Table of Contents
Delaware | 3576 | 77-0409517 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
Larry W. Sonsini, Esq. Katharine A. Martin, Esq. Bradley L. Finkelstein, Esq. Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, CA 94304 (650) 493-9300 | Thomas O. McGimpsey, Esq. Executive Vice President, Business Development and Chief Legal Officer McDATA Corporation 11802 Ridge Parkway Broomfield, CO 80021 (720) 558-8000 | Darren R. Hensley, Esq. John P.J. Kim, Esq. Hensley Kim & Edgington, LLC 1660 Lincoln Street, Suite 3050 Denver, CO 80264 (720) 377-0770 Thomas A. Roberts, Esq. Raymond O. Gietz, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10053 (212) 210-8000 |
Proposed | ||||||||||||
Title of Each Class of | Amount to be | Maximum Offering | Proposed Maximum Aggregate | Amount of | ||||||||
Securities to be Registered(1) | Registered(2) | Price per Share | Offering Price(3) | Registration Fee(4) | ||||||||
Brocade Communications Systems, Inc. common stock | 131,535,019 | N/A | $867,544,225.08 | $92,827.23 | ||||||||
(1) | This Registration Statement relates to common stock of Brocade Communications Systems, Inc., par value $0.001 per share issuable to holders of Class A and Class B common stock of McDATA Corporation, a Delaware corporation, par value $0.01 per share, in the proposed merger of Worldcup Merger Corporation, a Delaware corporation and a wholly owned subsidiary of Brocade, with and into McDATA. | |
(2) | Based on the maximum number of shares to be issued in connection with the merger, calculated as the product of (a) the sum of (i) 118,794,076, the number of shares of McDATA Class A common stock outstanding as of September 28, 2006, including any shares of restricted stock, (ii) 37,818,298, the number of shares of McDATA Class B common stock outstanding as of September 28, 2006, including any shares of restricted stock, (iii) 6,871,956 shares of McDATA Class A common stock issuable pursuant to vested options as of September 28, 2006, (iv) 10,105,445 shares of McDATA Class B common stock issuable pursuant to vested options as of September 28, 2006, (v) 0 shares of McDATA Class A and Class B common stock estimated to be purchased pursuant to McDATA’s employee stock purchase plan, (vi) 1,231,250 shares of McDATA Class B common stock estimated to be issued pursuant to outstanding Class B restricted stock units, (vii) 209,000 shares of restricted McDATA Class B common stock expected to be issued pursuant to McDATA’s Retention Plan, and (viii) 350,000 shares of McDATA Class B common stock issuable pursuant to outstanding warrants and (b) an exchange ratio of 0.75 of a share of the registrant’s common stock for each share of McDATA Class A and Class B common stock. | |
(3) | Estimated solely for purposes of calculation of the registration fee in accordance with Rules 457(c) and (f) of the Securities Act of 1933, as amended, based upon the sum of (a) the product of 125,666,032, the maximum number of shares of McDATA Class A common stock that may be exchanged in the merger, multiplied by $4.98, the average of the high and low sale prices for shares of McDATA Class A common stock as reported on the NASDAQ on September 26, 2006 and (b) the product of 49,713,993, the maximum number of shares of McDATA Class B common stock that may be exchanged in the merger, and $4.88, the average of the high and low sale prices for shares of McDATA Class B common stock as reported on the NASDAQ on September 26, 2006. | |
(4) | Calculated by multiplying the proposed maximum aggregate offering price by 0.000107. |
Table of Contents
THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. BROCADE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. |
For Brocade stockholders: | For McDATA stockholders: | |
[ ] [ ], 2006 | [ ] [ ], 2006 | |
[ ] local time | [ ] local time | |
[ ] | [ ] | |
[ ] | [ ] |
Sincerely, | Sincerely, | |
Michael Klayko | John A. Kelley | |
Chief Executive Officer | Chairman, President and Chief Executive Officer | |
Brocade Communications Systems, Inc. | McDATA Corporation |
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Page | ||||
1 | ||||
8 | ||||
8 | ||||
9 | ||||
9 | ||||
9 | ||||
9 | ||||
10 | ||||
10 | ||||
10 | ||||
10 | ||||
11 | ||||
11 | ||||
11 | ||||
12 | ||||
12 | ||||
12 | ||||
12 | ||||
12 | ||||
12 | ||||
13 | ||||
14 | ||||
14 | ||||
15 | ||||
18 | ||||
20 | ||||
21 | ||||
22 | ||||
24 | ||||
24 | ||||
28 | ||||
43 | ||||
55 | ||||
56 | ||||
56 | ||||
56 | ||||
56 | ||||
56 | ||||
56 | ||||
56 | ||||
57 | ||||
58 |
Table of Contents
Page | ||||
58 | ||||
58 | ||||
59 | ||||
59 | ||||
59 | ||||
59 | ||||
60 | ||||
60 | ||||
60 | ||||
60 | ||||
60 | ||||
60 | ||||
61 | ||||
61 | ||||
61 | ||||
62 | ||||
62 | ||||
62 | ||||
63 | ||||
63 | ||||
63 | ||||
64 | ||||
64 | ||||
69 | ||||
70 | ||||
71 | ||||
79 | ||||
81 | ||||
82 | ||||
87 | ||||
92 | ||||
93 | ||||
93 | ||||
93 | ||||
94 | ||||
94 | ||||
94 | ||||
97 | ||||
97 | ||||
97 | ||||
97 | ||||
97 | ||||
98 | ||||
98 |
ii
Table of Contents
Page | ||||
98 | ||||
99 | ||||
99 | ||||
99 | ||||
100 | ||||
103 | ||||
104 | ||||
106 | ||||
106 | ||||
107 | ||||
107 | ||||
108 | ||||
109 | ||||
112 | ||||
113 | ||||
114 | ||||
115 | ||||
115 | ||||
115 | ||||
115 | ||||
116 | ||||
118 | ||||
119 | ||||
120 | ||||
121 | ||||
125 | ||||
144 | ||||
144 | ||||
152 | ||||
152 | ||||
153 | ||||
155 | ||||
156 | ||||
157 | ||||
179 | ||||
181 | ||||
182 | ||||
182 | ||||
183 | ||||
183 | ||||
183 | ||||
184 | ||||
184 |
iii
Table of Contents
Page | ||||||||
185 | ||||||||
187 | ||||||||
188 | ||||||||
188 | ||||||||
188 | ||||||||
188 | ||||||||
188 | ||||||||
189 | ||||||||
190 | ||||||||
F-1 | ||||||||
II-1 | ||||||||
EXHIBIT 10.108 | ||||||||
EXHIBIT 23.1 | ||||||||
EXHIBIT 23.2 | ||||||||
EXHIBIT 23.3 | ||||||||
EXHIBIT 23.4 | ||||||||
EXHIBIT 99.1 | ||||||||
EXHIBIT 99.2 | ||||||||
EXHIBIT 99.3 | ||||||||
EXHIBIT 99.4 |
iv
Table of Contents
AND SPECIAL MEETINGS OF BROCADE AND MCDATA
Q: | Why am I receiving this joint proxy statement/prospectus? | |
A: | Brocade has agreed to acquire McDATA under the terms of an Agreement and Plan of Reorganization, dated as of August 7, 2006, among McDATA Corporation, Brocade Communications Systems, Inc. and Worldcup Merger Corporation, a wholly-owned subsidiary of Brocade Communications Systems, Inc. We refer to the Agreement and Plan of Reorganization, as amended, as the merger agreement in this joint proxy statement/prospectus. Please see “Agreements Related to the Merger — The Merger Agreement” beginning on page 97 of this joint proxy statement/prospectus for a description of the material terms of the merger agreement. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A. | |
In order to complete the merger, McDATA stockholders must adopt the merger agreement, and all other conditions to the consummation of the merger must be satisfied or waived. In addition, Brocade stockholders must approve the issuance of Brocade common stock in connection with the merger. Brocade and McDATA will hold special meetings of their respective stockholders to obtain these approvals. | ||
This joint proxy statement/prospectus contains important information about both Brocade and McDATA and the merger, the merger agreement and the special meetings of the stockholders of Brocade and McDATA, and you should read this joint proxy statement/prospectus carefully. | ||
Your vote is very important. We encourage you to vote as soon as possible. The enclosed voting materials allow you to vote your Brocade and McDATA shares without attending your respective special meeting. For more specific information on how to vote, please see the questions and answers below and the sections entitled “The Special Meeting of Brocade Stockholders — How You Can Vote” and “The Special Meeting of McDATA Stockholders — How You Can Vote” beginning on pages 57 and 61, respectively, of this joint proxy statement/prospectus. | ||
Q: | What will happen in the merger? | |
A: | Pursuant to the terms of the merger agreement, Worldcup Merger Corporation, a wholly-owned subsidiary of Brocade, will merge with and into McDATA, and McDATA will survive and continue as a wholly-owned subsidiary of Brocade. McDATA stockholders will receive 0.75 of a share of Brocade common stock for each share of McDATA Class A or Class B common stock they own as of the effective time of the merger. Each share of Brocade common stock issued in connection with the merger will also have an associated preferred stock purchase right pursuant to the Preferred Stock Rights Agreement dated February 7, 2002 by and between Wells Fargo Bank, MN N.A. and Brocade (as amended). In lieu of a fractional share, each McDATA stockholder will also be entitled to receive an amount of cash equal to the value of the fractional share remaining after aggregating all such stockholder’s shares of McDATA Class A and Class B common stock. Brocade stockholders will continue to hold the Brocade shares they currently own. | |
Q: | What stockholder approvals are required to complete the merger? | |
A: | A majority of the outstanding shares of McDATA Class A and Class B common stock entitled to vote at the special meeting, voting together as a single class, must vote “FOR” the adoption of the merger agreement. The |
Table of Contents
affirmative vote of a majority of the votes cast at the Brocade special meeting must vote “FOR” the issuance of Brocade common stock in connection with the merger. | ||
Q: | When do you expect the merger to be completed? | |
A: | We are working to complete the merger by the end of January 2007. However, it is possible that factors outside of our control could require us to complete the merger at a later time or not complete it at all. We expect to complete the merger as soon as reasonably practicable. | |
Q: | Where can I find more information about Brocade and McDATA? | |
A: | You can find more information about Brocade and McDATA from reading this joint proxy statement/prospectus and the various sources described in this joint proxy statement/prospectus under the section entitled “Where You Can Find More Information” beginning on page 190 of this joint proxy statement/prospectus. | |
Q: | What percentage of Brocade capital stock will former stockholders of McDATA common stock own after the merger? | |
A: | Following the merger, the former stockholders of McDATA will own approximately 43.45% of the shares of outstanding capital stock of Brocade. The foregoing calculation is based on 270,316,642 shares of Brocade common stock outstanding as of September 1, 2006 and 118,794,076 shares of McDATA Class A common stock and 37,818,298 shares of McDATA Class B common stock outstanding as of September 28, 2006 and does not include the effect of outstanding options, restricted stock units or other stock-based awards to purchase Brocade or McDATA common stock. | |
Q: | What do I need to do now? | |
A: | After you carefully read this joint proxy statement/prospectus, mail your signed proxy card in the enclosed return envelope, or submit your proxy by telephone or on the Internet in accordance with the instructions on the proxy card. In order to assure that your vote is recorded, please vote your proxy as soon as possible even if you currently plan to attend your meeting in person. If you own your shares in “street name” through a broker or bank, you must instruct your bank or broker how to vote your shares using the enclosed voting instruction card. Internet and telephone voting is available in accordance with the instructions on the voting instruction card. | |
Q: | Why is my vote important? | |
A: | If you do not return your proxy card or submit your proxy by telephone or through the Internet or vote in person at your special meeting, it will be more difficult for Brocade and McDATA to obtain the necessary quorum to transact business at their special meetings. In addition, if you are a McDATA stockholder, your failure to vote will have the same effect as a vote against the adoption of the merger agreement. | |
Q: | What risks should I consider in deciding whether to vote in favor of the issuance of Brocade common stock in connection with the merger or the adoption of the merger agreement? | |
A: | You should carefully review the section of this joint proxy statement/prospectus entitled “Risk Factors” beginning on page 24, which presents risks and uncertainties relating to the merger and the businesses of each of Brocade and McDATA. | |
Q: | How do I instruct my broker or bank to vote in connection with the adoption of the merger agreement or the issuance of Brocade common stock in connection with the merger? | |
A: | If your shares are held by a broker, bank or other nominee, you must follow the instructions on the form you receive from your broker, bank or other nominee in order for your shares to be voted. Please follow their instructions carefully. Also, please note that if the holder of record of your shares is a broker, bank or other nominee and you wish to vote at the special meeting, you must request a legal proxy from the bank, broker or other nominee that holds your shares and present that proxy and proof of identification at the special meeting to vote your shares. Based on the instructions provided by the broker, bank or other holder of record of their shares, street name stockholders may generally vote by mail, by methods listed on the voting instruction card or in person with a proxy from the record holder. |
2
Table of Contents
Q: | If my shares are held in “street name,” will my broker vote my shares for me? | |
A: | If you do not provide your broker with instructions on how to vote your “street name” shares, your broker will not be permitted to vote them for either the adoption of the merger agreement by McDATA stockholders or approval of the issuance of Brocade common stock in connection with the merger by Brocade stockholders. | |
Q: | If my shares are held in “street name,” what if I fail to instruct my broker or bank? | |
A: | If you fail to instruct your broker or bank to vote your shares and the broker or bank submits an unvoted proxy, the resulting “broker non-votes” will be counted toward a quorum at the respective special meeting, but they will not be voted and they will have the consequences set forth above under “Why is my vote important?” | |
Q: | Can I change my vote after I have mailed my proxy card? | |
A: | You can change your vote at any time before your proxy card is voted at your company’s special meeting. You can do this in one of four ways: |
• | timely delivery of a valid, later-dated proxy by mail, or a later-dated proxy by telephone or Internet; | |
• | written, dated notice to your company’s Secretary before the meeting that you have revoked your proxy; | |
• | voting at a later date by telephone or by using the Internet; or | |
• | voting by ballot at either the Brocade special meeting or the McDATA special meeting, as applicable. Your attendance at either of the special meetings alone will not revoke your proxy. |
Q: | Should I send in my stock certificates now? | |
A: | No. If Brocade stockholders approve the issuance of Brocade common stock in connection with the merger and McDATA stockholders approve the adoption of the merger agreement, after the merger is completed, Brocade will send McDATA stockholders written instructions for exchanging their stock certificates. Brocade stockholders will keep their existing stock certificates. | |
Q: | Am I entitled to appraisal rights? | |
A: | No. Holders of McDATA common stock are not entitled to appraisal rights in connection with the merger because Brocade common stock and McDATA common stock are listed on the Nasdaq Global Select Market. Brocade stockholders are not entitled to appraisal rights in connection with the merger. |
Q: | When and where is the Brocade special meeting? | |
A: | The Brocade special meeting will take place at [ ], on [ ] [ ], 2006, at [ ] [ ].m. local time. Check-in will begin at [ ] [ ].m. Please allow ample time for check-in procedures. | |
Q: | Can I attend the Brocade special meeting? (See page 56) | |
A: | Yes, if you were a Brocade stockholder as of the close of business on [ ] [ ], 2006, the record date for the Brocade special meeting, or you hold a valid proxy for the special meeting. You should be prepared to present valid government-issued photo identification for admittance. In addition, if you are a record holder, your name will be verified against the list of record holders on the record date prior to being admitted to the meeting. If you are not a record holder but hold shares through a broker, bank or other nominee (i.e., in street name), you will need to provide proof of beneficial ownership on the record date, such as your most recent account statement prior to [ ] [ ], 2006, or other similar evidence of ownership. If you do not provide valid government-issued photo identification or comply with the other procedures outlined above upon request, you may not be admitted to the special meeting. |
3
Table of Contents
Q: | How does the Brocade board of directors recommend that I vote? (See page 56) | |
A: | After careful consideration, Brocade’s board of directors unanimously recommends that Brocade stockholders vote “FOR” approval of the issuance of Brocade common stock in connection with the merger. For a description of the reasons underlying the recommendation of Brocade’s board of directors, see the section entitled “The Merger — Consideration of the Merger by the Brocade Board of Directors” beginning on page 69 of this joint proxy statement/prospectus. | |
Q: | As a Brocade stockholder, how can I vote? (See page 57) | |
A: | Registered stockholders as of the record date may vote in person at the special meeting or by one of the following methods: |
• | complete, sign and date the enclosed proxy card and return it in the prepaid envelope provided; | |
• | call the toll-free telephone number on the proxy card and follow the recorded instructions; or | |
• | access Brocade’s secure website registration page through the Internet at [ ], as identified on the proxy card, and follow the instructions. |
Stockholders who hold shares of Brocade common stock in street name may vote by following the instructions provided by the broker, bank or other holder of record of their shares, including by one of the following methods: |
• | complete,sign, date and return your voting instruction card in the enclosed pre-addressed envelope; | |
• | other methods listed on your voting instruction card or other information forwarded by your bank, broker or other holder of record to determine whether you may vote by telephone or electronically on the Internet; or | |
• | in person at the special meeting with a legal proxy from your bank or brokerage firm. Please consult the voting instruction card sent to you by your bank or broker to determine how to obtain a legal proxy in order to vote in person at the special meeting. |
For a more detailed explanation of the voting procedures, please see the section entitled “The Special Meeting of Brocade Stockholders — How You Can Vote” beginning on page 57 of this joint proxy statement/prospectus. | ||
Q: | What happens if I do not indicate how to vote on my proxy card? | |
A: | If you sign and send in your proxy card and do not indicate how you want to vote, your proxy will be counted as a vote “FOR” the proposal of the issuance of Brocade common stock in connection with the merger. | |
Q: | Will I, as a Brocade stockholder, receive any shares as a result of the merger? | |
A: | No. Brocade stockholders will continue to hold the Brocade shares they currently own. | |
Q: | Who can help answer my questions about the merger? | |
A: | If you are a Brocade stockholder and would like additional copies of this joint proxy statement/prospectus, or if you have questions about the merger, including the procedures for voting your shares, you should contact: |
4
Table of Contents
Q: | As a McDATA stockholder, what will I receive upon completion of the merger? (See page 97) | |
A: | If the merger is completed, you will be entitled to receive 0.75 of a share of Brocade common stock for each share of McDATA’s Class A or Class B common stock you own at the effective time of the merger. In lieu of any fractional shares of Brocade common stock resulting from the exchange, you will be entitled to receive an amount of cash equal to the value of the fractional share remaining after aggregating all of your shares McDATA Class A and Class B common stock. Each share of Brocade common stock issued in connection with the merger will have an associated preferred stock purchase right pursuant to the Preferred Stock Rights Agreement dated February 7, 2002 by and between Wells Fargo Bank, MN N.A. and Brocade (as amended). | |
Q: | What will happen to options to acquire McDATA common stock? (See page 97) | |
A: | Options to purchase shares of McDATA Class A or Class B common stock, whether or not vested, outstanding at the effective time of the merger will be assumed by Brocade and will become exercisable, subject to vesting, for shares of Brocade common stock and will continue to be subject to all the same terms and conditions as in effect prior to the merger. The number of shares of Brocade common stock issuable upon the exercise of these options will be equal to the number of shares of McDATA common stock subject to the assumed option immediately prior to the effective time of the merger multiplied by 0.75, rounded down to the nearest whole number. The exercise price per share of each assumed McDATA option will be equal to the exercise price of the assumed McDATA option immediately prior to the effective time of the merger divided by 0.75, rounded up to the nearest whole cent. Other than with respect to the number of shares subject to the option and the exercise price, both of which will be adjusted as described above, the assumed options will continue to have the same terms and conditions as they had prior to their assumption. | |
Q: | How will the merger affect my participation in the McDATA employee stock purchase plan? (See page 98) | |
A: | McDATA will terminate the McDATA employee stock purchase plan before the merger is completed. Upon termination, McDATA will return to each participant all accumulated payroll deductions allocated to each participant’s account, and no shares of McDATA common stock shall be purchased under the plan for the final offering period. | |
Q: | What will happen to my restricted stock and restricted stock units? (See page 97) | |
A: | Each share of McDATA Class A or Class B restricted common stock that is unvested and is subject to a risk of forfeiture, a repurchase option or other conditions pursuant to an applicable restricted stock purchase agreement or other agreement with McDATA shall be exchangeable for 0.75 of a share of Brocade common stock. Unless otherwise provided under an applicable stock purchase agreement or other agreement with McDATA, the Brocade common stock issued in exchange for such shares of McDATA restricted common stock will remain unvested and continue to be subject to the same repurchase option, risk of forfeiture or other conditions. Outstanding restricted stock units issued under McDATA’s equity plans, whether or not vested, at the effective time of the merger will become fully vested and converted into, and be deemed to constitute a right to receive shares of Brocade common stock, as adjusted by the exchange ratio. | |
Q: | When and where is the McDATA special meeting? (See page 60) | |
A: | The special meeting of McDATA stockholders will begin promptly at [ ] [ ].m., local time, on [ ] [ ], 2006, at McDATA’s headquarters located at 11802 Ridge Parkway, Broomfield, Colorado 80021. Check-in will begin at [ ] [ ].m. Please allow ample time for the check-in procedures. | |
Q: | As a McDATA stockholder, will I be able to trade the Brocade common stock that I receive in connection with the merger? (See page 93) | |
A: | The shares of Brocade common stock issued in connection with the merger will be listed on the Nasdaq Global Select Market under the symbol “BRCD.” Certain persons who are deemed affiliates of McDATA prior to the merger will be required to comply with Rule 145 promulgated under the Securities Act of 1933, as amended, |
5
Table of Contents
which we refer to as the Securities Act, if they wish to sell or otherwise transfer any of the shares of Brocade common stock received in connection with the merger. | ||
Q: | Can I attend the McDATA special meeting? (See page 60) | |
A: | You are entitled to attend the special meeting only if you were a McDATA stockholder as of the close of business on [ ] [ ], 2006, the record date for the McDATA special meeting, or you hold a valid proxy for the special meeting. You should be prepared to present valid government-issued photo identification for admittance. In addition, if you are a record holder, your name will be verified against the list of record holders on the record date prior to being admitted to the meeting. If you are not a record holder but hold shares through a broker, bank or other nominee (i.e., in street name), you should provide proof of beneficial ownership on the record date, such as your most recent account statement prior to [ ] [ ], 2006, or other similar evidence of ownership. If you do not provide valid government-issued photo identification or comply with the other procedures outlined above upon request, you may not be admitted to the special meeting. | |
Q: | How does the McDATA board of directors recommend that I vote? (See page 60) | |
A: | After careful consideration, McDATA’s board of directors unanimously recommends that McDATA stockholders vote “FOR” the proposal to adopt the merger agreement. For a description of the reasons underlying the recommendation of McDATA’s board of directors, see the section entitled “The Merger — Consideration of the Merger by the McDATA Board of Directors” beginning on page 79 of this joint proxy statement/prospectus. | |
Q: | What is the vote of McDATA stockholders required to adopt the merger agreement? (See page 62) | |
A: | The affirmative vote of a majority of the outstanding shares of McDATA Class A and Class B common stock entitled to vote at the special meeting, voting together as a single class, is required to adopt the merger agreement. Each share of McDATA Class A common stock is entitled to one vote and each share of McDATA Class B common stock is entitled to one-tenth (1/10th) of one vote on the proposal to adopt the merger agreement at the McDATA special meeting. | |
Q: | As a McDATA stockholder, how can I vote? (See page 61) | |
A: | Registered stockholders as of the record date may vote in person at the special meeting or by one of the following methods: |
• | complete, sign and date the enclosed proxy card and return it in the prepaid envelope provided; | |
• | call the toll-free telephone number on the proxy card and follow the recorded instructions; or | |
• | access McDATA’s secure website registration page through the Internet at [ ], as identified on the proxy card, and follow the instructions. |
Stockholders who hold shares of McDATA common stock in street name may vote by following the instructions provided by the broker, bank or other holder of record of their shares, including by one of the following methods: |
• | complete,sign, date and return your voting instruction card in the enclosed pre-addressed envelope; | |
• | other methods listed on your voting instruction card or other information forwarded by your bank, broker or other holder of record to determine whether you may vote by telephone or electronically on the Internet; or | |
• | in person at the special meeting with a legal proxy from your bank or brokerage firm. Please consult the voting instruction card sent to you by your bank or broker to determine how to obtain a legal proxy in order to vote in person at the special meeting. |
For a more detailed explanation of the voting procedures, please see the section entitled “The Special Meeting of McDATA Stockholders — How You Can Vote” beginning on page 61 of this joint proxy statement/prospectus. | ||
Q: | What happens if I do not indicate how to vote on my proxy card? |
6
Table of Contents
A: | If you sign and send in your proxy card and do not indicate how you want to vote, your proxy will be counted as a vote “FOR” the proposal to adopt the merger agreement. | |
Q: | As a stockholder of McDATA, am I entitled to appraisal rights? (See page 94) | |
A: | No. Under Delaware law, you are not entitled to appraisal rights in connection with the merger because the common stock of both McDATA and Brocade is listed on the Nasdaq Global Select Market. | |
Q: | What are the material federal income tax consequences of the merger to me? (See page 94) | |
A: | The merger has been structured to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and it is a closing condition of the merger that Brocade and McDATA receive opinions from their respective counsel regarding such qualification. If the merger qualifies as a reorganization, McDATA stockholders generally will not recognize gain or loss for United States federal income tax purposes upon the exchange of shares of McDATA common stock for shares of Brocade common stock, except with respect to cash received in lieu of any fractional shares of Brocade common stock resulting from the exchange. See the section entitled “The Merger — Material United States Federal Income Tax Consequences of the Merger” beginning on page 94. |
Q: | As a McDATA stockholder, who can help answer my questions? | |
A: | If you are a McDATA stockholder and would like additional copies of this joint proxy statement/prospectus, or if you have questions about the merger, including the procedures for voting your shares, you should contact: |
7
Table of Contents
8
Table of Contents
9
Table of Contents
10
Table of Contents
• | with respect to the executive officers of McDATA, the eligibility to receive severance and retention payments; provided, however, that McDATA may not grant awards of restricted stock to its Section 16 officers under the retention plan established in connection with the merger; | |
