States operations.

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     Fiscal year 2008 segment results have been conformed to the new measurements of segment financial reporting implemented in the first quarter of fiscal year 2009. Summarized financial information by reportable segment for the three months ended January 24, 2009 and January 26, 2008, based on the internal management system, is as follows (in thousands):

	Data Storage		IP Products			Global Services		Total
Three months ended January 24, 2009
Net revenues	$	310,779	$	51,821		$	68,991	$	431,591
Cost of revenues		117,163		34,028			37,985		189,176
Gross margin	$	193,616	$	17,793		$	31,006	$	242,415
Three months ended January 26, 2008
Net revenues	$	296,182	$	1,764		$	49,903	$	347,849
Cost of revenues		114,747		3,030			33,495		151,272
Gross margin (loss)	$	181,435	$	(1,266	)	$	16,408	$	196,577

16. Net Income (Loss) per Share

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

	Three Months Ended
	January 24,			January 26,
	2009			2008
Basic net income (loss) per share
Net income (loss)	$	(26,031	)	$	19,845
Weighted-average shares of common stock outstanding		376,202			383,485
Less: Weighted-average shares of common stock subject to repurchase		—			(291	)
Weighted-average shares used in computing basic net income (loss) per share		376,202			383,194
Basic net income (loss) per share	$	(0.07	)	$	0.05
Diluted net income (loss) per share
Net income (loss)	$	(26,031	)	$	19,845
Interest on convertible subordinated debt, net of income tax effect		—			569
Net income (loss), as adjusted		(26,031	)		20,414
Weighted-average shares used in computing basic net income (loss) per share		376,202			383,194
Dilutive potential common shares		—			20,085
Weighted-average shares used in computing diluted net income (loss) per share		376,202			403,279
Diluted net income (loss) per share	$	(0.07	)	$	0.05

     For the three months ended January 24, 2009 and January 26, 2008, potential common shares in the form of stock options to purchase 81.9 million and 15.8 million weighted-average shares of common stock, respectively, were antidilutive and, therefore, not included in the computation of diluted net income (loss) per share. As the Company was in a net loss position, there was no dilutive impact of potential common shares associated with stock options, by application of the treasury stock method, for the three months ended January 24, 2009. The dilutive impact of potential common shares associated with stock options, by application of the treasury stock method, for the three months ended January 26, 2008 was 6.1 million. In addition, for the three months ended January 24, 2009, potential common shares resulting from the potential conversion, on a weighted-average basis, of the Company’s convertible subordinated debt of 12.1 million common shares were antidilutive and therefore not included in the computation of diluted net loss per share. However, for the three months ended January 26, 2008, potential common shares resulting from the potential conversion, on a weighted-average basis, of the Company’s convertible subordinated debt of 12.1 million common shares were dilutive and therefore included in the computation of diluted net income per share.

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

     You should read the following discussion and analysis in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report filed on Form 10-K with the Securities and Exchange Commission on December 15, 2008.

Overview

     Our goal is to be the preeminent provider of storage area and IP networking equipment and services, and the leading provider of data center networking solutions that help enterprises connect and manage their information. In the first fiscal quarter of 2009, we completed our acquisition of Foundry.

     We performed very well in our first fiscal quarter of 2009, especially given the extraordinary economic environment that exists today. We are now one company with one vision and we have many opportunities that are developing. Our product and engineering teams have been working closely together and have finalized a combined roadmap which will deliver industry-leading end-to-end networking solutions, while providing customers choice. With the opportunity to consolidate contract manufacturers and move Foundry products and services onto our Life Cycle Management and qualities processes, we should be able to achieve or exceed product cost targets while increasing the overall quality and production quantities.

     As a result of the acquisition of Foundry in the first fiscal quarter of 2009, we reorganized our four operating units. The objective of this new organization is to enable us to more effectively focus on growth opportunities, while being well-positioned to more rapidly scale and accommodate new business opportunities, including potential future acquisitions.

     Brocade’s focus for this year is on three market segments as follows:

• Enterprise Data Center Solutions, which includes directors, switches, HBAs, top-of-rack switches, end-of-row and backbones, file management solutions, application delivery, converged network products and virtualization solutions;

• Enterprise LAN Campus, where we will deliver lower cost, higher performance solutions including stackable 1 GigE and 10GigE solutions, Enhanced Power Over Ethernet plus, 1GigE and 10GigE density, as well as security and wireless solutions;

• Service Providers, where we will offer metro Edge and aggregation solutions, Ethernet Backbone, MPLS and 10GigE density.

     In the Data Storage reportable segment, we are seeing continued strong growth of our DCX Backbone product and increasing acceptance of our full family of 8 Gigabit switch and 8 Gigabit server blade offerings. During the quarter, we also recognized an additional market opportunity that required a more modular director product and we introduced the DCX 4-S, another cost-effective version of the DCX Backbone with half the normal port count. Our HBA business, where we continue to secure Tier 1 and Tier 2 OEM designs, continues to ramp.

     In the IP Products reportable segment, we are winning large data center opportunities with high performance RX, MLX and XMR IP products.

     In the first fiscal quarter of 2009, the pricing environment remained stable and sequential like-for-like average selling price declines were in the low single digits. For fiscal year 2009, we expect that quarterly average selling price declines will remain in the low single digits.

     When considering the IT spending environment, our planning assumption is that the current IT spending environment will remain adversely impacted by the current macroeconomic environment. We will continue to carefully manage our expenses and headcount. We expect IT spending to begin to improve in the fourth fiscal quarter of 2009 and throughout fiscal year 2010. We expect our markets to return to normal historical growth rates beginning in fiscal year 2010.

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Results of Operations

     During the first quarter of fiscal year 2009, we reorganized our four operating units, which resulted in changing both our internal and external reporting structure, of which two are individually reportable segments: Data Storage and Global Services; and two are combined into one reportable segment: IP Products. During fiscal year 2008, we managed our operations in four operating units, of which two were individually reportable segments: DCI and S3; and two were combined into one reportable segment: Other.

     The following table sets forth certain financial data for the three months ended January 24, 2009 and January 26, 2008, as a percentage of total net revenues, except for cost of revenues and gross margin (loss) which are indicated as a percentage of the respective segment net revenues. Prior period segment results have been conformed to the new measurements of segment financial reporting implemented in the first quarter of fiscal year 2009 as shown on the table below:

	Three Months Ended
	January 24,			January 26,
	2009			2008
Net revenues
Data Storage		72.0	%		85.1	%
IP Products		12.0			0.5
Global Services		16.0			14.4
Total net revenues		100.0			100.0
Cost of revenues
Data Storage		37.7			38.7
IP Products		65.7			171.8
Global Services		55.1			67.1
Total cost of revenues		43.8			43.5
Gross margin (loss)
Data Storage		62.3			61.3
IP Products		34.3			(71.8	)
Global Services		44.9			32.9
Total gross margin		56.2			56.5
Operating expenses:
Research and development		15.9			16.7
Sales and marketing		16.9			18.2
General and administrative		4.3			3.5
Legal fees associated with indemnification obligations and other related costs		4.5			2.8
Amortization of intangible assets		3.1			2.3
Acquisition and integration costs		0.2			—
In-process research and development		6.2			—
Total operating expenses		51.1			43.5
Income from operations		5.1			13.0
Interest and other income (loss), net		(0.9	)		3.3
Interest expense		(4.9	)		(0.5	)
Loss on sale of investments, net		(0.2	)		(0.6	)
Income (loss) before provision for income taxes		(0.9	)		15.2
Income tax provision		5.1			9.5
Net income (loss)		(6.0	)%		5.7	%

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     Revenues. Our revenues are derived primarily from sales of our Data Storage products, particularly our family of SAN products, sales of our IP products, and our service and support offerings related to those products. Our fabric switches and directors connect our customers’ servers and storage devices creating a SAN. In addition, our data networking solutions enable converged and complete end-to-end networking solutions from the edge to the core of our customers’ networking infrastructures.

     Our total net revenues for the three months ended January 24, 2009 and January 26, 2008 were as follows (in thousands):

	Three Months Ended
	January 24,		% of Net			January 26,		% of Net			Increase/		%
	2009		Revenues			2008		Revenues			(Decrease)		Change
Data Storage	$	310,779		72.0	%	$	296,182		85.1	%	$	14,597		4.9	%
IP Products		51,821		12.0	%		1,764		0.5	%		50,057		2,838.0	%
Global Services		68,991		16.0	%		49,903		14.4	%		19,088		38.3	%
Total net revenues	$	431,591		100.0	%	$	347,849		100.0	%	$	83,742		24.1	%

     The increase in total net revenues for the three months ended January 24, 2009 as compared to total net revenues for the three months ended January 26, 2008 reflects growth in sales of Data Storage products, IP products and Global Services offerings. The increase in Data Storage product revenues for the period reflects a 2.6% increase in the number of ports shipped due to our continued growth in the embedded switch market, as well as a mix shift from higher port density director products to lower port density switch and embedded products, partially offset by a 14.2% decrease in average selling price per port which was impacted by the mix shift to lower port density switch and embedded products which carry a lower price per port. The increase in revenues from IP Products was due to sales of network switching and router products as a result of our acquisition of Foundry in December 2008, partially offset by a decrease in the volume of our Files business. The increase in Global Services revenues was a result of the continued expansion of our installed base and the acquisitions of Foundry in December 2008 and Strategic Business Systems, Inc. (“SBS”) in March 2008.

     For the three months ended January 24, 2009 and January 26, 2008, the declines in average selling prices were the result of a continuing competitive pricing environment, offset by a mix shift to lower port density and price per port products. We believe the increase in the number of total networking ports shipped reflects higher demand for our products due in part to the expansion of our installed base as a result of the Foundry acquisition. We believe we have experienced higher market demand as end-users continue to consolidate storage and server infrastructures using SANs, expand SANs to support more applications, and deploy SANs in new environments.

     Going forward, we expect the number of ports shipped to fluctuate depending on the demand for our existing and recently introduced SAN and IP products as well as the timing of product transitions by our OEM customers. We currently expect that average selling prices per port will likely decline at rates consistent with historical rates of low single digits per quarter, however there are risks that pricing pressure could accelerate due to macroeconomic issues, new product introductions by us or our competitors, or other factors. Historically, our first and fourth fiscal quarters are seasonally stronger quarters from a revenue perspective than our second and third fiscal quarters.

     Our total net revenues by geographical area for the three months ended January 24, 2009 and January 26, 2008 were as follows (in thousands):

	Three Months Ended
	January 24,		% of Net			January 26,		% of Net			Increase/		%
	2009		Revenues			2008		Revenues			(Decrease)		Change
Domestic	$	276,171		64.0	%	$	217,028		62.4	%	$	59,143		27.3	%
International		155,420		36.0	%		130,821		37.6	%		24,599		18.8	%
Total net revenues	$	431,591		100.0	%	$	347,849		100.0	%	$	83,742		24.1	%

     Historically, domestic revenues have accounted for between 56% and 67% of total net revenues. International revenues primarily consist of sales to customers in Western Europe and the greater Asia Pacific region. For the three months ended January 24, 2009 as compared to the three months ended January 26, 2008, international revenues decreased as a percentage of total net revenues primarily as a result of the shift to North America due to the Foundry acquisition. Revenues are attributed to geographic areas based on where our products are shipped. However, certain OEM customers take possession of our products domestically and then distribute these products to their international customers. Because we account for all of those OEM revenues as domestic revenues, we cannot be certain of the extent to which our domestic and international revenue mix is impacted by the practices of our OEM customers, but we believe that international revenues comprise a larger percentage of our total net revenues than the attributed revenues may indicate.

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     A significant portion of our revenue is concentrated among a relatively small number of OEM customers. For the three months ended January 24, 2009, three customers each represented ten percent or more of our total net revenues for a combined total of 56% of our total net revenues. For the three months ended January 26, 2008, the same three customers each represented ten percent or more of our total net revenues for a combined total of 66% of our total net revenues. The decrease in the percentage reflects the acquisition of Foundry and its dispersion of revenue among a non-OEM customer base. We expect that a significant portion of our future revenues will continue to come from sales of products to a relatively small number of OEM customers and, as a result of the Foundry acquisition, to the United States government or individual agencies within the United States government. Therefore, the loss of, or a decrease in the level of sales to, or a change in the ordering pattern of, any one of these customers could seriously harm our financial condition and results of operations.

     A majority of our trade receivable balance is derived from sales to OEM partners in the computer storage and server industry. As of January 24, 2009, two customers accounted for 15% and 11%, respectively, of total accounts receivable. As of October 25, 2008, three customers accounted for 30%, 17% and 14%, respectively, of total accounts receivable. We perform ongoing credit evaluations of our customers and generally do not require collateral on accounts receivable balances. We have established reserves for credit losses, sales allowances, and other allowances. While we have not experienced material credit losses in any of the periods presented, there can be no assurance that we will not experience material credit losses in the future.

     Gross margin (loss). Gross margin (loss) as stated below is indicated as a percentage of the respective segment net revenues. Gross margin (loss) for the three months ended January 24, 2009 and January 26, 2008 was as follows (in thousands):

	Three Months Ended
	January 24,		% of Net			January 26,			% of Net			Increase/		% Points
	2009		Revenues			2008			Revenues			(Decrease)		Change
Data Storage	$	193,616		62.3	%	$	181,435			61.3	%	$	12,181		1.0	%
IP Products		17,793		34.3	%		(1,266	)		(71.8	)%		19,059		106.1	%
Global Services		31,006		44.9	%		16,408			32.9	%		14,598		12.0	%
Total gross margin	$	242,415		56.2	%	$	196,577			56.5	%	$	45,838		(0.3	)%

     Total gross margin for the three months ended January 24, 2009 was 56.2%, a decrease of 0.3 percentage points from 56.5% for the three months ended January 26, 2008. For the three months ended January 24, 2009, Data Storage product costs relative to net revenues decreased by 1.0% as compared to the three months ended January 26, 2008. This was primarily the result of a 1.2% decrease in amortization of intangible assets related to the McDATA acquisition, partially offset by a 0.4% increase in product costs as declines in average selling price exceeded declines in product costs for the three months ended January 24, 2009 as compared to the three months ended January 26, 2008. For the three months ended January 24, 2009, IP Products costs relative to net revenues decreased by 106.1% as compared to the three months ended January 26, 2008 primarily due to the Foundry acquisition. The gross loss in IP Products for the three months ended January 26, 2008 reflects the former Files operating unit, which has been included within the IP Products reportable segment for the three months ended January 24, 2009. For the three months ended January 24, 2009, Global Services operations costs relative to net revenues decreased by 12.0% as compared to the three months ended January 26, 2008 primarily due to flat controllable spending and headcount while generating increased revenue as a result of the Foundry and SBS acquisitions.

     Gross margin is primarily affected by average selling price per port, number of ports shipped and cost of revenues. As described above, we expect that average selling prices per port for our products will continue to decline at rates consistent with historical rates of low single digits, unless they are further affected by accelerated pricing pressures, new product introductions by us or our competitors, or other factors that may be beyond our control. We believe that we have the ability to partially mitigate the effect of declines in average selling price per port on gross margins through our product and manufacturing operations cost reductions. However, the average selling price per port could decline at a faster pace than we anticipate. If this dynamic occurs, we may not be able to reduce our costs fast enough to prevent a decline in our gross margins. In addition, we must continue to increase the current volume of ports shipped to maintain our current gross margins. If we are unable to offset future reductions in 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 near future. As new or enhanced products are introduced, we must successfully manage the transition from older products in order to minimize disruption in customers’ ordering patterns, avoid excessive levels of older product inventories and provide sufficient supplies of new products to meet customer demands. Our gross margins would likely be adversely affected if we fail to successfully manage the introductions of these new products. However, we currently anticipate that fluctuations in cost of revenues will be consistent with fluctuations in revenues.

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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 test equipment, and IT and facilities expenses.

     R&D expenses for the three months ended January 24, 2009 and January 26, 2008 were as follows (in thousands):

January 24,	% of Net	January 26,	% of Net	Increase/	%
2009	Revenues	2008	Revenues	(Decrease)	Change
$68,451	15.9%	$58,206	16.7%	$10,245	17.6%

     R&D expenses increased in absolute dollars for the three months ended January 24, 2009 as compared to the three months ended January 26, 2008. This increase was primarily due to a $6.9 million increase in salaries and wages, a $0.6 million increase in expenses related to IT, facilities and other shared functions, and a $2.8 million increase in stock-based compensation. The increase in the salaries and wages and stock-based compensation was primarily the result of headcount growth from the Foundry acquisition. R&D expenses as a percent of total net revenues decreased 0.8 percentage points in the three months ended January 24, 2009 compared with the three months ended January 26, 2008.

     We currently anticipate that R&D expenses, as a percent of revenue, for the three months ending May 2, 2009 will be relatively consistent with the three months ended January 24, 2009.

     Sales and marketing expenses. Sales and marketing expenses consist primarily of salaries, commissions and related expenses for personnel engaged in sales, marketing and customer service functions, costs associated with promotional and marketing programs, travel expenses, and IT and facilities expenses.

     Sales and marketing expenses for the three months ended January 24, 2009 and January 26, 2008 were as follows (in thousands):

January 24,	% of Net	January 26,	% of Net	Increase/	%
2009	Revenues	2008	Revenues	(Decrease)	Change
$73,166	16.9%	$63,174	18.2%	$9,992	15.8%

     Sales and marketing expenses increased in absolute dollars for the three months ended January 24, 2009 as compared to the three months ended January 26, 2008. This increase was primarily due to a $6.9 million increase in salaries and wages, a $1.8 million increase in expenses related to IT, facilities and other shared functions, and a $4.2 million increase in stock-based compensation, offset by a $3.9 million decrease in advertising expense. The increase in salaries and wages and stock-based compensation was primarily the result of headcount growth from the Foundry acquisition. Sales and marketing expenses as a percent of total net revenues decreased 1.3 percentage points in the three months ended January 24, 2009 compared with the three months ended January 26, 2008.

     We currently anticipate that sales and marketing expenses, as a percent of revenue, for the three months ending May 2, 2009 will be relatively consistent with the three months ended January 24, 2009.

     General and administrative expenses. General and administrative (“G&A”) expenses consist primarily of salaries and related expenses for corporate executives, finance, human resources and investor relations, as well as recruiting expenses, professional fees, corporate legal expenses, other corporate expenses, and IT and facilities expenses.

     General and administrative expenses for the three months ended January 24, 2009 and January 26, 2008 were as follows (in thousands):

January 24,	% of Net	January 26,	% of Net	Increase/	%
2009	Revenues	2008	Revenues	(Decrease)	Change
$18,388	4.3%	$12,366	3.5%	$6,022	48.7%

     G&A expenses increased for the three months ended January 24, 2009 as compared to the three months ended January 26, 2008. This increase was primarily due to a $5.0 million increase in salaries and wages, a $1.2 million increase in outside services, a $1.9 million increase in stock-based compensation expense, as well as a $1.7 million increase in depreciation and amortization expense,

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partially offset by a $3.2 million increase in expenses allocated to other functional groups. The increase in salaries and wages and stock-based compensation was primarily the result of headcount growth from the Foundry acquisition. G&A expenses as a percent of total net revenues increased 0.8 percentage points in the three months ended January 24, 2009 compared with the three months ended January 26, 2008.

     We currently anticipate that G&A expenses, as a percent of revenue, for the three months ending May 2, 2009 will be relatively consistent with the three months ended January 24, 2009.

     Legal fees associated with indemnification obligations and other related costs. These expenses consist of professional legal and accounting service fees for various matters, including applicable indemnification obligations, defense of the Company in legal proceedings, and actions to pursue claims by the Special Litigation Committee of the Board of Directors. Pursuant to the Company’s charter documents and indemnification agreements, the Company has certain indemnification obligations to its directors, officers and employees, as well as certain former directors, officers and employees. Pursuant to such obligations and claims filed by the Special Litigation Committee of the Board of Directors, we incurred expenses related to amounts paid to certain former directors, officers and employees of the Company who have been either convicted in criminal proceedings and/or are subject to ongoing SEC and civil actions in connection with Brocade’s historical stock option granting practices. We expect such expenses to be volatile and may increase materially during fiscal year 2009 due to the litigation filed on behalf of the Company by the Special Litigation Committee of the Board of Directors.

     Legal fees associated with indemnification obligations and other related costs for the three months ended January 24, 2009 and January 26, 2008 were as follows (in thousands):

January 24,	% of Net	January 26,	% of Net	Increase/	%
2009	Revenues	2008	Revenues	(Decrease)	Change
$19,299	4.5%	$9,659	2.8%	$9,640	99.8%

     Legal fees increased for the three months ended January 24, 2009 as compared to the three months ended January 26, 2008. This increase was primarily due to an increase in legal expenses in connection with the litigation filed on behalf of the Company by the Special Litigation Committee of the Board of Directors.

     Amortization of intangible assets. Amortization of intangible assets for the three months ended January 24, 2009 and January 26, 2008 was as follows (in thousands):

January 24,	% of Net	January 26,	% of Net	Increase/	%
2009	Revenues	2008	Revenues	(Decrease)	Change
$13,229	3.1%	$7,909	2.3%	$5,320	67.3%

     During the three months ended January 24, 2009, we recorded amortization of intangible assets related to the acquisitions of McDATA, Silverback Systems, Inc., NuView, Inc., SBS and Foundry. The increase in amortization of intangible assets for the three months ended January 24, 2009 as compared to the three months ended January 26, 2008 was primarily due to the acquisition of Foundry in December 2008 and SBS in March 2008.

     We account for intangible assets in accordance with SFAS 142. Intangible assets are recorded based on estimates of fair value at the time of the acquisition and identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives (see Note 4, “Goodwill and Intangible Assets,” of the Notes to Condensed Consolidated Financial Statements).

     Acquisition and integration costs. Acquisition and integration costs for the three months ended January 24, 2009 and January 26, 2008 were as follows (in thousands):

January 24,	% of Net	January 26,	% of Net	Increase/	%
2009	Revenues	2008	Revenues	(Decrease)	Change
$953	0.2%	$—	—%	$953	100.0%

     For the three months ended January 24, 2009, we recorded acquisition and integration costs primarily for consulting services and other professional fees in connection with our integration of Foundry.

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     In-process research and development. In-process research and development (“IPR&D”) for the three months ended January 24, 2009 and January 26, 2008 was as follows (in thousands):

January 24,	% of Net	January 26,	% of Net	Increase/	%
2009	Revenues	2008	Revenues	(Decrease)	Change
$26,900	6.2%	$—	—%	$26,900	100.0%

     On December 18, 2008, we completed our acquisition of Foundry, a performance and total solutions provider of network switching and routing. In connection with this acquisition, we recorded a $26.9 million in-process research and development charge (see Note 3, “Acquisitions,” of the Notes to Condensed Consolidated Financial Statements).

     The IPR&D was written off because the acquired technologies had not reached technological feasibility and had no alternative uses. Technological feasibility is defined as being equivalent to completion of a beta-phase working prototype in which there is no remaining risk relating to the development. At the time of the acquisition in December 2008, Foundry was developing new products in multiple product areas that qualify as IPR&D. These efforts included FastIron SuperX Family, FastIron CX, NetIron CER, TurboIron and various other projects. At the time of the acquisition, it was estimated that these IPR&D development efforts would be completed over the following 2 to 6 months at an estimated total cost of $3.9 million. At January 24, 2009, the development efforts were continuing on schedule and within expected costs.

     The value assigned to the Foundry IPR&D was determined by estimating costs to develop the purchased IPR&D into commercially viable products, estimating the resulting net cash flows from the projects when completed, and discounting the net cash flows to their present values. The revenue estimates used in the net cash flow forecasts were based on estimates of relevant market sizes and growth factors, expected trends in technology, and the nature and expected timing of new product introductions by Foundry and its competitors.

     The rate utilized to discount the net cash flows to their present values was based on Foundry’s weighted-average cost of capital. The weighted-average cost of capital was adjusted to reflect the difficulties and uncertainties in completing each project and thereby achieving technological feasibility, the percentage of completion of each project, anticipated market acceptance and penetration, market growth rates, and risks related to the impact of potential changes in future target markets. Based on these factors, a discount rate of 12.5% was deemed appropriate for valuing the IPR&D.

     The estimates used in valuing IPR&D were based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

     Interest and other income (loss), net. Interest and other income (loss), net, for the three months ended January 24, 2009 and January 26, 2008 were as follows (in thousands):

January 24,	% of Net	January 26,	% of Net	Increase/	%
2009	Revenues	2008	Revenues	(Decrease)	Change
$(3,811)	(0.9)%	$11,485	3.3%	$(15,296)	(133.2)%

     For the three months ended January 24, 2009 as compared to the three months ended January 26, 2008, the decrease in interest and other income (loss), net, was primarily related to a decrease in investment balances due to the Foundry acquisition, as well as an increase of $4.4 million in acquisition-related financing charges in the three months ended January 24, 2009.

     Interest expense. Interest expense primarily represents the interest cost associated with our term loan and convertible subordinated debt (see Note 9, “Borrowings,” of the Notes to Condensed Consolidated Financial Statements).

     Interest expense for the three months ended January 24, 2009 and January 26, 2008 was as follows (in thousands):

January 24,	% of Net	January 26,	% of Net	Increase/	%
2009	Revenues	2008	Revenues	(Decrease)	Change
$(21,357)	(4.9)%	$(1,521)	(0.5)%	$19,836	1,303.9%

     Interest expense increased for the three months ended January 24, 2009 as compared to the three months ended January 26, 2008 primarily as a result of $21.7 million in interest expense on the term loan and the revolving credit facility which was obtained to finance the Foundry acquisition, partially offset by $2.0 million in capitalization of interest cost in connection with the development of the Company campus during the three months ended January 24, 2009.

     We obtained the term loan during the fourth fiscal quarter of 2008. As of January 24, 2009, the carrying value of the outstanding balance of our term loan was $1,055.9 million. As of January 24, 2009 and January 26, 2008, the carrying value of the outstanding balance of our convertible subordinated debt assumed from the McDATA acquisition was $170.2 million and $168.0 million, respectively.

     Loss on sale of investments, net. Loss on sale of investments, net, for the three months ended January 24, 2009 and January 26, 2008 was as follows (in thousands):

January 24,	% of Net	January 26,	% of Net	Increase/	%
2009	Revenues	2008	Revenues	(Decrease)	Change
$(864)	(0.2)%	$(2,225)	(0.6)%	$(1,361)	(61.1)%

     Loss on sale of investments, net, decreased for the three months ended January 24, 2009 as compared to the three months ended January 26, 2008. The $0.9 million in loss on sale of investments for the three months ended January 24, 2009 was due to a loss of $0.9 million on the disposition of portfolio investments at amounts below the carrying value. The $2.2 million in loss on sale of investments for the three months ended January 26, 2008 was due to a loss of $1.8 million on the sale of our equity investment in a publicly traded company and a loss of $0.4 million on the disposition of portfolio investments at amounts below the carrying value.

     The carrying value of our equity investments in non-publicly traded companies at January 24, 2009 and January 26, 2008 was $6.8 million and $5.0 million, respectively.

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     Provision for income taxes. Provision for income taxes and the effective tax rates for the three months ended January 24, 2009 and January 26, 2008 were as follows (in thousands, except effective tax rates):

	Three Months Ended
	January 24,			January 26,
	2009			2008
Provision for income taxes	$	22,028		$	33,157
Effective tax rate		(550.3	)%		62.6	%

     Our effective tax rate decreased for the three months ended January 24, 2009 as compared to the three months ended January 26, 2008 primarily due to the effect of acquisition-related items not deductible for tax purposes, offset by the tax benefit of losses generated.

     We currently expect the effective tax rate for fiscal year 2009 to be higher than fiscal year 2008. Factors such as the successful integration of Foundry’s international operations and associated structuring could affect the level of our foreign revenues and earnings. As estimates and judgments are used to project such international earnings, the impact to our tax provision could vary if the current planning or assumptions change. Given that the tax rate is driven by several different factors, it is not possible to estimate the Company’s future tax rate with a high degree of certainty.

     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 by unfavorable changes in tax laws and regulations, our income tax provision could change.

     Estimates and judgments are required in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred tax assets, which arise from variable stock option expense, net operating losses, tax carryforwards and temporary differences between the tax and financial statement recognition of revenues and expenses.

     We adopted FIN 48 effective at the beginning of fiscal year 2008. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to be taken on a tax return. Under FIN 48, recognition of a tax position is determined when it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority.

     The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Although FIN 48 provides further clarification on the accounting for uncertainty in income taxes recognized in the financial statements, the threshold and measurement attribute prescribed by the pronouncement will continue to require significant judgment by management. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations.

     The IRS and other tax authorities regularly examine our income tax returns. In May 2008, the IRS completed its field examination of our federal income tax return for the year ended October 25, 2003 and issued an RAR. The IRS is contesting our transfer pricing for the cost sharing and buy-in arrangements with our foreign subsidiaries. The IRS’ proposed adjustment would offset approximately $306.0 million of our net operating loss carryforwards. The IRS’ proposed adjustment resulted in a tax assessment of approximately $6.4 million, excluding penalties and interest. The IRS may make similar claims against our transfer pricing arrangements in future examinations. In June 2008, we filed a protest with the Appeals Office of the IRS to challenge the IRS’ proposed adjustment and assessment. In addition, the IRS is currently examining our federal income tax returns for the three years ended October 28, 2006. Due to the net operating loss and credit carryforwards, our U.S. federal, state, and local income tax returns remain open for examination. We are generally not subject to non-U.S. income tax examinations for years before 2000. In February 2009, the IRS commenced an examination of Foundry’s federal income tax returns for the years ended December 31, 2006 and 2007. As the audit has just begun, we are not aware of any proposed adjustments. We believe we have adequate reserves for all open tax years.

     We do not expect resolution of the IRS audit during the next twelve months and accordingly do not expect a material increase or decrease to our unrecognized tax benefits. We believe that our reserves for unrecognized tax benefits are adequate for open tax years.

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     Stock-based compensation expense. Stock-based compensation expense for the three months ended January 24, 2009 and January 26, 2008 was as follows (in thousands):

January 24,	% of Net			January 26,		% of Net			Increase/		%
2009	Revenues			2008		Revenues			(Decrease)		Change
$ 18,080		4.2	%	$	8,473		2.4	%	$	9,607		113.4	%

     Stock-based compensation expense increased for the three months ended January 24, 2009 as compared to the three months ended January 26, 2008. This increase was primarily due to the acquisition of Foundry in December 2008.

     Stock-based compensation expense was included in the following line items on our Condensed Consolidated Statements of Operations for the three months ended January 24, 2009 and January 26, 2008 (in thousands):

	Three Months Ended		Three Months Ended
	January 24, 2009		January 26, 2008
Cost of revenues	$	3,308	$	2,492
Research and development		5,341		2,624
Sales and marketing		6,190		1,986
General and administrative		3,241		1,371
Total stock-based compensation	$	18,080	$	8,473

     Included in the amounts presented above is stock-based compensation arising from stock option grants that are remeasured at the end of each reporting period until the options are exercised, canceled or expire unexercised. Stock-based compensation expense for these options was immaterial for the three months ended January 24, 2009. Stock-based compensation benefit for these options was $1.7 million for the three months ended January 26, 2008. The stock-based compensation expense associated with remeasuring options at their intrinsic value each reporting period may vary significantly as a result of future changes in the market value of our common stock until those options are either exercised or expire unexercised. The change in stock-based compensation for these options during the three months ended January 24, 2009 as compared to the three months ended January 26, 2008 was due to the change in market values of our common stock during the reported periods as well as exercise behaviors of the holders of these options.

Liquidity and Capital Resources

	January 24,			October 25,			Increase/
	2009			2008			(Decrease)
	(in thousands)
Cash and cash equivalents	$	190,038		$	453,884		$	(263,846	)
Short-term investments		24,133			152,741			(128,608	)
Marketable equity securities		—			177,380			(177,380	)
Long-term investments		1,725			36,120			(34,395	)
Restricted cash		—			1,075,079			(1,075,079	)
Total	$	215,896		$	1,895,204		$	(1,679,308	)
Percentage of total assets		6	%		57	%

     We use cash generated by operations as our primary source of liquidity. We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, the rate at which products are shipped during the quarter, accounts receivable collections, inventory and supply chain management, and the timing and amount of tax and other payments. For additional discussion, see “Part II — Other Information, Item 1A. Risk Factors.”

Financial Condition

     Cash and cash equivalents, short-term investments, marketable equity securities, long-term investments and restricted cash as of January 24, 2009 decreased by $1,679.3 million over the balance as of October 25, 2008. For the three months ended January 24, 2009, we used $163.8 million in cash from operating activities, which was greater than our net loss for the three months ended January 24, 2009, as a result of the $160.0 million payment of the liability associated with the settlement of the class action lawsuit and a decrease in accounts payable and accrued employee compensation, partially offset by adjustments to net loss for non-cash items related to depreciation and amortization, non-cash compensation expense and in-process research and development. Days sales outstanding in receivables for the three months ended January 24, 2009 was 52 days, compared with 40 days for the three months ended January 26, 2008.

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     Net cash used in investing activities for the three months ended January 24, 2009 totaled $91.9 million and was primarily the result of $1,297.5 million in cash paid in connection with the Foundry acquisition and $35.8 million in purchases of property and equipment, offset by $1,075.1 million in restricted cash released to finance a portion of the Foundry acquisition and $166.4 million in proceeds resulting from maturities and sales of short-term investments and long-term investments.

     Net cash used in financing activities for the three months ended January 24, 2009 totaled $8.3 million and was primarily the result of payment of senior underwriting fees related to the term loan of $30.5 million, offset by proceeds from the revolving credit facility of $14.1 million and proceeds from the issuance of common stock from ESPP and stock option exercises of $8.5 million.

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

First Fiscal Quarter of 2009 Compared to First Fiscal Quarter of 2008

     Operating Activities. Net cash used in operating activities increased by $243.0 million for the three months ended January 24, 2009 as compared to the three months ended January 26, 2008. The increase was primarily due to net loss in the three months ended January 24, 2009, the $160.0 million payment of the liability associated with the settlement of the class action lawsuit and increased payments with respect to accounts payable and accrued employee compensation during the three months ended January 24, 2009, partially offset by the increase in adjustments to net loss for non-cash items related to depreciation and amortization, non-cash compensation expense and in-process research and development.

     Investing Activities. Net cash used in investing activities increased by $153.6 million for the three months ended January 24, 2009 as compared to the three months ended January 26, 2008. The increase was primarily due to cash paid in connection with the Foundry acquisition, increased purchases of property and equipment and decreased proceeds from the maturities and sales of investments and marketable equity securities, partially offset by decreased purchases of short-term and long-term investments, and a decrease in restricted cash which was released to finance a portion of the Foundry acquisition.

     Financing Activities. Net cash used in financing activities decreased by $60.0 million for the three months ended January 24, 2009 as compared to the three months ended January 26, 2008. The decrease was primarily due to decreased common stock repurchases and increased proceeds from the revolving line of credit, partially offset by the payment of senior underwriting fees related to the term loan.

Liquidity

     Manufacturing and Purchase Commitments. We have manufacturing agreements with Foxconn, Sanmina, Flextronics and Celestica under which we provide twelve-month product forecasts and place purchase orders in advance of the scheduled delivery of products to our customers. The required lead-time for placing orders with Foxconn, Sanmina, Flextronics and Celestica depends on the specific product. As of January 24, 2009, our aggregate commitment for inventory components used in the manufacture of our products was $236.0 million, net of a purchase commitments reserve of $29.4 million, as reflected on the Condensed Consolidated Balance Sheet, which we expect to utilize during future normal ongoing operations. Although the purchase orders we place with Foxconn, Sanmina, Flextronics and Celestica are cancelable, the terms of the agreements require us to purchase all inventory components not returnable, usable by, or sold to, other customers of the aforementioned contract manufacturers. Our purchase commitments reserve reflects our estimate of purchase commitments we do not expect to consume in normal operations within the next twelve months, in accordance with our policy.

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

     Company Campus Contractual Obligations. On May 23, 2008, we purchased property located in San Jose, California, which consists of three unimproved building parcels that are entitled for approximately 562,000 square feet of space in three buildings. The total purchase price for the property was $50.9 million. In connection with the purchase, we also engaged a third party as development manager to manage the development and construction of improvements on the property. Our obligation for development and construction of three buildings and a parking garage on the purchased property is approximately $173.0 million (in addition to the purchase price for the property), payable in various installments through approximately June 2010. In connection with the purchase,

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we also obtained a four-year option, exercisable at our sole discretion, to purchase a fourth unimproved approximate four acre parcel for a fixed price of approximately $26.0 million. We plan to develop the land through June 2010 and finance the purchase and the development through operating cash flows.

     Income Taxes. We provide United States income taxes on the earnings of our foreign subsidiaries unless the earnings are considered indefinitely reinvested outside of the United States. As of January 24, 2009, we intend to reinvest these earnings for expansion of our business operations outside the United States for an indefinite period of time.

     The IRS and other tax authorities regularly examine our income tax returns. In May 2008, the IRS completed its field examination of our federal income tax return for the year ended October 25, 2003 and issued an RAR. The IRS is contesting our transfer pricing for the cost sharing and buy-in arrangements with our foreign subsidiaries. The IRS’ proposed adjustment would offset approximately $306.0 million of our net operating loss carryforwards. The IRS’ proposed adjustment resulted in a tax assessment of approximately $6.4 million, excluding penalties and interest. The IRS may make similar claims against our transfer pricing arrangements in future examinations. In June 2008, we filed a protest with the Appeals Office of the IRS to challenge the IRS’ proposed adjustment and assessment. In addition, the IRS is currently examining our federal income tax returns for the three years ended October 28, 2006. Due to net operating loss and credit carryforwards, our U.S. federal, state, and local income tax returns remain open for examination. We are generally not subject to non-U.S. income tax examinations for years before 2000. In February 2009, the IRS commenced an examination of Foundry’s federal income tax returns for the years ended December 31, 2006 and 2007. As the audit has just begun, we are not aware of any proposed adjustments. We believe we have adequate reserves for all open tax years.

     Senior Secured Credit Facility.

     General

     On October 7, 2008, we entered into a credit agreement with the following lenders, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, Morgan Stanley Senior Funding, Inc., as syndication agent, Banc of America Securities LLC and Morgan Stanley Senior Funding, Inc., as joint lead arrangers and joint bookrunners, HSBC Bank USA National Association and Keybank National Association, as co-documentation agents. The credit agreement provides for (i) a five-year $1,100.0 million term loan facility and (ii) a five-year $125.0 million revolving credit facility, which includes a $25.0 million swing line loan subfacility and a $25.0 million letter of credit subfacility.

     The net proceeds of the term loan facility were used to finance a portion of our acquisition of Foundry. In addition to the term loan facility, during the three months ended January 24, 2009, we drew $14.1 million from the $125.0 million revolving credit facility to finance a small portion of the merger. We may draw additional proceeds from the revolving credit facility in the future for ongoing working capital and other general corporate purposes. As of January 24, 2009, $14.1 million was outstanding under the revolving credit facility.

     Loans under the Senior Secured Credit Facility bear interest, at our option, at a rate equal to either the LIBOR rate, plus an applicable margin equal to 4.0% per annum or the prime lending rate, plus an applicable margin equal to 3.0% per annum. The applicable margin with respect to revolving loans is subject to adjustment based on our consolidated senior secured leverage ratio. The LIBOR rate floor is 3.0% per annum and the prime lending rate floor is 4.0% per annum, in each case, for the life of the Senior Secured Credit Facility. For the three months ended January 24, 2009, the weighted-average interest rate on the term loan was 7.0%.

     The proceeds of the term loan were deposited in a restricted securities account pending the closing of the merger and other release conditions and are reported as long-term restricted cash on the Condensed Consolidated Balance Sheet as of October 25, 2008. On December 19, 2008, the proceeds of the term loan were released from the restricted securities account to fund the merger. As of January 24, 2009, we recorded the current portion of the liability associated with the term loan of $43.2 million, net of the debt discount of $11.8 million, as “Current portion of long-term debt” and we recorded the long-term portion of the liability associated with the term loan of $1,012.8 million, net of the debt discount of $32.2 million, as “Long-term debt, net of current portion” on the Condensed Consolidated Balance Sheet.

     We are permitted to make voluntary prepayments at any time (without payment of a premium, other than in the case of a repricing transaction in respect of the term loan facility), and are required to make mandatory prepayments on the term loan (without payment of a premium) with (1) net cash proceeds from non-ordinary course asset sales (subject to reinvestment rights and other exceptions), (2) net cash proceeds from issuances of debt (other than certain permitted debt), (3) a percentage of 50% or 0% of our excess cash flow, based on our consolidated senior secured leverage ratio, beginning with the fiscal year ending October 27, 2009, and

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(4) casualty proceeds and condemnation awards (subject to reinvestment rights and other exceptions). We are required to pay quarterly installments on the term loan equal to an aggregate annual amount of 5% of the original principal amount thereof in the first and second year, 10% in the third year, 20% in the fourth year and 60% in the fifth year, with any remaining balance payable on the final maturity date of the term loan. Upon a repricing of the term loan (including through a refinancing) that results in the weighted-average yield or applicable rate of such term loan immediately after such repricing being lower than such yield or rate immediately prior to such repricing, a 2.0% premium is payable during the first year following the closing and a 1.0% premium is payable during the second year following the closing.

     Fees totaling $27.5 million associated with the acquisition have been capitalized as deferred financing costs, with $1.9 million amortized as of January 24, 2009. As of January 24, 2009, the short-term portion of the deferred financing costs was $6.9 million and is reported within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet. As of January 24, 2009, the long-term portion of the deferred financing costs was $18.7 million and is reported within other assets on the Condensed Consolidated Balance Sheet. All fees capitalized are related to the term loan facility. The deferred financing costs are being amortized using the effective interest method over the five-year term of the debt.

     Guarantees and Collateral

     The obligations of the Company and its subsidiary guarantors under the Senior Secured Credit Facility and the related guarantees thereunder are secured, subject to customary permitted liens and other agreed upon exceptions, by (1) a first priority pledge of all of the equity interests of each of the Company’s direct and indirect subsidiaries, and (2) a perfected first priority interest in and mortgages on all tangible and intangible assets of the Company and each subsidiary guarantor, except, in the case of a foreign subsidiary, to the extent such pledge would be prohibited by applicable law or would result in materially adverse tax consequences (limited, in the case of a first-tier foreign subsidiary, to 65% of the voting stock and 100% of non-voting stock of such first-tier foreign subsidiary). In addition, the term loan has not been registered as of January 24, 2009.

     Covenants

     The credit agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on liens, indebtedness, investments, fundamental changes, dispositions, capital expenditures, prepayment of other indebtedness, redemption or repurchase of subordinated indebtedness, dividends and other distributions. The credit agreement contains financial covenants that require us to maintain a minimum consolidated fixed charge coverage ratio, a maximum consolidated leverage ratio and a maximum consolidated senior secured leverage ratio, each as defined in the credit agreement. The credit agreement also includes customary events of default, including cross-defaults on our material indebtedness and change of control. We were in compliance with all applicable covenants as of January 24, 2009.

     The majority of our outstanding debt is related to the financing of the Foundry acquisition, the costs and expenses related to the merger, and the ongoing working capital and other general corporate purposes of the combined organization after consummation of the merger. We have the following resources available to obtain short-term or long-term financing, if we need additional liquidity, as of January 24, 2009 (in thousands):

	Original Amount		January 24, 2009				October 25, 2008
	Available		Used		Available		Used		Available
Revolving credit facility	$	125,000	$	14,050	$	110,950	$	—	$	125,000
Total	$	125,000	$	14,050	$	110,950	$	—	$	125,000

     Based on past performance and current expectations, we believe that internally generated cash flows are generally sufficient to support business operations, capital expenditures, contractual obligations, and other liquidity requirements associated with our operations for at least the next twelve months. We believe that we would be able to supplement this near-term liquidity, if necessary, by drawing on the revolving credit facility or through access to capital markets made available by various foreign and domestic financial institutions, although we cannot be certain whether such financing would be commercially reasonable or on Company-favorable terms. In addition to access to capital markets, we could also monetize certain assets, including our real estate holdings. There are no other transactions, arrangements, or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity and the availability of and our requirements for capital resources.

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Contractual Obligations

     The following table summarizes our contractual obligations, including interest expense, and commitments as of January 24, 2009 (in thousands):

			Less than						More than
	Total		1 Year		1–3 Years		3–5 Years		5 Years
Contractual Obligations:
Term loan (1)	$	1,379,547	$	143,766	$	341,481	$	894,300	$	—
Convertible subordinated debt (1)		178,322		3,881		174,441		—		—
Revolving credit facility (1)		14,198		14,198		—		—		—
Non-cancelable operating leases (2)		91,316		33,695		31,838		11,268		14,515
Capital leases		39		39		—		—		—
Purchase commitments, gross (3)		236,015		236,015		—		—		—
Company campus capital expenditures (4)		108,211		89,256		18,955		—		—
Total contractual obligations	$	2,007,648	$	520,850	$	566,715	$	905,568	$	14,515
Other Commitments:
Standby letters of credit	$	2,001	$	n/a	$	n/a	$	n/a	$	n/a
Guarantee	$	1,015	$	n/a	$	n/a	$	n/a	$	n/a
Unrecognized tax benefits and related accrued interest (5)	$	151,545	$	n/a	$	n/a	$	n/a	$	n/a

(1)	Amount reflects total anticipated cash payments, including anticipated interest payments, but does not include any fair value adjustments or discount.
(2)	Amount excludes contractual sublease income of $21.1 million, which consists of $4.2 million to be received in less than 1 year, $6.5 million to be received in 1 to 3 years, $4.2 million to be received in 3 to 5 years and $6.2 million to be received in more than 5 years.
(3)	Amount reflects total gross purchase commitments under our manufacturing agreements with third party contract manufacturers. Of this amount, we have accrued $29.4 million for estimated purchase commitments that we do not expect to consume in normal operations within the next twelve months, in accordance with our policy.
(4)	Amount reflects $108.2 million in capital expenditures in connection with the development of the corporate campus. Including the costs incurred to date of $115.7 million, the total contractual obligation on the Company campus is approximately $223.9 million.
(5)	As a result of the adoption of FIN 48, we reclassified unrecognized tax benefits to non-current income tax liability. As of January 24, 2009, we had a liability for gross unrecognized tax benefits of $146.2 million and a net accrual for the payment of related interest and penalties of $5.3 million, none of which is expected to be paid within one year. We are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur.

     Share Repurchase Program. As of November 29, 2007, our Board of Directors authorized a total of $800.0 million for the repurchase of the Company’s common stock. Purchases have been made, from time to time, in the open market or by privately negotiated transactions and have been funded from available working capital. The number of shares purchased and the timing of purchases have been based on the level of our cash balances, general business and market conditions, and other factors, including alternative investment opportunities. During the third fiscal quarter of 2008, we suspended our share repurchase program due to the then pending Foundry acquisition. We plan to prioritize our use of cash for debt repayment following the close of the Foundry acquisition. As such, we made no share repurchases for the three months ended January 24, 2009. Approximately $414.1 million remains authorized for future repurchases under this program as of January 24, 2009.

Critical Accounting Policies and Estimates

     Our discussion and analysis of financial condition and results of operations are 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 ongoing basis, our estimates and judgments, including, but not limited to, those related to sales allowances, bad debts, stock-based compensation,

47

warranty obligations, excess inventory and purchase commitments, restructuring costs, facilities lease losses, contingencies, litigation, income taxes and investments. We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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

     Our management believes that there have been no material changes to our critical accounting policies and estimates during the three months ended January 24, 2009 as compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended October 25, 2008, with the exception of our accounting policy for fair value measurement as described in Note 2, “Summary of Significant Accounting Policies” and Note 7, “Fair Value Measurements,” and our accounting policy for revenue recognition as described below.

     Revenue recognition and allowances for sales allowances, sales programs and doubtful accounts. Our products are generally integrated with software that is essential to the functionality of the equipment. Additionally, we provide unspecified software upgrades and enhancements related to the equipment through our maintenance contracts for most of our products. Accordingly, we account for revenue in accordance with SOP 97-2, and all related interpretations. For sales of products where software is incidental to the equipment, we apply the provisions of SAB 104 and all related interpretations. Product revenue is generally recognized when all of the following criteria have been met:

• Persuasive evidence of an arrangement exists;

• Delivery has occurred;

• The fee is fixed or determinable; and

• Collection is probable.

     Products related to our acquisition of Foundry are currently accounted for under SAB 104. In the future, if we determine that newly introduced products based on Foundry’s technology include software that is essential to the functionality of the equipment, then such new products will be accounted for using SOP 97-2 and all related interpretations.

     For newly introduced SAN products, many of our large OEM customers require a product qualification period during which our products are tested and approved by the OEM customers for sale to their customers. Revenue recognition and related cost are 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 allowances, sales programs, and other allowances at the time of shipment. Sales allowances, sales programs, and other allowances are estimated based on 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 were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances and charges may be required.

     Service revenue consists of training and maintenance arrangements, including PCS, customer support services and other professional services. PCS services are offered under renewable, annual fee-based contracts or as part of multiple-element arrangements and typically include upgrades and enhancements to our operating system software and telephone support. Revenue related to PCS elements are deferred and recognized ratably over the contractual period. PCS contracts are typically one to three years in length.

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     Customer support services are offered under renewable, fee-based contracts which provide customers with hardware repair and replacement parts, access to technical assistance, and unspecified software updates and upgrades on a when-and-if available basis. Revenue from customer support contracts is deferred and recognized ratably over the contractual support period, in accordance with FTB 90-1. Customer support services contracts are typically one to five years in length.

     Professional services are offered under fee-based contracts or as part of multiple-element arrangements. Professional service revenue is recognized when services are completed. Training revenue is recognized upon completion of the training.

     Our multiple-element product offerings include computer hardware and software products and support services. We also sell certain software products and support services separately. Our software products, including those that are embedded in our hardware products, are generally essential to the functionality of our hardware products and are, therefore, accounted for in accordance with SOP 97-2. We allocate revenue to each element in a multiple-element arrangement based upon VSOE of the fair value of the element, or if VSOE is not available for the delivered element, by application of the residual method. In the application of the residual method, we allocate revenue to the undelivered elements based on VSOE for those elements and allocate the residual revenue to the delivered elements. VSOE of the fair value for an element is based upon the price charged when the element is sold separately. Revenue allocated to each element is then recognized when the basic revenue recognition criteria is met for each element. Changes in the inability to determine VSOE for an undelivered element in a multiple-element arrangement may affect the timing of revenue recognition. For sales of products where software is incidental and include multiple elements, we apply the provisions of EITF 00-21 to determine the separate units of accounting that exist within the arrangement. If more than one unit of accounting exists, the arrangement consideration is allocated to each unit of accounting using either the relative fair value method or the residual fair value method as prescribed by EITF 00-21. Revenue is recognized for each unit of accounting when all the revenue recognition criteria have been met for that unit of accounting.

Recent Accounting Pronouncements

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations.” SFAS 141R requires the acquirer in a business combination to recognize assets and liabilities assumed at their fair values and to recognize acquisition-related costs separately from the acquisition. SFAS141R will be effective for us in fiscal year 2010, with early adoption prohibited. We expect the implementation of SFAS 141R will have an impact on our financial position and results of operations, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions we consummate after the effective date of November 1, 2009.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.” SFAS 160 will change the accounting and reporting for minority interests which will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS 160 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. We are currently assessing the impact of SFAS 160, but does not expect the adoption to have a material impact on our financial position, results of operations, and cash flows.

     In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.” SFAS 161 expands financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, results of operations, and cash flows. SFAS 161 also requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged, and will be adopted by us in the first quarter of fiscal year 2010. Because SFAS 161 only requires additional disclosure, the adoption will not impact our financial position, results of operations, and cash flows.

     In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted

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accounting principles. SFAS 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” We currently adhere to the hierarchy of generally accepted accounting principles as presented in SFAS 162, and adoption of SFAS 162 is not expected to have a material impact on our financial position, results of operations, and cash flows.

     In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” FSP APB 14-1 requires issuers of convertible debt instruments that may be settled in cash upon conversion to account separately for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and will be adopted by us in the first quarter of fiscal year 2010. We have not yet adopted FSP APB 14-1, but we are currently assessing the impact that FSP APB 14-1 may have on our financial position, results of operations, and cash flows.

     In June 2008, the FASB issued EITF Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock.” EITF 07-5 provides guidance on determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock. EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We have not yet adopted EITF 07-5, but we are currently assessing the impact that EITF 07-5 may have on our financial position, results of operations, and cash flows.

     In November 2008, the FASB ratified EITF Issue No. 08-7, “Accounting for Defensive Intangible Assets” (“EITF 08-7”). EITF 08-7 applies to defensive intangible assets, which are acquired intangible assets that the acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. As these assets are separately identifiable, EITF 08-7 requires an acquiring entity to account for defensive intangible assets as a separate unit of accounting. Defensive intangible assets must be recognized at fair value in accordance with SFAS 141R and SFAS 157. EITF 08-7 is effective for defensive intangible assets acquired in fiscal years beginning on or after December 15, 2008 and will be adopted by us in the first quarter of fiscal year 2010. We expect EITF 08-7 will have an impact on our consolidated financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the intangible assets purchased after the effective date of November 1, 2009.

Off-Balance Sheet Arrangements

     As part of our ongoing business, we do not participate in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of January 24, 2009, we were not involved in any material unconsolidated SPEs.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     In the normal course of business, we are exposed to market risks related to changes in interest rates, foreign currency exchange rates and equity prices that could impact our financial position and results of operations. Our risk management strategy with respect to these three market risks may include the use of derivative financial instruments. We use derivative contracts only to manage existing underlying exposures of the Company. Accordingly, we do not use derivative contracts for speculative purposes. Our risks and risk management strategy are outlined below. Actual gains and losses in the future may differ materially from the sensitivity analyses presented below based on changes in the timing and amount of interest rates and our actual exposures and hedges.

Interest Rate Risk

     Our exposure to market risk due to changes in the general level of United States interest rates relates primarily to our debt, cash equivalents and short-term and long-term investment portfolios.

     We are exposed to changes in interest rates as a result of our borrowings under our term loan. Based on outstanding indebtedness of $1.1 billion under our term loan as of January 24, 2009, if market rates average 1% higher over the remaining term of the debt, our interest expense would increase by approximately $40.2 million. Conversely, as of January 24, 2009, the weighted-average interest rate on the term loan was 7.0% which represents the minimum interest rate under the credit agreement.

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     Based on outstanding indebtedness of $1.1 billion under our term loan as of October 25, 2008, if market rates average 1% higher over the remaining term of the debt, our interest expense would increase by approximately $43.2 million. Conversely, if market rates average 1% lower over the remaining term of the debt, our interest expense would decrease by approximately $43.2 million.

     Our convertible subordinated debt is subject to a fixed interest rate and may be converted into common stock based on a fixed conversion ratio. As of January 24, 2009, the approximate aggregate fair value of the outstanding convertible subordinated debt was between $154.4 million and $152.9 million. We estimated the fair value of the outstanding convertible subordinated debt by using the high and low prices per $100 of the Company’s 2.25% Notes as of the last day of trading for the first fiscal 2009 quarter, which were $89.50 and $88.63, respectively. As of October 25, 2008, the approximate aggregate fair value of the outstanding convertible subordinated debt was between $155.5 million and $155.3 million. We estimated the fair value of the outstanding convertible subordinated debt by using the high and low prices per $100 of the Company’s 2.25% Notes as of the last day of trading for the fourth fiscal 2008 quarter, which were $90.13 and $90.00, respectively.

     Our cash, cash equivalents, and short-term and long-term investments are primarily maintained at five major financial institutions in the United States. 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 January 24, 2009 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						January 24,		Increase of X Basis Points
Issuer	(150 BPS)		(100 BPS)		(50 BPS)		2009		50 BPS		100 BPS		150 BPS
Corporate bonds and notes	$	21,067	$	21,043	$	20,998	$	20,942	$	20,778	$	20,745	$	20,713
Total	$	21,067	$	21,043	$	20,998	$	20,942	$	20,778	$	20,745	$	20,713

     The following table presents the hypothetical changes in fair values of our investments as of October 25, 2008 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						October 25,		Increase of X Basis Points
Issuer	(150 BPS)		(100 BPS)		(50 BPS)		2008		50 BPS		100 BPS		150 BPS
Debt securities issued by U.S. government and its agencies and municipal obligations	$	40,743	$	40,670	$	40,597	$	40,526	$	40,453	$	40,381	$	40,310
Corporate bonds and notes	$	144,148	$	143,734	$	143,420	$	143,389	$	142,514	$	142,113	$	141,720
Total	$	184,891	$	184,404	$	184,017	$	183,915	$	182,967	$	182,494	$	182,030

     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, short-term investments and long-term investments subject to interest rate risk and their related weighted-average interest rates as of January 24, 2009. Carrying value approximates fair value.

			Weighted-Average
	Amount		Interest Rate
Cash and cash equivalents	$	190,038		0.14	%
Short-term investments		24,133		0.51	%
Long-term investments		1,725		0.04	%
Total	$	215,896		0.18	%

Foreign Currency Exchange Rate Risk

     We are exposed to foreign currency exchange rate risk inherent in conducting business globally in numerous currencies, of which the most significant to our operations for the three months ended January 24, 2009 were the Euro, the Japanese Yen, the British Pound and the Singapore Dollar. We are primarily exposed to foreign currency fluctuations related to operating expenses denominated in currencies other than the U.S. dollar. As such, we benefit from a stronger U.S. dollar and may be adversely affected by a weaker U.S.

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dollar relative to the foreign currency. We use forward contracts designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in our forecasted operating expenses denominated in currencies other than the U.S. dollar. We recognize the gains and losses on foreign currency forward contracts in the same period as the remeasurement losses and gains of the related foreign currency denominated exposures. Alternatively, we may choose not to hedge the foreign currency risk associated with our foreign currency exposures if such exposure acts as a natural foreign currency hedge for other offsetting amounts denominated in the same currency or if the currency is difficult or too expensive to hedge.

     As of January 24, 2009, we held $22.8 million in cash flow derivative instruments. The maximum length of time over which we are hedged as of January 24, 2009 is through November 6, 2009. As of October 25, 2008, we held $18.5 million in cash flow derivative instruments. The maximum length of time over which we are hedged as of October 25, 2008 is through May 4, 2009.

Equity Price Risk

     We are also exposed to equity price risk inherent in our portfolio of publicly traded equity securities, which had an estimated fair value of $182.3 million at October 25, 2008 and were comprised of the 14.0 million shares of Foundry common stock we held for the period then ended (see Note 6, “Investments and Equity Securities,” of the Notes to Condensed Consolidated Financial Statements). As of January 24, 2009, we had no marketable equity securities. We monitor our equity investments for impairment on a periodic basis. In the event that the carrying value of the equity investment exceeds its fair value, and we determine the decline in value to be other-than-temporary, we reduce the carrying value to its current fair value. Generally, we do not attempt to reduce or eliminate our market exposure on these equity securities. We do not purchase our equity securities with the intent to use them for speculative purposes. The aggregate cost of our equity investments in non-publicly traded companies was $6.8 million at January 24, 2009 and October 25, 2008.

     Our common stock is quoted on the NASDAQ Global Select Market under the symbol “BRCD.” On January 23, 2009, the last business day of our first fiscal quarter of 2009, the last reported sale price of our common stock on the NASDAQ Global Select Market was $3.23 per share.

Item 4. Controls and Procedures

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

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

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

     (b) Changes in Internal Control over Financial Reporting. As a result of our acquisition of Foundry, we have expanded our internal controls over financial reporting to include some of Foundry’s internal controls. Certain Foundry internal controls have been consolidated into the Company’s system of internal controls, while certain additional controls have been added. Except as described above, there were no changes to our internal control over financial reporting that occurred during the quarter ended January 24, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Disclosure Controls and Procedures.

     Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected. The inherent limitations include the realities that judgments

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in decision-making can be faulty and that breakdowns can occur because of simple errors 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

     The information set forth in Note 10 (see “Legal Proceedings” of Note 10) of the Notes to Condensed Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors

The slowdown in the domestic and global economies may adversely affect Brocade’s financial condition and operating results.

     The domestic and global economies are undergoing a period of significant slowdown. This slowdown will likely result in reduced demand for information technology, including high performance data networking solutions. Information technology spending has historically declined as general economic and market conditions have worsened, and as the domestic or global economy continues to undergo a significant downturn, or if our customers believe such a downturn will continue for a sustained period, our customers would likely reduce their information technology spending and future budgets. We may be particularly susceptible to reductions in information technology spending because the purchase of our products is often discretionary and may involve a significant commitment of capital and other resources. Delays in or a reduction in information technology spending, domestically and/or internationally, could harm our business, results of operations and financial condition in a number of ways, including longer sales cycles, increased inventory provisions, increased production costs, lowered prices for our products and reduced sales volumes. Similarly, if our suppliers face challenges in obtaining credit or otherwise in operating their businesses, they may become unable to continue to offer the materials we use to manufacture our products. These events could cause reductions in our revenue, profitability and cash flows, increased price competition, increased operating costs and longer fulfillment cycles and exacerbate many other risks noted in this 10-Q, which could adversely affect our business, results of operations and financial condition.

     Given the current uncertainty about the extent and duration of the global financial slowdown, it is becoming increasingly difficult for us, our customers and our suppliers to accurately forecast future product demand trends, which could cause us to produce excess products that would increase our inventory carrying costs and result in obsolete inventory. Alternatively, this forecasting difficulty could cause a shortage of products or materials used in our products that would result in our inability to satisfy demand for our products and a loss of market share.

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

     Brocade believes that the recently completed acquisition of Foundry will result in certain benefits, including broader addressable market opportunities, product innovations, and operational efficiencies. However, Brocade’s ability to realize these anticipated benefits depends on successfully combining the businesses of Brocade and Foundry. The combined company may fail to realize the anticipated benefits of the merger for a variety of reasons, including the following:

• Failure of customers to accept new products or to continue as customers of the combined company;

• Failure to successfully manage relationships with original equipment manufacturers, end-users, distributors and suppliers;

• Failure to retain key employees;

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

• Failure to successfully develop new products and services on a timely basis that address the market opportunities of the combined company;

• Failure to compete effectively against companies already serving the broader market opportunities expected to be available to the combined company;

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• Failure to qualify the combined company’s products with OEM customers on a timely basis, or at all;

• Failure to successfully consolidate its third-party contract manufacturing, streamline its supply chain, and reduce product costs;

• Failure to consolidate the combined company’s professional services and customer support organizations; and

• Failure to successfully integrate and harmonize financial reporting and information technology systems of Brocade and Foundry.

     The challenges of integrating Foundry could disrupt the combined company’s ongoing business, distract its management focus from other opportunities and challenges, and increase the combined company’s expenses and working capital requirements. The actual integration may also result in unforeseen expenses or delays. If Brocade is not able to successfully integrate Foundry’s business and operations, or if there are delays or greater costs than expected in combining the businesses, the anticipated benefits of the merger may not be realized fully, or at all, or may take longer to realize than expected.

     Brocade has incurred substantial indebtedness to finance the acquisition of Foundry, which will decrease Brocade’s business flexibility and increase its borrowing costs, which may adversely affect Brocade’s operations and financial results.

     Upon completion of the acquisition of Foundry, Brocade increased its indebtedness by approximately $1.1 billion, which is substantially greater than its indebtedness prior to the acquisition. The financial and other covenants agreed to by Brocade in connection with such indebtedness and the increased indebtedness and higher debt-to-equity ratio of Brocade in comparison to that of Brocade on a recent historical basis will have the effect, among other things, of reducing the flexibility of Brocade to respond to changing business and economic conditions and increasing borrowing costs, and may adversely affect Brocade’s operations and financial results. In addition, our failure to comply with these covenants could result in a default under the Senior Secured Credit Facility and our other debt, which could permit the holders to accelerate such debt or demand payment in exchange for a waiver of such default. If any of our debt is accelerated, we may not have sufficient funds available to repay such debt. The current debt under the Senior Secured Credit Facility has a floating interest rate and an increase in interest rates may negatively impact Brocade’s financial results. The mandatory debt repayment schedule on the Senior Secured Credit Facility and the maturity of the existing convertible subordinated debt in 2010 may negatively impact Brocade’s cash position and reduce Brocade’s financial flexibility. In addition, any changes by rating agencies to Brocade’s credit rating in connection with such indebtedness may negatively impact the value and liquidity of Brocade’s debt and equity securities.

The integration of Foundry into Brocade may result in significant expenses and accounting charges that adversely affect Brocade’s operating results and financial condition.

     In accordance with generally accepted accounting principles and as was the case with Brocade’s acquisition of McData, Brocade accounted for the acquisition of Foundry using the purchase method of accounting. The financial results of Brocade may be adversely affected by the resulting accounting charges incurred in connection with the merger. Brocade also expects to incur additional costs associated with combining the operations of Brocade and Foundry, which may be substantial. Additional costs may include: costs of employee redeployment; accelerated amortization of deferred equity compensation and severance payments; reorganization or closure of facilities; taxes; advisor and professional fees; and termination of contracts that provide redundant or conflicting services. Some of these costs may have to be accounted for as expenses that would decrease Brocade’s net income and earnings per share for the periods in which those adjustments are made. For the three months ended January 24, 2009, Brocade recorded $1.0 million in acquisition and integration costs, which consisted primarily of costs incurred for consulting services and other professional fees. The price of Brocade’s common stock could decline to the extent Brocade’s financial results are materially affected by the foregoing charges and costs, or if the foregoing charges and costs are larger than anticipated. The completion of the merger may result in dilution of future earnings per share to the stockholders of Brocade. It may also result in greater net losses or a weaker financial condition compared to that which would have been achieved by either Brocade or Foundry on a stand-alone basis.

Intense competition in the market for networking solutions could prevent the combined company from maintaining or increasing revenue, profitability and cash flows with respect to its networking solutions.

     The market for data and storage networking solutions is intensely competitive. In particular, Cisco maintains a dominant position in the data networking market and several of its products compete directly with the combined company’s products. Purchasers of networking solutions may choose Cisco’s products because of its longer operating history, broader product line and strong reputation in the networking market. In addition, Cisco may develop new technologies that directly compete with the combined company’s products or render its products obsolete.

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     The combined company also competes with other companies, such as 3Com Corporation, Alcatel-Lucent, Enterasys Networks, Inc., Extreme Networks, Inc., F5 Networks, Inc., Force10 Networks, Inc., Hewlett-Packard Company, Huawei Technologies Co. Ltd., Juniper Networks, Inc. and Nortel Networks Corporation. Some of the combined company’s current and potential competitors have greater market leverage, longer operating histories, greater financial, technical, sales, marketing and other resources, more name recognition and larger installed customer bases. Brocade also faces significant competition from providers of Fibre Channel switching products for interconnecting servers and storage. These principal competitors include Cisco and QLogic Corporation. Brocade also faces other competitors in markets adjacent to the SAN market, such as Cisco and F5 Networks, Inc. in the File Management market and QLogic and Emulex in the Server Connectivity or HBA market.

     Particularly as Brocade enters new adjacent markets, Brocade may face competitors with well-established market share and customer relationships. Brocade’s competitors could adopt more aggressive pricing policies than Brocade. Brocade believes that competition based on price may become more aggressive than it has traditionally experienced. Brocade’s competitors could also devote greater resources to the development, promotion and sale of their products than Brocade may be able to support and, as a result, be able to respond more quickly to changes in customer or market requirements. Brocade’s failure to successfully compete in the market would harm Brocade’s business and financial results.

     New competitors are likely to emerge from the existing Ethernet networking companies in the market as the Fibre Channel over Ethernet standard becomes finalized and is introduced to the market. These competitors are likely to use emerging technologies and alternate routes-to-market (outside of Brocade’s traditional OEM channels) to compete with Brocade. In addition, Brocade’s OEM partners, who also have relationships with some of Brocade’s current competitors, could become new competitors by developing and introducing products that compete with Brocade’s product offerings, by choosing to sell Brocade’s competitors’ products instead of Brocade’s products, or by offering preferred pricing or promotions on Brocade’s competitors’ products. Competitive pressure will likely intensify as Brocade’s industry experiences further consolidation in connection with acquisitions by Brocade, its competitors and its OEM partners.

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

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

     Brocade has introduced a significant number of new products in recent history, including products across its family of Data Center Infrastructure solutions, which accounts for a substantial portion of Brocade’s revenues. Recent product introductions include the Brocade DCX™ Backbone, the first in a new class of high-performance data center networking products designed to address the demanding requirements of the evolving data center. Recent product introductions by Foundry include the FastIron WS compact edge switch, a solution for secure and unified campus-wide convergence and the NetIron CES 2000 Series, a compact one rack unit edge/aggregation switch. Brocade also announced its new host bus adapters, or HBA, product offerings in the Server Connectivity market in fiscal year 2008. Market adoption of Brocade’s HBA product offerings is still early in the acceptance process and remains to be determined.

     Developing new offerings requires significant upfront investments that may not result in revenue for an extended period of time, if at all. Brocade must achieve widespread market acceptance of Brocade’s new product and service offerings on a timely basis in order to realize the benefits of Brocade’s investments. The success of Brocade’s product and service offerings depends on numerous factors, including its ability to:

• Properly define the new products and services;

• Timely develop and introduce the new products and services;

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

• Address the complexities of interoperability of Brocade’s products with its installed base, OEM partners’ server and storage products and its competitors’ products; and

• Maintain high levels of product quality and reliability.

     Various factors impacting market acceptance are outside of Brocade’s control, including the following:

• The availability and price of competing products and alternative technologies;

• The cost of certain product subcomponents, which could reduce Brocade’s gross margins;

• Product qualification requirements by Brocade’s OEM partners, which can cause delays in the market acceptance;

• The timing of the adoption of new industry standards relative to Brocade’s development of new technology and products;

• The ability of its OEM partners to successfully distribute, support and provide training for its products; and

• Customer acceptance of the combined company’s products.

     If Brocade is not able to successfully develop and market new and enhanced products and services on a timely basis, its business and results of operations will likely be harmed.

The combined company has high concentration of customers, including a limited number of OEM partners, which it relies on for a substantial portion of its revenues. The loss of any of these customers or OEM partners or a decrease in their purchases could significantly reduce Brocade’s revenues and negatively affect Brocade’s financial results.

     Brocade depends on recurring purchases from a limited number of large OEM partners for a substantial portion of its revenues. As a result, these large OEM partners have a significant influence on Brocade’s quarterly and annual financial results. For fiscal years 2008, 2007 and 2006, the same three customers each represented ten percent or more of Brocade’s total net revenues for a combined total of 65%, 68% and 73%, respectively. Brocade’s agreements with its OEM partners are typically cancelable, non-exclusive, have no minimum purchase requirements and have no specific timing requirements for purchases. Brocade’s OEM partners could also elect to reduce, or rebalance, the amount they purchase from Brocade and increase the amount purchased from Brocade’s competitors. Brocade anticipates that its revenues and operating results will continue to depend on sales to a relatively small number of OEM partners. The loss of any one significant OEM partner, or a decrease in the level of sales to any one significant OEM partner, or unsuccessful quarterly negotiation on key terms, conditions or timing of purchase orders placed during a quarter, would likely cause serious harm to Brocade’s business and financial results.

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

     The loss of continued orders from any of the combined company’s more significant customers, such as the United States government or individual agencies within the United States government, or companies within the financial services sector, could also cause our revenue and profitability to suffer. Our ability to attract new customers will depend on a variety of factors, including the cost-effectiveness, reliability, scalability, breadth and depth of our products. In addition, a change in the mix of our customers, or a change in the mix of direct and indirect sales, could adversely affect our revenue and gross margins.

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

     As Brocade introduces new or enhanced products, Brocade must successfully manage the transition from older products to minimize disruption in customers’ ordering patterns, avoid excessive levels of older product inventories and provide sufficient supplies of new products to meet customer demands. When Brocade introduces new or enhanced products, such as new products based on the recently introduced 8 Gigabit Fibre Channel or 20 Gigabit Ethernet technology, Brocade faces numerous risks relating to product transitions, including the inability to accurately forecast demand, address new or higher product cost structures, and manage different sales and support requirements due to the type or complexity of the new products. In addition, any customer uncertainty regarding the timeline for rolling out new products or Brocade’s plans for future support of existing products, may negatively impact customer purchase decisions.

Brocade may be subject to intellectual property infringement claims and litigation that are costly to defend and could limit its ability to use certain technologies in the future. Additionally, we may be found to infringe on intellectual property rights of others.

     Companies in the data and networking industry in which Brocade competes are frequently subject to claims and related litigation regarding patent and other intellectual property rights. Some companies claim extensive patent portfolios that may apply to the networking industry. As a result of the existence of a large number of patents and the rate of issuance of new patents in the networking industry, it is practically impossible for a company to determine in advance whether a product or any of its components may infringe upon intellectual property rights that may be claimed by others. From time to time, third-parties have asserted patent, copyright and trademark rights to technologies and standards that are important to us. Additionally, third-parties may in the future assert claims or initiate litigation against Brocade or its manufacturers, suppliers or customers alleging infringement of their intellectual property rights with respect to Brocade’s existing or future products. Foundry has in the past incurred, and the combined company may in the future incur, substantial expenses in defending against such third-party claims. Brocade has in the past been involved in intellectual property-related disputes, including lawsuits with Vixel Corporation and Raytheon Company. Brocade may also inherit intellectual property-related disputes from acquisitions of other companies, products or technologies. In addition, Brocade may be subject to indemnification obligations with respect to infringement of third-party intellectual property rights pursuant to Brocade’s agreements with OEM partners or customers. In the event of a determination adverse to Brocade, it could incur substantial monetary liability and be required to change its business practices. Either of these could have a material adverse effect on Brocade’s financial position, results of operations, or cash flows.

     A number of companies have developed a licensing program in an attempt to realize revenue from their patent portfolios. Some of these companies have contacted Brocade regarding a license. Brocade carefully reviews all license requests, but has been unwilling to license technology that it believes is not required for its product portfolio. However, any asserted license demand can require considerable effort and expense to review and respond. Moreover, a refusal by Brocade to a license request could result in threats of litigation or actual litigation, which, if or when initiated, could harm Brocade’s business.

     Brocade relies on a combination of patent, copyright, trademark and trade secret laws and contractual restrictions on disclosure to protect our intellectual property rights in these proprietary technologies. Although Brocade has patent applications pending, there can be no assurance that patents will be issued from pending applications, or that claims allowed on any future patents will be sufficiently broad to protect our technology.

     Brocade is a party to lawsuits in the normal course of its business. Litigation in general, and intellectual property and securities litigation in particular, can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Responding to the allegations has been, and probably will continue to be, expensive and time-consuming for Brocade. Unfavorable outcomes from these claims and/or lawsuits could adversely affect Brocade’s business, results of operations, or financial condition.

Failure to manage expansion effectively could seriously harm Brocade’s business, financial condition and prospects.

     Brocade continues to increase the scope of its operations domestically and internationally as a result of its expanded product and service offerings and acquisitions of other companies or businesses. In the first fiscal quarter of 2009, Brocade reorganized its management structure to provide more dedicated focus on the Company’s growth opportunities, as well as allow the Company to more easily accommodate and assimilate future acquisitions and new business initiatives. The new structure is organized around four distinct business units, each with its own general manager. Brocade’s ability to successfully implement its business plan, develop and

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offer products, and manage expansion in a rapidly evolving market requires a comprehensive and effective planning and management process. Moreover, Brocade’s growth in business and relationships with customers and other third-parties has placed, and will continue to place, a significant strain on management systems, employees, resources, intercompany communications and coordination, and may lead to increased costs. Failure to maintain and continue to improve upon Brocade’s operational, managerial and financial controls, reporting systems, processes and procedures and/or Brocade’s failure to continue to expand, train and manage its workforce worldwide, or control increased costs of its efforts to manage expansion could seriously harm Brocade’s business and financial results. In November 2008, Brocade restructured one of its four previous business units dedicated to the File Management market and therefore any anticipated revenues or financial results may be adversely affected. In addition, Brocade recently opened a new manufacturing facility in Eastern Europe. The anticipated benefits of this new facility may not be realized, and Brocade may not recover the costs of this new facility if the growth in Brocade’s products, sales and marketing falls below its expectations.

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

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

     Brocade’s ability to accurately forecast demand also may become increasingly more difficult as Brocade enters new or adjacent markets, begins phasing out certain products, or in the event of acquisitions of other companies or businesses. Forecasting demand for new or adjacent markets, particularly where the markets are not yet well-established, may be highly speculative and uncertain. For products that are nearing end of life or being replaced by new versions, it may be difficult to forecast how quickly to decrease production on the older products and ramp up production on the new products. Acquired companies or businesses may offer less visibility into demand than Brocade typically has experienced, may cause customer uncertainty regarding purchasing decisions, and may use different measures to evaluate demand that are less familiar to Brocade and thus more difficult to accurately predict.

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

     Foundry had experienced delays in product shipments from its contract manufacturers and OEMs, which in turn delayed product shipments to its customers. In addition, certain of Brocade’s Foundry product families require a long manufacturing lead-time, which may result in delayed shipments. Brocade may in the future experience similar delays or other problems, such as inferior quality, insufficient quantity of product, or acquisition by a competitor or business failure of any of our OEMs, any of which could harm Brocade’s business and operating results.

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

     Brocade has in the past acquired, or made strategic investments in, other companies, products or technologies, and Brocade expects to make additional acquisitions and strategic investments in the future. Examples of recent acquisitions include Foundry in December 2008, Strategic Business Systems, Inc. in March 2008, McDATA Corporation in January 2007 and NuView, Inc. in March

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2006. In addition to the risks related to the acquisition of Foundry that are described above, Brocade may not realize the anticipated benefits of the acquisition of Foundry or any other acquisitions or strategic investments, which involve numerous risks, including:

• Difficulties in successfully integrating the acquired businesses;

• Revenue attrition in excess of anticipated levels if existing customers alter or reduce their historical buying patterns;

• Unanticipated costs, litigation and other contingent liabilities;

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

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

• Risks associated with entering into markets in which Brocade has limited or no prior experience;

• Potential loss of key employees;

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

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

• Assumption or incurrence of debt and contingent liabilities and related obligations to service such liabilities and Brocade’s ability to satisfy financial and other negative operating covenants;

• Additional costs such as increased costs of manufacturing and service costs, costs associated with excess or obsolete inventory, costs of employee redeployment, relocation and retention, including salary increases or bonuses, accelerated amortization of deferred equity compensation and severance payments, reorganization or closure of facilities, taxes, advisor and professional fees, and termination of contracts that provide redundant or conflicting services;

• 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 Brocade’s operating results;

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

• Dilution of the percentage of Brocade’s stockholders to the extent equity is used as consideration or option plans are assumed, such as in the case of the Foundry acquisition, in which approximately 125.1 million additional shares of Brocade common stock became issuable in connection with the assumption or substitution of Foundry equity awards.

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

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

     The average selling price for Brocade’s products has declined in the past and Brocade expects it to continue to decline in the future as a result of changes in product mix, competitive pricing pressure, increased sales discounts, new product introductions by Brocade or Brocade’s competitors, the entrance of new competitors and other factors. Price declines may increase as competitors ramp up product releases that compete with Brocade’s products. Furthermore, as a result of cautious capital spending in the technology sector, coupled with broader macro-economic factors, both we and our competitors may pursue more aggressive pricing strategies in an effort to maintain sales levels. If Brocade is unable to offset any negative impact that changes in product mix, competitive pricing pressures, increased sales discounts, enhanced marketing programs, new product introductions by Brocade or Brocade’s competitors, or other factors may have on it by increasing the volume of products shipped or reducing product manufacturing cost, Brocade’s total revenues and gross margins will be negatively impacted.

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     In addition, to maintain Brocade’s gross margins, Brocade must maintain or increase the number of products shipped, develop and introduce new products and product enhancements, and continue to reduce the manufacturing cost of Brocade’s products. While Brocade has successfully reduced the cost of manufacturing Brocade’s products in the past, Brocade may not be able to continue to reduce cost of production at historical rates. Moreover, most of Brocade’s expenses are fixed in the short-term or incurred in advance of receipt of corresponding revenue. As a result, Brocade may not be able to decrease its spending quickly enough or in sufficient amounts to offset any unexpected shortfall in revenues. If this occurs, Brocade could incur losses and Brocade’s operating results and gross margins could be below expectations. Additionally, Brocade’s gross margins may be negatively affected by fluctuations in manufacturing volumes, component costs, the mix of product configurations sold and the mix of distribution channels through which its products are sold. For example, Foundry generally realized higher gross margins on direct sales to an end user than on sales through its resellers or to its OEMs. As a result, any significant shift in revenue through Foundry’s resellers or to OEMs could harm our gross margins. In addition, if product or related warranty costs associated with Brocade’s products are greater than we have experienced, Brocade’s gross margins may also be adversely affected. Finally, increased costs resulting from higher than anticipated oil prices and the volatility of the value of the U.S. dollar may affect the costs of components used in Brocade’s products and negatively affect Brocade’s gross margins.

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

     Brocade purchases certain key components used in the manufacture of its products from single or limited sources. Brocade purchases specific ASICs from a single source, and Brocade purchases microprocessors, certain connectors, small form-factor pluggable transceivers, logic chips, power supplies and programmable logic devices from limited sources. Our principal limited or sole-sourced components for our classic Foundry products include high-speed dynamic and static random access memories, commonly known as DRAMs and SRAMs, ASICs, printed circuit boards, optical components, packet processors, switching fabrics, microprocessors and power supplies. Proprietary ASICs used in the manufacture of our products are purchased from sole sources and may not be readily available from other suppliers as the development period required to fabricate these ASICs can be lengthy. In addition, more recent Foundry product families integrate customizable network processors from sole source suppliers such as Marvell Technology Group Ltd. We acquire these components through purchase orders and have no long-term commitments regarding supply or pricing from these suppliers. From time to time, Brocade’s Foundry product families had experienced shortages in allocations of components, resulting in delays in filling orders. Brocade may encounter shortages and delays in obtaining components in the future, which could impede Brocade’s ability to meet customer orders. Brocade’s proprietary ASICs, which provide key functionality in certain Foundry products, are fabricated in foundries operated by, or subcontracted by, Texas Instruments Inc., Fujitsu Ltd., and Broadcom Corp. An alternative supply for these ASICs would require an extensive development period. Brocade also licenses certain third-party software that is incorporated into Brocade’s operating system software and other software products. If Brocade is unable to obtain these and other components when required or if Brocade experiences significant component defects, Brocade may not be able to deliver Brocade’s products to Brocade’s customers in a timely manner. As a result, Brocade’s business and financial results could be harmed.

     We depend on anticipated product orders to determine our material requirements. Lead-times for limited-sourced materials and components for Brocade’s Foundry product families can be as long as six months, vary significantly and depend on factors such as the specific supplier, contract terms and demand for a component at a given time. Inventory management remains an area of focus as we balance the need to maintain strategic inventory levels to ensure competitive lead-times with the risk of inventory obsolescence due to rapidly changing technology and customer requirements. If orders do not match forecasts, or if we do not manage inventory effectively, we may have either excess or insufficient inventory of materials and components, which could negatively affect our operating results and financial condition.

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

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Brocade may not realize the anticipated benefits in connection with its recent purchase of real estate and plans to develop and construct office buildings, which could disrupt its business and negatively impact its financial performance.

     Brocade’s recent purchase of real estate in San Jose, California and its commitment to build a new campus of several buildings on that real estate constitute a substantial investment. Brocade may not realize the anticipated benefits with respect to the purchase and development of such property. Brocade is devoting significant capital resources to developing the campus, which will reduce Brocade’s liquidity and financial flexibility. Additionally, the development, construction and maintenance of the new campus may result in unexpected costs or delays, which could negatively impact its financial position. Moreover, any delays in the development or construction of the new campus could also suspend Brocade’s ability to move into the new campus on a timely basis and, as a result, disrupt Brocade’s business.

Certain former officers and directors of Brocade are subject to ongoing actions by the SEC, the Department of Justice (“DOJ”), the Company and others, which have required, and may continue to require, a significant amount of legal expense pursuant to indemnification obligations of Brocade, which could adversely affect Brocade’s results of operations and cash flows.

     The SEC, DOJ and various other third-parties are continuing to investigate and pursue actions against certain former executive officers of Brocade in connection with Brocade’s historical stock option granting practices and other related matters. In addition, in August 2008, the Special Litigation Committee of Brocade’s Board of Directors filed a complaint against certain former officers and directors on behalf of Brocade, asserting claims arising from Brocade’s 2005 internal reviews and restatements relating to historical stock option granting practices and other related matters. While those actions are targeted against certain former officers and directors and not Brocade, Brocade has certain indemnification obligations to such former officers and directors for, among other things, the advancement of legal expenses incurred in connection with such actions, which have required, and may continue to require, a significant amount of expense to Brocade. Whether Brocade may be entitled to recoup all or a portion of the expenses advanced by Brocade on behalf of such former officers and directors or recover any losses resulting from certain actions of such former officers and directors is complex and may be affected by, among other things, various state laws, the interpretation of indemnification agreements and the collectability of any such amounts.

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

     Brocade’s success depends, to a significant degree, upon the continued contributions of key management, engineering, sales and other personnel, many of whom would be difficult to replace. Brocade believes its future success will also depend, in large part, upon Brocade’s ability to attract and retain highly skilled managerial, engineering, sales and other personnel, and on the ability of management to operate effectively, both individually and as a group, in geographically disparate locations. There is only a limited number of qualified personnel in the applicable market and competition for such employees is fierce. In the past, Brocade has experienced difficulty in hiring qualified personnel in areas such as application-specific integrated circuits, software, system and test, sales, marketing, service, key management and customer support. In addition, declines in Brocade’s stock price resulting in “underwater” stock options held by our employees as well as Brocade’s past reductions in force could potentially make attracting and retaining qualified employees more difficult in the future. In addition, Brocade’s fluctuating stock price has resulted in a certain number of “underwater options” held by Brocade employees. Such underwater options may decrease Brocade’s ability to incentivize or retain qualified personnel. Brocade’s ability to retain qualified personnel may also be affected by future and recent acquisitions, such as the acquisition of Foundry, which may cause uncertainty and loss of key personnel. The loss of the services of any of Brocade’s key employees, the inability to attract or retain qualified personnel in the future, or delays in hiring required personnel, particularly engineers and sales personnel, could delay the development and introduction of Brocade’s products or services, and negatively affect Brocade’s ability to sell its products or services.

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

We have recorded long-lived assets, and our results of operations would be adversely affected if their value becomes impaired.

     Brocade carries a substantial amount of acquired intangible assets and goodwill on its balance sheet. If we complete additional acquisitions in the future, our acquired intangible asset amortization expenses could further increase, and we may be required to record

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additional amounts of goodwill. In addition, we have made investments in certain private companies which could become impaired if the operating results of those companies change adversely. We evaluate our long-lived assets, including acquired intangible assets, goodwill and investments in private companies for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable from its estimated future cash flows.

     In the future, if we make a determination that our long-lived assets are impaired, we will have to recognize charges for the impairment. We cannot be sure that we will not be required to record long-lived asset impairment charges in the future. Our determination of fair value of long-lived assets relies on management’s assumptions of our future revenues, operating costs, and other relevant factors. If management’s estimates of future operating results change or if there are changes to other assumptions such as the discount rate applied to future cash flows, the estimate of the fair value of our reporting units could change significantly, which could result in goodwill impairment charges.

Changes in industry structure and market conditions could lead to charges related to discontinuances of certain of Brocade’s products or businesses and asset impairments.

     In response to changes in industry and market conditions, Brocade may be required to realign its resources strategically and consider restructuring, disposing of, or otherwise exiting businesses. Any decision to limit investment in, or dispose of, or otherwise exit businesses may result in the recording of special charges, such as inventory and technology-related write-offs, workforce reduction costs, charges relating to consolidation of excess facilities, or claims from third-parties who were resellers or users of discontinued products. Brocade’s estimates with respect to the useful life or ultimate recoverability of Brocade’s carrying basis of assets, including purchased intangible assets, could change as a result of such assessments and decisions. Further, Brocade’s estimates relating to the liabilities for excess facilities are affected by changes in real estate market conditions. Additionally, Brocade is required to perform goodwill impairment tests on an annual basis and between annual tests in certain circumstances, and future goodwill impairment tests may result in a charge to earnings.

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

     Many of Brocade’s OEM partners experience uneven sales patterns in their businesses due to the cyclical nature of information technology spending. For example, some of Brocade’s partners close a disproportionate percentage of their sales transactions in the last month, weeks and days of each fiscal quarter, and other partners experience spikes in sales during the fourth calendar quarter of each year. Because the majority of Brocade’s sales are derived from a small number of OEM partners, when they experience seasonality, Brocade typically experiences similar seasonality. Historically, Brocade’s first and fourth fiscal quarters are seasonally stronger quarters than its second and third fiscal quarters. These OEM partners make decisions to purchase inventory based on a variety of factors, including their product qualification cycles and their expectations of end customer demand, which may be affected by seasonality and their internal supply management objectives. Others require that Brocade maintain inventories of Brocade’s products in hubs adjacent to their manufacturing facilities and purchase Brocade’s products only as necessary to fulfill immediate customer demand. In addition, Brocade has experienced quarters where uneven sales patterns of Brocade’s OEM partners have resulted in a significant portion of Brocade’s revenue occurring in the last month of Brocade’s fiscal quarter. Foundry typically experienced significantly higher levels of sales towards the end of a period as a result of customers submitting their orders late in the period or as a result of manufacturing issues or component shortages which may delay shipments. Such non-linearity in shipments can increase costs, as irregular shipment patterns result in periods of underutilized capacity and additional costs associated with higher inventory levels and inventory planning. Furthermore, orders received towards the end of the period may not ship within the period due to our manufacturing lead times. This exposes Brocade to additional inventory risk as it has to order products in anticipation of expected future orders and additional sales risk if Brocade is unable to fulfill unanticipated demand. Brocade is not able to predict the degree to which the seasonality and uneven sales patterns of Brocade’s OEM partners or other customers will affect Brocade’s business in the future, particularly as Brocade releases new products.

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

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

• Disruptions or a continued decline in general economic conditions, particularly in the information technology industry;

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• Announcements of pending or completed acquisitions or other strategic transactions by Brocade or its competitors;

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

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

• Seasonal fluctuations;

• Long and complex sales cycles;

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

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

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

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

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

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

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

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

• Pending or threatened litigation;

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

• New legislation and regulatory developments; and

• Other risk factors detailed in this section.

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

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

     Networking products frequently contain undetected software or hardware errors, or bugs, when first introduced or as new versions are released. Brocade’s products are becoming increasingly complex and, particularly as Brocade continues to expand Brocade’s product portfolio to include software-centric products, including software licensed from third-parties, errors may be found from time to time in Brocade’s products. In addition, through its acquisitions, Brocade has assumed, and may in the future assume, products previously developed by an acquired company that may not have been through the same product development, testing and quality control processes typically used for products developed internally by Brocade, and may have known or undetected errors. Some types of errors also may not be detected until the product is installed in a heavy production or user environment. In addition, Brocade’s products are often combined with other products, including software, from other vendors, and these products often need to interface with existing networks, each of which have different specifications and utilize multiple protocol standards and products from other

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vendors. As a result, when problems occur, it may be difficult to identify the source of the problem. These problems may cause Brocade to incur significant warranty and repair costs, divert the attention of engineering personnel from product development efforts, and cause significant customer relations problems. Moreover, the occurrence of hardware and software errors, whether caused by another vendor’s storage or Ethernet network and data management products or Brocade’s, could delay market acceptance of Brocade’s new products.

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

     Brocade is subject to various environmental and other regulations governing product safety, materials usage, packaging and other environmental impacts in the various countries where Brocade’s products are sold. For example, many of Brocade’s products are subject to laws and regulations that restrict the use of lead, mercury, hexavalent chromium, cadmium and other substances, and require producers of electrical and electronic equipment to assume responsibility for collecting, treating, recycling and disposing of Brocade’s products when they have reached the end of their useful life. For example, in Europe, substance restrictions apply to products sold, and certain of Brocade’s OEM partners require compliance with these or more stringent requirements. In addition, recycling, labeling, financing and related requirements apply to products Brocade sells in Europe. China has also enacted similar legislation with similar requirements for Brocade’s products or its OEM partners. Despite Brocade’s efforts to ensure that Brocade’s products comply with new and emerging requirements, Brocade cannot provide absolute assurance that its products will, in all cases, comply with such requirements. If Brocade’s products do not comply with the substance restrictions under local environmental laws, Brocade could become subject to fines, civil or criminal sanctions and contract damage claims. In addition, Brocade could be prohibited from shipping non-compliant products into one or more jurisdictions and required to recall and replace any non-compliant products already shipped, which would disrupt Brocade’s ability to ship products and result in reduced revenue, increased obsolete or excess inventories and harm to Brocade’s business and customer relationships. Brocade’s suppliers may also fail to provide it with compliant materials, parts and components despite Brocade’s requirement to them to provide compliant materials, parts and components, which could impact Brocade’s ability to timely produce compliant products and, accordingly, could disrupt Brocade’s business.

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

     A significant portion of Brocade’s sales occur in international jurisdictions and Brocade’s contract manufacturer has significant operations in China. Brocade plans to continue to expand its international operations and sales activities in addition to the establishment of its new limited manufacturing facility in Eastern Europe. Foundry’s international sales have primarily depended on its resellers, including Pan Dacom GmbH in Europe, Stark Technology in Taiwan, and Samsung Corporation in Korea. The failure of Foundry’s international resellers to sell our products could limit our ability to sustain and grow our revenue. Expansion of international operations will involve inherent risks that Brocade may not be able to control, including:

• Supporting multiple languages;

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

• Complying with governmental regulation of encryption technology and regulation of imports and exports, including obtaining required import or export approval for 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, regulations and practices, including differing export, import, tax, labor, anti-bribery and employment laws;

• Longer sales cycles and manufacturing lead times;

• Difficulties in collecting accounts receivable;

• Reduced or limited protection of intellectual property rights;

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

• More complicated logistics and distribution arrangements.

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

     To date, no material amount of Brocade’s international revenues and cost of revenues have been denominated in foreign currencies. As a result, an increase in the value of the United States dollar relative to foreign currencies could make Brocade’s products more expensive and, thus, not competitively priced in foreign markets. Additionally, a decrease in the value of the United States dollar relative to foreign currencies could increase Brocade’s operating costs in foreign locations. In the future, a larger portion of Brocade’s international revenues may be denominated in foreign currencies, which will subject Brocade to additional risks associated with fluctuations in those foreign currencies. In addition, Brocade may be unable to successfully hedge against any such fluctuations.

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

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

Business interruptions could adversely affect Brocade’s business.

     Brocade’s operations and the operations of its suppliers, contract manufacturers and customers are vulnerable to interruptions by fire, earthquake, hurricane, power loss, telecommunications failure and other events beyond Brocade’s control. For example, a substantial portion of Brocade’s facilities, including its corporate headquarters, is located near major earthquake faults. We do not have multiple site capacity for all of our services in the event of any such occurrence. In the event of a major earthquake, Brocade could experience business interruption, destruction of facilities and loss of life. Brocade does not carry earthquake insurance and has not set aside funds or reserves to cover such potential earthquake-related losses. In addition, Brocade’s contract manufacturer has a major facility located in an area that is subject to hurricanes. In the event that a material business interruption occurs that affects Brocade, its suppliers, contract manufacturers or customers, shipments could be delayed and Brocade’s business and financial results could be harmed. Despite our implementation of network security measures, our servers may be vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems. We may not carry sufficient insurance to compensate us for losses that may occur as a result of any of these events.

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

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

     Brocade is subject to periodic audits or other reviews by such governmental agencies. For example, in November 2005, Brocade was notified by the IRS that Brocade’s domestic federal income tax return for the year ended October 25, 2003 was subject to audit. In

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addition, in August 2008, the IRS commenced examination of the income tax returns for the three tax years ended 2004 through 2006. In May 2006, the Franchise Tax Board notified Brocade that its California income tax returns for the years ended October 25, 2003 and October 30, 2004 were subject to audit. In February 2009, the IRS commenced an examination of Foundry’s federal income tax returns for the years ended December 31, 2006 and 2007. All these examination cycles remain open as of January 24, 2009. The SEC also periodically reviews Brocade’s public company filings. Any such examination or review frequently requires management’s time and diversion of internal resources and, in the event of an unfavorable outcome, may result in additional liabilities or adjustments to Brocade’s historical financial results.

     In May 2008, the IRS completed its field examination of Brocade’s federal income tax return for the year ended October 25, 2003 and issued a Revenue Agent’s Report. The IRS’ proposed adjustment was offset by approximately $306.0 million of Brocade’s net operating loss carryforwards which resulted in a tax assessment of approximately $6.4 million, excluding penalties and interest. The IRS is contesting Brocade’s transfer pricing for the cost sharing and buy-in arrangements with its foreign subsidiaries. The IRS may make similar claims against Brocade’s transfer pricing arrangements in future examinations. In June 2008, Brocade filed a protest with the Appeals Office of the IRS to seek resolution of the issues. Audits by the IRS are subject to inherent uncertainties and an unfavorable outcome could occur, such as fines or penalties. The occurrence of an unfavorable outcome in any specific period could have a material adverse effect on Brocade’s results of operations for that period or future periods. The expense of defending and resolving such an audit may be significant. The amount of time to resolve an audit is unpredictable and defending Brocade may divert management’s attention from the day-to-day operations of Brocade’s business, which could adversely affect Brocade’s business.

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

     Provisions of Brocade’s certificate of incorporation and bylaws may discourage, delay or prevent a merger or mergers that a stockholder may consider favorable. These provisions include:

• Authorizing the issuance of preferred stock without stockholder approval;

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

• Prohibiting cumulative voting in the election of directors;

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

• Prohibiting stockholder actions by written consent; and

• Requiring super-majority voting to effect amendments to the foregoing provisions of Brocade’s certificate of incorporation and bylaws.

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

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

     There were no unregistered sales of equity securities during the three months ended January 24, 2009.

Issuer Purchases of Equity Securities

     The following table summarizes share repurchase activity for the three months ended January 24, 2009 (in thousands, except per share amounts):

					Total Number of		Approximate Dollar
					Shares Purchased		Value of Shares that
	Total Number		Average		as Part of Publicly		May Yet Be
	of Shares		Price Paid		Announced		Purchased Under
Period	Purchased (1)		per Share (1)		Program (2)		the Program(2)
October 26, 2008 — November 22, 2008		—	$	—		—	$	414,140
November 23, 2008 — December 20, 2008		—	$	—		—	$	414,140
December 21, 2008 — January 24, 2009		—	$	—		—	$	414,140
Total		—	$	—		—	$	414,140

(1)

The total number of shares repurchased includes those shares of Brocade common stock that employees deliver back to Brocade to satisfy tax-withholding obligations that arise upon the vesting of restricted stock or upon termination of the employee and the forfeiture of restricted awards.

(2)

As of November 29, 2007, the Company’s Board of Directors authorized a total of $800.0 million for the repurchase of the Company’s common stock. Purchases were made, from time to time, in the open market or by privately negotiated transactions and were funded from available working capital. The number of shares purchased and the timing of purchases were based on the level of the Company’s cash balances, general business and market conditions, and other factors, including alternative investment opportunities. During the third fiscal quarter of 2008, the Company suspended its share repurchase program due to the then pending Foundry acquisition. The Company plans to prioritize its use of cash for debt repayment following the close of the Foundry acquisition.

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Item 6. Exhibits

EXHIBIT INDEX

Exhibit
Number		Description of Document
	2.1	Agreement and Plan of Merger dated as of July 21, 2008 among Brocade Communications Systems, Inc., Falcon Acquisition Sub, Inc. and Foundry Networks, Inc. (incorporated by reference to Exhibit 2.1 from Brocade’s Form 8-K filed on July 24, 2008)
	2.2	Amendment No. 1 to Agreement and Plan of Merger dated as of November 7, 2008 among Brocade Communications Systems, Inc., Falcon Acquisition Sub, Inc. and Foundry Networks, Inc. (incorporated by reference to Exhibit 2.2 from Brocade’s Form 8-K filed on November 12, 2008)
	3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 from Brocade’s quarterly report on Form 10-Q for the quarter ended July 28, 2007)
	3.2	Amended and Restated Bylaws of the Registrant effective as of February 10, 2009 (incorporated by reference to Exhibit 3.2 from Brocade’s Form 8-K filed on February 10, 2009)
	3.3	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Brocade Communications Systems, Inc. (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement on Form 8-A filed on February 11, 2002)
	3.4	Certificate of Elimination of Series A Participating Preferred Stock of Brocade (incorporated by reference to Exhibit 3.1 from Brocade’s Form 8-K filed on February 16, 2007)
	4.1	Form of Registrant’s Common Stock certificate (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement on Form S-1 (Reg. No. 333-74711), as amended)
	4.2	First Supplemental Indenture dated as of January 29, 2007 by and among McDATA Corporation, Brocade, and Wells Fargo Bank, National Association, as successor in interest to Wells Fargo Bank Minnesota, National Association (incorporated by reference to Exhibit 4.2 from Brocade’s Form 10-Q for the quarter ended April 28, 2007)
	4.3	Second Supplemental Indenture dated as of January 29, 2007 by and among McDATA Corporation, McDATA Services Corporation, a Minnesota corporation f/k/a Computer Network Technology Corporation, Brocade, and U.S. Bank National Association (incorporated by reference to Exhibit 4.3 from Brocade’s Form 10-Q for the quarter ended April 28, 2007)
	4.4	Indenture dated February 7, 2003 by and among McDATA Corporation and Wells Fargo Bank Minnesota National Association (incorporated by reference to Exhibit 4.4 from Brocade’s Form 10-Q for the quarter ended April 28, 2007)
	4.5	Indenture dated February 20, 2002 by and among Computer Network Technology Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.5 from Brocade’s Form 10-Q for the quarter ended April 28, 2007)
	10.1*	Amended and Restated Senior Leadership Plan, dated December 19, 2008 (incorporated by reference to Exhibit 10.1 from Brocade’s Form 8-K filed on December 23, 2008)
	10.2**/***	Amendment Number 1 dated January 9, 2009 to OEM Purchase and License Agreement between EMC Corporation and Brocade
	10.3**/***	Amendment Number 36 dated November 1, 2008 to Statement of Work Number 1 of the Goods Agreement between IBM and Brocade
	10.4**/***	Amendment Number 2 dated October 29, 2008 to Statement of Work Number 7 of the Goods Agreement between IBM and Brocade
	10.5**/***	Amendment Number 13 dated December 16, 2008 to Statement of Work Number 3 of the Goods Agreement between IBM and Brocade
	10.6**	Lease Agreement dated September 28, 1999, between Foundry Networks, Inc., and Legacy Partners Commercial Inc., for offices located at 2100 Gold Street, San Jose, CA 95002

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Exhibit
Number		Description of Document
	10.7**	Sublease Agreement dated March 25, 2005, between Foundry Networks, Inc. and Hyperion Solutions Corporation, for offices located at 4980 Great America Parkway, Santa Clara, CA 95054
	10.8**	First Amendment to Lease Agreement between Foundry Networks, Inc. and WIX/NSJ Real Estate Limited Partnership dated February 16, 2000
	10.9**	Second Amendment to Lease Agreement between Foundry Networks, Inc. and WIX/NSJ Real Estate Limited Partnership dated July 28, 2005
	10.10**	Third Amendment to Lease Amendment between Foundry Networks, Inc. and Bixby Technology Center, LLC dated December 14, 2007
	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.
**	Filed herewith.
***	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: February 24, 2009	By:	/s/ Richard Deranleau
		Richard Deranleau
		Chief Financial Officer

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EX-10.2

Exhibit 10.2

Amendment Number 1
to
OEM Purchase and License Agreement
Between EMC Corporation and Brocade Communications, Inc.
OEM Agreement Number OEM 051208 Dated May 20, 2008

This Amendment Number 1 (“the Amendment”) to the OEM Purchase and License Agreement (the “Agreement”) dated May 20, 2008 BROCADE Communications Systems, Inc., a Delaware corporation with an office located at 1745 Technology Drive, San Jose, California 95110, and BROCADE Communications Switzerland SarL., a Geneva corporation with principal offices at 29 Route de l’Aeroport, Case Postale 105, CH-1215, Geneva 15, Switzerland, and BROCADE Communications Services Switzerland, SarL,, a Geneva corporation with principal offices at 29 Route de l’Aeroport, Case Postale 105, CH-1215, Geneva 15, Switzerland (collectively, “BROCADE”), and EMC Corporation, 176 South Street, Hopkinton, MA 01748 together with its designated Subsidiaries (“EMC”), and commences on the date accepted and executed by BROCADE (“Effective Date”).

RECITALS

WHEREAS, the parties wish to amend the Agreement so as to define the Kanban Process as it relates to Brocade owned KanBans to be placed within EMC designated warehouses;

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

1.0 Delete Sections 7.4.1 through 7.4.5 of the Agreement in its entirety and replace with the following Sections 7.4.1 through 7.4.5:

7.4 Purchase Orders — Kanban Process

7.4.1 KanBan Order Process. The KanBan order, delivery and reschedule process (the “KanBan Process”) established herein shall be in addition to and an alternative to the Standard Process. EMC may order Products for placement into a BROCADE Consignment KanBan (as defined below) subject to issuance of Quarterly Purchase Orders and Release Notices (each as defined below); in which case the procedures set forth below shall apply. Notwithstanding anything herein to the contrary, EMC may continue to order Products pursuant to the order process in Section 7.3, provided that a sixty (60) day (or less if agreed to by the parties) advance notification in writing is provided to BROCADE.

(a) A “KanBan” shall be a supply of Products in a fixed lot size as defined by EMC’s “KanBan Calculator Report”. EMC may increase BROCADE’s Consignment KanBan inventory level above the quantities calculated by the KanBan Calculator Report solely as required to fulfill EMC’s remaining current quarter material requirements planning demand.

Such increases will be made via False Pull Notices communicated to BROCADE. The KanBan Calculator Report uses the following formula to determine bin size: [1.5(LT)(ADD) + SS(ADD)] / EOQ, where

LT = Lead Time which is made up of BROCADE process time plus Transit time. BROCADE process time is defined as the time from when BROCADE receives the replenishment notice until the time Product is on BROCADE dock to be picked up by the carrier. Transit time is the time from carrier pick up to delivery at EMC’s dock.

ADD = Average Daily Demand is EMC’s quarterly demand quantity divided by 60 business days.

SS = Safety Stock, a pre-determined number that EMC may decide to add. Currently Safety Stock is .5. EMC agrees that the SS number will not increase without BROCADE’s mutual consent.

EOQ = Economic Order Quantity is determined by a specific calculation of pallet size and shipping economies.)

Products to be stocked in:

BROCADE Consignment KanBan- BROCADE owned Products that are provided to EMC for storage in one of the BROCADE Consignment KanBan Sites for the purpose of on-demand fulfillment of EMC’s requirements for Products. A “BROCADE Consignment KanBan Site” shall mean the EMC designated warehouse locations identified in Exhibit M.

(b) EMC will establish a quarterly purchase order and BROCADE will deliver products as detailed in EMC’s KanBan Calculator Report to the BROCADE Consignment KanBan sites within one week of receipt of EMC’s written authorization to do so. EMC will maintain a minimum of thirteen (13) weeks of purchase order coverage. EMC will also issue a DSR which will include EMC’s demand that will match EMC’s Purchase order coverage. BROCADE will fill in its supply commitment and return the DSR to EMC within two (2) Business Days. BROCADE will make material available to support its supply commitment within the KanBan replenishment lead times detailed in Paragraph 7.4.1(c) below regardless of the quantity of products actually Pulled through this KanBan Process. BROCADE will be measured on making material available per EMC’s DSR demand and actual release notice fulfillment lead times. EMC will communicate changes to its demand via the DSR and update its purchase orders to match the DSR within one (1) day of changes to the DSR demand. BROCADE will respond to DSR demand changes within a maximum of two (2) Business Days. BROCADE will provide weekly supply updates via the DSR between 8pm ET Friday and 12:00 noon ET each Monday that will include any changes to BROCADE’s supply commitments and actual “make available” quantities from the previous week. BROCADE will promptly communicate any changes in supply commitments via the DSR. EMC’s liability is limited to the following which shall supercede the cancellation terms set forth in Section 7.3.3.2 above, when the parties are utilizing the KanBan process:

[**] of purchase price for Products located in BROCADE’s Consignment KanBans and replenishment notices in process that do not exceed the KanBan Calculator Report, which Products BROCADE is unable to reallocate to another customer using commercially reasonable efforts. EMC’s cancellation fee for such Products shall be calculated using the purchase price in effect as of the date that such Products were added to the BROCADE Consignment KanBan. BROCADE will use commercially reasonable efforts to reallocate these Products and EMC will not be charged a cancellation fee if BROCADE is successful.

EMC purchase liability is limited to 100% of EMC unique labels and manuals that are beyond the BROCADE Consignment KanBan quantities and within [**] calendar days of EMC’s purchase order delivery date.

EMC has no purchase liability beyond [**] calendar days of EMC’s purchase order delivery date.

In the event that EMC’s KanBan Calculator Report reduces the total amount of Products required in the BROCADE Consignment KanBan, then the excess in will be stated in sheet 2 of the KanBan Calculator Report. EMC will be liable for the excess Products detailed in sheet 2 of the KanBan Calculator Report, per terms established above.

(c) EMC may remove only complete KanBans from a BROCADE Consignment KanBan and shall thereby take delivery and possession of the applicable KanBan to support its customer demand. EMC is not required to take delivery of BROCADE Consigned KanBans until EMC has a customer sales order demand for such Products. EMC shall Pull KanBans from the BROCADE Consignment KanBan on a first-in first-out basis. EMC shall notify BROCADE within one (1) day after EMC physically removes a complete KanBan from a BROCADE Consignment KanBan (each such occurrence a “Pull”), and such notice shall be deemed a non-cancelable release order for replacement KanBans (“Release Notice”). EMC notification will be sent to BROCADE by 12:00 noon Eastern time every day as needed. The parties agree that pull notifications will be sent two times per day during the last five business days of BROCADE’s fiscal quarter, one by 12:00 noon Eastern time and one by 5 pm Eastern time. If EMC pulls material from the BROCADE Consignment KanBan during the last day of BROCADE’s fiscal quarter, notification will be sent per the previously defined fiscal quarter end notification schedule above. BROCADE shall apply the Release Notice against the then-open Quarterly Purchase Order. BROCADE will ship Products per Releases Notices and replenish KanBans within the following lead times:

BROCADE Consignment KanBans will be replenished and False Pull Notices delivered within five (5) Business Days for all products from receipt of EMC’s release notice and False Pull Notice, if within EMC’s purchase order quantities.

BROCADE Consignment KanBans will be replenished per BROCADE’s commitment via the DSR, from receipt of EMC’s release notice if such notices are in excess of EMC’s purchase order quantities. If EMC’s release notice exceeds BROCADE’s current cumulative supply commitment, the BROCADE Consignment KanBan will be replenished per the DSR overall supply commitment.

^[**] 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.

BROCADE will respond via E-mail with confirmation of receipt, and ship date, if within BROCADE’s supply commitment via the DSR, within two (2) normal business hours of receipt of EMC’s release notice. BROCADE will ship a replacement KanBan to the applicable KanBan Site for placement into the applicable BROCADE Consignment KanBan.

(d) BROCADE shall ship BROCADE owned KanBans to be placed in a BROCADE KanBan Queue, via Exworks BROCADE Consignment Kanban Sites for international locations and FOB BROCADE Consignment Kanban Site for U.S. locations where “Delivery” is defined in Section (f) below, including freight, provided that EMC has approved the shipping method and carrier in advance. Notwithstanding the foregoing, in the event of expedited shipments, BROCADE may choose the carrier at its sole discretion.

(e) EMC shall provide the space for the BROCADE Consignment KanBans with the exception of the Shannon/Cork HUB where Brocade will pay the third party logistics provider (“3PL”) directly and include the cost in non-product invoicing. All Products in the BROCADE Consignment KanBan shall be and remain the property of BROCADE, until such time as they are Delivered to EMC, as defined below. EMC will store each BROCADE Consignment KanBan in EMC’s facilities or contract with an EMC designated 3PL to store Brocade Consignment KanBans in a manner such that the BROCADE Consignment KanBan shall be segregated by a clear and durable physical delineation, separating the BROCADE Consignment KanBan from the other parts of the EMC location or EMC designated 3PL Hub and from EMC’s other products, supplies, inventory, and equipment, and EMC or it’s designated 3PL Hub shall conspicuously mark the area of each BROCADE Consignment KanBan Site to indicate BROCADE’s ownership of the KanBans. EMC shall have no right of ownership or control over the BROCADE Consignment KanBans. EMC and its designated 3PL Hub will exercise the same degree of care to keep and maintain the KanBans as EMC uses with respect to its own inventory. EMC and its designated 3PL Hub will implement and maintain commercially reasonable measures to prevent any loss, theft, damage, or destruction of the KanBans.

(f) Products contained in a BROCADE Consignment KanBan shall be deemed to be “Delivered” to EMC for purposes of this Amendment when the Products are Pulled by EMC or EMC’s designated 3PL. Upon Delivery, EMC shall be deemed to be in receipt of the Products for purposes of Section 7.5.2 of the Agreement, and the Pull date shall equal the date the Release notice was communicated to BROCADE for purposes of Section 9 of the Agreement. BROCADE shall invoice EMC for such Products as detailed in EMC’s or EMC’s designated 3PL’s pull release notice in accordance with Section 5 of the Agreement. At such time, BROCADE shall also invoice EMC for such Delivered Products on a per unit basis for the cost of shipping, insuring, and if applicable, custom formalities for such Products, at agreed upon rates, from BROCADE’s manufacturing facilities to the BROCADE Consignment KanBan Site that Brocade paid directly to third parties. EMC will pay 3PLs directly for warehousing charges associated with storing Brocade Consignment KanBans. The only exception is the cost of warehousing BROCADE Consignment KanBans in the Shannon Ireland Hub which shall be paid by Brocade directly and then invoiced to EMC as part of the per unit costs described above. Once a KanBan has been Pulled, no Product contained in such KanBan may be placed back into any BROCADE KanBan Queue, and the Product may only be returned by EMC in accordance with the terms set forth in Section 7 or Section 9 of the Agreement.

(g) At all times the BROCADE Consignment KanBans will be kept free by EMC from all liens, claims, encumbrances, and interests of any kind.

(h) EMC, and its designated 3PL’s, will allow access to a BROCADE representative to perform a count of KanBans held in each BROCADE KanBan Queue once per week at a time scheduled no less than twenty-four (24) hours in advance to verify weekly activity and numbers of KanBans on hand. BROCADE may, at its option, conduct an on-site audit to verify the count of KanBans and physically inspect the KanBan Site.

2.0 Delete Sections 7.5.2 in its entirety and replace with the following:

7.5.2 Delivery Procedures.

(a) Delivery shall be F.C.A. Origin (Incoterms 2000) for the standard purchase order process. BROCADE shall use EMC’s designated carriers. Title to Products (or, with respect to Software, the media bearing Software) and risk of loss of Products shall pass to EMC upon signing of the bill of lading by EMC or EMC’s carrier for the standard purchase and drop ship processes. EMC may modify its routing instructions from time to time and will provide BROCADE with an updated version of any such modified instructions. EMC shall arrange for transportation from BROCADE’s dock to the designated ship to address. If there is any conflict between the current version of routing instructions provided to BROCADE and the contents of this Section 7.4, then the current routing instructions will prevail as to EMC’s carrier and routing information. Title to the Software itself shall at all times remain with BROCADE.

(b) Title and risk of loss for the Kanban Process shall pass to EMC upon removal of Kanbans from BROCADE’s Consignment Kanban. Title to the Software itself shall at all times remain with BROCADE. The cost of shipping, insuring, and if applicable, custom formalities for such Products, at agreed upon rates, from BROCADE’s manufacturing facilities to the BROCADE Consignment KanBan Site shall be the responsibility of EMC.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number 1 to OEM Purchase and License Agreement by their duly authorized representatives. This Agreement shall not be effective until executed by Brocade and accepted by an authorized representative of EMC.

Executed and agreed to:		Accepted and agreed to:
BROCADE Communication Systems,		EMC Corporation (EMC)
Inc. “BROCADE”
By:	/s/ Charles Leeming	By:	/s/ Trevor Schick

Name:	Charles Leeming	Name:	Trevor Schick
Title:	VP, OEM Sales	Title:	V.P. GSCM
Signed & Effective Date:  1/7/09		Date:	12/22/08
BROCADE Communication
Switzerland, SarL
By:	/s/ Kevin L. McKenna
Name:	Kevin L. McKenna
Title:	Director
Date:	09-January-2009

EXHIBIT M
EMC HUBS

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[**] 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

6300 Diagonal Highway
Boulder, CO 80301

November 1, 2008

Mr. Mike Harrison
Brocade Communications Systems, Inc.
1745 Technology Drive
San Jose, CA 95110

Subject: Amendment 36 to SOW#1 of the IBM/Brocade Goods Agreement ROC-P-68

This letter (the “Amendment”) serves as Amendment Number 36 to SOW#1, including all amendments thereto (“SOW#1”) of the Goods Agreement ROC-P-68 (the “Agreement”), which the parties hereto do mutually agree to amend as follows

1. Exhibit A of the SOW#1 is hereby deleted in its entirety and replaced with Exhibit A attached hereto.

The effective date of this Amendment shall be the date on the top of this Amendment (the “Effective Date”).

The parties acknowledge that they have read this Amendment, understand it, and agree to be bound by its terms and conditions. All capitalized terms not defined herein shall have the meaning set forth in the Goods Agreement or the SOW #1. All other terms and conditions of the Goods Agreement and SOW#1 that are unaffected by the revisions set forth in this Amendment shall remain in full force and effect. Further, the parties agree that this Amendment and the Goods Agreement and SOW#1 are the complete and exclusive statement of the agreement between the parties, superseding all proposals or other prior agreement, oral or written, and all other communications between the parties relating to this subject.

Accepted and Agreed To: International Business Machines Corporation		Accepted and Agreed To: Brocade Communications Systems, Inc.
By:		By:
	Authorized Signature Date		Authorized Signature Date
Type or Print Name		Type or Print Name
Title & Organization		Title & Organization

Address:	Address:	1745 Technology Drive
		San Jose, CA 95110

Amendment 36 to SOW 1
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Accepted and Agreed To: Brocade Communications Switzerland, SarL
By:
	Authorized Signature Date
Type or Print Name
Title & Organization

Amendment 36 to SOW 1
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AMENDMENT 36 TO SOW-1
EXHIBIT A

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EX-10.4

Exhibit 10.4

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

SOW #7
Amendment #2

PURPOSE:

The original purpose of Statement of Work #7 to the Goods Agreement #ROC-P-68 was to cover VFM software. IBM and Brocade are adding additional OEM type software to the SOW. Therefore, the parties wish to amend SOW #7 in its entirety to include current OEM software and add new future OEM-type software to this SOW#7.

NOW, THEREFORE, IBM and Brocade agree to delete the current SOW#7, as amended, and replace SOW#7 with the following terms and conditions:

This Statement of Work (“SOW”) #7 (Contract Number 4907015087.0) adopts and incorporates by reference the terms and conditions of Goods Agreement #ROC-P-68 (“Base Agreement”) between International Business Machines Corporation (“Buyer”) and Brocade Communications Systems, Inc. with offices at 1745 Technology Drive, San Jose, CA 95110 and Brocade Communications Switzerland, SarL, with an office located at 29 REoute de l’Aeroport, Case Postale 105, CH-1215, Geneva 15, Switzerland (individually and collectively “Supplier”). This SOW is effective beginning on October 1, 2007 and will remain in effect until through September 30, 2008 (“Initial Term”). Upon expiration of the Initial Term and each renewal term thereafter, this SOW will be automatically renewed for an additional one (1) year term (“Renewal Term”) unless terminated by either party upon ninety (90) days’ notice prior to the expiration of the Initial Term or any Renewal Term. The Initial Term and the Renewal Term shall be collectively referred to as the Term. Transactions performed under this SOW will be conducted in accordance with and be subject to the terms and conditions of this SOW, the Base Agreement, the PA and any applicable Work Authorizations (“WAs”). This SOW is not a WA.

1.0 Scope Of Work

Buyer licenses from Supplier a computer software programs on an OEM basis as described Section 3.0 of this SOW. Supplier will also provide to Buyer the Services and Deliverables described in Section 5.0 of this SOW.

2.0 Definitions

“Code” means computer programming code, including “Object Code” (computer programming code substantially in binary form that is directly executable by a computer after processing, but without compilation or assembly)

“Deliverables” means items that Supplier prepares for or provides to Buyer as described in a SOW and/or WA. Deliverables include Licensed Works and Tools.

“Documentation” means the documents that Supplier generally makes available to its customers containing descriptive, operating, installation, engineering and maintenance information for Licensed Works, including but not limited to, functional and test specifications which may be amended, modified or enhanced from time to time during the term of this SOW.

“Enhancements” means changes or additions, other than Error Corrections, to the Licensed Work. If an Enhancement adds substantial value to the Licensed Work and is offered to customers for an additional charge it will be considered a “Major Enhancement", and all other Enhancements, including those that support new releases of operating systems and devices, will be considered “Basic Enhancements".

“Error Corrections” means revisions that correct errors and deficiencies (collectively referred to as “errors”) in the Licensed Work.

“Externals” means any documentation, pictorial, graphic, audiovisual works, reports or data generated by execution of code and any programming interfaces, languages or protocols implemented in the code to enable interaction with other computer programs or end users. Externals do not include the code that implements them.

“Licensed Work” is any material described in or that conforms to the Description of Licensed Work in the relevant SOW and/or WA and includes Code, associated Documentation, Externals, Error Corrections, and Enhancements.

“Prices” means the agreed upon payment and currency for Deliverables and Services, exclusive of taxes as specified in the relevant SOW and/or WA.

"Royalty” means the IBM payment process as defined in Section 10 of this SOW. Buyer will pay Supplier the prices listed in Attachment 1, Pricing, for Products shipped to its customers.
“Tools” means software that is not commercially available, and its Externals, required for the development, maintenance or implementation of a software Deliverable.

Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 1 of 33	Form Release: 8/98
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

3.0 Licensed Work And Related Deliverables And Services

The Licensed Work and related deliverables and services for each Licensed Work are defined in Attachment F.

3.1 Limited Warranty Period

For [**] from the date of shipment, Supplier warrants that (i) the Licensed Works will substantially conform to the applicable user documentation and (ii) that the media on which the Licensed Works is distributed is free from defects in materials and workmanship. Supplier will repair or replace, at no charge, any defective Licensed Works that does not substantially conform to the applicable user documentation, provided that the defective or non-conforming Licensed Works is returned to Supplier within [**] from the date of shipment. Any Licensed Work Supplier replaces becomes the property of Supplier, and the replacement Licensed Works becomes the property of Buyer. The replacement Licensed Works assumes the Service status of the replaced Licensed Works, if the replaced Licensed Works is covered by a maintenance and support contract.

4.0 Rights In Licensed Works

The Licensed Work will be comprised of a Buyer-branded version of Supplier’s software product. The Buyer branded version name is listed in Attachment F. The Licensed Work will be provided by Supplier to Buyer in Object Code format.

4.1 Object Code

Supplier grants Buyer a nonexclusive, worldwide, revocable license to transmit, transfer, distribute, and sublicense Licensed Works, in Object Code form, in any medium or distribution technology, either directly or indirectly through Buyer’s resellers or other sales channels. Supplier will license such Licensed Works to end users under a license agreement no less restrictive than Supplier’s end user license agreement attached hereto as Attachment E.

4.2 Externals and Documentation

Supplier grants Buyer a nonexclusive, worldwide, perpetual, irrevocable, paid-up license to prepare and have prepared derivative works of the Externals, and to use, have used, execute, reproduce, transmit, display, perform, transfer, distribute, and sublicense the Externals and such derivative works, in any medium or distribution technology, and to grant others the rights granted herein.

5.0 Description Of Related Deliverables And Services

5.1

Maintenance and Support: For the term of this SOW, Supplier will provide to Buyer maintenance and support for the Deliverables, based on maintenance and support fees being paid, as described in Attachment C entitled “Testing, Maintenance and Support.”

5.2

Third —Party License in Source Code: Seller will provide Certificates of Originality (COO) in the format as defined in Attachment B. Such COO’s will list the url addresses for open source software licenses and Open Source Code. Such url addresses will allow Buyer to access such Open Source Code. If Seller modifies such Open Source Code or Buyer is unable to access such Open Source Code from the url addresses provided by Seller, Seller will make such Open Source Code available to Buyer if permitted by the applicable third-party license in such Open Source Code. Except for such Open Source Code, nothing is this section permits Buyer to access or use the Source Code for the Licensed Work.

6.0 Supplier’s Responsibilities

6.1 In addition to delivering Licensed Works, Tools and other Deliverables and Services on schedule, Supplier will:

• Participate in progress reviews, as requested by Buyer, to demonstrate Supplier’s performance of its obligations;

• Maintain records to verify authorship of Licensed Works for four (4) years after the termination or expiration of this SOW. On request, Supplier will deliver or otherwise make available this information in a form specified by Buyer;

• As part of Supplier’s importation requirements, provide to Buyer on the commercial invoice:

1.	the Harmonized Tariff Code of the importing country for every Product; and
2.	an invoice description that provides enough detail to verify the categorical classification of every Product.

• For all Supplier Software, supply Buyer with a report outlining the current version numbers and anticipated cessation of support dates for that Software. This report must be provided on a biannual basis or more frequently if required by Buyer

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 2 of 33	Form Release: 8/98
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

6.2 Testing

• Supplier will perform the following tests prior to each delivery of a Licensed Work (“Pre-Delivery Testing”):

1.	component testing;
2.	functional verification testing;
3.	system testing; and
4.	compatibility testing.

• Upon Buyer’s request, the details of such testing will be mutually agreed to by the parties.

• Supplier will provide to Buyer concurrent with each delivery of a Licensed Work all test results, test scenarios, test cases, and test reports associated with the Pre-Delivery Testing.

• Prior to Buyer initiating its acceptance testing, Supplier will:

a)	provide Buyer, in conjunction with the delivery of the Deliverables, all other associated material, as described in Section 3.0 of this SOW;
b)	perform internal testing, in accordance with this Section of this SOW, prior to providing the Deliverables to Buyer;
c)	provide associated training documentation for Error Corrections; and
d)	lead and document weekly status calls with Buyer until mutually agreed upon errors are corrected.

6.3 Supplier’s Use of Subcontractors

Supplier may subcontract Services to be performed hereunder. Notwithstanding this subsection, Supplier’s use of subcontractors will not relieve Supplier of the responsibility for the subcontractor’s performance, and Supplier’s obligations and responsibilities assumed under this Agreement will be made equally applicable to subcontractors.

6.4 Asset Protection

In the event that assets are loaned to Supplier and there is no separate loan agreement in place between Buyer and Supplier for those assets, Supplier will be responsible for risk of loss and for the return of those assets to Buyer.

6.5 Third Party Code Warranty

Supplier represents and warrants on an ongoing basis that, before entering into this SOW, Supplier has disclosed to Buyer in writing the existence of any third party code, including without limitation open source code and freeware (“Third Party Code”) that is included in or is provided in connection with the Deliverables and that Supplier and the Deliverables are in compliance with all licensing agreements applicable to such Third Party Code. Supplier further represents and warrants on an ongoing basis that, 1) before including any Third Party Code in any modifications, new releases, or new versions of the Deliverables under this SOW, Supplier will disclose to Buyer in writing the existence of such Third Party Code and 2) modified Deliverables or new releases or new versions of the Deliverables including Third Party Code will be in compliance with all licensing agreements applicable to such Third Party Code. Supplier will not provide to Buyer any Deliverables or modifications to or new releases or versions of Deliverables, that include Third Party Code, unless Buyer has approved the inclusion of such Third Party Code.

6.6 Financial Reporting

Supplier will work with Buyer to provide financial information as required.

7.0 Quality Measurements

The parties agree that Attachment D entitled “Quality Requirements for Commercially Available Software” is hereby incorporated by reference into this Agreement.

Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 3 of 33	Form Release: 8/98
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

8.0	Buyer’s Responsibilities
8.1	Acceptance Testing
8.1.1	Acceptance Testing of Deliverables

Upon receipt of the Deliverables and subject to any extension of the period as described in Subsection 8.1.2, Buyer may commence acceptance testing for a period of up to thirty (30) days prior to general availability, performing such tests as Buyer deems appropriate to determine if:

a.	the Deliverables meet the specifications described in this SOW;
b.	the Deliverables execute repetitively within the system environment described in this SOW; and
c.	Buyer can successfully execute to completion all functional and system test scenarios conducted by Buyer.

Buyer’s testing does not relieve Supplier of its obligations under this Agreement.

8.1.2 Error Correction and Acceptance

In the event Buyer encounters any errors during such testing, Buyer will notify Supplier and may provide Supplier with the test results and other available documentation of the errors. Notwithstanding anything that may be construed to the contrary, Buyer is under no obligation to identify any errors or to provide Supplier with notice of any errors. Upon Buyer’s notification of such errors, Buyer and Supplier shall establish a mutually acceptable plan to address such errors. Upon Buyer’s successful completion of its acceptance testing, Buyer will provide notice to Supplier of its acceptance of the Deliverables. Acceptance of the Deliverables by Buyer does not relieve Supplier of any of its responsibilities under the Agreement, including but not limited to warranty responsibility, applicable quality requirements, infringement or product liability.

8.1.3 Waiver of Acceptance Testing

Buyer may, at its sole discretion, waive requirements for its acceptance testing of the Deliverables. Any such waiver must be in writing and signed by Buyer. Buyer’s testing does not relieve Supplier of its obligations under this Agreement. Buyer has no obligation to identify errors.

9.0 Schedule

The relevant milestones, completion dates, and terms associated with each Licensed Work are listed in Attachment F.

	MILESTONES	DATE
1.	Delivery of the Licensed Work which substantially complies with its
	Specifications	10/15/07
2.	Delivery of the other Deliverables (other than the Licensed Work, Tools, etc.)	10/10/07
3.	Successful completion of Buyer's testing of the Licensed Work	10/15/07
4.	Receipt of the completed Certificate of Originality for the Licensed Work	10/3/07
5.	Other

10.0	Forecasts/Purchase Orders/Shipments/Prices/Payments
10.1	Forecasts

Buyer will provide Supplier with a non-binding, nine (9) month rolling forecast no less often than monthly through the term of this SOW for Products. Forecasts are not Orders or a commitment to buy, and are used for planning purposes only, and Buyer has no obligation to purchase Products in accordance with its forecasts. Supplier understands and agrees that such forecasts are for Supplier’s planning purposes only and they do not create any obligation or liability on the part of Buyer, either directly or indirectly.

10.2 Media Purchases — Media Kits include the software media and IBM end user software licenses.

10.2.1.  Purchase Orders. Buyer will place a purchase order on supplier for purchase of media according to the cost in Attachment A.

10.2.2 Shipment. Supplier will ship media product to buyers’ specified location in the purchase order. Programs ordered under this SOW and risk of loss or damage will pass from Supplier to Buyer upon Supplier’s delivery of the Programs to the Buyer’s common carrier.

10.2.3.  Lead Times. From time of purchase order placement by buyer to shipment by supplier should be no longer than seven (7) days.

Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 4 of 33	Form Release: 8/98
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

10.2.4	Payment. Buyer will auto pay each media shipment. Payment terms are net [**] days from date of shipment.
10.2.5	Replenishment Orders: Follow up orders will proceed when buyers inventory levels need replenishment. Standard lead-time for media shipments is seven (7) days from the receipt of Buyer’s purchase order. Such lead-times shall be applicable when Supplier declares the Products as generally available.

10.3 Product Purchases

10.3.1 Buyer will pull Product from inventory and ship to Buyer’s customer location. On a semi-monthly basis, Buyer will send supplier an order ship report of order shipments the previous month. Payments will be in accordance with the Royalty Payments paragraph below.

10.3.2 Purchase Price/Taxes:

Buyer shall pay the price for the Products listed in Attachment A. Product prices do not include any sales tax, use tax, value-added tax, or any other taxes, fees, duties or governmental charges for the importation, movement, delivery, use or possession of the Products, including replacement Products. Buyer shall provide Supplier with a resale or other appropriate exemption certificate in conjunction with this Agreement. In the event that Buyer does not provide to Supplier a resale or other appropriate exemption certificate, any such taxes or amounts in lieu thereof that are charged to or payable by Buyer (exclusive of taxes based on Supplier’s net income) will be invoiced to and paid by Buyer.

10.3.3 Shipment and Delivery:

	All products ordered hereunder will be shipped FCA Supplier’s manufacturing site (based on Incoterms 2000) to Buyer, Buyer’s resellers and/or designated End Users as directed by Buyer on its purchase order. As used in this Agreement, shipment and delivery are synonymous. For purposes of this Agreement, shipment and delivery occur upon delivery of Products by Supplier at Supplier’s point of shipment to the common carrier specified by Buyer.
10.3.4	Royalty Payment Calculations/Payment
	Royalty payments are paid against sales recorded by Buyer in a time period of a month. Payment will be made in US dollars, [**] days following the close of the calendar month during which such shipments were made for a Product and/or Service sale, unless the last day of the month falls on a weekend or holiday, it will then be made on the next business day. In the US, a royalty payment month ends on the last day of the calendar month. Outside of the US, a royalty payment month is defined according to Buyer’s current administrative practices. Payment will be paid in accordance with the shipment report provided by Buyer. Buyer will provide a statement summarizing the payment calculations with each payment.
10.3.5	Lower Royalty Payment
	Buyer may request a lower royalty cost for the Licensed Work when a licensing transaction requires a substantial discount. If Supplier agrees, both parties will sign a letter specifying the licensing transaction and its lower royalty payment.
10.3.6	Returns
	Supplier agrees to credit Buyer for Product on the Ship Report which Buyer wishes to return to supplier for credit, within [**] days of the original ship date from Buyer to end customer for domestic shipments or within [**] days of the original ship date from Buyer to end customer for international shipments. Buyer will contact buyer’s customer of need for destruction of all media, de-install and elimination of all maintenance and support and provide such letter to Supplier prior to Buyer receiving a credit for such return. Returns are limited to the greater of [**] percent or [**] units of the total number of programs shipped by Buyer within the prior monthly payment period. Payment reconciliation will be processed through the payment calculation process in Section 10.3.3.

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 5 of 33	Form Release: 8/98
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

10.3.7	Maintenance Support Fee:
	Product Prices listed on Attachment A include [**] of prepaid software maintenance. Buyer will place purchase orders for renewals of annual maintenance and support fees due for subsequent renewal periods.
10.3.8	Royalty Records and Audit Rights
	Buyer will maintain relevant records to support payments made to Supplier. The records will be retained and made available one (1) year from the date of the related payment. If Supplier requests, Buyer will make these records available to an independent certified public accountant chosen and compensated (other than on a contingency basis) by Supplier. Supplier’s request will be in writing, will provide Buyer 60 days prior notice, and will not occur more than once each year. The audit will be conducted during normal business hours at Buyer’s office and in such a manner as not to interfere with Buyer’s normal business activities. The auditor will sign a confidentiality agreement and will only disclose to Supplier any amounts overpaid or underpaid for the period examined.

11.0 Communications

All communications between the parties will be carried out through the following designated coordinators. All notices required in writing under this Agreement will be made to the appropriate contact listed below at the following addresses and will be effective upon actual receipt. Notices may be transmitted electronically, by registered or certified mail, or courier. All notices, with the exception of legal notices, may also be provided by facsimile.

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 6 of 33	Form Release: 8/98
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

Business Coordinators
FOR SUPPLIER		FOR BUYER
Name	[**]	Name	[**]
Title	[**]	Title	[**]
Address	[**] [**]	Address	[**] [**]
Phone	[**]	Phone	[**]
E-mail	[**]	E-mail	[**]

Legal Coordinators
FOR SUPPLIER		FOR BUYER
Name	[**]	Name	[**]
Title	[**]	Title	[**]
Address	[**] [**]	Address	[**] [**]
Phone	[**]	Phone	[**]
E-mail	[**]	E-mail	[**]

Technical Coordinators - VFM
FOR SUPPLIER		FOR BUYER
Name	[**]	Name	[**]
Title	[**]	Title	[**]
Address	[**] [**]	Address	[**]
Phone	[**]	Phone	[**]
E-mail	[**]	E-mail	[**]

Technical Coordinators - DCFM
FOR SUPPLIER		FOR BUYER
Name	[**]	Name	[**]
Title	[**]	Title	[**]
Address	[**]	Address	[**]
	[**]		[**]
Phone	[**]	Phone	[**]
E-mail	[**]	E-mail	[**]

12.0 Accessibility

Supplier shall disclose to Buyer the extent to which Products, including software and documentation, provided are accessible to persons with disabilities, either directly or through assistive technology. Supplier will complete and deliver to Buyer either the applicable IBM Accessibility checklist (preferred), Web Content Accessibility Guidelines (WCAG) checklist or Information Technology Industry Council US Section 508 Voluntary Product Accessibility Template, within 10 days of the effective date of this Agreement. Supplier shall update the accessibility documentation provided to Buyer pursuant to the preceding sentence to address any new versions or releases of the Products supplied to Buyer within 10 days of shipment. Failure of the Products to work in accordance with the accessibility documentation provided by Supplier will be deemed a material breach of this Agreement.

13.0 Electronic Commerce

Unless previously submitted by Supplier, in order to initiate electronic transfer of payments associated with this SOW, Supplier will complete the Supplier form entitled “Authorization for Electronic Funds Transfer” and fax the completed form to Accounts Payable at the number included on the form.

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 7 of 33	Form Release: 8/98
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

ACCEPTED AND AGREED TO: International Business Machines		ACCEPTED AND AGREED TO: Brocade Communications Systems, Inc.
By:		By:
	Buyer Signature                      Date		Supplier Signature                      Date
Printed Name		Printed Name
Title & Organization		Title & Organization

ACCEPTED AND AGREED TO: Brocade Communications Switzerland, SarL
By:
	Supplier Signature                      Date
Printed Name
Title & Organization

Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 8 of 33	Form Release: 8/98
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

Attachment A
Pricing

Table 1 — [**] PRICING

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[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 9 of 33	Form Release: 8/98
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

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Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 10 of 33	Form Release: 8/98
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

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[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 11 of 33	Form Release: 8/98
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

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Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 12 of 33	Form Release: 8/98
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

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Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 13 of 33	Form Release: 8/98
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

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[**] 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.

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IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

Table 3 — [**] PRICING

[**]	[**]		[**]			[**]
[**]	[**]	[**]	[**]	[**]	[**]		[**]
[**]					[**]		[**]
[**]		[**]	[**]	[**]	[**]		[**]
[**]		[**]	[**]	[**]	[**]		[**]
[**]		[**]	[**]	[**]	[**]		[**]
[**]	[**]	[**]			[**]		[**]
[**]	[**]	[**]			[**]		[**]
[**]					[**]		[**]
[**]		[**]	[**]	[**]	[**]		[**]
[**]		[**]	[**]	[**]	[**]		[**]
[**]					[**]		[**]
[**]					[**]
[**]		[**]	[**]	[**]	[**]		[**]
[**]					[**]		[**]
[**]					[**]
[**]		[**]	[**]	[**]	[**]		[**]
[**]					[**]		[**]
[**]					[**]
[**]		[**]	[**]	[**]	[**]		[**]
[**]					[**]		[**]
[**]					[**]
[**]		[**]	[**]	[**]	[**]		[**]

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work (LWA_SOW)	Page 15 of 33	Form Release: 8/98
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IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

Attachment B

Vendor Certificate of Originality

Certificate of Originality provided before GA of product to Product Development Team.

This questionnaire must be completed by a vendor (“You”) furnishing copyrightable material, such as software, audio/visual works, written materials, etc. (“Material”) to IBM. The acceptance of this questionnaire by IBM is a prerequisite for the IBM final payment for the furnished Material.

Depending on Your agreement with IBM, You may have an obligation to communicate additional information to IBM that IBM may require for copyright registration and/or enforcement of legal rights relating to the furnished material.

Please leave no questions blank. Write “not applicable” or “N/A” if a question is not relevant to the furnished material.