• | with respect to the executive officers of McDATA, accelerated vesting of stock awards under McDATA’s equity plans in the event the executive officer is terminated without “cause” or “constructively terminated” (as such terms are defined in the applicable agreement) within a certain period following the merger; | |
• | the continued indemnification of current directors and officers of McDATA under the merger agreement and the continuation of directors’ and officers’ liability insurance after the merger; | |
• | the retention of some of the officers of McDATA as officers, employees or consultants of Brocade or its subsidiaries; and | |
• | the acceleration of vesting of certain restricted stock and restricted stock units held by McDATA executive officers at the effective time of the merger. |
11
Table of Contents
• | the merger agreement shall have been adopted by the stockholders of McDATA and the issuance of shares of Brocade common stock in connection with the merger shall have been approved by the stockholders of Brocade; | |
• | no law, regulation or order shall have been enacted or issued by a governmental entity of competent jurisdiction which is in effect and has the effect of making the merger illegal or otherwise prohibiting completion of the merger; | |
• | the SEC shall have declared Brocade’s registration statement, of which this joint proxy statement/ prospectus is a part, effective; |
12
Table of Contents
• | all waiting periods (and any extension thereof) under the HSR Act with respect to the merger and the other transactions contemplated by the merger agreement shall have expired or shall have terminated early; | |
• | Brocade and McDATA shall have each received from its respective tax counsel a written opinion to the effect that the merger will constitute a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code; | |
• | the shares of Brocade common stock to be issued pursuant to the merger have been authorized for listing on the Nasdaq Global Select Market, subject to official notice of issuance; | |
• | no material adverse affect on Brocade, in the case of McDATA’s obligation to consummate the merger, or McDATA, in the case of Brocade’s obligation to consummate the merger, shall have occurred; | |
• | each of Brocade and McDATA shall have performed or complied in all material respects with all agreements and covenants required by the merger agreement to be performed or complied with by such party on or prior to the effective time of the merger; and | |
• | each of Brocade’s and McDATA’s representations and warranties in the merger agreement shall be true and correct, except for such failures to be true and correct as would not have, in each case or in the aggregate, a material adverse effect on the respective party. |
• | solicit, initiate, encourage, knowingly facilitate or induce any inquiries regarding any acquisition proposals by third parties; | |
• | participate in any discussions or negotiations regarding, or furnish to any third party any nonpublic information, or take any other action to facilitate any inquiries or the making of any proposal that constitutes or may reasonably be expected to lead to a third party acquisition proposal; | |
• | engage in discussions with any third party with respect to any acquisition proposal except as to the existence of this prohibition from soliciting other offers; | |
• | approve, endorse or recommend any third party acquisition proposal; or | |
• | enter into any letter of intent or similar contract or document contemplating or otherwise relating to any third party acquisition proposal or such transaction. |
13
Table of Contents
• | its board of directors or any committee thereof shall for any reason have changed its recommendation to its stockholders or otherwise withdrawn or shall have amended or modified in a manner adverse to the other party its recommendation in favor of, in the case of Brocade, approval of the issuance of shares of Brocade common stock in connection with the merger, or in the case of McDATA, the adoption of the merger agreement; | |
• | it shall have failed to include in this joint proxy statement/prospectus the recommendation of its board of directors in favor of, in the case of Brocade, approval of the issuance of Brocade common stock in connection with the merger, or in the case of McDATA, the adoption of the merger agreement; | |
• | its board of directors fails to reaffirm (publicly, if so requested) its recommendation in favor of, in the case of Brocade, approval of the issuance of Brocade common stock in connection with the merger, or in the case of McDATA, the adoption of the merger agreement, within 10 business days after the other party requests in writing that such recommendation be reaffirmed; | |
• | its board of directors or any committee thereof shall have approved or recommended any acquisition proposal; | |
• | it shall have entered into any letter of intent or similar document or any agreement, contract or commitment accepting any acquisition proposal; or | |
• | a tender or exchange offer relating to its securities shall have been commenced by a person unaffiliated with the other party to the merger agreement and it shall not have sent to its security holders pursuant toRule 14e-2 promulgated under the Securities Act, within 10 business days after such tender or exchange offer is first published, sent or given, a statement disclosing that the board of directors of such party recommends rejection of such tender or exchange offer. |
• | the merger is not consummated by the end date or because of a final non-appealable order, decree or ruling based on an action brought by a governmental entity related to antitrust or competition laws; | |
• | all of the mutual conditions to closing of the merger agreement are satisfied, other than conditions relating to receipt of Brocade stockholder approval, absence of governmental statutes and orders making the merger illegal to the extent related to antitrust and competition laws enforced by governmental entities, expiration of the HSR Act waiting period and receipt of similar foreign antitrust clearances, and receipt of tax opinions, except where the failure of any of the conditions to be satisfied was caused by the action or failure to act of Brocade and such action or failure to act is a material breach of the merger agreement; and | |
• | the conditions to Brocade’s obligation to close the merger relating to the accuracy of McDATA’s representations and warranties, compliance with covenants, and absence of a material adverse effect on McDATA are satisfied. |
14
Table of Contents
Nine Months Ended | Fiscal Year Ended | |||||||||||||||||||||||||||
July 29, | July 30, | October 29, | October 30, | October 25, | October 26, | October 27, | ||||||||||||||||||||||
2006 | 2005 | 2005(1) | 2004(2) | 2003(3) | 2002 | 2001(4) | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | Unaudited(5) | ||||||||||||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||
Net revenues | $ | 541,771 | $ | 428,604 | $ | 574,120 | $ | 596,265 | $ | 525,277 | $ | 562,369 | $ | 513,030 | ||||||||||||||
Cost of revenues | 224,012 | 186,212 | 251,161 | 268,974 | 241,163 | 226,933 | 115,711 | |||||||||||||||||||||
Gross margin | 317,759 | 242,392 | 322,959 | 327,291 | 284,114 | 335,436 | 397,319 | |||||||||||||||||||||
Operating expenses (benefits): | ||||||||||||||||||||||||||||
Research and development | 121,416 | 97,380 | 130,936 | 141,998 | 145,896 | 125,058 | (131,704 | ) | ||||||||||||||||||||
Sales and marketing | 100,682 | 74,917 | 101,202 | 102,445 | 115,075 | 108,784 | (129,138 | ) | ||||||||||||||||||||
General and administrative | 23,523 | 18,323 | 25,189 | 24,593 | 21,306 | 7,583 | (96,563 | ) | ||||||||||||||||||||
Internal review and SEC investigation costs | 10,179 | 8,826 | 14,027 | — | — | — | — | |||||||||||||||||||||
Provision for SEC settlement | 7,000 | — | — | — | — | — | — | |||||||||||||||||||||
Settlement of an acquisition-related claim | — | — | — | 6,943 | — | — | — | |||||||||||||||||||||
Amortization of intangible assets | 1,406 | — | — | — | — | — | — | |||||||||||||||||||||
Amortization of deferred stock compensation | — | — | 1,512 | 537 | 649 | 969 | 1,082 | |||||||||||||||||||||
Restructuring costs (reversals) | — | (137 | ) | (670 | ) | 8,966 | 20,828 | — | — | |||||||||||||||||||
In-process research and development | — | 7,784 | 7,784 | — | 134,898 | — | — | |||||||||||||||||||||
Lease termination charge, facilities lease losses and other, net | 4,360 | — | — | 75,591 | — | — | 49,888 | |||||||||||||||||||||
Total operating expenses (benefits) | 268,566 | 207,093 | 279,980 | 361,073 | 438,652 | 242,394 | (306,435 | ) | ||||||||||||||||||||
Income (loss) from operations | 49,193 | 35,299 | 42,979 | (33,782 | ) | (154,538 | ) | 93,042 | 703,754 | |||||||||||||||||||
Interest and other income, net | 22,391 | 16,602 | 22,656 | 18,786 | 18,424 | 22,668 | 8,207 | |||||||||||||||||||||
Interest expense | (5,478 | ) | (5,696 | ) | (7,693 | ) | (10,677 | ) | (13,339 | ) | (11,427 | ) | — | |||||||||||||||
Gain on repurchases of convertible subordinated debt | — | 2,318 | 2,318 | 5,613 | 11,118 | — | — | |||||||||||||||||||||
Gain (loss) on investments, net | 2,663 | 116 | (5,062 | ) | 436 | 3,638 | 7,095 | (16,092 | ) | |||||||||||||||||||
Income (loss) before provision for income taxes | 68,769 | 48,639 | 55,198 | (19,624 | ) | (134,697 | ) | 111,378 | 695,869 | |||||||||||||||||||
Income tax provision | 21,098 | 6,574 | 12,077 | 14,070 | 11,852 | 5,343 | 9,506 | |||||||||||||||||||||
Net income (loss) | $ | 47,671 | $ | 42,065 | $ | 43,121 | $ | (33,694 | ) | $ | (146,549 | ) | $ | 106,035 | $ | 686,363 | ||||||||||||
Net income (loss) per share — basic | $ | 0.18 | $ | 0.16 | $ | 0.16 | $ | (0.13 | ) | $ | (0.58 | ) | $ | 0.46 | $ | 3.10 | ||||||||||||
Net income (loss) per share — diluted | $ | 0.17 | $ | 0.16 | $ | 0.16 | $ | (0.13 | ) | $ | (0.58 | ) | $ | 0.44 | $ | 2.94 | ||||||||||||
Shares used in per share calculation — basic | 269,794 | 267,676 | 268,176 | 260,446 | 250,610 | 231,591 | 221,051 | |||||||||||||||||||||
Shares used in per share calculation — diluted | 273,484 | 270,239 | 270,260 | 260,446 | 250,610 | 240,761 | 233,677 | |||||||||||||||||||||
15
Table of Contents
Nine Months Ended | Fiscal Year Ended | |||||||||||||||||||||||||||
July 29, | July 29, | October 29, | October 30, | October 25, | October 26, | October 27, | ||||||||||||||||||||||
2006 | 2005 | 2005(1) | 2004(2) | 2003(3) | 2002 | 2001(4) | ||||||||||||||||||||||
Unaudited(5) | ||||||||||||||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||
Cash, cash equivalents, investments and restricted short-term investments | $ | 776,534 | $ | 413,993 | $ | 764,402 | $ | 736,908 | $ | 835,565 | $ | 888,388 | $ | 255,148 | ||||||||||||||
Working capital | 393,350 | 357,474 | 309,736 | 434,162 | 355,634 | 534,777 | 237,682 | |||||||||||||||||||||
Total assets | 1,116,241 | 968,365 | 985,681 | 987,382 | 1,063,174 | 1,171,367 | 448,488 | |||||||||||||||||||||
Non-current liabilities associated with lease losses | 12,338 | 13,554 | 12,481 | 16,799 | 16,518 | 22,602 | 30,896 | |||||||||||||||||||||
Convertible subordinated debt and capital lease obligations | 278,883 | 278,883 | 278,883 | 352,279 | 442,950 | 550,000 | — | |||||||||||||||||||||
Total stockholders’ equity | 569,901 | 501,420 | 508,847 | 445,652 | 447,868 | 446,255 | 310,565 |
Note: | Brocade reports its fiscal year on a52/53-week period ending on the last Saturday in October of each year. Accordingly, the fiscal year ends for fiscal years 2005, 2004, and 2004 were October 29, 30, and 25, respectively. As is customary for companies that use the52/53-week convention, every 5th year contains a53-week fiscal year. As a result, Brocade’s fiscal year 2004 was a53-week fiscal year. Also as a result, Brocade’s second quarter of fiscal year 2004 included one extra week and was 14 weeks in length. Fiscal years 2005 and 2003 were both52-week fiscal years. |
(1) | The fiscal year ended October 29, 2005, includes the impact of the acquisition of Therion, which was completed in the third quarter of fiscal year 2005. In connection with Brocade’s acquisition of Therion, it recorded in-process research and development expense of $7.8 million (see Note 3, “Acquisitions,” of the Notes to Consolidated Financial Statements beginning on page F-14 of this joint proxy statement/prospectus). The fiscal year ended October 29, 2005, also includes audit committee internal review and SEC investigation costs of $14.0 million. In January 2005, Brocade announced that its audit committee completed an internal review regarding historical stock option granting practices. Following the January 2005, audit committee internal review, on May 16, 2005, Brocade announced that additional information came to its attention that indicated that certain guidelines regarding stock option granting practices were not followed and its audit committee had commenced an internal review of Brocade’s stock option accounting focusing on leaves of absence and transition and advisory roles. Brocade’s audit committee review was completed in November 2005. In addition, in the fiscal year ended October 29, 2005, Brocade recorded a $5.1 million net loss on investments on the disposition of portfolio investments primarily associated with the defeasance of the indenture agreement relating to its 2% Convertible Notes (see Note 8, “Convertible Subordinated Debt,” of the Notes to Consolidated Financial Statements beginning on page F-21 of this joint proxy statement/prospectus) and recorded a total of $2.3 million gain on repurchases of convertible subordinated debt. | |
(2) | The fiscal year ended October 30, 2004, includes the impact of restructuring costs of $9.0 million related to a restructuring plan implemented during the three months ended May 1, 2004 (see Note 4, “Restructuring Costs,” of the Notes to Consolidated Financial Statements beginning on page F-16 of this joint proxy statement/prospectus). The fiscal year ended October 30, 2004, also includes a net lease termination charge and other of $75.6 million. During the three months ended January 24, 2004, Brocade purchased a previously leased building located near its San Jose headquarters for $106.8 million in cash. The $106.8 million consisted of $30.0 million for the purchase of land and a building and $76.8 million for a lease termination fee (see Note 5, “Liabilities Associated with Facilities Lease Losses and Asset Impairment Charges,” of the Notes to Consolidated Financial Statements beginning on page F-17 of this joint proxy statement/prospectus). In addition, in the fiscal year ended October 30, 2004, Brocade recorded a $6.9 million charge in settlement of a claim relating to its acquisition of Rhapsody and recorded a total of $5.6 million gain on repurchases of convertible subordinated debt. | |
(3) | The fiscal year ended October 25, 2003, includes the impact of its acquisition of Rhapsody, which was completed in the second quarter of fiscal year 2003. In connection with its acquisition of Rhapsody, Brocade recorded in-process research and development expense of $134.9 million (see Note 3, “Acquisitions,” of the Notes to Consolidated Financial Statements beginning on page F-14 of this joint proxy statement/ |
16
Table of Contents
prospectus). The fiscal year ended October 25, 2003, also includes restructuring costs of $20.8 million (see Note 4, “Restructuring Costs,” of the Notes to Consolidated Financial Statements beginning on page F-16 of this joint proxy statement/prospectus), gain on repurchases of convertible subordinated debt of $11.1 million, and net gains on the disposition of non-marketable private strategic investments of $3.6 million. | ||
(4) | The fiscal year ended October 27, 2001, includes the impact of the following items recorded during the fourth quarter ended October 27, 2001: charges to cost of revenues of $7.7 million primarily associated with the accrual of purchase commitments for excess inventory components related to a transition of product offerings from 1 to 2 Gigabit per second (Gbit/sec) technology; charges included in operating expenses of $45.5 million related to estimated facilities lease losses and the impairment of certain related leasehold improvements following a comprehensive evaluation of real estate facility requirements; charges included in operating expenses of $4.4 million related to the impairment of equipment no longer used in research and development and sales and marketing efforts associated with a transition of product offerings from 1 to 2 Gbit/sec technology; and losses on investments of $19.5 million related toother-than-temporary declines in the fair value of private minority equity investments in non-publicly traded companies as a result of significant deterioration in the private equity markets, and related adjustment for income tax provisions. | |
(5) | The unaudited selected consolidated financial data for fiscal year 2001 has been revised to reflect adjustments related to the restatement described in Note 3, “Restatement of Consolidated Financial Statement,” of the Notes to Consolidated Financial Statements in Brocade’sForm 10-K/A for fiscal year ended October 30, 2004. As a result of the adjustments, Brocade previously reported net income has been reduced, or previously reported net loss has been increased, by approximately $47.3 million, $0.7 million, and $2.2 million for fiscal years 2001, 2000, and 1999. These adjustments relate primarily to stock-based compensation expense for certain employees on leaves of absence and in transition or advisory roles prior to ceasing employment with Brocade. |
17
Table of Contents
Six Months Ended July 31, | Years Ended January 31, | Years Ended December 31, | ||||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2004(1) | 2002 | 2001 | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||||
Consolidated Statement of Operations Data: | ||||||||||||||||||||||||||||
Total revenue | $ | 318,442 | $ | 264,177 | $ | 614,433 | $ | 399,660 | $ | 418,860 | $ | 328,279 | $ | 344,406 | ||||||||||||||
Total cost of revenue | 179,299 | 129,125 | 309,091 | 176,161 | 177,329 | 178,114 | 215,751 | |||||||||||||||||||||
Gross profit | 139,143 | 135,052 | 305,342 | 223,499 | 241,531 | 150,165 | 128,655 | |||||||||||||||||||||
Total operating expenses(2) | 171,899 | 158,104 | 335,843 | 247,935 | 249,739 | 173,506 | 156,681 | |||||||||||||||||||||
Loss from operations(2) | (32,756 | ) | (23,052 | ) | (30,501 | ) | (24,436 | ) | (8,208 | ) | (23,341 | ) | (28,026 | ) | ||||||||||||||
Net loss | $ | (30,109 | ) | $ | (28,375 | ) | $ | (30,601 | ) | $ | (20,872 | ) | $ | (43,133 | ) | $ | (9,987 | ) | $ | (8,656 | ) | |||||||
Basic net loss per share | $ | (0.20 | ) | $ | (0.22 | ) | $ | (0.22 | ) | $ | (0.18 | ) | $ | (0.38 | ) | $ | (0.09 | ) | $ | (0.08 | ) | |||||||
Diluted net loss per share | $ | (0.20 | ) | $ | (0.22 | ) | $ | (0.22 | ) | $ | (0.18 | ) | $ | (0.38 | ) | $ | (0.09 | ) | $ | (0.08 | ) | |||||||
Shares used in computing basic net loss per share | 153,436 | 127,302 | 140,331 | 115,355 | 114,682 | 113,185 | 111,475 | |||||||||||||||||||||
Shares used in computing diluted net loss per share | 153,436 | 127,302 | 140,331 | 115,355 | 114,682 | 113,185 | 111,475 |
18
Table of Contents
July 31, | January 31, | December 31, | ||||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2004(1) | 2002 | 2001 | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Consolidated Balance Sheets Data: | ||||||||||||||||||||||||||||
Total assets(3) | $ | 1,131,191 | $ | 1,199,862 | $ | 1,146,709 | $ | 818,235 | $ | 830,968 | $ | 555,191 | $ | 513,953 | ||||||||||||||
Working capital(3) | 183,372 | 208,311 | 281,089 | 206,034 | 195,708 | 283,627 | 277,471 | |||||||||||||||||||||
Long-term portion of obligations(4) | 217,921 | 339,749 | 296,974 | 172,756 | 173,591 | 1,540 | 789 | |||||||||||||||||||||
Total stockholders’ equity | 528,945 | 551,338 | 552,223 | 397,224 | 417,642 | 474,505 | 469,791 |
(1) | On January 15, 2003, McDATA changed its fiscal year to end on January 31 rather than December 31. McDATA believes that the twelve months ended December 31, 2002 and 2001 provide a meaningful comparison to the twelve months ended January 31, 2004. | |
(2) | In fiscal 2005, McDATA incurred restructuring and acquisitions-related charges totaling approximately $12.9 million ($1.2 million in cost of revenue and $11.7 million in operating expenses.). In fiscal year 2004, McDATA incurred restructuring charges of approximately $1.3 million and in fiscal 2003, McDATA incurred restructuring costs and acquisition-related charges totaling approximately $13.7 million. In 2001, McDATA incurred acquisition-related charges of approximately $9.3 million. | |
(3) | Reflects approximately $86 million and $89 million in current assets and liabilities for the six months ended July 31, 2006 and 2005, respectively, and approximately $63 million, $131 million and $127 million for fiscal years 2005, 2004 and 2003, respectively, related to McDATA’s securities lending program entered into during fiscal 2003. | |
(4) | Includes long-term convertible notes payable acquired in fiscal 2003 with McDATA’s acquisition of Nishan Systems, Inc. and Sanera Systems, Inc. and capital leases, excluding current portion. |
19
Table of Contents
COMBINED CONSOLIDATED FINANCIAL DATA
Nine Months | Fiscal Year | |||||||
Ended | Ended | |||||||
July 29, 2006 | October 29, 2005 | |||||||
- | - | |||||||
(In thousands, except | ||||||||
per share data) | ||||||||
Unaudited Pro Forma Condensed | ||||||||
Combined Statement of Income Data: | ||||||||
Net revenue | $ | 1,041,964 | $ | 1,269,066 | ||||
Operating income (loss) | 11,447 | (11,620 | ) | |||||
Net Income (loss) | 14,185 | (14,108 | ) | |||||
Net Income (loss) per share: | ||||||||
Basic | $ | 0.04 | $ | (0.04 | ) | |||
Diluted | $ | 0.04 | $ | (0.04 | ) | |||
Weighted average number of common shares: | ||||||||
Basic | 384,968 | 380,399 | ||||||
Diluted | 389,713 | 380,399 |
As of July 29, | ||||
2006 | ||||
Unaudited Pro Forma Condensed Combined Balance Sheet Data: | ||||
Cash and cash equivalents, investments and restricted short term investments | $ | 1,200,795 | ||
Working capital | 578,147 | |||
Total assets | 2,305,953 | |||
Long-term debt | 146,000 | |||
Total stockholders’ equity | 1,187,895 |
(1) | See the section entitled “Pro Forma Financial Statements” beginning on page 116 of this joint prospectus/proxy statement/information statement. |
20
Table of Contents
Year Ended | Year Ended | Three Months Ended | ||||||||||||||||||
October 29, 2005 | January 31, 2006 | April 30, 2005 | Pro Forma | |||||||||||||||||
Brocade & | McDATA | |||||||||||||||||||
Brocade | McDATA | CNT | McDATA | Equivalent | ||||||||||||||||
Income (loss) per common share: | ||||||||||||||||||||
Basic | $ | 0.16 | $ | (0.22 | ) | $ | (0.29 | ) | $ | (0.04 | ) | $ | (0.03 | ) | ||||||
Diluted | $ | 0.16 | $ | (0.22 | ) | $ | (0.29 | ) | $ | (0.04 | ) | $ | (0.03 | ) |
Nine Months Ended July 29, 2006 | ||||||||||||||||
Pro Forma | ||||||||||||||||
Brocade & | McDATA | |||||||||||||||
Brocade | McDATA | McDATA | Equivalent | |||||||||||||
Income (loss) per common share: | ||||||||||||||||
Basic | $ | 0.18 | $ | (0.16 | ) | $ | 0.04 | $ | 0.03 | |||||||
Diluted | $ | 0.17 | $ | (0.16 | ) | $ | 0.04 | $ | 0.03 | |||||||
Book value per common share at period end | $ | 2.11 | $ | 3.42 | $ | 3.08 | $ | 2.31 | ||||||||
Shares used to compute book value per share | 270,207 | 154,702 | 386,234 | — |
21
Table of Contents
McDATA Common Stock | Brocade Common Stock | Equivalent Price Per Share | ||||||||||||||||||||||
High | Low | High | Low | High | Low | |||||||||||||||||||
August 7, 2006 | $ | 3.12 — A | $ | 3.03 — A | ||||||||||||||||||||
$ | 2.88 — B | $ | 2.78 — B | $ | 6.24 | $ | 6.10 | $ | 4.68 | $ | 4.58 | |||||||||||||
September 1, 2006 | $ | 4.35 — A | $ | 4.25 — A | ||||||||||||||||||||
$ | 4.27 — B | $ | 4.18 — B | $ | 6.33 | $ | 6.18 | $ | 4.75 | $ | 4.64 |
Brocade Common Stock | ||||||||
High | Low | |||||||
($) | ($) | |||||||
Year Ending October 28, 2006 | ||||||||
Fourth Fiscal Quarter (through September 1, 2006) | 6.38 | 5.01 | ||||||
Third Fiscal Quarter | 6.69 | 5.52 | ||||||
Second Fiscal Quarter | 6.97 | 4.56 | ||||||
First Fiscal Quarter | 4.63 | 3.44 | ||||||
Year Ending October 29, 2005 | ||||||||
Fourth Fiscal Quarter | 4.49 | 3.51 | ||||||
Third Fiscal Quarter | 4.49 | 3.88 | ||||||
Second Fiscal Quarter | 6.42 | 4.35 | ||||||
First Fiscal Quarter | 7.99 | 5.83 |
22
Table of Contents
Brocade Common Stock | ||||||||
High | Low | |||||||
($) | ($) | |||||||
Year Ending October 30, 2004 | ||||||||
Fourth Fiscal Quarter | 6.80 | 4.04 | ||||||
Third Fiscal Quarter | 6.14 | 4.41 | ||||||
Second Fiscal Quarter | 7.44 | 5.35 | ||||||
First Fiscal Quarter | 7.95 | 5.49 |
23
Table of Contents
• | revenue attrition in excess of anticipated levels; | |
• | Brocade’s inability to conduct extensive integration planning with McDATA prior to the completion of the merger; | |
• | 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, or OEMs, end-users, distributors and suppliers; | |
• | failure to qualify the combined company’s products with OEM customers on a timely basis or at all; | |
�� | ||
• | failure to successfully develop interoperability between the products of Brocade and McDATA; | |
• | failure to leverage the increased scale of the combined company quickly and effectively; | |
• | potential difficulties integrating and harmonizing financial reporting systems; | |
• | the loss of key employees; | |
• | failure to effectively coordinate sales and marketing efforts to communicate the capabilities of the combined company; and | |
• | failure to combine product offerings and product lines quickly and effectively. |
24
Table of Contents
25
Table of Contents
• | Brocade or McDATA may be required to pay a termination fee of $22 million if the merger is terminated under certain circumstances, or Brocade may be required to pay a termination fee of $60 million if the merger is terminated under certain other circumstances, all as described in the merger agreement; |
26
Table of Contents
• | Brocade and McDATA will be required to pay certain costs relating to the merger, such as legal, accounting, financial advisor and printing fees whether or not the merger is completed; | |
• | matters relating to the merger (including integration planning) may require substantial commitments of time and resources by Brocade and McDATA management, which could otherwise have been devoted to other opportunities that may have been beneficial to Brocade and McDATA, as the case may be. |
27
Table of Contents
• | with respect to the executive officers of McDATA, the eligibility to receive severance and retention payments; | |
• | with respect to the executive officers of McDATA, accelerated vesting of stock awards under McDATA’s equity plans in the event the executive officer is terminated without “cause” or “constructively terminated” (as such terms are defined in the applicable agreement) within a certain period following the merger; | |
• | the continued indemnification of current directors and officers of McDATA under the merger agreement and the continuation of directors’ and officers’ liability insurance after the merger; | |
• | the retention of some of the officers of McDATA as officers, employees or consultants of Brocade or its subsidiaries; and | |
• | the acceleration of vesting of restricted stock and restricted stock units held by McDATA executive officers at the effective time of the merger. |
28
Table of Contents
• | properly define the new products and services; | |
• | timely develop and introduce the new products and services; | |
• | differentiate Brocade’s new products and services from its competitors’ offerings; and | |
• | address the complexities of interoperability of Brocade’s products with its OEM partners’ server and storage products and its competitors’ products. |
• | successfully identifying market opportunities; | |
• | developing new customer relationships; | |
• | expanding Brocade’s relationships with its existing OEM partners and end-users; | |
• | managing different sales cycles; | |
• | hiring qualified personnel with appropriate skill sets on a timely basis; | |
• | establishing effective distribution channels and alternative routes to market; and | |
• | estimating the level of customer acceptance and rate of market adoption. |
29
Table of Contents
30
Table of Contents
31
Table of Contents
• | 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; | |
• | changes, disruptions or downturns in general economic conditions, particularly in the information technology industry; | |
• | declines in average selling prices for Brocade’s products as a result of competitive pricing pressures or new product introductions by Brocade or its competitors; | |
• | the emergence of new competitors 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; |
32
Table of Contents
• | Brocade’s ability to obtain sufficient supplies of sole- or limited-sourced components, including application-specific integrated circuits, or 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 through which they are sold; | |
• | pending or threatened litigation; | |
• | stock-based compensation expense that is affected by Brocade’s stock price; | |
• | new legislation and regulatory developments; and | |
• | other risk factors detailed in this section entitled “Risks Related to Brocade.” |
33
Table of Contents
34
Table of Contents
• | incur significant unplanned expenses and personnel costs; | |
• | issue stock, or assume stock option plans that would dilute Brocade’s current stockholders’ percentage ownership; | |
• | use cash, which may result in a reduction of Brocade’s liquidity; | |
• | incur debt; | |
• | assume liabilities; and | |
• | spend resources on unconsummated transactions. |
35
Table of Contents
• | problems integrating the purchased operations, technologies, personnel or products over geographically disparate locations; | |