Summary Information

Your name and address:

Name of the Material:

IBM Contract No:

IBM Contract Administrator:

A -Material Identification

1. Category of the material (Please check only one):

oa) Software (including its related documentation)

ob) Audiovisual Works

oc) Mask Works

od) Written Materials excluding related documentation of a)-c)

oe) Other (if other please identify):                                                             

If You selected either “Software” or “Audio/Visual Works”, please provide the names of any software tools (e.g. compiler, software development tool, etc.) that were used to create such Material:

2. General description of the Material (including the description of any new function that You contributed):

3. What was the date that the creation of Material was completed? (except for minor error corrections, etc.):

B — Newly Created Material

The questions in this section are targeted at any newly created portion of the Material (“Newly Created Material”). If the Material includes any pre-existing material, please provide detailed information for such pre-existing material in section C (Pre-existing Material). All developers or creators of the Newly Created Material must be specified in one of the following Categories I, II or III. Unless otherwise indicated, Your employees include temporary and supplemental employees who created or contributed to the creation of the Material under contract or other agreement with You.

I. Was any portion of the Newly Created Material created by Your employee(s) within the scope of their work assignment or job function (“Category I”) assignment? ___Yes ___No

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Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

If You checked Yes please provide a copy of any relevant employee agreement governing the creation of intellectual property for Your company by the employee and provide below the requested information for each employee. It is not necessary to provide copies of the agreements actually signed by each employee as long as you provide the terms of each agreement. For example, it would be sufficient to provide blank employee agreement forms of the type actually completed by the employee.

Name of employee:

Title:

Name of employee:

Title:

Name of employee:

Title:

(If there is insufficient space to list all contributors, please attach an additional page with the required information).

II. Was any portion of the Newly Created Material created by Your employee(s) outside the scope of their work assignment or job function (“Category II”)? ___Yes ___No

If You checked Yes please provide a copy of any relevant employee agreement governing the creation of intellectual property for Your company by the employee and provide below the requested information for each employee. It is not necessary to provide copies of the agreements actually signed by each employee as long as you provide the terms of each agreement. For example, it would be sufficient to provide blank employee agreement forms of the type actually completed by the employee.

Name of employee:

Title:

Name of employee:

Title:

Name of employee:

Title:

(If there is insufficient space to list all contributors, please attach an additional page with the required information).

III. Was any portion of the Newly Created Material created for You by anyone other than Your employees, including another vendor company, an independent contractor, a subcontractor, a consortium or university (“Category III”)? ___Yes ___No

If You checked Yes please provide a copy of any relevant agreement that you may have governing the creation and/or license of the intellectual property for this Material and the names and title of the individuals who contributed the material. If the third party was a company, please provide the name and address for the company.

Name:

Title/Address:

Name:

Title/Address:

Name:

Title/Address:

(If there is insufficient space to list all contributors, please attach an additional page with the required information).

1. Does any portion of the Newly Created Material link to any libraries or other software that is characterized as freeware, shareware or open source software (“OSS Material”). For the purposes of this Certificate of Originality, open source software is

Form Title: Licensed Works Agreement Statement of Work	Page 17 of 33	Form Release: 8/98
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Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

computer software programs whose source code is available for inspection and use by anyone and is made available under a license that permits recipients to copy, modify and distribute the program’s source code without payment of royalty. Common examples of such licenses, include, but are not limited to, the GNU GPL and LGPL licenses, the Mozilla Public License, Apache license, BSD License, MIT License, Common Public License, etc.?

___Yes ___No

If you checked No please go to section C.

If you checked Yes please, provide the following OSS Material information.

Is the linking static or dynamic? ___static ___dynamic

OSS Material Name:                                         

Source of the OSS Material (e.g. a URL, company address, etc):                                         

License Information (please attach a copy of the license):                                         

Any information that would be helpful to identify the ownership of the OSS Material (e.g. Copyright notice, author’s name, contact information, etc.):                                         

C -Pre-existing Material

The target of this section is any material that had been created by You or others, before you entered into an agreement with IBM to create the Material (“Pre-existing Material”). Pre-existing Material includes, but is not limited to, software, software libraries, textbooks, and publications that were used in the creation of the Material provided by You to IBM.

1. Was any portion of the Material composed of or derived from Pre-existing Material?
___Yes ___No

If you checked No go to section D.

2. Is any portion of the Pre-existing Material owned by You? __Yes __No

If you checked Yes please provide the name of the Pre-existing Material                                         

3. Is any portion of the Pre-existing Material owned by a third party (excluding OSS Material)?

___Yes ___No

If you checked Yes please provide the following information:

Name of Pre-existing Material:                                         

Source of the Pre-existing Material (e.g. a URL, company address, etc):                                         

License Information (please attach a copy of the license):                                         

Any information that would be helpful to identify the source and ownership of the material (e.g. Copyright notice, author’s name, contact information, etc.):                                         

Have You modified the third party Pre-existing Material? ___Yes ___No

If you checked Yes, please briefly describe the nature of the modifications                                         
                                        

4. Is any portion of the Pre-existing Material OSS Material? ___Yes ___No

If you checked Yes please provide the following information:

Name of Pre-existing Material: ___

Source of the Pre-existing Material (e.g. a URL, company address, etc): ___
___

License Information (please attach a copy of the license): ___

Any information that would be helpful to identify the source and ownership of the material (e.g.
Copyright notice, author’s name, contact information, etc.): ___

Have You modified the third party OSS Material? ___Yes ___No

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Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

If you checked Yes, please briefly describe the nature of the modifications___
___

5. Does any portion of the Pre-existing Material link to any OSS Material, including, for example, by using an OSS Material source software development kit? ___Yes ___No

If you checked Yes please, provide the following OSS Material information.

Is the linking static or dynamic? ___static ___dynamic

OSS Material Name: ___

Source of the OSS Material (e.g. a URL, company address, etc): _________
________________________

License Information (please attach a copy of the license): _________

Any information that would be helpful to identify the source and ownership of the material (e.g. Copyright notice, author’s name, contact information, etc.): ___

D -External Characteristics including Icons (“External Characteristics” include display screens, data formats, instruction or command formats, operator messages, interfaces, images video, sound recordings, icons, etc.)

Were the “External Characteristics” of the Material or any portion thereof copied or derived from
the pre-existing “external characteristics” of other software or copyrightable material

(“Pre-existing Externals”)? ___Yes ___No

If You checked No go to section E.

If You checked Yes please provide the following information:

a) Type of External Characteristic:

b) Name of the External Characteristic:

c) Source of the External Characteristic:

d) Author (if known):

e) Owner:

f) License information (if applicable): ___

g) Please identify or describe any pre-existing External Characteristics are known to you that are similar in appearance to the External Characteristic(s) that you are providing in the Material.
______________________________
______________________________

E -Miscellaneous

1. Does the Material conform to any particular technology standards? ___Yes ___No
If You checked yes please identify the name of such standard and standard body.
Name of Standard:
Standards body:

2. Identify below, or in an attachment, any other circumstance which might affect IBM’s ability to reproduce and market this material, including:

a) Confidentiality or trade secrecy of Pre-existing Materials included in the Material: ___

b) Known or possible royalty obligations to others arising out of the Material: ___

c) Other circumstances: ____________________ ____________________

Form Title: Licensed Works Agreement Statement of Work	Page 19 of 33	Form Release: 8/98
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IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

Certification

By submitting this form, You acknowledge that you have responsibility for and direct knowledge of, development or creation of this Material and hereby certify that:

a) All statements made in this form are true;

b) This Material does not contain any materials copied or derived from other code, designs, document or other materials, except as listed herein; and

c) All newly written parts of this material are original work of Your employees and/or third party under contract as specified herein.

Yes, I certify to the above statements

Signature
Name:
	Title:
	Date:

Form Title: Licensed Works Agreement Statement of Work	Page 20 of 33	Form Release: 8/98
(LWA_SOW)
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

Attachment C

Testing, Maintenance and Support

1.0 Definitions

1.1 APAR means the completed form entitled “Authorized Program Analysis Report” that is used to report suspected Code or documentation errors, and to request their correction.

1.2 APAR Closing Codes means the established set of codes used to denote the final resolution of an APAR. Buyer will identify APAR Closing Codes prior to the start of the maintenance obligations.

1.3 APAR Correction Times means the objectives that Supplier targets to achieve resolution of errors and distribution of the correction to Buyer.

SEVERITY LEVELS AND THE SUPPLIER SUPPORT RESPONSE AND RESOLUTIONS TIMES

	Target
Case	Response
Severity	Time*	Target Escalation to Development*	Target Resolution**
Severity 1 Critical	[**] hour	[**] business hours	Provide action plan within [**] hours from problem identification
Severity 2 High	[**] business hours	[**] business days	Solution or workaround within [**] business days from problem identification
Severity 3 Medium	[**] business hours	[**] business days	Workaround within [**] business days from problem identification
Severity 4 Low	[**] business hours	After a technical support engineer validates or reproduces the problem	Brocade will decide within [**] days if the RFE will be incorporated into a future product release

** The times listed in this chart are targets only and are not a guarantee that Brocade will respond or resolve an issue within the target time.

The business days begin when Supplier receives the APAR and supporting documentation and end when the Error Correction or other resolution is shipped to Buyer. Buyer will consider exceptions from these objectives when warranted by technical or business considerations.

1.4 APAR Severity Levels means designations assigned by Buyer to errors to indicate the seriousness of the error based on the impact that the error has on the customer’s operation:

a.	Severity 1 is a critical problem. The customer cannot use the Product or there is a critical impact on the customer’s operations which requires an immediate solution;
b.	Severity 2 is a major problem. The customer can use the Product, but an important function is not available or the customer’s operations are severely impacted;
c.	Severity 3 is a minor problem. The customer can use the Product with some functional restrictions, but it does not have a severe or critical impact on the customer’s operations;
	And
d.	Severity 4 is a minor problem that is not significant to the customer’s operations. The customer may be able to circumvent the problem.

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work	Page 21 of 33	Form Release: 8/98
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Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

1.5 Developer Test Systems means an appropriate configuration of installed hardware and software that Supplier maintains which is representative of typical customer installations for the Product. These Developer Test Systems will contain, at a minimum, the following:

a.	the current and current minus [**] levels of the Product:
b.	the current and current minus [**] levels of prerequisite/co-requisite hardware and software that Buyer specifies to Supplier; and
c.	specific fix-packs as required.

The Developer Test Systems will consist of the appropriate configured workstations only unless Buyer specifies and provides Supplier other equipment at no charge.

1.6 Buyer Test Systems means an appropriate configuration of installed hardware and software that Buyer maintains which is representative of typical Buyer customer installations using the Product. These test systems will contain, at a minimum, a level of prerequisite/co-requisite hardware and software that is correspondent with that of the Developer Test Systems.

1.7 Maintenance Level Service means the service provided when a customer identifies an error.

a.	Level 1 is the service provided in response to the customer’s initial phone call identifying and error.
b.	Level 2 is the service provided to reproduce and attempt to correct the error or to find that the service provider cannot reproduce the error.
c.	Level 3 is the service provided to isolate the error at the component level of the Code. The service provider distributes the Error Correction or circumvention or gives notice if no Error Correction or circumvention is found.

1.8 Problem Determination means the process of determining whether a problem is being caused by hardware, software or documentation.

1.9 Problem Management Record (“PMR”) means a record created when a customer makes the initial support request. This record becomes a part of the Problem Management System database and records the essential information about the customer question or problem.

1.10 Problem Management System (PMS”) means an internal Buyer developed software system used to record customer demographic information and encode data about the reported question or problem. The PMS will handle the dispatching of the call record. The PMS will provide management reports of the call activity, and the recording and tracking of all questions and problems to final resolution. The PMS will verify that each customer is “entitled” to program support.

1.11 Problem Source Identification means the process of determining which software or documentation component is failing or attributing the failure to some external cause such as a customer error or no trouble found.

2.0 Maintenance and Support Responsibilities

2.1 The parties will agree to the specific details of the process flow each will follow to resolve customer calls for requests for support thirty (30) days prior to the general availability of the product.

2.1.1. Entitlement Process: Supplier will provide software support for all calls from Buyer and Buyer customers. Buyer will prepay supplier for first year maintenance and support in the price of the product. The parties agree that they will work together to establish procedures whereby Buyer will develop an automated Ship Report which includes a mutually agreed-to unique identifier for each OEM Software order for Supplier’. Supplier will use such unique identifier for determining end-user maintenance and support entitlement. Buyer agrees to provide such Ship Report on a semi-monthly basis or on such other time period as may be agreed to between the parties.

2.1.2 Maintenance Services: All version-to-version upgrades will be free to buyer and buyer’s customer on an “if and when” available basis. When supplier builds new functionality into a new release or version for additional charges, that new functionality must be represented in a separate feature code or codes which could be chargeable, or in a new, separately-priceable version with new features. If the new functionality is not a separately priced feature, it is part of the base code or originally purchased feature structure. Any customer under current maintenance and support (IBM Software Maintenance) will be entitled to the new code release or version for use at that same use authorization level.

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work	Page 22 of 33	Form Release: 8/98
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Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

2.1.3 Software End of Service:

Supplier will support a release as follows:

1.	Provide customer support for a particular release for at least [**] years from General Availability.
2.	Customers must be supported for a particular release for at least [**] year from the purchase date so support must continue for [**] year past the last sale of a release.

If the product enters end of life ; i.e., is no longer available in the marketplace, Supplier will provide IBM at least [**] months notice, prior to ending support, to enable IBM to notify its customers at least [**] months in advance of the fact. Supplier will provide Level 3 support to IBM and its customers as long as maintenance and support fees are up to date. If a customer is on a down-level version or release of software, Brocade will take the support call. If a problem is identified that requires a bug fix or patch, Supplier’s customer will be instructed to move to the current version/release of the software for support of such problem. Supplier will not make code changes or fixes to down-level software, except as agreed to on a case by case basis.

2.2 Supplier will provide Buyer electronic (soft copy) information on any known problems in the Licensed Work and the work arounds and solutions, if available, within thirty (30) days of the Effective Date of this SOW.

2.3 Product customers will initiate requests for support by contacting Buyer. Buyer will perform the following maintenance Level 1 support responsibilities, as described below. Buyer will:

a.	create the PMR;
b.	obtain from the customer a description of the problem, and verify its severity;
c.	search the Buyer data base for known problems;
d.	provide the available resolution if the problem is known;
e.	recommend local Buyer assistance as required;
f.	Determine if the error is due to improper installation of the Product by the customer;
g.	if no resolution, pass the PMR to Level 2; and
h.	update the PMR documenting Level 1 actions.

Buyer will be the primary customer contact point for questions, problems and assistance concerning the Product. Buyer may use a third party to perform its obligations.

2.4 Thirty (30) days prior to general availability of the Product, Supplier will establish a process to check incoming electronic requests for Level 3 support at least twice daily.

2.5 Buyer will perform the following Level 2 support responsibilities.

a. Level 2. Buyer will:

(1)	Receive the PMR/APAR from Level 1;
(2)	Analyze problem symptoms and gather additional data from the customer as required;
(3)	Ask the customer if they can reproduce the problem on their system;
(4)	determine if the suspected error is due to prerequisite or operationally related equipment or software at the customer location;
(5)	Attempt a bypass or circumvention for high impact problems, i.e., Severity 1 and 2:
(6)	if no resolution and the problem appears to be a newly discovered Code or documentation error, create an APAR record.
(7)	if Supplier requests, Buyer will assist Supplier in obtaining additional information or materials from the customer to support Level 3 Problem Determination, Problem Source Identification and problem resolution; and
(8)	update the PMR, documenting Level 2 actions.
(9)	Provide Customer Reference # that corresponds to the original ship report

[**] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Form Title: Licensed Works Agreement Statement of Work	Page 23 of 33	Form Release: 8/98
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Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

b. Level 3. Supplier will perform the following Level 3 support responsibilities

(1)	Receive the APAR/PMR and supporting documentation and materials;
(2)	Analyze the problem symptoms and diagnose the suspected error;
(3)	notify Level 2 if additional information, materials or documentation are required;
(4)	Attempt to recreate the problem on the Developer Test System, if required:
(5)	assist Level 2 in attempting to develop a bypass or circumvention for high impact problems, i.e., Severity 1 and 2;
(6)	determine if Error Corrections are required to the Licensed Work;
(7)	if Error Corrections are required to the Licensed Work, provide Error Corrections to Buyer in the format specified by Buyer;
(8)	return all APARs to Buyer with one of the defined APAR Closing Codes assigned, including text describing the resolution of the error. In the event a Code error was found, provide the rationale for the closing of the APAR;
(9)	provide resolution to APARs according to the assigned APAR Severity Level and within the defined APAR Correction Time. The APAR Correction Times include building, testing, certifying successful tests of Error Corrections, and packaging for shipment to Buyer any applicable Error Corrections in the format specified by Buyer;
(10)	Receive technical questions, and supporting documentation and materials
(11)	Analyze the technical questions and provide answers to Buyer;
(12)	provide technical backup support to Buyer on the Product as provided above. In addition, Supplier will provide assistance in answering questions that may arise concerning the operation and use of the Licensed Work that cannot be resolved by Buyer; and
(13)	close out the problem record with Buyer.

2.6 As corrected versions become available, Supplier will provide a corrected version of the Licensed Work that includes all Error Corrections to the Licensed Work. Additional corrected versions of the Licensed Work will be provided as determined and mutually agreed to by Buyer and Supplier in the event they become necessary due to the frequency or severity of newly discovered defects In order to provide Error Corrections, Supplier will maintain a current copy of the Product.

2.7 Supplier will maintain procedures to ensure that new Error Corrections are compatible with previous Error Corrections.

2.8 Packaging of Error Corrections and migration Code will be done as mutually agreed to by Buyer and Supplier.

3.0 APAR Origination and Correction

3.1 Generally APARs will originate from Buyer and customers reporting problems. Supplier will also report to Buyer as APARs all valid errors discovered by Supplier or Supplier’s customers. After receiving an APAR, Buyer will assign an APAR number and Severity Level, and forward the APAR to Supplier for actions.

3.2 For verified APARs for the Licensed Work, Supplier will provide Error Corrections as set out below within the applicable APAR Correction Times:

a.	the fix to the Object Code in machine-readable form including a hard copy description of the Error Corrections (which may include a paper submission of the Error Corrections);
b.	the Error Corrections to the source Code in machine-readable form that corresponds to the Object Code Error Corrections; and
c.	for a procedural work-around, the corrected procedure in machine-readable form.

3.3 Reader Comment Forms received by Buyer that do not form the basis of an APAR will be forwarded to Supplier for proper and prompt handling as appropriate.

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Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

4.0 Training

Supplier will provide training on the Licensed Work, and at the scope and level of effort described below. This training will be provided on either Supplier’s or Buyer’s premises and will include:

• In-depth Training for each software package product launch

• One free of charge on-site training class or mutually agreed to delivery method at both IBM Mainz facility and at Buyer or Suppliers RTP facility, or other locations as mutually agreed to in the training schedule.

• Field sales and technical sales training for product launch

• Supplier to provide support in preparing materials and presenting to the sales and technical sales audiences using the typical typical methods will be used (ex: IBM and/or Brocade road shows in the geos, virtual classroom training, etc).

• On-going and future training opportunities for each of the software packages covered in this SOW.

• For each Brocade fiscal quarter, Free of Charge seats for forty (40) IBM and IBM Business Partner attendees for Web Based Training

• For each Brocade fiscal quarter, two free-of-charge instructor lead 3-day training classes held at a Brocade training facility. IBM must pay for travel and board of student. This requirement can be met by providing tuition waivers for IBM and IBM Business Partner attendees in appropriate Supplier offered courses.

• For each of the software packages covered in this SOW, Supplier will continue to provide materials preparation and presenters for the typical training methods of road shows, conferences and conference calls as described in the product launch section above.

• Any major change of the product (determined by Brocade and IBM) could require another on-site training event at IBM facilities as described in the product launch section above.

5.0 General

5.1 Supplier will provide to Buyer the name and phone numbers of Supplier’s personnel to contact when high priority problems are encountered outside of normal working hours that require immediate assistance. Supplier’s normal working hours are defined as 8:00 AM to 5:00 PM, Monday through Friday, Pacific Standard Time.

5.2 Supplier will provide to Buyer, on request, information regarding the status of reported APARs related to the Licensed Work.

5.3 It is desirable that Buyer report APARs and status requests to Supplier via an electronic interface and that Supplier send APAR Error Corrections status updates and requests for additional documentation to Buyer via the same interface. Buyer and Supplier will jointly plan the electronic system. Each party is responsible for funding the costs of this interface at its location.

5.4 Critical situations may require the parties to use the telephone for immediate communications. The parties will follow such communications via the electronic interface for tracking and recording purposes. Each party is responsible for funding the costs of this communication at its location.

5.5 In circumstances where materials have to be exchanged using facsimile or courier services, each party is responsible for funding the costs of these exchanges via facsimile or courier services at it location.

5.6 Supplier will participate in monthly telephone conference calls with Buyer to review the status and performance of the parties’ obligations. These calls may be scheduled more or less frequently as agreed to by the Technical Coordinators. Each party is responsible for funding the costs of these conference calls at its location.

Form Title: Licensed Works Agreement Statement of Work	Page 25 of 33	Form Release: 8/98
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Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

Attachment D

Quality Requirements for Commercially Available Software

Supplier will verify, at the times and in such manner as mutually agreed to by the parties, the performance of the following Licensed Work support and change management process work in order to ensure Supplier’s ability to support fielded Product and respond to Buyer requirements.

1.0	SUPPLIER’S PROJECT CHANGE MANAGEMENT TRACKING
	Supplier will initially document and provide to Buyer a test report following the format and content provided in the Brocade Tapestry StorageX 6.0 QA report.pdf The Supplier will periodically measure tracking activities and review with Buyer (Buyer and Supplier will determine a mutually agreeable frequency of project management reviews).
2.0	CHANGE MANAGEMENT PROCESS ASSESSMENT
2.1	Assessment Elements
	Supplier will determine the status of Licensed Work support activities by making appropriate periodic measurements and reviewing with Buyer as provided in this Section. An initial assessment of Licensed Work support and change management processes may be made by Buyer, with presentation by Supplier. Ongoing assessments, as appropriate, will be made at twelve (12) month intervals, or otherwise as mutually agreed to by Buyer and Supplier. Assessment Elements will consist of the following metrics, as a minimum.
a)	Change request summary and status b) Trouble report summary and status c) Review of project schedules, issues, concerns
b)	Trouble report summary and status
c)	Review of project schedules, issues, concerns
3.0	REVIEWS
	On a periodic basis, if mutually agreed by the Buyer and Supplier due to high defect rates in the Licensed Work, the Buyer or Buyer’s quality representative may conduct reviews at the Supplier’s and Supplier’s sub-tier supplier’s location. The Supplier shall, at Buyer’s request, which request will be in writing and provide not less than thirty (30) Days advance notice, permit inspection of interim and final change management Licensed Work deliverables for Buyer. All such information shall be deemed the confidential information of Supplier and shall be held in confidence by Buyer, and Buyer and Buyer’s quality representative will sign a confidentiality agreement. The Supplier shall ensure access for Buyer’s reviewers to all the Supplier sites where work is being performed or materials being delivered to Supplier in performance of Supplier’s change management work for the Buyer.
4.0	DOCUMENT CONTROL
	The Supplier shall ensure that material documents pertinent to the Licensed Work, such as software change management specifications and designs, contracts, policies, procedures, software development process flow chart, and work instructions (including test procedures) are under Supplier’s configuration control system as provided in this Section and are available to all necessary personnel in the development environment in accordance with that system. Supplier shall have a document configuration control system for the effective updating/removal of any obsolete material documentation from Licensed Work development areas.
5.0	QUALITY RECORDS
	The Supplier shall establish and maintain procedures for identification, collection, indexing, filing, storage, maintenance, and disposition of material quality records for the Licensed Work.
6.0	QUALITY PROBLEM NOTIFICATION TO BUYER
	The Supplier must notify the Buyer of any significant, reproducible defects in the Licensed Work that may affect the Licensed Work, that have been identified by the Supplier’s internal testing (i.e., process control data, internal test data, quality data, etc.), by third parties which produce products on behalf of the Buyer, or by another customer. Supplier may fulfill its notification requirement under this Section by providing Buyer with direct access to Supplier’s “Problem Reporting and Resolution Database” for the Licensed Work that Supplier in its discretion makes available for the purposes of problem reporting and ticketing (for clarity, this clause will not require Supplier to provide Buyer with Supplier’s internal, technical database of defects and corrections for the Licensed Work).
7.0	QUALITY OBJECTIVE
	Supplier will cooperate with Buyer to establish a mutually acceptable product quality plan (“Quality Plan”) on a mutually acceptable timeline, with the objective of ensuring product defect density rates customary in the industry for like software. The supplier will work towards meeting this target using the specifications and the test environment available to them. Supplier will perform testing and provide Buyer with summary test reports as described in Section 6.1 of the SOW. The Supplier and Buyer will work towards meeting quality goals and objects specified in the Quality Plan. As part of the Quality Plan, Supplier agrees to track a mutually agreeable set of pre-GA quality metrics during project planning and execution.

*	Authorized Program Analysis Report (“APAR”) means the completed form entitled “Authorized Program Analysis Report” that is used to report suspected Code or documentation errors, and to request their correction.
	Problem Management Record (“PMR”) means a record created when a customer makes the initial support request. This record becomes a part of the Problem Management System database and records the essential information about the customer question or problem.

Form Title: Licensed Works Agreement Statement of Work	Page 27 of 33	Form Release: 8/98
(LWA_SOW)
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

Attachment E
Brocade StorageX End User License Agreement

PLEASE READ THIS LICENSE AGREEMENT (“AGREEMENT”) CAREFULLY BEFORE DOWNLOADING, INSTALLING, OR USING THIS SOFTWARE AND ACCOMPANYING DOCUMENTATION. BY DOWNLOADING, INSTALLING, OR USING THE SOFTWARE, YOU ARE AGREEING TO BE BOUND BY THIS AGREEMENT. IF YOU DO NOT AGREE TO ALL OF THE TERMS OF THIS AGREEMENT, PROMPTLY RETURN AND DO NOT USE THE SOFTWARE. NO AUTHORIZATION TO USE THIS SOFTWARE IS PROVIDED TO YOU UNLESS YOU FULLY AGREE AND COMPLY WITH THE FOLLOWING TERMS AND CONDITIONS.

1. LICENSE

Brocade Communications Systems, Inc. (“Brocade”) grants to you (“Customer”) a non-exclusive, non-sublicenseable, non-transferable, worldwide license to use the accompanying software as specified herein (“Software”) in object code form only and solely for Customer’s internal business use, together with the accompanying documentation, and solely in the data amounts or on the number of nodes for which Customer is licensed. Customer shall only use the Software in the quantity set forth on the attached Software Order Schedule. In addition, Customer may make one (1) archival copy of the Software. Customer must acquire one copy of the Software for each computer on which the Software will be installed. This license is personal to Customer and Customer shall not assign, transfer or sublicense this license without Brocade’s prior written approval; any attempt to do so shall be void. This license is further restricted to the particular protocols and accompanying documentation purchased hereunder.

2. RESTRICTIONS

The Software constitutes trade secrets and proprietary data of Brocade and Customer agrees to hold in confidence and not disclose the Software to any third party. Customer may not alter, merge, modify or adapt the Software in any way including reverse engineering, translation, disassembling or decompiling. Customer may not sell, distribute, loan, rent, lease, license or otherwise transfer the Software or any copy.

3. UPGRADES AND ADDITIONAL COPIES

For purposes of this Agreement, “Software” shall also include any upgrades, updates, bug fixes or modified versions (“Upgrades”) provided to Customer by Brocade or an authorized distributor, along with any backup copies of the Software, and for which Customer has paid the applicable license and support and maintenance fees. Notwithstanding the foregoing, Customer acknowledges and agrees that Brocade and its resellers and distributors shall have no obligation to provide any Upgrades. If Upgrades or additional copies of the Software are provided, Customer acknowledges and agrees that it has no license or right to use such additional copies or Upgrades unless Customer, at the time of acquiring such copy or Upgrade, already holds a valid license and the corresponding software keys to the original Software for the applicable number of copies, and is subject to and in compliance with (including the payment of all fees) a then-current Software support and maintenance program with Brocade or its authorized distributor.

4. COPYRIGHT

As between Brocade and Customer, Brocade owns all intellectual property rights in the Software and user documentation. The intellectual property rights are protected by the United States copyright laws, other applicable copyright laws, and international treaty provisions. Brocade reserves to itself all rights not expressly granted.

5. LIMITED WARRANTY

For ninety (90) days from your date of purchase, Brocade warrants that (i) the Software will substantially conform to the applicable user documentation and (ii) that the media on which the Software is distributed is free from defects in materials and workmanship. Brocade will repair or replace at no charge any defective Software or Software that does not substantially conform to the applicable user documentation, provided that the defective or non-conforming Software is returned to Brocade within ninety (90) days from the date of purchase. Any Software Brocade replaces becomes the property of Brocade, and the replacement Software becomes the property of Customer. The replacement Software assumes the Service status of the replaced Software, if the replaced Software is subject to a Software support and maintenance program with Brocade or its authorized distributor. Before Brocade exchanges any Software, Customer agrees to remove all Software to be exchanged that is installed on its computers. Customer also agrees to ensure that the Software is free of any legal obligations or restrictions that could prevent its exchange. Any misuse or unauthorized modification of the Software will void the limited warranty.

Form Title: Licensed Works Agreement Statement of Work	Page 28 of 33	Form Release: 8/98
(LWA_SOW)
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

EXCEPT AS OTHERWISE PROVIDED HEREIN, THE SOFTWARE AND THE ACCOMPANYING DOCUMENTATION ARE PROVIDED “AS IS” WITHOUT ANY WARRANTY OF ANY KIND AND BROCADE DISCLAIMS EACH AND EVERY OTHER WARRANTY, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT.

6. LIMITATION OF LIABILITY

IN NO EVENT WILL BROCADE BE LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OF OR INABILITY TO USE BROCADE PRODUCTS OR SERVICES, INCLUDING, WITHOUT LIMITATION, DAMAGES OR COSTS RELATING TO LOSS OF PROFITS, BUSINESS, GOODWILL, DATA OR COMPUTER PROGRAMS, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL BROCADE’S ENTIRE LIABILITY FOR ANY DIRECT DAMAGES EXCEED THE AMOUNT PAID BY YOU FOR THE SOFTWARE OUT OF WHICH SUCH CLAIM AROSE.

7. U.S. GOVERNMENT RESTRICTED RIGHTS

Any Brocade software and documentation provided to the U.S. Government is with Restricted Rights as follows. Use, duplication, or disclosure by the Government is subject to restrictions set forth in subparagraphs (a) through (d) of the Commercial Computer Restricted Rights clause at FAR 52.227-19 when applicable, or in subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer Software clause at DFARS 252.227-7013, and in similar clauses in the NASA FAR Supplement. The Contractor/Manufacturer is Brocade Communications Systems, Inc., 738 Highway 6 South, Suite 850, Houston, TX 77079.

8. GENERAL

No Brocade dealer, distributor or agent is authorized to make any modification or addition to this Agreement.

The export of this Software is governed by the U.S. Department of Commerce under the export administration regulations and Canadian export regulations and is governed by the U.S. Department of State under the International Traffic in Arms regulations. It is your responsibility to comply with all such regulations.

THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AS IF PERFORMED WHOLLY WITHIN THE STATE AND WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAW.

In the event any provision of this Agreement is determined to be void or not enforceable, the remaining provisions of this Agreement shall continue in full force and effect; provided, however, that if any limitation on the grant to you of any right herein is held invalid or unenforceable, such right shall immediately terminate.

Should you have any questions concerning this Agreement or Brocade’s software use policies, write to Brocade Communications Systems, Inc., 738 Highway 6 South, Suite 850, Houston, TX 77079, or call 1-888-NUVIEW-0.

Form Title: Licensed Works Agreement Statement of Work	Page 29 of 33	Form Release: 8/98
(LWA_SOW)
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

Attachment F-1

Branding, Description of Licensed Work, and Milestone Schedules
For Virtual File Manager (VFM)

1.0 BUYER BRANDED VERSION OF SUPPLIER’s OEM SOFTWARE PRODUCT

The Licensed Work will be comprised of a Buyer-branded version of Supplier’s software product. The Buyer branded version will be called “IBM System Storage VFM”. The Licensed Work will be provided by Supplier to Buyer in Object Code format.

2.0 Description of Licensed Work

Code Name	Version		Description	Documentation	Format	Delivery Requirements
Virtual File Manager (VFM)		6.1	Comprehensive enterprise file data management solution;	Online	Object Code	CD, License key documentation

     1. Product/Operating Systems Supported:

Licensed Work	Operating System(s) Support
StorageX Server or Monitoring Agent	•   Microsoft Windows 2000 SP4
	•   Windows 2003 Enterprise Server 2003, SP1, R2
StorageX Client Only	•   Microsoft Windows®2000 SP4 or Windows XP Professional, SP1, SP2 to manage roots on Windows 2000 servers
	•   Microsoft Windows XP Professional, SP1, SP2 or Windows Server™SP1, R2, to manage multiple roots on a single Windows Server 2003
StorageX Replication Agent	•   Microsoft Windows 2000 SP4
	•   Windows 2003 Enterprise Server 2003, SP1, R2
	•   Redhat enterprise Linux 4.0
	•   Solaris 10 SPARC

     b) National Language Support Version: English only

2. Documentation : Supplier will provide Buyer with IBM branded customer documentation.

a)	Internal (standard Supplier documentation)
b)	External (on-line documentation)
c)	No other related written materials

3. Other Materials:

a)	Quality Plan: Supplier will provide Buyer with quality plan upon Buyer’s request
b)	Test Results: Supplier will provide Buyer with available test results upon Buyer’s request
c)	Test Cases: Supplier will provide Buyer with available test cases upon Buyer’s request.
d)	Maintenance and Support Reports (including information required and format)
e)	Promotional Materials: Buyer and Supplier will mutually determine what promotional materials are needed for the Licensed Works.
f)	Education/Training material: Buyer and Supplier will mutually determine what Education and Training materials are needed for the Licensed Works.

4. Code deposited on CD media and shipped to Buyer as directed on Buyer’s purchase order.

Form Title: Licensed Works Agreement Statement of Work	Page 30 of 33	Form Release: 8/98
(LWA_SOW)
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

3. Identification of Tools

No tools are provided for the Licensed Works.

4. Schedule

The relevant milestones, completion dates, and terms associated with VFM StorageX software.

	MILESTONES	DATE
1.	Delivery of the Licensed Work which substantially complies with its Specifications	10/15/07
2.	Delivery of the other Deliverables (other than the Licensed Work, Tools, etc.)	10/10/07
3.	Successful completion of Buyer’s testing of the Licensed Work	10/15/07
4.	Receipt of the completed Certificate of Originality for the Licensed Work	10/3/07
5.	Other

Form Title: Licensed Works Agreement Statement of Work	Page 31 of 33	Form Release: 8/98
(LWA_SOW)
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

Attachment F-2

Branding, Description of Licensed Work, and Milestone Schedules
For DCFM

1.0 BUYER BRANDED VERSION OF SUPPLIER’s OEM SOFTWARE PRODUCT

The Licensed Work will be comprised of a Buyer-branded version of Supplier’s DCFM software product. The Buyer branded version will be called “IBM System Storage Data Center Fabric Manager.” Supplier consents to the use by Buyer the name “IBM System Storage Data Center Fabric Manager”, “Data Center Fabric Manager”, “IBM DCFM”, and “DCFM”. The Licensed Work will be provided by Supplier to Buyer in Object Code format.

2.0 Description of Licensed Work

Code Name	Version		Description	Documentation	Format	Delivery Requirements
DCFM		10.0.2	IBM System Storage Data Center Fabric Manager	Online	Object Code	CD, License key documentation

     1. Product/Operating Systems Supported:

		1 to 2000 Ports	2001 to 5000 Ports	5001 to 9000 Ports
Operating System	Installation Type	(1 to 20 domains)	(21 to 60 domains)	(61 to 120 domains)
Windows, Linux	Server/Client	2 GHz CPU	Dual Processor	Dual Processor
& SUSE Linux		2 GB RAM	3 GHz CPU	Dual Core
			2GB RAM	2.4 GHz CPU
				2GB RAM
Solaris	Server	Fire V240 Server 1	Fire V240 Server 2	Fire V240/V440 Server 2
		1.34 GHz CPU	1.34 GHz CPU
		1GB RAM	2GB RAM	1.5 GHz CPU
				2GB RAM
	Client	Ultra 25 Workstation 1	Ultra 45 Workstation 1	Ultra 45 Workstation 1
		1.34 GHz CPU	1.34 GHz CPU	1.5 GHz
		1GB RAM	1GM RAM	2 GB RAM
VMware*	Server/Client	Requirements same as	Requirements same as	Requirements same as
		Guest OS above	Guest OS above	Guest OS above

* Modem needs to be provisioned on target physical hardware to utilize modem-based call home.

SYSTEMS REQUIREMENTS

a)	Supported Client/Server Operating Systems
•	Microsoft Windows 2003 Server, XP, Vista and 2008 Server
•	Red Hat Linux AS 4.0, Red Hat Enterprise Linux 5 Advanced, and SuSE Linux Enterprise Server 10 SP1
•	Sun Solaris 10
•	VMware ESX Server 3.5

     Guest OS supported: Windows 2003 Server, Linux Red Hat AS5 and SuSE Linux ES10

     b) National Language Support Version: English only

2. Documentation : Supplier will provide Buyer with IBM branded customer documentation.

a)	Internal (standard Supplier documentation)
b)	External (on-line documentation)
c)	No other related written materials

Form Title: Licensed Works Agreement Statement of Work	Page 32 of 33	Form Release: 8/98
(LWA_SOW)
Form Owner: Global Procurement		Revision: 7/06

IBM and Brocade
Statement of Work

Base Agreement #ROC-P-68
SOW# 7 (Contract Number 4907015087.0)

3. Other Materials:

a)	Quality Plan: Supplier will provide Buyer with quality plan upon Buyer’s request
b)	Test Results: Supplier will provide Buyer with available test results upon Buyer’s request
c)	Test Cases: Supplier will provide Buyer with available test cases upon Buyer’s request.
d)	Maintenance and Support Reports (including information required and format)
e)	Promotional Materials: Buyer and Supplier will mutually determine what promotional materials are needed for the Licensed Works.
f)	Education/Training material: Buyer and Supplier will mutually determine what Education and Training materials are needed for the Licensed Works.

4. Code deposited on CD media and shipped to Buyer as directed on Buyer’s purchase order.

3. Identification of Tools

No tools are provided for the Licensed Works.

4. Schedule

The relevant milestones, completion dates, and terms associated with DCFM software.

	MILESTONES	DATE
	Delivery of the Licensed Work which substantially complies with its Specifications	10/03/08
	Delivery of the other Deliverables (other than the Licensed Work, Tools, etc.)	10/03/08
	Successful completion of Buyer’s testing of the Licensed Work	09/21/08
	Receipt of the completed Certificate of Originality for the Licensed Work	04/30/08
5.	Other

Form Title: Licensed Works Agreement Statement of Work	Page 33 of 33	Form Release: 8/98
(LWA_SOW)
Form Owner: Global Procurement		Revision: 7/06

EX-10.5

Exhibit 10.5

December 9, 2008

Brocade Communications Systems, Inc.
1745 Technology Drive
San Jose, CA 95119

Subject: Amendment #13 to Statement of Work #4903RL1112 (“SOW”) dated December 15, 2003

This Amendment #13 “(Amendment”) to Statement of Work # 4903RL1112 (“SOW”) adopts and incorporates by reference the terms and conditions of Goods Agreement # 4999RO0015 (“Agreement”) by and between Brocade Communications Systems, Inc. (“Brocade”) and International Business Machines Corporation (“IBM”). The parties agree to amend the SOW as follows. All other terms and conditions in the Base Agreement and SOW shall remain in full force and effect.

This amendment will be effective when signed by both parties.

Replace Section 4 of PUA “Product Price List and Description” in its entirety with the following:

Section 4.0: PART NUMBER UNIQUE TERMS

Section 4.1 PRODUCT PRICE LIST AND DESCRIPTION

Buyer

Fulfillment

Ship

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locations

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group

DDU for hub locs

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adder

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Base Agreement #4999RO0015
Statement of Work #4903RL1112
Amendment 13 Page 1 of 8

Intel

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locations (if

Product

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Base Agreement #4999RO0015
Statement of Work #4903RL1112
Amendment 13 Page 2 of 8

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Ship

Freight -

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locations

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group

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Number

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Maintenance

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[**] 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.

Base Agreement #4999RO0015
Statement of Work #4903RL1112
Amendment 13 Page 3 of 8

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Base Agreement #4999RO0015
Statement of Work #4903RL1112
Amendment 13 Page 4 of 8

Fulfillment hub

Freight -

Supplier Part

locations

DDU for hub locs

**Software

Buyer Part Number

Number *

(if required) *

Product Description

Unit Price of Product

Ship group adder

FCA for non-hub loc

Maintenance

Total Price

4GBit/sec Products

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Section 4.2: PRODUCT UNIT TERMS & REPAIR PRICING

Buyer P/N

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Fulfillment locations

Description

Warranty Period

TAT

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[**] 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.

Base Agreement #4999RO0015
Statement of Work #4903RL1112
Amendment 13 Page 5 of 8

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Base Agreement #4999RO0015
Statement of Work #4903RL1112
Amendment 13 Page 6 of 8

Buyer P/N	Supplier P/N	Fulfillment locations	Description	Warranty Period	TAT	Repair Price(USD)*
	4GBit/sec Products
[**]	[**]	[**]	[**]	[**]	[**]	[**]
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*	Repair Price applies only to Products sent to Supplier for Repair, which are not covered by the warranties in the Agreement.
[**]	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.

Base Agreement #4999RO0015
Statement of Work #4903RL1112
Amendment 13 Page 7 of 8

The parties acknowledge that they have read this Amendment, understand it, and agree to be bound by its terms and conditions. Further, they agree that this Amendment and the subject Agreement are the complete and exclusive statement of the agreement between the parties, superseding all proposals or other prior agreements, oral or written, and all other communications between the parties relating to this subject.

Except as specifically provided for in the foregoing provisions of this Amendment, the SOW shall continue in full force and effect. All capitalized terms defined in the Agreement which are used in this Amendment without further definition shall have the meanings ascribed to them in the Agreement.

Please have your authorized representative indicate acceptance thereof by signing both copies of the Amendment and returning one copy to the attention of Bryn Smith.

ACCEPTED AND AGREED TO:				ACCEPTED AND AGREED TO:
International Business Machines Corporation				Brocade Communications
By:		By:
	IBM Signature           Date Printed Name GCM Title & Organization			Brocade Communications           Date Printed Name Title & Organization
Address:			Address
3039 Cornwallis Rd RTP, NC 27709 USA				1745 Technology Drive San Jose, CA 95110

ACCEPTED AND AGREED TO: Brocade Communications Switzerland, SarL
By:
	Authorized Signature Date
	Type or Print Name
	Title & Organization

Base Agreement #4999RO0015
Statement of Work #4903RL1112
Amendment 13 Page 8 of 8

EX-10.6

EXHIBIT 10.6

Lease Agreement
Basic Lease Information

Lease Date:	September 28, 1999
Landlord:	WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP,
	a Delaware limited partnership
Landlord’s Address:	c/o Legacy Partners Commercial, Inc.
	101 Lincoln Centre Drive, Fourth Floor
	Foster City, California 94404-1167
Tenant:	Foundry Networks, Inc.,
	a California corporation
Tenant’s Address:	2100 Gold Street
	San Jose, California 95002
Premises:	70,755 rentable square feet as shown on Exhibit A
Premises Address:	2100 Gold Street
	San Jose, California 95002
Building:	Building A, consisting of 70,755 rentable square feet
(Park’s tax parcels):	APN 015-34-27, 015-34-28, 015-34-77, 015-34-78
Park: Legacy Tech Park@237:	Approximately 302,186 rentable square feet
Term((P)2):	January 1, 2000 (“Commencement Date”), through December 31, 2005 (“Expiration Date”)
Base Rent ((P)3):	No Dollars ($0.00) per month commencing January 1, 2000 through March 31, 2000.
Advance Rent ((P)3):	Seventy One Thousand and 00/100 Dollars ($71,000.00).
Adjustments to Base Rent:	Effective April 1, 2000, the Base Rent shall increase to $71,000.00 per month ($1.003 per rentable sf) Effective July 1, 2000, the Base Rent shall increase to $127,359.00 per month ($1.80 per rentable sf) Effective January 1, 2001, the Base Rent shall increase to $131,816.57 per month ($1.863 per rentable sf) Effective January 1, 2002, the Base Rent shall increase to $136,430.14 per month ($1.928 per rentable sf) Effective January 1, 2003, the Base Rent shall increase to $141,205.20 per month ($1.996 per rentable sf) Effective January 1, 2004, the Base Rent shall increase to $146,147.38 per month ($2.065 per rentable sf)

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	Effective January 1, 2005, the Base Rent shall increase to $151,274.19 per month ($2.138 per rentable sf)
	Notwithstanding the foregoing Annual Adjustment Dates, the actual Annual Adjustments to Base Rent shall occur on the annual anniversary of the Commencement Date.
Security Deposit ((P)4):	One Hundred Sixty Nine Thousand One Hundred Four and 00/100 Dollars ($169,104.00) subject to Section 4 herein.

*Tenant’s Share of Operating Expenses ((P)6.1):	23.41% of the Park
*Tenant’s Share of Tax Expenses ((P)6.2):	23.41% of the Park
*Tenant’s Share of Common Area Utility Costs ((P)7):	23.41% of the Park
*Tenant’s Share of Utility Expenses ((P)7):	100% of the Building

* The amount of Tenant’s Share of the expenses as referenced above shall be subject to modification as set forth in this Lease.

Permitted Uses ((P)9):	The Premises shall be used solely for sales, marketing, design, research and development, light manufacturing, office and administration of networking equipment products and for no other purposes without Landlord’s prior written consent, but only to the extent permitted by the City of San Jose and all agencies and governmental authorities having jurisdiction thereof.
Unreserved Parking Spaces:	Two hundred forty (240) non-exclusive and non-designated spaces
Broker ((P)38):	Cornish & Carey Commercial for Tenant
	BT Commercial for Landlord
Exhibits:	Exhibit A — Premises, Building and/or Park
	Exhibit B — Tenant Improvements
	Exhibit C — Rules and Regulations
	Exhibit D — Covenants, Conditions and Restrictions (Intentionally omitted)
	Exhibit E — Hazardous Materials Disclosure Certificate — Example
	Exhibit F — Change of Commencement Date — Example
	Exhibit G — Tenant’s Initial Hazardous Materials Disclosure Certificate
	Exhibit H — Sign Criteria
	Exhibit I — Subordination, Non-Disturbance and Attornment Agreement
Addenda:	Addendum 1: Option to Extend the Lease Addendum 2: Right of First Refusal

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Table of Contents

Section		Page
1.	Premises		5
2.	Occupancy; Adjustment of Commencement Date		5
3.	Rent		7
4.	Security Deposit		7
5.	Condition of Premises; Improvements		8
6.	Additional Rent		8
7.	Utilities and Services		13
8.	Late Charges		14
9.	Use of Premises		15
10.	Alterations; Surrender of Premises		17
11.	Repairs and Maintenance		19
12.	Insurance		20
13.	Waiver of Subrogation		23
14.	Limitation of Liability and Indemnity		23
15.	Assignment and Subleasing		24
16.	Ad Valorem Taxes		27
17.	Subordination		27
18.	Right of Entry		28
19.	Estoppel Certificate		29
20.	Tenant’s Default

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Section		Page
21.	Remedies for Tenant’s Default
22.	Holding Over
23.	Landlord’s Default
24.	Parking
25.	Sale of Premises
26.	Waiver
27.	Casualty Damage		29
28.	Condemnation		30
29.	Environmental Matters/Hazardous Materials		30
30.	Financial Statements		35
31.	General Provisions		35
32.	Signs		37
33.	Mortgagee Protection		38
34.	Quitclaim		38
35.	Modifications for Lender (Intentionally omitted)		38
36.	Warranties of Tenant		38
37.	Compliance with Americans with Disabilities Act		39
38.	Brokerage Commission		40
39.	Confidentiality		40
40.	Quiet Enjoyment		40
41.	Landlord’s Ability to Perform Tenant’s Unperformed Obligations		40
42.	Collateral for Performance of Lease Obligations		41
43.	Satellite Dish		43
44.	Tenant’s Ability to Perform Landlord’s Unperformed Obligations		44

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NNN R&D Development Landlord TI
Lease Agreement

Date: The Basic Lease Information set forth on Page 1 and this Lease are and shall be construed as a single instrument.

1. Premises

Landlord hereby leases the Premises to Tenant upon the terms and conditions contained herein. Tenant shall have the right to use, on a non-exclusive basis, parking areas and ancillary facilities located within the Common Areas of the Park, subject to the terms of this Lease. Tenant further agrees that the number of rentable square feet of the Building and the Park may subsequently change during the Term of this Lease commensurate with any physical modifications by Landlord, and Tenant’s Share shall accordingly change. In addition, Tenant shall have the exclusive use of the loading dock area located between the Building and Building B, as outlined on Exhibit A attached hereto.

2. Occupancy; Adjustment of Commencement Date

     2.1 If on the Commencement Date, Landlord has not delivered possession of the Premises with the Tenant Improvements Substantially Completed (as defined in Exhibit B hereto), Landlord shall not be subject to any liability nor shall the validity of the Lease be affected; provided, however, the Lease Term and the obligation to pay Rent, except as set forth in the Basic Lease Information, shall commence on the date on which Landlord has Substantially Completed the Tenant Improvements in accordance with the provisions of Exhibit B hereto and the annual Adjustments to Base Rent shall be adjusted accordingly. Notwithstanding the foregoing, in the event Landlord cannot deliver to Tenant possession of the Premises with all Tenant Improvements Substantially Complete (as defined in Exhibit B) by February 1, 2000 (“Outside Date”) (subject to Force Majeure Delays and Tenant Delays, as such terms are defined in Exhibit B, in which event the Outside Date shall be extended commensurately by the period of time attributable to such delays), Tenant shall receive a credit against Base Rent equal to one (1) day’s Base Rent for each day beyond the Outside Date that possession of the Premises is delivered to Tenant with the Tenant Improvements Substantially Complete, but Landlord shall neither be subject to any other liability nor shall the validity of the Lease be affected. In the event Landlord is unable to obtain a building permit (“Permit”) for the Tenant Improvements on or before December 31, 1999, then, following such date,

Landlord may terminate this Lease upon written notice delivered to Tenant by January 10, 2000. Tenant acknowledges and agrees that Tenant’s sole and exclusive remedy for Landlord’s failure to deliver possession of the Premises to Tenant with the Tenant Improvements Substantially Complete on or before the Outside Date (whether due to the failure of Landlord to Substantially Complete the Tenant Improvements, to obtain the Permit or otherwise) shall be to accept a

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credit to Base Rent equal to one (1) day of Base Rent for each day beyond the Outside Date that possession of the Premises is delivered to Tenant with the Tenant Improvements Substantially Complete, provided however, the maximum credit to Tenant for any delay due to not receiving the initial building permit from the City of San Jose as scheduled, shall be thirty (30) days. Upon Landlord’s delivery to Tenant of possession of the Premises with the Tenant Improvements Substantially Complete, Tenant shall promptly deliver written notice to Landlord confirming same (however, any failure by Tenant to deliver to Landlord such written notice shall not affect the effectiveness of this Lease). If the commencement date and/or the expiration date of this Lease is other than the Commencement Date and/or Expiration Date specified herein, Landlord and Tenant shall execute a written amendment to this Lease, substantially in the form of Exhibit F hereto, wherein the parties shall specify the actual commencement date, expiration date and the date on which Tenant is to commence paying Rent. The word “Term” whenever used herein refers to the initial term of this Lease and any extension thereof.

     2.2 Within three (3) business days after the Substantial Completion of the Tenant Improvements, representatives of Landlord and Tenant shall make a joint inspection of the Tenant Improvements and the results of such inspection shall be set forth in a written list specifying the incomplete items as well as those items for which corrections need to be made (the “Punchlist Items”). Landlord and Tenant shall promptly (by no later than three (3) business days thereafter) and in good faith approve the written list of Punchlist Items. Landlord shall use commercially reasonable efforts to cause the Punchlist Items to be promptly completed and/or corrected, as applicable. The performance of the work associated with the Punchlist Items shall be performed in such a manner so as not to preclude or substantially prevent Tenant’s ability to conduct its operations in the Premises. Upon the completion of the Punchlist Items, to Tenant’s reasonable satisfaction, Tenant shall immediately notify Landlord in writing that such items have been completed to Tenant’s reasonable satisfaction. In addition to the Punchlist Items, Landlord shall also use commercially reasonable efforts to cause the general contractor to correct any other deficiencies or defects in the Tenant Improvements during the thirty (30) day period following Substantial Completion of the Tenant Improvements. Except as set forth below, if Tenant fails to timely deliver to Landlord any such written notice of the aforementioned deficiencies or defects within said 30-day period, Landlord shall have no obligation to perform any such work thereafter. Landlord and the General Contractor (as defined in Exhibit B) shall provide Tenant with a customary warranty for the Tenant Improvements for a period of one (1) year following Substantial Completion; provided, however, any claim by Tenant under said warranty against General Contractor must be made by Tenant in writing within said one (1) year period and must include the specific nature of the problem. Tenant shall have the right , together with Landlord, to concurrently enforce any warranties made by the General Contractor or material suppliers in favor of Landlord with respect to the construction of the Tenant Improvements. In addition, Tenant shall be subrogated to the rights of Landlord against the General Contractor to the extend Tenant has paid amounts to Landlord to correct defects or deficiencies in the construction of the Tenant Improvements.

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     2.3 If, at any time, Tenant is in material default of any term, condition or provision of this Lease beyond any applicable cure period, any such waiver by Landlord of Tenant’s requirement to pay Rent shall be null and void and Tenant shall immediately pay to Landlord all Rent so waived by Landlord.

3. Rent

     On the date that Tenant executes this Lease, Tenant shall deliver to Landlord the original executed Lease, the Advance Rent (which shall be applied against the Rent payable for the first month Tenant is required to pay Rent), the Security Deposit, and all insurance certificates evidencing the insurance required to be obtained by Tenant under Section 12 of this Lease. Tenant agrees to pay Landlord the Base Rent, without prior notice or demand, abatement, offset, deduction or claim, in advance at Landlord’s Address on the Commencement Date and thereafter on the first (1st) day of each month throughout the balance of the Term of the Lease. In addition to the Base Rent, Tenant shall pay Landlord in advance on the Commencement Date and thereafter on the first (1st) day of each month throughout the balance of the Term of this Lease, as Additional Rent, Tenant’s Share of Operating Expenses, Tax Expenses, Common Area Utility Costs, and Utility Expenses. The term “Rent” whenever used herein refers to the aggregate of all these amounts. The Rent for any fractional part of a calendar month at the commencement or termination of the Lease Term shall be a prorated amount of the Rent for a full calendar month based upon the actual number of days in such month. The prorated Rent shall be paid on the Commencement Date and the first day of the calendar month in which the date of expiration or termination occurs, as the case may be.

4. Security Deposit

     Simultaneously with Tenant’s execution and delivery of this Lease, Tenant shall deliver to Landlord, as a Security Deposit for the performance by Tenant of its obligations under this Lease, the amount specified in the Basic Lease Information. If Tenant is in material default, Landlord may, but without obligation to do so, use the Security Deposit, or any portion thereof, to cure the material default or to compensate Landlord for all damages sustained by Landlord resulting from Tenant’s default. Tenant shall, immediately on demand, pay to Landlord a sum equal to the portion of the Security Deposit so applied or used so as to replenish the amount of the Security Deposit held to increase such deposit to the amount initially deposited with Landlord. In the event Tenant has materially defaulted more than three (3) times during the Term, Landlord may require an increase in the amount of the Security Deposit required hereunder for the then balance of the Lease Term to an amount equal to two (2) times the amount of the Security Deposit set forth in the Basic Lease Information and Tenant shall, immediately on demand, pay to Landlord additional sums in the amount of such increase. Within thirty (30) days after the expiration or earlier termination of this Lease, Landlord shall return the Security Deposit to Tenant, less such amounts as are reasonably necessary to remedy Tenant’s material default(s) hereunder or to otherwise restore and repair the Premises to a clean and safe condition, reasonable wear and tear excepted. If the cost to restore and repair the Premises exceeds the amount of the Security Deposit, Tenant shall promptly deliver to Landlord any and all of such excess sums as reasonably determined by Landlord. Landlord shall not be required to keep the

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Security Deposit separate from other funds, and, unless otherwise required by law, Tenant shall not be entitled to interest on the Security Deposit. In no event or circumstance shall Tenant have the right to any use of the Security Deposit and, specifically, Tenant may not use the Security Deposit as a credit or to otherwise offset any payments required hereunder, including, but not limited to, Rent or any portion thereof. In the event Landlord draws down the Letter of Credit in an amount which exceeds the amounts required to cure Tenant’s material defaults under this Lease, such excess amounts shall be treated at Landlord’s option, either (i) as part of the Security Deposit for purposes of this Lease or (ii) be returned to the Issuer of the Letter of Credit. The Letter of Credit shall be amended to reflect the addition of such amounts to the Letter of Credit and Tenant shall, as required by Section 42 of this Lease, provide Landlord with a new or additional Letter of Credit such that Landlord shall hold an original Letter of Credit in an amount equal to the Letter of Credit originally delivered to Landlord.

5. Condition of Premises; Improvements

     Tenant hereby agrees to accept the Premises upon Landlord’s Substantial Completion of the Tenant Improvements as suitable for Tenant’s intended use and as then being in good operating order, condition and repair in its then “AS IS” condition, except for the (i) correction of any Punchlist Items in accordance with the provisions of Section 2.2 hereof, (ii) the thirty (30) day period referenced in 2.2 above with respect to defects or deficiencies, and (iii) and Landlord shall deliver the electrical, plumbing and HVAC systems in good working conditions for a period of ninety (90) days. The Tenant Improvements (as such term is defined in Exhibit B hereto) shall be installed by Landlord in accordance with the terms, conditions, criteria and provisions set forth in Exhibit B. Except as otherwise expressly set forth in this Lease, by taking possession of the Premises with the Tenant Improvements Substantially Completed, Tenant shall be deemed to have then accepted the Premises in good, clean and completed condition and state of repair. Landlord and Tenant hereby agree to and shall be bound by the terms, conditions and provisions of Exhibit B. Tenant acknowledges and agrees that neither Landlord nor any of Landlord’s agents, representatives or employees has made any representations as to the suitability, fitness or condition of the Premises for the conduct of Tenant’s business or for any other purpose, including without limitation, any storage incidental thereto. Any exception to the foregoing provisions must be made by express written agreement by both parties. In addition, Landlord shall provide one roll up door at Landlord’s sole cost and expense in the location shown on Exhibit A.

6. Additional Rent

     It is intended by Landlord and Tenant that this Lease be a “triple net lease.” The costs and expenses described in this Section 6 and all other sums, charges, costs and expenses specified in this Lease other than Base Rent are to be paid by Tenant to Landlord as additional rent (collectively, “Additional Rent”).

     6.1 Operating Expenses: In addition to the Base Rent set forth in Section 3, Tenant shall pay Tenant’s Share of all Operating Expenses as

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Additional Rent. The term “Operating Expenses” as used herein shall mean the amounts paid or payable by Landlord in connection with the management, maintenance, repair and operation of the Premises and the Building , and where applicable, of the Park. These Operating Expenses may include, but are not limited to, Landlord’s cost of:

     6.1.1 repairs to, and maintenance of, the non-structural portions of the roof, the roof membrane and the non-structural elements of the perimeter exterior walls of the Building;

     6.1.2 maintaining the outside paved area, landscaping and other common areas of the Park. The term “Common Areas” shall mean all areas and facilities within the Park exclusive of the Premises and the other portions of the Park leasable exclusively to other tenants. The Common Areas include, but are not limited to, interior lobbies, mezzanines, parking areas, access and perimeter roads, sidewalks, rail spurs, landscaped areas and similar areas and facilities;

     6.1.3 annual insurance premium(s) for insuring against fire and extended coverage (including, if Landlord elects, “all risk” or “special purpose” coverage) and all other insurance, including, but not limited to, earthquake, flood and/or surface water endorsements for the Building and the Park (including the Common Areas), rental value insurance against loss of Rent in an amount equal to the amount of Rent for a period of at least nine (9) months commencing on the date of loss, and subject to the provisions of Section 27 below, any deductible;

     6.1.4 Landlord’s cost of: (i) modifications and/or new improvements to the Building, the Common Areas and/or the Park occasioned by any rules, laws or regulations effective subsequent to the Lease Date; (ii) reasonably necessary replacement improvements to the Building, the Common Areas and the Park after the Lease Date; and (iii) new improvements to the Building, the Common Areas and/or the Park to the extent that they reduce operating costs or improve life/safety conditions, all as reasonably determined by Landlord, in its sole discretion; provided, however, if any of the foregoing are in the nature of capital improvements, then the cost of such capital improvements shall be amortized on a straight-line basis over a reasonable period, which shall be the period of time specified under generally accepted accounting principles as the estimated useful life of such modifications, new improvements or replacement improvements in question (at an interest rate as reasonably determined by Landlord), and Tenant shall pay Tenant’s Share of the monthly amortized portion of such costs (including interest charges) as part of the Operating Expenses herein;

     6.1.5 preventative maintenance and repair contracts including, but not limited to, contracts for elevator systems and heating, ventilation and air conditioning systems, lifts for disabled persons, and trash or refuse collection, if Landlord elects to so procure;

     6.1.6 security and fire protection services for the Building and/or the Park, as the case may be, if in Landlord’s sole but reasonable discretion such services are provided;

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     6.1.7 supplies, equipment, rental equipment and other similar items used in the operation and/or maintenance of the Park;

     6.1.8 the repairs and maintenance items set forth in Section 11.2 below;

     6.1.9 any and all levies, charges, fees and/or assessments payable to any applicable owner’s association or similar body; and

     6.1.10 the management and administration of all or any portion of the Premises, the Building, and/or the Park, including without limitation, a property management fee (based upon a percentage of all Rent, including Tax Expenses), accounting, auditing, billing, postage, salaries and benefits for clerical and supervisory employees, whether located on the Park or off-site, payroll taxes and legal and accounting costs, and all fees, licenses and permits related to the operation and management of the Park.

     Notwithstanding anything to the contrary contained hereon, for purposes of this Lease, the term “Operating Expenses” shall not include the following:

     (a) Costs (including permit, license, and inspection fees) incurred in renovating improving decorating, painting, or redecorating vacant space or space for other tenants within the Park;

     (b) Costs incurred because Landlord or another tenant actually violated the terms of any lease for premises within the Building and/or Park;

     (c) Legal and auditing fees (other than those fees reasonably incurred in connection with the maintenance and operation of the Building and/or Park), leasing commissions, advertising expenses, and other costs incurred in connection with the original development or original leasing of the Building and/or Park or future re-leasing of the Building and/or Park;

     (e) Any items for which Landlord is actually reimbursed or by direct reimbursement by any other tenant of the Building or Park;

     (f) Costs of repair or other work necessitated by fire, windstorm or other casualty (excluding any commercially reasonable deductibles) and/or costs of repair or other work necessitated by the exercise of the right of eminent domain to the extent insurance proceeds or a condemnation award, as applicable, is actually received by Landlord for such purposes; provided such costs of repairs or other work shall be paid by the parties in accordance with the provisions of Sections 27 and 28 below;

     (g) Other than any interest charges for capital improvements referred to in Section 6.1.4 hereinabove, any interest or payments on any financing for the Building or the Park, interest and penalties incurred as a result of Landlord’s late payment of any invoice (provided that Tenant pays Tenant’s Share of Operating Expenses and Tax Expenses to Landlord when due as set forth herein), and any bad debt loss, rent loss or reserves for same;

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     (h) Costs associated with the investigation and/or remediation of Hazardous Materials (hereafter defined) present in, on or about the Premises, the Building or the Park, unless such costs and expenses are the responsibility of Tenant as provided in Section 29 of this Lease, in which event such costs and expenses shall be paid solely by Tenant in accordance with the provisions of Section 29 of this Lease;

     (i) Costs of correcting defects in the initial design or construction of the Shell Improvements or the repair or replacement of any original materials and equipment as a result of such defects (collectively, “Defect Costs”), as long as such defects are covered by warranties from the contractors performing such work and Landlord has actually received compensation therefor; provided, in the event such Defect Costs and such Defect Costs constitute capital improvements, are not covered by warranties and/or Landlord has not received compensation therefor, such Defect Costs shall be included in Operating Expenses and amortized on the basis set forth in Section 6.1 of the Lease.

     (j) Landlord’s cost for the repairs and maintenance items set forth in Section 11.3 below;

     (k) Overhead, fee and profit paid to subsidiaries or affiliates of Landlord for management services or materials to the extent that the cost of those items would not have been paid had the services and materials been provided by unaffiliated parties on a competitive basis; and

     (l) Depreciation of the Building or any improvements situated in the Park.

     6.2 Tax Expenses: In addition to the Base Rent set forth in Section 3, Tenant shall pay Tenant’s Share of all real property taxes applicable to the Park and one hundred percent (100%) of all personal property taxes now or hereafter assessed or levied against the Premises or Tenant’s Property (defined below). Tenant shall also reimburse and pay Landlord, as Additional Rent, within ten (10) days after demand therefor, one hundred percent (100%) of (i) any increase in real property taxes attributable to any and all Alterations (defined below), Tenant Improvements, fixtures, equipment or other improvements of any kind whatsoever placed in, on or about the Premises for the benefit of, at the request of, or by Tenant, and (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, repair, use or occupancy by Tenant of the Premises or any portion of the Building. The term “Tax Expenses” shall mean and include, without limitation, any form of tax and assessment (general, special, supplemental, ordinary or extraordinary), entitlement fees, allocation fees, sewer use fees and/or similar fees or charges, commercial rental tax, payments under any improvement bond or bonds, license fees, license tax, business license fee, rental tax, transaction tax or levy imposed by any authority having the direct or indirect power of tax (including any city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement district thereof) as against any legal or equitable interest of Landlord in the Premises, the Building or the Park or any other tax, fee, or excise, however described, including, but not limited to, any value added tax, or any tax imposed in substitution (partially or totally) of any tax previously included within the

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definition of real property taxes, or any additional tax the nature of which was previously included within the definition of real property taxes. The term “Tax Expenses” shall not include any (i) franchise, estate, inheritance, net income, or excess profits tax imposed upon Landlord, (ii) a penalty or fee imposed as a result of Landlord’s failure to pay Tax Expenses when due or (iii) any item included in Operating Expenses.

     6.3 Payment of Expenses: Landlord shall estimate Tenant’s Share of the Operating Expenses and Tax Expenses for the calendar year in which the Lease commences. Commencing on the Commencement Date, one-twelfth (1/12th) of this estimated amount shall be paid by Tenant to Landlord, as Additional Rent, and thereafter on the first (1st) day of each month throughout the remaining months of such calendar year. Thereafter, Landlord may estimate such expenses as of the beginning of each calendar year during the Term of this Lease and Tenant shall pay one-twelfth (1/12th) of such estimated amount as Additional Rent hereunder on the first (1st) day of each month during such calendar year and for each ensuing calendar year throughout the Term of this Lease. Tenant’s obligation to pay Tenant’s Share of Operating Expenses and Tax Expenses shall survive the expiration or earlier termination of this Lease.

     6.4 Annual Reconciliation: By May 1st of each calendar year, or as soon thereafter as reasonably possible, Landlord shall furnish Tenant with an accounting of actual and accrued Operating Expenses and Tax Expenses. Within thirty (30) days of Landlord’s delivery of such accounting, Tenant shall pay to Landlord the amount of any underpayment. Notwithstanding the foregoing, failure by Landlord to give such accounting by such date shall not constitute a waiver by Landlord of its right to collect any of Tenant’s underpayment at any time. Landlord shall credit the amount of any overpayment by Tenant toward the next estimated monthly installment(s) falling due, or where the Term of the Lease has expired, refund the amount of overpayment to Tenant. If the Term of the Lease expires prior to the annual reconciliation of expenses Landlord shall have the right to reasonably estimate Tenant’s Share of such expenses, and if Landlord determines that an underpayment is due, Tenant hereby agrees that Landlord shall be entitled to deduct such underpayment from Tenant’s Security Deposit. If Landlord reasonably determines that an overpayment has been made by Tenant, Landlord shall refund said overpayment to Tenant as soon as practicable thereafter. Notwithstanding the foregoing, failure of Landlord to accurately estimate Tenant’s Share of such expenses or to otherwise perform such reconciliation of expenses, including without limitation, Landlord’s failure to deduct any portion of any underpayment from Tenant’s Security Deposit, shall not constitute a waiver of Landlord’s right to collect any of Tenant’s underpayment at any time during the Term of the Lease or at any time after the expiration or earlier termination of this Lease.

     6.5 Audit: After delivery to Landlord of at least thirty (30) days prior written notice, Tenant, at its sole cost and expense through any accountant designated by it, shall have the right to examine and/or audit the books and records evidencing such costs and expenses for the previous one (1) calendar year, during Landlord’s reasonable business hours and not more frequently than once during any calendar year. Any such accounting firm designated by Tenant may not be compensated on a contingency fee basis. The results of any such audit

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(and any negotiations between the parties related thereto) shall be maintained strictly confidential by Tenant and its accounting firm and shall not be disclosed, published or otherwise disseminated to any other party other than to Landlord and its authorized agents. Landlord and Tenant shall use their best efforts to cooperate and promptly resolve any discrepancies between Landlord and Tenant in the accounting of such costs and expenses. If through such audit it is determined that there is a discrepancy of more than six percent (6%), then Landlord shall reimburse Tenant for the reasonable accounting costs and expenses incurred by Tenant in performing such audit including Tenant’s in-house or outside auditors or accountants. However, if through such audit it is determined that there is a discrepancy of six percent (6%) or less, then Tenant shall reimburse Landlord for the reasonable accounting costs and expenses associated with Landlord’s in-house auditors or accounting personnel as well as those reasonable costs and expenses incurred by Landlord for any outside accounting firms or auditors in connection with such audit within ten (10) days after receipt of written demand therefor. In the event that any other tenant audits or reviews Operating Expenses and an adjustment is made such same adjustment shall be made with respect to Tenant.