• | unanticipated costs, litigation and other contingent liabilities; | |
• | diversion of management’s attention from Brocade’s core business; | |
• | adverse effects on existing business relationships with suppliers and customers; | |
• | risks associated with entering into markets in which Brocade have limited, or no prior experience; | |
• | failure to successfully manage additional remote locations, including the additional infrastructure and resources necessary to support and integrate such locations; | |
• | incurrence of significant exit charges if products acquired in business combinations are unsuccessful; | |
• | incurrence of merger-related costs or amortization costs for acquired intangible assets that could impact Brocade’s operating results; | |
• | potential write-down of goodwilland/or acquired intangible assets, which are subject to impairment testing on a regular basis, and could significantly impact Brocade’s operating results; | |
• | inability to retain key customers, distributors, vendors and other business partners of the acquired business; and | |
• | potential loss of Brocade’s key employees or the key employees of an acquired organization. |
36
Table of Contents
37
Table of Contents
38
Table of Contents
• | negatively affect the reliability and cost of transportation; | |
• | negatively affect the desire and ability of Brocade’s employees and customers to travel; | |
• | disrupt the production capabilities of Brocade’s OEM partners, contract manufacturers and suppliers; | |
• | adversely affect Brocade’s ability to obtain adequate insurance at reasonable rates; and | |
• | require Brocade to take extra security precautions for its operations. |
39
Table of Contents
• | supporting multiple languages; | |
• | recruiting sales and technical support personnel with the skills to design, manufacture, sell, and support Brocade’s products; | |
• | increased complexity and costs of managing international operations; | |
• | increased exposure to foreign currency exchange rate fluctuations; | |
• | commercial laws and business practices that favor local competition; | |
• | multiple, potentially conflicting, and changing governmental laws, regulations and practices, including differing export, import, tax, labor, anti-bribery and employment laws; | |
• | longer sales cycles and manufacturing lead times; | |
• | difficulties in collecting accounts receivable; | |
• | reduced or limited protection of intellectual property rights; | |
• | managing a development team in geographically disparate locations, including China and India; | |
• | more complicated logistics and distribution arrangements; and | |
• | political and economic instability. |
40
Table of Contents
• | stop selling, incorporating or using products or services that use the challenged intellectual property; | |
• | obtain from the owner of the infringed intellectual property a license to the relevant intellectual property, which may require Brocade to pay royalty or license fees, or to license Brocade’s intellectual property to such owner, and which may not be available on commercially reasonable terms or at all; and | |
• | redesign those products or services that use technology that is the subject of an infringement claim. |
41
Table of Contents
• | 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. |
42
Table of Contents
• | macroeconomic conditions; | |
• | actual or anticipated fluctuations in Brocade’s operating results; | |
• | changes in financial estimates and ratings by securities analysts; | |
• | changes in market valuations of other technology companies; | |
• | announcements of financial results by Brocade or other technology companies; | |
• | announcements by Brocade, its competitors, customers, or similar businesses of significant technical innovations, contracts, mergers, strategic partnerships, joint ventures or capital commitments; | |
• | comments made by third-party market observers that may impact investment decisions of investors; | |
• | losses of major OEM partners; | |
• | additions or departures of key personnel; | |
• | adverse finding resulting from the SEC and DOJ investigation or related litigation; | |
• | sales by Brocade of common stock or convertible securities; | |
• | incurring additional debt; and | |
• | other risk factors detailed in this section. |
• | fluctuations in demand for McDATA’s products and services; | |
• | increasing competition from competitors which have products similar to McDATA and the availability of alternative products that can address storage networking needs of customers; | |
• | the potentially negative financial impact related to McDATA’s acquisition of Computer Network Technology Corporation, or CNT; | |
• | the timing of customer orders, which are often grouped toward the end of a quarter, particularly large orders from McDATA’s significant customers and whether any orders are cancelled; | |
• | the sales mix among McDATA’s storage networking products and services; | |
• | McDATA’s traditionally long sales cycle, which can range from 90 days to 12 months or more; | |
• | the fact that McDATA’s products and services are usually only part of an overall solution that its customers may have problems implementing or obtaining the required components or services from other vendors; | |
• | McDATA’s ability to successfully qualify its products with storage OEMs and its ability to source third party products that McDATA resells; |
43
Table of Contents
• | announcements and new product introductions by McDATA’s competitors and deferrals of customer orders in anticipation of new products, services or product enhancements introduced by it or its competitors; | |
• | decreases over time in the prices at which McDATA can sell its products; | |
• | McDATA’s ability to obtain sufficient supplies of components, including limited sourced components, and products McDATA supplies at reasonable prices, or at all; | |
• | communication costs and the availability of communication lines; | |
• | increases in the prices of the components and supplied products McDATA purchases; | |
• | the under utilization of consultants; | |
• | McDATA’s ability to attain and maintain production volumes and quality levels for its products; | |
• | increased expenses, particularly in connection with McDATA’s strategy to continue to expand its relationships with the parties with whom McDATA has entered into strategic relationships; and | |
• | general economic and political conditions and related customer budget constraints. |
44
Table of Contents
45
Table of Contents
• | successfully combining product and service offerings; | |
• | integrating and coordinating sales and marketing activities; | |
• | realizing the financial, operational and headcount synergies to improve McDATA’s overall business model; | |
• | integrating and coordinating research and development activities to enhance existing or introduce new products and services; | |
• | preserving customer, distribution, reseller, OEM, manufacturing, supplier and other important relationships of both McDATA and CNT and resolving potential conflicts that may arise; | |
• | minimizing the diversion of management attention from other strategic opportunities and operational matters; | |
• | integrating the diverse financial systems of both McDATA and CNT; |
46
Table of Contents
• | addressing differences in the business cultures of McDATA and CNT, maintaining employee morale and retaining key employees; and | |
• | coordinating and combining overseas operations, relationships and facilities, which may be subject to additional constraints imposed by geographic distance, local laws and regulations. |
• | expenses associated with developing and customizing McDATA’s products for foreign countries and different languages; | |
• | difficulties in staffing and managing international operations, including recruiting qualified personnel in foreign markets and reliance on third parties to manage certain aspects of its foreign operations, including hub inventory locations; | |
• | unusually high expenses and timeliness with the hiring and termination of employees in foreign countries; | |
• | multiple, conflicting and changing governmental laws and regulations, including difficulty in enforcing its legal rights in foreign jurisdictions; | |
• | tariffs, quotas and other import or export restrictions, trade protection measures and other regulatory requirements on computer peripheral equipment; | |
• | longer sales cycles for its products; | |
• | reduced or limited protections of intellectual property rights; | |
• | adverse tax consequences, including imposition of withholding or other taxes on payments by subsidiaries and customers; | |
• | compliance with international standards that differ from domestic standards; | |
• | risks surrounding any product and software outsourcing activities in foreign countries; and | |
• | political, social and economic instability in a specific country or region. |
47
Table of Contents
48
Table of Contents
• | stop using the challenged intellectual property or selling its products or services that incorporate it; | |
• | obtain a license to use the challenged intellectual property or to sell products or services that incorporate it, which license may not be available on reasonable terms, or at all; and | |
• | redesign those products or services that are based on or incorporate the challenged intellectual property. |
49
Table of Contents
50
Table of Contents
• | the size, timing, terms and fluctuations of customer orders, which are often grouped toward the end of a calendar quarter, particularly large orders from EMC, IBM or HDS; | |
• | pricing discussions late in a quarter and a limited capability to ramp shipments near the end of that quarter; | |
• | the sales mix among its storage network products and services; | |
• | fluctuations in its direct sales to customers; | |
• | McDATA’s ability to attain and maintain market acceptance of its existing product and new products; | |
• | seasonal fluctuations in customer buying patterns; | |
• | the timing of the introduction of, or enhancement to, products by McDATA’s, McDATA’s significant OEM or reseller customers or its competitors (e.g., transition to higher speed, higher port density and multi-protocol products); | |
• | McDATA’s ability to obtain sufficient supplies of third party products or single- or limited-source components for its own products; and | |
• | increased operating expenses, particularly in connection with its strategies to increase customer touch and purchase preference for its products or to invest in research and development. |
51
Table of Contents
• | issue stock that would dilute its current stockholders’ percentage ownership; | |
• | use cash, which may result in a reduction of its liquidity; | |
• | incur debt; or | |
• | assume liabilities. |
• | problems combining and integrating the purchased operations, technologies, personnel or products; | |
• | unanticipated costs; | |
• | the diversion of management’s attention from McDATA’s core business; | |
• | adverse effects on existing business relationships with suppliers and customers; | |
• | risks associated with entering markets in which McDATA has no or limited prior experience; and | |
• | potential loss of key employees of acquired organizations. |
52
Table of Contents
• | authorizing the issuance of preferred stock without stockholder approval; | |
• | providing for a classified board of directors with staggered three year terms; | |
• | limiting the persons who may call special meetings of stockholders; | |
• | requiring super-majority voting for stockholder action by written consent; | |
• | establishing advance notice requirements for nominations for election to the board of directors and for proposing other matters that can be acted on by stockholders at stockholder meetings; | |
• | prohibiting cumulative voting for the election of directors; | |
• | requiring super-majority voting to effect certain amendments to McDATA’s certificate of incorporation and bylaws; and | |
• | requiring parties to request board approval prior to acquiring 15% or more of the voting power of McDATA’s common stock to avoid economic and voting dilution of their stock holdings. |
53
Table of Contents
54
Table of Contents
55
Table of Contents
1. | The issuance of shares of Brocade Communications Systems, Inc. common stock in connection with the merger contemplated by the Agreement and Plan of Reorganization, dated as of August 7, 2006, by and among Brocade Communications Systems, Inc., Worldcup Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of Brocade, and McDATA Corporation. |
56
Table of Contents
57
Table of Contents
58
Table of Contents
• | submitting a written notice of revocation to the corporate secretary of Brocade at 1745 Technology Drive, San Jose, CA 95110 bearing a later date than the proxy; | |
• | granting a duly executed proxy relating to the same shares and bearing a later date (which automatically revokes the earlier proxy) and delivering it to the corporate secretary of Brocade; | |
• | voting at a later date by telephone or Internet; or | |
• | voting in person at the Brocade special meeting. |
59
Table of Contents
1. | The adoption of the Agreement and Plan of Reorganization, dated as of August 7, 2006, among McDATA, Brocade and Worldcup Merger Corporation, a wholly-owned subsidiary of Brocade. |
60
Table of Contents
• | the Internet, as described on the proxy card; | |
• | telephone, as described on the proxy card; or | |
• | mail, by completing and returning the enclosed proxy card. |
61
Table of Contents
• | send a written, dated notice to the Secretary of McDATA at McDATA’s principal executive offices stating that you would like to revoke your proxy; | |
• | complete, date and submit a new later-dated proxy card; | |
• | vote at a later date by telephone or by using the Internet; or | |
• | vote in person at the special meeting. Your attendance alone will not revoke your proxy. |
62
Table of Contents
McDATA Corporation
11802 Ridge Parkway
Broomfield, Colorado 80021
Phone:(720) 558-8000
Email: investor_relations@mcdata.com
63
Table of Contents
64
Table of Contents
65
Table of Contents
66
Table of Contents
67
Table of Contents
68
Table of Contents
• | determined that the merger agreement and the consummation of the merger is advisable and in the best interests of Brocade and its stockholders and approved the issuance of Brocade common stock in connection with the merger; | |
• | directed that the approval of the issuance of shares of Brocade common stock in connection with the merger be submitted for approval of the stockholders of Brocade; and | |
• | resolved to recommend that Brocade stockholders vote “FOR” approval of the issuance of shares of Brocade common stock in connection with the merger. |
• | scale and cost synergies may enhance Brocade’s ability to efficiently meet the demand for its products; | |
• | the broadening and integration of the companies’ product lines may enable the combined company to meet the needs of its customers more effectively and efficiently and provide more complete solutions to its customers; | |
• | combined technological resources may allow the combined company to compete more effectively by providing it with enhanced ability to develop new products and greater functionality for existing products; | |
• | the creation of larger sales and services organizations, greater marketing resources and financial strength may present improved opportunities for marketing the products of Brocade; | |
• | the combined installed customer base; | |
• | the combined experience, financial resources, size and breadth of product offerings of the combined company may allow the combined company to respond more quickly and effectively to customer needs, technological change, increased competition and shifting market demand; and | |
• | the merger may provide the combined company with an improved platform for future growth. |
• | the strategic benefits of the merger; | |
• | historical information concerning Brocade’s and McDATA’s respective businesses, prospects, financial performance and condition, operations, management and competitive position, including, with respect to McDATA, information contained in public reports concerning results of operations filed with the SEC; | |
• | Brocade’s management’s view of the financial condition, results of operations and businesses of Brocade and McDATA before and after giving effect to the merger; | |
• | current financial market conditions and historical market prices, volatility and trading information with respect to Brocade’s common stock and the common stock of McDATA; | |
• | the relationship between the market value of the common stock of McDATA and the consideration proposed to be paid to stockholders of McDATA in the merger and a comparison of comparable merger transactions; |
69
Table of Contents
• | the belief that the terms of the merger agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable; | |
• | management’s view of the prospects of Brocade as an independent company; | |
• | other strategic alternatives for Brocade, including the potential to enter into strategic relationships with third parties or acquire or combine with third parties; | |
• | Morgan Stanley’s opinion that, as of August 7, 2006, and based upon and subject to the assumptions, qualifications and limitations set forth in the opinion, the exchange ratio set forth in the merger agreement was fair from a financial point of view to Brocade; | |
• | the impact of the merger on Brocade’s customers, suppliers and employees; and | |
• | reports from Brocade’s management and Brocade’s legal and financial advisors as to the results of the due diligence investigation of McDATA. |
• | the risk that the potential benefits sought in the merger might not be fully realized; | |
• | the possibility that the merger might not be consummated, or that consummation might be unduly delayed; | |
• | the effect of public announcement of the merger on (a) Brocade’s sales and operating results and (b) Brocade’s ability to attract and retain key management, marketing and technical personnel; | |
• | the substantial charges to be incurred in connection with the merger, including costs of integrating the businesses and transaction expenses arising from the merger; | |
• | the risk that despite the efforts of the combined company, key technical and management personnel might not remain employed by the combined company; and | |
• | various other risks commonly associated with transactions such as the merger, including risks associated with the merger and the business of Brocade, McDATA and the combined company, including those described in the section entitled “Risk Factors” beginning on page 24. |
70
Table of Contents
• | reviewed certain publicly available financial statements and other business and financial information of Brocade and McDATA, respectively; | |
• | reviewed certain internal financial statements and projections and other financial and operating data concerning Brocade and McDATA, prepared by the managements of Brocade and McDATA, respectively; | |
• | discussed the past and current operations and financial condition and the prospects of Brocade and McDATA with the managements of Brocade and McDATA, respectively; | |
• | discussed certain strategic, financial and operational benefits anticipated from the merger with the managements of Brocade and McDATA, respectively; | |
• | reviewed the pro forma financial impact of the merger on the combined company’s earnings per share and other metrics; | |
• | reviewed the reported prices and trading activity for the Brocade common stock and the McDATA common stock; | |
• | compared the financial performance of Brocade and McDATA and the prices and trading activity of Brocade common stock and McDATA common stock with that of certain other publicly-traded companies comparable with Brocade and McDATA, respectively, and their securities; | |
• | discussed the strategic rationale for the merger with the management of Brocade and McDATA; | |
• | reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions; | |
• | participated in discussions and negotiations among representatives of Brocade and McDATA and their financial and legal advisors; | |
• | reviewed the merger agreement and certain related documents; and | |
• | performed such other analyses and considered other such factors as Morgan Stanley deemed appropriate. |
71
Table of Contents
Range of Closing | Range of Closing | |||||||
Period Ended August 7, 2006 | Prices for McDATA | Prices for Brocade | ||||||
Last 30 Trading Days | $ | 3.10 - $4.14 | $ | 5.66 - $6.30 | ||||
Last 60 Trading Days | $ | 3.10 - $4.19 | $ | 5.52 - $6.30 | ||||
Last 12 Months | $ | 3.10 - $5.48 | $ | 3.44 - $6.97 |
72
Table of Contents
• | Brocade Communication Systems, Inc. | |
• | EMC Corporation | |
• | Emulex Corporation | |
• | Extreme Networks Inc. | |
• | Hewlett-Packard Company | |
• | International Business Machines Corporation | |
• | Foundry Networks, Inc. | |
• | Juniper Networks, Inc., | |
• | Network Appliance, Inc. | |
• | Packeteer, Inc. | |
• | Polycom, Inc. | |
• | QLogic Corporation |
• | EMC Corporation | |
• | Extreme Networks Inc. | |
• | Hewlett-Packard Company | |
• | International Business Machines Corporation | |
• | Foundry Networks, Inc. | |
• | Juniper Networks, Inc. | |
• | McDATA Corporation | |
• | Network Appliance, Inc. |
73
Table of Contents
• | Packeteer, Inc. | |
• | Polycom, Inc. | |
• | QLogic Corporation |
Comparable Company | ||||||||
Representative | Implied Value | |||||||
Calendar Year Financial Statistic | Multiple Range | per Share of McDATA | ||||||
Aggregate Value to Estimated 2006E Revenue | 0.6x - 1.7 | x | $ | 3.02 - $7.50 | ||||
Aggregate Value to Estimated 2007E Revenue | 0.6x - 1.5 | x | $ | 3.28 - $7.31 | ||||
Aggregate Value to Estimated 2006E EPS | 13.0x - 18.0 | x | $ | 2.48 - $3.43 | ||||
Aggregate Value to Estimated 2007E EPS | 11.0x - 16.0 | x | $ | 3.67 - $5.34 |
Comparable Company | ||||||||
Representative | Implied Value per | |||||||
Calendar Year Financial Statistic | Multiple Range | Share of Brocade | ||||||
Aggregate Value to Estimated 2006E Revenue | 1.4x - 2.2 | x | $ | 5.54 - $7.46 | ||||
Aggregate Value to Estimated 2007E Revenue | 1.4x - 2.0 | x | $ | 5.89 - $7.46 | ||||
Aggregate Value to Estimated 2006E EPS | 16.0x - 22.0 | x | $ | 5.49 - $7.54 | ||||
Aggregate Value to Estimated 2007E EPS | 15.0x - 19.0 | x | $ | 5.56 - $7.04 |
74
Table of Contents
Implied Value per | ||||
Share of McDATA | ||||
Adjusted Street Case | $ | 5.33 - $ 8.21 | ||
Standalone Downside Case | $ | 3.33 - $ 5.35 | ||
Adjusted Street Case with Synergies | $ | 7.00 - $11.02 | ||
Downside Case with Synergies | $ | 5.79 - $ 8.93 |
Implied % | Implied | |||||||
Pro Forma Ownership | Value per | Implied | ||||||
McDATA | Brocade | McDATA Share | Exchange Ratio | |||||
Revenue | ||||||||
Years Ending October 31,2005A - 2007E | ||||||||
(2007E without Synergies) | 38.3% - 38.5% | 61.5% - 61.7% | $6.73 - $6.79 | 1.096x - 1.106x | ||||
Years Ending October 31, 2005A - 2007E | ||||||||
(2007E with Synergies) | 31.3% - 38.5% | 61.5% - 68.7% | $4.95 - $6.79 | 0.807x - 1.106x | ||||
Gross Profit | ||||||||
Years Ending October 31, 2005A - 2007E | ||||||||
(2007E without Synergies) | 35.0% - 36.8% | 63.2% - 65.0% | $5.85 - $6.31 | 0.952x - 1.027x | ||||
Years Ending October 31, 2005A - 2007E | ||||||||
(2007E with Synergies) | 28.0% - 36.8% | 63.2% - 72.0% | $4.23 - $6.31 | 0.690x - 1.027x | ||||
Operating Income | ||||||||
Years Ending October 31, 2005A - 2007E | ||||||||
(2007E without Synergies) | 17.4% - 30.7% | 69.3% - 82.6% | $2.30 - $4.82 | 0.375x - 0.785x | ||||
Years Ending October 31, 2005A - 2007E | ||||||||
(2007E with Synergies) | 17.4% - 37.5% | 62.5% - 82.6% | $2.30 - $6.49 | 0.375x - 1.057x | ||||
Net Income | ||||||||
Years Ending October 31, 2005A - 2007E | ||||||||
(2007E without Synergies) | 19.4% - 33.0% | 67.0% - 80.6% | $2.62 - $5.35 | 0.427x - 0.872x | ||||
Years Ending October 31, 2005A - 2007E | ||||||||
(2007E with Synergies) | 19.4% - 37.4% | 62.6% - 80.6% | $2.62 - $6.48 | 0.427x - 1.055x |
75
Table of Contents
• | Avant! Corporation/Synopsys, Inc. | |
• | ChipPAC, Inc./ST Assembly Test Services Ltd. | |
• | DuPont Photomasks, Inc./Toppan Printing Co., Ltd. | |
• | J.D. Edwards/Peoplesoft, Inc. | |
• | Maxtor Corporation/Seagate Technology | |
• | Peoplesoft, Inc./Oracle Corporation | |
• | Siebel Systems, Inc./Oracle Corporation | |
• | Verity, Inc./Autonomy Corporation plc |
Precedent Transaction | Reference | Implied Value | McDATA/Brocade | |||||
Financial Statistic | Range | per Share | Financial Statistic | |||||
Premium to1-day prior price | 20% - 60% | $3.73 - $4.98 | 48 | % | ||||
Premium to30-day average price | 20% - 80% | $4.24 - $6.36 | 30 | % | ||||
Premium to30-day average exchange ratio | 40% - 85% | $5.05 - $6.67 | 28 | % |
• | Advanced Fibre Communications, Inc./Tellabs, Inc. | |
• | Artesyn Technologies, Inc./Emerson Electric Co. | |
• | Certance Corp./Quantum Corp. | |
• | Computer Network Technology Corporation/McDATA Corporation | |
• | Decru, Inc./Network Appliance, Inc. | |
• | Flarion Technologies, Inc./Qualcomm Incorporated | |
• | Lucent Technologies Inc./Alcatel | |
• | Maxtor Corporation/Seagate Technology | |
• | Memorex International, Inc./Imation Corp. | |
• | NatSteel Electronics Ltd/Solectron Corporation | |
• | QLogic Corporation/Marvell Technology Group Ltd. | |
• | Quantum Corporation/Maxtor Corporation |
76
Table of Contents
• | Scientific-Atlanta, Inc./Cisco Systems, Inc. | |
• | Storage Technology Corporation/Sun Microsystems, Inc. | |
• | Topspin Communications, Inc./Cisco Systems, Inc. | |
• | Unisphere Networks, Inc./Juniper Networks, Inc. | |
• | Xircom, Inc./Intel Corporation |
Precedent Transaction | Implied Value | McDATA/Brocade | ||||||||
Financial Statistic | Reference Range | per Share | Financial Statistic | |||||||
Premium to1-day prior price | 10% - 60% | $ | 3.42 - $4.98 | 48 | % | |||||
Premium to30-day average price | 10% - 75% | $ | 3.88 - $6.18 | 30 | % | |||||
Premium to30-day average exchange ratio | 10% - 60% | $ | 3.97 - $5.77 | 28 | % | |||||
Aggregate value to last twelve months sales ratio | 0.5x - 1.7x | $ | 2.55 - $7.43 | 1.0 | x | |||||
Aggregate value to next twelve months sales ratio | 0.5x - 1.5x | $ | 2.70 - $7.04 | 0.9 | x | |||||
Price to next twelve months earnings per share ratio | 20.0x - 40.0x | $ | 5.58 - $11.16 | 16.5 | x |
77
Table of Contents
78
Table of Contents
• | the expectation that the expanded technological resources of the combined company will allow the combined company to compete more effectively and efficiently by accelerating and enhancing its ability to develop new networking products and deliver the functionality demanded by customers as they expand their networking infrastructures over vast distances; | |
• | the expectation that by combining and optimizing the OEM relationships, sales channels and marketing organizations of McDATA and Brocade, the combined company will possess expanded coverage and improved opportunities for marketing the products of the combined company; | |
• | the expectation that the merger will benefit OEM partners by reducing operational costs, accelerating investment in differentiated solutions to jointly develop new markets, streamlining certification and qualification process for new products and delivering higher levels of support and service; | |
• | the expectation that the merger will create a broader range of solutions and services that protect and extend customers’ existing investments in SAN infrastructure and allow interoperability and management unification between the product lines of the combined company; | |
• | the expectation that by combining the two companies, a more efficient business operating model can be obtained leading to enhanced operating efficiencies; | |
• | the expectation that the experience, financial resources, revenue diversification and size and breadth of product and service offerings of the combined company will position it to respond more quickly and effectively to technological change, increased competition and shifting market demand; | |
• | the expectation that the merger with Brocade will leverage the experience of two of the leaders of the industry; | |
• | the increasingly competitive landscape and the potential entry of other competitors; | |
• | the prospect for an improved competitive position for the combined company which could offer a broad set ofbest-in-class networking infrastructure solutions to customers and potential customers in new market segments; | |
• | market conditions, an assessment of market demands and future customer requirements and the associated development resources needed to satisfy these requirements; | |
• | the effect of the merger on McDATA’s customers, suppliers and employees; and | |
• | the expectation that the merger will provide the combined company with an improved platform for future growth and profitability. |
79
Table of Contents
• | the strategic benefits of the merger; | |
• | the risks and benefits of proceeding with the merger compared to risks and benefits of continuing as a separate company; | |
• | the exchange ratio implied premiums of approximately 48% over the closing price of McDATA’s Class A common stock and approximately 62% over the closing price of McDATA’s Class B common stock as of August 7, 2006 and premiums of approximately 30% over the thirty day trailing average closing prices of McDATA’s Class A common stock and approximately 42% over the thirty day trailing average closing prices of McDATA’s Class B common stock from August 7, 2006; | |
• | the fixed exchange ratio which will not change with fluctuation of the value of McDATA Class A and Class B common stock or the Brocade common stock; | |