7. Utilities and Services

     In addition to the Base Rent set forth in Section 3 hereof, Tenant shall pay the cost of all (i) water, sewer use, sewer discharge fees and sewer connection fees, gas, electricity, telephone, telecommunications, cabling and other utilities billed or metered separately to the Premises; and (ii) refuse pickup and janitorial service to the Premises. Utility Expenses, Common Area Utility Costs and all other sums or charges set forth in this Section 7 are considered part of Additional Rent.

     7.1 Utility Expenses: For any utility fees, use charges or similar services that are not billed or metered separately to Tenant, including without limitation, water charges (“Utility Expenses”), (i) Tenant shall pay to Landlord Tenant’s Share of Utility Expenses, as Additional Rent and (ii) if Landlord reasonably determines that Tenant’s Share is not commensurate with Tenant’s use of such services, Tenant shall pay to Landlord the amount which is attributable to Tenant’s use of the utilities or similar services, as reasonably estimated and determined by Landlord based upon factors such as size of the Premises and intensity of use of such utilities by Tenant such that Tenant shall pay the portion of such charges reasonably consistent with Tenant’s use of such utilities and similar services. If Tenant disputes any such estimate or determination, then Tenant shall either pay the estimated amount or cause the Premises to be separately metered at Tenant’s sole expense.

     7.2 Common Area Utility Costs: Tenant shall pay to Landlord Tenant’s Share of any Common Area utility costs, fees, charges or expenses (“Common Area Utility Costs”). Tenant shall pay to Landlord one-twelfth (1/12th) of the estimated amount of Tenant’s Share of the Common Area Utility Costs on the Commencement Date and thereafter on the first (1st) day of each month throughout the balance of the Term of this Lease. Any reconciliation thereof shall be substantially in the same manner as set forth in Section 6.4 above.

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     7.3 Miscellaneous: Tenant acknowledges that the Premises may become subject to the rationing of utility services or restrictions on utility use as required by a public utility company, governmental agency or other similar entity having jurisdiction thereof. Notwithstanding any such rationing or restrictions on use of any such utility services, Tenant acknowledges and agrees that its tenancy and occupancy hereunder shall be subject to such rationing restrictions as may be imposed upon Landlord, Tenant, the Premises, the Building, or the Park, and Tenant shall in no event be excused or relieved from any covenant or obligation to be kept or performed by Tenant by reason of any such rationing or restrictions. Tenant further agrees to timely and faithfully pay, prior to delinquency, any amount, tax, charge, surcharge, assessment or imposition levied, assessed or imposed upon the Premises, or Tenant’s use and occupancy thereof. Notwithstanding anything to the contrary contained herein, if permitted by applicable Laws, Landlord shall have the right at any time and from time to time during the Term of this Lease to either contract for service from a different company or companies (each such company shall be referred to herein as an “Alternate Service Provider”) other than the company or companies presently providing electricity service for the Building or the Park (the “Electric Service Provider”) or continue to contract for service from the Electric Service Provider, at Landlord’s reasonable discretion. Tenant hereby agrees to cooperate with Landlord, the Electric Service Provider, and any Alternate Service Provider at all times and, as reasonably necessary, shall allow Landlord, the Electric Service Provider, and any Alternate Service Provider reasonable access to the Building’s electric lines, feeders, risers, wiring, and any other machinery within the Premises. Landlord shall use Landlord’s commercially reasonable efforts to minimize any interruption to Tenant’s business operations in connection with the discontinuation of any Electric Service Provider and the commencement of service by an Alternative Service Provider and Landlord shall give Tenant at least ten (10) days prior written notice of the date of any such discontinuation and commencement.

8. Late Charges

     Any and all sums or charges set forth in this Section 8 are considered part of Additional Rent. Tenant acknowledges that late payment (the fourth (4th) day of each month or any time thereafter) by Tenant to Landlord of Base Rent, Tenant’s Share of Operating Expenses, Tax Expenses, Common Area Utility Costs, and Utility Expenses or other sums due hereunder, will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impracticable to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Landlord by the terms of any note secured by any encumbrance against the Premises, and late charges and penalties due to the late payment of taxes and expenses with respect to the Premises. Therefore, if any installment of Rent or any other sum due from Tenant is not received by Landlord within three (3) days of the date when due, Tenant shall promptly pay to Landlord an additional sum equal to seven percent (7%) of such delinquent amount plus interest on such delinquent amount at the rate equal to the prime rate plus three percent (3%) for the time period such payments are delinquent as a late charge for every month or portion thereof that such sums remain unpaid. If Tenant delivers to Landlord a check for which there are not sufficient funds, Landlord

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may, at its sole option, require Tenant to replace such check with a cashier’s check for the amount of such check and all other charges payable hereunder. The parties agree that this late charge and the other charges referenced above represent a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge or other charges shall not constitute a waiver by Landlord of Tenant’s default with respect to the delinquent amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord for any other breach of Tenant under this Lease. If a late charge or other charge becomes payable for any three (3) installments of Rent within any twelve (12) month period, then Landlord, at Landlord’s sole option, can either require the Rent be paid quarterly in advance, or be paid monthly in advance by cashier’s check or by electronic funds transfer. Notwithstanding anything to the contrary contained herein, if Tenant is late in making any of the payments described in this Section 8 to Landlord hereunder in any two (2) instances during the Term of this Lease, then Landlord hereby waives the requirement that Tenant pay to Landlord a late charge for such late payments.

9. Use of Premises

     9.1 Compliance with Laws, Recorded Matters, and Rules and Regulations: The Premises are to be used solely for the purposes and uses specified in the Basic Lease Information and for no other uses or purposes without Landlord’s prior written consent, which consent shall not be unreasonably withheld or delayed so long as the proposed use (i) does not involve the use of Hazardous Materials other than as expressly permitted under the provisions of Section 29 below, (ii) does not require any additional parking in excess of the parking spaces already allotted to Tenant pursuant to the provisions of Section 24 of this Lease, and (iii) is compatible and consistent with the other uses then being made in the Park and in other similar types of buildings in the vicinity of the Park, as reasonably determined by Landlord. The use of the Premises by Tenant and its employees, representatives, agents, invitees, licensees, subtenants, customers or contractors (collectively, “Tenant’s Representatives”) shall be subject to, and at all times in compliance with, (a) any and all applicable laws, ordinances, statutes, orders and regulations as same exist from time to time (collectively, the “Laws”), (b) any and all documents, easements, covenants, conditions and restrictions, and similar instruments, each of which has been or hereafter is recorded in any official or public records with respect to the Premises, the Building and/or the Park, or any portion thereof (collectively, the “Recorded Matters”), and (c) any and all rules and regulations set forth in Exhibit C, attached to and made a part of this Lease, any other reasonable rules and regulations promulgated by Landlord now or hereafter enacted relating to parking and the operation of the Premises, the Building, and the Park, and any and all rules, restrictions and/or regulations imposed by any applicable owners association or similar entity or body (collectively, the “Rules and Regulations”); provided, none of the Recorded Matters which are subsequently recorded after the Lease Date shall materially and adversely affect Tenant’s use and/or business operations at the Premises (excluding any liens related to any mortgage, deed of trust or similar type of security interest (but still subject to the terms of Section 17). Tenant agrees to comply with the provisions of the Rules and Regulations adopted by the

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Landlord; provided, however, that such Rules and Regulations shall be enforced equally as to all tenants located in the Building. Additionally, Landlord agrees not to adopt any Rule or Regulation which adversely and materially affects the use and/or business operations of the Tenant on the Premises. Landlord shall use reasonable efforts to ensure other tenants comply with the Rules and Regulations (provided, Landlord shall not be required to institute or prosecute litigation or expend more than nominal amounts in connection with such efforts. Tenant agrees to, and does hereby, assume full and complete responsibility to ensure that the Premises, including without limitation, the Tenant Improvements, are adequate to fully meet the needs and requirements of Tenant’s intended operations of its business within the Premises, and Tenant’s use of the Premises is in compliance with all applicable Laws throughout the Term of this Lease. Additionally, Tenant shall be solely responsible for the payment of all costs, fees and expenses associated with any modifications, improvements or alterations to the Premises, Building, the Common Areas and/or the Park required by the enactment of, or changes to, any Laws after the Lease Date and arising from Tenant’s particular use of the Premises or alterations, improvements or additions made to the Premises regardless of when such Laws became effective. Tenant shall not initiate, submit an application for, or otherwise request, any land use approvals or entitlements with respect to any portion of the Park, including without limitation, any variance, conditional use permit or rezoning, without first obtaining Landlord’s prior written consent thereto, which consent may be given or withheld in Landlord’s sole discretion.

     9.2 Prohibition on Use: Tenant shall not use the Premises or permit anything to be done in or about the Premises nor keep or bring anything therein which will in any way increase the existing rate of or affect any policy of fire or other insurance upon the Building or any of its contents, or cause a cancellation of any insurance policy. No auctions may be held or otherwise conducted in, on or about the Premises, the Building, or the Park without Landlord’s written consent thereto, which consent may be given or withheld in Landlord’s sole discretion. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of Landlord, other tenants or occupants of the Building and/or other buildings in the Park. The Premises shall not be used for any unlawful purpose; nor shall Tenant cause, maintain or permit any private or public nuisance in, on or about the Premises, Building, Park and/or the Common Areas, including, but not limited to, any offensive odors, noises, fumes or vibrations. Tenant shall neither damage or deface or otherwise commit or suffer to be committed any waste in, upon or about the Premises. Tenant shall not place or store, nor permit any other person or entity to place or store, any property, equipment, materials, supplies, personal property or any other items or goods outside of the Premises nor park any motor vehicles for any period of time greater than forty eight (48) hours, provided the parking of such motor vehicles and/or the storage of such property, equipment, materials, supplies and personal property shall neither violate any Laws, interfere with any other tenants’ operations, not disturb any neighboring properties, tenants or residents nor interfere with ingress or egress to any portion of the Park. Tenant shall not permit any animals, including, but not limited to, any household pets, to be brought or kept in or about the Premises. Tenant shall not install any radio or television antenna, satellite dish, microwave, loudspeaker or other device on

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the roof or exterior walls of the Building. Tenant shall not interfere with radio, telecommunication, or television broadcasting or reception from or in the Building or elsewhere. Tenant shall place no loads upon the floors, walls, or ceilings in excess of the maximum designed load permitted by the applicable Uniform Building Code or which may damage the Building or outside areas; nor place any harmful liquids in the drainage systems; nor dump or store waste materials, refuse or other such materials, or allow such materials to remain outside the Building area, except for any non-hazardous or non-harmful materials which may be stored in refuse dumpsters. If Tenant fails to comply with such Laws, Recorded Matters, Rules and Regulations or the provisions of this Lease, Landlord shall have the right to collect from Tenant a reasonable sum as a penalty, in addition to all rights and remedies of Landlord hereunder, including without limitation, Landlord’s costs and expenses, if any, to cure any of such failures of Tenant, if Landlord, at its sole option, elects to undertake such cure and such costs and expenses shall be due and owing from Tenant to Landlord within ten (10) days after Tenant’s receipt of written demand therefor.

10. Alterations; Surrender of Premises

     10.1 Alterations: Tenant shall not install any signs, fixtures, improvements, nor make or permit any other alterations or additions (individually, an “Alteration”, and collectively, the “Alterations”) to the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. However, Tenant shall be permitted to hang pictures and shelving and perform other similar minor decorating activities and to perform non-structural alterations not exceeding an aggregate of $25,000 during any calendar year without securing Landlord’s prior consent (“Permitted Improvements”), provided that Tenant (i) complies with all pertinent building codes and fire, safety and other such governmental regulations, (ii) does not take any action which could in any way impact the structural, mechanical, electrical, maintenance, HVAC or plumbing systems of the Premises and/or exterior appearance of the Building and (iii) submits its plans for such Alterations to Landlord at least fifteen (15) business days prior to commencement of such Alterations (except as to minor decorative items and installations of furniture for which plans are not required). Within ten (10) business days following Landlord’s receipt of Tenant’s written notice with respect to Tenant’s performance of any Permitted Improvements and at such time as Landlord may approve other Alterations, Landlord shall notify Tenant, in writing, whether or not Landlord will require Tenant to remove such Permitted Improvements and Alterations from the Premises upon the expiration or earlier termination of this Lease. If any such Alteration is expressly permitted by Landlord, Tenant shall deliver at least ten (10) days prior notice to Landlord, from the date Tenant intends to commence construction, sufficient to enable Landlord to post a Notice of Non-Responsibility. In all events, Tenant shall obtain all permits or other governmental approvals prior to commencing any of such work and deliver a copy of same to Landlord. All Alterations shall be at Tenant’s sole cost and expense, and shall be installed by a licensed contractor (approved by Landlord) in compliance with all applicable Laws (including, but not limited to, the ADA as defined herein), Recorded Matters, and Rules and Regulations. Tenant shall keep the Premises and the property on which the Premises are situated free from any liens arising out of any work performed,

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materials furnished or obligations incurred by or on behalf of Tenant. Tenant shall, prior to construction of any and all Alterations, provide additional insurance as required, and also such assurances to Landlord, including without limitation, waivers of lien, surety company performance bonds as Landlord shall require to assure payment of the costs thereof to protect Landlord, the Building and the Park from and against any loss from any mechanic’s, materialmen’s or other liens.

     10.2 Surrender of Premises: At the end of the Term or earlier termination of this Lease, Tenant shall surrender the Premises to Landlord (a) in good condition and repair (damage by acts of God, casualty, and normal wear and tear excepted), but with all interior walls cleaned, any carpets cleaned, all floors cleaned and waxed, all non-working light bulbs and ballasts replaced and all roll-up doors and plumbing fixtures in good condition and working order, and (b) otherwise in accordance with the provisions of Section 29 hereof. Normal wear and tear shall not include any damage or deterioration to the floors of the Premises arising from the use of forklifts in, on or about the Premises (including, without limitation, any marks or stains on any portion of the floors), and any damage or deterioration that would not have reasonably been prevented by proper maintenance by Tenant, or Tenant otherwise performing all of its obligations under this Lease. On or before the expiration or earlier termination of this Lease, (i) Tenant shall remove all of Tenant’s Property (as hereinafter defined) and Tenant’s signage from the Premises, the Building and the Park and repair any damage caused by such removal, and (ii) Landlord may, by notice to Tenant given not later than ninety (90) days prior to the Expiration Date (except in the event of a termination of this Lease prior to the scheduled Expiration Date, in which event no advance notice shall be required), require Tenant, at Tenant’s expense, to remove any or all Alterations (except those Permitted Improvements and Alterations of which Landlord has notified Tenant in writing, at the time set forth in Section 10.1, that Landlord will not require such removal) and to repair any damage caused by such removal. For purposes hereof, the term “Tenant’s Property” shall mean and refer to all equipment, trade fixtures, furnishings, goods and personal property of Tenant. Any of Tenant’s Property not so removed by Tenant as required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant’s expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord’s retention and disposition of such property; provided, however, that Tenant shall remain liable to Landlord for all costs incurred in storing and disposing of such abandoned property of Tenant. All Tenant Improvements and Alterations, except those which Tenant is required to remove, shall remain in the Premises as the property of Landlord. If the Premises are not surrendered at the end of the Term or earlier termination of this Lease, and in accordance with the provisions of this Section 10 and Section 29 below, Tenant shall continue to be responsible for the payment of Rent (as the same may be increased pursuant to Section 22 below) until the Premises are so surrendered in accordance with said provisions, and Tenant shall indemnify, defend and hold the Indemnitees (hereafter defined) harmless from and against any and all damages, expenses, costs, losses or liabilities arising from any delay by Tenant in so surrendering the Premises including, without limitation, any damages, expenses, costs, losses or liabilities arising from any claim against Landlord made by any succeeding tenant or prospective tenant founded on or resulting from such delay and losses

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and damages suffered by Landlord due to lost opportunities to lease any portion of the Premises to any such succeeding tenant or prospective tenant, together with, in each case, actual attorneys’ fees and costs.

11. Repairs and Maintenance

     11.1 Tenant’s Repairs and Maintenance Obligations: Except for those portions of the Building to be maintained by Landlord, as provided in Sections 11.2 and 11.3 below, Tenant shall, at its sole cost and expense, keep and maintain all parts of the Premises and such portions of the Building and improvements as are within the exclusive control of Tenant in good, clean and safe condition and repair, promptly making all necessary repairs and replacements, whether ordinary or extraordinary, with materials and workmanship of the same character, kind and quality as the original thereof, all of the foregoing to the reasonable satisfaction of Landlord including, but not limited to, repairing any damage caused by Tenant or any of Tenant’s Representatives and replacing any property so damaged by Tenant or any of Tenant’s Representatives. Without limiting the generality of the foregoing, Tenant shall be solely responsible for promptly maintaining, repairing and replacing (a) all plumbing work and fixtures exclusively serving the Premises, (b) electrical wiring systems, fixtures and equipment exclusively serving the Premises, (c) all interior lighting (including, without limitation, light bulbs and/or ballasts) and exterior lighting exclusively serving the Premises or adjacent to the Premises, (d) all glass, windows, window frames, window casements, skylights, interior and exterior doors, door frames and door closers, (e) all roll-up doors, ramps and dock equipment, including without limitation, dock bumpers, dock plates, dock seals, dock levelers and dock lights, (f) all tenant signage, (g) lifts for disabled persons serving the Premises, (h) security systems, except to the extent maintained by Landlord, and (i) all partitions, fixtures, equipment, interior painting, interior walls and floors, and floor coverings of the Premises and every part thereof (including, without limitation, any demising walls contiguous to any portion of the Premises). Additionally, Tenant shall be solely responsible for performance of the regular removal of trash and debris.

     11.2 Maintenance by Landlord: Subject to the provisions of Section 11.1, and further subject to Tenant’s obligation under Section 6 to reimburse Landlord, in the form of Additional Rent, for Tenant’s Share of the cost and expense of the following described items, Landlord agrees to (i) repair, maintain and replace the fire protection and sprinkler systems serving the Premises and all mechanical and heating, ventilation and air conditioning systems serving the Premises and (ii) repair and maintain the following items: fire protection services; the roof and roof coverings (provided that Tenant installs no additional air conditioning or other equipment on the roof that damages the roof coverings, in which event Tenant shall pay all costs resulting from the presence of such additional equipment); the plumbing and mechanical systems serving the Building, excluding the plumbing, mechanical and electrical systems exclusively serving the Premises; any rail spur and rail crossing; exterior painting of the Building; and the parking areas, pavement, landscaping, sprinkler systems, sidewalks, driveways, curbs, and lighting systems in the Common Areas. Notwithstanding anything in this Section 11 to the contrary, Landlord shall have the right to either repair or to require Tenant to

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repair any damage to any portion of the Premises, the Building, the Common Areas and/or the Park caused by or created due to any act, omission, negligence or willful misconduct of Tenant or any of Tenant Representatives and to restore the Premises, the Building, the Common Areas and/or the Park, as applicable, to the condition existing prior to the occurrence of such damage; provided, however, that in the event Landlord elects to perform such repair and restoration work, Tenant shall reimburse Landlord within ten (10) days after written demand therefor for all costs and expenses incurred by Landlord in connection therewith. Tenant shall promptly report in writing to Landlord any defective condition known to it which Landlord is required to repair, and failure to so report such defects shall make Tenant responsible to Landlord for any liability proximately caused by Tenant’s failure to report such condition.

     11.3 Landlord’s Repairs and Maintenance Obligations: Subject to the provisions of Sections 11.1, 27 and 28, and except for repairs rendered necessary by the intentional or negligent acts or omissions of Tenant or any of Tenant’s Representatives, Landlord agrees, at Landlord’s sole cost and expense, to (a) keep in good repair the structural portions of the floors, foundations and exterior perimeter walls of the Building (exclusive of glass and exterior doors), and (b) replace the structural portions of the roof of the Building (excluding the roof membrane). Tenant shall promptly report in writing to Landlord any defective condition known to it which Landlord is required to repair, and failure to so report such defects shall make Tenant responsible to Landlord for any liability proximately caused by Tenant’s failure to report such condition.

     11.4 Tenant’s Failure to Perform Repairs and Maintenance Obligations: Tenant shall have no right of access to or right to install any device on the roof of the Building nor make any penetrations of the roof of the Building without the express prior written consent of Landlord. If Tenant refuses or neglects to repair and maintain the Premises and the other areas properly as required herein , Landlord may, but without obligation to do so, at any time make such repairs and/or maintenance without Landlord having any liability to Tenant for any loss or damage that may accrue to Tenant’s merchandise, fixtures or other property, or to Tenant’s business by reason thereof, except to the extent any damage is caused by the willful misconduct or gross negligence of Landlord or its authorized agents and representatives. In the event Landlord makes such repairs and/or maintenance, upon completion thereof Tenant shall pay to Landlord, as Additional Rent, within ten (10) days after receipt of written demand therefor, Landlord’s actual costs for making such repairs and/or maintenance. The obligations of Tenant hereunder shall survive the expiration of the Term of this Lease or the earlier termination thereof. Tenant hereby waives any right to repair at the expense of Landlord under any applicable Laws now or hereafter in effect respecting the Premises.

12. Insurance

     12.1 Types of Insurance: Tenant shall maintain in full force and effect at all times during the Term of this Lease, at Tenant’s sole cost and expense, for the protection of Tenant and Landlord, as their interests may appear, policies of insurance issued by a carrier or carriers reasonably acceptable to

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Landlord and its lender(s) which afford the following coverages: (i) worker’s compensation: statutory limits; (ii) employer’s liability, as required by law, with a minimum limit of $100,000 per employee and $500,000 per occurrence; (iii) commercial general liability insurance (occurrence form) providing coverage against any and all claims for bodily injury and property damage occurring in, on or about the Premises arising out of Tenant’s and Tenant’s Representatives’ use and/or occupancy of the Premises. Such insurance shall include coverage for blanket contractual liability, fire damage, premises, personal injury, completed operations, products liability, personal and advertising.

Such insurance shall have a combined single limit of not less than One Million Dollars ($1,000,000) per occurrence with a Two Million Dollar ($2,000,000) aggregate limit and excess/umbrella insurance in the amount of Two Million Dollars ($2,000,000). If Tenant has other locations which it owns or leases, the policy shall include an aggregate limit per location endorsement. If necessary, as reasonably determined by Landlord, Tenant shall provide for restoration of the aggregate limit; (iv) comprehensive automobile liability insurance: a combined single limit of not less than $2,000,000 per occurrence and insuring Tenant against liability for claims arising out of the ownership, maintenance, or use of any owned, hired or non-owned automobiles; (v) “all risk” or “special purpose” property insurance, including without limitation, sprinkler leakage, boiler and machinery comprehensive form, if applicable, covering damage to or loss of any of Tenant’s personal property, trade fixtures, inventory, fixtures and equipment located in, on or about the Premises, and in addition, coverage for flood, earthquake, and business interruption of Tenant, together with, if the property of Tenant’s invitees is to be kept in the Premises, warehouser’s legal liability or bailee customers insurance for the full replacement cost of the property belonging to invitees and located in the Premises. Such insurance shall be written on a replacement cost basis (without deduction for depreciation) in an amount equal to one hundred percent (100%) of the full replacement value of the aggregate of the items referred to in this subparagraph (v); and (vi) such other insurance or higher limits of liability as is then customarily required for similar types of buildings within the general vicinity of the Park or as may be reasonably required by any of Landlord’s lenders, members or partners.

     12.2 Insurance Policies: Insurance required to be maintained by Tenant shall be written by companies (i) licensed to do business in the State of California, (ii) domiciled in the United States of America, and (iii) having a “General Policyholders Rating” of at least A:X (or such higher rating as may be required by a lender having a lien on the Premises) as set forth in the most current issue of “A.M. Best’s Rating Guides.” Any deductible amounts under any of the insurance policies required hereunder shall not exceed Five Thousand Dollars ($5,000). Tenant shall deliver to Landlord certificates of insurance and true and complete copies of any and all endorsements required herein for all insurance required to be maintained by Tenant hereunder at the time of execution of this Lease by Tenant. Tenant shall, at least thirty (30) days prior to expiration of each policy, furnish Landlord with certificates of renewal or “binders” thereof. Each certificate shall expressly provide that such policies shall not be cancelable or otherwise subject to modification of the amounts of coverage except after thirty (30) days prior written notice to the parties named

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as additional insureds as required in this Lease (except for cancellation for nonpayment of premium, in which event cancellation shall not take effect until at least ten (10) days’ notice has been given to Landlord). Landlord and Tenant shall have the right to provide insurance coverage which it is obligated to carry pursuant to the terms of this Lease under a blanket insurance policy, provided such blanket policy expressly affords coverage for the Premises and for Landlord as required by this Lease.

     12.3 Additional Insureds and Coverage: Landlord, Landlord’s property management company or agent, and any of Landlord’s lender(s) having a lien against the Premises, the Building or the Park shall be named as additional insureds under all of the policies required in Section 12.1(iii) above. Additionally, such policies shall provide for severability of interest. All insurance to be maintained by Tenant shall, except for workers’ compensation and employer’s liability insurance, be primary, without right of contribution from insurance maintained by Landlord. Any umbrella/excess liability policy (which shall be in “following form”) shall provide that if the underlying aggregate is exhausted, the excess coverage will drop down as primary insurance. The limits of insurance maintained by Tenant shall not limit Tenant’s liability under this Lease. It is contemplated by the parties that the risks of loss described in Section 12.1 shall be borne by Tenant’s insurance carriers and not by Landlord’s insurance carriers. Notwithstanding anything to the contrary contained herein, to the extent Landlord’s cost of maintaining insurance with respect to the Building and/or any other buildings within the Park is increased as a result of Tenant’s acts, omissions, alterations, improvements, use or occupancy of the Premises, Tenant shall pay one hundred percent (100%) of, and for, such increase(s) as Additional Rent.

     12.4 Failure of Tenant to Purchase and Maintain Insurance: In the event Tenant does not purchase the insurance required in this Lease or keep the same in full force and effect throughout the Term of this Lease, Landlord may, but without obligation to do so, purchase the necessary insurance and pay the premiums therefor. If Landlord so elects to purchase such insurance, Tenant shall promptly pay to Landlord as Additional Rent, the amount so paid by Landlord, upon Landlord’s demand therefor. In addition, Landlord may recover from Tenant and Tenant agrees to pay, as Additional Rent, any and all losses, damages and costs which Landlord may sustain by reason of Tenant’s failure to obtain and maintain such insurance.

     12.5 Landlord’s Insurance: Landlord shall, during the Term of this Lease, procure and keep in force the following insurance, the cost of which shall be deemed an Operating Expense under Section 6.1 of this Lease: property insurance insuring the Building (and Tenant Improvements) and improvements within the Park and rental value insurance for perils covered by the causes of loss — special form (all risk) and in addition coverage for flood, earthquake and boiler and machinery (if applicable). Such coverage (except for flood and earthquake) shall be written on a replacement cost basis equal to at least eighty percent (80%) of the full insurable replacement value of the foregoing (excluding costs for footings and excavation) and shall not cover any Alterations, Tenant’s equipment, trade fixtures, inventory, fixtures or personal property located on or in the Premises. Additionally, Landlord shall, during the Term of this Lease, procure and keep in force the following insurance, the cost of which shall be

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deemed an Operating Expense under Section 6.1 of this Lease: commercial general liability insurance (occurrence form) providing coverage against claims for bodily injury, personal injury and property damage occurring in, on or about the Common Areas, having a combined single limit of not less than Two Million Dollars ($2,000,000) per occurrence and in the aggregate.

13. Waiver of Subrogation

     Landlord and Tenant hereby mutually waive their respective rights of recovery against each other for any loss of, or damage to, either parties’ property to the extent that such loss or damage is insured by an insurance policy required to be in effect at the time of such loss or damage. Each party shall obtain any special endorsements, if required by its insurer whereby the insurer waives its rights of subrogation against the other party. This provision is intended to waive fully, and for the benefit of the parties hereto, any rights and/or claims which might give rise to a right of subrogation in favor of any insurance carrier. The coverage obtained by Tenant and Landlord pursuant to Section 12 of this Lease shall include, without limitation, a waiver of subrogation endorsement attached to the certificate of insurance. The provisions of this Section 13 shall not apply in those instances in which such waiver of subrogation would invalidate such insurance coverage or would cause either party’s insurance coverage to be voided or otherwise uncollectible.

14. Limitation of Liability and Indemnity

     Except to the extent of damage resulting from the gross negligence or willful misconduct of Landlord or its authorized representatives, Tenant agrees to protect, defend (with counsel acceptable to Landlord) and hold Landlord and Landlord’s lenders, partners, members, property management company (if other than Landlord), agents, directors, officers, employees, representatives, contractors, shareholders, successors and assigns and each of their respective partners, members, directors, employees, representatives, agents, contractors, shareholders, successors and assigns (collectively, the “Indemnitees”) harmless and indemnify the Indemnitees from and against all liabilities, damages, claims, losses, judgments, charges and expenses (including reasonable attorneys’ fees, costs of court and expenses necessary in the prosecution or defense of any litigation including the enforcement of this provision) arising from or in any way related to, directly or indirectly, (i) Tenant’s or Tenant’s Representatives’ use of the Premises, Building, and/or the Park, (ii) the conduct of Tenant’s business, (iii) from any activity, work or thing done, permitted or suffered by Tenant in or about the Premises, (iv) in any way connected with the Premises, the Alterations or with the Tenant’s Property therein, including, but not limited to, any liability for injury to person or property of Tenant, Tenant’s Representatives or third party persons, and/or (v) Tenant’s failure to perform any covenant or obligation of Tenant under this Lease. Tenant agrees that the obligations of Tenant herein shall survive the expiration or earlier termination of this Lease.

     Except to the extent of damage resulting from the gross negligence or willful misconduct of Landlord or its authorized representatives, to the fullest extent permitted by law, Tenant agrees that neither Landlord nor any of

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Landlord’s lender(s), partners, members, employees, representatives, legal representatives, successors or assigns shall at any time or to any extent whatsoever be liable, responsible or in any way accountable for any loss, liability, injury, death or damage to persons or property which at any time may be suffered or sustained by Tenant or by any person(s) whomsoever who may at any time be using, occupying or visiting the Premises, the Building, or the Park, including, but not limited to, any acts, errors or omissions by or on behalf of any other tenants or occupants of the Building and/or the Park. Tenant shall not, in any event or circumstance, be permitted to offset or otherwise credit against any payments of Rent required herein for matters for which Landlord may be liable hereunder. Landlord and its authorized representatives shall not be liable for any interference with light or air, or for any latent defect (except for the thirty (30) day period described in Section 2.2 of this Lease) in the Premises or the Building.

15. Assignment and Subleasing

     15.1 Prohibition: Tenant shall not assign, mortgage, hypothecate, encumber, grant any license or concession, pledge or otherwise transfer this Lease (collectively, “assignment”), in whole or in part, whether voluntarily or involuntarily or by operation of law, nor sublet or permit occupancy by any person other than Tenant of all or any portion of the Premises without first obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld. Tenant hereby agrees that Landlord may withhold its consent to any proposed sublease or assignment if the proposed sublessee or assignee or its business is subject to compliance with additional requirements of the ADA (defined below) and/or Environmental Laws (defined below) beyond those requirements which are applicable to Tenant, unless the proposed sublessee or assignee shall (a) first deliver plans and specifications for complying with such additional requirements and obtain Landlord’s written consent thereto, and (b) comply with all Landlord’s conditions for or contained in such consent, including without limitation, requirements for security to assure the lien-free completion of such improvements. If Tenant seeks to sublet or assign all or any portion of the Premises, Tenant shall deliver to Landlord at least fifteen (15) days prior to the proposed commencement of the sublease or assignment (the “Proposed Effective Date”) the following: (i) the name of the proposed assignee or sublessee; (ii) such information as to such assignee’s or sublessee’s financial responsibility and standing as Landlord may reasonably require; and (iii) the aforementioned plans and specifications, if any. Within ten (10) days after Landlord’s receipt of a written request from Tenant that Tenant seeks to sublet or assign all or any portion of the Premises, Landlord shall deliver to Tenant a copy of Landlord’s standard form of consent to sublease or assignment agreement (as applicable), which instrument shall be utilized for each proposed sublease or assignment (as applicable). Any assignment or sublet agreement shall include a provision whereby the assignee or sublessee assumes all of Tenant’s obligations hereunder and agrees to be bound by the terms hereof. As Additional Rent hereunder, Tenant shall pay to Landlord a fee in the amount of five hundred dollars ($500) plus Tenant shall reimburse Landlord for actual legal and other expenses incurred by Landlord in connection with any actual or proposed assignment or subletting. In the event the sublease or assignment (I) by itself or taken together with prior sublease(s) or partial assignment(s)

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covers or totals, as the case may be, more than twenty-five percent (25%) of the rentable square feet of the Premises or (2) is for a term which by itself or taken together with prior or other subleases or partial assignments is greater than fifty percent (50%) of the period remaining in the Term of this Lease as of the time of the Proposed Effective Date, then Landlord shall have the right, to be exercised by giving written notice to Tenant (“Recapture Notice”), to recapture the space described in the sublease or assignment. If within fifteen (15) days of Landlord’s delivery to Tenant of the Recapture Notice, Tenant does not deliver to Landlord written notice (the “Tenant’s Recapture Rescission Notice”) that Tenant has elected (I) not to consummate such proposed assignment or sublease, and (II) to rescind the request to enter into such proposed assignment or sublease, such Recapture Notice shall serve to terminate this Lease with respect to the proposed sublease or assignment space, or, if the proposed sublease or assignment space covers all the Premises, it shall serve to terminate the entire balance of the term of this Lease, in either case, as of the Proposed Effective Date. However, no termination of this Lease with respect to part or all of the Premises shall become effective without the prior written consent, where necessary, of the holder of each deed of trust encumbering the Premises or any part thereof. If this Lease is terminated pursuant to the foregoing with respect to less than the entire Premises, the Rent shall be adjusted on the basis of the proportion of square feet retained by Tenant to the square feet originally demised and this Lease as so amended shall continue thereafter in full force and effect. Each permitted assignee or sublessee shall assume and be deemed to assume this Lease and shall be and remain liable jointly and severally with Tenant for payment of Rent and for the due performance of, and compliance with all the terms, covenants, conditions and agreements herein contained on Tenant’s part to be performed or complied with, for the term of this Lease. No assignment or subletting shall affect the continuing primary liability of Tenant (which, following assignment, shall be joint and several with the assignee), and Tenant shall not be released from performing any of the terms, covenants and conditions of this Lease. Tenant hereby acknowledges and agrees that it understands that Landlord’s accounting department may process and accept Rent payments without verifying that such payments are being made by Tenant, a permitted sublessee or a permitted assignee in accordance with the provisions of this Lease. Although such payments may be processed and accepted by such accounting department personnel, any and all actions or omissions by the personnel of Landlord’s accounting department shall not be considered as acceptance by Landlord of any proposed assignee or sublessee nor shall such actions or omissions be deemed to be a substitute for the requirement that Tenant obtain Landlord’s prior written consent to any such subletting or assignment, and any such actions or omissions by the personnel of Landlord’s accounting department shall not be considered as a voluntary relinquishment by Landlord of any of its rights hereunder nor shall any voluntary relinquishment of such rights be inferred therefrom. Except with respect to a Related Entity, for purposes hereof, in the event Tenant is a corporation, partnership, joint venture, trust or other entity other than a natural person, any change in the direct or indirect ownership of Tenant (whether pursuant to one or more transfers other than the initial public offering of Tenant’s common stock or the subsequent trading of tenant’s publicly traded common stock which does not confer upon any party or parties control over Tenant) which results in a change of more than fifty percent (50%) in the direct or indirect ownership of Tenant

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shall be deemed to be an assignment within the meaning of this Section 15 and shall be subject to all the provisions hereof. Any and all options, first rights of refusal, tenant improvement allowances and other similar rights granted to Tenant in this Lease, if any, shall not be assignable by Tenant unless expressly authorized in writing by Landlord.

     15.2 Excess Sublease Rental or Assignment Consideration: In the event of any sublease or assignment of all or any portion of the Premises where the rent or other consideration provided for in the sublease or assignment either initially or over the term of the sublease or assignment exceeds the Rent or pro rata portion of the Rent, as the case may be, for such space reserved in the Lease, Tenant shall pay the Landlord monthly, as Additional Rent, at the same time as the monthly installments of Rent are payable hereunder, fifty percent (50%) of the excess of each such payment of rent or other consideration in excess of the Rent called for hereunder.

     15.3 Waiver: Notwithstanding any assignment or sublease, or any indulgences, waivers or extensions of time granted by Landlord to any assignee or sublessee, or failure by Landlord to take action against any assignee or sublessee, Tenant agrees that Landlord may, at its option, proceed against Tenant without having taken action against or joined such assignee or sublessee, except that Tenant shall have the benefit of any indulgences, waivers and extensions of time granted to any such assignee or sublessee.

     15.4 Related Entities: Notwithstanding anything to the contrary contained in this Section 15, so long as Tenant delivers to Landlord (1) at least fifteen (15) business days prior written notice of its intention to assign or sublease the Premises to any Related Entity, which notice shall set forth the name of the Related Entity, (2) a copy of the proposed agreement pursuant to which such assignment or sublease shall be effectuated, and (3) such other information concerning the Related Entity as Landlord may reasonably require, including without limitation, information regarding any change in the proposed use of any portion of the Premises and any financial information with respect to such Related Entity, and so long as (i) any change in the proposed use of the subject portion of the Premises is in conformance with the uses permitted to be made under this Lease and do not involve the use or storage of any Hazardous Materials (other than normal amounts of ordinary household cleaners, office supplies and janitorial supplies which are not regulated by any Environmental Laws), and (ii) at the time of the proposed assignment or sublease, the net profits and financial condition of the Related Entity is reasonably adequate and sufficient in relation to the then remaining obligations of Tenant under this Lease, then Tenant may assign this Lease or sublease any portion of the Premises (X) to any Related Entity, or (Y) in connection with any merger, consolidation or sale of substantially all of the assets of Tenant, without having to obtain the prior written consent of Landlord thereto. For purposes of this Lease, the term “Related Entity” shall mean and refer to any corporation or entity which controls, is controlled by or is under common control with Tenant, as all of such terms are customarily used in the industry.

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16. Ad Valorem Taxes

     Prior to delinquency, Tenant shall pay all taxes and assessments levied upon trade fixtures, alterations, additions, improvements, inventories and personal property located and/or installed on or in the Premises by, or on behalf of, Tenant; and if requested by Landlord, Tenant shall promptly deliver to Landlord copies of receipts for payment of all such taxes and assessments. To the extent any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced by Landlord.

17. Subordination

     Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, and at the election of Landlord or any bona fide mortgagee or deed of trust beneficiary with a lien on all or any portion of the Premises or any ground lessor with respect to the land of which the Premises are a part, the rights of Tenant under this Lease and this Lease shall be subject and subordinate at all times to: (i) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Building or the land upon which the Building is situated or both, and (ii) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the Building, ground leases or underlying leases, or Landlord’s interest or estate in any of said items is specified as security. Notwithstanding the foregoing, Landlord or any such ground lessor, mortgagee, or any beneficiary shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. If any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination and upon the request of such successor to Landlord, attorn to and become the Tenant of the successor in interest to Landlord, provided such successor in interest will not disturb Tenant’s use, occupancy or quiet enjoyment of the Premises so long as Tenant is not in default of the terms and provisions of this Lease. The successor in interest to Landlord following foreclosure, sale or deed in lieu thereof shall not be (a) liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) subject to any offsets or defenses which Tenant might have against any prior lessor; (c) bound by prepayment of more than one (1) month’s Rent, except in those instances when Tenant pays Rent quarterly in advance pursuant to Section 8 hereof, then not more than three months’ Rent; or (d) liable to Tenant for any Security Deposit not actually received by such successor in interest to the extent any portion or all of such Security Deposit has not already been forfeited by, or refunded to, Tenant. Landlord shall be liable to Tenant for all or any portion of the Security Deposit not forfeited by, or refunded to Tenant, until and unless Landlord transfers such Security Deposit to the successor in interest. Tenant covenants and agrees to execute (and acknowledge if required by Landlord, any lender or ground lessor) and deliver, within five (5) days of a demand or request by Landlord and in the form requested by Landlord, ground lessor, mortgagee or beneficiary, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such mortgage or deed of trust. Tenant’s failure to timely execute and deliver such additional documents shall, at Landlord’s

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option, constitute a material default hereunder. Tenant hereby acknowledges that as of the date on which Landlord and Tenant execute this Lease there is a deed of trust encumbering, and in force against the Premises, the Building and the Park in favor of Nationsbank, N.A. (the “Current Lender”). Simultaneously with Tenant’s execution of this Lease, Tenant shall sign, notarize and deliver a subordination, non-disturbance and attornment agreement substantially in the form of Exhibit I attached hereto, entitled “Subordination, Non-Disturbance and Attornment Agreement.” Landlord shall (i) execute and notarize such agreement simultaneously with Landlord’s execution of this Lease and (ii) cause Current Lender to execute and notarize such agreement promptly after Landlord’s and Tenant’s execution and notarization of such non-disturbance agreement. If Landlord at any time during the Term of the Lease causes the Premises, the Building and the Park to be encumbered by a new deed of trust or mortgage pursuant to which the beneficiary of such deed of trust or mortgage is a party or entity other than the Current Lender, the parties acknowledge and agree that the form of any non-disturbance and attornment agreement that may be requested to be executed and delivered by Tenant in connection therewith will not be the “Subordination, Non-Disturbance and Attornment Agreement” attached to the Lease as Exhibit I. Tenant’s agreement to subordinate this Lease to any future ground or underlying lease or any future deed of trust or mortgage pursuant to the foregoing provisions o this Section 17 is conditioned upon Landlord delivering to Tenant form the lessor under such future ground or underlying lease or the holder of any such deed of trust, a non-disturbance agreement agreeing, among other things, that Tenant’s right to possession of the Premises pursuant to the terms and conditions of this Lease shall not be disturbed provided Tenant is not in default under this Lease beyond the applicable notice and cure periods hereunder.

18. Right of Entry

     Landlord and its agents shall have the right to enter the Premises at all reasonable times upon reasonable notice, except in the event of emergency (in which event no notice shall be required), for purposes of inspection, exhibition, posting of notices, repair, maintenance and alteration. At Landlord’s option, Landlord shall at all times have and retain a key with which to unlock all the doors in, upon and about the Premises, excluding Tenant’s vaults and safes. It is further agreed that Landlord shall have the right to use any and all means Landlord deems necessary to enter the Premises in an emergency. During the final nine (9) months of the Term, Landlord shall have the right to place “for rent” or “for lease” signs on the outside of the Premises, the Building and in the Common Areas. Landlord shall also have the right to place “for sale” signs on the outside of the Building and in the Common Areas. Tenant hereby waives any claim from damages or for any injury or inconvenience to or interference with Tenant’s business, or any other loss occasioned thereby except for any claim for any of the foregoing arising out of the gross negligence or willful misconduct of Landlord or its authorized representatives.

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19. Estoppel Certificate

waiver of such default, other than a waiver of timely payment for the particular Rent payment involved, and shall not prevent Landlord from maintaining an unlawful detainer or other action based on such breach. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly Rent and other sums due hereunder shall be deemed to be other than on account of the earliest Rent or other sums due, nor shall any endorsement or statement on any check or accompanying any check or payment be deemed an accord and satisfaction; and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or other sum or pursue any other remedy provided in this Lease. No failure, partial exercise or delay on the part of the Landlord in exercising any right, power or privilege hereunder shall operate as a waiver thereof.

27. Casualty Damage

     If the Premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give prompt written notice thereof to Landlord. In case the Building shall be so damaged by fire or other casualty such that the Premises and/or the Building cannot, in Landlord’s reasonable opinion, be fully repaired within one hundred eighty (180) days following the date of such damage (subject to extension for Force Majeure Delays and Tenant Delays), Landlord or Tenant may terminate this Lease by notifying the other in writing of such termination within thirty (30) days after the date of Landlord’s determination of the extent of such damage (which determination shall be made within ninety (90) days after the date of such damage) in which event the Rent shall be abated as of the date of such damage. If neither party elects to terminate this Lease, and provided insurance proceeds and any contributions from Tenant, if necessary, are available to fully repair the damage, Landlord shall within one hundred twenty (120) days after the date of such damage commence to repair and restore the Building and shall proceed with reasonable diligence to restore the Building (except that Landlord shall not be responsible for delays outside its control) to substantially the same condition in which it was immediately prior to the happening of the casualty; provided, Landlord shall not be required to rebuild, repair, or replace any part of the Tenant Improvements (in excess of any insurance proceeds actually received by Landlord) of Tenant’s Property, any Alterations . Landlord shall not in any event be required to spend for such work an amount in excess of the insurance proceeds (excluding any deductible) and any contributions from Tenant, if necessary, actually received by Landlord as a result of the fire or other casualty. Landlord shall not be liable for any inconvenience or annoyance to Tenant, injury to the business of Tenant, loss of use of any part of the Premises by Tenant or loss of Tenant’s Property resulting in any way from such damage or the repair thereof, except that, subject to the provisions of the next sentence, Landlord shall allow Tenant a fair diminution of Rent during the time and to the extent the Premises are unfit for occupancy. Notwithstanding anything to the contrary contained herein, if the Premises or any other portion of the Building be damaged by fire or other casualty resulting from the intentional or negligent acts or omissions of Tenant or any of Tenant’s Representatives, (i) the Rent shall not be diminished during the repair of such damage to the extent any portion of the Rent is not actually reimbursed to Landlord from the proceeds of any rental loss insurance procured by Landlord hereunder, (ii) Tenant shall not have any right to terminate this Lease due to

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the occurrence of such casualty or damage, and (iii) Tenant shall be liable to Landlord for the cost and expense of the repair and restoration of all or any portion of the Building caused thereby (including, without limitation, any deductible) to the extent such cost and expense is not covered by insurance proceeds. If the holder of any indebtedness secured by the Premises requires that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within thirty (30) days after the date of notice to Tenant of any such event, whereupon all rights and obligations shall cease and terminate hereunder except for those obligations expressly intended to survive any such termination of this Lease. Except as otherwise provided in this Section 27, Tenant hereby waives the provisions of Sections 1932(2.), 1933(4.), 1941 and 1942 of the California Civil Code.

28. Condemnation

     If twenty-five percent (25%) or more of the Premises is condemned by eminent domain, inversely condemned or sold in lieu of condemnation for any public or quasi-public use or purpose (“Condemned”), then Tenant or Landlord may terminate this Lease as of the date when physical possession of the Premises is taken and title vests in such condemning authority, and Rent shall be adjusted to the date of termination. Tenant shall not because of such condemnation assert any claim against Landlord or the condemning authority for any compensation because of such condemnation, and Landlord shall be entitled to receive the entire amount of any award without deduction for any estate of interest or other interest of Tenant; provided, however, the foregoing provisions shall not preclude Tenant, at Tenant’s sole cost and expense, from obtaining any separate award to Tenant for loss of or damage to Tenant’s trade fixtures and removable personal property or for damages for cessation or interruption of Tenant’s business provided such award is separate from Landlord’s award and provided further such separate award does not diminish nor impair the award otherwise payable to Landlord. In addition to the foregoing, Tenant shall be entitled to seek compensation for the relocation costs recoverable by Tenant pursuant to the provisions of California Government Code Section 7262. If neither party elects to terminate this Lease, Landlord shall, if necessary, promptly proceed to restore the Premises or the Building to substantially its same condition prior to such partial condemnation, allowing for the reasonable effects of such partial condemnation, and a proportionate allowance shall be made to Tenant, as solely determined by Landlord, for the Rent corresponding to the time during which, and to the part of the Premises of which, Tenant is deprived on account of such partial condemnation and restoration. Landlord shall not be required to spend funds for restoration in excess of the amount received by Landlord as compensation awarded.

29. Environmental Matters/Hazardous Materials

     29.1 Hazardous Materials Disclosure Certificate: Prior to executing this Lease, Tenant has completed, executed and delivered to Landlord Tenant’s initial Hazardous Materials Disclosure Certificate (the “Initial HazMat Certificate”), a copy of which is attached hereto as Exhibit E and incorporated

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herein by this reference. Tenant covenants, represents and warrants to Landlord that the information on the Initial HazMat Certificate is true and correct and accurately describes the use(s) of Hazardous Materials which will be made and/or used on the Premises by Tenant. Tenant shall commencing with the date which is one year from the Commencement Date and continuing every year thereafter, complete, execute, and deliver to Landlord, a Hazardous Materials Disclosure Certificate (“the “HazMat Certificate”) describing Tenant’s present use of Hazardous Materials on the Premises, and any other reasonably necessary documents as requested by Landlord. The HazMat Certificate required hereunder shall be in substantially the form as that which is attached hereto as Exhibit E.

     29.2 Definition of Hazardous Materials: As used in this Lease, the term Hazardous Materials shall mean and include (a) any hazardous or toxic wastes, materials or substances, and other pollutants or contaminants, which are or become regulated by any Environmental Laws; (b) petroleum, petroleum by products, gasoline, diesel fuel, crude oil or any fraction thereof; (c) asbestos and asbestos containing material, in any form, whether friable or non-friable; (d) polychlorinated biphenyls; (e) radioactive materials; (f) lead and lead- containing materials; (g) any other material, waste or substance displaying toxic, reactive, ignitable or corrosive characteristics, as all such terms are used in their broadest sense, and are defined or become defined by any Environmental Law (defined below); or (h) any materials which cause or threatens to cause a nuisance upon or waste to any portion of the Premises, the Building, the Park or any surrounding property; or poses or threatens to pose a hazard to the health and safety of persons on the Premises or any surrounding property.

     29.3 Prohibition; Environmental Laws: Tenant shall not be entitled to use nor store any Hazardous Materials on, in, or about the Premises, the Building and the Park, or any portion of the foregoing, without, in each instance, obtaining Landlord’s prior written consent thereto. If Landlord consents to any such usage or storage, then Tenant shall be permitted to use and/or store only those Hazardous Materials that are necessary for Tenant’s business and to the extent disclosed in the HazMat Certificate and as expressly approved by Landlord in writing, provided that such usage and storage is only to the extent of the quantities of Hazardous Materials as specified in the then applicable HazMat Certificate as expressly approved by Landlord and provided further that such usage and storage is in full compliance with any and all local, state and federal environmental, health and/or safety-related laws, statutes, orders, standards, courts’ decisions, ordinances, rules and regulations (as interpreted by judicial and administrative decisions), decrees, directives, guidelines, permits or permit conditions, currently existing and as amended, enacted, issued or adopted in the future which are or become applicable to Tenant or all or any portion of the Premises (collectively, the “Environmental Laws”). Tenant agrees that any changes to the type and/or quantities of Hazardous Materials specified in the most recent HazMat Certificate may be implemented only with the prior written consent of Landlord, which consent may be given or withheld in Landlord’s sole discretion. Tenant

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shall not be entitled nor permitted to install any tanks under, on or about the Premises for the storage of Hazardous Materials without the express written consent of Landlord, which may be given or withheld in Landlord’s sole discretion. Landlord shall have the right at all times during the Term of this Lease to (i) inspect the Premises, (ii) conduct tests and investigations to determine whether Tenant is in compliance with the provisions of this Section 29, and (iii) request lists of all Hazardous Materials used, stored or otherwise located on, under or about any portion of the Premises and/or the Common Areas. The cost of all such inspections, tests and investigations shall be borne solely by Tenant, if Landlord reasonably determines that Tenant or any of Tenant’s Representatives are directly or indirectly responsible in any manner for any contamination revealed by such inspections, tests and investigations. The aforementioned rights granted herein to Landlord and its representatives shall not create (a) a duty on Landlord’s part to inspect, test, investigate, monitor or otherwise observe the Premises or the activities of Tenant and Tenant’s Representatives with respect to Hazardous Materials, including without limitation, Tenant’s operation, use and any remediation related thereto, or (b) liability on the part of Landlord and its representatives for Tenant’s use, storage, disposal or remediation of Hazardous Materials, it being understood that Tenant shall be solely responsible for all liability in connection therewith.

     29.4 Tenant’s Environmental Obligations: Tenant shall give to Landlord immediate verbal and follow-up written notice of any spills, releases, discharges, disposals, emissions, migrations, removals or transportation of Hazardous Materials on, under or about any portion of the Premises or in any Common Areas. Tenant, at its sole cost and expense, covenants and warrants to promptly investigate, clean up, remove, restore and otherwise remediate (including, without limitation, preparation of any feasibility studies or reports and the performance of any and all closures) any spill, release, discharge, disposal, emission, migration or transportation of Hazardous Materials arising from or related to the intentional or negligent acts or omissions of Tenant or Tenant’s Representatives such that the affected portions of the Park and any adjacent property are returned to the condition existing prior to the appearance of such Hazardous Materials. Any such investigation, clean up, removal, restoration and other remediation shall only be performed after Tenant has obtained Landlord’s prior written consent, which consent shall not be unreasonably withheld so long as such actions would not potentially have a material adverse long-term or short-term effect on any portion of the Premises, the Building or the Park. Notwithstanding the foregoing, Tenant shall be entitled to respond immediately to an emergency without first obtaining Landlord’s prior written consent. Tenant, at its sole cost and expense, shall conduct and perform, or cause to be conducted and performed, all closures as required by any Environmental Laws or any agencies or other governmental authorities having jurisdiction thereof with respect to any Hazardous Materials used, stored, spilled, discharged, emitted, released, disposed of, removed and/or transported by Tenant or Tenant’s Representatives. If Tenant fails to so promptly investigate, clean up, remove, restore, provide closure or otherwise so remediate, Landlord may, but without obligation to do so, take any and all steps necessary to rectify the same and Tenant shall promptly reimburse Landlord, within ten (10) days after receipt of written demand therefor, for all costs and expenses to Landlord of

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performing investigation, clean up, removal, restoration, closure and remediation work. All such work undertaken by Tenant, as required herein, shall be performed in such a manner so as to enable Landlord to make full economic use of the Premises, the Building and the Park after the satisfactory completion of such work.

     29.5 Tenant’s Environmental Indemnity: In addition to Tenant’s obligations as set forth hereinabove, Tenant agrees to, and shall, protect, indemnify, defend (with counsel acceptable to Landlord) and hold Landlord and the other Indemnitees harmless from and against any and all claims, judgments, damages, penalties, fines, liabilities, losses (including, without limitation, diminution in value of any portion of the Premises, the Building or the Park, damages for the loss of or restriction on the use of rentable or usable space, and from any adverse impact of Landlord’s marketing of any space within the Building and/or Park), suits, administrative proceedings and costs (including, but not limited to, attorneys’ and consultant fees and court costs) arising at any time during or after the Term of this Lease in connection with or related to, directly or indirectly, the use, presence, transportation, storage, disposal, migration, removal, spill, release or discharge of Hazardous Materials on, in or about any portion of the Premises, the Common Areas, the Building or the Park as a result of the intentional or negligent acts or omissions of Tenant or any of Tenant’s Representatives. Neither the written consent of Landlord to the presence, use or storage of Hazardous Materials in, on, under or about any portion of the Premises, the Building and/or the Park, nor the strict compliance by Tenant with all Environmental Laws shall excuse Tenant from its obligations of indemnification pursuant hereto. Tenant shall not be relieved of its indemnification obligations under the provisions of this Section 29.5 due to Landlord’s status as either an “owner” or “operator” under any Environmental Laws.

     29.6 Survival: Tenant’s obligations and liabilities pursuant to the provisions of this Section 29 shall survive the expiration or earlier termination of this Lease. If it is determined by Landlord that the condition of all or any portion of the Premises, the Building, and/or the Park is not in compliance with the provisions of this Lease with respect to Hazardous Materials, including without limitation all Environmental Laws at the expiration or earlier termination of this Lease, then in Landlord’s sole discretion, Landlord may require Tenant to hold over possession of the Premises until Tenant can surrender the Premises to Landlord in the condition in which the Premises existed as of the Commencement Date and prior to the appearance of such Hazardous Materials except for reasonable wear and tear, including without limitation, the conduct or performance of any closures as required by any Environmental Laws. The burden of proof hereunder shall be upon Tenant. For purposes hereof, the term “reasonable wear and tear” shall not include any deterioration in the condition or diminution of the value of any portion of the Premises, the Building and/or the Park in any manner whatsoever related to directly, or indirectly, Hazardous Materials. Any such holdover by Tenant will be with Landlord’s consent, will not be terminable by Tenant in any event or circumstance and will otherwise be subject to the provisions of Section 22 of this Lease.

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     29.7 Exculpation of Tenant: Tenant shall not be liable to Landlord for nor otherwise obligated to Landlord under any provision of the Lease with respect to the following: (i) any claim, remediation, obligation, investigation, obligation, liability, cause of action, attorney’s fees, consultants’ cost, expense or damage resulting from any Hazardous Materials present in, on or about the Premises , the Building or Park to the extent not caused or otherwise permitted, directly or indirectly, by Tenant or Tenant’s Representatives; or (ii) the removal, investigation, monitoring or remediation of any Hazardous Material present in, on or about the Premises , the Building or Park caused by any source, including third parties, other than Tenant or Tenant’s Representatives, including but not limited to the conditions described in the Environmental Report; provided, however, Tenant shall be fully liable for and otherwise obligated to Landlord under the provisions of this Lease for all liabilities, costs, damages, penalties, claims, judgments, expenses (including without limitation, attorneys’ and experts’ fees and costs) and losses to the extent (a) Tenant or any of Tenant’s Representatives contributes to the presence of such Hazardous Materials, or Tenant and/or any of Tenant’s Representatives exacerbates the conditions caused by such Hazardous Materials, or (b) Tenant and/or Tenant’s Representatives allows or permits persons over which Tenant or any of Tenant’s Representatives has control, and/or for which Tenant or any of Tenant’s Representatives are legally responsible for, to cause such Hazardous Materials to be present in, on, under, through or about any portion of the Premises, the Common Areas, the Building or the Park, or (c) Tenant and/or any of Tenant’s Representatives does not take all reasonably appropriate actions to prevent such persons over which Tenant or any of Tenant’s Representatives has control and/or for which Tenant or any of Tenant’s Representatives are legally responsible from causing the presence of Hazardous Materials in, on, under, through or about any portion of the Premises, the Common Areas, the Building or the Park.

     29.8 Disclosure: Pursuant to the provisions of California Health & Safety Code Section 25359.7, Landlord hereby discloses to Tenant that as of the Lease Date certain portions of the Park contain certain Hazardous Materials as such Hazardous Materials are more particularly described and set forth in that certain report prepared by CET Environmental Services, entitled Soil Management Plan for Development and Ongoing Activities Route 237 Assemblage, dated August 27, 1997 (the “Environmental Report”). Landlord acknowledges and agrees that none of the environmental conditions or presence of Hazardous Materials on, in or under the Park as described in the Environmental Report have been in any way caused by Tenant or any of Tenant’s Representatives. Tenant hereby acknowledges and agrees that Landlord has delivered to Tenant a copy of the Environmental Report prior to Tenant entering into this Lease.

     29.9 Landlord’s Environmental Indemnity: Landlord agrees to, and shall protect, indemnify, defend and hold Tenant harmless from and against any and all claims, judgments, damages, penalties, fines, liabilities, losses, suits, administrative proceedings, and costs arising at any time during or after the Term of this Lease in connection with or related to the presence of the Hazardous Materials disclosed in Section 29.8 above.

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30. Financial Statements

     Tenant, for the reliance of Landlord, any lender holding or anticipated to acquire a lien upon any portion of the Premises, the Building, or the Park, or any prospective purchaser of any portion of the Building, or the Park, within ten (10) days after Landlord’s request therefor, but not more often than once annually so long as Tenant is not in material default of this Lease, shall deliver to Landlord the then current audited financial statements of Tenant (including interim periods following the end of the last fiscal year for which annual statements are available) which statements shall be prepared or compiled by a certified public accountant and shall present fairly the financial condition of Tenant at such dates and the result of its operations and changes in its financial positions for the periods ended on such dates. If an audited financial statement has not been prepared, Tenant shall provide Landlord with an unaudited financial statement and/or such other information, the type and form of which are acceptable to Landlord in Landlord’s reasonable discretion, which reflects the financial condition of Tenant. If Landlord so requests, Tenant shall deliver to Landlord an opinion of a certified public accountant, including a balance sheet and profit and loss statement for the most recent prior year, all prepared in accordance with generally accepted accounting principles consistently applied. If Landlord releases or delivers a copy of such financial statement or any such financial information to any lender of Landlord or any prospective purchaser of the Building, Landlord shall use commercially reasonable efforts to advise such parties and require of such parties that they maintain such financial statements and any such financial information strictly confidential and not further disseminate the financial statement(s) or any such financial information to any other party without first obtaining Tenant’s consent thereto, which consent shall not be unreasonably withheld or delayed; provided (a) any of Landlord’s lenders or partners, (b) any prospective purchaser of the Premises, and (c) such party(s) as may be required by any laws, regulations, orders, decrees, court orders or subpoenas

31. General Provisions

     31.1 Time. Time is of the essence in this Lease and with respect to each and all of its provisions in which performance is a factor.

     31.2 Successors and Assigns. The covenants and conditions herein contained, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of the parties hereto.

     31.3 Recordation. Tenant shall not record this Lease or a short form memorandum hereof.

     31.4 Landlord’s Personal Liability. The liability of Landlord to Tenant for any default by Landlord under the terms of this Lease shall be limited to the actual interest of Landlord and its present or future partners or members in the Premises or the Building, and Tenant agrees to look solely to the Premises for satisfaction of any liability and shall not look to other assets of Landlord nor seek any recourse against the assets of the individual partners, members, directors, officers, shareholders, agents or employees of Landlord (including without limitation, any property management company of Landlord); it being intended that Landlord and the individual partners, members, directors,

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officers, shareholders, agents and employees of Landlord (including without limitation, any property management company of Landlord) shall not be personally liable in any manner whatsoever for any judgment or deficiency. The liability of Landlord under this Lease is limited to its actual period of ownership of title to the Building.

     31.5 Separability. Any provisions of this Lease which shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provisions hereof and such other provision shall remain in full force and effect.

     31.6 Choice of Law. This Lease shall be governed by, and construed in accordance with, the laws of the State of California.

     31.7 Attorneys’ Fees. In the event any dispute between the parties results in litigation or other proceeding, the prevailing party shall be reimbursed by the party not prevailing for all reasonable costs and expenses, including, without limitation, reasonable attorneys’ and experts’ fees and costs incurred by the prevailing party in connection with such litigation or other proceeding, and any appeal thereof. Such costs, expenses and fees shall be included in and made a part of the judgment recovered by the prevailing party, if any.

     31.8 Entire Agreement. This Lease, including the Exhibits hereto, supersedes any prior agreements, representations, negotiations or correspondence between the parties, and contains the entire agreement of the parties on matters covered. No other agreement, statement or promise made by any party, that is not in writing and signed by all parties to this Lease, shall be binding.

     31.9 Warranty of Authority. On the date that Tenant executes this Lease, Tenant shall deliver to Landlord an original certificate of status for Tenant issued by the California Secretary of State or statement of partnership for Tenant recorded in the county in which the Premises are located, as applicable, and such other documents as Landlord may reasonably request with regard to the lawful existence of Tenant. Each person executing this Lease on behalf of a party represents and warrants that (1) such person is duly and validly authorized to do so on behalf of the entity it purports to so bind, and (2) if such party is a partnership, corporation or trustee, that such partnership, corporation or trustee has full right and authority to enter into this Lease and perform all of its obligations hereunder. Tenant hereby warrants that this Lease is valid and binding upon Tenant and enforceable against Tenant in accordance with its terms.

     31.10 Notices. Any and all notices and demands required or permitted to be given hereunder to Landlord shall be in writing and shall be sent: (a) by United States mail, certified and postage prepaid; or (b) by personal delivery; or (c) by overnight courier, addressed to Landlord at 101 Lincoln Centre Drive, Fourth Floor, Foster City, California 94404-1167. Any and all notices and demands required or permitted to be given hereunder to Tenant shall be in writing and shall be sent: (i) by United States mail, certified and postage prepaid; or (ii) by personal delivery to any employee or agent of Tenant over

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the age of eighteen (18) years of age; or (iii) by overnight courier, all of which shall be addressed to Tenant at the Premises. Notice and/or demand shall be deemed given upon the earlier of actual receipt or the third day following deposit in the United States mail. Any notice or requirement of service required by any statute or law now or hereafter in effect, including, but not limited to, California Code of Civil Procedure Sections 1161, 1161.1, and 1162 (including any amendments, supplements or substitutions thereof), is hereby waived by Tenant.

     31.11 Joint and Several. If Tenant consists of more than one person or entity, the obligations of all such persons or entities shall be joint and several.

     31.12 Covenants and Conditions. Each provision to be performed by Tenant hereunder shall be deemed to be both a covenant and a condition.

     31.13 Waiver of Jury Trial. The parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way related to this Lease, the relationship of Landlord and Tenant, Tenant’s use or occupancy of the Premises, the Building, or the Park, and/or any claim of injury, loss or damage.

     31.14 Merger. The voluntary or other surrender of this Lease by Tenant, the mutual termination or cancellation hereof by Landlord and Tenant, or a termination of this Lease by Landlord for a material default by Tenant hereunder, shall not work a merger, and, at the sole option of Landlord, (i) shall terminate all or any existing subleases or subtenancies, or (ii) may operate as an assignment to Landlord of any or all of such subleases or subtenancies. Landlord’s election of either or both of the foregoing options shall be exercised by delivery by Landlord of written notice thereof to Tenant and all known subtenants under any sublease.

32. Signs

     All signs and graphics of every kind visible from the exterior of the Premises shall be subject to Landlord’s prior written approval and shall be subject to and in compliance with any applicable Laws, Development Documents, Recorded Matters, Rules and Regulations, and Landlord’s sign criteria as same may exist from time to time or as set forth in Exhibit H hereto and made a part hereof. Tenant shall remove all such signs and graphics prior to the termination of this Lease. Such installations and removals shall be made in a manner as to avoid damage or defacement of the Premises; and Tenant shall repair any damage or defacement, including without limitation, discoloration caused by such installation or removal. Landlord shall have the right, at its option, to deduct from the Security Deposit such sums as are reasonably necessary to remove such signs, including, but not limited to, the costs and expenses associated with any repairs necessitated by such removal. Notwithstanding the foregoing, in no event shall any: (a) neon, flashing or moving sign(s) or (b) sign(s) which shall interfere with the visibility of any sign, awning, canopy, advertising matter, or decoration of any kind of any other business or occupant of the Building, or the

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Park be permitted hereunder. Tenant further agrees to maintain any such sign, awning, canopy, advertising matter, lettering, decoration or other thing as may be approved in good condition and repair at all times.

33. Mortgagee Protection

     Upon any default on the part of Landlord, Tenant will give written notice by registered or certified mail to any beneficiary of a deed of trust or mortgagee of a mortgage covering the Premises who has provided Tenant with notice of their interest together with an address for receiving notice, and shall offer such beneficiary or mortgagee a reasonable opportunity to cure the default (which, in no event shall be more than one hundred fifty (150) days), including time to obtain possession of the Premises by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure. If such default cannot be cured within such time period, then such additional time as may be necessary will be given to such beneficiary or mortgagee to effect such cure so long as such beneficiary or mortgagee has commenced the cure within the original time period and thereafter diligently pursues such cure to completion, in which event this Lease shall not be terminated while such cure is being diligently pursued. Tenant agrees that each lender to whom this Lease has been assigned by Landlord is an express third party beneficiary hereof. Tenant shall not make any prepayment of Rent more than one (1) month in advance without the prior written consent of each such lender, except if Tenant is required to make quarterly payments of Rent in advance pursuant to the provisions of Section 8 above. Tenant waives the collection of any deposit from such lender(s) or any purchaser at a foreclosure sale of such lender(s)’ deed of trust unless the lender(s) or such purchaser shall have actually received and not refunded the deposit. Tenant agrees to make all payments under this Lease to the lender with the most senior encumbrance upon receiving a direction, in writing, to pay said amounts to such lender. Tenant shall comply with such written direction to pay without determining whether an event of default exists under such lender’s loan to Landlord and Landlord waives and releases Tenant from any liability for Tenant’s compliance with such written direction.

34. Quitclaim

     Upon any termination of this Lease, Tenant shall, at Landlord’s request, execute, acknowledge and deliver to Landlord a quitclaim deed of Tenant’s interest in and to the Premises.

35. Modifications for Lender (Intentionally omitted)

36. Warranties of Tenant

     Tenant hereby warrants and represents to Landlord, for the express benefit of Landlord, that Tenant has undertaken a complete and independent evaluation of the risks inherent in the execution of this Lease and the operation of the Premises for the use permitted hereby, and that, based upon said independent evaluation, Tenant has elected to enter into this Lease and hereby assumes all risks with respect thereto. Tenant hereby further warrants and represents to Landlord, for the express benefit of Landlord, that in entering into this Lease,

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Tenant has not relied upon any statement, fact, promise or representation (whether express or implied, written or oral) not specifically set forth herein in writing and that any statement, fact, promise or representation (whether express or implied, written or oral) made at any time to Tenant, which is not expressly incorporated herein in writing, is hereby waived by Tenant.

37. Compliance with Americans with Disabilities Act

     Landlord and Tenant hereby agree and acknowledge that the Premises, the Building and/or the Park may be subject to the requirements of the Americans with Disabilities Act, a federal law codified at 42 U.S.C. 12101 et seq, including, but not limited to Title III thereof, all regulations and guidelines related thereto, together with any and all laws, rules, regulations, ordinances, codes and statutes now or hereafter enacted by local or state agencies having jurisdiction thereof, including all requirements of Title 24 of the State of California, as the same may be in effect on the date of this Lease and may be hereafter modified, amended or supplemented (collectively, the “ADA”). Any Tenant Improvements to be constructed hereunder shall be in compliance with the requirements of the ADA, and all costs incurred for purposes of compliance therewith shall be a part of and included in the costs of the Tenant Improvements. Tenant shall be solely responsible for conducting its own independent investigation of this matter. Subject to reimbursement pursuant to Section 6 of the Lease, if any barrier removal work or other work is required to the Building, the Common Areas or the Park under the ADA, then such work shall be the responsibility of Landlord; provided, if such work is required under the ADA as a result of Tenant’s use of the Premises or any work or alteration made to the Premises by or on behalf of Tenant, then such work shall be performed by Landlord at the sole cost and expense of Tenant. Except as otherwise expressly provided in this provision, Tenant shall be responsible at its sole cost and expense for fully and faithfully complying with all applicable requirements of the ADA, including without limitation, not discriminating against any disabled persons in the operation of Tenant’s business in or about the Premises, and offering or otherwise providing auxiliary aids and services as, and when, required by the ADA. Within ten (10) days after receipt, Landlord and Tenant shall advise the other party in writing, and provide the other with copies of (as applicable), any notices alleging violation of the ADA relating to any portion of the Premises or the Building; any claims made or threatened in writing regarding noncompliance with the ADA and relating to any portion of the Premises, or the Building ; or any governmental or regulatory actions or investigations instituted or threatened regarding noncompliance with the ADA and relating to any portion of the Premises, or the Building. Tenant shall and hereby agrees to protect, defend (with counsel acceptable to Landlord) and hold Landlord and the other Indemnitees harmless and indemnify the Indemnitees from and against all liabilities, damages, claims, losses, penalties, judgments, charges and expenses (including reasonable attorneys’ fees, costs of court and expenses necessary in the prosecution or defense of any litigation including the enforcement of this provision) arising from or in any way related to, directly or indirectly, Tenant’s or Tenant’s Representatives’ violation or alleged violation of the ADA. Tenant agrees that the obligations of Tenant herein shall survive the expiration or earlier termination of this Lease.

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38. Brokerage Commission

     Landlord and Tenant each represents and warrants for the benefit of the other that it has had no dealings with any real estate broker, agent or finder in connection with the Premises and/or the negotiation of this Lease, except for the Broker(s) (as set forth on Page 1) (which Brokers shall be paid by Landlord pursuant to a separate written agreement between Landlord and Brokers), and that it knows of no other real estate broker, agent or finder who is or might be entitled to a real estate brokerage commission or finder’s fee in connection with this Lease or otherwise based upon contacts between the claimant and Tenant. Each party shall indemnify and hold harmless the other from and against any and all liabilities or expenses arising out of claims made for a fee or commission by any real estate broker, agent or finder in connection with the Premises and this Lease other than Broker(s) (which Brokers shall be paid by Landlord pursuant to a separate written agreement between Landlord and Brokers), if any, resulting from the actions of the indemnifying party. Any real estate brokerage commission or finder’s fee payable to the Broker(s) in connection with this Lease shall only be payable and applicable to the extent of the initial Term of the Lease and to the extent of the Premises as same exist as of the date on which Tenant executes this Lease. Unless expressly agreed to in writing by Landlord and Broker(s), no real estate brokerage commission or finder’s fee shall be owed to, or otherwise payable to, the Broker(s) for any renewals or other extensions of the initial Term of this Lease or for any additional space leased by Tenant other than the Premises as same exists as of the date on which Tenant executes this Lease. Tenant further represents and warrants to Landlord that Tenant will not receive (i) any portion of any brokerage commission or finder’s fee payable to the Broker(s) in connection with this Lease or (ii) any other form of compensation or incentive from the Broker(s) with respect to this Lease.

39. Confidentiality

     Language to be provided.

40. Quiet Enjoyment

     Landlord covenants with Tenant, upon the paying of Rent and observing and keeping the covenants, agreements and conditions of this Lease on its part to be kept, and during the periods that Tenant is not otherwise in material default of any of the terms or provisions of this Lease, and subject to the terms of Section 17 of this Lease, (i) that Tenant shall and may peaceably and quietly hold, occupy and enjoy the Premises and the Common Areas during the Term of this Lease, and (ii) neither Landlord, nor any successor or assign of Landlord, shall disturb Tenant’s occupancy or enjoyment of the Premises and the Common Areas.

41. Landlord’s Ability to Perform Tenant’s Unperformed Obligations

     Notwithstanding anything to the contrary contained in this Lease, if Tenant shall fail to perform any of the terms, provisions, covenants or conditions to be performed or complied with by Tenant pursuant to this Lease, and/or if the failure of Tenant relates to a matter which in Landlord’s judgment reasonably

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exercised is of an emergency nature and such failure shall remain uncured for a period of time commensurate with such emergency, then Landlord may, at Landlord’s option without any obligation to do so, and in its sole discretion as to the necessity therefor, perform any such term, provision, covenant, or condition, or make any such payment and Landlord by reason of so doing shall not be liable or responsible for any loss or damage thereby sustained by Tenant or anyone holding under or through Tenant. If Landlord so performs any of Tenant’s obligations hereunder, the full amount of the cost and expense entailed or the payment so made or the amount of the loss so sustained shall immediately be owing by Tenant to Landlord, and Tenant shall promptly pay to Landlord upon demand, as Additional Rent, the full amount thereof with interest thereon from the date of payment at the greater of (i) ten percent (10%) per annum, or (ii) the highest rate permitted by applicable law.

42. Collateral for Performance of Lease Obligations

     Simultaneously with Tenant’s delivery to Landlord of this Lease and the first month’s Base Rent in accordance with the provisions of Section 3 above, Tenant shall deliver to Landlord, as collateral for the full and faithful performance by Tenant of all of its obligations under this Lease and for all losses and damages Landlord may suffer as a result of any default by Tenant under this Lease, an irrevocable and unconditional negotiable letter of credit, in the form and containing the terms required herein, payable in the City of Foster City, California running in favor of Landlord issued by a solvent bank under the supervision of the Superintendent of Banks of the State of California, or a National Banking Association, in the amount of Four Hundred Thirty Five Thousand Nine Hundred Forty-Six and 00/100 Dollars ($435,946.00) (the “Letter of Credit”). The Letter of Credit shall be (a) at sight and irrevocable, (b) maintained in effect, whether through replacement, renewal or extension, for the entire Lease Term (the “Letter of Credit Expiration Date”) and Tenant shall deliver a new Letter of Credit or certificate of renewal or extension to Landlord at least thirty (30) days prior to the expiration of the Letter of Credit, without any action whatsoever on the part of Landlord, (c) subject to the Uniform Customs and Practices for Documentary Credits (1993-Rev) International Chamber of Commerce Publication #400, (d) acceptable to Landlord in its sole discretion, and (e) fully assignable by Landlord and permit partial draws. In addition to the foregoing, the form and terms of the Letter of Credit (and the bank issuing the same) shall be acceptable to Landlord, in Landlord’s sole discretion, and shall provide, among other things, in effect that: (1) Landlord, or its then managing agent, shall have the right to draw down an amount up to the face amount of the Letter of Credit upon the presentation to the issuing bank of Landlord’s (or Landlord’s then managing agent’s) statement that Tenant is in material default and such amount is due to Landlord under the terms and conditions of this Lease, it being understood that if Landlord or its managing agent be a corporation, partnership or other entity, then such statement shall be signed by an officer (if a corporation), a general partner (if a partnership), or any authorized party (if another entity); (2) the Letter of Credit will be honored by the issuing bank without inquiry as to the accuracy thereof and regardless of whether the Tenant disputes the content of such statement; and (3) in the event of a transfer of Landlord’s interest in the Building, Landlord shall transfer the Letter of

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Credit, in whole or in part (or cause a substitute letter of credit to be delivered, as applicable), to the transferee and thereupon the Landlord shall, without any further agreement between the parties, be released by Tenant from all liability therefor, and it is agreed that the provisions hereof shall apply to every transfer or assignment of the whole or any portion of said Letter of Credit to a new Landlord. If, as a result of any such application of all or any part of the Letter of Credit, the amount of the Letter of Credit shall be less than Four Hundred Thirty Five Thousand Nine Hundred Forty-Six and 00/100 Dollars ($435,946.00), Tenant shall within five (5) days thereafter provide Landlord with additional letter(s) of credit in an amount equal to the deficiency (or a replacement letter of credit in the total amount of Four Hundred Thirty Five Thousand Nine Hundred Forty-Six and 00/100 Dollars ($435,946.00) and each such additional (or replacement) letter of credit shall comply with all of the provisions of this Section 42, and if Tenant fails to do so, the same shall constitute an incurable default by Tenant. Tenant further covenants and warrants that it will neither assign nor encumber the Letter of Credit or any part thereof and that neither Landlord nor its successors or assigns will be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. Without limiting the generality of the foregoing, if the Letter of Credit expires earlier than the Letter of Credit Expiration Date, Landlord will accept a renewal thereof or substitute letter of credit (such renewal or substitute letter of credit to be in effect not later than thirty (30) days prior to the expiration thereof), which shall be irrevocable and automatically renewable as above provided through the Letter of Credit Expiration Date upon the same terms as the expiring letter of credit or such other terms as may be acceptable to Landlord in its sole discretion. However, if the Letter of Credit is not timely renewed or a substitute letter of credit is not timely received, or if Tenant fails to maintain the Letter of Credit in the amount and terms set forth in this Section 42, Landlord shall have the right to present such Letter of Credit to the bank in accordance with the terms of this Section 42, and the entire sum evidenced thereby shall be paid to and held by Landlord as collateral for performance of all of Tenant’s obligations under this Lease and for all losses and damages Landlord may suffer as a result of any default by Tenant under this Lease. If there shall occur a material default under this Lease as set forth in Section 20 of this Lease, Landlord may, but without obligation to do so, draw upon the Letter of Credit, in part or in whole, to cure any default of Tenant and/or to compensate Landlord for any and all damages of any kind or nature sustained or which may be sustained by Landlord resulting from Tenant’s default. Tenant agrees not to interfere in any way with payment to Landlord of the proceeds of the Letter of Credit, either prior to or following a “draw” by Landlord of any portion of the Letter of Credit, regardless of whether any dispute exists between Tenant and Landlord as to Landlord’s right to draw from the Letter of Credit. No condition or term of this Lease shall be deemed to render the Letter of Credit conditional to justify the issuer of the Letter of Credit in failing to honor a drawing upon such Letter of Credit in a timely manner. Landlord and Tenant acknowledge and agree that in no event or circumstance shall the Letter of Credit or any renewal thereof or substitute therefor be (i) deemed to be or treated as a “security deposit” within the meaning of California Civil Code Section 1950.7, (ii) subject to the terms of such Section 1950.7, or (iii) intended to serve as a “security deposit” within the meaning of such Section 1950.7. The parties hereto (x) recite that the

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Letter of Credit is not intended to serve as a security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context (“Security Deposit Laws”) shall have no applicability or relevancy to the Letter of Credit and (y) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws. Notwithstanding the above, upon Tenant completing an initial public offering and achieving a market value of $400,000,000.00, such Letter of Credit shall no longer be required. Tenant shall be required to provide written documentation outlining Tenant’s market valuation for Landlord’s review and acceptance prior to the release and termination of such Letter of Credit.

43. Satellite Dish

     Tenant shall have the right (but only to the extent permitted by the City of San Jose and all agencies and governmental authorities having jurisdiction thereof), at Tenant’s sole cost and expense, to install and operate a satellite or microwave dish or dishes (“Satellite Dishes”) along with any necessary cables (“Cables”) on a portion of the roof of the Building to be designated by Landlord (“Roof Space”) for the Term of the Lease (the Satellite Dishes and Cables are hereinafter collectively referred to as the “Equipment”). The location and size of the Equipment shall be subject to Landlord’s approval, not to unreasonably withheld and which best promotes the safety, aesthetics and efficiency of the Equipment; provided, all of the Equipment and any modifications thereto or placement thereof shall be (i) at Tenant’s sole cost and expense, (ii) contained visually within the roof screen, (iii) installed and operated to Landlord’s reasonable specifications, and (iv) installed, maintained, operated and removed in accordance with all Recorded Matters and applicable Laws. Landlord shall cooperate reasonably with Tenant to modify the roof screen placement (subject to all applicable Laws and Recorded Matters) if required for signal quality, reconfiguration due to the installation of any HVAC systems and other reasonable considerations; provided, the cost of all such modifications shall be the responsibility of Tenant. All modifications to the Building, including the Roof Space, if any, shall be reasonably approved by Landlord prior to commencement of any work with respect to the Equipment. No additional rent shall be paid by Tenant for use of the Roof Space and operation of the Equipment. The Equipment shall remain the property of Tenant and Tenant shall remove the Equipment upon the expiration or earlier termination of the Lease. Tenant shall restore the Roof Space and any other portion of the Buildings affected by the Equipment to its original condition, excepting ordinary wear and tear and/or damage or destruction due to fire or other casualty not caused directly or indirectly by Tenant, its agents, employees, contractors or the Equipment or any part thereof. Tenant may not assign, lease, rent, sublet or otherwise transfer any of its interest in the Roof Space or the Equipment except together with the remainder of all of the Premises as more particularly set forth in Section 15. Each of the other provisions of this Lease shall be applicable to the Equipment and the use of the Roof Space by Tenant, including without limitation, Sections 12 and 14 of this Lease. The Equipment shall comply with all-non-interference rules of the Federal Communications Commission. If applicable, Tenant shall provide to Landlord a copy of (i) the Federal Communications Commission (or other agency) grant which has awarded frequencies to Tenant and (ii) a list of Tenant’s frequencies. Anything to the contrary contained herein notwithstanding, if,

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during the Lease Term, as such Term may be extended, Landlord, in its reasonable judgment, believes that the Equipment poses a human health or environmental hazard that cannot be remediated or has not been remediated within ten (10) days after Tenant has been notified thereof, then Tenant shall immediately cease all operations of the Equipment and Tenant shall remove all of the Equipment within thirty (30) days thereafter. To the best of Tenant’s knowledge, Tenant represents to Landlord that the Equipment shall not emit or project any electro- magnetic fields which pose a human health or environmental hazard. In addition, Tenant shall be responsible for insuring the Equipment and Landlord shall have no responsibility therefor. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord) and hold harmless Landlord from any and all claims, demands, liabilities, damages, judgments, costs and expenses (including reasonable attorneys’ fees) Landlord may suffer or incur arising out of or related to the installation, use, operation, maintenance, replacement and/or removal of the Equipment or any portion thereof.

44. Tenant’s Ability to Perform Landlord’s Unperformed Obligations

     Notwithstanding anything to the contrary contained in this Lease, if Landlord shall fail to perform any of the terms, provisions, covenants or conditions to be performed or complied with by Landlord under Section 11.2 of this Lease with respect only to the Premises (such terms, provisions, covenants or conditions are referred to herein, collectively as “Landlord Repair Obligations”) after expiration of all applicable notice and cure periods for Landlord’s and any mortgagee’s benefit as set forth in Sections 23 and 33, respectively, then Tenant may, at Tenant’s option and risk, but without any obligation to do so, after delivery of an additional twenty (20) day prior written notice to Landlord, perform such Landlord Repair Obligations on Landlord’s behalf. If Tenant so performs any of such Landlord Repair Obligations hereunder, then Tenant will perform such Landlord Repair Obligations (1) in compliance with all applicable Laws, regulations and requirements to which Landlord would be subject under this Lease (if Landlord were performing such Landlord Repair Obligations), (2) in a good workmanlike manner using materials of a quality and grade at least equal to that in place as of the date of delivery of the Premises to Tenant, if applicable, (3) without interfering with the rights of other tenants of the Park, and (4) in compliance with the terms and provisions of Section 10.1 hereof, as applicable. Tenant will promptly assign to Landlord any warranties or guaranties in respect of any Landlord Repair Obligations. If Tenant so performs any of such Landlord Repair Obligations hereunder, the full amount of the fair and reasonable costs and expenses incurred by Tenant shall be owing by Landlord to Tenant, and Landlord shall pay to Tenant the full undisputed amount thereof within sixty (60) days of Landlord’s receipt of Tenant’s written demand therefor together with reasonable evidence verifying the amount of such costs and expenses.

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     IN WITNESS WHEREOF, this Lease is executed by the parties as of the Lease Date referenced on Page 1 of this Lease.

Tenant:
Foundry Networks, Inc., a California corporation
By:	/s/ Timothy D. Heffner
Its:	CFO and Assistant Secretary
Date:	September 30, 1999
By:	/s/ Bobby R. Johnson
Its:	President and CEO
Date:	September 30, 1999
Landlord:
WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership
By:	LEGACY PARTNERS COMMERCIAL, INC., as manager and agent for WIX/NSJ Real Estate Limited Partnership
By:	/s/ Barry DiRaimondo
	Senior Vice President
Date:	September 30, 1999

If Tenant is a CORPORATION, the authorized officers must sign on behalf of the corporation and indicate the capacity in which they are signing. The Lease must be executed by the president or vice-president and the secretary or assistant secretary, unless the bylaws or a resolution of the board of directors shall otherwise provide, in which event, the bylaws or a certified copy of the resolution, as the case may be, must be attached to this Lease.

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Exhibit A
Premises

This exhibit, entitled “Premises”, is and shall constitute EXHIBIT A to that certain Lease Agreement dated September 15, 1999 (the “Lease”), by and between WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership (“Landlord”) and Foundry Networks, Inc., a California corporation (“Tenant”) for the leasing of certain premises located at 2100 Gold Street, San Jose, California (the “Premises”).

The Premises consist of the rentable square footage of space specified in the Basic Lease Information and has the address specified in the Basic Lease Information. The Premises are a part of and are contained in the Building specified in the Basic Lease Information. The cross-hatched area depicts the Premises within the Park:

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Exhibit B to Lease Agreement
Tenant Improvements and Shell Improvements

This exhibit, entitled “Tenant Improvements and Shell Improvements”, is and shall constitute Exhibit B to that certain Lease Agreement, dated for reference purposes as of September 15, 1999 (the “Lease”), by and between WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership (“Landlord”) and Foundry Networks, Inc., a California corporation (“Tenant”) for the leasing of certain premises located at 2100 Gold Street, San Jose, California (the “Premises”). The terms, conditions and provisions of this Exhibit B are hereby incorporated into and are made a part of the Lease. Any capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms as set forth in the Lease.

1. Tenant Improvements. Subject to the conditions set forth below, Landlord agrees to construct and install certain improvements (“Tenant Improvements”) in the Building of which the Premises are a part in accordance with the Approved Final Drawings (defined below) and the terms of this Exhibit B.

2. Definition. “Tenant Improvements” as used in this Lease shall include only those interior improvements to be made to the Premises as specified in the Approved Final Drawings (defined below) and agreed to by Tenant and Landlord in accordance with the provisions hereof. “Tenant Improvements” shall specifically not include (i) any alterations, additions or improvements installed or constructed by Tenant, (ii) any of Tenant’s trade fixtures, security equipment, equipment, furniture, furnishings, telephone and/or data equipment, telephone and/or data lines or other personal property, and (iii) any supplemental fire protection improvements or equipment (collectively, “Tenant’s Installations”). Landlord shall construct the Tenant Improvements in a good and workmanlike manner in substantial accordance with the Approved Final Drawings, and in compliance with the Americans with Disabilities Act as such Act is in effect as of the Commencement Date.

3. Tenant’s Initial Plans; the Work. Tenant desires Landlord to perform certain Tenant Improvements in the Premises. The Tenant Improvements shall be in substantial accordance with the plan(s) and scope of work (collectively, the “Initial Plans”) . The parties shall meet and confer to agree upon a scope of work immediately after execution of this Lease and, within fifteen (15) business days from the date Landlord and Tenant meet to discuss the scope of work, Landlord’s Architect shall prepare and deliver to Tenant the Initial Plans. A copy of the Initial Plans shall be attached hereto as Schedule 1, as soon as practicable thereafter. Such work, as shown in the Initial Plans and as more fully detailed in the Approved Final Drawings (as defined and described in Section 4 below), shall be hereinafter referred to as the “Work”. Not later than five (5) days after the Initial Plans are prepared and delivered to Tenant, Tenant or Tenant’s Representatives shall furnish to Landlord such additional plans, drawings, specifications and finish details as Landlord may reasonably request to enable Landlord’s architects and engineers, as applicable, to prepare mechanical, electrical and plumbing plans and to prepare the Final Drawings,

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including, but not limited to, a final telephone layout and special electrical connections, if any. All plans, drawings, specifications and other details describing the Work which have been, or are hereafter, furnished by or on behalf of Tenant shall be subject to Landlord’s approval, which approval shall not be unreasonably withheld. Landlord shall not be deemed to have acted unreasonably if it withholds its approval of any plans, specifications, drawings or other details or of any Change Request (hereafter defined in Section 11 below) because, in Landlord’s reasonable opinion, the work as described in any such item or any Change Request, as the case may be: (a) is likely to adversely affect Building systems, the structure of the Building or the safety of the Building or its occupants; (b) is likely to impair Landlord’s ability to furnish services to Tenant ; (c) would increase the cost of operating the Park; (d) would violate any applicable governmental, administrative body’s or agencies’ laws, rules, regulations, ordinances, codes or similar requirements (or interpretations thereof); (e) contains or uses Hazardous Materials; (f) would adversely affect the appearance of the Building or the Park; (g) is likely to adversely affect another tenant’s premises or such other tenant’s use and enjoyment of such premises; (h) is prohibited by any ground lease affecting the Building and/or the Park, any Recorded Matters or any mortgage, trust deed or other instrument encumbering the Building and/or the Park; (i) is likely to be substantially delayed because of unavailability or shortage of labor or materials necessary to perform such work or the difficulties or unusual nature of such work; (j) is not, at a minimum, in accordance with Landlord’s Building Standards (defined below); (k) would increase the Tenant Improvement Costs (defined in Section 9 below) by more than twenty percent (20%) from the cost originally estimated and anticipated by the parties; or (l) would delay completion of the Final Drawings, the Approved Final Drawings and/or the Tenant Improvements. The foregoing reasons, however, shall not be the only reasons for which Landlord may reasonably withhold its approval, whether or not such other reasons are similar or dissimilar to the foregoing. Neither the approval by Landlord of the Work, the Initial Plans or any other plans, specifications, drawings or other items associated with the Work or any Change Request nor Landlord’s performance, supervision or monitoring of the Work shall constitute any warranty or covenant by Landlord to Tenant of the adequacy of the design for Tenant’s intended use of the Premises. Tenant agrees to, and does hereby, assume full and complete responsibility to ensure that the design of the Work and the Approved Final Drawings are adequate to fully meet the needs and requirements of Tenant’s use and intended operations of its business within the Premises.

4. Final Drawings and Approved Final Drawings. If necessary for the performance of the Work, and to the extent not already included as part of the Initial Plans to be attached hereto, Landlord shall prepare or cause to be prepared final working drawings and specifications for the Work (the “Final Drawings”) based on and consistent with the Initial Plans and the other plans, specifications, drawings, finish details or other information furnished by Tenant or Tenant’s Representatives to Landlord and approved by Landlord pursuant to Section 3 above. Tenant shall cooperate diligently with Landlord and Landlord’s architect, engineer and other representatives and Tenant shall furnish within five (5) days after any request therefor, all information required by Landlord or Landlord’s architect, engineer or other representatives

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for completion of the Final Drawings. So long as the Final Drawings are substantially consistent with the Initial Plans, Tenant shall approve the Final Drawings within five (5) days after receipt of same from Landlord. Tenant’s failure to approve or disapprove such Final Drawings within the foregoing five (5) day time period, shall be conclusively deemed to be disapproval of same by Tenant and deemed a “Tenant Delay” (as defined herein). If Tenant reasonably disapproves of any matters included in the Final Drawings because such items are not substantially consistent with the Initial Plans, Tenant shall, within the aforementioned five (5) day period, deliver to Landlord written notice of its disapproval and Tenant shall specify in such written notice, in reasonable detail the matters disapproved, the reasons for such disapproval, and, if possible, the specific changes or revisions necessary to be made to the Final Drawings to cause such drawings to substantially conform to the Initial Plans (and failure to deliver such notice within such time period shall be a Tenant Delay). Any additional costs associated with such requested changes or revisions shall be included as part of the Tenant Improvement Costs (defined below). The foregoing procedure shall be followed by the parties until the Final Drawings are acceptable to both Landlord and Tenant. Landlord and Tenant shall indicate their approval of the Final Drawings by initialing each sheet of the Final Drawings and delivering to one another a true and complete copy of such initialed Final Drawings (the “Approved Final Drawings”). A true and complete copy of the Approved Final Drawings shall be attached to the Lease as Exhibit B-1 and shall be made a part hereof. Any changes or revisions to the Approved Final Drawings requested by Tenant must first be approved by Landlord, which approval shall not be unreasonably withheld, subject to the provisions of Section 3 above. If Landlord approves such requested changes or revisions, Landlord shall cause the Approved Final Drawings to be revised accordingly and Landlord and Tenant shall initial each sheet of the Approved Final Drawings as Revised and replace and attach a true and complete copy thereof to the Lease as Exhibit B-1. Landlord and Tenant hereby covenant to each other to cooperate with each other and to act reasonably in the preparation and approval of the Final Drawings and the Approved Final Drawings.

5. Performance of Work. As soon as practicable after Tenant and Landlord initial and attach to the Lease as Exhibit B-1 a true and complete copy of the Approved Final Drawings, Landlord shall submit the Approved Final Drawings to the governmental authorities having rights of approval over the Work and shall apply for the necessary approvals and building permits. Subject to the satisfaction of all conditions precedent and subsequent to its obligations under this Exhibit B, and further subject to the provisions of Section 10 hereof, as soon as practicable after Landlord or its representatives have received all necessary approvals and building permits, Landlord will put the Approved Final Drawings out for bid to several licensed and insured general contractors. The Tenant Improvements shall be constructed by a general contractor selected by Landlord and reasonably acceptable to Tenant (the “General Contractor”). Landlord shall commence construction, or cause the commencement of construction by the General Contractor, of the Tenant Improvements, as soon as practicable after selection of the General Contractor. Except as hereinafter expressly provided to the contrary, Landlord shall cause the performance of the Work using the standard of materials shown in the Approved Final Drawings (“Building Standards”). Landlord agrees that any such contract with the General Contractor

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shall identify Tenant as a third-party beneficiary thereof and contain a warranty of the Work of at least one (1) year from such General Contractor. Prior to Landlord’s execution of any agreement with the General Contractor, Landlord shall provide to Tenant a copy of such agreement. The terms of such agreement shall be in Landlord’s sole and absolute discretion.

6. Substantial Completion. Landlord shall cause the General Contractor to Substantially Complete (defined below) the Tenant Improvements in accordance with the Approved Final Drawings by the Commencement Date of the Lease as set forth in Section 2 of the Lease (the “Completion Date”), subject to delays due to (a) acts or events beyond Landlord’s control including, but not limited to, acts of God, earthquakes, strikes, lockouts, boycotts, casualties, discontinuance of any utility or other service required for performance of the Work, moratoriums, governmental agencies, delays on the part of governmental agencies, delays in obtaining permits or approvals from governmental agencies (exclusive of the initial building permit for the Premises) and inclement weather (including rain delays), (b) the lack of availability or shortage of specialized materials used in the construction of the Tenant Improvements, (c) any matters beyond the control of Landlord, the General Contractor or any subcontractors, (d) any changes required, after the issuance of the initial building permit for the Premises by the fire department, building and/or planning department, building inspectors or any other agency having jurisdiction over the Building, the Work and/or the Tenant Improvements (except to the extent such changes are directly attributable to Tenant’s use or Tenant’s particular tenant improvements, in which event such delays are considered Tenant Delays) (the events and matters set forth in Subsections (a), (b), (c) and (d) are collectively referred to as “Force Majeure Delays”), or (e) any Tenant Delays (defined in Section 7 below). The Tenant Improvements shall be deemed substantially complete on the date that (i) the building officials of the applicable governmental agency(s) issues its final approval of the construction of the Tenant Improvements whether in the form of the issuance of a final permit, certificate of occupancy or the written approval evidencing its final inspection on the building permit(s), (ii) on which the General Contractor delivers to both Landlord and Tenant a certificate of substantial completion wherein the General Contractor shall certify to both Landlord and Tenant that the Tenant Improvements have been substantially completed in accordance with the Approved Final Drawings, or (iii) on which Tenant first takes occupancy of the Premises and actually commences the conduct of its operations from the Premises, whichever occurs first (“Substantial Completion”, or “Substantially Completed”, or “Substantially Complete”). Tenant hereby acknowledges and agrees that the term “Substantial Completion” of the Tenant Improvements as used herein will not include the completion of any work associated with Tenant’s Installations, including without limitation, Tenant’s storage requirements, Tenant’s data equipment and telecommunication systems, and work related to any requirements of governmental and regulatory agencies with respect to any of Tenant’s Installations. If the Work is not deemed to be Substantially Completed on or before the scheduled Completion Date, (i) Landlord agrees to use reasonable efforts to Substantially Complete the Work as soon as practicable thereafter, (ii) the Lease shall remain in full force and effect, (iii) Landlord shall not be deemed to be in breach or default of the Lease or this Exhibit B as a result thereof and Landlord shall have no liability to Tenant as a result of any delay in occupancy (whether for

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damages, abatement of all or any portion of the Rent, or otherwise), and (iv) except in the event of any Tenant Delays (which notwithstanding anything to the contrary contained in the Lease will not affect the Commencement Date but will extend the Completion Date without any penalty or liability to Landlord), the Commencement Date and the Expiration Date of the Term of the Lease shall be extended commensurately by the amount of time attributable to any Force Majeure Delays. In such event, Landlord and Tenant shall execute a written amendment to the Lease evidencing such extensions of time, substantially in the form of Exhibit F to the Lease. Subject to the provisions of Section 10.2 of the Lease, the Tenant Improvements shall belong to Landlord and shall be deemed to be incorporated into the Premises for all purposes of the Lease, unless Landlord, in writing, indicates otherwise to Tenant.

7. Tenant Delays. There shall be no extension of the scheduled Commencement Date or Expiration Date of the Term of the Lease (as otherwise permissibly extended in accordance with the provisions of Section 6 above) if the Work has not been Substantially Completed by the scheduled Commencement Date due to any delay attributable to Tenant and/or any of Tenant’s Representatives or Tenant’s acts or omissions or otherwise relating to Tenant’s intended use of the Premises (collectively, “Tenant Delays”), including, but not limited to, any of the following described events or occurrences: (a) delays related to changes made or requested by Tenant to the Work, the Final Drawings and/or the Approved Final Drawings; (b) the failure of Tenant to furnish timely all or any plans, drawings, specifications, finish details or other information required under Sections 3 and 4 above; (c) the failure of Tenant to comply with the requirements of Section 10 below; (d) Tenant’s requirements for special work or materials, finishes, or installations other than the Building Standards or Tenant’s requirements for special construction or phasing; (e) any changes required by the fire department, building or planning department, building inspectors or any other agency having jurisdiction over the Building, the Work and/or the Tenant Improvements if such changes are directly attributable to Tenant’s particular use or Tenant’s particular tenant improvements; (f) the completion of any work associated with Tenant’s Installations, including without limitation, Tenant’s storage requirements, Tenant’s data equipment and telecommunication systems, and work related to any requirements of governmental and regulatory agencies with respect to any of Tenant’s Installations; (g) the performance of any additional work pursuant to a Change Request that is initiated by Tenant; (h) the performance of work in or about the Premises by any person, firm or corporation employed by or on behalf of Tenant during the period prior to the Commencement Date, including, without limitation, any failure to complete or any delay in the completion of such work; and/or (i) any and all delays caused by or arising from the acts or omissions of Tenant and/or Tenant’s Representatives, in any manner whatsoever, including, but not limited to, any and all revisions to the Approved Final Drawings and Approved Final Drawings. Notwithstanding anything to the contrary contained in the Lease, any delays in the construction of the Tenant Improvements due to any Tenant Delays, shall in no way extend or affect the date on which Tenant is required to commence paying Rent under the terms of the Lease. It is the intention of the parties that all of such delays will be considered Tenant Delays for which Tenant shall be wholly and completely responsible for any and all consequences related to such delays, including, without limitation, any costs and expenses attributable to increases in labor or materials.

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8. Tenant Improvement Allowance. Subject to the provisions of this Exhibit B, Landlord shall provide to Tenant an allowance for the planning and construction of the Tenant Improvements including the Work to be performed in the Premises, as described in the Initial Plans and the Approved Final Drawings, in the amount of Two Million Four Hundred Seventy Six Thousand Four Hundred Twenty-Five and 00/100 Dollars ($2,476,425.00) (the “Tenant Improvement Allowance”) based upon an allowance of Thirty-Five and 00/100 Dollars ($35.00) per rentable square foot for approximately 70,755 rentable square feet of the Premises to be improved, as described in the Initial Plans and the Approved Final Drawings. Tenant shall not be entitled to any credit, abatement or payment from Landlord in the event that the amount of the Tenant Improvement Allowance specified above exceeds the actual Tenant Improvement Costs. The Tenant Improvement Allowance shall only be used for tenant improvements typically installed by Landlord in research and development buildings. The Tenant Improvement Allowance shall be the maximum contribution by Landlord for the Tenant Improvement Costs and shall be subject to the provisions of Section 10 below.

9. Tenant Improvement Costs. The Tenant Improvements’ cost (the “Tenant Improvement Costs”) shall mean and include any and all costs and expenses of the Work, including, without limitation, all of the following:

     (a) All costs of preliminary space planning and final architectural and engineering plans and specifications (including, without limitation, the scope of work, all plans and specifications, the Initial Plans, the Final Drawings and the Approved Final Drawings) for the Tenant Improvements, and architectural fees, engineering costs and fees, and other costs associated with completion of said plans;

     (b) All engineering costs associated with completion of the State of California energy utilization calculations under Title 24 legislation;

     (c) All costs of obtaining building permits and other necessary authorizations and approvals from all local governmental authorities and all other applicable agencies and entities having jurisdiction thereof;

     (d) All costs of interior design and finish schedule plans and specifications including as-built drawings, if applicable;

     (e) All direct and indirect costs of procuring, constructing and installing the Tenant Improvements in the Premises, including, but not limited to, the construction fee for overhead and profit, the cost of all on-site supervisory and administrative staff, office, equipment and temporary services rendered by Landlord’s consultants (excluding the cost of any outside construction management services employed by Landlord, if any, which costs shall be paid by Landlord from Landlord’s management fee described in Section 9(j) below) and the General Contractor in connection with construction of the Tenant Improvements, and all labor (including overtime) and materials constituting the Work;

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     (f) All fees payable to the General Contractor, architect and Landlord’s engineering firm if they are required by Tenant to redesign any portion of the Tenant Improvements following Tenant’s approval of the Approved Final Drawings;

     (g) Utility connection fees;

     (h) Inspection fees and filing fees payable to local governmental authorities, if any;

     (i) All costs of all permanently affixed equipment and non-trade fixtures provided for in the Approved Final Drawings, including the cost of installation; and,

     (j) A construction management fee payable to Landlord in the amount of three percent (3%) of all direct and indirect costs of procuring, constructing and installing the Tenant Improvements in the Premises and the Building.

10. Change Requests. No changes or revisions to the Approved Final Drawings shall be made by either Landlord or Tenant unless approved in writing by both parties. Upon Tenant’s request and submission by Tenant (at Tenant’s sole cost and expense) of the necessary information and/or plans and specifications for any changes or revisions to the Approved Final Drawings and/or for any work other than the Work described in the Approved Final Drawings (“Change Requests”) and the approval by Landlord of such Change Request(s), which approval Landlord agrees shall not be unreasonably withheld, Landlord shall perform the additional work associated with the approved Change Request(s), at Tenant’s sole cost and expense, subject, however, to the following provisions of this Section 11. Prior to commencing any additional work related to the approved Change Request(s), Landlord shall submit to Tenant a written statement of the cost of such additional work and a proposed tenant change order therefor (“Change Order”) in the standard form then in use by Landlord. Tenant shall execute and deliver to Landlord such Change Order and shall pay the entire cost of such additional work in the following described manner. Any costs related to such approved Change Request(s) and Change Order shall be added to the Tenant Improvement Costs and shall be paid for by Tenant as and with any Excess Tenant Improvement Costs as set forth in Section 10 above. Any delays associated with any Change Request or Change Order shall be considered a Tenant Delay. The billing for such additional costs to Tenant shall be accompanied by evidence of the amounts billed as is customarily used in the business. Costs related to approved Change Requests and Change Orders shall include without limitation, any architectural or design fees, Landlord’s construction fee for overhead and profit, the cost of all on-site supervisory and administrative staff, office, equipment and temporary services rendered by Landlord and/or Landlord’s consultants, and the General Contractor’s price for effecting the change. If Tenant fails to execute or deliver such Change Order, or to pay the costs related thereto, then Landlord shall not be obligated to do any additional work related to such approved Change Request(s) and/or Change Orders, and Landlord may proceed to perform only the Work, as specified in the Approved Final Drawings. Landlord shall equitably adjust the amount of the Tenant Improvement Costs for any deletions in the scope of the Work.

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11. Termination. If the Lease is terminated prior to the Completion Date, for any reason due to the default of Tenant hereunder, in addition to any other remedies available to Landlord under the Lease, Tenant shall pay to Landlord as Additional Rent under the Lease, within five (5) days of receipt of a statement therefor, any and all costs incurred by Landlord and not reimbursed or otherwise paid by Tenant through the date of termination in connection with the Tenant Improvements to the extent planned, installed and/or constructed as of such date of termination, including, but not limited to, any costs related to the demolition and/or removal of all or any portion of the Tenant Improvements and restoration costs related thereto. Subject to the provisions of Section 10.2 of the Lease, upon the expiration or earlier termination of the Lease, Tenant shall not be required to remove the Tenant Improvements it being the intention of the parties that the Tenant Improvements are to be considered incorporated into the Building. Notwithstanding anything to the contrary contained herein, Landlord shall have the right to terminate the Lease, as more particularly set forth in Section 2.1 of the Lease, if Landlord is unable to obtain a building permit for the Tenant Improvements , by December 31, 1999.

12. Tenant Access. Landlord, in Landlord’s reasonable discretion and upon receipt of a written request from Tenant and written confirmation from the General Contractor that such limited entry will be in harmony with the General Contractor’s work schedule with respect to the Tenant Improvements, may grant Tenant a license to have access to the Premises prior to the Completion Date to allow Tenant to do other work required by Tenant to install the Tenant Installations and to otherwise make the Premises ready for Tenant’s use and occupancy (the “Tenant’s Pre-Occupancy Work”). It shall be a condition to the grant by Landlord and continued effectiveness of such license that:

     (a) Tenant shall give to Landlord a written request to have such access not less than ten (10) business days prior to the date on which such proposed access will commence (the “Access Notice”). The Access Notice shall contain or be accompanied by each of the following items, all in form and substance reasonably acceptable to Landlord: (i) a detailed description of and schedule for Tenant’s Pre-Occupancy Work; (ii) the names and addresses of all contractors, subcontractors and material suppliers and all other representatives of Tenant who or which will be entering the Premises on behalf of Tenant to perform Tenant’s Pre-Occupancy Work or will be supplying materials for such work, and the approximate number of individuals, itemized by trade, who will be present in the Premises; (iii) copies of all contracts, subcontracts, material purchase orders, plans and specifications pertaining to Tenant’s Pre-Occupancy Work; (iv) copies of all licenses and permits required in connection with the performance of Tenant’s Pre-Occupancy Work; and (v) certificates of insurance (in amounts satisfactory to Landlord and with the parties identified in, or required by, the Lease named as additional insureds).

     (b) Tenant shall indemnify, defend and hold the Indemnitees harmless from and against any and all claims, liens, actions, costs, expenses (including without limitation, attorneys’ fees and costs), penalties, fines, and damages arising from or related to, in any manner whatsoever, the Tenant’s Pre-Occupancy Work.

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     (c) Such pre-term access by Tenant and Tenant’s employees, agents, contractors, consultants, workmen, mechanics, suppliers and invitees shall be subject to scheduling by Landlord.

     (d) Tenant’s employees, agents, contractors, consultants, workmen, mechanics, suppliers and invitees shall fully cooperate, work in harmony and not, in any manner, interfere with Landlord or Landlord’s agents or representatives in performing the Work and any additional work pursuant to approved Change Orders, Landlord’s work in other areas of the Building or the Park, or the general operation of the Park. If at any time any such person representing Tenant shall not be cooperative or shall otherwise cause or threaten to cause any such disharmony or interference, including without limitation, labor disharmony, and Tenant fails to immediately institute and maintain corrective actions as directed by Landlord, then Landlord may revoke such license upon twenty-four (24) hours’ prior written notice to Tenant.

     (e) Any such entry into and limited occupancy of the Premises or any portion thereof by Tenant or any person or entity working for or on behalf of Tenant shall be deemed to be subject to all of the terms, covenants, conditions and provisions of the Lease, excluding only the covenant to pay Rent. Landlord shall not be liable for any injury, loss or damage that may occur to any of Tenant’s Pre-Occupancy Work made in or about the Premises or to any property placed therein prior to the commencement of the Term of the Lease, the same being at Tenant’s sole risk and liability. Tenant shall be liable to Landlord for any damage to any portion of the Premises, the Work or the additional work related to any approved Change Orders caused by Tenant or any of Tenant’s employees, agents, contractors, consultants, workmen, mechanics, suppliers and invitees. In the event that the performance of Tenant’s Pre-Occupancy Work causes extra costs to be incurred by Landlord or requires the use of other Building services, after delivery to Tenant of prior notice that such extra costs are reasonably anticipated by Landlord to be incurred Tenant shall promptly reimburse Landlord for such extra costs within ten (10) days after receipt of written demand therefor and/or shall pay Landlord for such other Building services at Landlord’s standard rates then in effect.

13. Lease Provisions; Conflict. The terms and provisions of the Lease, insofar as they are applicable, in whole or in part, to this Exhibit B, are hereby incorporated herein by reference, and specifically including all of the provisions of Section 31 of the Lease. In the event of any conflict between the terms of the Lease and this Exhibit B, the terms of this Exhibit B shall prevail. Any amounts payable by Tenant to Landlord hereunder shall be deemed to be Additional Rent under the Lease and, upon any default in the payment of same, Landlord shall have all rights and remedies available to it as provided for in the Lease.

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Exhibit C to Lease Agreement
Rules & Regulations

This exhibit, entitled “Rules & Regulations”, is and shall constitute EXHIBIT C to that certain Lease Agreement dated September 15, 1999 (the “Lease”), by and between WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership (“Landlord”) and Foundry Networks, Inc., a California corporation (“Tenant”) for the leasing of certain premises located at 2100 Gold Street, San Jose, California (the “Premises”). The terms, conditions and provisions of this EXHIBIT C are hereby incorporated into and are made a part of the Lease. Any capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms as set forth in the Lease:

1. No advertisement, picture or sign of any sort shall be displayed on or outside the Premises or the Building without the prior written consent of Landlord. Landlord shall have the right to remove any such unapproved item without notice and at Tenant’s expense.

2. Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed.

3. All window coverings installed by Tenant and visible from the outside of the Building require the prior written approval of Landlord.

4. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance or any flammable or combustible materials on or around the Premises, the Building or the Park that are not in compliance with the provisions of the Lease.

5. Tenant shall not alter any lock or install any new locks or bolts on any door at the Premises without the prior consent of Landlord.

6. Tenant shall park motor vehicles in those general parking areas as designated by Landlord except for loading and unloading. During those periods of loading and unloading, Tenant shall not unreasonably interfere with traffic flow within the Park and loading and unloading areas of other Tenants.

7. Tenant shall not disturb, solicit or canvas any occupant of the Building or Park and shall cooperate to prevent same.

8. No person shall go on the roof without Landlord’s permission.

9. Business machines and mechanical equipment belonging to Tenant which cause noise or vibration that may be transmitted to the structure of the Building, to such a degree as to be objectionable to Landlord or other Tenants, shall be placed and maintained by Tenant, at Tenant’s expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration.

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10. All goods, including material used to store goods, delivered to the Premises of Tenant shall be immediately moved into the Premises and shall not be left in parking or receiving areas overnight.

11. Tractor trailers which must be unhooked or parked with dolly wheels beyond the concrete loading areas must use steel plates or wood blocks under the dolly wheels to prevent damage to the asphalt paving surfaces. No parking or storing of such trailers will be permitted in the auto parking areas of the Park or on streets adjacent thereto.

12. Forklifts which operate on asphalt paving areas shall not have solid rubber tires and shall only use tires that do not damage the asphalt.

13. Tenant is responsible for the storage and removal of all trash and refuse. All such trash and refuse shall be contained in suitable receptacles stored behind screened enclosures at locations approved by Landlord.

14. Tenant shall not store or permit the storage or placement of goods, or merchandise or pallets or equipment of any sort in or around the Premises, the Building, the Park or any of the Common Areas of the foregoing. No displays or sales of merchandise shall be allowed in the parking lots or other Common Areas.

15. Tenant shall not permit any animals, including, but not limited to, any household pets, to be brought or kept in or about the Premises, the Building, the Park or any of the Common Areas of the foregoing.

16. Tenant shall not permit any motor vehicles to be washed on any portion of the Premises or in the Common Areas of the Park, nor shall Tenant permit mechanical work or maintenance of motor vehicles to be performed on any portion of the Premises or in the Common Areas of the Park.

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Exhibit E
Hazardous Materials Disclosure Certificate

Your cooperation in this matter is appreciated. Initially, the information provided by you in this Hazardous Materials Disclosure Certificate is necessary for the Landlord (identified below) to evaluate and finalize a lease agreement with you as Tenant. After a lease agreement is signed by you and the Landlord (the “Lease Agreement”), on an annual basis in accordance with the provisions of Section 29 of the signed Lease Agreement, you are to provide an update to the information initially provided by you in this certificate. The information contained in the initial Hazardous Materials Disclosure Certificate and each annual certificate provided by you thereafter will be maintained in confidence by Landlord subject to release and disclosure as required by (i) any lenders and owners and their respective environmental consultants, (ii) any prospective purchaser(s) of all or any portion of the property on which the Premises are located, (iii) Landlord to defend itself or its lenders, partners or representatives against any claim or demand, and (iv) any laws, rules, regulations, orders, decrees, or ordinances, including, without limitation, court orders or subpoenas. Any and all capitalized terms used herein, which are not otherwise defined herein, shall have the same meaning ascribed to such term in the signed Lease Agreement. Any questions regarding this certificate should be directed to, and when completed, the certificate should be delivered to:

Landlord:

c/o Legacy Partners Commercial, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404
Attn:

Phone: (650) 571-2200

Name of (Prospective) Tenant:

Mailing Address:

Contact Person, Title and Telephone Number(s):

Contact Person for Hazardous Waste Materials Management and Manifests and Telephone Number(s):

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Address of (Prospective) Premises:

Length of (Prospective) Initial Term:

1. General Information:

     Describe the initial proposed operations to take place in, on, or about the Premises, including, without limitation, principal products processed, manufactured or assembled services and activities to be provided or otherwise conducted. Existing Tenants should describe any proposed changes to on-going operations.

2. Use, Storage and Disposal of Hazardous Materials

     2.1 Will any Hazardous Materials be used, generated, stored or disposed of in, on or about the Premises? Existing Tenants should describe any Hazardous Materials which continue to be used, generated, stored or disposed of in, on or about the Premises.

Wastes                                Yes o     No o
Chemical Products             Yes o     No o
Other                                  Yes o     No o

     If Yes is marked, please explain:

     2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous Materials to be used, generated, stored or disposed of in, on or about the Premises, including the applicable hazard class and an estimate of the quantities of such Hazardous Materials at any given time; estimated annual throughput; the proposed location(s) and method of storage (excluding nominal amounts of ordinary household cleaners and janitorial supplies which are not regulated by any Environmental Laws); and the proposed location(s) and method of disposal for each Hazardous Material, including, the estimated frequency, and the proposed contractors or subcontractors. Existing Tenants should attach a list setting forth the information requested above and such list should include

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actual data from on-going operations and the identification of any variations in such information from the prior year’s certificate.

3. Storage Tanks and Sumps

     3.1 Is any above or below ground storage of gasoline, diesel, petroleum, or other Hazardous Materials in tanks or sumps proposed in, on or about the Premises? Existing Tenants should describe any such actual or proposed activities.

Yes o     No o

If yes, please explain:

4. Waste Management

     4.1 Has your company been issued an EPA Hazardous Waste Generator I.D. Number? Existing Tenants should describe any additional identification numbers issued since the previous certificate.

Yes o     No o

     4.2 Has your company filed a biennial or quarterly reports as a hazardous waste generator? Existing Tenants should describe any new reports filed.

Yes o     No o

If yes, attach a copy of the most recent report filed.

5. Wastewater Treatment and Discharge

     5.1 Will your company discharge wastewater or other wastes to:

storm drain?                    sewer?

surface water?                 no wastewater or other wastes discharged.

          Existing Tenants should indicate any actual discharges. If so, describe the nature of any proposed or actual discharge(s).

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     5.2 Will any such wastewater or waste be treated before discharge?

Yes o     No o

              If yes, describe the type of treatment proposed to be conducted. Existing Tenants should describe the actual treatment conducted.

6. Air Discharges

     6.1 Do you plan for any air filtration systems or stacks to be used in your company’s operations in, on or about the Premises that will discharge into the air; and will such air emissions be monitored? Existing Tenants should indicate whether or not there are any such air filtration systems or stacks in use in, on or about the Premises which discharge into the air and whether such air emissions are being monitored.

Yes o     No o

If yes, please describe:

     6.2 Do you propose to operate any of the following types of equipment, or any other equipment requiring an air emissions permit? Existing Tenants should specify any such equipment being operated in, on or about the Premises.

Spray booth(s)                 Incinerator(s)

Dip tank(s)                      Other (Please describe)

Drying oven(s)                No Equipment Requiring Air Permits

If yes, please describe:

7. Hazardous Materials Disclosures

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     7.1 Has your company prepared or will it be required to prepare a Hazardous Materials management plan (“Management Plan”) pursuant to Fire Department or other governmental or regulatory agencies’ requirements? Existing Tenants should indicate whether or not a Management Plan is required and has been prepared.

Yes o     No o

If yes, attach a copy of the Management Plan. Existing Tenants should attach a copy of any required updates to the Management Plan.

     7.2 Are any of the Hazardous Materials, and in particular chemicals, proposed to be used in your operations in, on or about the Premises regulated under Proposition 65? Existing Tenants should indicate whether or not there are any new Hazardous Materials being so used which are regulated under Proposition 65.

Yes o     No o

If yes, please explain:

8. Enforcement Actions and Complaints

     8.1 With respect to Hazardous Materials or Environmental Laws, has your company ever been subject to any agency enforcement actions, administrative orders, or consent decrees or has your company received requests for information, notice or demand letters, or any other inquiries regarding its operations? Existing Tenants should indicate whether or not any such actions, orders or decrees have been, or are in the process of being, undertaken or if any such requests have been received.

Yes o     No o

     If yes, describe the actions, orders or decrees and any continuing compliance obligations imposed as a result of these actions, orders or decrees and also describe any requests, notices or demands, and attach a copy of all such documents. Existing Tenants should describe and attach a copy of any new actions, orders, decrees, requests, notices or demands not already delivered to Landlord pursuant to the provisions of Section 29 of the signed Lease Agreement.

     8.2 Have there ever been, or are there now pending, any lawsuits

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against your company regarding any environmental or health and safety concerns?

Yes o     No o

     If yes, describe any such lawsuits and attach copies of the complaint(s), cross-complaint(s), pleadings and all other documents related thereto as requested by Landlord. Existing Tenants should describe and attach a copy of any new complaint(s), cross-complaint(s), pleadings and other related documents not already delivered to Landlord pursuant to the provisions of Section 29 of the signed Lease Agreement.

     8.3 Have there been any problems or complaints from adjacent Tenants, owners or other neighbors at your company’s current facility with regard to environmental or health and safety concerns? Existing Tenants should indicate whether or not there have been any such problems or complaints from adjacent Tenants, owners or other neighbors at, about or near the Premises.

Yes o     No o

     If yes, please describe. Existing Tenants should describe any such problems or complaints not already disclosed to Landlord under the provisions of the signed Lease Agreement.

9. Permits and Licenses

     9.1 Attach copies of all Hazardous Materials permits and licenses including a Transporter Permit number issued to your company with respect to its proposed operations in, on or about the Premises, including, without limitation, any wastewater discharge permits, air emissions permits, and use permits or approvals. Existing Tenants should attach copies of any new permits and licenses as well as any renewals of permits or licenses previously issued.

The undersigned hereby acknowledges and agrees that (A) this Hazardous Materials Disclosure Certificate is being delivered in connection with, and as required by, Landlord in connection with the evaluation and finalization of a Lease Agreement and will be attached thereto as an exhibit; (B) that this Hazardous Materials Disclosure Certificate is being delivered in accordance with, and as required by, the provisions of Section 29 of the Lease Agreement; and (C) that Tenant shall have and retain full and complete responsibility and liability with respect to any of the Hazardous Materials disclosed in the HazMat Certificate notwithstanding Landlord’s/Tenant’s receipt and/or approval of such certificate. Tenant further agrees that none of the following described acts or events shall be construed or otherwise interpreted as either (a) excusing, diminishing or

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otherwise limiting Tenant from the requirement to fully and faithfully perform its obligations under the Lease with respect to Hazardous Materials, including, without limitation, Tenant’s indemnification of the Indemnitees and compliance with all Environmental Laws, or (b) imposing upon Landlord, directly or indirectly, any duty or liability with respect to any such Hazardous Materials, including, without limitation, any duty on Landlord to investigate or otherwise verify the accuracy of the representations and statements made therein or to ensure that Tenant is in compliance with all Environmental Laws; (i) the delivery of such certificate to Landlord and/or Landlord’s acceptance of such certificate, (ii) Landlord’s review and approval of such certificate, (iii) Landlord’s failure to obtain such certificate from Tenant at any time, or (iv) Landlord’s actual or constructive knowledge of the types and quantities of Hazardous Materials being used, stored, generated, disposed of or transported on or about the Premises by Tenant or Tenant’s Representatives. Notwithstanding the foregoing or anything to the contrary contained herein, the undersigned acknowledges and agrees that Landlord and its partners, lenders and representatives may, and will, rely upon the statements, representations, warranties, and certifications made herein and the truthfulness thereof in entering into the Lease Agreement and the continuance thereof throughout the term, and any renewals thereof, of the Lease Agreement.

I (print name)                                         , acting with full authority to bind the (proposed) Tenant and on behalf of the (proposed) Tenant, certify, represent and warrant that the information contained in this certificate is true and correct.

(Prospective) Tenant:

By:

Title:

Date:

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Exhibit F
First Amendment to Lease Agreement
Change of Commencement Date

This First Amendment to Lease Agreement (the “Amendment”) is made and entered into to be effective as of ____________, by and between __________________ (“Landlord”), and __________________ (“Tenant”), with reference to the following facts:

Recitals

A. Landlord and Tenant have entered into that certain Lease Agreement dated ____________ (the “Lease”), for the leasing of certain premises containing approximately ____________ rentable square feet of space located at __________________, California (the “Premises”) as such Premises are more fully described in the Lease.

B. Landlord and Tenant wish to amend the Commencement Date of the Lease.

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

     1. Recitals: Landlord and Tenant agree that the above recitals are true and correct.

     2. The Commencement Date of the Lease shall be _______________.

     3. The last day of the Term of the Lease (the “Expiration Date”) shall be _______________.

     4. The dates on which the Base Rent will be adjusted are:

for the period ____ to ____ the monthly Base Rent shall be $___________;
for the period ____ to ____ the monthly Base Rent shall be $______; and
for the period ____ to ____ the monthly Base Rent shall be $__________.

     5. Effect of Amendment: Except as modified herein, the terms and conditions of the Lease shall remain unmodified and continue in full force and effect. In the event of any conflict between the terms and conditions of the Lease and this Amendment, the terms and conditions of this Amendment shall prevail.

     6. Definitions: Unless otherwise defined in this Amendment, all terms not defined in this Amendment shall have the meaning set forth in the Lease.

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     7. Authority: Subject to the provisions of the Lease, this Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, legal representatives, successors and assigns. Each party hereto and the persons signing below warrant that the person signing below on such party’s behalf is authorized to do so and to bind such party to the terms of this Amendment.

     8. The terms and provisions of the Lease are hereby incorporated in this Amendment.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and year first above written.

[PROPERTY MANAGER: Please provide Tenant information and Word Processing will complete the signature block]

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EXHIBIT G
TENANT’S INITIAL HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE

Your cooperation in this matter is appreciated. Initially, the information provided by you in this Hazardous Materials Disclosure Certificate is necessary for the Landlord (identified below) to evaluate and finalize a lease agreement with you as Tenant. After a lease agreement is signed by you and the Landlord (the “Lease Agreement”), on an annual basis in accordance with the provisions of Section 29 of the signed Lease Agreement, you are to provide an update to the information initially provided by you in this certificate. The information contained in the initial Hazardous Materials Disclosure Certificate and each annual certificate provided by you thereafter will be maintained in confidentiality by Landlord subject to release and disclosure as required by (i) any lenders and owners and their respective environmental consultants, (ii) any prospective purchaser(s) of all or any portion of the property on which the Premises are located, (iii) Landlord to defend itself or its lenders, partners or representatives against any claim or demand, and (iv) any laws, rules, regulations, orders, decrees, or ordinances, including, without limitation, court orders or subpoenas. Any and all capitalized terms used herein, which are not otherwise defined herein, shall have the same meaning ascribed to such term in the signed Lease Agreement. Any questions regarding this certificate should be directed to, and when completed, the certificate should be delivered to:

Landlord: WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP,

a Delaware limited partnership
c/o Legacy Partners Commercial, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404
Attn: Portfolio Vice President
Phone: (650) 571-2200

Name of (Prospective) Tenant: Foundry Networks, Inc.

Mailing Address:

Contact Person, Title and Telephone Number(s):

Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):

Address of (Prospective) Premises:

Length of (Prospective) Initial Term:

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1. General Information:

     Describe the initial proposed operations to take place in, on, or about the Premises, including, without limitation, principal products processed, manufactured or assembled services and activities to be provided or otherwise conducted. Existing Tenants should describe any proposed changes to on-going operations.

2. Use, Storage and Disposal of Hazardous Materials

     2.1 Will any Hazardous Materials be used, generated, stored or disposed of in, on or about the Premises? Existing Tenants should describe any Hazardous Materials which continue to be used, generated, stored or disposed of in, on or about the Premises.

Wastes                               Yes o No o 
Chemical Products            Yes o No o 
Other                                   Yes o No o 

If Yes is marked, please explain:

     2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous Materials to be used, generated, stored or disposed of in, on or about the Premises, including the applicable hazard class and an estimate of the quantities of such Hazardous Materials at any given time; estimated annual throughput; the proposed location(s) and method of storage (excluding nominal amounts of ordinary household cleaners and janitorial supplies which are not regulated by any Environmental Laws); and the proposed location(s) and method of disposal for each Hazardous Material, including, the estimated frequency, and the proposed contractors or subcontractors. Existing Tenants should attach a list setting forth the information requested above and such list should include actual data from on-going operations and the identification of any variations in such information from the prior year’s certificate.

3. Storage Tanks and Sumps

     3.1 Is any above or below ground storage of gasoline, diesel, petroleum,

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or other Hazardous Materials in tanks or sumps proposed in, on or about the Premises? Existing Tenants should describe any such actual or proposed activities.

Yes o No o 

If Yes is marked, please explain:

4. Waste Management

     4.1 Has your company been issued an EPA Hazardous Waste Generator I.D. Number? Existing Tenants should describe any additional identification numbers
issued since the previous certificate.

Yes o No o 

     4.2 Has your company filed a biennial or quarterly reports as a hazardous waste generator? Existing Tenants should describe any new reports filed.

Yes  o  No  o 

If yes, attach a copy of the most recent report filed.

5. Wastewater Treatment and Discharge

     5.1 Will your company discharge wastewater or other wastes to:

______ storm drain? _____ sewer?
______ surface water? _____ no wastewater or other wastes discharged.

     Existing Tenants should indicate any actual discharges. If so, describe the nature of any proposed or actual discharge(s).

5.2 Will any such wastewater or waste be treated before discharge?

Yes  o  No  o 

     If yes, describe the type of treatment proposed to be conducted. Existing Tenants should describe the actual treatment conducted.

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6. Air Discharges

     6.1 Do you plan for any air filtration systems or stacks to be used in your company’s operations in, on or about the Premises that will discharge into the air; and will such air emissions be monitored? Existing Tenants should indicate whether or not there are any such air filtration systems or stacks in use in, on or about the Premises which discharge into the air and whether such air emissions are being monitored.

Yes  o  No  o 

If Yes is marked, please explain:

     6.2 Do you propose to operate any of the following types of equipment, or any other equipment requiring an air emissions permit? Existing Tenants should specify any such equipment being operated in, on or about the Premises.

______ Spray booth(s) ______ Incinerator(s)
______ Dip tank(s) ______ Other (Please describe)
______ Drying oven(s) ______ No Equipment Requiring Air Permits

If Yes is marked, please explain:

7. Hazardous Materials Disclosures

     7.1 Has your company prepared or will it be required to prepare a Hazardous Materials management plan (“Management Plan”) pursuant to Fire Department or other governmental or regulatory agencies’ requirements? Existing Tenants should indicate whether or not a Management Plan is required and has been prepared.

Yes  o  No  o 

     If yes, attach a copy of the Management Plan. Existing Tenants should attach a copy of any required updates to the Management Plan.

     7.2 Are any of the Hazardous Materials, and in particular chemicals, proposed to be used in your operations in, on or about the Premises regulated under Proposition 65? Existing Tenants should indicate whether or not there are

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any new Hazardous Materials being so used which are regulated under Proposition 65.

Yes  o  No  o 

     If Yes is marked, please explain:

8. Enforcement Actions and Complaints

     8.1 With respect to Hazardous Materials or Environmental Laws, has your company ever been subject to any agency enforcement actions, administrative orders, or consent decrees or has your company received requests for information, notice or demand letters, or any other inquiries regarding its operations? Existing Tenants should indicate whether or not any such actions, orders or decrees have been, or are in the process of being, undertaken or if any such requests have been received.

Yes  o  No  o 

     If yes, describe the actions, orders or decrees and any continuing compliance obligations imposed as a result of these actions, orders or decrees and also describe any requests, notices or demands, and attach a copy of all such documents. Existing Tenants should describe and attach a copy of any new actions, orders, decrees, requests, notices or demands not already delivered to Landlord pursuant to the provisions of Section 29 of the signed Lease Agreement.

     8.2 Have there ever been, or are there now pending, any lawsuits against your company regarding any environmental or health and safety concerns?

Yes  o  No  o 

          If yes, describe any such lawsuits and attach copies of the complaint(s), cross-complaint(s), pleadings and all other documents related thereto as requested by Landlord. Existing Tenants should describe and attach a copy of any new complaint(s), cross-complaint(s), pleadings and other related documents not already delivered to Landlord pursuant to the provisions of Section 29 of the signed Lease Agreement.

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     8.3 Have there been any problems or complaints from adjacent Tenants, owners or other neighbors at your company’s current facility with regard to environmental or health and safety concerns? Existing Tenants should indicate whether or not there have been any such problems or complaints from adjacent Tenants, owners or other neighbors at, about or near the Premises.

Yes  o  No  o 

     If yes, please describe. Existing Tenants should describe any such problems or complaints not already disclosed to Landlord under the provisions of the signed Lease Agreement.

9. Permits and Licenses

     9.1 Attach copies of all Hazardous Materials permits and licenses including a Transporter Permit number issued to your company with respect to its proposed operations in, on or about the Premises, including, without limitation, any wastewater discharge permits, air emissions permits, and use permits or approvals. Existing Tenants should attach copies of any new permits and licenses as well as any renewals of permits or licenses previously issued.

The undersigned hereby acknowledges and agrees that (A) this Hazardous Materials Disclosure Certificate is being delivered in connection with, and as required by, Landlord in connection with the evaluation and finalization of a Lease Agreement and will be attached thereto as an exhibit; (B) that this Hazardous Materials Disclosure Certificate is being delivered in accordance with, and as required by, the provisions of Section 29 of the Lease Agreement; and (C) that Tenant shall have and retain full and complete responsibility and liability with respect to any of the Hazardous Materials disclosed in the HazMat Certificate notwithstanding Landlord’s/Tenant’s receipt and/or approval of such certificate. Tenant further agrees that none of the following described acts or events shall be construed or otherwise interpreted as either (a) excusing, diminishing or otherwise limiting Tenant from the requirement to fully and faithfully perform its obligations under the Lease with respect to Hazardous Materials, including, without limitation, Tenant’s indemnification of the Indemnitees and compliance with all Environmental Laws, or (b) imposing upon Landlord, directly or indirectly, any duty or liability with respect to any such Hazardous Materials, including, without limitation, any duty on Landlord to investigate or otherwise verify the accuracy of the representations and statements made therein or to ensure that Tenant is in compliance with all Environmental Laws; (i) the delivery of such certificate to Landlord and/or Landlord’s acceptance of such certificate, (ii) Landlord’s review and approval of such certificate, (iii) Landlord’s failure to obtain such certificate from Tenant at any time, or (iv) Landlord’s actual or constructive knowledge of the types and quantities of Hazardous Materials being used, stored, generated, disposed of or transported on or about the Premises by Tenant or Tenant’s Representatives. Notwithstanding the foregoing or anything to the contrary contained herein, the undersigned

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acknowledges and agrees that Landlord and its partners, lenders and representatives may, and will, rely upon the statements, representations, warranties, and certifications made herein and the truthfulness thereof in entering into the Lease Agreement and the continuance thereof throughout the term, and any renewals thereof, of the Lease Agreement.

I (print name)____________, acting with full authority to bind the (proposed) Tenant and on behalf of the (proposed) Tenant, certify, represent and warrant that the information contained in this certificate is true and correct.

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(Prospective) Tenant:

By:
	Title:
	Date:

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EXHIBIT H
SIGN CRITERIA

     TO BE ATTACHED

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Exhibit I

SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

This Subordination, Non-Disturbance and Attornment Agreement (this “Agreement”) dated _________, 19___, is made among________________________, (“Tenant”) _________________________________________________________ (“Landlord”), and _________________________________________________________ (“Mortgagee”).

     WHEREAS, Mortgagee is the owner of a promissory note (herein, as it may have been or may be from time to time renewed, extended, amended or supplemented, called the “Note”) dated ____________, 19___, executed by Landlord, payable to the order of Mortgagee, in the principal face amount of $____________, bearing interest and payable as therein provided, secured by, among other things, a Deed of Trust (herein, as it may have been or may be from time to time renewed, extended, amended or supplemented, called the “Deed of Trust”), recorded in the office of the County Clerk of ____________ County, California, covering, among other property, the land (the “Land”) described in Exhibit “A” which is attached hereto and incorporated herein by reference, and the improvements (the “Improvements”) thereon (such Land and Improvements being herein together called the “Property”);

     WHEREAS, Tenant and Landlord executed a certain Lease Agreement dated ____________, 19___, (herein, as it may from time to time be renewed, extended, amended or supplemented, called the “Lease”), covering a portion of the Property (said portion being herein referred to as the “Premises”); and

     WHEREAS, the term “Landlord” as used herein means the present landlord under the Lease or, if the landlord’s interest is transferred to any manner, the successor(s) or assign(s) occupying the position of landlord under the Lease at the time in question;

     THEREFORE, in consideration of the mutual agreements herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

     1. Subordination. Tenant agrees and covenants that the Lease and the rights of Tenant thereunder, all of Tenant’s right, title and interest in and to the property covered by the Lease, and any lease hereafter executed by Tenant covering any part of the Property, are and shall be subordinate and inferior to (a) the Deed of Trust and the rights of Mortgagee thereunder, and all right, title and interest of Mortgagee in the Property, and (b) all other security documents now or hereafter securing payment of any indebtedness of the Landlord (or any prior Landlord) to Mortgagee which cover or affect the Property (the “Security Documents”). This Agreement is not intended and shall not be construed to subordinate the Lease to any mortgage, deed of trust or other security document other than those referred to in the preceding sentence, securing the indebtedness to Mortgagee. Without limitation of any other provision hereof, Mortgagee may, at its option and without joinder or further consent of Tenant, Landlord, or anyone else, at any time after the date hereof subordinate the lien of the Deed of Trust (or any other lien or security interest held by Mortgagee

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which covers or affects the Property) to the Lease by executing an instrument which is intended for that purpose and which specifies such subordination; and, in the event of any such election by Mortgagee to subordinate, Tenant will execute any documents required to evidence such subordination; provided however, notwithstanding that the Lease may be unilateral subordination by Mortgagee hereafter be made superior to the lien of the Deed of Trust, the provisions of the Deed of Trust relative to the rights of Mortgagee with respect to proceeds arising from an eminent domain taking (including a voluntary conveyance by Landlord) and/or insurance payable to reason of damage to or destruction of the Premises shall be prior and superior to and shall control over any contrary provisions in the Lease.

     2. Non-Disturbance. Mortgagee agrees that so long as the Lease is in full force and effect and Tenant is not in default in the payment of rent, additional rent or other payments or in the performance of any of the other terms, covenants or conditions of the Lease on Tenant’s part to be performed (beyond the period, if any, specified in the Lease within which Tenant may cure such default),

     (a) Tenant’s possession of the Premises under the Lease shall not be disturbed or interfered with by Mortgagee in the exercise of any of its rights under the Mortgage, including any foreclosure or conveyance in lieu of foreclosure, and

     (b) Mortgagee will not join Tenant as a party defendant for the purpose of terminating Tenant’s interest and estate under the Lease in any proceeding for foreclosure of the Mortgage.

     3. Attornment.

     (a) Tenant covenants and agrees that in the event of foreclosure of the Mortgage, whether by power of sale or by court action, or upon a transfer of the Property by conveyance in lieu of foreclosure (the purchaser at foreclosure or the transferee in lieu of foreclosure, including Mortgagee if it is such purchaser or transferee, being herein called “New Owner”), Tenant shall attorn to the New Owner as Tenant’s new landlord, and agrees that the Lease shall continue in full force and effect as a direct lease between Tenant and New Owner upon all of the terms, covenants, conditions and agreements set forth in the Lease and this Agreement, except for provisions which are impossible for Mortgagee to perform; provided, however, that in no event shall the New Owner be:

     (i) liable for any act, omission, default, misrepresentation, or breach of warranty, of any previous landlord (including Landlord) or obligations accruing prior to New Owner’s actual ownership of the property; (other than for a default by Landlord arising from Landlord’s failure to perform any maintenance or repair obligation required of Landlord under the Lease if, and only if, (i) Tenant has provided New Owner with written notice of such default and an opportunity to cure the same in accordance with the requirements of Section 5

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hereof prior to exercising any of Tenant’s rights under the Lease, (ii) Tenant duly exercises its rights under the Lease to cure such default by making such repairs or performing such maintenance to the Premises or the Building on behalf of Landlord (1) in compliance with all applicable laws (2) with materials of a quality and grade at least as equal to that in place as of the date of delivery of the Premises to Tenant, and (3) without interference with the rights of other tenants of the Property, (iii) the total liability for such default shall not exceed the fair and reasonable cost to Tenant to make such repairs or perform such maintenance on Landlord’s behalf);

     (ii) subject to any offset, defense, claim or counterclaim which Tenant might be entitled to assert against any previous landlord (including Landlord); except with respect to offsets arising from Tenant’s repairs to or maintenance of the Premises or the Building in accordance with subparagraph (i) above;

     (iii) bound by any payment of rent, additional rent or other payments, made by Tenant to any previous landlord (including Landlord) for more than one (1) month in advance;

     (iv) bound by any amendment, or modification of the Lease hereafter made, or consent by any previous landlord (including Landlord) under the Lease to any assignment or sublease hereafter granted, without the written consent of Mortgagee; or

     (v) liable for any deposit that Tenant may have given to any previous landlord (including Tenant) which has not, as such, been transferred to New Owner.