• | the financial analyses reviewed with the McDATA board by Credit Suisse and the oral opinion of Credit Suisse rendered to the McDATA board of directors on August 7, 2006, subsequently confirmed in writing, to the effect that, as of the date of the Credit Suisse opinion, and based upon and subject to the factors and assumptions set forth in its opinion, the Aggregate Consideration was fair to the stockholders of McDATA, other than Brocade, from a financial point of view. See “The Merger — Opinion of McDATA’s Financial Advisor” beginning on page 82; | |
• | the terms of the merger agreement, including the conditions to closing and the parties right to terminate the merger agreement; | |
• | the termination fee payable to McDATA under certain circumstances and the fee payable to McDATA if the merger is delayed or prohibited under HSR Act or other anti-trust laws; | |
• | the likelihood of obtaining regulatory approval, including antitrust clearance; | |
• | McDATA’s rights under the merger agreement to consider unsolicited acquisition proposals and to change its recommendation to McDATA stockholders to adopt the merger agreement and approve the merger should McDATA receive a superior proposal; | |
• | the merger is structured and intended to qualify as a “reorganization” for United States federal income tax purposes and, generally, the consideration to be received by McDATA stockholders in the merger (except for the cash received in lieu of fractional shares of Brocade common stock) will not be subject to income tax until the disposition of the Brocade common stock received by stockholders pursuant to the merger; | |
• | the composition of the board of directors of Brocade after the merger; | |
• | information concerning McDATA’s and Brocade’s respective businesses, prospects, financial performance and condition, operations, technology, management and competitive position, including, with respect to Brocade, public reports concerning results of operations during the most recent fiscal year and fiscal quarters filed with the SEC; | |
• | management’s view of the current and historical financial condition, results of operations and businesses of McDATA and Brocade before and after giving effect to the merger; | |
• | current and historical financial market conditions and market prices, volatility and trading information with respect to the Class A and Class B common stock of McDATA and the common stock of Brocade; | |
• | the relationship between the market value of the Class A and Class B common stock of McDATA and the consideration to be paid to stockholders of McDATA pursuant to the exchange ratio and a comparison of comparable merger transactions; |
80
Table of Contents
• | the financial condition, results of operation, business and strategic objectives of McDATA and Brocade before and after giving effect to the merger and the merger’s potential effect on stockholder value; and | |
• | the results of the due diligence investigation of Brocade. |
• | the volatility of the trading prices of common stock of McDATA and Brocade, including the fact that the exchange ratio is fixed and will not increase in the event of an increase in the trading prices of McDATA Class A or Class B common stock or an decline in the trading price of Brocade common stock; | |
• | the potential dilution to McDATA’s stockholders; | |
• | the risk that the potential benefits and synergies sought in the merger might not be fully realized if the combined company fails to meet the challenges involved in integrating the operations of McDATA and Brocade; | |
• | the possibility that the merger might not be consummated, even if approved by the stockholders of McDATA and Brocade, and the effects on McDATA if the merger is not consummated; | |
• | the effect of the public announcement and pendency of the merger on McDATA’s and Brocade’s sales, operating results, stock prices, customers, supplies, employees, partners and other constituencies; | |
• | the effect of public announcement of the merger on McDATA’s ability to attract and retain key management, marketing and technical personnel; | |
• | the possibility that the market price of McDATA Class A and Class B common stock could decrease sharply if the merger was not viewed favorably by stockholders, financial analysts and the press, generally; | |
• | the interests that McDATA’s executive officers and directors may have with respect to the merger in addition to their interests as McDATA stockholders. See “The Merger — Interests of McDATA Directors and Officers in the Merger” beginning on page 87 of this joint proxy statement/prospectus for a more complete discussion of these interests; and | |
• | various other risks associated with the combined company and the merger, including those described under the section entitled “Risk Factors” beginning on page 24 of this joint proxy statement/prospectus. |
81
Table of Contents
• | reviewed a draft of the merger agreement dated August 7, 2006 and certain related agreements; | |
• | reviewed certain publicly available business and financial information relating to McDATA and Brocade; | |
• | reviewed certain other information relating to McDATA and Brocade, including financial forecasts, provided to Credit Suisse by McDATA and Brocade, and met with the managements of McDATA and Brocade to discuss the business and prospects of McDATA and Brocade; | |
• | considered certain financial and stock market data of McDATA and Brocade, and compared that data with similar data for other publicly held companies in businesses Credit Suisse deemed similar to those of McDATA and Brocade; | |
• | considered, to the extent publicly available, the financial terms of certain other business combinations and other transactions which have recently been effected or announced; and | |
• | considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which Credit Suisse deemed relevant. |
82
Table of Contents
83
Table of Contents
• | Cisco Systems, Inc. | |
• | Juniper Networks, Inc. | |
• | QLogic Corporation | |
• | Foundry Networks, Inc. | |
• | Emulex Corporation | |
• | Extreme Networks, Inc. |
• | IBM Corporation | |
• | Hewlett-Packard Company | |
• | Dell Inc. | |
• | EMC Corporation | |
• | Sun Microsystems, Inc. | |
• | Network Appliance, Inc. |
84
Table of Contents
Implied Price per McDATA Share | Implied Exchange Ratio | Implied Aggregate Consideration | ||
(Millions of shares) | ||||
$2.30 - $5.49 | 0.368x - 0.878x | 56.7 - 135.5 |
Implied Price per McDATA Share | Implied Exchange Ratio | Implied Aggregate Consideration | ||
(Millions of shares) | ||||
$4.23 - $5.83 | 0.677x - 0.933x | 104.5 - 144.0 |
85
Table of Contents
Implied Price per McDATA Share | Implied Exchange Ratio | Implied Aggregate Consideration | ||
(Millions of shares) | ||||
$3.70 - $6.26 | 0.591x - 1.001x | 91.2 - 154.5 |
Acquiror | Target | |
SanDisk Corp. | M-Systems Ltd. | |
Quantum Corp. | Advanced Digital Information Corporation | |
Micron Systems Inc. | Lexar Media, Inc. | |
Imation Corp. | Memorex International, Inc. | |
Seagate Technology | Maxtor Corporation | |
Sun Microsystems, Inc. | Storage Technology Corporation | |
McDATA Corporation | Computer Networks Technology Corporation | |
Quantum Corp. | Certance | |
Adaptec, Inc. | Snap Appliances, Inc. | |
Dot Hill Systems Corp. | Chaparral Network Storage, Inc. | |
Juniper Networks, Inc. | Netscreen Technologies, Inc. | |
Emulex Corporation | Vixel Corp. | |
Western Digital Corp. | Read-Rite Corp. | |
Computer Network Technology Corporation | Inrange Technologies Corp. | |
Hitachi, Ltd. | IBM Corporation (disk business) |
86
Table of Contents
Implied Price per McDATA Share | Implied Exchange Ratio | Implied Aggregate Consideration | ||
(Millions of shares) | ||||
$3.42 - $5.97 | 0.548x - 0.956x | 84.5 - 147.5 |
87
Table of Contents
88
Table of Contents
• | not compete against McDATA and any successor for a period of one year following termination; | |
• | not solicit employees and certain customers of McDATA and any successor for a period of one year following termination; | |
• | not disparage McDATA, its successor or their respective directors, officers or employees; | |
• | not disclose “confidential information” or “trade secrets” of McDATA and any successor; and | |
• | provide and not subsequently revoke a full release of all claims. |
89
Table of Contents
• | the date that is six months following the effective time of the merger; and | |
• | the termination of such executive officer’s employment without “cause” (as defined in the Retention Plan). |
• | compliance with the confidentiality, non-compete, non-solicitation, proprietary information and inventions agreements, and/or other appropriate agreements. |
90
Table of Contents
Aggregate | ||||||||||||||||||||||||||||||||||
Class B | ||||||||||||||||||||||||||||||||||
Shares | ||||||||||||||||||||||||||||||||||
Subject to | Estimated | |||||||||||||||||||||||||||||||||
Aggregate | Aggregate | Accelerated | Cash | |||||||||||||||||||||||||||||||
Class B | Class B | Vesting | Weighted | Severance | ||||||||||||||||||||||||||||||
Shares | Shares | Upon or | Average | Number of | Payment | Estimated | ||||||||||||||||||||||||||||
Subject to | Subject | Following the | Price of | Number of | Restricted | per | Retention | |||||||||||||||||||||||||||
Relationship | Outstanding | to Vested | Occurrence | Outstanding | Restricted | Stock | Severance | Plan | ||||||||||||||||||||||||||
Name | to McDATA | Options | Options | of the Merger(1) | Options | Shares | Units | Agreement(2) | Payment | |||||||||||||||||||||||||
John A. Kelley, Jr. | Chairman, President and CEO | 1,515,000 | 886,250 | 628,750 | $ | 8.40 | 59,100 | 318,750 | $ | 1,080,000 | $ | 1,125,000 | ||||||||||||||||||||||
Todd Oseth | Executive VP and COO | 400,000 | — | 400,000 | $ | 4.02 | — | 200,000 | $ | 540,250 | $ | 555,000 | ||||||||||||||||||||||
Scott A. Berman | Executive VP Finance and CFO | 255,000 | 48,750 | 206,250 | $ | 3.84 | 85,000 | 175,000 | $ | 535,542 | $ | 568,750 | ||||||||||||||||||||||
Thomas O. McGimpsey | Executive VP Business Development and CLO | 325,250 | 110,250 | 215,000 | $ | 7.36 | 21,000 | 80,000 | $ | 440,250 | $ | 453,750 | ||||||||||||||||||||||
Michael J. Frendo | Senior Vice President, Engineering | 375,000 | — | 375,000 | $ | 3.86 | — | 120,000 | $ | 368,250 | �� | $ | 371,250 | |||||||||||||||||||||
Adrian Jones | Senior Vice President, Worldwide Sales and Service | 50,000 | — | 50,000 | $ | 3.56 | — | — | $ | 248,317 | $ | 410,000 | ||||||||||||||||||||||
Laurence G. Walker | Director | 244,500 | 214,500 | — | $ | 8.59 | 15,000 | — | — | — | ||||||||||||||||||||||||
Renato DiPentima | Director | 60,000 | 12,500 | — | $ | 3.64 | 10,000 | — | — | — | ||||||||||||||||||||||||
John W. Gerdelman | Director | 214,500 | 199,500 | — | $ | 9.08 | 15,000 | — | — | — | ||||||||||||||||||||||||
Charles C. Johnston | Director | 149,500 | 134,500 | — | $ | 12.53 | 15,000 | — | — | — | ||||||||||||||||||||||||
Alex Mendez | Director | 100,000 | 60,000 | — | $ | 7.67 | 15,000 | — | — | — | ||||||||||||||||||||||||
Van Skilling | Director | 214,500 | 199,500 | — | $ | 9.08 | 15,000 | — | — | — | ||||||||||||||||||||||||
Michael J. Sophie | Director | 100,000 | 72,500 | — | $ | 7.16 | 15,000 | — | — | — | ||||||||||||||||||||||||
Thomas M. Uhlman | Director | 214,500 | 199,500 | — | $ | 9.08 | 15,000 | — | — | — |
(1) | Pursuant to the executive officer severance agreements, vesting will accelerate upon termination without “cause” or upon “constructive termination” within 12 months following the change of control of McDATA. | |
(2) | The amount of cash severance benefit identified for each executive officer (i) assumes that the executive officer’s employment is terminated without “cause” or “constructively terminated” immediately following the merger and (ii) is based upon current base salaries and bonus opportunities. |
• | For a period of six years after the effective time of the merger, Brocade shall, and shall cause McDATA to, indemnify, to the fullest extent permitted by law, defend and hold harmless, and provide advancement of expenses to, the present and former officers and directors of McDATA and its subsidiaries in respect of any claim or action based or arising, in whole or in part, out of the fact that such person is or was a director or |
91
Table of Contents
officer of McDATA or its subsidiaries, and pertaining to any matter existing or occurring, or any acts or omissions occurring, at or prior to the effective time of the merger. |
• | Each such person shall have the rights referenced above to the same extent as the rights of such person under McDATA’s or its subsidiaries’ certificate of incorporation or bylaws, or other charter documents, and indemnification agreements, each as of the date of the merger agreement. These rights will survive completion of the merger and are intended to benefit, and shall be enforceable by, each such person. | |
• | For a period of six years after the completion of the merger, Brocade will cause McDATA to maintain in effect directors’ and officers’ liability insurance covering those persons who are currently covered by McDATA’s directors’ and officers’ liability insurance policy for events occurring prior to the effective time of the merger on terms comparable to those applicable to the current directors and officers of McDATA; provided, however that in no event will McDATA or Brocade be required to expend in the aggregate for such coverage in excess of 250% of the annual premium currently paid by McDATA; it being understood that McDATA shall nevertheless be obligated to provide such coverage as may be obtained for such amount. | |
• | If Brocade or McDATA or their successor or assign consolidates with or merges into any other person and is not the continuing or surviving corporation or entity, or transfers all or substantially all of its properties and assets to any person, then proper provision shall be made so that the successor and assign of Brocade or McDATA, as the case may be, honors the foregoing obligations. | |
• | These rights will survive completion of the merger and are intended to benefit, and shall be enforceable by, each such person. |
92
Table of Contents
• | an effective registration statement under the Securities Act covering the resale of those shares; | |
• | an exemption under paragraph (d) of Rule 145 under the Securities Act; or | |
• | any other applicable exemption under the Securities Act. |
93
Table of Contents
• | who are subject to special tax rules such as dealers in securities, foreign persons, mutual funds, regulated investment companies, real estate investment trusts, insurance companies, banks or other financial institutions or tax-exempt entities; | |
• | who are subject to the alternative minimum tax provisions of the Code; | |
• | who acquired their shares in connection with stock option or stock purchase plans or in other compensatory transactions; | |
• | who hold their shares as a hedge or as part of a hedging, straddle or other risk reduction strategy; | |
• | pass-through entities and investors in pass-through entities; or | |
• | who do not hold their shares as capital assets. |
• | the tax consequences of transactions effectuated before, after or at the same time as the merger, whether or not they are in connection with the merger, including, without limitation, transactions in which McDATA shares are acquired or Brocade shares are disposed of; | |
• | the tax consequences to holders of options issued by McDATA which are assumed, replaced, exercised or converted, as the case may be, in connection with the merger; | |
• | the tax consequences of the receipt of Brocade shares other than in exchange for McDATA shares; or |
94
Table of Contents
• | the tax implications of a failure of the merger to qualify as a reorganization. |
• | an individual who is a citizen or resident of the United States; | |
• | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States or any subdivision thereof; | |
• | an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or | |
• | a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust. |
• | U.S. Holders will not recognize any gain or loss upon the receipt of solely Brocade common stock for their McDATA common stock, other than with respect to cash received in lieu of fractional shares of Brocade common stock; | |
• | the aggregate tax basis of the shares of Brocade common stock received by U.S. Holders in the merger (including any fractional share deemed received) will be the same as the aggregate basis of the shares of McDATA common stock surrendered in exchange therefor; | |
• | the holding period of the shares of Brocade common stock received by U.S. Holders in the merger will include the holding period of the shares of McDATA common stock surrendered in exchange therefor; | |
• | cash payments received by U.S. Holders in lieu of fractional shares will be treated as if such fractional shares of Brocade common stock were issued in the merger and then sold. A U.S. Holder who receives such cash will recognize gain or loss equal to the difference, if any, between such stockholder’s basis in the fractional share as determined above and the amount of cash received. Such gain or loss will be a capital gain or loss and any such capital gain will be long-term capital gain if the McDATA common stock is held by such stockholder as a capital asset at the effective time of the merger and such stockholder’s holding period for his, her or its McDATA common stock is more than one year; and | |
• | Brocade, Worldcup Merger Corporation and McDATA will not recognize any gain or loss solely as a result of the merger. |
95
Table of Contents
96
Table of Contents
97
Table of Contents
• | the number of whole shares of Brocade common stock to which such holder is entitled pursuant to the merger agreement; | |
• | cash in lieu of any fractional shares of Brocade common stock; and | |
• | cash for dividends or other distributions, if any, to which they are entitled under the terms of the merger agreement. |
98
Table of Contents
• | corporate organization, qualifications to do business, corporate standing and corporate power; | |
• | absence of any violation of the certificate of incorporation and bylaws and the certificates of incorporation, bylaws and similar organizational documents of subsidiaries; | |
• | ownership of subsidiary capital stock and the absence of restrictions or encumbrances with respect to the capital stock of any subsidiary; | |
• | capitalization; |
99
Table of Contents
• | corporate authorization to enter into and consummate the transactions contemplated by the merger agreement and the enforceability of the merger agreement; | |
• | absence of any conflict or violation of any applicable legal requirements, corporate charter and bylaws, and the charter, bylaws and similar organizational documents of subsidiaries as a result of entering into and consummating the transactions contemplated by the merger agreement; | |
• | the effect of entering into and consummating the transactions contemplated by the merger agreement on material contracts; | |
• | governmental and regulatory approvals required to complete the merger; | |
• | filings and reports with the SEC; | |
• | financial statements; | |
• | internal controls and procedures; | |
• | compliance with Sarbanes-Oxley and the rules and regulations of Nasdaq; | |
• | absence of any material adverse effect in business between April 30, 2006 and August 7, 2006, the date of the merger agreement and the absence of certain other changes and events since April 30, 2006; | |
• | taxes; | |
• | intellectual property; | |
• | compliance with applicable laws; | |
• | possession of and compliance with permits required for the operation of business; | |
• | litigation; | |
• | payment, if any, required to be made to brokers, finders, financial advisors or other similar fee or commission on account of the merger; | |
• | employee benefit plans and labor relations; | |
• | environmental matters; | |
• | absence of breaches of material contracts; | |
• | accuracy of information supplied in this joint proxy statement/prospectus and the related registration statement filed by Brocade with the SEC; | |
• | approvals by the board of directors; | |
• | the receipt of a fairness opinion; and | |
• | stockholder rights plans. |
100
Table of Contents
• | preserve intact its present business organization; | |
• | keep available the services of its present executive officers and employees; and | |
• | preserve its relationships with customers, suppliers, licensors, licensees, and others with which it has business dealings. |
• | entering into any new line of business; | |
• | declaring, setting aside or paying dividends or making any other distributions; | |
• | splitting, combining or reclassifying its capital stock or issuing or authorizing the issuance of any other securities in respect of, in lieu of or in substitution for its capital stock; | |
• | purchasing, redeeming or acquiring its capital stock or the capital stock of its subsidiaries other than repurchases of unvested shares at cost under stock option or purchase agreements existing as of the date of the merger agreement to which an employee is party; | |
• | issuing, delivering, selling, authorizing, pledging or otherwise encumbering its capital stock, voting debt or securities convertible into its capital stock or voting debt, or entering into any agreement or obligation to do the same other than: |
• | issuances of its common stock upon the exercise of options, warrants or other rights of McDATA in effect on the date of the merger agreement or granted subsequent to the date of the merger agreement as a routine grant of options or other stock-based awards as described below, | |
• | issuances of its common stock to participants in its stock purchase plan, and | |
• | certain routine grants of options or other stock based awards (including restricted stock) to acquire up to 5,800,000 shares of its common stock in the aggregate, granted under its equity plans in the ordinary course of business; |
• | modifying or amending its certificate of incorporation and bylaws or the certificate of incorporation, bylaws or similar organizational documents of its subsidiaries; | |
• | acquiring or agreeing to acquire by merger or consolidation with, or by purchasing any equity or voting interest in or a portion of the assets of, any business of any person or entity, or otherwise acquiring any assets which are material to its business; | |
• | entering into any binding agreement, agreement in principle, letters of intent, memorandum of understanding or similar agreement with respect to any material joint venture, strategic partnership or alliance, other than in connection with certain non-exclusive marketing, distributor, reseller, end-user and related channel agreements entered into in the ordinary course of business consistent with past practice; | |
• | sell, lease, license, encumber or otherwise dispose of any properties or assets except (i) sales of inventory in the ordinary course of business consistent with past practice or (ii) the sale, lease, license or disposition of property, assets or non-exclusive licenses of intellectual property in the ordinary course of business consistent with past practice, in each case, which are not material, individually or in the aggregate, to the business of McDATA and its subsidiaries taken as a whole; | |
• | making any loans, advances or capital contributions to, or investments in, any other person, other than loans or investments by it or wholly-owned subsidiary of it to or in it or any wholly-owned subsidiary of it or employee advances for travel and entertainment expenses made in the ordinary course of business consistent with past practice; |
101
Table of Contents
• | making any material change in its methods or principles of accounting, except as required by GAAP or the SEC; | |
• | making or changing any material tax election or adopting or changing any accounting method that is reasonably likely to adversely affect, in any material respect, the tax liability or tax attributes of McDATA, except as required by law; | |
• | settling or compromising any tax liability or consenting to any waiver or extension of a limitation period with respect to taxes except as required by law; | |
• | materially revaluing any of its assets, except as required by GAAP or the SEC; | |
• | paying, discharging, settling or satisfying any claims or litigation (whether or not commenced prior to the date of the merger agreement) other than (i) in the ordinary course of business consistent with past practice, or in amounts not in excess of $1,000,000 individually or $7,500,000 in the aggregate, or (ii) to the extent subject to reserves on the McDATA financial statements existing as of the date of the merger agreement, in accordance with GAAP; | |
• | waiving the benefits of, agreeing to modify in any manner, terminating, releasing any person from or knowingly failing to enforce any confidentiality or similar agreement to which McDATA or any of its subsidiaries is a party or a beneficiary; | |
• | increasing the compensation or fringe benefits of, or making severance, termination or bonus payments to, any employee, consultant or director of McDATA; | |
• | making any increase in or committing to increase the benefits or expanding the eligibility under any of McDATA’s benefits plans; adopting, amending or making any commitment to adopt or amend any of its benefit plans; or making any contribution, other than regularly scheduled contributions, to any of its benefit plans, subject to certain exceptions; | |
• | waiving any stock repurchase rights, accelerating, amending or changing the period of exercisability of any options to purchase shares of McDATA common stock, or repricing any options or authorizing cash payments in exchange for any option to purchase shares of McDATA common stock, subject to certain exceptions; | |
• | entering into any employment, severance, termination or indemnification agreement with any McDATA director, employee or consultant or entering into any collective bargaining agreement, other than in the ordinary course of business and with compensation not to exceed $200,000 per year, subject to certain exceptions; | |
• | granting any stock appreciation right, phantom stock award, stock-related award or performance award to any person, subject to certain exceptions; | |
• | entering into any agreement with any McDATA current or former employee, director or consultant, the benefits of which are contingent or the terms of which are materially altered upon the occurrence of a change in control, subject to certain exceptions; | |
• | granting any exclusive rights with respect to any material intellectual property of McDATA; | |
• | entering into or renewing any contracts containing any non-competition, exclusivity or other material restrictions on McDATA, Brocade or the combined company following the closing of the merger; | |
• | entering into any agreement or commitment that provides access or rights to McDATA interoperability or compatibility information, creates obligations or restrictions on McDATA with respect to interoperability or compatibility of its products, or requires McDATA to collaborate with third party storage networking vendors regarding support of mixed environments; | |
• | entering into any agreement or commitment the effect of which would be to grant to a third party following the merger any actual or potential right of license to any intellectual property owned at the effective time of the merger by Brocade or any of its subsidiaries; |
102
Table of Contents
• | entering into or renewing any agreements containing any material support, maintenance or service obligations, subject to certain exceptions; | |
• | hiring employees, other than in the ordinary course of business consistent with past practice and at compensation levels substantially comparable to that of similarly situated employees; | |
• | incurring any indebtedness for borrowed money in excess of $20,000,000 in the aggregate or guaranteeing any such indebtedness of another person or issuing or selling any debt securities or any option, warrant, call or other right to acquire any debt securities of McDATA or its subsidiaries, other than in connection with the financing of ordinary course trade payables consistent with practice; | |
• | entering into any “keep well” or other agreement to maintain any financial statement condition of any person (other than a wholly-owned subsidiary of McDATA) or entering into any similar arrangement, other than in connection with the financing of ordinary course trade payables consistent with practice; | |
• | making capital expenditures outside the ordinary course of business consistent with past practice or beyond those contained in McDATA’s capital expenditure budget in effect as of the date of the merger agreement; | |
• | entering into, modifying or amending in a manner adverse to McDATA, or terminating any material contract of McDATA, or waiving, releasing or assigning any material rights or claims thereunder in a manner adverse to McDATA, other than in the ordinary course of business consistent with past practice; | |
• | entering into any contract reasonably likely to require McDATA or any of its subsidiaries to pay a third party in excess of an aggregate of $2,500,000; or | |
• | agreeing in writing or otherwise to take any of the foregoing actions. |
• | preserve intact its present business organization; | |
• | keep available the services of its present executive officers and employees; and | |
• | preserve its relationships with customers, suppliers, licensors, licensees, and others with which it has business dealings. |
• | declaring, setting aside or paying dividends or making any other distributions; | |
• | splitting, combining or reclassifying its capital stock or issuing or authorizing the issuance of any other securities in respect of, in lieu of, or in substitution; | |
• | purchasing, redeeming or acquiring, directly or indirectly, its capital stock or the capital stock of its subsidiaries other than repurchases of unvested shares at cost under stock option or purchase agreements existing as of the date of the merger agreement to which an employee is party or in connection with any stock repurchase program authorized by the board of directors on or prior to the date of the merger agreement; | |