     (b) The provisions of this Agreement regarding attornment by Tenant shall be self-operative and effective without the necessity of execution of any new lease or other document on the part of any party hereto or the respective heirs, legal representatives, successors or assigns of any such party. Tenant agrees, however, to execute and deliver at any time and from time to time, upon the request of Landlord or of any holder(s) of any of the indebtedness or other obligations secured by the Mortgage, any instrument or certificate which, in the reasonable judgement of Landlord or of such holder(s), may be necessary or appropriate in any such foreclosure proceeding or otherwise to evidence such attornment, including, if requested, a new lease of the Premises on the same terms and conditions as the Lease for the then unexpired term of the Lease including the Extended Term, if any.

     4. Estoppel Certificate. Tenant agrees to execute and deliver from time to time, upon the request of Landlord or of any holder(s) of any of the indebtedness or other obligations secured by the Mortgage, a certificate regarding the status of the Lease in a form reasonably acceptable to Tenant, consisting of statements, if true (or if not, specifying why not), (a) that the Lease is in full force and effect, (b) the date through which rentals have been paid, (c) the date of the commencement of the term of the Lease, (d) the nature of any amendments or modifications of the Lease, (e) that no default, or state of facts which with the passage of time or notice (or both) would constitute a

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default, exists under the Lease, and (f) such other matters as may be reasonable requested.

     5. Acknowledgement and Agreement by Tenant. Tenant acknowledges and agrees as follows:

     (a) Tenant acknowledges that Landlord will execute and deliver to Mortgagee in connection with the financing of the Property the Deed of Trust which assigns the rent and all other sums due under the Lease to Mortgagee. Tenant hereby expressly consents to such [absolute assignment] [collateral assignment] and agrees that such assignment shall, in all respects, be superior to any interest Tenant has in the Lease of the Property, subject to the provision of the Agreement. Tenant will not amend, alter, terminate, or waive any provision of, or consent to the amendment, alteration, termination or waiver of any provision of the Lease without the prior written consent of Mortgagee, and no termination of the Lease, whether pursuant to the terms of the Lease or otherwise, will be effective without prior written consent of Mortgagee. Tenant shall not prepay any rents or other sums due under the lease for more than one (1) month in advance of the due date therefor. Tenant acknowledges that Mortgagee will rely upon this instrument in connection with such financing.

     (b) Mortgagee, in making any disbursements to Landlord, is under no obligation or duty to oversee or direct the application of the proceeds of such disbursements, and such proceeds may be used by Landlord for purposes other than improvement of the Property.

     (c) From and after the date hereof, in the event of any act or omission by Landlord which would give Tenant the right, either immediately or after the lapse of time, to terminate the Lease or to claim a partial or total eviction, Tenant will not exercise any such right (i) until it has given written notice of such act or omission to the Mortgagee; and (ii) until the same period of time as is given to Landlord under the Lease to cure such act or omission shall have elapsed following such giving of notice to Mortgagee and following tile time when Mortgagee shall have become entitled under the Mortgage to remedy the same, but in any event 30 days after receipt of such notice or such longer period of time as may be necessary to cure or remedy such default, act, or omission including such period of time necessary to obtain possession of the Property and thereafter cure such default, act, or omission, during which period of time Mortgagee shall be permitted to cure or remedy such default; act or omission; provided, however that Mortgagee shall have no duty or obligation to cure or remedy any beach of default. It is specifically agreed that Tenant shall not, as to Mortgagee, require cure of any such default which is personal to Landlord, and therefore not susceptible to cure by Mortgagee.

     (d) In the event that Mortgagee notifies Tenant of a default under the Mortgage, Note, or Security Documents and demands that Tenant pay its rent and all other sums due under the Lease directly to Mortgagee, Tenant shall honor such demand and pay the full amount of its rent and all other sums due under the Lease directly to Mortgagee or as otherwise required pursuant to such notice beginning with the payment next due after such notice of default, without inquiry as to whether a default actually exists under the Mortgage, Security

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Documents or otherwise in connection with the Note, and notwithstanding any contrary instructions of or demands from Landlord.

     (e) Tenant shall send a copy of any notice or statement under the Lease to Mortgagee at the same time such notice or statement is sent to Landlord.

     (f) Tenant has no right or option of any nature whatsoever, whether pursuant to the Lease or otherwise, to purchase the Premises or the Property, or any portion thereof or any interest therein, and to the extent that Tenant has had, or hereafter acquires, any such right or option, same is hereby acknowledged to be subject and subordinate to the Mortgage and is hereby waived and released as against Mortgagee.

     (g) This Agreement satisfies any condition or requirement in the Lease relating to the granting of a non-disturbance agreement and Tenant waives any requirement to the contrary in the Lease.

     (h) Mortgagee and any New Owner shall have no liability to Tenant or any other party for any conflict between the provisions of the Lease and the provisions of any other lease affecting the Property, including, but not limited to, any provisions relating to exclusive or non-conforming uses or rights, renewal options and options to expand, and in the event of such a conflict, Tenant shall have no right to cancel the Lease or take any other remedial action against Mortgagee or New Owner, or against any other party for which Mortgagee or any New Owner would be liable.

     (i) Mortgagee and any New Owner shall have no obligation nor incur any liability with respect to the erection or completion of the improvements in which the Premises are located or for completion of the Premises or any improvements for Tenant’s use and occupancy, either at the commencement of the term of the Lease or upon any renewal or extension thereof or upon the addition of additional space, pursuant to any expansion rights contained in the Lease.

     (j) Mortgagee and any New Owner shall have no obligation nor incur any liability with respect to any warranties of any nature whatsoever, whether pursuant to the Lease or otherwise, including, without limitation, any warranties respecting use, compliance with zoning, Landlord’s title, Landlord’s authority, habitability, fitness for purpose or possession.

     (k) In the event that Mortgagee or any New Owner shall acquire title to the Premises or the Property, Mortgagee or such New Owner shall have no obligation, nor incur any liability, beyond Mortgagee’s or New Owner’s then equity interest, if any, in the Property or the Premises, and Tenant shall look exclusively to such equity interest or Mortgagee or New Owner, if any, for the payment and discharge of any obligations imposed upon Mortgagee or New Owner hereunder or under the Lease or for recovery of any judgement from Mortgagee, or New Owner, and in no event shall Mortgagee, New Owner, nor any of their respective officers, directors, shareholders, agents, representatives, servants, employees or partners ever by personally liable for such judgement.

     (l) Nothing herein contained is intended, nor shall it be construed, to

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abridge or adversely affect any right or remedy of Landlord under the Lease in the event of any default by Tenant in the payment of rent and/or any other sums due under the Lease or in the performance of any of the other terms, covenants or conditions of the Lease on Tenant’s part to be performed.

     (m) Landlord has not agreed to any abatement of rent or other sums or period of “free rent” for the Premises unless same is specifically provided in the Lease, and Tenant agrees that in the event Mortgagee, or any New Owner becomes the owner of the Property, no agreement for abatement of rent or any other sum not specifically provided in the Lease will be binding on Mortgagee or New Owner.

     (n) Tenant have never permitted, and will not permit, the generation, treatment, storage or disposal of any hazardous substance as defined under federal, state, or local law, on the Premises or Property except for such substances of a type and only in a quantity normally used in connection with the occupancy or operation of buildings (such a non-flammable cleaning fluids and supplies normally used in the day to day operation of first class [office or retail establishments]) which substances are being held, stored, and used in strict compliance with federal, state, and local laws. Tenant shall be solely responsible for and shall reimburse Landlord for any loss, liability, claim or expense, including without limitation, cleanup and all other expenses, that Landlord may incur by reason of Tenant’s violation of the requirements of this Paragraph 5(n).

     6. Acknowledgement and Agreement by Landlord. Landlord, as landlord under the Lease and grantor under the Mortgage, acknowledges and agrees for itself and its heirs, representative, successors and assigns, that: (a) this Agreement does not constitute a waiver by Mortgagee of any of its rights under the Mortgage, Note, or Security Documents, or in any way release Landlord from its obligations to comply with the terms, provisions, conditions, covenants, agreements and clauses of the Mortgage, Note, or Security Documents; (b) the provisions of the Mortgage, Note, or Security Documents remain in full force and effect and must be complied with by Landlord; and (c) Tenant is hereby authorized to pay its rent and all other sums due under the Lease directly to Mortgagee upon receipt of a notice as set forth in paragraph 5(d) above from Mortgagee and that Tenant is not obligated to inquire as to whether a default actually exists under the Mortgage, Security Documents or otherwise is connection with the Note. Landlord hereby releases and discharges Tenant of and from any liability to Landlord resulting from Tenant’s payment to Mortgagee in accordance with this Agreement. Landlord represents and warrants to Mortgagee that a true and complete copy of the Lease has been delivered by Landlord to Mortgagee.

     7. Lease Status. Landlord and Tenant certify to Mortgagee that neither Landlord nor Tenant has knowledge of any default on the part of the other under the Lease, and the Lease is bona fide and contains all of the agreements of the parties thereto with respect to the letting of the Premises and that all of the agreements and provisions therein contained are in full force and effect.

     8. Notices. All notices, requests, consents, demands and other communications required or which any parties desires to give hereunder shall be

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in writing and shall be deemed sufficiently given or furnished if delivered by personal delivery, by telegram, telex, or facsimile, by expedited delivery service with proof of delivery, or by registered or certified United States mail, postage prepaid, at the addresses specified at the end of this Agreement (unless changed by similar notice in writing given by the particular party whose address is to be changed). Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of delivery service or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of telegram, telex or facsimile, upon receipt. Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt. This Paragraph 8 shall not be construed in any way to affect or impair any waiver of notice or demand provided in this Agreement or in the lease or in any document evidencing, securing or pertaining to the loan evidenced by the Note or to require giving of notice or demand to or upon any person in any situation or for any reason.

     9. Miscellaneous.

     (a) This Agreement supersedes any inconsistent provision of the Lease.

     (b) Nothing contained in this Agreement shall be construed to derogate from in any way impair, or affect the lien, security interest or provisions of the Mortgage, Note, or Security Documents.

     (c) This Agreement shall inure to the benefit of the parties hereto, their respective successors and permitted assigns, and any New Owner, and its heirs, personal representatives, successors and assigns; provided, however, that in the event of the assignment or transfer of the interest of Mortgagee, all obligations and liabilities of the assigning Mortgagee under this Agreement shall terminate, and thereupon all such obligations and liabilities shall be the responsibility of the party to whom Mortgagee’s interest is assigned or transferred; and provided further that the interest of Tenant under this Agreement may not be assigned or transferred without the prior written consent of Mortgagee.

     (d) THIS AGREEMENT AND, ITS VALIDITY, ENFORCEMENT AND INTERPRETATION SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, AND APPLICABLE UNITED STATES FEDERAL LAW EXCEPT ONLY TO THE EXTENT, IF ANY, THAT THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED NECESSARILY CONTROL.

     (e) The words “herein”, “hereof”, hereunder” and other similar compounds of the word “here” as used in this Agreement refer to this entire Agreement and not to any particular section or provision.

     (f) This Agreement may not be modified orally or in any manner other than by an agreement in writing signed by the parties hereto or their respective successors in interest.

     (g) If any provision of the Agreement shall be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not apply to or affect any other provision hereof, but

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this Agreement shall be construed as if such invalidity, illegibility, or unenforceability did not exist.

     (h) If any bankruptcy proceedings shall hereafter commence with respect to Landlord, and if the Lease is rejected by the trustee pursuant to section 365 (L) of the United States Bankruptcy Code, Tenant agrees with Mortgagee (i) not to treat such lease as terminated, and (ii) to remain in possession of the Premises.

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

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Address or Mortgagee:	Mortgagee:
	By:
	Its:
	Date:
Attention:
Address of Tenant:	Tenant:
	By:
	Its:
	Date:
Attention:
Address of Landlord:	Landlord:
c/o Legacy Partners Commercial, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404
Attention:
	By:
	Its:
	Date:

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Addendum 1
Option to Extend the Lease

This Addendum 1 (“Addendum”) is incorporated as a part of that certain Lease Agreement dated September15, 1999 (the “Lease”), by and between Foundry Networks, Inc., a California corporation (“Tenant”), and WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership (“Landlord”), for the leasing of those certain premises located at 2100 Gold Street, San Jose, California as more particularly described in Exhibit A to the Lease (the “Premises”). Any capitalized terms used herein and not otherwise defined herein
shall have the meaning ascribed to such terms as set forth in the Lease.

1. Grant of Extension Option. Subject to the provisions, limitations and conditions set forth in Paragraph 5 below, Tenant shall have an Option (“Option”) to extend the term of the Lease for five (5) years (the “Extended Term”).

2. Tenant’s Option Notice. If Landlord does not receive written notice from Tenant of its exercise of this Option on a date which is not more than two hundred seventy (270) days nor less than one hundred eighty (180) days prior to the end of the initial term of the Lease (the “Option Notice”), all rights under this Option shall automatically terminate and shall be of no further force or effect.

3. Establishing the Initial Monthly Base Rent for the Extended Term. The initial monthly Base Rent for the Extended Term shall be the then current market rent for similar space within the competitive market area of the Premises (the “Fair Rental Value”). “Fair Rental Value” of the Premises means the fair market rental value of the Premises as of the commencement of the Extended Term, taking into consideration all relevant factors, including length of term, the uses permitted under the Lease, the quality, size, design and location of the Premises, including the condition and value of existing tenant improvements, free rent periods, tenant improvement allowances, brokerage commissions, and the monthly base rental paid by tenants for premises comparable to the Premises, and located within the competitive market area of the Premises as reasonably determined by Landlord.

If Landlord and Tenant are unable to agree on the Fair Rental Value for either the Extended Term, within ten (10) days of receipt by Landlord of the Option Notice for the Extended Term, Landlord and Tenant each, at its cost and by giving notice to the other party, shall appoint a competent and disinterested commercial real estate broker (hereinafter “broker”) with at least five (5) years’ full-time commercial real estate brokerage experience in the geographical area of the Premises to set the Fair Rental Value for the Extended Term. If either Landlord or Tenant does not appoint a broker within ten (10) days after the other party has given notice of the name of its broker, the single broker

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appointed shall be the sole broker and shall set the Fair Rental Value for the Extended Term. If two (2) brokers are appointed by Landlord and Tenant as stated in this paragraph, they shall meet promptly and attempt to set the Fair Rental Value. If the two (2) brokers are unable to agree within ten (10) days after the second broker has been appointed, they shall attempt to select a third broker, meeting the qualifications stated in this paragraph within ten (10) days after the last day the two (2) brokers are given to set the Fair Rental Value. If they are unable to agree on the third broker, either Landlord or Tenant by giving ten (10) days’ notice to the other party, can apply to the Presiding Judge of the Superior Court of the county in which the Premises is located for the selection of a third broker who meets the qualifications stated in this paragraph. Landlord and Tenant each shall bear one-half (1/2) of the cost of appointing the third broker and of paying the third broker’s fee. The third broker, however selected, shall be a person who has not previously acted in any capacity for either Landlord or Tenant. Within fifteen (15) days after the selection of the third broker, the third broker shall select one of the two Fair Rental Values submitted by the first two brokers as the Fair Rental Value for the Extended Term. Such third broker determination shall be binding on Landlord and Tenant. If either of the first two brokers fails to submit their opinion of the Fair Rental Value, then the single Fair Rental Value submitted shall automatically be the monthly Base Rent for the Extended Term.

Upon determination of the initial monthly Base Rent for the Extended Term in accordance with the terms outlined above, Landlord and Tenant shall immediately execute, an amendment to this Lease. Such amendment shall set forth among other things, the initial monthly Base Rent for the Extended Term and the actual commencement date and expiration date of the Extended Term. Tenant shall have no other right to extend the term of the Lease under this Addendum unless Landlord and Tenant otherwise agree in writing.

4. Condition of Premises and Brokerage Commissions for the Extended Term. If Tenant timely and properly exercises this Option, in strict accordance with the terms contained herein: (1) Tenant shall accept the Premises in its then “As- Is” condition and, accordingly, Landlord shall not be required to perform any additional improvements to the Premises; and (2) Tenant hereby agrees that it will be solely responsible for any and all brokerage commissions and finder’s fees payable to any broker now or hereafter procured or hired by Tenant or who otherwise claims a commission based on any act or statement of Tenant (“Tenant’s Broker”) in connection with the Option; and Tenant hereby further agrees that Landlord shall in no event or circumstance be responsible for the payment of any such commissions and fees to Tenant’s Broker.

5. Limitations On, and Conditions To, Extension Option. This Option is personal to Tenant and may not be assigned, voluntarily or involuntarily, separate from or as part of the Lease. At Landlord’s option, all rights of Tenant under this Option shall terminate and be of no force or effect if any of the following individual events occur or any combination thereof occur: (1) Tenant has been in material default more than twice during the initial term of the Lease, or is in material default of any provision of the Lease on the date

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of the Option Notice; and/or (2) Tenant has assigned its rights and obligations under all or part of the Lease or Tenant has subleased more than ten percent (10%) of the Premises, except to a Related Entity; and/or (3) Between the Lease Date and the time the Option Notice is delivered there has occurred a material and adverse change in Tenant’s financial condition; and/or (4) Tenant has failed to properly exercise this Option in a timely manner in strict accordance with the provisions of this Addendum; and/or (5) Tenant no longer has possession of all or any part of the Premises under the Lease (unless a Related Entity has possession of the Premises), or if the Lease has been terminated earlier, pursuant to the terms of the Lease.

6. Time is of the Essence. Time is of the essence with respect to each and every time period described in this Addendum.

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Addendum 2
Right of First Refusal

This Addendum 2 is incorporated as a part of that certain Lease Agreement dated September 15, 1999, by and between Foundry Networks, Inc., a California corporation (“Tenant”), and WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership corporation (“Landlord”), for the Premises located at 2100 Gold Street, San Jose, California 95002 (the “Premises”).

During the initial term of the Lease only, Tenant shall have a one time First Right to Lease (“Right of First Refusal”) the space within the Building commonly known as 2130 Gold Street, San Jose, California, and containing approximately 26,000 square feet on the first (1st) floor of the Building, located at 2130 Gold Street, San Jose, California, as outlined on Exhibit A attached hereto and made a part hereof (the “Expansion Space”). Tenant’s right, as granted herein, is subject to the following conditions:

     i. Tenant’s Right of First Refusal shall be void if, at any time, Tenant has been, more than two (2) times during the Term of this Lease in material default or is currently in material default in the performance of any of its obligations under the Lease;

     ii. Tenant’s Right of First Refusal shall be subject to Landlord’s review and approval of Tenant’s then current financial condition; and

     iii. Tenant’s Right of First Refusal shall be subject to the rights of the then existing tenant pursuant to its existing Lease, as such Lease may be modified, amended or extended.

Provided the above conditions are satisfied, and upon Landlord’s receipt of a bona fide third party offer to lease the Expansion Space which Landlord is willing to accept (other than by the current occupant of the Expansion Space), Landlord will notify Tenant in writing (i) that Landlord has received such third party offer and (ii) of all material terms of such third party offer to lease such Expansion Space to Tenant. Tenant shall have three (3) business days after delivery of such notice to notify Landlord in writing (“Election Notice”) of Tenant’s election to lease all the Expansion Space upon those terms. If Tenant fails to notify Landlord of Tenant’s election to lease the Expansion Space within the time specified herein, it shall be deemed that (i) Tenant has elected not to lease said Expansion Space; (ii) Landlord may thereafter enter into a Lease Agreement with a third party; and (iii) all rights under this Right of First Refusal shall terminate and be of no further force and effect. Time is of the essence herein.

In the event Tenant exercises this Right of First Refusal as herein provided, Tenant shall provide Landlord a $25,000.00 nonrefundable deposit, and the parties shall have ten (10) working days after Landlord receives the Election Notice from Tenant in which to execute an amendment to the Lease setting forth the agreed-upon terms. Upon full execution of an amendment for the Expansion

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Space, the nonrefundable deposit shall be credited toward Rent or security deposit for the Expansion Space, as agreed between the parties.

This Right of Refusal shall terminate and be of no force and effect if, at any time, the Premises are being subleased at the time of this Right of First Refusal is offered, except to a Related Entity.

Upon determination of the initial monthly Base Rent for the Extended Term in accordance with the terms outlined above, Landlord and Tenant shall immediately execute, an amendment to this Lease. Such amendment shall set forth among other things, the initial monthly Base Rent for the Extended Term and the actual commencement date and expiration date of the Extended Term. Tenant shall have no other right to extend the term of the Lease under this Addendum unless Landlord and Tenant otherwise agree in writing.

4. Condition of Premises and Brokerage Commissions for the Extended Term. If Tenant timely and properly exercises this Option, in strict accordance with the terms contained herein: (1) Tenant shall accept the Premises in its then “As- Is” condition and, accordingly, Landlord shall not be required to perform any additional improvements to the Premises; and (2) Tenant hereby agrees that it will be solely responsible for any and all brokerage commissions and finder’s fees payable to any broker now or hereafter procured or hired by Tenant or who otherwise claims a commission based on any act or statement of Tenant (“Tenant’s Broker”) in connection with the Option; and Tenant hereby further agrees that Landlord shall in no event or circumstance be responsible for the payment of any such commissions and fees to Tenant’s Broker.

5. Limitations On, and Conditions To, Extension Option. This Option is personal to Tenant and may not be assigned, voluntarily or involuntarily, separate from or as part of the Lease. At Landlord’s option, all rights of Tenant under this Option shall terminate and be of no force or effect if any of the following individual events occur or any combination thereof occur: (1) Tenant has been in material default more than twice during the initial term of the Lease, or is in material default of any provision of the Lease on the date of the Option Notice; and/or (2) Tenant has assigned its rights and obligations under all or part of the Lease or Tenant has subleased more than ten percent (10%) of the Premises, except to a Related Entity; and/or (3) Between the Lease Date and the time the Option Notice is delivered there has occurred a material and adverse change in Tenant’s financial condition; and/or (4) Tenant has failed to properly exercise this Option in a timely manner in strict accordance with the provisions of this Addendum; and/or (5) Tenant no longer has possession of all or any part of the Premises under the Lease (unless a Related Entity has possession of the Premises), or if the Lease has been terminated earlier, pursuant to the terms of the Lease.

6. Time is of the Essence. Time is of the essence with respect to each and every time period described in this Addendum.

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Addendum 2
Right of First Refusal

This Addendum 2 is incorporated as a part of that certain Lease Agreement dated September 15, 1999, by and between Foundry Networks, Inc., a California corporation (“Tenant”), and WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership corporation (“Landlord”), for the Premises located at 2100 Gold Street, San Jose, California 95002 (the “Premises”).

During the initial term of the Lease only, Tenant shall have a one time First Right to Lease (“Right of First Refusal”) the space within the Building commonly known as 2130 Gold Street, San Jose, California, and containing approximately 26,000 square feet on the first (1st) floor of the Building, located at 2130 Gold Street, San Jose, California, as outlined on Exhibit A attached hereto and made a part hereof (the “Expansion Space”). Tenant’s right, as granted herein, is subject to the following conditions:

     i. Tenant’s Right of First Refusal shall be void if, at any time, Tenant has been, more than two (2) times during the Term of this Lease in material default or is currently in material default in the performance of any of its obligations under the Lease;

     ii. Tenant’s Right of First Refusal shall be subject to Landlord’s review and approval of Tenant’s then current financial condition; and

     iii. Tenant’s Right of First Refusal shall be subject to the rights of the then existing tenant pursuant to its existing Lease, as such Lease may be modified, amended or extended.

Provided the above conditions are satisfied, and upon Landlord’s receipt of a bona fide third party offer to lease the Expansion Space which Landlord is willing to accept (other than by the current occupant of the Expansion Space), Landlord will notify Tenant in writing (i) that Landlord has received such third party offer and (ii) of all material terms of such third party offer to lease such Expansion Space to Tenant. Tenant shall have three (3) business days after delivery of such notice to notify Landlord in writing (“Election Notice”) of Tenant’s election to lease all the Expansion Space upon those terms. If Tenant fails to notify Landlord of Tenant’s election to lease the Expansion Space within the time specified herein, it shall be deemed that (i) Tenant has elected not to lease said Expansion Space; (ii) Landlord may thereafter enter into a Lease Agreement with a third party; and (iii) all rights under this Right of First Refusal shall terminate and be of no further force and effect. Time is of the essence herein.

In the event Tenant exercises this Right of First Refusal as herein provided, Tenant shall provide Landlord a $25,000.00 nonrefundable deposit, and the parties shall have ten (10) working days after Landlord receives the Election Notice from Tenant in which to execute an amendment to the Lease setting forth the agreed-upon terms. Upon full execution of an amendment for the Expansion

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Space, the nonrefundable deposit shall be credited toward Rent or security deposit for the Expansion Space, as agreed between the parties.

This Right of Refusal shall terminate and be of no force and effect if, at any time, the Premises are being subleased at the time of this Right of First Refusal is offered, except to a Related Entity.

This Right of First Refusal is personal to Tenant and may not be assigned, voluntarily or involuntarily, separate from or as a part of the Lease, except to a Related Entity.

Should Tenant exercise the Right herein, Landlord and Tenant shall execute an amendment to this Lease, adding the Expansion Space to the Premises and adjusting the Rent and Tenant’s proportionate share of the items set forth in Paragraph 3 of this Lease. If Tenant does not elect to exercise the Right herein, based upon the material terms proposed by Landlord, all Rights under this Right of First Refusal shall terminate and be of no further force and effect.

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EX-10.7

Exhibit 10.7

(HYPERION LOGO)
900 LONG RIDGE ROAD STAMFORD, CONNECTICUT 06902
TEL 203.705.3000          WWW.HYPERION.COM          FAX 203.595.8900

March 30, 2005

Cliff Moore
General Counsel
Foundry Networks, Inc.,
4980 Great America Parkway
Santa Clara, CA 95054

Re. Commencement Date of Sublease: 4980 Great America Parkway, Santa Clara, CA

Dear Cliff:

In regard to that certain Sublease Agreement dated March 25, 2005 (“Sublease”), by and between Hyperion Solutions Corporation, a Delaware corporation and Foundry Networks, Inc., a Delaware corporation for the premises consisting of an entire five (5) story building comprising approximately 140,935 square feet of space known as 4980 Great America Parkway, Santa Clara, California, this letter shall confirm our understandings and agreements relative to the Sublease Commencement Date.

Notwithstanding anything to the contrary contained in the Sublease it is agreed that the Sublease commenced on March 30, 2005, and shall terminate, unless sooner terminated pursuant to the terms thereof on June 5, 2010.

Please acknowledge receipt of this letter and of the foregoing, by signing below and return one copy of this letter to me via facsimile at 203-329-6767.

Very truly yours,

/s/ Vincent A. Laurentino
Vincent A. Laurentino
 
AGREED AND ACCEPTED:
 
FOUNDRY NETWORKS, INC.
a Delaware Corporation
 
/s/ Cliff Moore
By: Cliff Moore
Its: V.P. & General Counsel

CC:   Julie A. Frambach, Esq.
         Paul J. Niewiadomski, Esq.

SUBLEASE AGREEMENT

     This Sublease Agreement (“Sublease”) is made effective as of the 25th day of March, 2005, (the “Effective Date”) by and between Hyperion Solutions Corporation, a Delaware corporation (“Sublessor”), and Foundry Networks, Inc., a Delaware corporation (“Sublessee”). Sublessor agrees to sublease to Sublessee, and Sublessee agrees to sublease from Sublessor, those certain premises situated in the City of Santa Clara, County of Santa Clara, State of California, consisting of an entire five (5) story building comprising approximately 140,935 square feet of space known as 4980 Great America Parkway, Santa Clara, California, more particularly set forth in the Master Lease, and in the “as built” condition as set forth on the plans attached hereto and incorporated herein as Exhibit “A” (the “Subleased Premises”).

ARTICLE 1

MASTER LEASE AND OTHER AGREEMENTS

     1.1 Subordinate to Master Lease. Except as specifically set forth herein, this Sublease is subject and subordinate to all of the terms and conditions of the lease (the “Original Lease”) dated December 20, 1999, between Sobrato Development Companies #961, a California limited partnership (“Master Lessor”) and Sublessor’s predecessor in interest, Brio Technology Inc., a California corporation (as “Tenant”), as amended by that certain First Amendment to Lease dated June 8, 2000 (“Amendment”) and as assigned to Sublessor pursuant to that Assignment and Assumption of Tenants Interest in the Lease dated October 30, 2003 (“Assignment”). The Original Lease, the Amendment and the Assignment shall hereinafter collectively be referred to as the “Master Lease”. Sublessee hereby assumes and agrees to perform the obligations of Tenant under the Master Lease following the Effective Date, as more particularly set forth hereafter. Unless otherwise defined, all capitalized terms used herein shall have the same meanings as given them in the Master Lease. A copy of the Master Lease is attached hereto as Exhibit “B” and incorporated herein by this reference. Sublessor represents and warrants to Sublessee that: (i) the Master Lease attached hereto is a full and complete copy; and (ii) to Sublessor’s knowledge, as of the Effective Date, the Master Lease is in full force and effect and to Sublessor’s knowledge, no event has occurred and is continuing which would constitute an event of default, but for the requirement of giving notice and/or the expiration of the period of time to cure. As used herein, Sublessor’s knowledge shall mean the actual present knowledge of Vince Laurentino, without inquiry. Neither Sublessee nor Sublessor shall commit or permit to be committed any act or omission which would violate any term or condition of the Master Lease. Sublessee shall neither do nor permit anything to be done which would cause the Master Lease to be terminated or forfeited by reason of any right of termination or forfeiture reserved or vested in Master Lessor under the Master Lease, and Sublessee shall indemnify and hold Sublessor harmless from and against all claims, liabilities, judgments, costs, demands, penalties, expenses, and damages of any kind whatsoever, including, without limitation, reasonable attorneys’ fees, consultants’ fees and costs and court costs, (“Claims”) by reason of any failure on the part of Sublessee to perform any of the obligations of Tenant under the Master Lease which Sublessee has become obligated hereunder to perform. Sublessor shall indemnify and hold Sublessee harmless from and against all Claims by reason of any failure on the part of Sublessor to have performed any of the obligations of Tenant under the Master Lease prior to the Commencement

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Date. In the event of the termination of Sublessor’s interest as Tenant under the Master Lease for any reason other than for Sublessor’s breach, then this Sublease shall terminate automatically upon such termination without any liability of Master Lessor or Sublessor to Sublessee. Sublessee represents and warrants to Sublessor that it has read and is familiar with the Master Lease.

     1.2 Applicable Provisions. All of the terms and conditions contained in the Master Lease as they may apply to the Subleased Premises are incorporated herein and shall be terms and conditions of this Sublease (with each reference therein to “Landlord” or “Lessor”, “Tenant” or “Lessee” and “Lease” to be deemed to refer to Sublessor, Sublessee, and Sublease, respectively, as appropriate, except those directly contradicted by the terms and conditions contained in this document, and specifically except for: paragraph 1; the fourth sentence in paragraph 2; 4.A; 4.D; 5, except the language regarding the assignment of warranties, to the extent any warranties described therein are still in existence and Sublessor has the right to assign such warranties; 6.A; the reference to the rate of holdover rent in paragraph 6.C, to the extent inconsistent with Section 12.5 below; the last sentence in 7.A; in paragraph 8.D, the reference to Exhibit “G” shall be changed to Exhibit “E”; the reference in paragraph 8.G to reimbursement of the cost of capital improvements or replacements, except to the extent such costs are reimbursed by Master Lessor; paragraph 11 with respect to rent abatement, except to the extent rent is abated under the Master Lease; the reference to “four or more times” in paragraph 13.G shall be reduced to “three or more times”; in paragraph 17.A: (i) the reference to ten (10) days shall be increased to fifteen (15) days, (ii) any reference to reimbursement of any amount of Tenant Improvement costs is hereby deleted, and (iii) the last sentence in 17.A is hereby deleted; the first sentence in 17.B; 18; 19; 20.C; 20.M; the reference to “Base Monthly Rent” in paragraph 20.N shall mean and refer to the Base Monthly Rent under the Master Lease; Exhibit “C” and Exhibit “D”. In addition: (i) with respect to the following provisions that are incorporated herein, the reference to Landlord shall mean Master Lessor only: paragraph 8.A; the requirement to obtain Master Lessor’s insurance in paragraph 9.B; 15; 16; and 17.G; and (ii) with respect to the following provisions that are incorporated herein, the reference to Landlord shall mean Master Lessor and Sublessor: paragraph 3.B; 3.C; 7.B;12.A; 12.B; 12.D; 20.G; 20.H; and 20.T. In addition to the foregoing all of the following terms and conditions set forth in this document, shall constitute the complete terms and conditions of this Sublease.

     1.3 Obligations of Sublessor. Notwithstanding anything herein contained, the only services or rights to which Sublessee is entitled hereunder are those to which Sublessor is entitled under the Master Lease, and for all such services and rights Sublessee shall look solely to the Master Lessor under the Master Lease, and the obligations of Sublessor hereunder shall be limited to using its reasonable good faith efforts to obtain the performance by Master Lessor of its obligations, provided Sublessee shall reimburse Sublessor for all reasonable costs incurred by Sublessor in such efforts. Sublessor shall have no liability to Sublessee or any other person for damage of any nature whatsoever as a result of the failure of Master Lessor to perform said obligations except for Master Lessor’s termination of the Sublessor’s interest as Tenant under the Master Lease in the event of Sublessor’s breach of the Master Lease, and Sublessee shall indemnify and hold Sublessor harmless from any and all Claims whatsoever in defending against same. Sublessor shall not agree to any voluntary amendment, modification or termination of the Master Lease which will materially and adversely effect Sublessee’s occupancy of the Subleased Premises or Sublessee’s use of the Subleased Premises for their intended purpose, unless

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Sublessor shall first obtain Sublessee’s prior written approval thereof, which consent shall not be unreasonably withheld, conditioned or delayed. With respect to any obligation of Sublessee to be performed under this Sublease, when the Master Lease grants Sublessor a specific number of days to perform its obligations thereunder, Sublessee shall have two (2) fewer days to perform, provided, however, in no event shall Sublessee have less than one (1) business day to perform its obligations. With respect to approval required to be obtained by “Landlord” under the Master Lease, such consent must be obtained from Master Lessor and Sublessor and the approval of Sublessor may be withheld if Master Lessor’s consent is not obtained.

ARTICLE 2

TERM

     2.1 Term. The term of this Sublease shall commence on April 1, 2005. This shall be referred to as the “Commencement Date.” The term of this Sublease shall end on June 5, 2010, unless sooner terminated pursuant to any provision of the Master Lease applicable to the Subleased Premises (the “Expiration Date”). Sublessor shall have no obligation to Sublessee to exercise any of its options to extend under the Master Lease. At the time Sublessor delivers possession of the Subleased Premises to Sublessee, Sublessor and Sublessee shall together execute a commencement date memorandum. Sublessor shall have no obligation to deliver possession, nor shall Sublessee be entitled to take occupancy of the Subleased Premises until such commencement date memorandum has been executed and Sublessee’s obligation to pay Base Rent and additional rent shall not be excused or delayed because of Sublessee’s failure to execute such commencement date memorandum.

     2.2 Option to Extend. Sublessee shall have no option to extend this Sublease. In addition, provided Sublessee is not in default hereunder during the entire period of time within which Sublessor has the right to exercise its right to extend the Master Lease, Sublessor agrees that it shall not exercise such right under the Master Lease.

     2.3 Sublessor’s Inability to Deliver Subleased Premises. In the event Sublessor is unable to deliver possession of the Subleased Premises on or before April 1, 2005, Sublessor shall not be liable for any damage caused thereby, nor shall this Sublease be void or voidable. Provided Sublessee is not in default hereunder or the cause of the delay: (i) Sublessee shall not be liable for Rent until such time as Sublessor offers to deliver possession of the Subleased Premises to Sublessee; and (ii) Sublessee’s six (6) month free rent period shall not be reduced as a result of any such delay, but the term hereof shall not be extended by such delay. If Sublessee, with Sublessor’s consent, takes possession prior to commencement of the term, Sublessee shall do so subject to all the covenants and conditions hereof, including, without limitation, providing evidence of all required insurance, payment of the deposit and prepaid rent, except for the obligation to pay Base Rent (defined in Section 3.1 below).

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ARTICLE 3

RENT

     3.1 Rent. Sublessee shall pay to Sublessor each month as base rent (“Base Rent”) for the Subleased Premises according to the following Schedule:

	Rate per Rentable Square Foot
	(“RSF”) on a
Month	Triple Net Basis (“NNN”)	Month Base Rent
Months 1-6	$0.00 per RSF, NNN	$	0
Months 07-12	$0.90 per RSF, NNN	$	126,841.50
Months 13-24	$0.95 per RSF, NNN	$	133,888.25
Months 25-36	$1.00 per RSF, NNN	$	140,935.00
Months 37-48	$1.05 per RSF, NNN	$	147,981.75
Months 49-60	$1.10 per RSF, NNN	$	155,028.50
Months 61-end of term	$1.15 per RSF, NNN	$	162,075.25

Base Rent shall be due in advance on or before the first of each month during the term of the Sublease. All sums payable by Sublessee hereunder shall be in lawful money of the United States of America, without offset or deduction and without prior demand and shall be paid to the Sublessor at Hyperion Solutions Corporation, 900 Long Ridge Road, Stamford, Connecticut 06902, Attn: Real Estate Director, or at any other place Sublessor may from time to time designate by written notice mailed or delivered to Sublessee. Base Rent for partial months at the commencement or termination of this Sublease shall be prorated. Upon execution hereof, Sublessee shall pay to Sublessor Base Rent in the amount of One Hundred Twenty-Six Thousand Eight Hundred Forty-One and 50/100 Dollars ($126,841.50)1 to be applied to the seventh (7th) month of the Sublease term.

     3.2 Additional Rent. If Sublessor shall be charged for additional rent or other sums pursuant to any of the provisions of the Master Lease (except to the extent such additional rent or sums results from Sublessor’s failure to perform its obligations pursuant to this Sublease), including, without limitation, Reimbursable Operating Costs, Taxes, and the Asset Management Fee pursuant to paragraph 20.N of the Master Lease (and as set forth on Exhibit “D” attached hereto and incorporated by this reference which for the first month of the term shall be Five Thousand Four Hundred Sixty and 62/100 Dollars ($5,460.62)2, subject to proration for partial months), Sublessee shall be liable for such additional rent or sums and Sublessee shall make such payment to Sublessor or Master Lessor, as Sublessor shall direct. Upon execution hereof, Sublessee shall pay to Sublessor, its proportionate share of the 2004-2005 Taxes, from the period from the Commencement Date to June 30, 2005, estimated to be Forty-Eight Thousand Twenty-One and 45/100 Dollars ($48,021.45)3. If Sublessee shall procure any additional services from

	Due on execution: One Hundred Eighty Thousand Three Hundred Twenty-Three and 57/100 Dollars ($180,323.57):
1	$126,841.50
2	$ 5,460.62
3	$ 48,021.45

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Master Lessor, or if additional rent or other sums are incurred for Sublessee’s sole benefit, Sublessee shall make such payment to Sublessor or Master Lessor, as Sublessor shall direct. Any other rent or other sums payable by Sublessee under this Article 3 shall constitute and be due as additional rent. Base Rent and additional rent shall herein be referred to as “Rent”.

     3.3 Under Protest. Sublessee may reasonably designate any payment required under the Master Lease as being paid “under protest” and thereafter request that Sublessor exercise its rights under the Master Lease with respect to such disputed payment, provided, however: (i) Sublessor shall not be required to expend more than nominal sums, unless Sublessee provides additional security, nor expend a significant amount of other resources; (ii) Sublessee shall be responsible for all costs and expenses with respect to such exercise of Sublessor’s rights, which shall be reimbursed by Sublessee within three (3) days of written demand therefore; (iii) Sublessee shall indemnify and hold Sublessor harmless from any Claims that result from such exercise; (iv) Sublessor may refuse Sublessee’s request if such refusal is commercially reasonable; and (v) Sublessor may impose as a condition to its exercise of such rights such requirements as Sublessor may deem reasonable and desirable, including, but not limited to the requirement that Sublessee provide additional security for the performance of Sublessee’s obligations under this Section 3.3.

ARTICLE 4

SECURITY DEPOSIT

     4.1 Security Deposit. Upon execution hereof, Sublessee shall deposit with Sublessor the sum of One Hundred Sixty-Two Thousand Seventy-Five and 25/100 Dollars ($162,075.25) as and for a deposit to secure Sublessee’s full and timely performance of all of its obligations hereunder. If Sublessee fails to pay Rent or any other sums as and when due hereunder, or otherwise defaults and/or fails to perform with respect to any provision of this Sublease, Sublessor may (but shall not be obligated to) use, apply, or retain all or any portion of said deposit for payment of any sum for which Sublessee is obligated or which will compensate Sublessor for any foreseeable or unforeseeable loss or damage which Sublessor may suffer thereby including, without limitation, any damage that will result in the future through the term of the Sublease, to repair damage to the Subleased Premises, to clean the Subleased Premises at the end of the term or for any loss or damage caused by the act or omission of Sublessee or Sublessee’s officers, agents, employees, independent contractors or invitees. Sublessee waives the provisions of California Civil Code Section 1950.7 and all other provisions of law now in force or that become in force after the date of execution of this Sublease that provide that Sublessor may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of Rent, to repair damage caused by Sublessee or to clean the Subleased Premises. Any such use, application, or retention shall not constitute a waiver by Sublessor of its right to enforce its other remedies hereunder, at law, or in equity. Sublessor agrees to provide written notice to Sublessee of any use, application or retention of the deposit by Sublessor. If any portion of said deposit is so used, applied, or retained, Sublessee shall, within ten (10) days after delivery of written demand from Sublessor, restore said deposit to its original amount. Sublessor shall not be a trustee of such deposit, and shall not be required to keep this deposit separate from its accounts. Sublessor alone shall be entitled to any interest or earnings thereon and Sublessor shall have the free use of same. If Sublessee fully and faithfully performs all of its

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obligations hereunder, then so much of the deposit as remains shall be returned to Sublessee (without payment of interest or earnings thereon) within 30 days after the later of (i) expiration or sooner termination of the term hereof, or (ii) Sublessee’s surrender of possession of the Subleased Premises to Sublessor.

ARTICLE 5

CONDITION OF SUBLEASED PREMISES

     5.1 Condition of the Subleased Premises. Sublessor shall deliver the Subleased Premises with all mechanical systems in good working order. As used herein, the term “mechanical systems”, to the extent applicable, shall mean the existing plumbing, heating, ventilating and air conditioning, electrical, and fire sprinkler systems and the elevators. Sublessee shall have a period of thirty (30) days from the date of possession in which to notify Sublessor, in writing, and with specificity, the nature and extent to which such mechanical systems are not in good working order, and Sublessor shall, with reasonable diligence rectify the same at its sole cost and expense. If Sublessee does not give Sublessee the required notice with the appropriate time period, any non-compliance shall be the obligation of Sublessee, at Sublessee’s sole cost and expense. Except as set forth above in this Section 5.1, Sublessee acknowledges that as of the Commencement Date, Sublessee shall have inspected the Subleased Premises, and every part thereof, and by taking possession shall have acknowledged that the Subleased Premises is in good condition and without need of repair, and Sublessee accepts the Subleased Premises “as is”, Sublessee having made all investigations and tests it has deemed necessary or desirable in order to establish to its own complete satisfaction the condition of the Subleased Premises. Sublessee accepts the Subleased Premises in their condition existing as of the Commencement Date, subject to all applicable zoning, municipal, county and state laws, ordinances, and regulations governing and regulating the use of the Subleased Premises and any covenants or restrictions of record. Sublessee acknowledges that neither Sublessor nor Master Lessor have made any representations or warranties as to the condition of the Subleased Premises or its present or future suitability for Sublessee’s purposes.

     5.2 Surrender. Sublessee shall keep the Subleased Premises, and every part thereof in good order and repair. In addition to Sublessee’s requirements under the Master Lease, Sublessee shall surrender the Subleased Premises in the same condition as received, subject to the requirement to remove the Furniture pursuant to Section 12.6 below, ordinary wear and tear, damage by casualty covered by insurance pursuant to Paragraph 15 of the Master Lease and condemnation pursuant to Paragraph 16 of the Master Lease excepted, provided Sublessee performs all necessary maintenance, repair and cleaning to maintain the Subleased Premises in the condition it was delivered at the earlier of the Commencement Date or such earlier date pursuant to Section 2.3 above. Sublessee shall have no obligation to restore any alterations made to the Subleased Premises by Sublessor or Tenant that were constructed prior to the Commencement Date.

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ARTICLE 6

INSURANCE

     6.1 Sublessee’s Insurance With respect to the Tenant’s insurance under the Master Lease, the same is to be provided by Sublessee as described in the Master Lease, and such policies of insurance shall include as additional insureds Master Lessor, Sublessor and any lender as required by Master Lessor.

     6.2 Waiver of Subrogation. With respect to the waiver of subrogation contained in the Master Lease, such waiver shall be deemed to be modified to constitute an agreement by and among Master Lessor, Sublessor and Sublessee (and Master Lessor’s consent to this Sublease shall be deemed to constitute its approval of this modification).

ARTICLE 7

USE OF SUBLEASED PREMISES; PARKING; IMPROVEMENTS

     7.1 Use of Subleased Premises. Sublessee shall use the Subleased Premises only for those purposes permitted in the Master Lease.

     7.2 Alterations; Improvements. Sublessee shall not make any alterations, improvements, or modifications (“Alterations”) to the Subleased Premises without the express prior written consent of Sublessor and of Master Lessor, which consent by Sublessor shall not be unreasonably withheld provided, however, Sublessor’s withholding of approval shall in all events be deemed reasonable if Master Lessor’s Consent is not obtained. Sublessee shall reimburse Master Lessor (if required by Master Lessor) and Sublessor for all costs which Master Lessor and Sublessor may incur in connection with Sublessee’s request for approval for any alterations and additions, including, without limitation, Master Lessor’s and Sublessor’s reasonable attorneys’ fees and costs whether or not approval is ultimately granted. All terms and conditions set forth in the Master Lease with respect to Alterations shall apply. Sublessee shall provide Master Lessor and Sublessor with a set of “as-built” drawings for any such work, as required under the Master Lease, together with copies of all permits obtained by Sublessee in connection with performing any such work, within fifteen (15) days after completing such work. Sublessor may impose as a condition of its consent to such alterations, improvements, or modifications, such requirements as Sublessor may deem reasonable and desirable, including, but not limited to, the requirement that Sublessee utilize for such purposes only contractor(s), materials, mechanics and materialmen approved by Sublessor, the requirement that Sublessee provide additional security, and that Sublessee, and/or Sublessee’s contractor(s) post a payment and/or completion bond to guarantee the performance of its construction obligations hereunder. On termination of this Sublease, Sublessee shall remove any or all of such improvements and restore the Subleased Premises (or any part thereof) to the same condition as of the Commencement Date of this Sublease, reasonable wear and tear excepted or as otherwise instructed in writing by either Sublessor or Master Lessor. Should Sublessee fail to remove such improvements and restore the Subleased Premises on termination of this Sublease unless instruction otherwise in writing as set forth above, Sublessor shall have the right to do so, and

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charge Sublessee therefor, plus a service charge of ten percent (10%) of the costs incurred by Sublessor.

     7.3 Parking. Subject to Paragraph 2 of the Master Lease and the rules and regulations imposed from time to time by Master Lessor, from and after the Commencement Date, Sublessee shall have all of Sublessor’s rights to and assume all of Sublessor’s responsibility for parking under the Master Lease.

ARTICLE 8

ASSIGNMENT, SUBLETTING & ENCUMBRANCE

     8.1 Consent Required. Sublessee shall not assign this Sublease or any interest therein nor shall Sublessee sublet, license, encumber or permit the Subleased Premises or any part thereof to be used or occupied by others, without Sublessor’s and Master Lessor’s prior written consent. Sublessor’s consent shall not be unreasonably withheld provided, however, Sublessor’s withholding of consent shall in all events be deemed reasonable if for any reason Master Lessor’s consent is not obtained. The consent by Sublessor and Master Lessor to any assignment or subletting shall not waive the need for Sublessee (and Sublessee’s assignee or subtenant) to obtain the consent of Sublessor and Master Lessor to any different or further assignment or subletting. All terms and conditions set forth in the Master Lease regarding assignments and subletting shall apply, and to the extent there is any Bonus Rent, (Rent paid by such assignee or sub-sublessee in excess of Rent paid by Sublessee hereunder after deducting reasonable and actual brokerage fees and reasonable and actual attorneys fees incurred by Sublessee with respect to the assignment or sub-sublease, which such brokerage fees and attorneys fees shall be amortized over the term of the sublease or assignment pursuant to generally accepted accounting principals), the Bonus Rent shall first be split per the Master Lease and any Bonus Rent to go to Sublessee shall be split 25/75 with Sublessor (twenty-five percent (25%) to Sublessee and seventy-five percent (75%) to Sublessor), to be paid to Sublessor within five (5) days of receipt by Sublessee.

     8.2 Form of Document. Every assignment, agreement, or sublease shall (i) recite that it is and shall be subject and subordinate to the provisions of this Sublease, that the assignee or subtenant assumes Sublessee’s obligation hereunder, that the termination of this Sublease shall at Sublessor’s sole election, constitute a termination of every such assignment or sublease, and (ii) contain such other terms and conditions as shall be reasonably requested or provided by Sublessor’s attorneys.

     8.3 Permitted Transfers. Sublessee shall have the right to sub-sublease or assign all or any portion of its interest in the Subleased Premises to any parent, subsidiary, or affiliate of Sublessee; or any party which results from a merger or consolidation of Sublessee; and/or any party which acquires all or substantially all of the assets or stock of Sublessee, without Sublessor’s consent, provided that (i) Sublessee shall comply with the terms of the Master Lease regarding “Permitted Transfers,” and (ii) the net worth of the successor or reorganized entity after such merger, sale or otherwise, has a net worth at least equal to the net worth of Sublessee immediately prior to the date of such transfer. Sublessee shall provide Sublessor with no less than thirty (30) days advance written notice of such sublease or assignment. No such sublease or

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assignment under this Section 8.3 shall provide relief from Sublessee’s obligation under the Sublease and the provision of Section 8.4 below shall apply.

     8.4 No Release of Sublessee. Regardless of Sublessor’s consent, no subletting or assignment shall release Sublessee of Sublessee’s obligation or alter the primary liability of Sublessee to pay the Rent and to perform all other obligations to be performed by Sublessee hereunder. The acceptance of Rent by Sublessor from any other person shall not be deemed to be a waiver by Sublessor of any provision hereof. In the event of default by any assignee, subtenant or any other successor of Sublessee, in the performance of any of the terms hereof, Sublessor may proceed directly against Sublessee without the necessity of exhausting remedies against such assignee, subtenant or successor.

     8.5 Default. An involuntary assignment shall constitute a default and Sublessor shall have the right to elect to terminate this Sublease, in which case this Sublease shall not be treated as an asset of Sublessee.

     8.6 Recapture. Notwithstanding the foregoing, in the event Sublessee requests Sublessor’s consent to sublet all or any portion of the Subleased Premises, or to assign this Sublease, Sublessor may in its sole discretion, elect to terminate this Sublease within fifteen (15) days after receipt of Sublessee’s request by written notification to Sublessee of such election, in which case the Sublease shall terminate effective thirty (30) days following such election.

ARTICLE 9

DEFAULT

     9.1 Default Described. The occurrence of any of the following shall constitute a material breach of this Sublease and a default by Sublessee: (i) failure to pay Rent or any other amount within three (3) business days after written notice from Sublessor; (ii) all those items of default set forth in the Master Lease which remain uncured after the cure period provided in the Master Lease; or (iii) Sublessee’s failure to perform timely and subject to any cure periods any other material provision of this Sublease or the Master Lease as incorporated herein.

     9.2 Sublessor’s Remedies. Sublessor shall have the remedies set forth in the Master Lease as if Sublessor is Master Lessor. These remedies are not exclusive; they are cumulative and in addition to any remedies now or later allowed by law.

     9.3 Sublessee’s Right to Possession Not Terminated. Sublessor has the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover Rent as it becomes due, if lessee has right to sublet or assign, subject only to reasonable limitations). Sublessor may continue this Sublease in full force and effect, and Sublessor shall have the right to collect Rent and other sums when due. During the period Sublessee is in default, Sublessor may enter the Subleased Premises and relet them, or any part of them, to third parties for Sublessee’s account and alter or install locks and other security devices at the Subleased Premises. Sublessee shall be liable immediately to Sublessor for all costs Sublessor incurs in reletting the Subleased Premises, including, without limitation, attorneys’ fees, brokers’ commissions, expenses of remodeling the Subleased

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Premises required by the reletting, and like costs. Reletting may be for a period equal to, shorter or longer than the remaining term of this Sublease and Rent received by Sublessor shall be applied to (i) first, any indebtedness from Sublessee to Sublessor other than Rent due from Sublessee; (ii) second, all costs incurred by Sublessor in reletting, including, without limitation, brokers’ fees or commissions and attorneys fees, the cost of removing and storing the property of Sublessee or any other occupant, and the costs of repairing, altering, maintaining, remodeling or otherwise putting the Subleased Premises into condition acceptable to a new Sublessee or Sublessees; (iii) third, Rent due and unpaid under this Sublease. After deducting the payments referred to in this subsection 9.3, any sum remaining from the Rent Sublessor receives from reletting shall be held by Sublessor and applied in payment of future Rent and other amounts as Rent and such amounts become due under this Sublease. In no event shall Sublessee be entitled to any excess Rent received by Sublessor, provided any excess Rent, if any, will be used to mitigate Sublessor’s damages. Sublessee’s consent to or approval of any act by Sublessor which requires Sublessee’s consent or approval shall not be deemed to waive or render unnecessary Sublessee’s consent to or approval of any subsequent act by Sublessor

     9.4 All Sums Due and Payable as Rent. Sublessee shall also pay without notice, or where notice is required under this Sublease, immediately upon demand without any abatement, deduction, or setoff, as additional rent all sums, impositions, costs, expenses, and other payments which Sublessee in any of the provisions of this Sublease assumes or agrees to pay, and, in case of any nonpayment thereof, Sublessor shall have, in addition to all other rights and remedies, all the rights and remedies provided for in this Sublease or by law in the case of nonpayment of Rent.

     9.5 No Waiver. Sublessor may accept Sublessee’s payments without waiving any rights under the Sublease, including rights under a previously served notice of default. No payment by Sublessee or receipt by Sublessor of a lesser amount than any installment of Rent due or other sums shall be deemed as other than a payment on account of the amount due, nor shall any endorsement or statement on any check or accompanying any check or payment be deemed an accord and satisfaction; and Sublessor may accept such check or payment without prejudice of Sublessor’s right to recover the balance of such Rent or other sum or pursue any other remedy provided in this Sublease, at law or in equity. If Sublessor accepts payments after serving a notice of default, Sublessor may nevertheless commence and pursue an action to enforce rights and remedies under the previously served notice of default without giving Sublessee any further notice or demand. Furthermore, the Sublessor’s acceptance of Rent from Sublessee when the Sublessee is holding over without express written consent does not convert Sublessee’s tenancy from a tenancy at sufferance to a month-to-month tenancy. No waiver of any provision of this Sublease shall be implied by any failure of Sublessor or Sublessee to enforce any remedy for the violation of that provision, even if that violation continues or is repeated. Any waiver by Sublessor or Sublessee of any provision of this Sublease must be in writing. Such waiver shall affect only the provisions specified and only for the time and in the manner stated in the writing. No delay or omission in the exercise of any right or remedy by Sublessor or Sublessee shall impair such right or remedy or be construed as a waiver thereof by Sublessor or Sublessee, as applicable. No act or conduct of Sublessor, including, without limitation the acceptance of keys to the Subleased Premises shall constitute acceptance or the surrender of the Subleased Premises by Sublessee before the Expiration Date. Only written notice from Sublessor to Sublessee of acceptance shall constitute such acceptance or surrender of

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the Subleased Premises. Sublessor’s consent to or approval of any act by Sublessee which requires Sublessor’s consent or approval shall not be deemed to waive or render unnecessary Sublessor’s consent to or approval of any subsequent act by Sublessee.

     9.6 Sublessor Default. For purposes of this Sublease, Sublessor shall not be deemed in default hereunder unless and until Sublessee shall first deliver to Sublessor thirty (30) days’ prior written notice, and Sublessor shall fail to cure said default within said thirty (30) day period, or in the event Sublessor shall reasonably require in excess of thirty (30) days to cure said default, shall fail to commence said cure with said thirty (30) day period, and thereafter diligently to prosecute the same to completion.

     9.7 Notice of Event of Default under Master Lease. Sublessor shall notify Sublessee of any Event of Default under the Master Lease, or of any other event of which Sublessor has actual knowledge which will impair Sublessee’s ability to conduct its normal business at the Subleased Premises, as soon as reasonably practicable following Sublessor’s receipt of notice from Master Lessor of an Event of Default or Sublessor’s actual knowledge of such impairment.

ARTICLE 10

CONSENT OF MASTER LESSOR

     10.1 Precondition. The Master Lease requires that Sublessor obtain the consent of Master Lessor to any subletting by Sublessor. This Sublease shall not be effective unless and until Master Lessor signs a consent to this subletting satisfactory to Sublessor. Sublessor and Sublessee agree that the form of consent provided by the Master Lessor, and attached hereto as Exhibit “E”, is satisfactory and will execute such form of consent.

     10.2 Consent or Approval. If the consent or approval of the Master Lessor is required pursuant to the Master Lease with respect to any matter relating to the Premises, Sublessor agrees it will reasonably cooperate with Sublessee, in its reasonable efforts to obtain the Master Lessor’s consent or approval, provided: (i) Sublessee shall be solely responsible for all costs and expenses incurred by Sublessor in providing such cooperation; (ii) the matter for which or the means thereby that Sublessee seeks such consent does not materially or adversely affect Sublessor’s rights under the Master Lease; and (iii) Sublessee indemnifies and holds Sublessor harmless from any and all Claims arising from or relating to such cooperation.

ARTICLE 11

HAZARDOUS MATERIALS

     11.1 Hazardous Materials . In addition to the requirements under the Master Lease, Sublessee shall not store, use, or dispose of any Hazardous or Toxic Material on, under, or about the Subleased Premises. As used herein, “Hazardous or Toxic Materials” shall include but not be limited to the definition of Hazardous Materials contained in the Master Lease and any asbestos containing materials (“ACM”), petroleum products, radioactive materials, polychlorinated biphenyls (PCBs) and substances or compounds containing PCBs and all other

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materials, substances, wastes, and chemicals classified, defined, listed, or regulated as, or containing, a “hazardous substances,” “hazardous materials,” or “toxic substances,” “pollutant,” “contaminant,” “solid waste” under any Environmental Law or which may become regulated by or under the authority of any Environmental Law. As used herein, the term “Environmental Laws” shall include any and all local, state or federal laws, statutes, rules, regulations, ordinances, orders, permits, licenses or other applicable governmental restrictions, guidelines or legal requirements, relating directly or indirectly to human health or safety or environment, or the presence, handling, treatment, storage, disposal, recycling, reporting, remediation, investigation, or monitoring of hazardous or toxic material including but not limited to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.

     11.2 Indemnity. In addition to the indemnities contained in the Master Lease, Sublessee shall be solely responsible for and shall defend, indemnify and hold Sublessor and its partners, officers, directors, employees and agents harmless from and against all Claims of any kind whatsoever, arising out of or caused in whole or in part, directly or indirectly, by or in connection with its storage, use, disposal or discharge of Hazardous Materials whether in violation of this section or not, or Sublessee’s failure to comply with any Hazardous Materials law. Sublessee shall further be solely responsible for and shall defend, indemnify and hold Sublessor harmless from and against any and all Claims arising out of or in connection with the removal, cleanup, detoxification, decontamination and restoration work and materials necessary to return the Subleased Premises to their condition existing prior to Sublessee’s storage, use or disposal of the Hazardous Materials on the Subleased Premises. For the purposes of the indemnity provisions hereof, any acts or omissions of Sublessee or by employees, agents, assignees, contractors or subcontractors of Sublessee (whether or not they are negligent, intentional or unlawful) shall be strictly attributable to Sublessee. Sublessee’s obligations under this section shall survive the termination of this Sublease.

ARTICLE 12

MISCELLANEOUS

     12.1 Conflict with Master Lease; Interpretation. In the event of any conflict between the provisions of the Master Lease and this Sublease, the Master Lease shall govern and control except to the extent directly contradicted by the terms of this Sublease. No presumption shall apply in the interpretation or construction of this Sublease as a result of Sublessor having drafted the whole or any part hereof.

     12.2 Remedies Cumulative. The rights, privileges, elections, and remedies of Sublessor in this Sublease, at law, and in equity are cumulative and not alternative.

     12.3 Waiver of Redemption. Sublessee hereby expressly waives any and all rights of redemption to which it may be entitled by or under any present or future laws in the event Sublessor shall obtain a judgment for possession of the Subleased Premises.

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     12.4 Damage and Destruction; Condemnation. In the event of any damage, destruction, casualty, condemnation or threat of condemnation affecting the Subleased Premises, Rent payable hereunder shall be abated but only to the extent that Rent is abated under the Master Lease with respect to the Subleased Premises. Sublessee shall have no right to terminate this Sublease in connection with any damage, destruction, casualty, condemnation or threat of condemnation except to the extent the Master Lease is also terminated as to the Premises or any portion thereof.

     12.5 Holding Over. Sublessee shall have no right to Holdover. If Sublessee does not surrender and vacate the Subleased Premises at Expiration Date of this Sublease as required hereunder, Sublessee shall be a tenant at sufferance and the parties having agreed that the Rent shall be the daily rate of one hundred and fifty percent (150%) of the Rent due to Master Lessor from Sublessor under the Master Lease for the Subleased Premises divided by thirty (30) days, together with any additional rent due and payable during such period of time. In connection with the foregoing, Sublessor and Sublessee agree that the reasonable rental value of the Subleased Premises following the Expiration Date of the Sublease shall be the amounts set forth above per month. Sublessor and Sublessee acknowledge and agree that, under the circumstances existing as of the Effective Date, it is impracticable and/or extremely difficult to ascertain the reasonable rental value of the Subleased Premises on the Expiration Date and that the reasonable rental value established herein is a reasonable estimate of the damage that Sublessor would suffer as the result of the failure of Sublessee to timely surrender possession of the Subleased Premises. The parties acknowledge that the liquidated damages established herein is not intended as a forfeiture or penalty within the meaning of California Civil Code sections 3275 or 3369, but is intended to constitute liquidated damages to Sublessor pursuant to California Civil Code sections 1671, 1676, and 1677. Notwithstanding the foregoing, and in addition to all other rights and remedies on the part of Sublessor if Sublessee fails to surrender the Subleased Premises upon the termination or expiration of this Sublease, in addition to any other liabilities to Sublessor accruing therefrom, Sublessee shall indemnify, defend and hold Sublessor harmless from all Claims resulting from such failure, including, without limitation, any Claims by any third parties based on such failure to surrender and any lost profits to Sublessor resulting therefrom.

     12.6 Furniture. Sublessee may use certain furniture, furnishings and equipment located in the Subleased Premises as set forth on Exhibit C (“Furniture”). Except as set forth herein, Sublessee may not remove the Furniture from the Subleased Premises. Sublessee accepts the Furniture in its “as is” condition and Sublessor makes no warranty as to the condition of the Furniture or its present or future suitability for Sublessee’s purposes, except that the Furniture is free of encumbrances. Upon termination of this Sublease, Sublessee shall purchase the Furniture from Sublessor for the sum of One Dollar ($1.00) in its condition as of the termination of the Sublease Agreement without warranty except for warranty of title and free of encumbrances, provided, if Sublessee is in default, Sublessor, at it’s option, may instead require Sublessee to return the Furniture to Sublessor in substantially the same condition as received, ordinary wear and tear excepted conditioned on the obligation of Sublessee to use the Furniture in a careful and proper manner and to clean and repair the Furniture in the manner necessary to maintain the Furniture in substantially the same condition it was initially provided to Sublessee. Sublessee shall be liable for any damage to the Furniture and solely responsible for all costs associated with the maintenance, cleaning and repair of the Furniture and shall insure the Furniture as part of Sublessee’s property insurance required to be carried hereunder. Except in

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the event Sublessor elects not to sell the Furniture to Sublessee due to a Sublessee default, Sublessee shall be solely responsible for the removal of the Furniture and the repair of any damage to the Subleased Premises as a result of said removal. In the event that Sublessee desires to dispose of any of the Furniture prior to the expiration or earlier termination of this Sublease, Sublessee shall deliver written notice to Sublessor specifying the Furniture of which Sublessee desires to dispose. Sublessor may deliver written notice to Sublessee within thirty (30) days of receipt of Sublessee’s notice of Sublessor’s desire to retain such Furniture, in which case Sublessor shall arrange with Sublessee to remove such Furniture from the Subleased Premises. Unless Sublessor notifies Sublessee that Sublessor desires to retain such Furniture within the time periods set forth herein, Sublessee may dispose of such Furniture at Sublessee’s sole cost and expense as Sublessee sees fit.

     12.7 Signage. Pursuant to Paragraph 3.C of the Master Lease, Sublessee shall have all rights and assume all responsibility for Sublessor’s signage rights under the Master Lease, subject to Master Lessor’s and Sublessor’s prior written consent, which consent, as to Sublessor, shall not be unreasonably withheld, provided, however, Sublessor’s withholding of consent shall in all events be deemed reasonable if Master Lessor’s consent is not obtained. In the event Master Lessor’s consent is obtained, Sublessor agrees to also consent, provided, however, Sublessor may reasonably condition its consent with respect to Sublessee’s removal obligations of such signage. All signs shall be at Sublessee’s sole cost and shall comply with the terms of the Master Lease and with all local, federal and state rules, regulations, statutes, and ordinances at all times during the term hereof. Sublessee, at Sublessee’s cost, shall remove all such signs and graphics prior to the termination of this Sublease and repair any damage caused by such removal.

     12.8 Dispute Resolution. The parties specifically agree to abide by the provisions of paragraph 20.E of the Master Lease. WE HAVE READ AND UNDERSTAND THE PROVISIONS OF PARAGRAPH 20.E OF THE MASTER LEASE AND AGREE TO ABIDE BY THE TERMS AND CONDITIONS CONTAINED IN PARAGRAPH 20.E OF THE MASTER LEASE AS INCORPORATED HEREIN.

SUBLESSOR: /s/  CG     FD                                            SUBLESSEE: /s/  TDH     BRJ

     12.9 Generator. Notwithstanding paragraph 2 of the Master Lease, in the event Sublessee desires to install a generator at the Subleased Premises, the consent of Sublessor shall be required, not to be unreasonably withheld.

     12.10 Offer. Preparation of this Sublease by either Sublessor or Sublessee or either parties’ agent and submission of same to Sublessor or Sublessee shall not be deemed an offer to Sublease. This Sublease is not intended to be binding until executed and delivered by all Parties hereto.

     12.11 Due Authority. If Sublessee signs as a corporation, each of the persons executing this Sublease on behalf of Sublessee represent and warrant that they have the authority to bind Sublessee, Sublessee has been and is qualified to do business in the State of California, that the corporation has full right and authority to enter into this Sublease, and that all persons signing on behalf of the corporation were authorized to do so by appropriate corporate actions. If Sublessee

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signs as a partnership, trust or other legal entity, each of the persons executing this Sublease on behalf of Sublessee represent and warrant that they have the authority to bind Sublessee, Sublessee has complied with all applicable laws, rules and governmental regulations relative to its right to do business in the State of California and that such entity on behalf of the Sublessee was authorized to do so by any and all appropriate partnership, trust or other actions. Sublessee agrees to furnish promptly upon request a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the authorization of Sublessee to enter into this Sublease.

     12.12 Multiple Counterparts. This Sublease may be executed in two or more counterparts, which when taken together shall constitute one and the same instrument. The parties contemplate that they may be executing counterparts of this Sublease transmitted by facsimile and agree and intend that a signature by facsimile machine shall bind the party so signing with the same effect as though the signature were an original signature.

     12.13 Building Contaminants. To prevent the contamination, growth, or deposit of any mold, mildew, bacillus, virus, pollen, or other micro-organism (collectively, “Biologicals”) and the deposit, release or circulation of any indoor contaminants including emissions from paint, carpet and drapery treatments, cleaning, maintenance and construction materials and supplies, pesticides, pressed wood products, insulation, and other materials and products (collectively with Biologicals, “Contaminants”) that could adversely affect the health, safety or welfare of any tenant, employee, or other occupant of the Building or their invitees (each, an “Occupant”), Sublessee shall, at Sublessee’s sole cost and expense, at all times during the term hereof (1) operate the Subleased Premises in such a manner to reasonably prevent or minimize the accumulation of stagnant water and moisture in planters, kitchen appliances and vessels, carpeting, insulation, water coolers, and any other locations where stagnant water or moisture could accumulate, and (2) otherwise operate the Subleased Premises to prevent the generation, growth, deposit, release or circulation of any Contaminants.

ARTICLE 13

BROKER’S COMMISSIONS

     13.1 Commission. Sublessor and Sublessee represent and warrant to each other that each has dealt with the following brokers: CB Richard Ellis (Sublessor’s Broker); and Cornish & Carey Commercial (Sublessee’s Broker) and with no other agent, finder, or other such person with respect to this Sublease and each agrees to indemnify and hold the other harmless from any Claims asserted against the other by any broker, agent, finder, or other such person not identified above as Sublessor’s Broker or Sublessee’s Broker. The commission to the Brokers is pursuant to separate agreement. Sublessor shall be responsible for the commission to Sublessor’s Broker who shall pay the commission to Sublessee’s Broker pursuant to a separate agreement between Sublessor’s Broker and Sublessee’s Broker.

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ARTICLE 14

NOTICES AND PAYMENTS

     14.1 Certified Mail. Any notice, demand, request, consent, approval, submittal or communication that either party desires or is required to give to the other party or any other person shall be in writing and either served personally or sent by prepaid, first-class certified mail or commercial overnight delivery service. Such Notice shall be effective on the date of actual receipt (in the case of personal service or commercial overnight delivery service) or two days after deposit in the United States mail, to the following addresses:

To the Sublessor:	Hyperion Solutions Corporation
	900 Long Ridge Road
	Stamford, Connecticut 06902
	Attn: Real Estate Director
with a copy to:	Hyperion Solutions Corporation
	5450 Great American Parkway
	Santa Clara, CA 95054
	Attn: General Counsel
and a copy to:	Hopkins & Carley
	70 S First Street
	San Jose, California 95113
	Attention: Julie A. Frambach
To the Sublessee:	At the Subleased Premises, whether or not Sublessee has abandoned or vacated the Subleased Premises or notified the Sublessor of any other address
with a copy to:	Stein & Lubin
	600 Montgomery Street, Suite 1400
	San Francisco, CA 94111
	Attn: Paul J. Niewiadomski

     14.2 When this Sublease requires service of a notice, that notice shall replace rather than supplement any equivalent or similar statutory notice, including any notices required by Code of Civil Procedure Section 1161 or any similar or successor statute. When a statute requires service of a notice in a particular manner, service of that notice (or a similar notice required by this Sublease) shall replace and satisfy the statutory service-of-notice procedures, including those required by Code of Civil Procedure Section 1162 or any similar or successor statute

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ARTICLE 15

ATTORNEYS’ FEES AND COSTS

     15.1 Sublessor Made Party to Litigation. If Sublessor becomes a party to any litigation brought by someone other than Sublessee and concerning this Sublease, the Subleased Premises, or Sublessee’s use and occupancy of the Subleased Premises, to the extent allegations are based upon, arise from or are related to any real or alleged act or omission of Sublessee or its authorized representatives, Sublessee shall be liable to Sublessor for reasonable attorneys’ fees and court costs incurred by Sublessor in the litigation.

     15.2 Certain Litigation Between the Parties. In the event any action or proceeding at law or in equity or any arbitration proceeding be instituted by either party, for an alleged breach of any obligation of Sublessee under this Sublease, to recover Rent, to terminate the tenancy of Sublessee at the Subleased Premises, or to enforce, protect, or establish any right or remedy of a party to this Sublease Agreement, the prevailing party (by judgment or settlement) in such action or proceeding shall be entitled to recover as part of such action or proceeding such reasonable attorneys’ fees, expert witness fees, and court costs as may be fixed by the court or jury, but this provision shall not apply to any cross-complaint filed by anyone other than Sublessor in such action or proceeding.

     15.3 Sublessor’s Costs. In any case where Sublessee requests permission from Sublessor to assign, sublet, make alterations, or receive any other consent or obtain any waiver from or modification to the terms of this Sublease, Sublessee shall pay to Sublessor a reasonable administrative charge and Sublessor’s reasonable attorney’s fees incurred by Sublessor in reviewing such request.

ARTICLE 16

EXHIBITS

     16.1 Exhibits and Attachments. All exhibits and attachments to this Sublease are a part hereof.

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     IN WITNESS WHEREOF, Sublessor and Sublessee have executed and delivered this Sublease on the date first set forth above.

SUBLESSOR		SUBLESSEE
HYPERION SOLUTIONS CORPORATION,		FOUNDRY NETWORKS, INC.,
a Delaware corporation		a Delaware corporation
	/s/ Claire Goldbloom		/s/ Timothy Heffner
By:	Claire Goldbloom	By:	Timothy Heffner
Its:	VP Corporate Counsel	Its:	CFO
	/s/ Francois Delepine		/s/ Bobby R. Johnson, Jr.
By:	Francois Delepine	By:	Bobby R. Johnson, Jr.
Its:	VP Corp. Finance	Its:	CEO

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EXHIBIT A

SULEASED PREMISES

[Maps of Subleased Premises]

EXHIBIT B

MASTER LEASE

TABLE OF CONTENTS

			Page
1.	PARTIES			1
2.	PREMISES			1
3.	USE			2
	A.	Permitted Uses		2
	B.	Uses Prohibited		2
	C.	Advertisements and Signs		2
	D.	Covenants, Conditions and Restrictions		2
4.	TERM AND RENTAL			3
	A.	Base Monthly Rent		3
	B.	Late Charges		3
	C.	Security Deposit		4
5.	CONSTRUCTION			4
	A.	Building Shell Construction		4
	B.	Tenant Improvement Plans		5
	C.	Pricing		6
	D.	Change Orders		6
	E.	Letter of Credit to Secure Tenant Improvement Construction		6
	F.	Tenant Improvement Costs		7
	G.	Force Majeure		7
	H.	General Contractor Overhead & Profit		8
	I.	Tenant Delays		8
	J.	Insurance		9
	K.	Punch List & Warranty		9
	L.	Other Work by Tenant		9
6.	ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER			9
	A.	Delivery and Acceptance		9
	B.	Condition Upon Surrender		10
	C.	Failure to Surrender		11
7.	ALTERATIONS AND ADDITIONS			11
	A.	Tenant’s Alterations		11

Page i

TABLE OF CONTENTS

			Page
	B.	Free From Liens		12
	C.	Compliance With Governmental Regulations		12
8.	MAINTENANCE OF PREMISES			13
	A.	Landlord’s Obligations		13
	B.	Tenant’s Obligations		13
	C.	Landlord and Tenant’s Obligations Regarding Reimbursable Operating Costs		13
	D.	Reimbursable Operating Costs		13
	E.	Tenant’s Allocable Share		14
	F.	Waiver of Liability		14
	G.	Replacements		15
9.	HAZARD INSURANCE			15
	A.	Tenant’s Use		15
	B.	Landlord’s Insurance		15
	C.	Tenant’s Insurance		16
	D.	Waiver		16
10.	TAXES			16
11.	UTILITIES			17
12.	TOXIC WASTE AND ENVIRONMENTAL DAMAGE			17
	A.	Tenant’s Responsibility		17
	B.	Tenant’s Indemnity Regarding Hazardous Materials		18
	C.	Actual Release by Tenant		18
	D.	Environmental Monitoring		19
13.	TENANT’S DEFAULT			19
	A.	Remedies		20
	B.	Right to Re-enter		20
	C.	Abandonment		21
	D.	No Termination		21
	E.	Non-Waiver		21
	F.	Performance by Landlord		22
	G.	Habitual Default		22

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TABLE OF CONTENTS

			Page
14.	LANDLORD’S LIABILITY			22
	A.	Limitation on Landlord’s Liability		22
	B.	Limitation on Tenant’s Recourse		23
	C.	Indemnification of Landlord		23
15.	DESTRUCTION OF PREMISES:			23
	A.	Landlord’s Obligation to Restore		23
	B.	Limitations on Landlord’s Restoration Obligation		23
16.	CONDEMNATION:			24
17.	ASSIGNMENT OR SUBLEASE			24
	A.	Consent by Landlord		24
	B.	Assignment or Subletting Consideration		25
	C.	No Release		26
	D.	Reorganization of Tenant		26
	E.	Permitted Transfers		26
	F.	Effect of Default		27
	G.	Conveyance by Landlord		27
	H.	Successors and Assigns		27
18.	OPTION TO EXTEND THE LEASE TERM			27
	A.	Grant and Exercise of Option		27
	B.	Determination of Fair Market Rental		28
	C.	Resolution of a Disagreement over the Fair Market Rental		28
	D.	Personal to Tenant		29
	E.	Right to Rescind.		29
19.	RIGHT OF FIRST OFFERING TO LEASE			29
	A.	Grant		29
	B.	Exclusions		30
20.	GENERAL PROVISIONS			30
	A.	Attorney’s Fees		30
	B.	Authority of Parties		30
	C.	Brokers		30

Page iii

TABLE OF CONTENTS

		Page
D.	Choice of Law		31
E.	Dispute Resolution		31
F.	Entire Agreement		32
G.	Entry by Landlord		32
H.	Estoppel Certificates		33
I.	Exhibits.		33
J.	Interest		33
K.	Modifications Required by Lender		33
L.	No Presumption Against Drafter		33
M.	Notices		34
N.	Asset Management		34
O.	Rent		34
P.	Representations		34
Q.	Rights and Remedies		34
R.	Severability		34
S.	Submission of Lease		34
T.	Subordination		34
U.	Survival of Indemnities		35
V.	Time		35
W.	Transportation Demand Management Programs		35
X.	Waiver of Right to Jury Trial		35

Page iv

[EXCLUDED EXHIBITS

     The following exhibits to the Lease dated December 20, 1999 by and between Sobrato Development Companies #961 and Brio Technology, Inc. have been omitted from this filing.

     Brocade Communications Systems, Inc. hereby agrees to furnish supplementally to the Commission any omitted exhibit upon request.

EXHIBIT A – Premises, Building & Project
EXHIBIT B – Declaration of Reciprocal Easement, Easements and Covenants
EXHIBIT C – Office Shell Plans and Specifications
EXHIBIT D – Tenant Improvement Plans and Specifications]

Page v

10600 North De Anza Blvd.	408.446.0700
Suite 200	Fascsimile: 408.448.0583
Cupertino, CA 95014-2075	www.sobrato.com

SOBRATO
DEVELOPMENT COMPANIES

1. PARTIES: THIS LEASE, is entered into on this 20th day of December, 1999, (“Effective Date”) between SOBRATO DEVELOPMENT COMPANIES #961, a California Limited Partnership, whose address is 10600 North De Anza Boulevard, Suite 200, Cupertino, CA 95014 and BRIO TECHNOLOGY, INC., a California Corporation, whose address is 3460 W. Bayshore, Palo Alto, CA 94303, hereinafter called respectively Landlord and Tenant.

2. PREMISES: Landlord hereby leases to Tenant, and Tenant hires from Landlord those certain Premises with the appurtenances, situated in the City of Santa Clara, County of Santa Clara, State of California, consisting of a 5-story steel frame building commonly known and designated as 4980 Great America Parkway consisting of 140,935 rentable square feet (“Building”). Unless otherwise provided herein, Tenant shall have the non-exclusive right to use the real property surrounding the Building and the building commonly known as 4988 Great America Parkway (“4988 Building”), as shown on Exhibit “A” attached hereto (“Common Area”) and in accordance with the Declaration of Reciprocal Easement, Easements and Covenants and First Amendment (“Reciprocal Easement”) attached hereto as Exhibit “B”. The Building, the 4988 Building and the Common Area are collectively referred to herein as the “Project”. Unless expressly provided otherwise, the term Premises as used herein shall include the Tenant Improvements (defined in Section 5.B) constructed by Landlord and Tenant pursuant to Section 5.B. With regard to the parking stalls within the Common Area, Tenant shall have the exclusive right to use the parking garage of approximately 488 parking spaces, except for 38 spaces which shall be available for exclusive use by the tenant of the 4988 Building. Tenant shall have the right to install security measures for the garage, such as card key access, provided (i) the tenant of the 4988 Building is given controlled access to the parking spaces to be designated for such tenant at all times as determined by Tenant and Landlord jointly and (ii) there are no restrictions on access to the garage during normal business hours (unless otherwise agreed by all parties including the tenant in the 4988 Building). Tenant shall also have the right to use 27 parking spaces on the on-grade parking lot to be designated for exclusive use by Tenant as shown in the Reciprocal Easement. Tenant shall have the obligation to keep the parking garage in good condition and repair, at Tenant’s sole cost, except for the structural portions thereof which shall be maintained by Landlord at its sole cost. The tenant of the 4988 Building shall have the obligation to maintain the on-grade parking area at its sole cost. All other Common Area expenses shall be prorated pursuant to Section 8 of this Lease. Tenant shall also have the non-exclusive right to use all other portions of the Common Area as set forth in the Reciprocal Easement attached hereto as Exhibit B.” Tenant shall have the right to install a generator (properly screened from view) benches, tables, chairs, umbrellas and other outdoor amenities, security cameras, and other similar removable equipment and furnishings in the Common Area provided: (i) all such items are installed by Tenant in a manner reasonably compatible with the design and quality of the Project; and (ii) such items do not adversely affect

or interfere with other tenants in the Project, as reasonably determined by Landlord. In addition, Tenant shall have the right, at its sole cost, to install lighting and security devices, including card key access, in the parking garage. Landlord shall not materially modify the Common Area without prior written notice to Tenant, and no modifications shall be made to the Common Area which would materially interfere with Tenant’s business or use of the Premises or decrease the amount of parking available for the Project. Any modification to the Common Areas shall be done in a manner which minimizes disruption to Tenant.

3. USE:

     A. Permitted Uses: Tenant shall use the Premises only for the following purposes and shall not change the use of the Premises without the prior written consent of Landlord: Office, research and development, marketing, light manufacturing, ancillary storage and other incidental uses. Tenant shall use only the number of parking spaces allocated to Tenant under this Lease. All commercial trucks and delivery vehicles shall (i) be parked at the rear of the Building, (ii) loaded and unloaded in a manner which does not interfere with the businesses of other occupants of the Project, and (iii) permitted to remain within the Project only so long as is reasonably necessary to complete the loading and unloading. Landlord makes no representation or warranty that any specific use of the Premises desired by Tenant is permitted pursuant to any Laws.

     B. Uses Prohibited: Tenant shall not commit or suffer to be committed on the Premises any waste, nuisance, or other act or thing which may disturb the quiet enjoyment of any other tenant in or around the Premises, nor allow any sale by auction or any other use of the Premises for an unlawful purpose. Tenant shall not (i) damage or overload the electrical, mechanical or plumbing systems of the Premises, (ii) attach, hang or suspend anything from the ceiling or columns of the building or set any load on the floor in excess of the load limits for which such items are designed, or (iii) generate dust, fumes or waste products which create a fire or health hazard or damage the Premises or any portion of the Project, including without limitation the soils or ground water in or around the Project. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature, or any waste materials, refuse, scrap or debris, shall be stored upon or permitted to remain on any portion of the Premises outside of the Building (excluding items stored in permitted storage enclosures designed for such purpose) without Landlord’s prior approval, which approval may be withheld in its sole discretion.

     C. Advertisements and Signs: Tenant will not place or permit to be placed, in, upon or about the Premises any signs not approved by the city and other governing authority having jurisdiction. Subject to the foregoing requirement, Tenant shall have the right to place two (2) signs mounted on the Building and one (1) ground mounted monument sign within the Project. The design and placement of the monument sign shall be subject to the reasonable approval of Landlord. Any sign placed on the Premises shall be removed by Tenant, at its sole cost, prior to the Expiration Date or promptly following the earlier termination of the Lease, and Tenant shall repair, at its sole cost, any damage or injury to the Premises caused thereby, and if not so removed, then Landlord may have same so removed at Tenant’s expense.

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     D. Covenants, Conditions and Restrictions: This Lease is subject to the effect of (i) any easements, mortgages or deeds of trust, ground leases, rights of way of record and any other matters or documents of record; and (ii) any zoning laws of the city, county and state where the Building is situated (collectively referred to herein as “Restrictions”) and Tenant and Landlord will conform to and will not violate the terms of any such Restrictions.

4. TERM AND RENTAL:

     A. Base Monthly Rent: The term (“Lease Term”) shall be for one hundred twenty (120) months, commencing on substantial completion of construction as determined pursuant to Section 5.G (the “Commencement Date”) estimated to occur on June 1, 2000, and ending one hundred twenty (120) months thereafter, (“Expiration Date”). In addition to all other sums payable by Tenant under this Lease, Tenant shall pay as base monthly rent (“Base Monthly Rent”) for the Premises in an amount determined pursuant to the following schedule:

Months 01 — 12:	$	323,445.83
Months 13 — 24:	$	333,149.20
Months 25 — 36:	$	343,143.68
Months 37 — 48:	$	353,437.99
Months 49 — 60:	$	364,041.13
Months 61 — 72:	$	374,962.36
Months 73 — 84:	$	386,211.23
Months 85 — 96:	$	397,797.57
Months 97 -108:	$	409,731.49
Months 109 — 120:	$	422,023.44

Base Monthly Rent shall be due in advance on or before the first day of each calendar month during the Lease Term. All sums payable by Tenant under this Lease shall be paid to Landlord in lawful money of the United States of America, without offset or deduction and without prior notice or demand, at the address specified in Section 1 of this Lease or at such place or places as may be designated in writing by Landlord during the Lease Term. Base Monthly Rent for any period less than a calendar month shall be a pro rata portion of the monthly installment. Concurrently with Tenant’s execution of this Lease, Tenant shall pay to Landlord the sum of Three Hundred Twenty Three Thousand Four Hundred Forty Five and 83/100 ($323,445.83) as prepaid rent for the first month of the Lease.

     B. Late Charges: Tenant hereby acknowledges that late payment by Tenant to Landlord of Base Monthly Rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which is extremely difficult to ascertain. Such costs include but are not limited to: administrative, processing, accounting, and late charges which may be imposed on Landlord by the terms of any contract, revolving credit, mortgage, or trust deed covering the Premises. Accordingly, if any installment of Base Monthly Rent or other sum due from Tenant shall not be received by Landlord or its designee within five (5) days after the rent is due, Tenant shall pay to Landlord a late charge equal to five (5%) percent of such overdue amount, which late charge shall be due and payable on the same date

3

that the overdue amount was due. The foregoing notwithstanding, Landlord agrees to provide written notice and a 3-day cure period to Tenant no more than once every 18 months of the Lease Term prior to assessing such late charge. The parties agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant, excluding interest and attorneys fees and costs. If any rent or other sum due from Tenant remains delinquent for a period in excess of thirty (30) days then, in addition to such late charge, Tenant shall pay to Landlord interest on any rent that is not paid when due at the Agreed Interest Rate specified in Section 19.J following the date such amount became due until paid. Acceptance by Landlord of such late charge shall not constitute a waiver of Tenant’s default with respect to such overdue amount nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Monthly Rent, then the Base Monthly Rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding any provision of this Lease to the contrary.

     C. Security Deposit: Concurrently with Tenant’s execution of this Lease, Tenant has deposited with Landlord the sum of Three Hundred Twenty Five Thousand Dollars ($325,000.00) (“Security “Deposit”). Landlord shall not be deemed a trustee of the Security Deposit, may use the Security Deposit in business, and shall not be required to segregate it from its general accounts. Tenant shall not be entitled to interest on the Security Deposit. If Tenant defaults with respect to any provisions of the Lease, including but not limited to the provisions relating to payment of Base Monthly Rent or other charges, Landlord may, to the extent reasonably necessary to remedy Tenant’s default, use any or all of the Security Deposit towards payment of the following: (i) Base Monthly Rent or other charges in default; (ii) any other amount which Landlord may spend or become obligated to spend by reason of Tenant’s default including, but not limited to Tenant’s failure to restore or clean the Premises following vacation thereof. If any portion of the Security Deposit is so used or applied, Tenant shall, within ten (10) days after written demand from Landlord, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its full original amount, and shall pay to Landlord such other sums as necessary to reimburse Landlord for any sums paid by Landlord. If Tenant shall monetarily default after expiration of any applicable cure period more than three (3) times in any twelve (12) month period, then the Security Deposit shall, within ten (10) days after demand by Landlord, be increased by Tenant to an amount equal to three (3) times the Base Monthly Rent. Tenant may not assign or encumber the Security Deposit without the consent of Landlord. Any attempt to do so shall be void and shall not be binding on Landlord. The Security Deposit shall be returned to Tenant within thirty (30) days after the Expiration Date and surrender of the Premises to Landlord, less any amount deducted in accordance with this Section, together with Landlord’s written notice itemizing the amounts and purposes for such deduction. In the event of termination of Landlord’s interest in this Lease, Landlord may deliver or credit the Security Deposit to Landlord’s successor in interest in the Premises and thereupon be relieved of further responsibility with respect to the Security Deposit.

5. CONSTRUCTION:

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     A. Building Shell Construction: Prior to the Commencement Date, Landlord shall complete construction of shell of the Building and interior core improvements (“Office Building Shell”) the scope of which improvements are outlined in the plans and specifications attached as Exhibit “C” (“Office Shell Plans and Specifications”). Landlord shall be responsible and pay for all costs and expenses associated with the Office Building Shell. Tenant shall retain the right to substitute material finishes in the lobby and core areas of the Building provided (i) Tenant shall be responsible for any cost increases due to such substitution, and (ii) any delay in Substantial Completion of the Premises resulting from such substitution shall be deemed a Tenant Delay pursuant to Section 5.I of this Lease. The Office Building Shell shall be constructed in a good and workmanlike fashion and in compliance with all codes, laws, rules and regulations of applicable governmental authority. Landlord shall assign to Tenant any warranties related to the Office Building Shell which would reduce Tenant’s maintenance obligations hereunder and shall cooperate with Tenant to enforce all such warranties. Such warranties shall include the warranty on the roof membrane Landlord has received from the roofing contractor.

     B. Tenant Improvement Plans: Tenant, at Tenant’s sole cost and expense, shall retain an interior architect (“Architect”) to prepare plans and outline specifications to be attached as Exhibit “D” (“Tenant Improvement Plans and Specifications”) with respect to the construction of the balance of the improvements to the interior of the premises (“Tenant Improvements”) necessary for Tenant’s use and occupancy of the Building. Landlord shall cause Tenant Improvements to be constructed by the Devcon Construction (“General Contractor”), in accordance with Tenant Improvement Plans and Specifications. The Tenant Improvement Plans and Specifications shall be completed for all aspects of the work by (i) February 14, 2000 with all detail necessary for submittal to the city for issuance of building permits, and (ii) March 6, 2000 with all detail necessary for construction and shall include any information required by the relevant agencies regarding Tenant’s use of Hazardous Materials if applicable. The Tenant Improvements shall consist of all items not included within the scope of the Office Building Shell. All Tenant Improvements shall be subject to Landlord’s approval, which approval which shall not be unreasonably withheld, conditioned or delayed. The Tenant Improvement Plans and Specifications shall provide for a minimum build-out in all areas of the Premises consisting of: (i) fire sprinklers, (ii) floor coverings, (iii) t-bar suspended ceiling (iv) distribution of the HVAC system, (v) 2’ x 4’ drop-in florescent lighting, and (vi) any other work required by the City of Santa Clara necessary to obtain a Certificate of Occupancy. Tenant shall not have the right to delay the completion of the foregoing minimum Tenant Improvement build-out. The Tenant Improvement Plans and Specifications shall be prepared in sufficient detail to allow the General Contractor to construct the Tenant Improvements. The Tenant Improvements shall not be removed or altered by Tenant without the prior written consent of Landlord as provided in Section 7. Tenant shall have the right to depreciate and claim and collect any investment tax credits in the Tenant Improvements paid for Tenant. Upon expiration of the Lease Term or any earlier termination of the Lease, the Tenant Improvements shall become the property of Landlord and shall remain upon and be surrendered with the Premises, and title thereto shall automatically vest in Landlord without any payment therefore.

     Landlord shall use its reasonable best efforts to obtain a building permit from the City of Santa Clara for the Tenant Improvements as soon as possible after submittal of the Tenant

5

Improvement Plans and Specifications, and thereafter to cause the General Contractor to Substantially Complete the Tenant Improvements. The Tenant Improvements shall be deemed substantially complete when: (i) Tenant Improvements have both been substantially completed in accordance with the Tenant Improvement Plans and Specifications, as evidenced by the issuance of a certificate of occupancy or its equivalent by the appropriate governmental authority, (ii) Tenant’s Architect has certified that the Tenant Improvements have been completed in accordance with the Tenant Improvement Plans and Specifications, and Landlord’s Architect has certified to Tenant that the Office Building Shell and Project have been completed in accordance with the Office Building Shell Plans and Specifications; and (iii) the Building systems including, but not limited to, mechanical, electrical and plumbing, are operational to the extent necessary to service the Premises, and Tenant has use of substantially all parking spaces called for under this Lease. Installation of (i) Tenant’s data and phone cabling, (ii) Tenant’s furniture, or (iii) the exterior landscaping shall not be required in order to deem the Tenant Improvements Substantially Complete. Landlord agrees to provide Tenant a Certificate of Occupancy from the City of Santa Clara (or its equivalent) within sixty (60) days following the Commencement Date.

     C. Pricing: Within ten (10) days after completion of the Tenant Improvements Plans and Specifications, Landlord shall cause the General Contractor to submit to Tenant copies of competitive bids (including a schedule of values for each bid) from at least three (3) subcontractors (at least one of which such subcontractors may be specified by Tenant, subject to Landlord’s reasonable approval) for each aspect of the work in excess of Five Thousand and No/100 Dollars ($5,000.00) related to the Tenant Improvements. The foregoing notwithstanding, Tenant shall have the right to sole-source to designated subcontractors (subject to Landlord’s reasonable approval) for specialty rooms, including the IDF/Server rooms. General Contractor shall not do any self-performed work over $10,000.00 without first providing Tenant with 3 bids for comparison purposes. Landlord shall cause the General Contractor to utilize the low bid in each case unless Tenant approves General Contractor’s use of another subcontractor, and the cost of the Tenant Improvements shall be based upon construction expenses equal to (i) the bid amounts as approved by Tenant, and (ii) the general contractor fee specified in Section 5.H below (“Tenant Improvement Budget”). Upon Tenant’s written approval of the Tenant Improvement Budget, which approval shall not be unreasonably withheld or delayed, Landlord and Tenant shall be deemed to have given their respective approvals of the final Tenant Improvement Plans and Specifications on which the cost estimate was made, and Tenant shall cause the General Contractor shall proceed with the construction of the Tenant Improvements in accordance with the terms of Section 5.G below. If Tenant does not specifically approve or disapprove the bids within seven (7) days, Tenant shall be deemed to have approved the bids.

     D. Change Orders: Tenant shall have the right to order changes in the manner and type of construction of the Tenant Improvements. Upon request and prior to Tenant’s submitting any binding change order, Landlord shall cause the General Contractor to promptly provide Tenant with written statements of the cost to implement, cost breakdown, and the time delay and increased construction costs associated with any proposed change order, which statements shall be binding on General Contractor. If no time delay or increased construction cost amount is

6

noted on the written statement, the parties agree that there shall be no adjustment to the construction cost or the Commencement Date associated with such change order. If ordered by Tenant, Landlord shall cause the General Contractor shall implement such change order and the cost of constructing the Tenant Improvements shall be increased or decreased in accordance with the cost statement previously delivered by General Contractor to Tenant for any such change order. The fee charged by General Contractor in addition to any such change order shall be consistent with Section 5.H below.

     E. Letter of Credit to Secure Tenant Improvement Construction: Within five (5) days following the Effective Date, Tenant shall deposit with Landlord a letter of credit (“Letter of Credit”) in an amount of Three Million Five Hundred Thousand Dollars ($3,500,000.00), to secure Tenant’s obligation to complete Tenant Improvements pursuant to this Lease. The Letter of Credit shall thereafter be promptly reduced upon presentation to Landlord of evidence reasonably satisfactory to Landlord that a percentage of the Tenant Improvements equal to the requested reduction has been satisfactorily completed and paid for including partial lien waivers and architects’ certificates. Upon Landlord’s receipt of reasonably satisfactory evidence that the Tenant Improvements have been completed free of liens and that Tenant has fully paid for the cost of all of Tenant Improvements, the Letter of Credit shall be cancelled and returned to Tenant by Landlord. Landlord shall be entitled to draw against the full amount of the Letter of Credit at any time provided only that Landlord certifies to the issuer of the Letter of Credit that Tenant has failed to make a payment for Tenant Improvement costs as provided in 5.D (unless Tenant disputes an amount due in which event Tenant shall be entitled to withhold the amount so disputed), that Tenant has failed to timely renew or extend the Letter of Credit as required by this paragraph, or that Tenant has failed to amend the Letter of Credit or obtain a new Letter of Credit as required by this paragraph. Tenant shall keep the Letter of Credit in effect at all times prior to payment in full for the Tenant Improvements. At least sixty (60) days prior to expiration of any Letter of Credit, the term thereof shall be renewed or extended for a period that extends until Tenant has paid in full for the Tenant Improvements. Tenant’s failure to so renew or extend the Letter of Credit shall be a material default of this Lease by Tenant entitling Landlord to draw down on the entire amount of the Letter of Credit. Any amounts drawn on the Letter of Credit shall be used to pay for the cost of the Tenant Improvements. In the event the Letter of Credit is drawn by Landlord, and the proceeds used to pay for the completion of the Tenant Improvements, then promptly following Landlord’s completion of the Tenant Improvements Landlord shall refund to Tenant any excess proceeds from the Letter of Credit.

     F. Tenant Improvement Costs: The cost of Tenant Improvements shall consist of only the following to the extent actually incurred by General Contractor in connection with the construction of Tenant Improvements: construction costs, all permit fees, all fees associated with Tenant’s Architect, engineers and consultants, construction taxes or other costs imposed by governmental authorities related to the Tenant Improvements, and the General Contractor overhead as described in Section 5.H below. During the course of construction of Tenant Improvements, Landlord shall cause the General Contractor to deliver to Tenant not more than once each calendar month a written request for payment (“Progress Invoice”) which shall include and be accompanied by General Contractor’s certified statements setting forth the amount

7

requested, certifying the percentage of completion of each item for which reimbursement is requested. Tenant shall have a right of reasonable review and approval of the Progress Invoice. Tenant shall pay directly to the General Contractor the amount due pursuant to the Progress Invoice, within fifteen (15) days after Tenant’s receipt of the above items. All costs for Tenant Improvements shall be fully documented to and verified by Tenant.

     G. Force Majeure: Any prevention, delay or stoppage due to strikes, lockouts, inclement weather, labor disputes, inability to obtain labor, materials, fuel or reasonable substitutes therefor, governmental restrictions, regulations, controls, civil commotion, fire or other act of God, and another causes beyond the reasonable control of Landlord (except financial inability) shall extend the dates contained in this Section 5 by a period equal to the period of any said prevention, delay or stoppage; provided, however, that in the event of any such prevention, delay or stoppage, Landlord shall notify Tenant in writing within five (5) business days of Landlord’s discovery of such. If Landlord fails to do so, Landlord may not claim that any such delay extends the date for Substantial Completion. If Landlord cannot obtain building permits or Substantially Complete construction by the dates set forth herein, this Lease shall not be void or voidable nor shall Landlord be liable for any loss or damage resulting therefrom.

     In the event Landlord has failed to achieve Substantial Completion of the Premises by August 1, 2000 (as such date is extended by Tenant Delays), Tenant shall have the right to terminate the involvement of Landlord and the General Contractor in the construction process by providing Landlord written notice of such election. Tenant shall thereafter be entitled to complete construction using a general contractor and/or construction manager of selected by Tenant. In such event, Tenant shall be entitled to deduct from the Base Monthly Rent initially payable hereunder any Tenant Improvement costs incurred by Tenant in excess of the Tenant Improvement Budget approved by Tenant pursuant to Section 5.C as a result of Landlord’s failure to achieve Substantial Completion.

     H. General Contractor Overhead & Profit: As compensation to General Contractor for its services related to construction of the Building Shell and Tenant Improvements, General Contractor shall receive a fee of six percent (6.0%) of the cost of construction to cover all of the following: construction supervision and administration, temporary on-site facilities, home office administration, supervision, project executive, general superintendent, general overhead, office supplies, accounting services, computer charges, telephone expenses, fax office/job site, data processing, secretarial services, mail, express mail, insurance, City licenses, project manager, estimator, project engineer, scheduling, reconstruction services, superintendent, general labor, daily clean-up and final clean-up, protection of work, petty cash, safety enforcement and safety signage, small tools, first aid facilities, general field coordination, project field office, Tenant vendor coordination, blueprinting, job trailer, temporary structures, utilities, and coordination and construction profit. Except as provided therein, Landlord or General Contractor shall not receive any other fee or payment from Tenant in connection with General Contractor’s services.

     I. Tenant Delays: A “Tenant Delay” shall mean any delay in Substantial Completion of the Building as a result of any of the following: (i) Tenant’s failure to complete or

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approve the Tenant Improvement Plans by the dates set forth in Section 5.B, (ii) Tenant’s failure to approve the bids for construction by the dates set forth in Section 5.C, (iii) changes to the plans requested by Tenant which delay the progress of the work, (iv) Tenant’s request for materials components, or finishes which are not available in a commercially reasonable time given the target Commencement Date, (v) Tenant’s failure to make a progress payment for Tenant Improvement costs as provided in Section 5.F, (vi) Tenant’s request for more than one (1) rebidding of the cost of all or a portion of the work, and (vii) any errors or omissions in the Tenant Improvement Plans provided by Tenant’s architect. In the event Landlord believes Tenant is causing a Tenant Delay, Landlord shall notify Tenant in writing, state the action or inaction that it believes is causing the Tenant Delay, and state the date from which a Tenant Delay is being calculated. Claim of Tenant Delay shall be made within five (5) days after Landlord’s discovery of the occurrence of the event giving rise to such claim. Tenant shall have the right to expedite work, at its sole cost, to minimize the effect of any Tenant Delays, to the extent it is practicable to do so. No Tenant Delay shall advance the Commencement Date to a date before the estimated Commencement Date of June 1, 2000. Notwithstanding anything to the contrary set forth in this Lease, and regardless of the actual date the Premises are Substantially Complete, the Commencement Date shall be deemed to be the date the Commencement Date would have occurred if no Tenant Delay had occurred as reasonable determined by Landlord. In addition, if a Tenant Delay results in an increase in the cost of the labor or materials, Tenant shall pay the cost of such increases.

     J. Insurance: Landlord shall cause the General Contractor to procure (as a cost of the Building Shell) a “Broad Form” liability insurance policy in the amount of Three Million Dollars ($3,000,000.00). Landlord shall also procure (as a cost of the Building Shell) builder’s risk insurance for the full replacement cost of the Building Shell and Tenant Improvements while the Building and Tenant Improvements are under construction, up until the date that the casualty insurance policy described in Section 9 is in full force and effect.

     K. Punch List & Warranty: After the Building Shell and Tenant Improvements are Substantially Complete, Landlord shall cause the General Contractor to immediately correct any construction defect or other “punch list” item which Tenant brings to General Contractor’s attention. All such work shall be performed so as to reasonably minimize the interruption to Tenant and its activities on the Premises. General Contractor shall provide a standard contractor’s warranty with respect to the Building Shell and the Tenant Improvements for one (1) year from the Commencement Date. Such warranty shall exclude routine maintenance, damage caused by Tenant’s negligence or misuse, and acts of God.

     Landlord shall warrant the Office Building Shell and Tenant Improvements against defects in workmanship or materials, including, but not limited to, HVAC systems, electrical system and devices, plumbing system and devices (but excluding Tenant Improvements performed by subcontractors sole-sourced pursuant to Section 5.C above), for one (1) year from the Commencement Date. Such warranty shall exclude (i) routine maintenance, (ii) damage caused by the negligence or misuse by Tenant, and (iii) acts of God.

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     L. Other Work by Tenant: All work not described in the Shell Plans and Specifications or Tenant Improvement Plans and Specifications, such as furniture, telephone equipment, telephone wiring and office equipment work, shall be furnished and installed by Tenant at Tenant’s cost. Prior to Substantial Completion, Tenant shall be obligated to (i) provide active phone lines to any elevators, and (ii) contract with a firm to monitor the fire system. When the construction of the Tenant Improvements has proceeded to the point where Tenant’s work of installing its fixtures and equipment in the Premises can be commenced, General Contractor shall notify Tenant and shall permit Tenant and its authorized representatives and contractors access to the Premises before the Commencement Date for the purpose of installing Tenant’s trade fixtures and equipment. Any such installation work by Tenant or its authorized representatives and contractor shall be undertaken upon the following conditions: (i) the entry into the Premises by Tenant or its representatives or contractors shall not interfere with or delay General Contractor’s work, (ii) the entry into the Premises by Tenant or its representatives or contractors shall be under all the terms and conditions of the Lease except for payment of Base Monthly Rent and other expenses due under the Lease, and (iii) any contractor used by Tenant in connection with such entry shall not interfere with the ability of the General Contractor to complete construction using union labor.

6. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER:

     A. Delivery and Acceptance: On the Commencement Date, Landlord shall deliver and Tenant shall accept possession of the Premises and enter into occupancy of the Premises on the Commencement Date. Tenant acknowledges that it has had an opportunity to conduct, and has conducted, such inspections of the Premises as it deems necessary to evaluate its condition. Except as otherwise specifically provided herein, Tenant agrees to accept possession of the Premises in its then existing condition, subject to all Restrictions and without representation or warranty by Landlord except as provided in this Lease. Tenant’s taking possession of any part of the Premises shall be deemed to be an acceptance of any work of improvement done by Landlord in such part as complete and in accordance with the terms of this Lease except for “Punch List” type items of which Tenant has given Landlord written notice prior to the time Tenant takes possession, subject to: (i) any claims with respect to latent defects, (ii) the warranties from Landlord contained in this Lease, (iii) Landlord’s obligations to correct construction defects, and (iv) any failure of the Premises to comply with laws in effect as of the date of completion. At the time Landlord delivers possession of the Premises to Tenant, Landlord and Tenant shall together execute an acceptance agreement. Landlord shall have no obligation to deliver possession, nor shall Tenant be entitled to take occupancy, of the Premises until such acceptance agreement has been executed, and Tenant’s obligation to pay Base Monthly Rent and Additional Rent shall not be excused or delayed because of Tenant’s failure to execute such acceptance agreement. Within sixty (60) days after the Commencement Date, Tenant agrees to be in occupancy of at least fifty percent (50%) of the rentable square footage of the Premises.

     B. Condition Upon Surrender: Tenant further agrees on the Expiration Date or on the sooner termination of this Lease, to surrender the Premises to Landlord in good condition and repair, normal wear and tear, casualty damage and maintenance otherwise the responsibility of Landlord pursuant to this Lease excepted. In this regard, “normal wear and tear” shall be

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construed to mean wear and tear caused to the Premises by the natural aging process which occurs in spite of prudent application of the best commercially reasonable standards for maintenance, repair replacement, and janitorial practices, and does not include items of neglected or deferred maintenance. In any event, Tenant shall cause the following to be done prior to the Expiration Date or sooner termination of this Lease: (i) all interior walls shall be cleaned, patched, and otherwise made paint-ready, (ii) all tiled floors shall ^.be cleaned and waxed, (iii) all carpets shall be cleaned and shampooed, (iv) all broken, marred, stained or nonconforming acoustical ceiling tiles shall be replaced, (v) all cabling placed above the ceiling by Tenant or Tenant’s contractors shall be removed, (vi) all windows shall be washed; (vii) the HVAC system shall be serviced by a reputable and licensed service firm and left in “good operating condition and repair” as so certified by such firm, (viii) the plumbing and electrical systems and lighting shall be placed in good order and repair (including replacement of any burned out, discolored or broken light bulbs, ballasts, or lenses. On or before the Expiration Date or sooner termination of this Lease, Tenant shall remove all its personal property and trade fixtures from the Premises. All property and fixtures not so removed shall be deemed as abandoned by Tenant. At the expiration of the Lease Term, Landlord shall not have the right to require that Tenant remove from the Premises any of the Tenant Improvements or any Alterations made with Landlord’s consent unless Landlord, at the time of granting such consent, indicates that the subject Alteration must be removed upon the expiration of the Lease Term. With respect to Permitted Alterations as defined in Section 7A. below, Tenant shall ascertain from Landlord within ninety (90) days before the Expiration Date whether Landlord desires to have any such Permitted Alterations removed. If Landlord shall so desire, Tenant shall, at Tenant’s sole cost and expense, remove such Alterations and Permitted Alterations as Landlord requires and shall repair any damage to the Building which results from Tenant’s removal of any Alterations, Permitted Alterations and any improvements and/or Tenant’s equipment, fixtures, and component and shall repair and restore said Premises or such parts thereof before the Expiration Date. Such repair and restoration shall include causing the Premises to be brought into compliance with all applicable building codes and laws in effect at the time of the removal to the extent such compliance is necessitated by the repair and restoration work.

     C. Failure to Surrender: If the Premises are not surrendered at the Expiration Date or sooner termination of this Lease in the condition required by this Section 6, Tenant shall be deemed in a holdover tenancy pursuant to this Section 6.C and Tenant shall indemnify, defend, and hold Landlord harmless against loss or liability resulting from delay by Tenant in so surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay and costs incurred by Landlord in returning the Premises to the required condition, plus interest at the Agreed Interest Rate provided, however, that Landlord shall be required to give Tenant at least thirty (30) days’ advance notice of any potential loss or liability resulting from such delay. Any holding over after the termination or Expiration Date with Landlord’s express written consent, shall be construed as month-to-month tenancy, terminable on thirty (30) days written notice from either party, and Tenant shall pay as Base Monthly Rent to Landlord a rate equal to one hundred twenty five percent (125%) of the Base Monthly Rent due in the month preceding the termination or Expiration Date, plus all other amounts payable by Tenant under this Lease. Any holding over shall otherwise be on the terms

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and conditions herein specified, except those provisions relating to the Lease Term and any options to extend or renew, which provisions shall be of no further force and effect following the expiration of the applicable exercise period. If Tenant remains in possession of the Premises after the Expiration Date or sooner termination of this Lease without Landlord’s consent, Tenant’s continued possession shall be on the basis of a tenancy at sufferance and Tenant shall pay as rent during the holdover period an amount equal to one hundred fifty percent (150%) of the Base Monthly Rent due in the month preceding the termination or Expiration Date, plus all other amounts payable by Tenant under this Lease. This provision shall survive the termination or expiration of the Lease.

7. ALTERATIONS AND ADDITIONS:

     A. Tenant’s Alterations: Tenant shall not make, or suffer to be made, any alteration or addition to the Premises (“Alterations”), or any part thereof, without obtaining Landlord’s prior written consent, which consent shall not be unreasonably withheld, and delivering to Landlord the proposed architectural and structural plans for all such Alterations at least fifteen (15) days prior to the start of construction. If such Alterations affect the structure of the Building, Tenant additionally agrees to reimburse Landlord its reasonable out-of-pocket costs incurred in reviewing Tenant’s plans. After obtaining Landlord’s consent, which consent shall state whether or not Landlord will require Tenant to remove such Alteration at the expiration or earlier termination of this Lease, Tenant shall not proceed to make such Alterations until Tenant has obtained all required governmental approvals and permits, and provides Landlord reasonable security, in form reasonably approved by Landlord, to protect Landlord against mechanics’ lien claims. Tenant agrees to provide Landlord (i) written notice of the anticipated and actual start-date of the work, (ii) a complete set of half-size (15” X 21”) vellum as-built drawings, and (iii) a certificate of occupancy for the work upon completion of the Alterations. All Alterations shall be constructed in compliance with all applicable building codes and laws including, without limitation, the Americans with Disabilities Act of 1990 as amended from time to time. During the Lease Term, the Alterations shall be the property of the Tenant and Tenant shall be entitled to all tax benefits associated therewith. Upon the Expiration Date, all Alterations, except movable furniture and trade fixtures, shall become a part of the realty and belong to Landlord but shall nevertheless be subject to removal by Tenant as provided in Section 6 above. Alterations which are not deemed as trade fixtures include heating, lighting, electrical systems, air conditioning, walls, carpeting, or any other installation which has become an integral part of the Premises. All Alterations shall be maintained, replaced or repaired by Tenant at its sole cost and expense. Notwithstanding the foregoing, Tenant shall be entitled without obtaining Landlord’s consent, to make Alterations which do not affect the structure of the Building or which do not cost more than Fifty Thousand Dollars ($50,000.00) per Alteration (“Permitted Alterations”); provided, however, that Tenant shall still be required to comply with all other provisions of this paragraph.

     B. Free From Liens: Tenant shall keep the Premises free from all liens arising out of work performed, materials furnished, or obligations incurred by Tenant or claimed to have been performed for Tenant. In the event Tenant fails to discharge any such lien within twenty (20) days after receiving notice of the filing, Landlord shall be entitled to discharge the lien at

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Tenant’s expense and all resulting costs incurred by Landlord, including reasonable attorney’s fees shall be due from Tenant as additional rent.

     C. Compliance With Governmental Regulations: The term Laws or Governmental Regulations shall include all federal, state, county, city or governmental agency laws, statutes, ordinances, standards, rules, requirements, or orders now in force or hereafter enacted, promulgated, or issued. The term also includes government measures regulating or enforcing public access, traffic mitigation, occupational, health, or safety standards for employers, employees, landlords, or tenants. Tenant, at Tenant’s sole expense shall make all repairs, replacements, alterations, or improvements needed to comply with all Governmental Regulations, except as specifically provided otherwise in this Lease.

All costs associated with compliance shall be borne by Tenant if the requirement for compliance is triggered by: (i) Tenant’s specific use or change of use of the Premises; or (ii) Tenant’s construction or installation of any Alterations or trade fixtures. If a capital improvement or replacement to the Premises is required pursuant to this Section 7.C. for any other reason, then within fifteen (15) business days after Tenant delivers evidence reasonably satisfactory to Landlord substantiating Tenant’s payment of such capital improvement, Landlord shall reimburse Tenant for the cost of the improvement or replacement less that portion of the cost equal to the product of such total cost multiplied by a fraction, the numerator of which is the number of years remaining in the Lease Term, the denominator of which is the useful life (in years) of the capital improvement, as reasonably determined by Landlord in accordance with generally accepted accounting principles. If the capital improvement is made during the initial Lease Term, Tenant’s share shall initially be based on the initial Lease Term and if Tenant thereafter exercises its Option pursuant to Section 18 below, then upon the commencement of the Option Term, an adjustment shall be made so that during the Option Term Tenant shall pay its share determined by multiplying the cost of the capital improvement by a fraction, the numerator of which is the sum of the Lease Term remaining at the time the capital expenditure was made and the Option Term and the denominator of which is the useful life of the capital improvement. The judgment of any court of competent jurisdiction or the admission of Tenant in any action or proceeding against Tenant (whether Landlord be a party thereto or not) that Tenant has violated any such law, regulation or other requirement in its use of the Premises shall be conclusive of that fact as between Landlord and Tenant.

8. MAINTENANCE OF PREMISES:

     A. Landlord’s Obligations: Landlord at its sole cost and expense, shall maintain in good condition, order, and repair, and replace as and when necessary, all structural portions of the Building, including, without limitation, the foundation, floor slabs, load bearing walls, below-ground plumbing and sewage facilities, columns and roof structure of the Building Shell, and the structural elements of the adjacent parking structure.

     B. Tenant’s Obligations: Tenant shall clean, maintain, repair and replace when necessary the Premises and every part thereof through regular inspections and servicing, including but not limited to: (i) all above-the-foundation plumbing and sewage facilities, (ii) all

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heating ventilating and air conditioning facilities and equipment, (iii) all fixtures, interior walls floors, carpets and ceilings, (iv) all windows, door entrances, plate glass and glazing systems including caulking, and skylights, (v) all electrical facilities and equipment, (vi) all automatic fire extinguisher equipment, (vii) the parking lot and all underground utility facilities servicing the Premises, (viii) all elevator equipment, (ix) the roof membrane system (subject to the provisions of Section 8.G. below), and (x) all waterscape, landscaping and shrubbery. All wall surfaces and floor tile are to be maintained in an as good a condition as when Tenant took possession free of holes, gouges, or defacements. With respect to items (ii), (viii) and (ix) above, Tenant shall provide Landlord a copy of a service contract between Tenant and a licensed service contractor providing for periodic maintenance of all such systems or equipment in conformance with the manufacturer’s recommendations. Tenant shall provide Landlord a copy of such preventive maintenance contracts and paid invoices for the recommended work if requested by Landlord. The foregoing notwithstanding, Tenant shall have no responsibility to perform any repair, maintenance or improvement: (i) occasioned by fire, acts of God or other casualty, whether or not covered by insurance, or by the exercise of the power of eminent domain, (ii) required as a consequence of any violation of laws or construction defect in the Premises existing as of the Commencement Date, or (iii) for which Landlord has a right of reimbursement from others.

     C. Landlord and Tenant’s Obligations Regarding Reimbursable Operating Costs: In addition to the direct payment by Tenant of expenses as provided in Sections 8.B, 9, 10 and 11 of this Lease, Tenant agrees to reimburse Landlord for Tenant’s Allocable Share (as defined in Section 8.E below) of Reimbursable Operating Costs (as defined in Section 8.D below) resulting from Landlord payment of expenses related to the Building or Project which are not otherwise paid by Tenant directly. Tenant agrees to pay its Allocable Share of the Reimbursable Operating Costs as additional rental within thirty (30) days of written invoice from Landlord.

     D. Reimbursable Operating Costs: For purposes of calculating Tenant’s Allocable Share of Building and Project Costs, the term “Reimbursable Operating Costs” is defined as all costs and expenses of the nature hereinafter described which are incurred by Landlord in connection with ownership and operation of the Building or the Project in which the Premises are located, together with such additional facilities as may be determined by Landlord to be reasonably desirable or necessary to the ownership and operation of the Building and/or Project. All costs and expenses shall be determined in accordance with generally accepted accounting principles which shall be consistently applied (with accruals appropriate to Landlord’s business), including but not limited to the following: (i) common area utilities, including water, power, telephone, heating, lighting, air conditioning, ventilating, and Building utilities to the extent not separately metered; (ii) common area maintenance and service agreements for the Building and/or Project and the equipment therein, including without limitation, common area janitorial services, alarm and security services, exterior window cleaning, and maintenance of the sidewalks, landscaping, waterscape, roof membrane, parking areas, driveways, service areas, mechanical rooms, elevators, and the building exterior; (iii) insurance premiums and costs, including without limitation, the premiums and cost of fire, casualty and liability coverage and rental abatement and earthquake (as limited in Section 9.B below) insurance applicable to the Building or Project; (iv) repairs, replacements and general maintenance (excluding repairs and

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general maintenance paid by proceeds of insurance or by Tenant or other third parties, and repairs or alterations attributable solely to tenants of the Building or Project other than Tenant); and (v) all real estate taxes and assessment installments or other impositions or charges which may be levied on the Building or Project, upon the occupancy of the Building or Project and including any substitute or additional charges which may be imposed during, or applicable to the Lease Term including real estate tax increases due to a sale, transfer or other change of ownership of the Building or Project, as such taxes are levied or appear on the City and County tax bills and assessment rolls. Landlord shall have no obligation to provide guard services or other security measures for the benefit of the Project. Tenant assumes all responsibility for the protection of Tenant and Tenant’s Agents from acts of third parties; provided, however, that nothing contained herein shall prevent Landlord, at its sole option, from providing security measures for the Project. This is a “Net” Lease, meaning that Base Monthly Rent is paid to Landlord absolutely net of all costs and expenses except as otherwise specifically set forth in this Lease. The provision for payment of Reimbursable Operating Costs by means of periodic payment of Tenant’s Allocable Share of Building and/or Project Costs is intended to pass on to Tenant and reimburse Landlord for all costs of operating and managing the Building and/or Project. Notwithstanding anything to the contrary contained in this Lease, Reimbursable Operating Costs shall not include any of the items set forth in Exhibit “G” attached hereto.

     E. Tenant’s Allocable Share: For purposes of prorating Reimbursable Operating Costs which Tenant shall pay, Tenant’s Allocable Share of Reimbursable Operating Costs shall be computed by multiplying the Reimbursable Operating Costs by a fraction, the numerator of which is the rentable square footage of the Premises and the denominator of which is either the total rentable square footage of the Building if the service or cost is allocable only to the Building, or the total square footage of the Project if the service or cost is allocable to the entire Project. Tenant’s obligation to share in Reimbursable Operating Costs shall be adjusted to reflect the Lease Commencement and Expiration dates and is subject to recalculation in the event of expansion of the Building or Project.

     F. Waiver of Liability: Failure by Landlord to perform any defined services, or any cessation thereof, when such failure is caused by accident, breakage, repairs, strikes, lockout or other labor disturbances or labor disputes of any character or by any other cause, similar or dissimilar, unless due to the gross negligence or willful misconduct of Landlord, shall not render Landlord liable to Tenant in any respect, including damages to either person or property, nor be construed as an eviction of Tenant, nor cause an abatement of rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof. Should any equipment or machinery utilized in supplying the services listed herein break down or for any cause cease to function properly, upon receipt of written notice from Tenant of any deficiency or failure of any services, Landlord shall use reasonable diligence to repair the same promptly, but Tenant shall have no right to terminate this Lease and shall have no claim for rebate of rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. Tenant waives the provisions of California Civil Code Sections 1941 and 1942 concerning the Landlord’s obligation of tenantability and Tenant’s right to make repairs and deduct the cost of such repairs from the rent. Landlord shall not be liable for a loss of or injury to person or property, however occurring, through or in connection with or incidental to furnishing, or its failure to furnish, any of the foregoing.

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     G. Replacements: If as a part of Tenant’s fulfillment of its obligations under Section 8.B above, Tenant is required to (i) replace the roof membrane on the Building, or (ii) replace any portion of the Office Building Shell or Common Area which costs in excess of Fifty Thousand Dollars ($50,000.00) and such replacement occurs in the last two (2) years of the Lease Term, then Landlord shall, within ten (10) days following receipt of written invoices and supporting documentation evidencing the reasonable costs incurred by Tenant in making such replacement, reimburse Tenant for the entire cost of the replacement less that portion of the cost equal to the product of such total cost multiplied by a fraction, the numerator of which is the number of years remaining in the Lease Term, and the denominator of which is the useful life (in years) of the replacement. If the replacement occurs during the initial Lease Term, Tenant’s share shall initially be based on the initial Lease Term and if Tenant thereafter exercises its Option pursuant to Section 18 below, then upon the commencement of the Option Term, an adjustment shall be made so that during the Option Term Tenant shall pay its additional share determined by multiplying the cost of the replacement by a fraction, the numerator of which is the sum of the Lease Term remaining at the time of the replacement and the Option Term and the denominator of which is the useful life of the replacement.

9. HAZARD INSURANCE:

     A. Tenant’s Use: Tenant shall not use or permit the Premises, or any part thereof, to be used for any purpose other than that for which the Premises are hereby leased; and no use of the Premises shall be made or permitted, nor acts done, which will cause an increase in premiums or a cancellation of any insurance policy covering the Premises or any part thereof, nor shall Tenant sell or permit to be sold, kept, or used in or about the Premises, any article prohibited by the standard form of fire insurance policies. Tenant shall, at its sole cost, comply with all requirements of any insurance company or organization necessary for the maintenance of reasonable fire and public liability insurance covering the Premises and appurtenances.

     B. Landlord’s Insurance: Landlord agrees to purchase and keep in force fire, extended coverage and rental loss (such rental loss covering a 12 month period) insurance in an amount equal to the replacement cost of the Building (not including any Tenant Improvements or Alterations paid for by Tenant) as determined by Landlord’s insurance company’s appraisers. Landlord agrees to obtain earthquake insurance subject to the terms hereof if available, but only to the extent the cost thereof does not exceed five cents ($.05) per square foot of the Premises per month, compounded each year during the Lease term at three percent (3%). If the premium due for such insurance exceeds the foregoing amount, Landlord can elect to continue such insurance and pay the excess portion of the premium or to terminate earthquake coverage upon ten (10) days’ prior written notice to Tenant, unless Tenant notifies Landlord in writing within such ten (10) day period that Tenant will pay the entire cost of the insurance premium due for that year. The parties shall review the earthquake coverage and premiums due annually during the Lease term in accordance with the foregoing. Landlord shall be responsible for paying the deductible under the earthquake insurance carried by Landlord pursuant to the terms hereof and the deductible payable in the event of an earthquake shall not be subject to reimbursement by Tenant. Additionally, Landlord may maintain a policy of commercial general liability insurance insuring Landlord (and such others designated by Landlord) against liability for personal injury,

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bodily injury, death and damage to property occurring or resulting from an occurrence in, on or about the Premises or Project in an amount as Landlord determines is reasonably necessary for its protection. Tenant agrees to pay Landlord as additional rent, on demand, the full cost of said insurance as evidenced by insurance billings to Landlord, and in the event of damage covered by said insurance, the amount of any deductible under such policy. Payment shall be due to Landlord within thirty (30) days after written invoice to Tenant. It is understood and agreed that Tenant’s obligation under this Section will be prorated to reflect the Lease Commencement and Expiration Dates.

     C. Tenant’s Insurance: Tenant agrees, at its sole cost, to insure its personal property, Tenant Improvements (for which it has paid from sources other than the Work Allowance), and Alterations for their full replacement value (without depreciation) and to obtain worker’s compensation and public liability and property damage insurance for occurrences within the Premises with a combined single limit of not less than Five Million Dollars ($5,000,000.00). Tenant’s liability insurance shall be primary insurance containing a cross-liability endorsement, and shall provide coverage on an “occurrence^” rather than on a “claims made” basis. Tenant shall name Landlord and Landlord’s lender as an additional insured and shall deliver a copy of the policies and renewal certificates to Landlord. All such policies shall provide for thirty (30) days’ prior written notice to Landlord of any cancellation, termination, or reduction in coverage.

     D. Waiver: Landlord and Tenant hereby waive all rights each may have against the other on account of any loss or damage sustained by Landlord or Tenant, as the case may be, or to the Premises or its contents, which may arise from any risk covered by their respective insurance policies (or which would have been covered had such insurance policies been maintained in accordance with this Lease) as set forth above. The Parties shall use their reasonable efforts to obtain from their respective insurance companies a waiver of any right of subrogation which said insurance company may have against Landlord or Tenant, as the case may be.

10. TAXES: Tenant shall be liable for and shall pay as additional rental, prior to delinquency, the following: (i) all taxes and assessments levied against Tenant’s personal property and trade or business fixtures; (ii) all real estate taxes and assessment installments or other impositions or charges which may be levied on the Premises or upon the occupancy of the Premises, including any substitute or additional charges which may be imposed applicable to the Lease Term; and (iii) real estate tax increases due to an increase in assessed value resulting from a sale, transfer or other change of ownership of the Premises as it appears on the City and County tax bills during the Lease Term. Tenant’s obligation under this Section shall be prorated to reflect the Lease Commencement and Expiration Dates. If, at any time during the Lease Term a tax, excise on rents, business license tax or any other tax, however described, is levied or assessed against Landlord as a substitute or addition, in whole or in part, for taxes assessed or imposed on land or Buildings, Tenant shall pay and discharge its pro rata share of such tax or excise on rents or other tax before it becomes delinquent; except that this provision is not intended to cover net income taxes, inheritance, gift or estate tax imposed upon Landlord. In the event that a tax is placed, levied, or assessed against Landlord and the taxing authority takes the

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position that Tenant cannot pay and discharge its pro rata share of such tax on behalf of Landlord, then at Landlord’s sole election, Landlord may increase the Base Monthly Rent by the exact amount of such tax and Tenant shall pay such increase. If by virtue of any application or proceeding brought by Landlord, there results a reduction in the assessed value of the Premises during the Lease Term, Tenant agrees to pay Landlord a fee consistent with the fees charged by a third party appeal firm for such services. Tenant at its cost shall have the right, at any time, to seek a reduction in the assessed valuation of the Premises or to contest any real property taxes that are to be paid by Tenant. Landlord shall not be required to join in any such proceeding or contest unless the provisions of any law require that the proceeding or contest be brought by or in the name of the owner of the Premises. In such event, Landlord shall join in the proceeding or contest or permit it to be brought in Landlord’s name, provided that Landlord is not required to bear any cost in connection therewith.

11. UTILITIES: Tenant shall pay directly to the providing utility all water, gas, electric, telephone, and other utilities supplied to the Premises. Landlord shall not be liable for loss of or injury to person or property, however occurring (unless due to the gross negligence or willful misconduct of Landlord), through or in connection with or incidental to furnishing or the utility company’s failure to furnish utilities to the Premises, and in such event Tenant shall not be entitled to abatement or reduction of any portion of Base Monthly Rent or any other amount payable under this Lease. Notwithstanding the foregoing, if utility services to the Premises are interrupted for a period of thirty (30) continuous business days through no fault of Tenant, then Tenant shall be entitled to an abatement of rent to the extent of the interference with Tenant’s use of the Premises occasioned thereby beginning on the expiration of such thirty (30) day period.

12. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:

     A. Tenant’s Responsibility: Without the prior written consent of Landlord, Tenant or Tenant’s agents, employees, contractors and invitees (“Tenant’s Agents”) shall not bring, use, or permit upon the Premises, or generate, create, release, emit, or dispose (nor permit any of the same) from the Premises any chemicals, toxic or hazardous gaseous, liquid or solid materials or waste, including without limitation, material or substance having characteristics of ignitability, corrosivity, reactivity, or toxicity or substances or materials which are listed on any of the Environmental Protection Agency’s lists of hazardous wastes or which are identified in Division 22 Title 26 of the California Code of Regulations as the same may be amended from time to time or any wastes, materials or substances which are or may become regulated by or under the authority of any applicable local, state or federal laws, judgments, ordinances, orders, rules, regulations, codes or other governmental restrictions, guidelines or requirements (“Hazardous Materials”) except for those substances customary in typical office uses for which no consent shall be required. In order to obtain consent, Tenant shall deliver to Landlord its written proposal describing the toxic material to be brought onto the Premises, measures to be taken for storage and disposal thereof, safety measures to be employed to prevent pollution of the air, ground, surface and ground water. Landlord’s approval may be withheld in its reasonable judgment. In the event Landlord consents to Tenant’s use of Hazardous Materials on the Premises or such consent is not required, Tenant represents and warrants that it shall comply with all Governmental Regulations applicable to Hazardous Materials including doing the

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following: (i) adhere to all reporting and inspection requirements imposed by Federal, State, County or Municipal laws, ordinances or regulations and will provide Landlord a copy of any such reports or agency inspections; (ii) obtain and provide Landlord copies of all necessary permits required for the use and handling of Hazardous Materials on the Premises; (iii) enforce Hazardous Materials handling and disposal practices consistent with industry standards; (iv) surrender the Premises free from any Hazardous Materials arising from Tenant’s bringing, using, permitting, generating, creating, releasing, emitting or disposing of Hazardous Materials; and (v) properly close the facility with regard to Hazardous Materials including the removal or decontamination of any process piping, mechanical ducting, storage tanks, containers, or trenches which have come into contact with Hazardous Materials and obtain a closure certificate from the local administering agency prior to the Expiration Date.

     B. Tenant’s Indemnity Regarding Hazardous Materials: Tenant shall, at its sole cost and expense, comply with all laws pertaining to, and shall with counsel reasonably acceptable to Landlord, indemnify, defend and hold harmless Landlord and Landlord’s trustees, shareholders, directors, officers, employees, partners, affiliates, and agents from, any claims, liabilities, costs or expenses incurred or suffered arising from the bringing, using, permitting, generating, emitting or disposing of Hazardous Materials by Tenant, Tenant’s Agents or third party invitees through the surface soils of the Premises during the Lease Term or the violation of any Governmental Regulation or environmental law, by Tenant or Tenant’s Agents. Tenant’s indemnification, defense, and hold harmless obligations include, without limitation, the following: (i) claims, liability, costs or expenses resulting from or based upon administrative, judicial (civil or criminal) or other action, legal or equitable, brought by any private or public person under common law or under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended (“CERCLA”), the Resource Conservation and Recovery Act of 1980 (“RCRA”) or any other Federal, State, County or Municipal law, ordinance or regulation now or hereafter in effect; (ii) claims, liabilities, costs or expenses pertaining to the identification, monitoring, cleanup, containment, or removal of Hazardous Materials from soils, riverbeds or aquifers including the provision of an alternative public drinking water source; (iii) all costs of defending such claims; (iv) losses attributable to diminution in the value of the Premises or the Building; (v) loss or restriction of use of rentable space in the Building; (vi) Adverse effect on the marketing of any space in the Building; and (vi) all other liabilities, obligations, penalties, fines, claims, actions (including remedial or enforcement actions of any kind and administrative or judicial proceedings, orders or judgments), damages (including consequential and punitive damages), and costs (including attorney, consultant, and expert fees and expenses) resulting from the release or violation caused by Tenant or Tenant’s Agents. This Section 12.B shall survive the expiration or termination of this Lease.

     C. Actual Release by Tenant: Tenant and Landlord agrees to notify each other of any known lawsuits or orders which relate to the remedying of or actual release of Hazardous Materials on or into the soils or ground water at or under the Premises.

Tenant shall also provide Landlord all notices required by Section 25359.7(b) of the Health and Safety Code and all other notices required by law to be given to Landlord in connection with Hazardous Materials. Without limiting the foregoing, Tenant shall also deliver to Landlord,

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within twenty (20) days after receipt thereof, any written notices from any governmental agency alleging a material violation of, or material failure to comply with, any federal, state or local laws, regulations, ordinances or orders, the violation of which or failure to comply with poses a foreseeable and material risk of contamination of the ground water or injury to humans (other than injury solely to Tenant or Tenant’s Agents).

In the event of any release on or into the Premises or into the soil or ground water under the Premises, the Building or the Project of any Hazardous Materials caused by Tenant or Tenant’s agents or third party invitees, Tenant agrees to comply, at its sole cost, with all laws, regulations, ordinances and orders of any federal, state or local agency relating to the monitoring or remediation of such Hazardous Materials. In the event of any such release of Hazardous Materials Tenant shall immediately give verbal and follow-up written notice of the release to Landlord, and Tenant agrees to meet and confer with Landlord and its Lender to attempt to eliminate and mitigate any financial exposure to such Lender and resultant exposure to Landlord under California Code of Civil Procedure Section 736(b) as a result of such release, and promptly to take reasonable monitoring, cleanup and remedial steps given, inter alia, the historical uses to which the Property has and continues to be used, the risks to public health posed by the release, the then available technology and the costs of remediation, cleanup and monitoring, consistent with acceptable customary practices for the type and severity of such contamination and all applicable laws. Nothing in the preceding sentence shall eliminate, modify or reduce the obligation of Tenant under 12.B of this Lease to indemnify, defend and hold Landlord harmless from any claims liabilities, costs or expenses incurred or suffered by Landlord. Tenant shall provide Landlord prompt written notice of Tenant’s monitoring, cleanup and remedial steps.

In the absence of an order of any federal, state or local governmental or quasi-governmental agency relating to the cleanup, remediation or other response action required by applicable law, any dispute arising between Landlord and Tenant concerning Tenant’s obligation to Landlord under this Section 12.C concerning the level, method, and manner of cleanup, remediation or response action required in connection with such a release of Hazardous Materials shall be resolved by mediation and/or arbitration pursuant to this Lease.

     D. Environmental Monitoring: Landlord and its agents shall have the right to inspect, investigate, sample and monitor the Premises including any air, soil, water, ground water or other sampling or any other testing, digging, drilling or analysis to determine whether Tenant is complying with the terms of this Section 12. If Landlord discovers that Tenant is not in compliance with the terms of this Section 12, any such costs incurred by Landlord, including attorneys’ and consultants’ fees, shall be due and payable by Tenant to Landlord within five (5) days following Landlord’s written demand therefore.

13. TENANT’S DEFAULT: The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: (i) Tenant’s failure to pay the Base Monthly Rent including additional rent or any other payment due under this Lease by the date such amount is due, where such failure continues for three (3) business days after written notice from Landlord; (ii) the abandonment of the Premises by Tenant; (iii) Tenant’s failure to observe and

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perform any other required provision of this Lease, where such failure continues for thirty (30) days after written notice from Landlord, provided however that if the nature of the default is such that it cannot reasonably be cured within the 30-day period, Tenant shall not be deemed in default if it commences within such period to cure, and thereafter diligently prosecutes the same to completion; (iv) Tenant’s making of any general assignment for the benefit of creditors; (v) the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed after the filing); (vi) the appointment of a trustee or receiver to take possession of substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or (vii) the attachment, execution or other judicial seizure of substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease, where such seizure is not discharged within thirty (30) days.

     A. Remedies: In the event of any such default by Tenant, then in addition to other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder by giving written notice of such intention to terminate. In the event Landlord elects to so terminate this Lease, Landlord may recover from Tenant all the following: (i) the worth at time of award of any unpaid rent which had been earned at the time of such termination; (ii) the worth at time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss for the same period that Tenant proves could have been reasonably avoided; (iii) the worth at time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; (iv) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant’s failure to perform its obligations under this lease, or which in the ordinary course of things would be likely to result therefrom; including the following: (x) expenses for repairing, altering or remodeling the Premises for purposes of reletting, (y) broker’s fees, advertising costs or other expenses of reletting the Premises, and (z) costs of carrying the Premises such as taxes, insurance premiums, utilities and security precautions; and (v) at Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted by applicable California law. The term “rent”, as used herein, is defined as the minimum monthly installments of Base Monthly Rent and all other sums required to be paid by Tenant pursuant to this Lease, all such other sums being deemed as additional rent due hereunder. As used in (i) and (ii) above, “worth at the time of award” shall be computed by allowing interest at a rate equal to the discount rate of the Federal Reserve Bank of San Francisco plus five (5%) percent per annum. As used in (iii) above, “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one (1%) percent.

     B. Right to Re-enter: In the event of any such default by Tenant, Landlord shall have the right, after terminating this Lease, to re-enter the Premises and remove all persons and property. Such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant, and disposed of by Landlord in any manner permitted by law.

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     C. Abandonment: If Landlord does not elect to terminate this Lease as provided in Section 13.A or 13.B above, then the provisions of California Civil Code Section 1951.4, (Landlord may continue the lease in effect after Tenant’s breach and abandonment and recover rent as it becomes due if Tenant has a right to sublet and assign, subject only to reasonable limitations) as amended from time to time, shall apply and Landlord may from time to time, without terminating this Lease, either recover all rental as it becomes due or relet the Premises or any part thereof for such term or terms and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. In the event that Landlord elects to so relet, rentals received by Landlord from such reletting shall be applied in the following order to: (i) the payment of any indebtedness other than Base Monthly Rent due hereunder from Tenant to Landlord; (ii) the payment of any cost of such reletting; (iii) the payment of the cost of any alterations and repairs to the Premises; and (iv) the payment of Base Monthly Rent due and unpaid hereunder. The residual rentals, if any, shall be held by Landlord and applied in payment of future Base Monthly Rent as the same may become due and payable hereunder. Landlord shall the obligation to market the space but shall have no obligation to relet the Premises following a default if Landlord has other comparable available space within the Building or Project. In the event the portion of rentals received from such reletting which is applied to the payment of rent hereunder during any month be less than the rent payable during that month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord immediately upon demand. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting.