• | issuing, delivering, selling, or authorizing its capital stock, voting debt or securities convertible into its capital stock or voting debt, or entering into any agreement or obligation to do the same other than: |
• | issuances of its common stock upon the exercise of options, warrants or other rights of Brocade, | |
• | issuances of its common stock to participants in its stock purchase plan, |
103
Table of Contents
• | grants of stock options or other stock based awards of or to acquire Brocade common stock granted under stock option plans in effect as of the date of the merger agreement, consistent with past practice, | |
• | in connection with certain allowed mergers, consolidations or purchases of equity or assets of any business, and | |
• | as necessary for retention purposes as determined in the reasonable judgment of Brocade; |
• | modifying or amending its certificate of incorporation and bylaws or the certificate of incorporation, bylaws or similar organizational documents of its subsidiaries other than as contemplated by the merger agreement; | |
• | acquiring or agreeing to acquire any business which would require the approval of Brocade’s stockholders, have a purchase price in excess of $150,000,000 or otherwise pose a risk of delaying the merger or making it more difficult to obtain any required consent for the merger; | |
• | except as necessary to comply with the terms of the merger agreement, selling, leasing, licensing, encumbering or otherwise disposing of any property material to its business, subject to certain exceptions; | |
• | make any investments in excess of $100,000,000, which would require the approval of Brocade’s stockholders or otherwise pose a risk of delaying the merger or making it more difficult to obtain any required consent for the merger, subject to certain exceptions; | |
• | making any material change in its methods; principles or practices of accounting, except as required by GAAP or the SEC; | |
• | except as required by law, making any tax election or changing any accounting method that is reasonably likely to adversely affect, in any material respect, the tax liability or tax attributes of Brocade; | |
• | materially revaluing any of its assets, except as required by GAAP or the SEC; | |
• | incurring any new indebtedness for borrowed money, issuing or selling any debt securities or options, warrants, rights calls or other rights to acquire any debt securities of Brocade or its subsidiaries, guaranteeing any debt securities, or entering into any agreement to maintain any financial statement condition of anyone else, all having a total value in excess of $275,000,000, subject to certain exceptions; or | |
• | agreeing in writing or otherwise to take any of the foregoing actions. |
• | Preparation of Registration Statement and Joint Proxy Statement/Prospectus. Brocade and McDATA agreed to promptly prepare and file this joint proxy statement/prospectus included as part of the registration statement, and Brocade agreed to promptly prepare and file the registration statement following the execution of the merger agreement. Both parties also agreed to use reasonable best efforts to have the registration statement declared effective by the SEC as promptly as practicable, and Brocade agreed to take any action required by applicable state securities laws in connection with the issuance of Brocade common stock in connection with the merger. Brocade and McDATA agreed to furnish information regarding Brocade and McDATA and their respective securityholders as reasonably required. | |
• | Meeting of Stockholders. Brocade and McDATA agreed to take all actions necessary to hold the special meetings of their respective stockholders to consider and vote upon, in the case of Brocade, the issuance of shares of Brocade common stock in connection with the merger and, in the case of McDATA, the adoption of the merger agreement. | |
• | Access to Information. Each party has agreed to afford the other party’s accountants, counsel and other identified representatives reasonable access during reasonable hours to its properties, books, records and personnel during the period prior to the effective time of the merger to obtain all reasonable information concerning its business as may be reasonably requested, except as prohibited or restricted by applicable law or the confidentiality agreement between the parties. McDATA’s access to information regarding Brocade is |
104
Table of Contents
limited to information (i) reasonably necessary to confirm whether there has been a breach or inaccuracy of a Brocade representation or warranty or failure by Brocade to perform a covenant or (ii) that otherwise relates to any material development in Brocade’s business which could reasonably be expected to lead to a material adverse effect on Brocade. |
• | Public Announcements. Brocade and McDATA have agreed to consult with one another before issuing any press release or otherwise making any public statements about the merger or related transactions, unless otherwise required by any applicable laws or regulations. | |
�� | ||
• | Notification of Certain Matters. Brocade and McDATA each agreed to give prompt notice to the other of any representation or warranty in the merger agreement becoming untrue or inaccurate, or any failure to comply with or satisfy in any material respect any covenant or condition to be complied with or satisfied under the merger agreement, in each case where the respective party would not satisfy the closing condition with respect to its representations or warranties. | |
• | Third Party Consents. Brocade and McDATA each agreed to use its reasonable best efforts to obtain any material consents, waivers or approvals under any of its respective contracts which are required to be obtained in connection with the consummation of the merger. | |
• | Service and Retention. After completion of the merger, Brocade has agreed to honor certain executive severance agreements and other employment and retention agreements of certain McDATA employees, as well as McDATA’s retention plan, with certain limitations. In addition, Brocade has agreed to provide severance benefits pursuant to McDATA’s separation pay plan (in accordance with terms agreed to by the parties) to any McDATA employee who continues employment with Brocade and is terminated voluntarily and without cause on or prior to the date that is 90 days following the effective date of the merger. | |
• | Termination of 401(k) Plans. Unless otherwise requested by Brocade, McDATA has agreed to adopt resolutions to terminate its 401(k) plans effective no later than the date immediately preceding the effective date of the merger. | |
• | Stock Exchange Listing. Brocade has agreed to use reasonable best efforts to authorize for listing on the Nasdaq Global Select Market the shares of Brocade common stock issuable, and those required to be reserved for issuance, in connection with the merger, subject to official notice of issuance. | |
• | Affiliates. McDATA has agreed to use reasonable best efforts to obtain an agreement from all McDATA stockholders who may be affiliates of Brocade and McDATA pursuant to which those stockholders would, among other things, agree not to transfer shares of Brocade common stock they receive pursuant to the merger in violation of the Securities Act and related rules and regulations. | |
• | Treatment as a Reorganization. Brocade and McDATA have agreed not to, and agreed not to permit any of their respective subsidiaries to, take any action prior to or following the closing that would reasonably be expected to cause the merger to fail to qualify as a reorganization within the meaning Section 368(a) of the Internal Revenue Code. | |
• | Section 16 Matters. Prior to the effective time of the merger, McDATA and Brocade have agreed to take all such steps as may be required to cause any dispositions of McDATA common stock resulting from the transactions contemplated by the merger agreement by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to McDATA and the acquisition of Brocade common stock by each individual who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Brocade, to be exempt underRule 16b-3 promulgated under the Exchange Act. | |
• | Convertible Debt. McDATA has agreed to deliver supplemental indentures to the trustees of certain indentures of McDATA and a subsidiary and amendments to the confirmations relating to certain call options. |
105
Table of Contents
106
Table of Contents
• | those filings or submissions required under the HSR Act, as well as any other comparable merger notification or control laws of any applicable jurisdiction, as agreed by the parties; | |
• | any other filing required for any necessary consent; and | |
• | any filings required under the Securities Act, the Exchange Act, any applicable state or securities or “blue sky” laws and the securities laws of any foreign country. |
• | consult with the other with respect to the filings or submissions described above, coordinate with the other in preparing and exchanging information with respect to such filing or submissions and provide the other party an opportunity to review and comment on such filings or submissions; | |
• | promptly notify the other upon the receipt of any comments or requests for amendments or supplements to any filings or submissions made pursuant to, or information provided to comply with, any applicable laws, regulations and any other requirements of any governmental entity; and | |
• | promptly provide the other copies of any filing or submission made with any governmental entity. |
• | any comments from any officials of any governmental entity in connection with any filings made pursuant to the merger agreement; and | |
• | any request by any officials of any governmental entity for amendments or supplements to any filings made pursuant to, or information provided to comply in all material respects with, any legal requirements. |
107
Table of Contents
• | the taking of all reasonable acts necessary to cause the conditions precedent set forth in the merger agreement to be satisfied; | |
• | the obtaining of all necessary actions or nonactions, waivers, consents, approvals, orders and authorizations from governmental entities and the making of all necessary registrations, declarations and filings and, subject to the limitations set forth in the merger agreement, the taking of all steps and remedies as may be necessary to avoid any suit, claim, action, investigation or proceeding by any governmental entity; | |
• | the obtaining of all necessary consents, approvals or waivers from third parties, including all necessary consents; | |
• | the defending of any suits, claims, actions, investigations or proceedings, whether judicial or administrative, challenging the merger agreement or the consummation of the transactions contemplated thereby, including seeking to have any stay or temporary restraining order entered by any court or other governmental entity vacated or reversed; and | |
• | the execution or delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, the merger agreement. |
1. | the merger agreement shall have been adopted by the stockholders of McDATA and the issuance of shares of Brocade common stock in connection with the merger shall have been approved by the stockholders of Brocade, in each case as required under applicable law or marketplace rules; | |
2. | no law, regulation or order shall have been enacted or issued by a governmental entity of competent jurisdiction which is in effect and has the effect of making the merger illegal or otherwise prohibiting completion of the merger; | |
3. | the SEC shall have declared Brocade’s registration statement, of which this joint proxy statement/ prospectus is a part, effective, and no stop order suspending its effectiveness shall have been issued and no proceedings for suspension of the registration statement’s effectiveness, or a similar proceeding in |
108
Table of Contents
respect of this joint proxy statement/prospectus, shall have been initiated or threatened in writing by the SEC; |
4. | all waiting periods (and any extension thereof) under the HSR Act with respect to the merger and the other transactions contemplated by the merger agreement shall have expired or shall have terminated early and all material foreign antitrust approvals required to be obtained prior to the merger have been obtained; | |
5. | Brocade and McDATA shall have each received from its respective tax counsel a written opinion to the effect that the merger will constitute a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, and such opinions shall not have been withdrawn; and | |
6. | the shares of Brocade common stock to be issued pursuant to the merger have been authorized for listing on the Nasdaq Global Select Market, subject to official notice of issuance. |
7. | the representations and warranties of the other parties that are qualified by a “Material Adverse Effect” qualification shall be true and correct in all respects as so qualified at and as of the date of the merger agreement and at and as of the effective date of the merger as through made at and as of the effective date of the merger; provided, however, that the representations and warranties that are made as of a particular date or period shall be true and correct only as of such date or period; | |
8. | the representations and warranties of the other party which are not qualified by a “Material Adverse Effect” qualification shall be true and correct at and as of the date of the merger agreement and at and as of the effective date of the merger as though made at and as of the effective date of the merger, except for such failures to be true and correct as would not have, in each case or in the aggregate, a material adverse effect on Brocade, in the case of the Brocade representations and warranties, and McDATA, in the case of McDATA representations and warranties; provided, however, that the representations and warranties that are made as of a particular date or period shall be true and correct only as of such date or period; | |
9. | the other party has in all material respects complied with all agreements and covenants required by the merger agreement to be performed or complied with by it prior to the completion of the merger; and |
10. | the other party shall not have suffered a “Material Adverse Effect” since the date of the merger agreement which is continuing. |
11. | that there shall be no pending suit, action or proceeding asserted by any governmental entity challenging or seeking to restrain or prohibit the merger or any of the other transactions contemplated by the merger agreement with the effect of which, if obtained, would make the merger illegal or otherwise prohibit the consummation of the merger or seeking to require Brocade or McDATA or any subsidiary or affiliate of either to effect an action of divesture, as defined in the agreement. |
• | solicit or initiate, encourage, knowingly facilitate or induce any inquiry with respect to, or the making, submission or announcement of, any acquisition proposal, as defined in the merger agreement; |
109
Table of Contents
• | participate in any discussions or negotiations regarding, or furnish to any person any nonpublic information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes or may reasonably be expected to lead to, any acquisition proposal; | |
• | engage in discussions with any person with respect to any acquisition proposal, except as to the existence of the non-solicitation provisions of the merger agreement; | |
• | approve, endorse or recommend any acquisition proposal, except as provided in the merger agreement; or | |
• | enter into any letter of intent or similar document or agreement or commitment contemplating or otherwise relating to any acquisition proposal. |
• | furnish nonpublic information with respect to such party pursuant to a confidentiality agreement containing customary limitations and with terms at least as restrictive as the confidentiality agreement in place between Brocade and McDATA, provided that such party gives concurrent written notice to the other party of its intention to furnish this information and contemporaneously furnishes to the other party the nonpublic information furnished to the third party to the extent not previously furnished; and | |
• | engage in negotiations with the third party with respect to the acquisition proposal, provided that it gives the other party concurrent written notice of its intention to enter into negotiations; |
• | such party’s board of directors has in good faith concluded, following receipt of advice from its outside legal counsel and its financial advisor, that such acquisition proposal contains financial terms that are superior to the terms of the merger agreement and otherwise is, or is reasonably likely to lead to, a superior offer, as defined in the merger agreement; and | |
• | such party’s board of directors has concluded in good faith, following receipt of advice from its outside legal counsel and its financial advisor, that failure to take such action would be reasonably likely to constitute a breach of its fiduciary obligations under applicable law. |
• | any purchase or acquisition by any person or group of more than a 15% interest in the total outstanding voting securities of the party or any of its subsidiaries or any tender offer or exchange offer that, if consummated, would result in any person or group beneficially owning 15% or more of the total outstanding voting securities of the party or any of its subsidiaries; | |
• | any merger, consolidation, business combination or similar transaction involving the party or any of its subsidiaries; | |
• | any sale, lease (other than in the ordinary course of business), exchange, transfer, license (other than in the ordinary course of business), acquisition or disposition of more than 15% of the assets of the party (including its subsidiaries taken as a whole); or | |
• | any liquidation or dissolution of the party. |
110
Table of Contents
• | a superior offer with respect to it has been made and has not been withdrawn; | |
• | in the case of Brocade, its stockholders have not approved the issuance of Brocade common stock in connection with the merger, and in the case of McDATA, its stockholders have not adopted the merger agreement; | |
• | it shall have provided the other party with written notice of its intention to effect a change of recommendation at least two business days prior to effecting such change, which shall state expressly (i) that it has received a superior offer, (ii) the material terms and conditions of the superior offer and the identity of the person or group making the superior offer, and (iii) that it intends to effect a change of recommendation and the manner in which it intends to do so; | |
• | after delivering the notice, it shall have provided the other party with a reasonable opportunity to make such adjustments in the terms and conditions of the merger agreement during such two business day period, and shall have negotiated in good faith with respect thereto during such two business day period, regarding any changes proposed by the other party for the purpose of enabling such party’s board of directors to proceed with its recommendation in favor of, in the case of Brocade, the issuance of Brocade common stock in connection with the merger, and in the case of McDATA, adoption of the merger agreement, without effecting a change of recommendation; | |
• | its board of directors shall have concluded in good faith, following the receipt of advice of its outside legal counsel, that, in light of such superior offer, the failure of the board of directors to effect a change of recommendation would be reasonably likely to constitute a breach of its fiduciary obligations to its stockholders under applicable law; and | |
• | it shall not have breached in any material respect any of the covenants in the merger agreement related to holding a special meeting of stockholders and the receipt of acquisition proposals. |
111
Table of Contents
• | by mutual written consent duly authorized by the boards of directors of Brocade and McDATA; | |
• | by Brocade or McDATA, if the merger is not completed by February 7, 2007, which date will be automatically extended to May 7, 2007, and may be further extended in the sole discretion of McDATA to August 7, 2007, if the merger shall not have been completed as the result of a failure to satisfy the conditions numbered 2, 3 and 4 in the section entitled “Agreements Related to the Merger — The Merger Agreement — Conditions to Completion of the Merger” above, or the End Date, except that this right to terminate the merger agreement shall not be available to any party whose action or failure to act has been a principal cause of or resulted in the failure of the merger to occur on or before that date, and the action or failure to act constitutes a breach of the merger agreement; | |
• | by Brocade or McDATA, if there is any order of a court or other action or inaction of any governmental entity having the effect of permanently restraining, enjoining or prohibiting the completion of the merger which is final and nonappealable; | |
• | by Brocade or McDATA, if the proposal for the adoption of the merger agreement fails to receive the requisite affirmative vote at the McDATA special meeting or at any adjournment of that meeting, except that this right to terminate the merger agreement shall not be available to McDATA where the failure to obtain the required stockholder approval was caused by McDATA’s action or failure to act, and the action or failure to act constitutes a breach by McDATA of the merger agreement; | |
• | by Brocade or McDATA, if the proposal for the issuance of common stock in connection with the merger fails to receive the requisite affirmative vote at the Brocade special meeting or at any adjournment of that meeting, except that this right to terminate the merger agreement shall not be available to Brocade where the failure to obtain the required stockholder approval was caused by Brocade’s action or failure to act, and the action or failure to act constitutes a breach by Brocade of the merger agreement; | |
• | by Brocade or McDATA, if certain “triggering events” as defined below occur with respect to the other party; | |
• | by McDATA, upon a breach of any representation, warranty, covenant or agreement on the part of Brocade set forth in the merger agreement or if any representation or warranty of Brocade has become untrue in either case so that the condition to completion of the merger regarding Brocade’s representations and warranties or covenants would not be met. However, if the breach or inaccuracy is curable by Brocade by the End Date of the merger agreement through the exercise of reasonable efforts, then McDATA may not terminate the merger agreement for 30 days after receipt by Brocade of written notice from McDATA of the inaccuracy or breach, so long as Brocade continues to use its reasonable best efforts to cure the breach during this period. If the breach is cured during those 30 days, or if McDATA is otherwise in material breach of the merger agreement, McDATA may not exercise this termination right; or | |
• | by Brocade, upon a breach of any representation, warranty, covenant or agreement on the part of McDATA set forth in the merger agreement or if any representation or warranty of McDATA has become untrue in either case so that the condition to completion of the merger regarding McDATA’s representations and warranties or covenants would not be met. However, if the breach or inaccuracy is curable by McDATA by |
112
Table of Contents
the termination date of the merger agreement through the exercise of reasonable efforts, then Brocade may not terminate the merger agreement for 30 days after receipt of by McDATA written notice from Brocade of the breach, so long as McDATA continues to use all reasonable best efforts to cure the breach during this period. If the breach is cured during those 30 days, or if Brocade is otherwise in material breach of the merger agreement, Brocade may not exercise this termination right. |
• | its board of directors or any committee thereof shall for any reason have changed its recommendation to the its stockholders or otherwise withdrawn or shall have amended or modified in a manner adverse to the other party hereto its recommendation in favor of, in the case of Brocade, approval of the issuance of shares of Brocade common stock in connection with the merger, or in the case of McDATA, the adoption of the merger agreement; | |
• | it shall have failed to include in this joint proxy statement/prospectus the recommendation of its board of directors in favor of, in the case of Brocade, approval of the issuance of Brocade common stock in connection with the merger, or in the case of McDATA, the adoption of the merger agreement; | |
• | its board of directors fails to reaffirm (publicly, if so requested) its recommendation in favor of, in the case of Brocade, approval of the issuance of Brocade common stock in connection with the merger, or in the case of McDATA, the adoption of the merger agreement, within 10 business days after the other party requests in writing that such recommendation be reaffirmed; | |
• | its board of directors or any committee thereof shall have approved or recommended any acquisition proposal; | |
• | it shall have entered into any letter of intent or similar document or any agreement, contract or commitment accepting any acquisition proposal; or | |
• | a tender or exchange offer relating to its securities shall have been commenced by a person unaffiliated with the other party hereto and it shall not have sent to its security holders pursuant toRule 14e-2 promulgated under the Securities Act, within 10 business days after such tender or exchange offer is first published, sent or given, a statement disclosing that the board of directors of such party recommends rejection of such tender or exchange offer. |
• | the merger is not consummated by the End Date; or | |
• | a governmental entity issues a final and nonappealable order, decree or ruling or takes any other action having the effect of permanently restraining, enjoining or otherwise prohibiting the merger (solely to the |
113
Table of Contents
extent such order, decree or ruling is based on an action or proceeding brought by a governmental entity under legal requirements relating to antitrust or competition); |
• | all of the conditions to Brocade’s obligation to consummate the merger are satisfied (other than with respect to having no pending suit, action or proceeding asserted by any governmental entity (i) challenging or seeking to restrain or prohibit the consummation of the merger, the effect of which would cause a material adverse effect, as defined in the merger agreement, on McDATA or (ii) seeking to require Brocade, McDATA or any of their subsidiaries or affiliates to effect an action of divestiture, as defined in the merger agreement); and | |
• | the mutual conditions to the consummation of the merger agreement are satisfied (other than (i) the conditions numbered 1, with respect to Brocade’s stockholder approval requirement, 2, 4 and 5 in the section entitled “Agreements Related to the Merger — The Merger Agreement — Conditions to Completion of the Merger” beginning on page 108 of this joint proxy statement/prospectus; provided with respect to the condition numbered 2, if it was not satisfied solely to the extent the existence of such statute, rule, regulation, executive order, decree, injunction or other order is based upon legal requirements relating to antitrust or competition enforced by, or in an action or proceeding brought by, a governmental entity or (ii) if the failure to satisfy of any of the mutual conditions to be satisfied having been caused by the action or failure to act of Brocade and such action or failure to act is a material breach of the merger agreement, then such mutual condition need not be satisfied). |
• | any effect resulting from compliance with the terms and conditions of the merger agreement or actions taken at the express request of the other party to the merger agreement, with certain limitations; | |
• | any loss of or adverse impact on relationships with employees, customers, suppliers or distributors, any delays in or cancellations of orders for the products or services of such entity and any reduction in revenues, in each case to the extent attributable to the announcement or pendency of the merger; | |
• | any change in the entity’s stock price or trading volume, in and of itself; | |
• | failure to meet revenue or earnings projections, in and of itself, for any period ending (or for which earnings are released) on or after the date of the merger agreement, with certain limitations; | |
• | any effect resulting from changes affecting any of the industries in which such entity operates generally or the United States economy generally, any effect resulting from (i) changes affecting general worldwide economic or capital market conditions, changes in applicable legal requirements, GAAP or formal pronouncements by standards bodies related thereto, (ii) except to the extent such effects disproportionately affect the party, acts of war or terrorism or earthquakes, hurricanes, tornadoes or other natural disasters; or | |
• | stockholder class action or derivative litigation arising from allegations of breach of fiduciary duty relating to the merger agreement or false or misleading public disclosure (or omission) in connection with the merger agreement, with certain limitations. |
114
Table of Contents
115
Table of Contents
116
Table of Contents
117
Table of Contents
Brocade | McDATA | |||||||||||||||
As of | As of | |||||||||||||||
July 29, | July 31, | Pro Forma | Pro Forma | |||||||||||||
2006 | 2006 | Adjustments | Combined | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 184,484 | $ | 128,547 | $ | — | $ | 313,031 | ||||||||
Short-term investments | 311,569 | 205,612 | — | 517,181 | ||||||||||||
Securities lending collateral | — | 86,212 | — | 86,212 | ||||||||||||
Restricted cash and short-term investments | 280,481 | 3,890 | 284,371 | |||||||||||||
Accounts receivable, net | 79,163 | 94,878 | — | 174,041 | ||||||||||||
Inventories | 9,159 | 35,646 | — | 44,805 | ||||||||||||
Prepaid expenses and other current assets | 62,496 | 12,912 | — | 75,408 | ||||||||||||
Total current assets | 927,352 | 567,697 | — | 1,495,049 | ||||||||||||
Long-term investments | 20,944 | 25,036 | — | 45,980 | ||||||||||||
Property and equipment, net | 103,735 | 105,652 | (8,074 | )(h) | 201,313 | |||||||||||
Goodwill | 41,013 | 263,473 | (263,473 | )(b) | 233,311 | |||||||||||
192,298 | (k) | |||||||||||||||
Intangible assets, net | 16,353 | 98,666 | (98,666 | )(a) | 284,689 | |||||||||||
268,336 | (g) | |||||||||||||||
Restricted cash | — | 11,659 | — | 11,659 | ||||||||||||
Other long-term assets | 6,844 | 59,008 | (35,900 | )(x) | 33,952 | |||||||||||
4,000 | (y) | |||||||||||||||
Total assets | $ | 1,116,241 | $ | 1,131,191 | $ | 58,521 | $ | 2,305,953 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 35,902 | $ | 42,964 | $ | 15,976 | (f) | $ | 94,842 | |||||||
Accrued employee compensation | 46,158 | — | — | 46,158 | ||||||||||||
Securities lending collateral payable | — | 86,212 | — | 86,212 | ||||||||||||
Accrued liabilities | 110,793 | 72,495 | — | 183,288 | ||||||||||||
Interest rate swap | — | 1,332 | — | 1,332 | ||||||||||||
Deferred revenue | 57,286 | 59,832 | (18,373 | )(i) | 98,745 | |||||||||||
Current liabilities associated with lease losses | 4,980 | — | — | 4,980 | ||||||||||||
Current portion of obligations under capital leases | — | 2,212 | — | 2,212 | ||||||||||||
Convertible subordinated debt | 278,883 | 119,278 | 972 | (j) | 399,133 | |||||||||||
Total current liabilities | 534,002 | 384,325 | (1,425 | ) | 916,902 | |||||||||||
Non-current liabilities associated with lease losses | 12,338 | — | — | 12,338 | ||||||||||||
Other long-term liabilities | — | 14,371 | — | 14,371 | ||||||||||||
Obligations under capital leases, less current portion | — | 2,756 | — | 2,756 | ||||||||||||
Interest rate swap | — | 7,884 | — | 7,884 | ||||||||||||
Deferred revenue, less current portion | — | 28,294 | (10,487 | )(i) | 17,807 | |||||||||||
Convertible subordinated debt | — | 164,616 | (18,616 | )(j) | 146,000 | |||||||||||
Total liabilities | 546,340 | 602,246 | (30,528 | ) | 1,118,058 | |||||||||||
Stockholders’ equity | ||||||||||||||||
Common Stock | 270 | 1,594 | (1,594 | )(c) | 387 | |||||||||||
117 | (d) | |||||||||||||||
Additional paid-in capital | 863,220 | 675,612 | (675,612 | )(c) | 1,481,097 | |||||||||||
605,973 | (d) | |||||||||||||||
11,904 | (e) | |||||||||||||||
Accumulated other comprehensive loss | (1,428 | ) | (1,290 | ) | 1,290 | (c) | (1,428 | ) | ||||||||
Accumulated deficit | (292,161 | ) | (123,380 | ) | 123,380 | (c) | (292,161 | ) | ||||||||
Treasury stock at cost, net of reissuances | — | (23,591 | ) | 23,591 | (c) | — | ||||||||||
Total stockholders’ equity | 569,901 | 528,945 | 89,049 | 1,187,895 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 1,116,241 | $ | 1,131,191 | $ | 58,521 | $ | 2,305,953 | ||||||||
118
Table of Contents
Historical | ||||||||||||||||||||
Brocade | CNT | |||||||||||||||||||
Twelve Months | McDATA Twelve | Three Months | ||||||||||||||||||
Ended | Months Ended | Ended | ||||||||||||||||||
October 29, | January 31, | April 30, | Pro Forma | Pro Forma | ||||||||||||||||
2005 | 2006 | 2005 | Adjustments | Combined | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Revenue | $ | 574,120 | $ | 614,433 | $ | 84,038 | $ | (3,525 | )(r) | $ | 1,269,066 | |||||||||
Cost of revenue | 251,161 | 309,091 | 53,018 | 29,355 | (n) | 641,549 | ||||||||||||||
(820 | )(s) | |||||||||||||||||||
(256 | )(t) | |||||||||||||||||||
Gross profit | 322,959 | 305,342 | $ | 31,020 | (31,804 | ) | 627,517 | |||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | 130,936 | 111,715 | 11,604 | — | 254,255 | |||||||||||||||
Sales and marketing | 101,202 | 133,909 | 21,265 | — | 256,376 | |||||||||||||||
General and administrative | 25,189 | 35,116 | 4,835 | — | 65,140 | |||||||||||||||
Internal review and SEC investigation costs | 14,027 | — | — | — | 14,027 | |||||||||||||||
Amortization of purchased intangible assets | — | 37,510 | — | 27,628 | (o) | 27,628 | ||||||||||||||
(42,572 | )(l) | |||||||||||||||||||
5,062 | (v) | |||||||||||||||||||
Amortization of deferred stock-based compensation | 1,512 | 5,908 | — | (6,302 | )(m) | 2,912 | ||||||||||||||
1,400 | (p) | |||||||||||||||||||
394 | (u) | |||||||||||||||||||
Restructuring costs (benefit) | (670 | ) | 11,685 | — | — | 11,015 | ||||||||||||||
In-process research and development | 7,784 | — | — | — | 7,784 | |||||||||||||||
Total operating expenses | 279,980 | 335,843 | 37,704 | (14,390 | ) | 639,137 | ||||||||||||||
Operating income (loss) | 42,979 | (30,501 | ) | (6,684 | ) | (17,414 | ) | (11,620 | ) | |||||||||||
Interest and other income, net | 22,656 | 11,418 | 171 | — | 34,245 | |||||||||||||||
Interest expense | (7,693 | ) | (11,087 | ) | (1,393 | ) | (820 | )(w) | (20,993 | ) | ||||||||||
Gain on repurchases of convertible subordinated debt | 2,318 | — | — | — | 2,318 | |||||||||||||||
Gain (loss) on investments, net | (5,062 | ) | — | — | — | (5,062 | ) | |||||||||||||
Income (loss) before taxes | 55,198 | (30,170 | ) | (7,906 | ) | (18,234 | ) | (1,112 | ) | |||||||||||
Provision for income taxes | 12,077 | 431 | 488 | — | (q) | 12,996 | ||||||||||||||
Net income (loss) | $ | 43,121 | $ | (30,601 | ) | $ | (8,394 | ) | $ | (18,234 | ) | $ | (14,108 | ) | ||||||
Basic net income (loss) per share | $ | 0.16 | $ | (0.22 | ) | $ | (0.29 | ) | $ | (0.04 | ) | |||||||||
Shares used in computing basic income per share | 268,176 | 140,331 | 28,615 | $ | 380,399 | |||||||||||||||
Diluted net income (loss) per share: | $ | 0.16 | $ | (0.22 | ) | $ | (0.29 | ) | $ | (0.04 | ) | |||||||||
Shares used in computing diluted income per share | 270,260 | 140,331 | 28,615 | 380,399 | ||||||||||||||||
119
Table of Contents
Brocade Nine | McDATA Nine | |||||||||||||||
Months | Months | |||||||||||||||
Ended | Ended | Pro Forma | Pro Forma | |||||||||||||
July 29, 2006 | July 31, 2006 | Adjustments | Combined | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Revenue | 541,771 | 500,193 | — | 1,041,964 | ||||||||||||
Cost of revenue | 224,012 | 270,195 | 22,016 | (n) | 516,223 | |||||||||||
Gross profit | 317,759 | 229,998 | (22,016 | ) | 525,741 | |||||||||||
Operating expenses:: | ||||||||||||||||
Research and development | 121,416 | 80,496 | — | 201,912 | ||||||||||||
Sales and marketing | 100,682 | 109,253 | — | 209,935 | ||||||||||||
General and administrative | 23,523 | 28,491 | — | 52,014 | ||||||||||||
SEC investigation and other related costs | 10,179 | — | — | 10,179 | ||||||||||||
Provision for SEC settlement | 7,000 | — | — | 7,000 | ||||||||||||
Acquisition related compensation expense | 585 | — | — | 585 | ||||||||||||
Amortization of intangible assets | 1,406 | 33,043 | (33,043 | )(l) | 22,127 | |||||||||||
20,721 | (o) | |||||||||||||||
Facilities lease losses | 3,775 | — | — | 3,775 | ||||||||||||
Restructuring costs | — | 6,767 | — | 6,767 | ||||||||||||
Amortization of deferred compensation | — | 1,059 | (1,059 | )(m) | — | |||||||||||
Total operating expenses | 268,566 | 259,109 | (13,381 | ) | 514,294 | |||||||||||
Operating income | 49,193 | (29,111 | ) | (8,635 | ) | 11,447 | ||||||||||
Interest and other income | 22,391 | 16,276 | — | 38,667 | ||||||||||||
Interest expense | (5,478 | ) | (12,753 | ) | — | (18,231 | ) | |||||||||
Gain on sale of investments | 2,663 | — | — | 2,663 | ||||||||||||
Income (loss) before taxes | 68,769 | (25,588 | ) | (8,635 | ) | 34,546 | ||||||||||
Provision for income taxes | 21,098 | (737 | ) | — | (q) | 20,361 | ||||||||||
Net income (loss) | $ | 47,671 | $ | (24,851 | ) | $ | (8,635 | ) | $ | 14,185 | ||||||
Basic net income (loss) per share | $ | 0.18 | $ | (0.16 | ) | $ | 0.04 | |||||||||
Shares used in computing basic income per share | 269,794 | 153,565 | 384,968 | |||||||||||||
Diluted net income (loss) per share: | $ | 0.17 | $ | (0.16 | ) | $ | 0.04 | |||||||||
Shares used in computing diluted income per share | 273,484 | 153,565 | 389,713 | |||||||||||||
120
Table of Contents
1. | Basis of Presentation |
Value of Brocade common stock issued | $ | 606,090 | ||
Estimated fair value of options assumed and restricted Class A and Class B common stock exchanged | 11,904 | |||
Direct transaction costs | 15,976 | |||
Total preliminary estimated purchase price | $ | 633,970 | ||
121
Table of Contents
FINANCIAL STATEMENTS — (Continued)
First Year | Estimated | |||||||||
Amount | Amortization | Useful Life | ||||||||
Net tangible assets | $ | 173,336 | $ | — | N/A | |||||
Identifiable intangible assets: | ||||||||||
Acquired product rights | 108,246 | 29,355 | 1-6 years | |||||||
Customer contracts and relationships | 152,052 | 24,949 | 4-7 years | |||||||
Trademarks | 8,038 | 2,679 | 3 years | |||||||
Goodwill | 192,298 | — | N/A | |||||||
Total preliminary estimated purchase price | $ | 633,970 | $ | 56,983 | ||||||
2. | Pro Forma Adjustments |
122
Table of Contents
FINANCIAL STATEMENTS — (Continued)
(e) | To record the fair value of McDATA’s Class A and Class B common stock options assumed and of restricted Class A and Class B common stock and common stock units exchanged; |
(i) | To adjust deferred revenue to the fair value of the legal performance obligations under McDATA existing contracts; |
(n) | To amortize acquired product rights based upon the pattern in which the economic benefits of the intangible assets will be consumed; | |
(o) | To amortize other intangible assets based upon the pattern in which the economic benefits of the intangible asset will be consumed; |
123
Table of Contents
FINANCIAL STATEMENTS — (Continued)
(p) | To amortize incremental deferred stock-based compensation in periods prior to the effective date of FAS 123R. No adjustment was made for periods after the effective date of FAS 123R as we expect stock based compensation to remain relatively unchanged as a result of the acquisition; | |
(q) | Each of Brocade, McDATA and CNT have significant net operating loss carryforwards and tax credits therefore any deferred tax liabilities associated with identifiable intangible assets would be offset by existing deferred tax assets and as a result, the pro forma tax impact is zero; |
(r) | Adjustment to reflect the fair value of McDATA’s legal performance obligations under CNT’s maintenance and support contracts recorded as deferred revenue in CNT’s historical financial statements. The decline due to the fair value adjustment of 28% of historical cost will be amortized on a straight-line basis as follows: 60% in 2005, 25% in 2006, and the remainder in 2007; |
(s) | Adjustment to materials, work-in process and finished goods to their net realizable values and reclassification of rental equipment as follows: |
Amount | ||||
Fair value adjustment of production inventory — raw materials | $ | 1,307 | ||
Fair value adjustment of finished goods inventory | 45 | |||
Elimination of capitalized overhead | (2,906 | ) | ||
Total amounts recorded in pro forma condensed combined consolidated statement of operations that was reflected in operations in the 12 month period following the merger | $ | (1,554 | ) | |
Physical inventory adjustment | 197 | |||
Elimination of inventory determined to be end of life | (10,296 | ) | ||
Total adjustment | $ | (11,653 | ) |
(t) | Adjustment to record the differences in the fair value and historical carrying cost of CNT’s property and equipment; |
(u) | Adjustment to the fair value of deferred compensation resulting from the issuance of unvested options to CNT’s employees and the resulting adjustment to amortization of the deferred compensation, which is to be amortized over 9 months; | |
(v) | Adjustment to eliminate CNT’s historical intangible assets and record the fair value of intangible assets acquired as follows: |
Amount | ||||
Fair value of acquired intangibles | $ | 73,618 | ||
Less: CNT’s historical intangible assets | (14,833 | ) | ||
Total | $ | 58,785 |
(w) | Adjustment to record the fair value of CNT’s convertible notes and the corresponding interest expense, calculated using the straight-line method, to accrete the notes to their maturity value; |
(x) | To eliminate McDATA’s historical balance of capitalized software; | |
(y) | Adjustment to record the net fair value of options to purchase and options to sell shares of McDATA Class A common stock held by McDATA originally issued by McDATA concurrent with the issuance of certain convertible subordinated debt. |
3. | Pro Forma Net Income Per Share |
124
Table of Contents
McDATA Stockholder Rights | Brocade Stockholder Rights | |||
Authorized Capital Stock | • McDATA’s authorized capital stock consists of 475,000,000 shares of capital stock, consisting of: | • Brocade’s authorized capital stock consists of 805,000,000 shares of capital stock, consisting of | ||
• 250,000,000 shares of Class A common stock, par value $.01 per share, • 200,000,000 shares of Class B common stock, par value $.01 per share, • 45,000 shares of Series A Junior Participating Preferred Stock, par value $.01 per share, and | • 800,000,000 shares of common stock, par value $0.001 per share, • 800,000 shares of Series A Participating Preferred Stock, par value $0.001 per share, and • 4,200,000 shares of preferred stock, par value $0.001 per share. | |||
• 24,955,000 shares of preferred stock, par value $.01 per share. | ||||
Stock Listing | McDATA’s Class A common stock and Class B common stock is listed on the Nasdaq Global Select Market. | Brocade’s common stock is listed on the Nasdaq Global Select Market. |
125
Table of Contents
McDATA Stockholder Rights | Brocade Stockholder Rights | |||
Voting Rights | McDATA’s certificate of incorporation provides that the holders of any outstanding shares of Class A common stock and Class B common stock shall vote together as a single class on all matters with respect to which stockholders are entitled to vote under applicable law, McDATA’s certificate of incorporation or McDATA’s bylaws, or upon which a vote of stockholders is otherwise duly called for by McDATA. | Each share of Brocade’s common stock entitles its holder to one vote on all matters on which common stockholders are entitled to vote. | ||
Each share of McDATA’s Class A common stock entitles its holder to one vote on all matters on which Class A stockholders are entitled to vote and each share of Class B common stock is entitled to one-tenth of a vote on all matters on which Class B stockholders are entitled to vote. | ||||
Cumulative Voting | McDATA’s certificate of incorporation does not provide for cumulative voting. Accordingly, holders of McDATA common stock have no cumulative voting rights in connection with the election of directors. | Brocade’s certificate of incorporation does not provide for cumulative voting. Accordingly, holders of Brocade common stock have no cumulative voting rights in connection with the election of directors. | ||
Conversion Rights | McDATA common stock is not subject to any conversion rights. | Brocade common stock is not subject to any conversion rights. | ||
Preemptive Rights | McDATA’s certificate of incorporation does not grant any preemptive rights. | Brocade’s certificate of incorporation does not grant any preemptive rights. | ||
Dividends | McDATA’s certificate of incorporation provides that, subject to the rights of the holders of McDATA preferred stock, holders of shares of McDATA Class A common stock and shares of Class B common stock are entitled to receive such dividends and other distributions in cash, stock or property of McDATA when, as and if declared thereon by the board of directors from time to time out of assets or funds of McDATA legally available therefor. If, at any time, a dividend or other distribution in cash or other property (other than | Brocade’s bylaws provide that its board of directors, subject to any restrictions contained in the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of the State of Delaware. Dividends may be paid in cash, in property, or in shares of Brocade’s capital stock. Brocade’s board of directors may set apart out of any of Brocade’s funds available for dividends a reserve or reserves for any proper purpose and |
126
Table of Contents
McDATA Stockholder Rights | Brocade Stockholder Rights | |||
dividends or other distributions payable in shares of common stock or other voting securities of McDATA, or rights, options or warrants to purchase shares of common stock or other voting securities of McDATA or securities convertible into or exchangeable for shares of common stock or other voting securities of McDATA) is declared or paid on the shares of Class A common stock or shares of Class B common stock, a like dividend or other distribution in cash or other property must also be declared or paid, as the case may be, on shares of Class B common stock or shares of Class A common stock, as the case may be, in an equal amount per share. If, at any time, a dividend or other distribution payable in shares of common stock or other voting securities of McDATA, or rights, options or warrants to purchase shares of common stock or other voting securities of McDATA, or securities convertible into or exchangeable for shares of common stock or other voting securities of McDATA is paid or declared on shares of Class A common stock or Class B common stock, a like dividend or other distribution must also be paid or declared, as the case may be, on shares of Class B common stock or Class A common stock, as the case may be, in an equal amount per share; provided, that, for this purpose, if shares of Class A common stock or other voting securities of McDATA, or rights, options or warrants to purchase shares of Class A common stock or other voting securities of McDATA or securities convertible into or exchangeable for shares of Class A common stock or other voting securities of McDATA, are paid on shares of Class A common stock, and shares of Class B common stock or voting securities identical to | may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of Brocade, and meeting contingencies. |
127
Table of Contents
McDATA Stockholder Rights | Brocade Stockholder Rights | |||
the other voting securities paid on the shares of Class A common stock or rights, options or warrants to purchase shares of Class B common stock or such other voting securities or securities convertible into or exchangeable for shares of Class B common stock or such other voting securities, are paid on shares of Class B common stock, in an equal amount per share of Class A common stock and Class B common stock, such dividend or other distribution must be deemed to be a like dividend or other distribution. In the case of any split, subdivision, combination or reclassification of shares of Class A common stock or Class B common stock, the shares of Class A common stock or Class B common stock, as the case may be, must also be split, subdivided, combined or reclassified so that the number of shares of Class A common stock and Class B common stock outstanding immediately following such split, subdivision, combination or reclassification must bear the same relationship to each other as did the number of shares of Class A common stock and Class B common stock outstanding immediately prior to such split, subdivision, combination or reclassification. Under McDATA’s bylaws, dividends upon the capital stock of McDATA, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Before payment of any dividend, there may be set aside out of any funds of McDATA available for dividends such sum or sums as the board of directors, from time to time, in its absolute discretion, thinks proper as a reserve to meet |
128
Table of Contents
McDATA Stockholder Rights | Brocade Stockholder Rights | |||
contingencies or for equalizing dividends, or for repairing or maintaining any property of McDATA, or for such other purpose as the board of directors deems conducive to the interest of McDATA, and the board of directors may modify or abolish any such reserve in the manner in which it was created. | ||||
Stockholder Proposals | Pursuant to McDATA’s bylaws, for business to be properly brought before an annual meeting by a stockholder, the stockholder must give timely written notice to McDATA’s Secretary delivered to or mailed and received at McDATA’s principal executive offices not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year’s proxy statement, the stockholder’s notice must be received not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or, in the event public announcement of the date of such annual meeting is first made by McDATA fewer than 70 days prior to the date of such annual meeting, the close of business on the tenth day following the day on which public announcement of the date of such meeting is first made by McDATA. A stockholder’s notice to McDATA’s Secretary must set forth as to each matter the stockholder proposes to bring before the annual meeting: • a brief description of the business proposed and the reasons for | Brocade’s bylaws provide that any stockholder who intends to bring a matter before a stockholders’ meeting must deliver written notice of his or her intent to do so to Brocade’s Secretary. For nominations or other business to be properly brought before an annual or special meeting, the Secretary must receive the notice not less than 90 days prior to the meeting; provided, however, that in the event that less than 100 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. To be in proper form a stockholder’s notice must include: • the name and address of the stockholder who intends to make the nominations, propose the business, and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed; • a representation that the stockholder is a holder of record of stock of the company entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in |
129
Table of Contents
McDATA Stockholder Rights | Brocade Stockholder Rights | |||
conducting such business at the annual meeting; • the name and address, as they appear on McDATA’s books, of the stockholder proposing such business; • the class and number of shares of McDATA which are beneficially owned by the stockholder; • any material interest of the stockholder in such business; and • any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Exchange Act. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder’s meeting, stockholders must provide notice as required by the regulations promulgated under the Exchange Act. The chairman of the annual meeting may determine at the meeting that business was not properly brought before the meeting and declare that any such business may not be transacted. | the notice; • any arrangements between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; • such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and • if applicable, the consent of each nominee to serve as director of the company if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure. | |||
For director nominations to be properly brought before an annual meeting by a stockholder, the stockholder must give written notice to McDATA’s Secretary delivered to or mailed and received at McDATA’s principal executive offices not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year’s proxy statement, notice by the stockholder must be |
130
Table of Contents
McDATA Stockholder Rights | Brocade Stockholder Rights | |||
received not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or, in the event that public announcement of the date of such annual meeting is first made by McDATA fewer than 70 days prior to the date of such annual meeting, the close of business on the tenth day following the day on which public announcement of the date of such meeting is first made by McDATA. A stockholder’s notice to McDATA’s Secretary must set forth: | ||||
• as to each person whom the stockholder proposes to nominate for election as a director: | ||||
a. the name, age, business address and residence address of the person; | ||||
b. the principal occupation or employment of the person; and | ||||
c. the class or series and number of shares of capital stock of McDATA which are owned beneficially or of record by the person; and | ||||
• as to the stockholder giving the notice: | ||||
a. the name and address, as they appear on McDATA’s books, of such stockholder; | ||||
b. the class and number of shares of McDATA which are beneficially owned by the stockholder; | ||||
c. any material interest of the stockholder in such business; and | ||||
d. any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Exchange Act, in connection with solicitation of proxies for |
131
Table of Contents
McDATA Stockholder Rights | Brocade Stockholder Rights | |||
election of directors. | ||||
Notwithstanding the foregoing, in order to include information with respect to a director nomination in the proxy statement and form of proxy for a stockholder’s meeting, stockholders must provide notice as required by the regulations promulgated under the Exchange Act. The chairman of the annual meeting may determine that a nomination was not properly made and declare at the meeting that such defective nomination be disregarded. | ||||
Advance Notice of Stockholder Meetings | McDATA’s bylaws provide that written notice of any stockholders’ meeting must be given to each stockholder entitled to vote not less than 10, nor more than 60, days before the date of the meeting. | Brocade’s bylaws provide that written notice of any stockholders’ meeting must be given to each stockholder entitled to vote not less than 10, nor more than 60, days before the date of the meeting. | ||
Calling Special Meetings of Stockholders | McDATA’s bylaws provide that special meetings of the stockholders may be called, for any purpose or purposes, by: | Brocade’s bylaws provide that special meetings of the stockholders may be called, for any purpose or purposes, by: | ||
• the Chairman of the board of directors; • the Chief Executive Officer; • the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the board of directors for adoption); or • stockholders who are entitled to cast at least 70% of the total number of votes entitled to be cast at an election of directors. | • the board of directors; • the Chairman of the board of directors; • the President, or • the Chief Executive Officer. If a special meeting is called by any person other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the board of directors, the President, any Vice President, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. | |||
Stockholder Quorum | McDATA’s bylaws provide that the presence, in person or by proxy duly | Brocade’s bylaws provide that the holders of a majority of the stock |
132
Table of Contents
McDATA Stockholder Rights | Brocade Stockholder Rights | |||
authorized, of holders of a majority of the total number of votes entitled to be cast constitutes a quorum for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. All action taken by the stockholders who are entitled to cast at least a majority of the total number of votes entitled to be cast, including abstentions, at any meeting at which a quorum is present shall be valid and binding upon McDATA unless provided otherwise by the Certificate of Incorporation, Bylaws or applicable law; provided, however, that directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. | issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. The vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provisions of the statutes or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of the question. | |||
Board Quorum | McDATA’s bylaws provide that a quorum of its board of directors shall consist of a majority of the exact number of directors fixed from time to time by the board of directors in accordance with the Certificate of Incorporation, unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 3 of Article XI of the bylaws, for which a quorum shall be one-third of the exact number of directors fixed from time to time. | Brocade’s bylaws provide that at all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. | ||
At each meeting of the board of directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present. | ||||
Number of Directors | McDATA’s certificate of incorporation provides that McDATA’s board of directors must consist of not less than three or more than 15 members, the exact number of which will be fixed from time to time by resolutions adopted by the affirmative vote of a majority of the | Brocade’s certificate of incorporation provides that the number of directors which constitute the whole board of directors shall be designated in Brocade’s bylaws. Brocade’s bylaws provide that the authorized number of directors of Brocade shall be eight (8). |
133
Table of Contents
McDATA Stockholder Rights | Brocade Stockholder Rights | |||
active board of directors. McDATA’s bylaws provide that the number of directors of McDATA will be fixed from time to time by McDATA’s board of directors. The number of directors authorized by McDATA’s bylaws is not less than three and not more than 15. McDATA’s board currently consists of nine directors. | ||||
Classification of Board of Directors | McDATA’s certificate of incorporation classifies the board of directors into three separate classes, as nearly equal in size as possible, with staggered three-year terms. | Brocade’s certificate of incorporation and bylaws classify its board of directors into three separate classes with staggered three-year terms. The directors shall be assigned to each class in accordance with a resolution or resolutions adopted by Brocade’s board of directors. | ||