     D. No Termination: Landlord’s re-entry or taking possession of the Premises pursuant to 13.B or 13.C shall not be construed as an election to terminate this Lease unless written notice of such intention is given to Tenant or unless the termination is decreed by a court of competent jurisdiction. Notwithstanding any reletting without termination by Landlord because of any default by Tenant, Landlord may at any time after such reletting elect to terminate this Lease for any such default.

     E. Non-Waiver. The waiver by Landlord or Tenant of any breach of any term, covenant or condition, herein contained shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant or condition herein contained. Landlord may accept Tenant’s payments without waiving any rights under this Lease, including rights under a previously served notice of default. No payment by Tenant or receipt by Landlord of a lesser amount than any installment of rent due shall be deemed as other than payment on account of the amount due. If Landlord accepts payments after serving a notice of default, Landlord may nevertheless commence and pursue an action to enforce rights and remedies under the previously served notice of default without giving Tenant any further notice or demand. Furthermore, the Landlord’s acceptance of rent from the Tenant when the Tenant is holding over without express written consent does not convert Tenant’s Tenancy from a tenancy at sufferance to a month to month tenancy. No waiver of any provision of this Lease shall be implied by any failure of Landlord to enforce any remedy for the violation of that provision, even if that violation continues or is repeated. Any waiver by Landlord of any

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provision of this Lease must be in writing. Such waiver shall affect only the provision specified and only for the time and in the manner stated in the writing. No delay or omission in the exercise of any right or remedy by Landlord shall impair such right or remedy or be construed as a waiver thereof by Landlord. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute acceptance of the surrender of the Premises by Tenant before the Expiration Date. Only written notice from Landlord to Tenant of acceptance shall constitute such acceptance of surrender of the Premises. Landlord’s consent to or approval of any act by Tenant which requires Landlord’s consent or approvals shall not be deemed to waive or render unnecessary Landlord’s consent to or approval of any subsequent act by Tenant.

     F. Performance by Landlord: If Tenant fails to perform any obligation required under this Lease or by law or governmental. regulation, Landlord in its sole discretion may, with thirty (30) days’ written notice and without waiving any rights or remedies and without releasing Tenant from its obligations hereunder, perform such obligation, in which event Tenant shall pay Landlord as additional rent all sums paid by Landlord in connection with such substitute performance, including interest at the Agreed Interest Rate (as defined in Section 19.J) within ten (10) days of Landlord’s written notice for such payment.

     G. Habitual Default: The provisions of Section 13 notwithstanding, the Parties agree that if Tenant shall have defaulted (beyond any applicable cure period) in the performance of any (but not necessarily the same) term or condition of this Lease for four or more times during any twelve (12) month period during the Lease Term, then such conduct shall, at the election of the Landlord, represent a separate event of default which cannot be cured by Tenant. Tenant acknowledges that the purpose of this provision is to prevent repetitive defaults by Tenant, which work a hardship upon Landlord and deprive Landlord of Tenant’s timely performance under this Lease.

14. LANDLORD’S LIABILITY:

     A. Limitation on Landlord’s Liability: In the event of Landlord’s failure to perform any of its covenants or agreements under this Lease, Tenant shall give Landlord written notice of such failure and shall give Landlord thirty (30) days to cure or commence to cure such failure prior to any claim for breach or resultant damages, provided, however, that if the nature of the default is such that it cannot reasonably be cured within the 30-day period, Landlord shall not be deemed in default if it commences within such period to cure, and thereafter diligently prosecutes the same to completion. In addition, upon any such failure by Landlord, Tenant shall give notice by registered or certified mail to any person or entity with a security interest in the Premises (“Mortgagee”) that has provided Tenant with notice of ‘its interest in the Premises, and shall provide Mortgagee a reasonable opportunity to cure such failure. Tenant agrees that each of the Mortgagees to whom this Lease has been assigned is an expressed third-party beneficiary hereof. Tenant waives any right under California Civil Code Section 1950.7 or any other present or future law to the collection of any payment or deposit from Mortgagee or any purchaser at a foreclosure sale of Mortgagee’s interest unless Mortgagee or such purchaser shall have actually received and not refunded the applicable payment or deposit. Tenant Further waives any right to

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terminate this Lease and to vacate the Premises on Landlord’s default under this Lease. Tenant’s sole remedy on Landlord’s default is an action for damages or injunctive or declaratory relief.

     B. Limitation on Tenant’s Recourse: If Landlord is a corporation, trust, partnership, joint venture, unincorporated association or other form of business entity, then (i) the obligations of Landlord shall not constitute personal obligations of the officers, directors, trustees, partners, joint venturers, members, owners, stockholders, or other principals or representatives except to the extent of their interest in the Premises. Tenant shall have recourse only to the interest of Landlord in the Premises or for the satisfaction of the obligations of Landlord and shall not have recourse to any other assets of Landlord for the satisfaction of such obligations.

     C. Indemnification of Landlord: As a material part of the consideration rendered to Landlord, Tenant hereby waives all claims against Landlord for damages to goods, wares and merchandise, and all other personal property in, upon or about said Premises and for injuries to persons in or about said Premises, from any cause arising at any time to the fullest extent permitted by law, and Tenant shall indemnify, defend with counsel reasonably acceptable to Landlord and hold Landlord, and their shareholders, directors, officers, trustees, employees, partners, affiliates and agents from any claims, liabilities, costs or expenses incurred or suffered arising from the use of occupancy of the Premises or any part of the Project by Tenant or Tenant’s Agents, the acts or omissions of Tenant or Tenant’s Agents, Tenant’s breach of this Lease, or any damage or injury to person or property from any cause, except to the extent caused by the willful misconduct or active negligence of Landlord or from the failure of Tenant to keep the Premises in good condition and repair as herein provided, except to the extent due to the gross negligence or willful misconduct of Landlord. Further, in the event Landlord is made party to any litigation due to the acts or omission of Tenant and Tenant’s Agents, Tenant will indemnify, defend (with counsel reasonably acceptable to Landlord) and hold Landlord harmless from any such claim or liability including Landlord’s costs and expenses and reasonable attorney’s fees incurred in defending such claims.

15. DESTRUCTION OF PREMISES:

     A. Landlord’s Obligation to Restore: In the event of a destruction of the Premises during the Lease Term Landlord shall use due diligence to as promptly as practicable repair, at Landlord’s cost (subject to Tenant reimbursement for applicable insurance deductibles to the extent Tenant is responsible for such deductibles), the Premises to substantially the same condition to that which existed prior to such destruction. Such destruction shall not annul or void this Lease; however, Tenant shall be entitled to a proportionate reduction of Base Monthly Rent commencing from the date of destruction, such proportionate reduction to be based upon the extent to which the repairs interfere with Tenant’s business in the Premises, as reasonably determined by Landlord. In no event shall Landlord be required to replace or restore Alterations, Tenant Improvements paid for by Tenant from sources other than the Work Allowance or Tenant’s fixtures or personal property. With respect to a destruction which Landlord is obligated to repair or may elect to repair under the terms of this Section, Tenant waives the provisions of Section 1932, and Section 1933, Subdivision 4, of the Civil Code of the State of California, and

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any other similarly enacted statute, and the provisions of this Section 15 shall govern in the case of such destruction.

     B. Limitations on Landlord’s Restoration Obligation: Notwithstanding the provisions of Section 15.A, Landlord shall have no obligation to repair, or restore the Premises if any of the following occur: (i) if the repairs cannot be made in one (1) year from the date of receipt of all governmental approvals necessary under the laws and regulations of State, Federal, County or Municipal authorities, as reasonably determined by Landlord, (ii) if the holder of the first deed of trust or mortgage encumbering the Building elects not to permit the insurance proceeds payable upon damage or destruction to be used for such repair or restoration, (iii) the damage or destruction is not fully covered by the insurance maintained by Landlord (excluding deductible amounts) and any amounts Tenant elects, in its sole discretion, to pay towards the cost of repair or restoration, (iv) the damage or destruction occurs in the last six (6) months of the Lease Term (unless Tenant elects to exercise any available option to extend the Lease Term, (v) Tenant is in default pursuant to the provisions of Section 13, or (vi) Tenant has vacated the Premises for more than ninety (90) days. In any such event Landlord may elect either to (i) complete the repair or restoration, or (ii) terminate this Lease by providing Tenant written notice of its election within sixty (60) days following the damage or destruction. If (i) the repairs cannot be made within one (1) year from the date of the damage or destruction or (ii) the damage or destruction occurs in the last six (6) months of the Lease Term, Tenant may elect to terminate this Lease by providing Landlord written notice of its election within sixty (60) days following the date of the damage or destruction.

16. CONDEMNATION:

     If any part of the Premises shall be taken for any public or quasi-public use, under any statute or by right of eminent domain or private purchase in lieu thereof, and only a part thereof remains which is susceptible of occupation hereunder, this Lease shall, as to the part so taken, terminate as of the day before title vests in the condemnor or purchaser (“Vesting Date”) and Base Monthly Rent payable hereunder shall be adjusted so that Tenant is required to pay for the remainder of the Lease Term only such portion of Base Monthly Rent as the value of the part remaining after such taking bears to the value of the entire Premises prior to such taking. If all of the Premises or such part thereof be taken so that there does not remain a portion susceptible for occupation hereunder, this Lease shall terminate on the Vesting Date. If part or all of the Premises be taken, all compensation awarded upon such taking shall go to Landlord, and Tenant shall have no claim thereto; except Landlord shall cooperate with Tenant, without cost to Landlord, to recover compensation for damage to or taking of any Alterations, Tenant Improvements paid for by Tenant from sources other than the Work Allowance, or for Tenant’s moving costs. Tenant hereby waives the provisions of California Code of Civil Procedures Section 1265.130 and any other similarly enacted statue, and the provisions of this Section 16 shall govern in the case of a taking. Notwithstanding anything to the contrary in this Lease, if as a result of any taking or sale in lieu thereof under this Section 16, the Premises are no longer reasonably suitable for Tenant’s intended use, Tenant, upon written notice to Landlord, shall be entitled to terminate this Lease as of the Vesting Date.

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17. ASSIGNMENT OR SUBLEASE:

     A. Consent by Landlord: Except as specifically provided in this Section 17.E, Tenant may not assign, sublet, hypothecate, or allow a third party to use the Premises without the express written consent of Landlord. In the event Tenant desires to assign this Lease or any interest herein or sublet the Premises or any part thereof, Tenant shall deliver to Landlord (i) the proposed agreements and all ancillary agreements with the proposed assignee/subtenant, (ii) current financial statements of the transferee covering the preceding three years (if available), (iii) the nature of the proposed transferee’s business to be carried on in the Premises, (iv) a statement outlining all consideration to be given on account of the Transfer, and (v) a current financial statement of Tenant. Landlord may condition its approval of any Transfer on receipt of a certification from both Tenant and the proposed transferee of all consideration to be paid to Tenant in connection with such Transfer. At Landlord’s request, Tenant shall also provide additional information reasonably required by Landlord to determine whether it will consent to the proposed assignment or sublease. Landlord shall have a ten (10) business day period following receipt of all the foregoing within which to notify Tenant in writing that Landlord elects to: (1) terminate this Lease in the event the proposed sublease or assignment is for more than three (3) full floors within the Premises; (ii) permit Tenant to assign or sublet such space to the named assignee/subtenant on the terms and conditions set forth in the notice; or (iii) refuse consent. If Landlord should fail to notify Tenant in writing of such election within the 10 business-day period, Landlord shall be deemed to have elected option (iii) above. In the event Landlord elects option (i) above, Landlord shall reimburse Tenant for any unamortized Tenant Improvement costs paid by Tenant and this Lease shall expire with respect to such part of the Premises on the date upon which the proposed sublease or transfer was to commence, and from such date forward, Base Monthly Rent and Tenant’s Allocable Share of all other costs and charges shall be adjusted based upon the proportion that the rentable area of the Premises remaining bears to the total rentable area of the Building. In the event Landlord elects option (ii) above, Landlord’s written consent to the proposed assignment or sublease shall not be unreasonably withheld, provided and upon the condition that: (i) the proposed assignee or subtenant is engaged in a business that is limited to the use expressly permitted under this Lease; (ii) the proposed assignee or subtenant is a company with sufficient financial worth and management ability to undertake the financial obligation of this Lease and Landlord has been furnished with reasonable proof thereof; (iii) the proposed assignment or sublease is in form reasonably satisfactory to Landlord; (iv) Tenant reimburses Landlord on demand for any reasonable costs that may be incurred by Landlord in connection with said assignment or sublease, including the costs of making investigations as to the acceptability of the proposed assignee or subtenant, and legal costs not to exceed $2,000.00 incurred in connection with the granting of any requested consent; and (v) Tenant shall not have advertised or publicized in any way the availability of the Premises without prior notice to Landlord. In the event all or any one of the foregoing conditions are not satisfied, Landlord shall be considered to have acted reasonably if it withholds its consent. Notwithstanding the foregoing, Landlord agrees that it will not exercise its right to terminate this Lease for either: (i) an assignment or sublease during the first thirty six (36) months of the Lease Term; or (ii) any assignment or sublease affecting less than three (3) full floors of the Premises.

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     B. Assignment or Subletting Consideration: Beginning thirty six (36) months after the Commencement Date, any rent or other economic consideration realized by Tenant under any sublease and assignment, in excess of the Base Monthly Rent payable hereunder and reasonable subletting and assignment costs (including but not limited to legal fees, real estate commissions, advertising fees, and unamortized Tenant Improvements paid for by Tenant, provided further that such Tenant Improvements have value to the incoming subtenant), shall be divided and paid fifty percent (50%) to Landlord and fifty percent (50%) to Tenant. Tenant’s obligation to pay over Landlord’s portion of the consideration constitutes an obligation for additional rent hereunder. The above provisions relating to Landlord’s right to terminate the Lease and relating to the allocation of excess rent are independently negotiated terms of the Lease which constitute a material inducement for the Landlord to enter into the Lease, and are agreed by the Parties to be commercially reasonable. No assignment or subletting by Tenant shall relieve it of any obligation under this Lease. Any assignment or subletting which conflicts with the provisions hereof shall be void.

     C. No Release: Any assignment or sublease shall be made only if and shall not be effective until the assignee or subtenant shall execute, acknowledge, and deliver to Landlord an agreement, in form and substance satisfactory to Landlord, whereby the assignee or subtenant shall assume all the obligations of this Lease on the part of Tenant to be performed or observed under the sublease and shall be subject to all the covenants, agreements, terms, provisions and conditions in this Lease. Notwithstanding any such sublease or assignment and the acceptance of rent by Landlord from any subtenant or assignee, Tenant and any guarantor shall remain fully liable for the payment of Base Monthly Rent and additional rent due, and to become due hereunder, for the performance of all the covenants, agreements, terms, provisions and conditions contained in this Lease on the part of Tenant to be performed and for all acts and omissions of any licensee, subtenant, assignee or any other person claiming under or through any subtenant or assignee that shall be in violation of any of the terms and conditions of this Lease, and any such violation shall be deemed a violation by Tenant. Tenant shall indemnify, defend and hold Landlord harmless from and against all losses, liabilities, damages, costs and expenses (including reasonable attorney fees) resulting from any claims that may be made against Landlord by the proposed assignee or subtenant or by any real estate brokers or other persons claiming compensation in connection with the proposed assignment or sublease.

     D. Reorganization of Tenant: The provisions of this Section 17.D shall apply if Tenant is a corporation and: (i) there is a dissolution, merger, consolidation, or other reorganization of or affecting Tenant, where Tenant is not the surviving corporation, or (ii) there is a sale or transfer to one person or entity (or to any group of related persons or entities) of stock possessing more than 50% of the total combined voting power of all classes of Tenant’s capital stock issued, outstanding and entitled to vote for the election of directors, and after such sale or transfer of stock Tenant’s stock is no longer publicly traded. In a transaction under clause (i) the surviving corporation shall promptly execute and deliver to Landlord an agreement in form reasonably satisfactory to Landlord under which such surviving corporation assumes the obligations of Tenant hereunder, and in a transaction under clause (ii) the transferee or buyer shall promptly execute and deliver to Landlord an agreement in form reasonably satisfactory to

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Landlord under which such transferee or buyer assumes the obligations of Tenant under the Lease.

     E. Permitted Transfers: Notwithstanding anything contained in this Section 17, so long as Tenant otherwise complies with the provisions of this Article, Tenant may enter into any of the following transfers (a “Permitted Transfer”) without Landlord’s prior consent, and Landlord shall not be entitled to terminate the Lease or to receive any part of any subrent resulting therefrom that would otherwise be due pursuant to Sections 17.A and 17.B. Tenant may sublease all or part of the Premises or assign its interest in this Lease to (i) any corporation which controls, is controlled by, or is under common control with the original Tenant to this Lease by means of an ownership interest of more than 50%; (ii) a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation, so long as the surviving corporation has a net worth at the time of such assignment that is equal to or greater than the net worth of Tenant immediately prior to such transaction; and (iii) a corporation which purchases or otherwise acquires all or substantially all of the assets of Tenant so long as such acquiring corporation has a net worth at the time of such assignment that is equal to or greater than the net worth of Tenant immediately prior to such transaction.

     F. Effect of Default: In the event of Tenant’s default beyond any applicable cure period, Tenant hereby assigns all rents due from any assignment or subletting to Landlord as security for performance of its obligations under this Lease, and Landlord may collect such rents as Tenant’s Attorney-in-Fact, except that Tenant may collect such rents unless a default occurs as described in Section 13 above. A termination if the Lease due to Tenant’s default shall not automatically terminate an assignment or sublease then in existence; rather at Landlord’s election, such assignment or sublease shall survive the Lease termination, the assignee or subtenant shall attorn to Landlord, and Landlord shall undertake the obligations of Tenant under the sublease or assignment; except that Landlord shall not be liable for prepaid rent, security deposits or other defaults of Tenant to the subtenant or assignee, or for any acts or omissions of Tenant and Tenant’s Agents.

     G. Conveyance by Landlord: As used in this Lease, the term “Landlord” is defined only as the owner for the time being of the Premises, so that in the event of any sale or other conveyance of the Premises or in the event of a master lease of the Premises, Landlord shall be entirely freed and relieved of all its covenants and obligations hereunder, and it shall be deemed and construed, without further agreement between the Parties and the purchaser at any such sale or the master tenant of the Premises, that the purchaser or master tenant of the Premises has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. Such transferor shall transfer and deliver Tenant’s security deposit to the purchaser at any such sale or the master tenant of the Premises, and thereupon the transferor shall be discharged from any further liability in reference thereto.

     H. Successors and Assigns: Subject to the provisions this Section 17, the covenants and conditions of this Lease shall apply to and bind the heirs, successors, executors, administrators and assigns of all Parties hereto; and all Parties hereto comprising Tenant shall be jointly and severally liable hereunder.

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18. OPTION TO EXTEND THE LEASE TERM:

     A. Grant and Exercise of Option: Landlord grants to Tenant, subject to the terms and conditions set forth in this Section 18.A, one (1) option (the “Option”) to extend the Lease Term for an additional term (the “Option Term”). The Option Term shall be for a period of sixty (60) months and shall be exercised, if at all, by written notice to Landlord no earlier than twelve (12) months prior to the date the Lease Term would expire but for such exercise but no later than nine (9) months prior to the date the Lease Term would expire but for such exercise, time being of the essence for the giving of such notice. If Tenant exercises the Option, all of the terms, covenants and conditions of this Lease shall apply except for the grant of additional Options pursuant to this Section, provided that Base Monthly Rent for the Premises payable by Tenant during the Option Term shall be the greater of (i) the average amount of Base Monthly Rent paid during the initial Lease Term (“Floor Rent”), and (ii) the Fair Market Rental as hereinafter defined. Notwithstanding anything herein to the contrary, if Tenant is in monetary or material non-monetary default under any of the terms, covenants or conditions of this Lease beyond applicable cure periods either at the time Tenant exercises the Option or at any time thereafter prior to the commencement date of the Option Term, Landlord shall have, in addition to all of Landlord’s other rights and remedies provided in this Lease, the right to terminate the Option upon notice to Tenant, in which event the Lease Term shall not be extended pursuant to this Section 18.A. As used herein, the term “Fair Market Rental” is defined as the rental and all other monetary payments, including any escalations and adjustments thereto (including without limitation Consumer Price Indexing) that Landlord could obtain during the Option Term from a third party desiring to lease the Premises, based upon the current use and other potential uses of the Premises, as determined by the rents then being obtained for new leases of space comparable in age and quality to the Premises in the same real estate submarket as the Building. Fair Market Rental shall further take into account that (i) Tenant is in occupancy and making functional use of the Premises in its then existing condition, and (ii) no additional work allowance, tenant improvement investment, or leasing commission shall be required by Landlord.

     B. Determination of Fair Market Rental: If Tenant exercises the Option, Landlord shall send Tenant a notice setting forth the Fair Market Rental for the Option Term within thirty (30) days following the Exercise Date. If Tenant disputes Landlord’s determination of Fair Market Rental for the Option Term, Tenant shall, within thirty (30) days after the date of Landlord’s notice setting forth Fair Market Rental for the Option Term, send to Landlord a notice stating that Tenant either elects to terminate its exercise of the Option, in which event the Option shall lapse and this Lease shall terminate on the Expiration Date, or that Tenant disagrees with Landlord’s determination of Fair Market Rental for the Option Term and elects to resolve the disagreement as provided in Section 18.C below. If Tenant does not send Landlord a notice as provided in the previous sentence, Landlord’s determination of Fair Market Rental shall be the Base Monthly Rent payable by Tenant during the Option Term. If Tenant elects to resolve the disagreement as provided in Section 18.C and such procedures are not concluded prior to the commencement date of the Option Term, Tenant shall pay to Landlord as Base Monthly Rent the Fair Market Rental as determined by Landlord in the manner provided above. If the Fair Market Rental as finally determined pursuant to Section 18.C is greater than Landlord’s determination, Tenant shall pay Landlord the difference between the amount paid by Tenant and the Fair

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Market Rental as so determined in Section 18.C within thirty (30) days after such determination. If the Fair Market Rental as finally determined in Section 18.C is less than Landlord’s determination, the difference between the amount paid by Tenant and the Fair Market Rental as so determined in Section 18.C shall be credited against the next installments of Base Monthly Rent due from Tenant to Landlord hereunder.

     C. Resolution of a Disagreement over the Fair Market Rental: Any disagreement regarding Fair Market Rental shall be resolved as follows:

     1. Within thirty (30) days after Tenant’s response to Landlord’s notice setting forth the Fair Market Rental, Landlord and Tenant shall meet at a mutually agreeable time and place, in an attempt to resolve the disagreement.

     2. If within the 30-day period referred to above, Landlord and Tenant cannot reach agreement as to Fair Market Rental, each party shall select one appraiser to determine Fair Market Rental. Each such appraiser shall arrive at a determination of Fair Market Rental and submit their conclusions to Landlord and Tenant within thirty (30) days after the expiration of the 30-day consultation period described above.

     3. If only one appraisal is submitted within the requisite time period, it shall be deemed as Fair Market Rental. If both appraisals are submitted within such time period and the two appraisals so submitted differ by less than ten percent (10%), the average of the two shall be deemed as Fair Market Rental. If the two appraisals differ by more than 10%, the appraisers shall immediately select a third appraiser who shall, within thirty (30) days after his selection, make and submit to Landlord and Tenant a determination of Fair Market Rental. This third appraisal will then be averaged with the closer of the two previous appraisals and the result shall be Fair Market Rental.

     4. All appraisers specified pursuant to this Section shall be members of the American Institute of Real Estate Appraisers with not less than ten (10) years experience appraising office and industrial properties in the Santa Clara Valley. Each party shall pay the cost of the appraiser selected by such party and one-half of the cost of the third appraiser.

     D. Personal to Tenant: All Options provided to Tenant in this Lease are personal and granted to Brio Technology, Inc. (and any transferee under a Permitted Transfer) and are not exercisable by any third party should Tenant assign or sublet all or a portion of its rights under this Lease, unless Landlord consents to permit exercise of any option by any assignee or subtenant, in Landlord’s sole and absolute discretion. In the event Tenant has multiple options to extend this Lease, a later option to extend the Lease cannot be exercised unless the prior option has been properly exercised.

     E. Right to Rescind: If the determination of Fair Market Rental pursuant to the foregoing provision results in a Fair Market Rental which is in excess of the Floor Rent, Tenant shall be entitled to rescind its exercise of the Option within ten (10) days after the date on which Tenant is notified of the determination of Fair Market Rental, in which event the Lease Term

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shall be extended from the date on which the Lease would have expired if the Option were never exercised plus an additional period of three (3) months at a rate equal to 110% of the rent payable during the last month of the original Lease Term.

19. RIGHT OF FIRST OFFERING TO LEASE:

     A. Grant: Landlord hereby grants Tenant a right of first offering to lease the 4988 Building. Prior to Landlord offering to lease the 4988 Building to a third party (other than the third parties with existing rights as of the Effective Date), Landlord shall give Tenant written notice of such desire and the terms and other information under which Landlord intends to lease the 4988 Building. Provided at the time of exercise, (i) Tenant is not in default beyond any applicable cure period, and (ii) Tenant’s then current net worth (as evidenced by its most recent financial statements) is at least equal to its net worth at the time of execution of this Lease, Tenant shall have the option, which must be exercised, if at all, by written notice to Landlord within seven (7) business days after Tenant’s receipt of Landlord’s notice, to lease the 4988 Building at the rent and terms of lease specified in the notice. In the event Tenant timely exercises such option to lease the 4988 Building, Landlord shall lease the 4988 Building to Tenant, and Tenant shall lease the 4988 Building from Landlord in accordance with the rent and terms specified in Landlord’s notice. Landlord and Tenant shall, in good faith, attempt to reach agreement on the terms of a mutually acceptable lease agreement consistent with the terms set forth in Landlord’s notice within thirty (30) days of Landlord’s notice. In the event (i) Landlord and Tenant are unable to reach agreement on a mutually acceptable lease within such thirty (30) day period or (ii) Tenant fails to exercise Tenant’s option within said ten (10) day period, Landlord shall have one hundred eighty (180) days thereafter to lease the 4988 Building at no less than ninety percent (90%) of the rental rate and upon the same or substantially the same other terms of lease as specified in the notice to Tenant. In the event Landlord fails to lease the 4988 Building within said one hundred eighty (180) day period or in the event Landlord proposes to lease the 4988 Building at less than ninety percent (90%) of the rental rate or on other material terms which are more favorable to the prospective tenant than that proposed to Tenant, Landlord shall be required to resubmit such offer to Tenant in accordance with this Right of First Offering.

     B. Exclusions: Notwithstanding the foregoing, this Right of First Offering shall automatically terminate, (i) upon the expiration or sooner termination of the Lease, or (ii) in the event that Landlord transfers its interest in the Premises or in the 4988 Building, unless such transfer by Landlord is to a related entity.

20. GENERAL PROVISIONS:

     A. Attorney’s Fees: In the event a suit or alternative form of dispute resolution is brought for the possession of the Premises, for the recovery of any sum due hereunder, to interpret the Lease, or because of the breach of any other covenant herein; then the losing party shall pay to the prevailing party reasonable attorney’s fees including the expense of expert witnesses, depositions and court testimony as part of its costs which shall be deemed to have accrued on the commencement of such action. The prevailing party shall also be entitled to

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recover all costs and expenses including reasonable attorney’s fees incurred in enforcing any judgment or award against the other party. The foregoing provision relating to post judgment costs is severable from all other provisions of this Lease.

     B. Authority of Parties: Tenant represents and warrants that it is duly formed and in good standing, and is duly authorized to execute and deliver this Lease on behalf of said corporation, in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the by-laws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. At Landlord’s request, Tenant shall provide Landlord with corporate resolutions or other proof in a form acceptable to Landlord, authorizing the execution of the Lease.

     C. Brokers: Tenant and Landlord represent it has not utilized or contacted a real estate broker or finder with respect to this Lease other than CB Richard Ellis, Inc. and Tenant and Landlord agree to indemnify, defend and hold each other harmless against any claim, cost, liability or cause of action asserted by any other broker or finder claiming through the indemnifying party.

     D. Choice of Law: This Lease shall be governed by and construed in accordance with California law. Except as provided in Section 19.E, venue shall be Santa Clara County.

     E. Dispute Resolution: Landlord and Tenant and any other party that may become a party to this Lease or be deemed a party to this Lease including any subtenants agree that, except for any claim by Landlord for unlawful detainer or any claim within the jurisdiction of the small claims court (which small claims court shall be the sole court of competent jurisdiction), any controversy, dispute, or claim of whatever nature arising out of, in connection with or in relation to the interpretation, performance or breach of this Lease, including any claim based on contract, tort, or statute, shall be resolved at the request of any party to this agreement through a two-step dispute resolution process administered by J.A.M.S. or another judicial mediation service mutually acceptable to the parties located in Santa Clara County, California. The dispute resolution process shall involve first, mediation, followed, if necessary, by final and binding arbitration administered by and in accordance with the then existing rules and practices of J.A.M.S. or other judicial mediation service selected. In the event of any dispute subject to this provision, either party may initiate a request for mediation and the parties shall use reasonable efforts to promptly select a J.A.M.S. mediator and commence the mediation. In the event the parties are not able to agree on a mediator within thirty (30) days, J.A.M.S. or another judicial mediation service mutually acceptable to the parties shall appoint a mediator. The mediation shall be confidential and in accordance with California Evidence Code § 1119 et. seq. The mediation shall be held in Santa Clara County, California and in accordance with the existing rules and practice of J.A.M.S. (or other judicial and mediation service selected). The parties shall use reasonable efforts to conclude the mediation within sixty (60) days of the date of either party’s request for mediation. The mediation shall be held prior to any arbitration or court action (other than a claim by Landlord for unlawful detainer or any claim within the jurisdiction of the small claims court which are not subject to this mediation/arbitration provision and may be filed directly with a court of competent jurisdiction). Should the prevailing party in any dispute

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subject to this Section 19.E attempt an arbitration or a court action before attempting to mediate, the prevailing party shall not be entitled to attorney’s fees that might otherwise be available to them in a court action or arbitration and in addition thereto, the party who is determined by the arbitrator to have resisted mediation, shall be sanctioned by the arbitrator or judge.

IF A MEDIATION IS CONDUCTED BUT IS UNSUCCESSFUL, IT SHALL BE FOLLOWED BY FINAL AND BINDING ARBITRATION ADMINISTERED BY AND IN ACCORDANCE WITH THE THEN EXISTING RULES AND PRACTICES OF J.A.M.S. OR THE OTHER JUDICIAL AND MEDIATION SERVICE SELECTED, AND JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR(S) MAY BE ENTERED BY ANY STATE OR FEDERAL COURT HAVING JURISDICTION THEREOF AS PROVIDED BY CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ AS SAID STATUTES THEN APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR SUCCESSORS TO SAID STATUTES OR AMENDED STATUTES, EXCEPT THAT IN NO EVENT SHALL THE PARTIES BE ENTITLED TO PROPOUND INTERROGATORIES OR REQUEST FOR ADMISSIONS DURING THE ARBITRATION PROCESS. THE ARBITRATOR SHALL BE A RETIRED JUDGE OR A LICENSED CALIFORNIA ATTORNEY. THE VENUE FOR ANY SUCH ARBITRATION OR MEDIATION SHALL BE IN SANTA CLARA COUNTY, CALIFORNIA.

NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE “MEDIATION AND ARBITRATION OF DISPUTES” PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR FURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE “MEDIATION AND ARBITRATION OF DISPUTES” PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.

WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE “MEDIATION AND ARBITRATION OF DISPUTES” PROVISION TO NEUTRAL ARBITRATION.

LANDLORD:      /s/ JMS TENANT:      /s/ KJW

     F. Entire Agreement: This Lease and the exhibits attached hereto contains all of the agreements and conditions made between the Parties hereto and may not be modified orally or in any other manner other than by written agreement signed by all parties hereto or their respective successors in interest. This Lease supersedes and revokes all previous negotiations, letters of intent, lease proposals, brochures, agreements, representations, promises, warranties, and understandings, whether oral or in writing, between the parties or their respective representatives or any other person purporting to represent Landlord or Tenant.

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     G. Entry by Landlord: Upon prior notice to Tenant and subject to Tenant’s reasonable security regulations, Tenant shall permit Landlord and his agents to enter into and upon the Premises at all reasonable times, and without any rent abatement or reduction or any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby occasioned, for the following purposes: (i) inspecting and maintaining the Premises; (ii) making repairs, alterations or additions to the Premises; (iii) erecting additional building(s) and improvements on the land where the Premises are situated or on adjacent land owned by Landlord; (iv) performing any obligations of Landlord under the Lease including remediation of Hazardous Materials if determined to be the responsibility of Landlord, (v) posting and keeping posted thereon notices of non-responsibility for any construction, alteration or repair thereof, as required or permitted by any law, and (vi) showing the Premises to Landlord’s or the Master Landlord’s existing or potential successors, purchaser, and lenders. Tenant shall permit Landlord and his agents, at any time within two hundred seventy (270) days prior to the Expiration Date (or at any time during the Lease if Tenant is in default hereunder beyond any applicable cure period), to place upon the Premises “For Lease” signs and exhibit the Premises to real estate brokers and prospective tenants at reasonable hours. The foregoing notwithstanding, Landlord and its agents: (i) shall not enter the Premises without first giving twenty-four (24) hours notice to Tenant of such entry except in the case of emergency, (ii) shall be accompanied by an employee of Tenant at all times while in the Premises, (iii) shall comply with Tenant’s security procedures applicable to the Premises, and (iv) shall not unreasonably interfere with Tenant’s use of the Premises.

     H. Estoppel Certificates: At any time during the Lease Term, Tenant shall, within ten (10) business days following written notice from Landlord, execute and deliver to Landlord a written statement certifying, if true, the following: (i) that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification); (ii) the date to which rent and other charges are paid in advance, if any; (iii) acknowledging that there are not, to Tenant’s knowledge, any uncured defaults on Landlord’s part hereunder (or specifying such defaults if they are claimed); and (iv) such other information as Landlord may reasonably request. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of Landlord’s interest in the Premises. Tenant’s failure to deliver such statement within such time shall be conclusive upon the Tenant that this Lease is in full force and effect without modification, except as may be represented by Landlord, and that there are no uncured defaults in Landlord’s performance. If Tenant is not a public company, Tenant agrees to provide, within five (5) days of Landlord’s request, Tenant’s most recent three (3) years of audited financial statements for Landlord’s use in financing or sale of the Premises or Landlord’s interest therein.

     I. Exhibits: All exhibits referred to are attached to this Lease and incorporated by reference.

     J. Interest: All rent due hereunder, if not paid when due, shall bear interest at the rate of the Reference Rate published by Bank of America, San Francisco Branch, plus two percent (2%) per annum from that date until paid in full (“Agreed Interest Rate”). This provision shall survive the expiration or sooner termination of the Lease. Despite any other provision of

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this Lease, the total liability for interest payments shall not exceed the limits, if any, imposed by the usury laws of the State of California. Any interest paid in excess of those limits shall be refunded to Tenant by application of the amount of excess interest paid against any sums outstanding in any order that Landlord requires. If the amount of excess interest paid exceeds the sums outstanding, the portion exceeding those sums shall be refunded in cash to Tenant by Landlord. To ascertain whether any interest payable exceeds the limits imposed, any non-principal payment (including late charges) shall be considered to the extent permitted by law to be an expense or a fee, premium, or penalty rather than interest.

     K. Modifications Required by Lender: If any lender of Landlord or ground lessor of the Premises requires a modification of this Lease that will not increase Tenant’s cost or expense or materially or adversely change Tenant’s rights and obligations, this Lease shall be so modified and Tenant shall execute whatever documents are required and deliver them to Landlord within ten (10) days after the request.

     L. No Presumption Against Drafter. Landlord and Tenant understand, agree and acknowledge that this Lease has been freely negotiated by both Parties; and that in any controversy, dispute, or contest over the meaning, interpretation, validity, or enforceability of this Lease or any of its terms or conditions, there shall be no inference, presumption, or conclusion drawn whatsoever against either party by virtue of that party having drafted this Lease or any portion thereof.

     M. Notices: All notices, demands, requests, or consents required to be given under this Lease shall be sent in writing by U.S. certified mail, return receipt requested, nationally recognized overnight carrier, or by personal delivery addressed to the party to be notified at the address for such party specified in Section 1 of this Lease, or to such other place as the party to be notified may from time to time designate by at least fifteen (15) days prior notice to the notifying party. When this Lease requires service of a notice, that notice shall replace rather than supplement any equivalent or similar statutory notice, including any notices required by Code of Civil Procedure Section 1161 or any similar or successor statute. When a statute requires service of a notice in a particular manner, service of that notice (or a similar notice required by this Lease) shall replace and satisfy the statutory service-of-notice procedures, including those required by Code of Civil Procedure Section 1162 or any similar or successor statute.

     N. Asset Management: In addition, Tenant agrees to pay Landlord along with the expenses to be reimbursed by Tenant a monthly fee for asset management services rendered by either Landlord or a third party manager engaged by Landlord (which may be a party affiliated with Landlord), in the amount of one and 50/100 percent (1.5%) of the Base Monthly Rent.

     O. Rent: All monetary sums due from Tenant to Landlord under this Lease, including, without limitation those referred to as “additional rent”, shall be deemed as rent.

     P. Representations. Tenant acknowledges that neither Landlord nor any of its employees or agents have made any agreements, representations, warranties or promises with respect to the Premises or with respect to present or future rents, expenses, operations, tenancies

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or any other matter. Except as herein expressly set forth herein, Tenant relied on no statement of Landlord or its employees or agents for that purpose.

     Q. Rights and Remedies: Subject to Section 14 above, All rights and remedies hereunder are cumulative and not alternative to the extent permitted by law, and are in addition to all other rights and remedies in law and in equity.

     R. Severability: If any term or provision of this Lease is held unenforceable or invalid by a court of competent jurisdiction, the remainder of the Lease shall not be invalidated thereby but shall be enforceable in accordance with its terms, omitting the invalid or unenforceable term.

     S. Submission of Lease: Submission of this document for examination or signature by the parties does not constitute an option or offer to lease the Premises on the terms in this document or a reservation of the Premises in favor of Tenant. This document is not effective as a lease or otherwise until executed and delivered by both Landlord and Tenant.

     T. Subordination: This Lease is subject and subordinate to ground and underlying leases, mortgages and deeds of trust (collectively “Encumbrances”) which may now affect the Premises, to any covenants, conditions or restrictions of record, and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, however, if the holder or holders of any such Encumbrance (“Holder”) require that this Lease be prior and superior thereto, within seven (7) days after written request of Landlord to Tenant, Tenant shall execute, have acknowledged and deliver all documents or instruments, in the form presented to Tenant, which Landlord or Holder deems necessary or desirable for such purposes. Landlord shall have the right to cause this Lease to be and become and remain subject and subordinate to any and all Encumbrances which are now or may hereafter be executed covering the Premises or any renewals, modifications, consolidations, replacements or extensions thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon and subject to all the terms and provisions thereof; provided only, that in the event of termination of any such lease or upon the foreclosure of any such mortgage or deed of trust, Holder agrees to recognize Tenant’s rights under this Lease as long as Tenant is not then in default and continues to pay Base Monthly Rent and additional rent and observes and performs all required provisions of this Lease. Within ten (10) days after Landlord’s written request, Tenant shall execute any documents required by Landlord or the Holder to make this Lease subordinate to any lien of the Encumbrance. If Tenant fails to do so, then in addition to such failure constituting a default by Tenant, it shall be deemed that this Lease is so subordinated to such Encumbrance. Notwithstanding anything to the contrary in this Section, Tenant hereby attorns and agrees to attorn to any entity purchasing or otherwise acquiring the Premises at any sale or other proceeding or pursuant to the exercise of any other rights, powers or remedies under such encumbrance.

     U. Survival of Indemnities: All indemnification, defense, and hold harmless obligations of Landlord and Tenant under this Lease shall survive the expiration or sooner termination of the Lease.

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     V. Time: Time is of the essence hereunder.

     W. Transportation Demand Management Programs: Should a government agency or municipality require Landlord to institute TDM (Transportation Demand Management) facilities and/or programs, Tenant agrees that the cost of TDM imposed facilities and programs required on the Premises, including but not limited to employee showers, lockers, cafeteria, or lunchroorn facilities, shall be paid by Tenant. Further, any ongoing costs or expenses associated with a TDM program which are required for the Premises and not provided by Tenant, such as an on-site TDM coordinator, shall be provided by Landlord with such costs being included as additional rent and reimbursed to Landlord by Tenant within thirty (30) days after demand. If TDM facilities and programs are instituted on a Project wide basis, Tenant shall pay its proportionate share of such costs in accordance with Section 8 above.

     X. Waiver of Right to Jury Trial: Landlord and Tenant waive their respective rights to trial by jury of any contract or tort claim, counterclaim, cross-complaint, or cause of action in any action, proceeding, or hearing brought by either party against the other on any matter arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, or Tenant’s use or occupancy of the Premises, including any claim of injury or damage or the enforcement of any remedy under any current or future law, statute, regulation, code, or ordinance.

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and year first above written.

Landlord: SOBRATO INTERESTS #961 a California Limited Partnership		Tenant: BRIO TECHNOLOGY, INC. a California Corporation
By:	/s/ JMS	* By:	/s/ Yorgen Edholm
Its:	General Partner	Its:	President & CEO
		* By:	/s/ Karen Willem
		Its:	EVP/CFO

*NOTE: This lease must be signed by two (2) officers of such corporation: one being the chairman of the board, the president, or a vice president, and the other being the secretary, an assistant secretary, the chief financial officer or an assistant treasurer. If one (1) individual is signing in two (2) of the foregoing capacities, that individual must sign twice; once as one officer and again as the other officer and in such event, Tenant must deliver to Landlord a certified copy of a corporate resolution authorizing the signatory to execute this Lease.

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EXHIBIT C

FURNITURE

Building cube/office furniture, art work and miscellaneous items

1st FLOOR
Total cubes	43
Furnished Manager Office	16
Furnished V.P. Office	1
Small Conf. Rooms	1
Medium Conf. Rooms	2
Large Conf. Room	1
Training Rooms	3
Executive Briefing Center	1
Kitchenette	1
Lobby	1
Art Work	18 pieces
2nd FLOOR
Total cubes	65
Furnished Manager Office	20
V.P. Office	0
Furnished Executive Office	1
Small Conf. Rooms	3
Medium Conf. Rooms	0
Large Conf. Room	2
AN Conf. Room	0
Break out Area	1
Art Work	4 pieces
3rd FLOOR
Total cubes	96
Furnished Manager Office	30
Furnished V.P. Office	1
Small Conf. Rooms	1
Medium Conf. Rooms	2
Large Conf. Room	2
AN Conf. Room	0
Break out Area	1
Art Work	None

4th FLOOR
Total cubes	94
Furnished Manager Office	36
Furnished V.P. Office	2
Small Conf. Rooms	1
Medium Conf. Rooms	1
Large Conf. Room	2
A/V Conf. Room	0
Break out Area	1
Game Room	1 foosball table, 1 ping pong table
Art work	5 pieces
5th FLOOR
Total cubes	83
Furnished Manager Office	30
Furnished V.P. Office	1
Small Conf. Rooms	2
Medium Conf. Rooms	0
Large Conf. Room	3
A/V Conf. Room	1
Break out Area	1
Art Work	9 pieces

Type of Room	Inventory
Cube	8x8 station with 1 corner and 2 rectangular work surfaces, 1 overhead unit, 1 bookshelf, 1 B/B/F pedestal and 1 F/F pedestal, 1 guest chair and 1 task chair
Managers Office	“L” Shaped Haworth office inc. 1 corner and 2 rectangular work surfaces, 1 overhead unit, 1 bookshelf, 1 B/B/F pedestal and 1 F/F pedestal, 1 round table, 1 desk chair and 1 side chair
V.P. Office	“U” Shaped Wood office set up to include, overhead, pedestals, table, 4 chairs and 1 desk chair
Executive Office	1 glass desk w/peninsula, 1 leather Executive chair, 1 sofa, 1 cabinet with television. (all unassembled in a 2nd floor office).
Training Room	No furnishings
Executive Briefing Center	1 horseshoe conf. Table, 15 chairs
Small Conf. Room	48” Round Conf. Table, 4 chairs
Medium Conf. Room	72” Racetrack Table with 6 chairs
Large Conf. Room	96” table, 10 chairs, credenza, electric projection screen
Boardroom	1 20 ft. Wood table, 12 chairs
Kitchenette	4 tables, chairs, refrigerator
Lobby	1 Receptionist station, 6 lounge chairs, 3 end tables
Break Areas	3 tall tables, 9 stools

EQUIPMENT
1st
FLOOR
Room #	Room Description	Equipment
133	ITS Research Lab	3 Racks
100	Lobby	4 – Light Canons and glass screens
115	Data Center	Racks, ladder racking and patch panels 2 – 15 ton Data Air HVAC Units
118	Security Room	CCTV System
117	Open Office Area	Sound System
n/a	Support Lab	All racks
112	UPS Room	Comet MGE UPS
2nd FLOOR
222	IDF Closet	All Racks and patch panels
3rd FLOOR
322	IDF Closet	All Racks and patch panels
4th FLOOR
421	IDF Closet	All Racks and patch panels
462   5th FLOOR	Computer Lab	All Racks   15 ton Data Air HVAC Units
522	IDF Closet	All Racks and patch panels

EXHIBIT D

ASSET MANAGEMENT FEE

Months	Monthly Asset Management Fee
4/1/05-5/31/05	$	5,460.62
6/1/05-5/31/06	$	5,624.44
6/1/06-5/31/07	$	5,793.17
6/1/07-5/31/08	$	5,966.96
6/1/08-5/31/09	$	6,145.97
6/1/09-6/05/10	$	6,330.35

EXHIBIT E

MASTER LESSOR’S FORM OF CONSENT

LANDLORD’S CONSENT TO SUBLEASE

                (“Landlord”), as Landlord under that certain Lease (the “Lease”) dated                 by and between Landlord and                 (“Tenant”), as Tenant, subject to and specifically conditioned upon the following terms and conditions hereby grants its consent to the Sublease dated                 made by and between the Tenant, as sublandlord, and                 (“Subtenant”), as subtenant., a copy of which is attached as Exhibit A (“the Sublease”), covering that certain premises (the “Premises”) commonly known as                 .

As conditions to the consent of Landlord to the Sublease, it is understood and agreed as follows:

1.     No Release. This Consent to Sublease shall in no way release the Tenant or any person or entity claiming by, through or under Tenant, including Subtenant, from any of its covenants, agreements, liabilities and duties under the Lease, as the same may be amended from time to time, without respect to any provision to the contrary in the Sublease.

2.     Specific Provisions of Lease and Sublease. This Consent to Sublease consenting to a sublease to Subtenant does not constitute approval by Landlord of any of the provisions of the Sublease document or agreement thereto or therewith; nor shall the same be construed to amend the Lease in any respect, any purported modifications being solely for the purpose of setting forth the rights and obligations as between Tenant and Subtenant, but not binding Landlord. The Sublease is, in all respects, subject and subordinate to the Lease, as the same may be amended. Furthermore, in the case of any conflict between the provisions of this Consent to Sublease or the Lease and the provisions of the Sublease, the provisions of this Consent to Sublease or the Lease, as the case may be, shall prevail unaffected by the Sublease.

3.     Limited Consent. This Consent to Sublease does not and shall not be construed or implied to be a consent to any other matter for which Landlord’s consent is required under the Lease, including, without limitation, any Alterations under the Lease.

4.     Tenant’s Continuing Liability. Tenant shall be liable to Landlord for any default under the Lease, whether such default is caused by Tenant or Subtenant or anyone claiming by or through either Tenant or Subtenant, but the foregoing shall not be deemed to restrict or diminish any right which Landlord may have against Subtenant pursuant to the Lease, in law or in equity for violation of the Lease or otherwise, including, without limitation, the right to enjoin or otherwise restrain any violation of the Lease by Subtenant.

5.     Default by Tenant under the Lease. If Tenant defaults under the Lease, Landlord may elect to receive directly from Subtenant all sums due or payable to Tenant by Subtenant pursuant to the Sublease. Upon written notice from Landlord, Subtenant shall thereafter pay to Landlord any and all sums due or payable under the Sublease. In such event, Tenant shall receive from

Landlord a corresponding credit for such sums against any payments then due or thereafter becoming due from Tenant.

6.     Termination of Lease. If at any time prior to the expiration of the term of the Sublease the Lease shall terminate or be terminated for any reason, the Sublease shall simultaneously terminate. However, Subtenant agrees, at the election and upon written demand of Landlord, and not otherwise, to attorn to Landlord for the remainder of the term of the Sublease, such attornment to be upon all of the terms and conditions of the Lease, except that the Base Rent set forth in the Sublease shall be substituted for the Base Rent set forth in the Lease and the computation of Additional Rent as provided in the Lease shall be modified as set forth in the Sublease. The foregoing provisions of this paragraph shall apply notwithstanding that, as a matter of law, the Sublease may otherwise terminate upon the termination of the Lease and shall be self-operative upon such written demand of the Landlord, and no further instrument shall be required to give effect to said provisions. Upon the demand of Landlord, however, Subtenant agrees to execute, from time to time, documents in confirmation of the foregoing provisions of this paragraph satisfactory to Landlord in which Subtenant shall acknowledge such attornment and shall set forth the terms and conditions of its tenancy.

7.     Sublease Profits. Pursuant to Section ___of the Lease [Assignment and Sublease Section], provided the Sublease remains in full force and effect, Tenant agrees to pay to Landlord each month along with the base monthly rent due under the Lease, the sum of $                representing Landlord’s fifty percent (50%) share of the amount by which the consideration received pursuant to the Sublease exceeds the amount due to Landlord under the Lease less the reasonable subletting costs.

8.     No Waiver; No Privity. Nothing herein contained shall be deemed a waiver of any of the Landlord’s rights under the Lease. In no event, however, shall Landlord be deemed to be in privity of contract with Subtenant or owe any obligation or duty to Subtenant under the Lease or otherwise, any duties of Landlord under the Lease being in favor of, for the benefit of and enforceable solely by Tenant.

9.     Notices. Subtenant agrees to promptly deliver a copy to Landlord of all notices of default and all other notices sent to Tenant under the Sublease, and Tenant agrees to promptly deliver a copy to Landlord of all such notices sent to Subtenant under the Sublease. All copies of any such notices shall be delivered personally or sent by United States registered or certified mail, postage prepaid, return receipt requested, to Landlord.

10.     Required Sublease Provisions. In consideration for Landlord’s consent to the Sublease, Tenant and Subtenant represent and warrant that the Sublease contains all provisions required by Section ___[Assignment and Sublease Section] of the Lease and agree that the Sublease shall be deemed to include all of the provisions required by Section ___of the Lease. In the case of a conflict between the other provisions of the Sublease and the provisions required by Section ___of the Lease, the provisions required by Section ___of the Lease shall prevail.

Landlord

by

its

Tenant

by

its

Subtenant

by

its

EX-10.8

Exhibit 10.8

First Amendment to Lease Agreement
Change of Commencement Date

This First Amendment to Lease Agreement (the “Amendment”) is made and entered into to be effective as of February 16, 2000, by and between WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership (“Landlord”), and FOUNDRY NETWORKS, INC., a California corporation (“Tenant”), with reference to the following facts:

Recitals

A. Landlord and Tenant have entered into that certain Lease Agreement dated September 28, 1999 (the “Lease”), for the leasing of certain premises containing approximately 70,755 rentable square feet of space located at 2100 Gold Street, San Jose, California (the “Premises”) as such Premises are more fully described in the Lease.

B. Landlord and Tenant wish to amend the Commencement Date of the Lease.

NOW, THEREFORE, In consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

1.	Recitals: Landlord and Tenant agree that the above recitals are true and correct.
2.	The Commencement Date of the Lease shall be February 1, 2000.
3.	The last day of the Term of the Lease (the “Expiration Date”) shall be January 31, 2006.
4.	The dates on which the Base Rent will be adjusted are:

Effective May 1, 2000, the Base Rent shall Increase to $71,000.00 per month ($1.003 per rentable sf)
Effective August 1, 2000, the Base Rent shall Increase to $127,359.00 per month ($1.80 per rentable sf)
Effective February 1, 2001, the Base Rent shall Increase to $131,816.57 per month ($1.863 per rentable sf)
Effective February 1, 2002, the Base Rent shall Increase to $136,430.14 per month ($1.928 per rentable sf)
Effective February 1, 2003, the Base Rent shall Increase to $141,205.20 per month ($1.996 per rentable sf)
Effective February 1, 2004, the Base Rent shall Increase to $146,147.38 per month ($2.065 per rentable sf)
Effective February 1, 2005, the Base Rent shall Increase to $151,274.19 per month ($2.138 per rentable sf)

     5. Effect of Amendment: Except as modified herein, the terms and conditions of the Lease shall remain unmodified and continue in full force and effect. In the event of any conflict between the terms and conditions of the Lease and this Amendment, the terms and conditions of this Amendment shall prevail.

     6. Definitions: Unless otherwise defined in this. Amendment, all terms not defined in this Amendment shall have the meaning set forth in the Lease.

     7. Authority: Subject to the provisions of the Lease, this Amendment shall be binding upon and Inure to the benefit of the parties hereto, their respective heirs, legal representatives, successors and assigns. Each party hereto and the persons signing below warrant that the person signing below on such party’s behalf is authorized to do so and to bind such party to the terms of this Amendment.

     8. The terms and provisions of the Lease are hereby Incorporated in this Amendment.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and year first above written

Tenant:

FOUNDRY NETWORKS, INC.,
a California corporation

By:	/s/ Timothy D. Heffner
Its:	CFO
Date:	8/31/00
By:
Its:
Date:

Landlord:

WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership

By:	LEGACY PARTNERS COMMERCIAL, INC.,
	as manager and agent for WIX/NSJ Real Estate Limited Partnership
	By:	/s/ Debra Smith
		Senior Vice President
Date:	9/12/00

EX-10.9

Exhibit 10.9

Second Amendment to Lease Agreement

This Second Amendment to Lease Agreement (the “Amendment”) is made and entered into as of July 28, 2005, by and between WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership (“Landlord”), and FOUNDRY NETWORKS, INC., a California corporation (“Tenant”), with reference to the following facts.

Recitals

A. Landlord and Tenant have entered into that certain Lease Agreement dated as of September 28,1999 (the “Lease”), and that certain First Amendment dated as of February 16, 2000 (hereinafter, collectively the “Lease”), for the leasing of certain premises consisting of approximately 70,755 rentable square feet located at 2100 Gold Street, San Jose, California (the “Premises”), as such Premises are more fully described in the Lease.

B. Landlord and Tenant now wish to amend the Lease to provide for, among other things, the extension of the Term of the Lease, all upon and subject to each of the terms, conditions, and provisions set forth herein.

NOW, THEREFORE, In consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Landlord and Tenant agree as follows:

1. Recitals: Landlord and Tenant agree that the above recitals are true and correct and are hereby incorporated herein as though set forth in full.

2. Term: The Term of the Lease shall be extended from February 1, 2006, to May 31, 2008 (the “Extended Term”).

3. Base Rent: The Basic Lease Information and Section 3 of the Lease are hereby modified to provide that during the Extended Term of the Lease the monthly Base Rent payable by Tenant to Landlord, in accordance with the provisions of Section 3 of the Lease, shall be in accordance with the following schedule:

Period	Monthly Base Rent
02/01/06 — 03/31/07	$	60,141.75
04/01/07 — 05/31/08	$	63,679.50

4. Option to Extend the Term: The parties hereby acknowledge and agree that Tenant did exercise the Option to Extend the Term of the Lease in accordance with the terms and conditions set forth in Addendum 1 of the Lease. Tenant further acknowledges and agrees that the Option to Extend the Lease as set forth in Addendum 1 is of no further force and effect, and Tenant does not have any additional rights under the Lease to further extend the Term of the Lease.

5. Condition of Premises: Tenant acknowledges and agrees that its possession of the Premises after February 1, 2006, is a continuation of Tenant’s possession of the Premises under the Lease. Tenant is familiar with the condition of the Premises, and agrees to accept the Premises in their existing condition “AS IS”, without any obligation of Landlord to remodel, improve or alter the Premises, to perform any other construction or work of improvement upon the Premises, or to provide Tenant with any construction or refurbishing allowance.

6. Brokers: Tenant warrants that it has had no dealing with any real estate broker or agent in connection with the negotiation of this Amendment, except for Randy Scott of Cornish & Carey (“Broker”), whose commission shall be payable by Landlord. If Tenant has dealt with any person, real estate broker or agent other than Broker with respect to this Amendment, Tenant shall be solely responsible for the payment of any fee due to said person or firm, and Tenant shall Indemnify, defend and hold Landlord free and harmless against any liability, claim, judgment, damages with respect thereto, including attorneys’ fees and costs.

7. Effect of Amendment: Except as modified herein, the terms and conditions of the Lease shall remain unmodified and continue in full force and effect. In the event of any conflict between the terms and conditions of the Lease and this Amendment, the terms and conditions of this Amendment shall prevail.

8. Definitions: Unless otherwise defined in this Amendment, all terms not defined in this Amendment shall have the meaning set forth in the Lease.

1

9. Authority: Subject to the provisions of the Lease, this Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, legal representatives, successors and assigns. Each party hereto and the persons signing below warrant that the person signing below on such party’s behalf is authorized to do so and to bind such party to the terms of this Amendment.

10. The terms and provisions of the Lease are hereby incorporated in this Amendment

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and year first above written.

Tenant:
FOUNDRY NETWORKS, INC., a California corporation
By:	/s/ Timothy D. Heffner
Its:	CFO
Date:	8/11/05
By:
Its:
Date:
Landlord:
WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership
By:	LEGACY PARTNERS COMMERCIAL, L.P., a California limited partnership, as Manager and Agent for Owner
By:	LEGACY PARTNERS COMMERCIAL, INC., General Partner
By:	/s/ Debra Smith
	Debra Smith
Its:     Executive Vice President
Date:	8/18/05

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EX-10.10

Exhibit 10.10

THIRD AMENDMENT
TO LEASE AGREEMENT

     This THIRD AMENDMENT TO LEASE AGREEMENT (“Amendment”), is entered into as of the 14 day of December, 2007, by and between BIXBY TECHNOLOGY CENTER, LLC, a Delaware limited liability company (“Landlord”), as successor-in-interest to WIX/NSJ Real Estate Limited Partnership, a Delaware limited partnership (“Prior Landlord”), and FOUNDRY NETWORKS, INC., a Delaware corporation (“Tenant”), with reference to the facts set forth in the Recitals below.

RECITALS:

     A. Prior Landlord and Tenant entered into that certain Lease Agreement dated September 28, 1999 (the “Original Lease”), as amended by that certain: (i) First Amendment to Lease Agreement dated February 16, 2000 and Second Amendment to Lease Agreement dated July 28, 2005 (collectively, the “Lease”) pursuant to which Landlord currently leases to Tenant approximately 70,755 rentable square feet in the building located at 2100 Gold Street, Alviso, California 95002 (the “Premises”) as more particularly described in the Lease. The Premises are part of the development known as Bixby Technology Center (the “Park”). Landlord has succeeded to Prior Landlord’s interest as landlord under the Lease.

     B. Capitalized terms not defined in this Amendment have the meanings given to them in the Lease.

     C. The Lease Term is scheduled to expire on May 31, 2008.

     D. Landlord and Tenant desire to amend the Lease in order to, among other things, extend the Lease Term upon and subject to the terms set forth below.

AGREEMENT:

     NOW THEREFORE, in consideration of the above Recitals and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

     1. Extended Term. The Term is hereby extended for thirty-two (32) months from June 1, 2008 (the “Extended Term Commencement Date”), expiring on January 31, 2011 (the “Termination Date”), unless sooner terminated pursuant to the terms of the Lease (the “Extended Term”).

     2. Base Rent. Prior to the Extended Term Commencement Date, Tenant shall continue to pay Base Rent for the Premises in accordance with the Lease. Commencing as of the Extended Term Commencement Date and continuing until the Termination Date, Tenant shall make payments of Base Rent on a monthly basis pursuant to the Lease in accordance with the following schedule:

Period	Monthly Base Rent
6/1/2008 — 5/31/2009	$	109,670.25
6/1/2009 — 5/31/2010	$	116,745.75
6/1/2010 — 1/31/2011	$	120,283.50

     3. Condition of Premises. Tenant acknowledges that it is presently in possession of the Premises pursuant to the Lease and is fully aware of the condition of the Premises. Landlord shall not be obligated to refurbish or improve the Premises in any manner whatsoever or to otherwise provide funds for the improvement of the Premises in conjunction with the Extended Term, and Tenant hereby accepts the Premises “AS-IS”. Tenant further acknowledges that except as expressly provided in the Lease and this Amendment, neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the improvements, refurbishments, or alterations therein, or the Building or with respect to the functionality thereof or the suitability of any of the foregoing for the conduct of Tenant’s business and that all representations and warranties of Landlord, if any, are as set forth in the Lease and this Amendment.

     4. Notice Addresses. Landlord’s Address for notices and payment of rent set forth in the Lease is hereby deleted and replaced by the following address:

Bixby Technology Center, LLC
c/o Bixby Land Company
2211 Michelson Drive, Suite 500
Irvine, California 92612
Attention: Property Manager

     5. ERISA. Tenant represents and warrants to Landlord that neither Tenant nor any guarantor of Tenant’s obligations under the Lease is (a) a party in interest, as defined in Section 3(14) of the of the

Employee Retirement Income Security Act of 1974, as amended (“ERISA”), to the AFL-CIO Building Investment Trust (“Trust”), or of any of the plans participating therein, or (b) a disqualified person under Section 4975(e)(2) of the Internal Revenue Code of 1986, as amended (“Code”), with respect to the Trust or the plans participating therein. Neither Tenant nor any guarantor of Tenant’s obligations under the Lease shall take any action that would cause the Lease or the exercise by Landlord or the Trust of any rights hereunder, to be a non-exempt prohibited transaction under ERISA. Notwithstanding any contrary provision of the Lease, Tenant shall not assign the Lease or sublease all or any portion of the Premises unless (i) such assignee or subtenant delivers to Landlord a certification (in form and content satisfactory to Landlord) with respect to the status of such assignee or subtenant (and any guarantor of such assignee’s or subtenant’s obligations) as a party in interest and a disqualified person, as provided above; and (ii) such assignee or subtenant undertakes not to take any action that would cause the Lease or the exercise by Landlord or the Trust of any rights hereunder, to constitute a non-exempt prohibited transaction under ERISA.

     Notwithstanding any contrary provision of the Lease, Tenant shall not (a) sublease all or any portion of the Premises under a sublease in which the rent is based on the net income or net profits of any person, or (b) take any other action with respect to the Lease or the Premises such that the revenues to be received by Landlord or the Trust from time to time in connection with the Lease would, as a result of such action, be subject to the Unrelated Business Income Tax under Sections 511 through 514 of the Code.

     Tenant agrees that it shall incorporate the requirements of this Section 5 in any sublease of the Premises (without implying Landlord’s consent thereto).

     6. Labor. Tenant shall use Union Labor (defined below) for all maintenance, repair, and replacement of the Premises (the “Maintenance Labor Covenant”). Notwithstanding the foregoing, the Maintenance Labor Covenant shall not apply to (i) the services for installation, operation, maintenance and repair of personal property owned exclusively by Tenant (e.g., computer systems, telephones, and furniture other than modular furniture) or for any of Tenant’s specialized equipment, (ii) a specific item or instance of maintenance, repair or replacement to the extent Union Labor is not available in the market to perform such specific item or instance of maintenance, repair or replacement, and/or (iii) maintenance, repairs and replacements that may be and are self-performed by the existing staff of Tenant without the retention, engagement or hiring of any third party or additional employee. Tenant shall (a) include the Maintenance Labor Covenant in each of its service contracts, (b) provide such evidence as Landlord may reasonably require, from time to time during the Lease Term, that the Maintenance Labor Covenant is being fully and faithfully observed and Tenant shall include the obligation to provide such evidence in each service contract entered into by Tenant for such services, and (c) incorporate the foregoing requirements in any sublease, license, or occupancy agreement relating to all or any part of the Premises (without implying Landlord’s consent to same).

     In addition to any other conditions contained in the Lease with respect to Tenant making any alterations or improvements, before making any alterations or improvements to the interior or exterior of the Premises, Tenant shall (a) deliver to Landlord evidence satisfactory to Landlord that Tenant shall cause such construction or alteration work (collectively, the “Construction Activities”) to be performed by contractors who employ craft workers who are members of unions that are affiliated with The Building and Construction Trades Department, AFL-CIO (“Union Labor”), and such work shall conform to traditional craft jurisdictions as established in the area (the “Construction Labor Covenant”), (b) include the Construction Labor Covenant in each of its contracts for the Construction Activities, (c) provide such evidence as Landlord may reasonably require, from time to time during the course of the Construction Activities, that the Construction Labor Covenant is being fully and faithfully observed and Tenant shall include the obligation to provide such evidence in each contract entered into by Tenant for the Construction Activities, and (d) incorporate the foregoing requirements in any sublease, license, or occupancy agreement relating to all or any part of the Premises (without implying Landlord’s consent to same). Tenant shall require that all contractors and subcontractors, of whatever tier, performing Construction Activities agree to submit all construction jurisdictional disputes (i.e., disputes about which union is the appropriate union to perform a given contract) to final and binding arbitration to the procedures of the jointly administered “Plan for the Settlement of Jurisdictional Disputes in the Construction Industry,” a dispute resolution plan established and administered by The Building and Construction Trades Department, AFL-CIO, and various construction industry employer associations. If a resolution to a construction-related jurisdictional dispute cannot be obtained through The Building and Construction Trades Department, AFL-CIO, contractors and subcontractors, of whatever tier, shall agree to submit all such disputes to final and binding arbitration procedures to be administered by the American Arbitration Association (“AAA”) and in conformity with AAA’s Commercial Arbitration Rules, Expedited Procedures, with an arbitrator who is an experienced labor arbitrator and is a member of the National Academy of Arbitration.

     7. Environmental Disclosures/ Tenant Acknowledgements. The following is hereby added to Section 29.8 of the Original Lease:

“29.8.1 Environmental Disclosures. Landlord hereby discloses to Tenant and Tenant hereby acknowledges that it understands and accepts that the Park was constructed on property that was part of the regional South Bay Asbestos Area Superfund Site under the careful regulatory oversight of the United States Environmental Protection Agency (“US EPA”) and the California Department of Toxic Substances Control (“DTSC”). The Park was under those agencies’ oversight because it contained fill materials that included construction debris including transite pipe, a material that typically contains asbestos, in addition to materials that had been removed from a nearby landfill in the 1960’s during relocation of the Guadalupe River channel. In addition to the steps taken to remove these materials prior to construction of the buildings that are now a part of the Park, any materials that might not

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have been removed were isolated in place by installation of a soil cap and a sealed 60-mil thick polyethylene liner under the buildings. A venting system was also installed to collect any methane that might be generated by the decomposition of any organic landfill material remaining in the soil.

29.8.2 Tenant Acknowledgements. Tenant acknowledges that there are certain commitments to the US EPA and DTSC to ensure that the measures taken to protect human health and the environment remain effective. One of those commitments is to ensure that tenants are provided notice that asbestos, which is a hazardous substance, may be located on or beneath the property. To ensure that there is no exposure to the asbestos, there is also a soil management plan in effect to maintain the cap integrity. Although the majority of the tasks under that soil management plan are performed by Landlord, Tenant acknowledges and understands that Tenant is specifically prohibited from performing any actions that disturb the soil or asphalt at the Park. Tenant shall obtain Landlord’s prior written consent prior to performing any activities that might disturb the soil or asphalt, or could pierce the polyethylene liner under the buildings at the Park or interfere with the sub-surface venting system at the Park.”

     8. Broker. Tenant hereby represents to Landlord that Tenant has dealt with no broker other than Cornish & Carey Commercial (“Broker”) in connection with this Amendment. Tenant agrees to indemnify and hold Landlord, its trustees, members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents harmless from all claims of any brokers claiming to have represented Tenant in connection with this Amendment (other than Broker).

     9. No Other Modifications. Except as modified in this Agreement, all other terms and conditions of the Lease shall remain unchanged and in full force and effect. To the extent of a conflict between the terms of the Lease and the terms of this Amendment, the terms of this Amendment shall prevail. A breach by Tenant of any of the terms of this Amendment shall constitute a material breach by Tenant of the Lease as to which Landlord shall have all rights and remedies. This Amendment may be executed in multiple counterparts, each of which shall be deemed to be an original, but all of which, together, shall constitute one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto have executed this Amendment.

TENANT:			LANDLORD:
FOUNDRY NETWORKS, INC.,			BIXBY TECHNOLOGY CENTER, LLC,
a Delaware corporation			a California limited liability company
By:	/s/ Dan Fairfax		By:	BixbyBIT Investments, LLC,
	Name:			a Delaware limited liability company
	Title:	CFO		its sole member
By:				By:	BLC Ventures I, LLC,
	Name:				a Delaware limited liability company,
	Title:				its Managing Member
					By:	Bixby Land Company, a California corporation, its Managing Member

By:	/s/ James Wolford
	Name:	James Wolford
	Title:	CFO
By:	/s/ Mark Bixby
	Name:	Mark Bixby
	Title:	Vice President

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Michael Klayko, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended January 24, 2009 of Brocade Communications Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 24, 2009

/s/ Michael Klayko  

Michael Klayko 

Chief Executive Officer
(Principal Executive Officer) 

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Richard Deranleau, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended January 24, 2009 of Brocade Communications Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 24, 2009

/s/ Richard Deranleau  

Richard Deranleau 

Chief Financial Officer
(Principal Accounting Officer) 

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     I, Michael Klayko, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Brocade Communications Systems, Inc. for the fiscal quarter ended January 24, 2009 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.

Date: February 24, 2009

By:	/s/ Michael Klayko
	Michael Klayko
	Chief Executive Officer

     I, Richard Deranleau, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Brocade Communications Systems, Inc. for the fiscal quarter ended January 24, 2009 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.

Date: February 24, 2009

By:	/s/ Richard Deranleau
	Richard Deranleau
	Chief Financial Officer