Removal of Directors | McDATA’s certificate of incorporation provides that, subject to the rights, if any, of the holders of shares of any series of preferred stock, any or all of the directors may be removed from office at any time: • with cause by the affirmative vote of stockholders who are entitled to cast at least a majority of the total number of votes entitled to be cast at an election of directors, or • without cause by the affirmative vote of stockholders who are entitled to cast at least 70% of the total number of votes entitled to be cast at an election of directors. | Brocade’s certificate of incorporation provides that any director or the entire board of directors may be removed from office at any time: • with cause by the affirmative of the holders of at least a majority of the voting power of all of the then-outstanding shares of the voting stock of Brocade, or • without cause by the affirmative of the holders of at least 662/3% of the voting power of all of the then-outstanding shares of the voting stock of Brocade. Brocade’s bylaws provide that unless otherwise restricted by statute, by the certificate of incorporation or by the bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. | ||
Filling of Board Vacancies | McDATA’s certificate of incorporation and bylaws provide that any vacancy on its board that results from an increase in the number of directors may be filled by a majority of the directors then in office, provided that a quorum is present, and any other vacancy occurring on | Brocade’s certificate of incorporation and bylaws provide that any vacancy on its board shall be filled by either: • the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of Brocade entitle to vote generally in the election of |
134
Table of Contents
McDATA Stockholder Rights | Brocade Stockholder Rights | |||
the board may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director of any class elected to fill a vacancy resulting from an increase in the number of directors of such class holds office for a term that coincides with the remaining term of that class. Any director elected to fill a vacancy not resulting from an increase in the number of directors has the same remaining term as that of his or her predecessor. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of preferred stock have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, such directors so elected may not be divided into classes, unless expressly provided by the terms of such class or series of preferred stock. | directors voting together as a single class; or • by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors. Newly created directorships resulting from any increase in the number of directors shall, unless the board determines by resolution that any such newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director’s successor shall have been elected and qualified. | |||
Stockholder Action by Written Consent | McDATA’s bylaws provide that unless otherwise required by McDATA’s certificate of incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, is signed by stockholders who are entitled to cast at least 70% of the total number of votes entitled to be cast. | Brocade’s bylaws provide that upon the listing of its common stock on the Nasdaq Global Select Market and the registration of any class of securities of Brocade pursuant to the requirements of the Exchange Act, the stockholders of Brocade may not take action by written consent without a meeting but must take any such actions at a duly called annual or special meeting. | ||
Amendment of Certificate of Incorporation | McDATA has reserved the right to amend, alter, change or repeal any provision contained in its certificate of incorporation in the manner now or hereafter prescribed in the certificate of incorporation, the bylaws or the General Corporation Law of the State of Delaware, and all rights conferred upon stockholders are granted subject to such reservation; provided, however, that, | Brocade has reserved the right to amend, alter, change or repeal any provision contained in its certificate of incorporation in the manner now or hereafter prescribed by statute, except at provided in Article VIII of the certificate, and all rights conferred upon the stockholders are granted subject to this right. Notwithstanding the above paragraph, the certificate or any preferred stock |
135
Table of Contents
McDATA Stockholder Rights | Brocade Stockholder Rights | |||
in addition to any other vote that may be required, the affirmative vote of stockholders who are entitled to cast at least 70% of the total number of votes entitled to be cast at an election of directors is required to amend, alter, change or repeal, or to adopt any provision as part of the certificate of incorporation inconsistent with the purpose and intent of the certificate of incorporation articles relating to: management of the business and the conduct of the affairs of McDATA, limitation and regulation of the powers of McDATA and of its directors and stockholders; adoption, amendment, alteration or repeal of the bylaws; and amendment, alteration, change or repeal of the certificate of incorporation. | designation, Article VIII of the certificate of incorporation requires the affirmative vote of the holders of at least 662/3% of the voting power of all the then-outstanding shares of the voting stock, voting together as a single class, shall be required to alter, amend or repeal Article VII (Management of Business and Board of Directors) and Article VIII (Required Vote to Amend Article VII and Article VIII). | |||
Amendment of Bylaws | McDATA’s certificate of incorporation and bylaws provide that McDATA’s board of directors has the power to adopt, amend, or repeal the bylaws (including, without limitation, the amendment of any bylaw setting forth the number of directors who constitute the whole board of directors). The affirmative vote of at least a majority of the entire board of directors is required to adopt, amend, alter or repeal the bylaws. The bylaws also may be adopted, amended, altered or repealed by the affirmative vote of stockholders who are entitled to cast at least 70% of the total number of votes entitled to be cast at an election of directors. | Brocade’s bylaws provide that the original or other bylaws of Brocade may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that Brocade may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the board of directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. Brocade’s certificate of incorporation provides that the affirmative vote of the holders of at least 662/3% of the voting power of all the then-outstanding shares of the voting stock, voting together as a single class, shall be required to adopt, amend or repeal sections 2.2 (Annual Meeting) and 2.3 (Special Meeting) of Brocade’s bylaws. | ||
Appraisal Rights | Appraisal rights are not available to McDATA stockholders with respect to the merger. | Appraisal rights are not available to Brocade’s stockholders with respect to the merger. |
136
Table of Contents
McDATA Stockholder Rights | Brocade Stockholder Rights | |||
Limitation of Personal Liability of Directors | McDATA’s certificate of incorporation provides that a director will not be personally liable to McDATA or McDATA’s stockholders for monetary damages for breach of fiduciary duties, except to the extent such exemption from liability or limitation thereof is not permitted under the General Corporation Law of the State of Delaware. | Brocade’s certificate of incorporation does not address the personal liability of a director for breach of fiduciary duties. Brocade’s bylaws do not address the personal liability of a director for breach of fiduciary duties. |
137
Table of Contents
138
Table of Contents
• | by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum; | |
• | if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion; or | |
• | by the stockholders. |
139
Table of Contents
• | the tenth day (or such later date as may be determined by Brocade’s board of directors) after a person or group acquires beneficial ownership of 15% or more of Brocade’s common stock; or | |
• | the tenth day (or such later date as may be determined by Brocade’s board of directors) after a person or group announces a tender or exchange offer, the consummation of which would result in ownership by a person or group of 15% or more of Brocade’s common stock. |
140
Table of Contents
• | ten days following a public announcement that a person or group has become the beneficial owner of 15% or more of the aggregate number of votes entitled to be cast by all outstanding shares of McDATA common stock; and | |
• | ten business days, or a later date as may be determined by McDATA’s board of directors, after a tender offer or exchange offer that would result in a person becoming the beneficial owner of 15% or more of the aggregate number of votes entitled to by cast by all outstanding shares of McDATA common stock is first published or sent or given within the meaning ofRule 14d-2(a) of under the Exchange Act. |
• | multiplying the then current purchase price by the then number of 1/10,000ths of a share of preferred stock for which a right was exercisable immediately prior to the time the person or group became the beneficial owner of 15% or more of the aggregate number of votes entitled to by cast by all outstanding shares of McDATA common stock; and | |
• | dividing that product by 50% of the current market price (determined pursuant to the rights agreement) per share of McDATA Class B common stock on that same date. |
141
Table of Contents
• | multiplying the then current purchase price by the number of 1/10,000ths of a share of preferred stock for which a right is exercisable immediately prior to the acquisition; and | |
• | dividing that product by 50% of the then current market price (as determined pursuant to the rights agreement) per share of the common stock of the acquiring company on the date of consummation of the acquisition. |
• | the tenth day after the first public announcement that a person or group has become the beneficial owner of 15% or more of the aggregate number of votes entitled to by cast by all outstanding common shares; or | |
• | June 5, 2011. |
142
Table of Contents
143
Table of Contents
144
Table of Contents
145
Table of Contents
• | Tapestry Wide Area File Services, or WAFS, which allows organizations to better centrally manage file-based data by allowing fast and easy sharing of file-based data from a central headquarters site to remote branch offices; | |
• | Tapestry StorageX, which is an integrated suite of applications designed to logically aggregate distributed file data across heterogeneous environments, providing administrators with policies to better manage and automate distributed file data; | |
• | Tapestry File Lifecycle Manager. or FLM, which provides a powerful way to automatically move files across tiers of storage based on company or administrative policies, Tapestry FLM helps to meet compliance requirements, while driving lower overall storage costs; | |
• | Tapestry MyView, which is a resource access management solution that provides personalized, secure access to Windows file resources across the enterprise, improving data security and compliance practices; | |
• | Tapestry Data on Demand Manager, or DDM, which simplifies data migration and reduces restoration time to significantly improve data recovery time objectives; and | |
• | Tapestry UNC Update, which helps support non-disruptive storage migration by accurately reporting and updating interdependent references in files. |
146
Table of Contents
• | Brocade’s OEM partners are leading storage systems and subsystems providers who offer their products under their own private label or as Brocade branded solutions. Sales of SilkWorm products through OEM partners comprise the majority of Brocade’s business. | |
• | Other distribution partners include Brocade-authorized distributors, systems integrators, and VARs. These partners are authorized by Brocade to market, sell, and support its products and services. Some of these partners also sell training and other value-added services. |
147
Table of Contents
148
Table of Contents
149
Table of Contents
150
Table of Contents
151
Table of Contents
152
Table of Contents
153
Table of Contents
• | to receive dividends out of assets legally available therefor at such times and in such amounts as the board of directors from time to time may determine; | |
• | one vote for each share held on all matters submitted to a vote of stockholders; and | |
• | upon a liquidation, dissolution orwinding-up of Brocade, to share ratably in all assets remaining after payment of liabilities and the liquidation of any preferred stock. |
• | prior to such date the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; | |
• | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
154
Table of Contents
• | on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 662/3% of the outstanding voting stock that is not owned by the interested stockholder. |
• | any merger or consolidation involving the corporation and the interested stockholder; | |
• | any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; | |
• | subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; | |
• | any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. |
155
Table of Contents
Number of Securities | ||||||||||||
(A) | Remaining Available | |||||||||||
Number of Securities | for Future Issuance | |||||||||||
to be Issued | Weighted Average | Under Equity Compensation | ||||||||||
Upon Exercise of | Exercise Price of | Plans (Excluding Securities | ||||||||||
Plan Category | Outstanding Options | Outstanding Options | Reflected in Column A) | |||||||||
Equity compensation plans approved by stockholders(1) | 34,093(3 | ) | $ | 6.17 | 41,129(4 | ) | ||||||
Equity compensation plans not approved by stockholders(2) | 11,086(5 | ) | $ | 7.88 | 33,828 | |||||||
Total | 45,179 | $ | 6.59 | 74,957 | ||||||||
(1) | Consists of the Purchase Plan, the Director Plan, the 1999 Plan, the Rhapsody Plan, and the Therion Plan. Both the Rhapsody Plan and Therion Plan were assumed in connection with acquisitions. | |
(2) | Consists solely of the NSO Plan. | |
(3) | Excludes purchase rights accruing under the Purchase Plan. As of October 29, 2005, the Purchase Plan had a stockholder-approved reserve of 37.2 million shares, of which 28.3 million shares were available for future issuance. | |
(4) | Consists of shares available for future issuance under the Purchase Plan, the Director Plan, the 1999 Plan, the Rhapsody Plan, and the Therion Plan. | |
(5) | Substantially all shares were granted prior to fiscal year ended October 25, 2003. |
156
Table of Contents
Three Months Ended | Nine Months Ended | |||||||||||||||
July 30, | July 29, | July 29, | July 30, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Net revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of revenues | 40.8 | 49.0 | 41.3 | 43.4 | ||||||||||||
Gross margin | 59.2 | 51.0 | 58.7 | 56.6 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 22.5 | 28.0 | 22.4 | 22.7 | ||||||||||||
Sales and marketing | 18.8 | 20.4 | 18.6 | 17.5 | ||||||||||||
General and administrative | 4.5 | 4.9 | 4.3 | 4.3 | ||||||||||||
SEC investigation and other related costs | 1.6 | 3.0 | 1.9 | 2.1 | ||||||||||||
Provision for SEC settlement | — | — | 1.3 | — | ||||||||||||
Acquisition related compensation expense | 0.0 | — | 0.1 | — | ||||||||||||
Amortization of intangible assets | 0.5 | — | 0.3 | — | ||||||||||||
Facilities lease loss | 0.0 | — | 0.7 | — | ||||||||||||
Restructuring costs (benefit) | — | 0.0 | — | (0.0 | ) | |||||||||||
In-process research and development | — | 6.4 | — | 1.8 | ||||||||||||
Total operating expenses | 47.8 | 62.7 | 49.6 | 48.4 | ||||||||||||
Income (loss) from operations | 11.4 | (11.7 | ) | 9.1 | 8.2 | |||||||||||
Interest and other income, net | 4.3 | 4.8 | 4.1 | 3.9 | ||||||||||||
Interest expense | (1.0 | ) | (1.3 | ) | (1.0 | ) | (1.3 | ) | ||||||||
Gain on sale of investments | 1.4 | 0.0 | 0.5 | 0.0 | ||||||||||||
Gain on repurchases of convertible subordinated debt | — | — | — | 0.5 | ||||||||||||
Income before provision for income taxes | 16.2 | (8.2 | ) | 12.7 | 11.3 | |||||||||||
Income tax provision | 3.2 | (2.3 | ) | 3.9 | 1.5 | |||||||||||
Net income | 13.0 | % | (5.9 | )% | 8.8 | % | 9.8 | % | ||||||||
157
Table of Contents
158
Table of Contents
159
Table of Contents
160
Table of Contents
161
Table of Contents
162
Table of Contents
163
Table of Contents
164
Table of Contents
Less Than | More Than | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
Contractual Obligations: | ||||||||||||||||||||
Convertible subordinated notes, including interest | $ | 279,326 | $ | 279,326 | $ | — | $ | — | $ | — | ||||||||||
Non-cancelable operating leases | 61,012 | 16,279 | 29,271 | 15,462 | — | |||||||||||||||
Purchase commitments, gross | 88,839 | (1) | 88,839 | — | — | — | ||||||||||||||
Total contractual obligations | $ | 429,177 | $ | 384,444 | $ | 29,271 | $ | 15,462 | $ | — | ||||||||||
Other Commitments: | ||||||||||||||||||||
Standby letters of credit | $ | 8,343 | $ | n/a | $ | n/a | $ | n/a | $ | n/a | ||||||||||
Guarantee | $ | 1,015 | $ | n/a | $ | n/a | $ | n/a | $ | n/a | ||||||||||
(1) | Amount reflects total gross purchase commitments under Brocade’s manufacturing agreement with a third party contract manufacturer. Of this amount, Brocade has reserved $6.0 million for estimated purchase commitments that Brocade do not expect to consume in normal operations. |
165
Table of Contents
• | Revenue recognition, and allowances for sales returns, sales programs, and doubtful accounts; | |
• | Stock-based compensation; | |
• | Inventory and purchase commitment reserves; | |
• | Restructuring charges and lease loss reserves; | |
• | Goodwill and intangible assets; | |
• | Litigation costs; and | |
• | Accounting for income taxes. |
166
Table of Contents
167
Table of Contents
168
Table of Contents
Fiscal Year Ended | ||||||||||||
October 29, | October 30, | October 25, | ||||||||||
2005 | 2004 | 2003 | ||||||||||
Net revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of revenues | 43.7 | 45.1 | 45.9 | |||||||||
Gross margin | 56.3 | 54.9 | 54.1 | |||||||||
Operating expenses: | ||||||||||||
Research and development | 22.8 | 23.8 | 27.8 | |||||||||
Sales and marketing | 17.6 | 17.2 | 21.9 | |||||||||
General and administrative | 4.4 | 4.1 | 4.0 | |||||||||
Internal review and SEC investigation costs | 2.4 | — | — | |||||||||
Settlement of an acquisition-related claim | — | 1.2 | — | |||||||||
Amortization of deferred stock compensation | 0.3 | 0.1 | 0.1 | |||||||||
Restructuring costs (reversals) | (0.1 | ) | 1.5 | 4.0 | ||||||||
In-process research and development | 1.4 | — | 25.7 | |||||||||
Lease termination charge and other, net | — | 12.7 | — | |||||||||
Total operating expenses | 48.8 | 60.6 | 83.5 | |||||||||
Income (loss) from operations | 7.5 | (5.7 | ) | (29.4 | ) | |||||||
Interest and other income, net | 3.9 | 3.2 | 3.5 | |||||||||
Interest expense | (1.3 | ) | (1.8 | ) | (2.5 | ) | ||||||
Gain on repurchases of convertible subordinated debt | 0.4 | 0.9 | 2.1 | |||||||||
Gain (loss) on investments, net | (0.9 | ) | 0.1 | 0.7 | ||||||||
Income (loss) before provision for income taxes | 9.6 | (3.3 | ) | (25.6 | ) | |||||||
Income tax provision | 2.1 | 2.4 | 2.3 | |||||||||
Net income (loss) | 7.5 | % | (5.7 | )% | (27.9 | )% | ||||||
169
Table of Contents
170
Table of Contents
171
Table of Contents
172
Table of Contents
173
Table of Contents
174
Table of Contents
175
Table of Contents
Redemption Period | Price | |||
Beginning on January 5, 2005 and ending on December 31, 2005 | 100.80% | |||
Beginning on January 1, 2006 and ending on December 31, 2006 | 100.40% | |||
On January 1, 2007 | 100.00% |
176
Table of Contents
Less Than | More Than | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
Contractual Obligations: | ||||||||||||||||||||
Convertible subordinated notes, including interest | $ | 286,401 | $ | 286,401 | $ | — | $ | — | $ | — | ||||||||||
Non-cancelable operating leases | 69,868 | 16,298 | 28,105 | 25,465 | — | |||||||||||||||
Purchase commitments, gross | 49,060 | (1) | 49,060 | — | — | — | ||||||||||||||
Total contractual obligations | $ | 405,329 | $ | 351,759 | $ | 28,105 | $ | 25,465 | $ | — | ||||||||||
Other Commitments: | ||||||||||||||||||||
Standby letters of credit | $ | 8,343 | $ | n/a | $ | n/a | $ | n/a | $ | n/a | ||||||||||
Guarantee | $ | 1,015 | $ | n/a | $ | n/a | $ | n/a | $ | n/a | ||||||||||
(1) | Amount reflects total gross purchase commitments under our manufacturing agreement with Foxconn. Of this amount, Brocade has reserved $6.6 million for estimated purchase commitments that it does not expect to consume in normal operations. |
177
Table of Contents
178
Table of Contents
179
Table of Contents
180
Table of Contents
181
Table of Contents
Long-Term | ||||||||||||||||||||||||
Compensation | ||||||||||||||||||||||||
Awards | ||||||||||||||||||||||||
Securities | ||||||||||||||||||||||||
Underlying | ||||||||||||||||||||||||
Fiscal | Annual Compensation | Other Annual | Options | All Other | ||||||||||||||||||||
Year | Salary ($) | Bonus ($)(1) | Compensation ($) | (# of Shares) | Compensation(2) | |||||||||||||||||||
Michael Klayko(3) | 2005 | $ | 481,364 | $ | 341,951 | 1,600,000 | $ | 3,587 | ||||||||||||||||
Chief Executive Officer | 2004 | $ | 283,333 | $ | 195,230 | 575,000 | $ | 4,664 | ||||||||||||||||
2003 | $ | 175,000 | $ | 42,464 | 713,781 | $ | 3,324 | |||||||||||||||||
Don Jaworski(4) | 2005 | $ | 375,000 | $ | 165,275 | 175,000 | $ | 4,260 | ||||||||||||||||
Vice President, Product | 2004 | $ | 306,000 | $ | 177,381 | 425,000 | $ | 2,901 | ||||||||||||||||
Development | 2003 | $ | 153,409 | $ | 30,405 | 650,000 | $ | 1,292 | ||||||||||||||||
Ian Whiting(5) | 2005 | $ | 336,630 | $ | 206,029 | $ | 71,628 | (7) | 245,000 | $ | 35,503 | (8) | ||||||||||||
Vice President, | 2004 | $ | 173,621 | $ | 349,178 | $ | 97,080 | (9) | 160,000 | $ | 4,354 | (10) | ||||||||||||
Worldwide Sales | 2003 | $ | 166,013 | $ | 243,559 | 414,875 | $ | 1,023 | (11) | |||||||||||||||
David L. House(6) | 2005 | — | — | — | — | |||||||||||||||||||
Former interim | 2004 | — | — | — | — | |||||||||||||||||||
Chief Executive Officer | 2003 | — | — | — | — |
(1) | Bonus amounts for 2005 do not include bonuses paid in fiscal year 2006 and which required the eligible executive officer to remain employed with Brocade through December 15, 2005. All of the following were employed by Brocade through December 15, 2005 and, as a result, were paid the following amounts: Mr. Klayko, $438,050; Mr. Jaworski, $334,724; and Mr. Whiting, $50,000. | |
(2) | All other compensation includes group term life insurance premiums and 401(k) matching payments, except as noted. | |
(3) | Mr. Klayko was named Chief Executive Officer in January 2005. Mr. Klayko joined Brocade in January 2003 as Vice President, OEM Sales and subsequently served as Vice President, Worldwide Marketing and Support, and Vice President, Worldwide Sales. | |
(4) | Mr. Jaworski joined Brocade in April 2003. | |
(5) | Mr. Whiting was named Vice President, Worldwide Sales in May 2005. Mr. Whiting joined Brocade in 2001 as Executive Director of Partner Sales for EMEA and subsequently served as Brocade’s Vice President of EMEA and Latin America prior to his promotion to VP Worldwide Sales. | |
(6) | Mr. House served as Brocade’s interim Chief Executive Officer for a three-day period between the resignation of Mr. Reyes and the appointment of Mr. Klayko as CEO. He received no compensation or option grants for that period other than Board and committee fees. | |
(7) | Includes $71,628 in connection with Mr. Whiting’s relocation to the United States to assume his role as VP Worldwide Sales ($30,511 as reimbursement for payment of taxes and $41,117 in additional relocation payments). | |
(8) | Includes $30,666 in nontaxable relocation expenses in connection with Mr. Whiting’s relocation to the United States to assume his role as VP Worldwide Sales; $1,500 in connection with 401(k) match; and $3,337 for family medical insurance premiums. | |
(9) | Includes $97,080 as housing allowance. | |
(10) | Includes $4,354 for family medical insurance premiums. | |
(11) | Includes $1,023 for family medical insurance premiums. |
182
Table of Contents
Percent of | ||||||||||||||||||||||||
Number of | Total Options | Exercise | Potential Realizable Value | |||||||||||||||||||||
Securities | Granted to | Price per | at Assumed Annual Rates | |||||||||||||||||||||
Underlying | Employees in | Share | of Stock Price Appreciation | |||||||||||||||||||||
Options | Fiscal | ($/Share) | Expiration | for Option Term(1) | ||||||||||||||||||||
Name | Granted (#) | Year(2) | (3)(4) | Date | 5% ($) | 10% ($) | ||||||||||||||||||
Michael Klayko(5) | 1,000,000 | 8.70 | % | $ | 6.42 | 2/18/2012 | $ | 2,613,585 | $ | 6,090,764 | ||||||||||||||
600,000 | 5.22 | % | $ | 6.00 | 3/08/2012 | 1,465,562 | 3,415,382 | |||||||||||||||||
Don Jaworski(6) | 175,000 | 1.52 | % | $ | 6.00 | 3/08/2012 | 427,455 | 996,153 | ||||||||||||||||
70,000 | 0.61 | % | $ | 6.00 | 3/08/2012 | 170,982 | 398,461 | |||||||||||||||||
Ian Whiting(7) | 175,000 | 1.52 | % | $ | 3.93 | 5/23/2012 | 279,983 | 652,480 | ||||||||||||||||
David L. House | — | — | — | — | — | — |
(1) | Potential realizable values (i) are net of exercise price before taxes, (ii) assume that the common stock appreciates at the annual rate shown (compounded annually) from the date of grant until the expiration of the ten-year option term, and (iii) assume that the option is exercised at the exercise price and sold on the last day of its term at the appreciated price. These numbers are calculated based on SEC rules and do not reflect Brocade’s estimate of future stock price growth. | |
(2) | Based on options to purchase 14,487,827 shares of common stock granted to employees in fiscal year 2005. | |
(3) | Options were granted at an exercise price equal to the fair market value of Brocade’s common stock, as determined by reference to the closing price reported on the Nasdaq Global Select Market on the date of grant. | |
(4) | Exercise price and tax withholding obligations may be paid in cash, by delivery of already-owned shares subject to certain conditions, or pursuant to a cashless exercise procedure. | |
(5) | The options granted to Mr. Klayko in fiscal year 2005 to purchase 1,000,000 and 600,000 shares each vest as follows: 1/48th of the shares monthly over 4 years. | |
(6) | The option granted to Mr. Jaworski in fiscal year 2005 to purchase 175,000 shares vests as follows: 1/48th of the shares monthly over 4 years. | |
(7) | The options granted to Mr. Whiting in fiscal year 2005 to purchase 70,000 and 175,000 shares each vest as follows: 1/48th of the shares monthly over 4 years. |
Number of | Number of Securities | Value of Unexercised | ||||||||||||||||||||||
Shares | Value | Underlying Unexercised | In-the-Money Options at | |||||||||||||||||||||
Acquired on | Realized | Options at Fiscal Year-End (#) | Fiscal Year End ($)(2) | |||||||||||||||||||||
Name | Exercise (#) | ($)(1) | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
Michael Klayko | — | — | 1,072,602 | 1,816,179 | $ | 0 | $ | 0 | ||||||||||||||||
Don Jaworski | — | — | 633,432 | 616,568 | $ | 0 | $ | 0 | ||||||||||||||||
Ian Whiting | — | — | 326,476 | 393,399 | $ | 0 | $ | 0 | ||||||||||||||||
David L. House(3) | — | — | — | — | — | — |
(1) | Market value of Brocade’s common stock at the exercise date minus the exercise price. | |
(2) | Market value of Brocade’s common stock at fiscal year-end minus the exercise price. The market value of Brocade’s common stock on October 29, 2005 was $3.60 per share. | |
(3) | Mr. House received no option grants in connection with his service as interim Chief Executive Officer. |
183
Table of Contents
184
Table of Contents
Brocade Shares Beneficially Owned | ||||||||||||||||
Prior to the Merger | Brocade Shares Beneficially Owned After the Merger | |||||||||||||||
Nature and | Nature and | |||||||||||||||
Amount of | Amount of | |||||||||||||||
Beneficial | Percent of | Beneficial | Percent of | |||||||||||||
Name and Address of Beneficial Owner | Ownership(1) | Class(2) | Ownership(1) | Class(2) | ||||||||||||
Five Percent Stockholders | ||||||||||||||||
Capital Group International, Inc.(3) | 16,496,630 | 6.04 | % | 16,496,630 | 6.04 | % | ||||||||||
11100 Santa Monica Blvd. | ||||||||||||||||
Los Angeles, CA 90025 | ||||||||||||||||
TIAA-CREF Investment Management LLC(4) | 19,808,726 | 7.26 | % | 19,808,726 | 7.26 | % | ||||||||||
730 Third Avenue | ||||||||||||||||
New York, NY 10017 | ||||||||||||||||
Named Executive Officers and Directors | ||||||||||||||||
Michael Klayko(5) | 2,620,895 | 2,620,895 | * | |||||||||||||
Don Jaworski(6) | 809,903 | 809,903 | * | |||||||||||||
Ian Whiting(7) | 609,422 | 609,422 | * | |||||||||||||
David L. House(8) | 93,500 | 93,500 | * | |||||||||||||
L. William Krause(9) | 40,230 | 40,230 | * | |||||||||||||
Neal Dempsey(10) | 285,000 | 285,000 | * | |||||||||||||
c/o Bay Partners | ||||||||||||||||
10600 N. De Anza Blvd., Suite 100 | ||||||||||||||||
Cupertino, CA 95014 | ||||||||||||||||
Glenn C. Jones(11) | 10,000 | 10,000 | * | |||||||||||||
Michael J. Rose(12) | 10,000 | 10,000 | * | |||||||||||||
Sanjay Vaswani(13) | 51,000 | 51,000 | * | |||||||||||||
Robert R. Walker(14) | 30,000 | 30,000 | * | |||||||||||||
All Executive Officers and Directors as a Group(13 persons)(15) | 5,355,777 | 5,355,777 | * |
* | Less than 1% | |
(1) | Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock owned by such person. The number of shares beneficially owned includes common stock that such individual has the right to acquire either currently or within 60 days of September 1, 2006, including through the exercise of an option. | |
(2) | Percentage of beneficial ownership is based upon 270,316,642 shares of common stock outstanding as of September 1, 2006. For each named person, this percentage includes common stock that the person has the right to acquire either currently or within 60 days of September 1, 2006, including through the exercise of an option; however, such common stock is not deemed outstanding for the purpose of computing the percentage owned by any other person. | |
(3) | Information based on Schedule 13G dated February 3, 2006, as filed with the SEC by Capital Group International, Inc. | |
(4) | Information based on Schedule 13G dated February 10, 2006, as filed with the SEC by TIAA-CREF Investment Management LLC. | |
(5) | Includes 555,180 shares held by Genesis Management Investments Limited Partnership, 30,889 shares held by Mr. Klayko’s son, 22,889 shares held by each of Mr. Klayko’s three daughters, 66,479 shares held by the Klayko Living Trust, 176,072 shares of restricted common stock subject to Brocade’s right of repurchase, and |
185
Table of Contents
stock options to purchase 1,723,608 shares of common stock exercisable either currently or within 60 days of September 1, 2006. | ||
(6) | Includes 126,975 shares of restricted common stock subject to Brocade’s right of repurchase, and stock options to purchase 682,928 shares of common stock exercisable either currently or within 60 days of September 1, 2006. | |
(7) | Includes 121,896 shares of restricted common stock subject to Brocade’s right of repurchase, and stock options to purchase 487,526 shares of common stock exercisable either currently or within 60 days of September 1, 2006. | |
(8) | Includes 30,000 shares held by Mr. House directly, 1,000 shares held by Mr. House’s spouse, and stock options to purchase 62,500 shares of common stock exercisable either currently or within 60 days of September 1, 2006. | |
(9) | Includes 230 shares held by the Krause Trust DTD June 21, 1994, and stock options to purchase 40,000 shares of common stock exercisable either currently or within 60 days of September 1, 2006. | |
(10) | Includes stock options to purchase 285,000 shares of common stock exercisable either currently or within 60 days of September 1, 2006. | |
(11) | Includes stock options to purchase 10,000 shares of common stock exercisable either currently or within 60 days of September 1, 2006. | |
(12) | Includes stock options to purchase 10,000 shares of common stock exercisable either currently or within 60 days of September 1, 2006. | |
(13) | Includes 1,000 shares of common stock owned directly, and stock options to purchase 50,000 shares of common stock exercisable either currently or within 60 days of September 1, 2006. | |
(14) | Includes stock options to purchase 30,000 shares of common stock exercisable either currently or within 60 days of September 1, 2006. | |
(15) | Includes 673,814 shares of restricted common stock subject to Brocade’s right of repurchase, and stock options to purchase 3,919,266 shares of common stock exercisable by all directors and executive officers either currently or within 60 days of September 1, 2006. |
186
Table of Contents
Fair Value | ||||||||||||||||||||||||||||
Valuation of Securities Given an | As of | Valuation of Securities Given an | ||||||||||||||||||||||||||
Interest Rate Decrease of X Basis Points | July 29, | Interest Rate Increase of X Basis Points | ||||||||||||||||||||||||||
Issuer | (150 BPS) | (100 BPS) | (50 BPS) | 2006 | 50 BPS | 100 BPS | 150 BPS | |||||||||||||||||||||
U.S. government agencies and municipal obligations | $ | 414,737 | $ | 413,450 | $ | 412,253 | $ | 411,097 | $ | 410,066 | $ | 409,069 | $ | 408,129 | ||||||||||||||
Corporate bonds and notes | $ | 202,949 | $ | 202,596 | $ | 202,182 | $ | 201,897 | $ | 201,407 | $ | 200,990 | $ | 200,575 | ||||||||||||||
Total | $ | 617,686 | $ | 616,046 | $ | 614,435 | $ | 612,994 | $ | 611,473 | $ | 610,059 | $ | 608,704 | ||||||||||||||
Weighted | ||||||||
Average | ||||||||
Amount | Interest Rate | |||||||
Cash and cash equivalents | $ | 184,484 | 4.5 | % | ||||
Restricted short-term investments | 280,481 | 3.8 | % | |||||
Short-term investments | 311,569 | 4.2 | % | |||||
Long-term investments | 20,944 | 3.7 | % | |||||
Total | $ | 797,478 | 4.1 | % | ||||
187
Table of Contents
SECURITIES ACT LIABILITIES
188
Table of Contents
• | Procedures reconciling CNT’s offsite finished goods inventory to the general ledger were not adequate to ensure that the general ledger amounts represented actual offsite finished goods inventory. Specifically, CNT’s personnel were not adequately trained in CNT’s policies and procedures for physical tracking and recording changes to offsite finished goods inventory. This deficiency in internal control resulted in material misstatements of finished goods inventory and cost of products sold and operating expenses as of January 31, 2005. | |
• | CNT’s information technology access controls were not designed to prevent CNT personnel from accessing inventory accounting information and initiating erroneous accounting entries affecting amounts recorded as finished goods inventory. Specifically, this deficiency contributed to the aforementioned material misstatements in CNT’s interim and annual financial information. |
• | McDATA’s Annual Report onForm 10-K for the fiscal year ended January 31, 2006 filed on April 26, 2006; | |
• | McDATA’s Quarterly Report onForm 10-Q for the quarter ended July 31, 2006 filed on September 11, 2006; | |
• | McDATA’s Quarterly Report onForm 10-Q for the quarter ended April 30, 2006 filed on June 9, 2006; | |
• | McDATA’s Current Report onForm 8-K filed on September 26, 2006; | |
• | McDATA’s Current Report onForm 8-K filed on September 18, 2006; |
189
Table of Contents
• | McDATA’s Current Report onForm 8-K filed on August 10, 2006; | |
• | McDATA’s Current Report onForm 8-K filed on August 8, 2006; | |
• | McDATA’s Current Report on From8-K filed on August 8, 2006; | |
• | McDATA’s Current Report onForm 8-K filed on July 24, 2006; | |
• | McDATA’s Current Report onForm 8-K filed on June 8, 2006; | |
• | McDATA’s Current Report onForm 8-K filed on June 1, 2006; | |
• | McDATA’s Current Report onForm 8-K/A filed on June 7, 2005; and | |
• | the description of McDATA’s Class A common stock and Class B common stock contained in its Registration Statement onForm 8-A as filed on January 24, 2001 andForm 8-A filed on August 4, 2000 pursuant to Section 12(g) of the Exchange Act, including any amendment or report filed for the purpose of updating such descriptions. |
190
Table of Contents
Requests for documents relating to Brocade should be directed to: | Requests for documents relating to McDATA should be directed to: | |
Brocade Communications Systems, Inc. | McDATA Corporation | |
Investor Relations | Investor Relations | |
1745 Technology Drive | 11802 Ridge Parkway | |
San Jose, California 95110 | Broomfield, Colorado 80021 | |
(408)333-5767 | (720) 558-8000 | |
investor-relations@brocade.com | investor_relations@mcdata.com |
191
Table of Contents
Table of Contents
F-2
Table of Contents
Fiscal Year Ended | ||||||||||||
October 29, | October 30, | October 25, | ||||||||||
2005 | 2004 | 2003 | ||||||||||
(In thousands, except per share amounts) | ||||||||||||
Net revenues | $ | 574,120 | $ | 596,265 | $ | 525,277 | ||||||
Cost of revenues | 251,161 | 268,974 | 241,163 | |||||||||
Gross margin | 322,959 | 327,291 | 284,114 | |||||||||
Operating expenses: | ||||||||||||
Research and development | 130,936 | 141,998 | 145,896 | |||||||||
Sales and marketing | 101,202 | 102,445 | 115,075 | |||||||||
General and administrative | 25,189 | 24,593 | 21,306 | |||||||||
Internal review and SEC investigation costs | 14,027 | — | — | |||||||||
Settlement of an acquisition-related claim | — | 6,943 | — | |||||||||
Amortization of deferred stock compensation | 1,512 | 537 | 649 | |||||||||
Restructuring costs (reversals) | (670 | ) | 8,966 | 20,828 | ||||||||
In-process research and development | 7,784 | — | 134,898 | |||||||||
Lease termination charge and other, net | — | 75,591 | — | |||||||||
Total operating expenses | 279,980 | 361,073 | 438,652 | |||||||||
Income (loss) from operations | 42,979 | (33,782 | ) | (154,538 | ) | |||||||
Interest and other income, net | 22,656 | 18,786 | 18,424 | |||||||||
Interest expense | (7,693 | ) | (10,677 | ) | (13,339 | ) | ||||||
Gain on repurchases of convertible subordinated debt | 2,318 | 5,613 | 11,118 | |||||||||
Gain (loss) on investments, net | (5,062 | ) | 436 | 3,638 | ||||||||
Income (loss) before provision for income taxes | 55,198 | (19,624 | ) | (134,697 | ) | |||||||
Income tax provision | 12,077 | 14,070 | 11,852 | |||||||||
Net income (loss) | $ | 43,121 | $ | (33,694 | ) | $ | (146,549 | ) | ||||
Net income (loss) per share — basic | $ | 0.16 | $ | (0.13 | ) | $ | (0.58 | ) | ||||
Net income (loss) per share — diluted | $ | 0.16 | $ | (0.13 | ) | $ | (0.58 | ) | ||||
Shares used in per share calculation — basic | 268,176 | 260,446 | 250,610 | |||||||||
Shares used in per share calculation — diluted | 270,260 | 260,446 | 250,610 | |||||||||
F-3
Table of Contents
October 29, | October 30, | |||||||
2005 | 2004 | |||||||
(In thousands, | ||||||||
except par value) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 182,001 | $ | 79,375 | ||||
Short-term investments | 209,865 | 406,933 | ||||||
Total cash, cash equivalents and short-term investments | 391,866 | 486,308 | ||||||
Restricted short-term investments | 277,230 | — | ||||||
Accounts receivable, net of allowances of $4,942 and $3,861 in 2005 and 2004, respectively | 70,104 | 95,778 | ||||||
Inventories | 11,030 | 5,597 | ||||||
Prepaid expenses and other current assets | 23,859 | 19,131 | ||||||
Total current assets | 774,089 | 606,814 | ||||||
Long-term investments | 95,306 | 250,600 | ||||||
Property and equipment, net | 108,118 | 124,701 | ||||||
Other assets | 8,168 | 5,267 | ||||||
Total assets | $ | 985,681 | $ | 987,382 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 23,778 | $ | 40,826 | ||||
Accrued employee compensation | 37,762 | 33,330 | ||||||
Deferred revenue | 45,488 | 34,886 | ||||||
Current liabilities associated with lease losses | 4,659 | 5,677 | ||||||
Other accrued liabilities | 73,783 | 57,933 | ||||||
Convertible subordinated debt | 278,883 | — | ||||||
Total current liabilities | 464,353 | 172,652 | ||||||
Non-current liabilities associated with lease losses | 12,481 | 16,799 | ||||||
Convertible subordinated debt | — | 352,279 | ||||||
Commitments and contingencies (Note 9) | ||||||||
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: 269,695 and 264,242 shares at October 29, 2005 and October 30, 2004, respectively | 270 | 264 | ||||||
Additional paid-in capital | 855,563 | 832,655 | ||||||
Deferred stock compensation | (3,180 | ) | (5,174 | ) | ||||
Accumulated other comprehensive income | (3,974 | ) | 860 | |||||
Accumulated deficit | (339,832 | ) | (382,953 | ) | ||||
Total stockholders’ equity | 508,847 | 445,652 | ||||||
Total liabilities and stockholders’ equity | $ | 985,681 | $ | 987,382 | ||||
F-4
Table of Contents
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Deferred | Other | Total | Comprehensive | ||||||||||||||||||||||||||||
Common Stock | Paid-In | Stock | Comprehensive | Accumulated | Stockholders’ | Income | ||||||||||||||||||||||||||
Shares | Amount | Capital | Compensation | Income | Deficit | Equity | (Loss) | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Balances at October 26, 2002 | 234,652 | $ | 235 | $ | 649,000 | $ | (6,348 | ) | $ | 6,078 | $ | (202,710 | ) | $ | 446,255 | $ | — | |||||||||||||||
Issuance of common stock | 3,511 | 3 | 11,641 | — | — | — | 11,644 | — | ||||||||||||||||||||||||
Issuance of common stock related to the Rhapsody acquisition | 19,735 | 20 | 134,853 | — | — | — | 134,873 | — | ||||||||||||||||||||||||
Warrants issued related to the Rhapsody acquisition | — | — | 1,939 | — | — | — | 1,939 | — | ||||||||||||||||||||||||
Change in deferred stock compensation | — | — | (3,777 | ) | 3,777 | — | — | — | — | |||||||||||||||||||||||
Deferred stock compensation related to the acquisition of Rhapsody | — | — | — | (1,677 | ) | — | — | (1,677 | ) | — | ||||||||||||||||||||||
Deferred stock compensation related to the change in measurement dates | — | — | 1,571 | (1,571 | ) | — | — | — | — | |||||||||||||||||||||||
Amortization of deferred stock compensation | — | — | — | 1,597 | — | — | 1,597 | — | ||||||||||||||||||||||||
Stock-based compensation expense | — | — | 193 | — | — | — | 193 | — | ||||||||||||||||||||||||
Repurchase of common stock | (257 | ) | — | (126 | ) | — | — | — | (126 | ) | — | |||||||||||||||||||||
Change in unrealized gain (loss) on marketable equity securities and investments, net of tax | — | — | — | — | (1,094 | ) | — | (1,094 | ) | (1,094 | ) | |||||||||||||||||||||
Change in cumulative translation adjustments | — | — | — | — | 813 | — | 813 | 813 | ||||||||||||||||||||||||
Net loss | — | — | — | — | — | (146,549 | ) | (146,549 | ) | (146,549 | ) | |||||||||||||||||||||
Balances at October 25, 2003 | 257,641 | 258 | 795,294 | (4,222 | ) | 5,797 | (349,259 | ) | 447,868 | (146,830 | ) | |||||||||||||||||||||
Issuance of common stock | 5,461 | 5 | 24,747 | — | — | — | 24,752 | — | ||||||||||||||||||||||||
Issuance of common stock for acquisition-related claim | 1,346 | 1 | 6,942 | — | — | — | 6,943 | — | ||||||||||||||||||||||||
Repurchase and retirement of common stock | (206 | ) | — | (288 | ) | — | — | — | (288 | ) | — | |||||||||||||||||||||
Change in deferred stock compensation | — | — | 3,335 | (3,335 | ) | — | — | — | — | |||||||||||||||||||||||
Deferred stock compensation related restricted stock grants | — | — | 1,705 | (1,705 | ) | — | — | — | — | |||||||||||||||||||||||
Amortization of deferred stock compensation | — | — | — | 4,088 | — | — | 4,088 | — | ||||||||||||||||||||||||
Stock-based compensation expense | — | — | 920 | — | — | — | 920 | — | ||||||||||||||||||||||||
Change in unrealized gain (loss) on marketable equity securities and investments, net of tax | — | — | — | — | (5,219 | ) | — | (5,219 | ) | (5,219 | ) | |||||||||||||||||||||
Change in cumulative translation adjustments | — | — | — | — | 282 | — | 282 | 282 | ||||||||||||||||||||||||
Net loss | — | — | — | — | — | (33,694 | ) | (33,694 | ) | (33,694 | ) | |||||||||||||||||||||
Balances at October 30, 2004 | 264,242 | 264 | 832,655 | (5,174 | ) | 860 | (382,953 | ) | 445,652 | (38,631 | ) | |||||||||||||||||||||
Issuance of common stock | 6,665 | 7 | 30,032 | — | — | — | 30,039 | — | ||||||||||||||||||||||||
Repurchase and retirement of common stock | (62 | ) | — | (326 | ) | — | — | — | (326 | ) | — | |||||||||||||||||||||
Common stock repurchase program | (1,150 | ) | (1 | ) | (7,049 | ) | — | — | — | (7,050 | ) | — | ||||||||||||||||||||
Tax benefits from employee stock option transactions | — | — | 2,571 | — | — | — | 2,571 | — | ||||||||||||||||||||||||
Change in deferred stock compensation | — | — | (4,231 | ) | 4,231 | — | — | — | — | |||||||||||||||||||||||
Deferred stock compensation related restricted stock grants and Therion acquisition | — | — | 1,911 | (1,622 | ) | — | — | 289 | — | |||||||||||||||||||||||
Amortization of deferred stock compensation | — | — | — | (615 | ) | — | — | (615 | ) | — | ||||||||||||||||||||||
Change in unrealized gain (loss) on marketable equity securities and investments, net of tax | — | — | — | — | (4,270 | ) | — | (4,270 | ) | (4,270 | ) | |||||||||||||||||||||
Change in cumulative translation adjustments | — | — | — | — | (564 | ) | — | (564 | ) | (564 | ) | |||||||||||||||||||||
Net income | — | — | — | — | — | 43,121 | 43,121 | 43,121 | ||||||||||||||||||||||||
Balances at October 29, 2005 | 269,695 | $ | 270 | $ | 855,563 | $ | (3,180 | ) | $ | (3,974 | ) | $ | (339,832 | ) | $ | 508,847 | $ | 38,287 | ||||||||||||||
F-5
Table of Contents
Fiscal Year Ended | ||||||||||||
October 29, | October 30, | October 25, | ||||||||||
2005 | 2004 | 2003 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) | $ | 43,121 | $ | (33,694 | ) | $ | (146,549 | ) | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
Tax benefit from employee stock plans | 2,571 | — | — | |||||||||
Depreciation and amortization | 46,203 | 52,162 | 46,941 | |||||||||
Loss on disposal of property and equipment | 1,879 | 8,510 | 4,568 | |||||||||
Amortization of debt issuance costs | 1,366 | 1,929 | 2,440 | |||||||||
(Gain) loss on investments and marketable equity securities, net | 5,178 | (202 | ) | (3,640 | ) | |||||||
Gain on repurchases of convertible subordinated debt | (2,318 | ) | (5,613 | ) | (11,118 | ) | ||||||
Provision for doubtful accounts receivable and sales returns | 2,955 | 3,406 | 3,137 | |||||||||
Non-cash compensation expense | 377 | 5,008 | 1,790 | |||||||||
Settlement of an acquisition-related claim | — | 6,943 | — | |||||||||
Non-cash restructuring charges | — | 4,995 | 8,088 | |||||||||
In-process research and development | 7,784 | — | 134,898 | |||||||||
Changes in assets and liabilities: | ||||||||||||
Accounts receivable | 21,312 | (24,249 | ) | 19,635 | ||||||||
Inventories | (5,433 | ) | (1,636 | ) | 1,441 | |||||||
Prepaid expenses and other assets | (4,196 | ) | 1,089 | 4,739 | ||||||||
Accounts payable | (17,117 | ) | 4,874 | (24,394 | ) | |||||||
Accrued employee compensation | 4,432 | 2,784 | 5,712 | |||||||||
Deferred revenue | 10,602 | 14,994 | (2,726 | ) | ||||||||
Other accrued liabilities | 12,394 | 6,595 | 7,206 | |||||||||
Liabilities associated with lease losses | (5,245 | ) | (5,910 | ) | (8,660 | ) | ||||||
Net cash provided by operating activities | 125,865 | 41,985 | 43,508 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of short-term investments | (254,642 | ) | (26,551 | ) | (125,529 | ) | ||||||
Purchases of long-term investments | (202,764 | ) | (288,436 | ) | (130,468 | ) | ||||||
Proceeds from maturities of short-term investments | 618,063 | 72,025 | 62,543 | |||||||||
Proceeds from sales and maturities of long-term investments | 178,428 | 118,078 | 30,859 | |||||||||
Proceeds from sales of marketable equity securities | — | — | 5,454 | |||||||||
Purchases of property and equipment | (27,267 | ) | (53,758 | ) | (31,306 | ) | ||||||
Purchases of non-marketable minority equity investments | (3,498 | ) | (500 | ) | — | |||||||
Purchases of restricted short-term investments | (275,995 | ) | — | — | ||||||||
Cash acquired from (paid in connection with) an acquisition | (7,185 | ) | — | 2,453 | ||||||||
Net cash provided by (used in) investing activities | 25,140 | (179,142 | ) | (185,994 | ) | |||||||
Cash flows from financing activities: | ||||||||||||
Repurchases of convertible subordinated debt | (70,485 | ) | (84,366 | ) | (94,386 | ) | ||||||
Accrual (settlement) of repurchase obligation | — | (9,029 | ) | 9,029 | ||||||||
Proceeds from issuance of common stock, net | 29,720 | 21,207 | 11,515 | |||||||||
Common stock repurchase program | (7,050 | ) | — | — | ||||||||
Payments on assumed capital lease and debt obligations for Rhapsody acquisition | — | — | (12,583 | ) | ||||||||
Net cash used in financing activities | (47,815 | ) | (72,188 | ) | (86,425 | ) | ||||||
Effect of exchange rate fluctuations on cash and cash equivalents | (564 | ) | 283 | 813 | ||||||||
Net increase (decrease) in cash and cash equivalents | 102,626 | (209,062 | ) | (228,098 | ) | |||||||
Cash and cash equivalents, beginning of year | 79,375 | 288,437 | 516,535 | |||||||||
Cash and cash equivalents, end of year | $ | 182,001 | $ | 79,375 | $ | 288,437 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Common stock issued for acquisition of Rhapsody, net of acquisition costs | $ | — | $ | — | $ | 137,134 | ||||||
Net assets acquired from acquisition of Rhapsody | $ | — | $ | — | $ | 3,556 | ||||||
Cash paid for interest | $ | 8,195 | $ | 11,165 | $ | 14,056 | ||||||
Cash paid for income taxes | $ | 3,193 | $ | 4,047 | $ | 4,831 | ||||||
F-6
Table of Contents
1. | Organization and Operations of Brocade |
2. | Summary of Significant Accounting Policies |
F-7
Table of Contents
F-8
Table of Contents
F-9
Table of Contents
F-10
Table of Contents
F-11
Table of Contents
Fiscal Year Ended | ||||||||||||
October 29, | October 30, | October 25, | ||||||||||
2005 | 2004 | 2003 | ||||||||||
Net income (loss) | $ | 43,121 | $ | (33,694 | ) | $ | (146,549 | ) | ||||
Add: Stock-based employee compensation expense (benefit) included in reported net income (loss), net of tax | (616 | ) | 5,007 | 1,789 | ||||||||
Deduct: Stock-based compensation expense determined under fair value based method, net of tax | (19,337 | ) | (37,376 | ) | (35,908 | ) | ||||||
Pro forma net profit (loss) | $ | 23,168 | $ | (66,063 | ) | $ | (180,668 | ) | ||||
Basic earnings (loss) per share: | ||||||||||||
As reported | $ | 0.16 | $ | (0.13 | ) | $ | (0.58 | ) | ||||
Pro Forma | $ | 0.09 | $ | (0.25 | ) | $ | (0.72 | ) | ||||
Diluted earnings (loss) per share: | ||||||||||||
As reported | $ | 0.16 | $ | (0.13 | ) | $ | (0.58 | ) | ||||
Pro Forma | $ | 0.09 | $ | (0.25 | ) | $ | (0.72 | ) |
Employee Stock Option Plans | Employee Stock Purchase Plan | |||||||||||||||||||||||
October 29, | October 30, | October 25, | October 29, | October 30, | October 25, | |||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||
Expected dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||||
Risk-free interest rate | 3.7-4.1 | % | 1.8-3.5 | % | 1.2-3.0 | % | 2.5-3.4 | % | 1.0-1.5 | % | 0.9-1.0 | % | ||||||||||||
Expected volatility | 45.8 | % | 52.0 | % | 70.5 | % | 45.8 | % | 43.6 | % | 63.5 | % | ||||||||||||
Expected life (in years) | 2.8 | 2.7 | 1.9 | 0.5 | 0.5 | 0.5 |
F-12
Table of Contents
F-13
Table of Contents
3. | Acquisitions |
F-14
Table of Contents
Allocated | ||||||||||||
Fair Value of | Allocation of | Fair Value of | ||||||||||
Assets and | Excess | Assets and | ||||||||||
Liabilities | Purchase Price | Liabilities | ||||||||||
Current assets | $ | 20,766 | $ | — | $ | 20,766 | ||||||
Property and equipment | 1,764 | 822 | 2,586 | |||||||||
Other assets | 240 | — | 240 | |||||||||
Total assets acquired | 22,770 | 822 | 23,592 | |||||||||
Current liabilities | (4,613 | ) | — | (4,613 | ) | |||||||
Capital lease and debt obligations | (12,583 | ) | — | (12,583 | ) | |||||||
Liabilities associated with facility lease loss | (2,840 | ) | — | (2,840 | ) | |||||||
Total liabilities assumed | (20,036 | ) | — | (20,036 | ) | |||||||
Acquired in-process R&D | 92,015 | 42,883 | 134,898 | |||||||||
Excess purchase price | 43,705 | (43,705 | ) | — | ||||||||
Total purchase price | $ | 138,454 | $ | — | $ | 138,454 | ||||||
F-15
Table of Contents
4. | Restructuring Costs |
F-16
Table of Contents
Contract | ||||||||||||||||
Severance | Terminations | Equipment | ||||||||||||||
and Benefits | and Other | Impairment | Total | |||||||||||||
Fiscal 2003 restructuring costs | $ | 12,714 | $ | 2,425 | $ | 5,867 | $ | 21,006 | ||||||||
Cash payments | (10,019 | ) | (1,938 | ) | — | (11,957 | ) | |||||||||
Non-cash charges | (2,221 | ) | — | (5,867 | ) | (8,088 | ) | |||||||||
Adjustments | (178 | ) | — | — | (178 | ) | ||||||||||
Remaining accrued liabilities at October 25, 2003 | 296 | 487 | — | 783 | ||||||||||||
Cash payments for 2003 restructuring | (43 | ) | (255 | ) | — | (298 | ) | |||||||||
Adjustments for 2003 restructuring | (225 | ) | (232 | ) | — | (457 | ) | |||||||||
Remaining accrued liabilities for 2003 restructuring | 28 | — | — | 28 | ||||||||||||
Fiscal 2004 second quarter restructuring costs | 7,480 | 1,740 | 1,241 | 10,461 | ||||||||||||
Cash payments for 2004 restructuring | (5,661 | ) | (1,692 | ) | — | (7,353 | ) | |||||||||
Non-cash charges | — | — | (1,241 | ) | (1,241 | ) | ||||||||||
Adjustments | (981 | ) | (48 | ) | — | (1,029 | ) | |||||||||
Remaining accrued liabilities for 2004 restructuring | 838 | — | — | 838 | ||||||||||||
Total restructuring accrued liabilities at October 30, 2004 | 866 | — | — | 866 | ||||||||||||
Cash payments for 2003 restructuring | (28 | ) | — | — | (28 | ) | ||||||||||
Cash payments for 2004 restructuring | (838 | ) | — | — | (838 | ) | ||||||||||
Total restructuring accrued liabilities at October 29, 2005 | $ | — | $ | — | $ | — | $ | — | ||||||||
5. | Liabilities Associated with Facilities Lease Losses and Asset Impairment Charges |
F-17
Table of Contents
Lease termination charge | $ | 76,800 | ||
Closing costs and other related charges | 1,234 | |||
Reversal of previously recorded facilities lease loss reserve | (23,731 | ) | ||
Additional reserve booked as a result of facilities consolidation | 20,855 | |||
Asset impairments associated with facilities consolidation | 433 | |||
Total charge, net | $ | 75,591 | ||
F-18
Table of Contents
Lease Loss | ||||
Reserve | ||||
Reserve balances at October 25, 2003 | $ | 24,277 | ||
Reversal of previously recorded lease loss reserve associated with building purchase | (16,933 | ) | ||
Additional reserve booked as a result of November 2003 facilities leases | 20,855 | |||
Cash payments on facilities leases | (5,910 | ) | ||
Non-cash charges and other adjustments, net | 187 | |||
Reserve balances at October 30, 2004 | 22,476 | |||
Cash payments on facilities leases | (5,202 | ) | ||
Non-cash charges and other adjustments, net | (134 | ) | ||
Reserve balances at October 29, 2005 | $ | 17,140 | ||
6. | Balance Sheet Details |
October 29, | October 30, | |||||||
2005 | 2004 | |||||||
Inventories: | ||||||||
Raw materials | $ | 1,517 | $ | 1,950 | ||||
Finished goods | 9,513 | 3,647 | ||||||
Total | $ | 11,030 | $ | 5,597 | ||||
Property and equipment, net: | ||||||||
Computer equipment and software | $ | 68,294 | $ | 63,524 | ||||
Engineering and other equipment | 123,811 | 111,109 | ||||||
Furniture and fixtures | 4,136 | 4,429 | ||||||
Land and building | 30,000 | 30,000 | ||||||
Leasehold improvements | 41,696 | 39,520 | ||||||
267,937 | 248,582 | |||||||
Less: Accumulated depreciation and amortization | (159,819 | ) | (123,881 | ) | ||||
Total | $ | 108,118 | $ | 124,701 | ||||
Other accrued liabilities: | ||||||||
Income taxes payable | $ | 36,923 | $ | 27,769 | ||||
Accrued warranty | 1,746 | 4,669 | ||||||
Inventory purchase commitments | 6,634 | 4,326 | ||||||
Accrued sales programs | 8,327 | 8,231 | ||||||
Accrued restructuring | — | 866 | ||||||
Other | 20,153 | 12,072 | ||||||
Total | $ | 73,783 | $ | 57,933 | ||||
F-19
Table of Contents
7. | Investments and Equity Securities |
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | |||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
October 29, 2005 | ||||||||||||||||
U.S. government and its agencies and municipal obligations | $ | 413,574 | $ | — | $ | (2,629 | ) | $ | 410,945 | |||||||
Corporate bonds and notes | 173,021 | 11 | (1,576 | ) | 171,456 | |||||||||||
Equity securities | 34 | 2 | — | 36 | ||||||||||||
Total | $ | 586,629 | $ | 13 | $ | (4,205 | ) | $ | 582,437 | |||||||
Reported as: | ||||||||||||||||
Short-term investments | $ | 209,865 | ||||||||||||||
Restricted short-term investments | 277,230 | |||||||||||||||
Other current assets | 36 | |||||||||||||||
Long-term investments | 95,306 | |||||||||||||||
Total | $ | 582,437 | ||||||||||||||
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | |||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
October 30, 2004 | ||||||||||||||||
U.S. government agencies and municipal obligations | $ | 526,953 | $ | 1,307 | $ | (972 | ) | $ | 527,288 | |||||||
Corporate bonds and notes | 130,604 | 146 | (505 | ) | 130,245 | |||||||||||
Equity securities | 694 | 164 | — | 858 | ||||||||||||
Total | $ | 658,251 | $ | 1,617 | $ | (1,477 | ) | $ | 658,391 | |||||||
Reported as: | ||||||||||||||||
Short-term investments | $ | 406,933 | ||||||||||||||
Other current assets | 858 | |||||||||||||||
Long-term investments | 250,600 | |||||||||||||||
Total | $ | 658,391 | ||||||||||||||
F-20
Table of Contents
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
October 29, 2005 | ||||||||||||||||||||||||
U.S. government and its agencies and municipal obligations | $ | 324,219 | $ | (1,769 | ) | $ | 69,376 | $ | (860 | ) | $ | 393,595 | $ | (2,629 | ) | |||||||||
Corporate bonds and notes | 95,303 | (1,050 | ) | 54,206 | (526 | ) | 149,509 | (1,576 | ) | |||||||||||||||
Total | $ | 419,522 | $ | (2,819 | ) | $ | 123,582 | $ | (1,386 | ) | $ | 543,104 | $ | (4,205 | ) | |||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
October 30, 2004 | ||||||||||||||||||||||||
U.S. government agencies and municipal obligations | $ | 175,667 | $ | (972 | ) | $ | — | $ | — | $ | 175,667 | $ | (972 | ) | ||||||||||
Corporate bonds and notes | 95,256 | (427 | ) | 5,321 | (78 | ) | 100,577 | (505 | ) | |||||||||||||||
Total | $ | 270,923 | $ | (1,399 | ) | $ | 5,321 | $ | (78 | ) | $ | 276,244 | $ | (1,477 | ) | |||||||||
Amortized | ||||||||
Cost | Fair Value | |||||||
Less than one year | $ | 489,680 | $ | 487,095 | ||||
Due in 1 - 2 years | 83,226 | 81,872 | ||||||
Due in 2 - 3 years | 13,689 | 13,434 | ||||||
Total | $ | 586,595 | $ | 582,401 | ||||
8. | Convertible Subordinated Debt |
F-21
Table of Contents
Redemption Period | Price | |||
Beginning on January 5, 2005 and ending on December 31, 2005 | 100.80% | |||
Beginning on January 1, 2006 and ending on December 31, 2006 | 100.40% | |||
On January 1, 2007 | 100.00% |
9. | Commitments and Contingencies |
F-22
Table of Contents
Operating | ||||
Fiscal Year Ended October | Leases | |||
2006 | $ | 16,298 | ||
2007 | 14,290 | |||
2008 | 13,815 | |||
2009 | 13,812 | |||
2010 | 11,653 | |||
Total minimum lease payments | $ | 69,868 | ||
Accrued | ||||
Warranty | ||||
Balance at October 25, 2003 | $ | 3,723 | ||
Liabilities accrued | 2,890 | |||
Claims paid | (474 | ) | ||
Changes in liability for pre-existing warranties | (1,470 | ) | ||
Balance at October 30, 2004 | 4,669 | |||
Liabilities accrued | 1,053 | |||
Claims paid | (582 | ) | ||
Changes in liability for pre-existing warranties | (3,394 | ) | ||
Balance at October 29, 2005 | $ | 1,746 | ||
F-23
Table of Contents
F-24
Table of Contents
10. | Stockholders’ Equity |
F-25
Table of Contents
F-26
Table of Contents
Fiscal Year Ended | Fiscal Year Ended | Fiscal Year Ended | ||||||||||||||||||||||
October 29, 2005 | October 30, 2004 | October 25, 2003 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Exercise | Exercise | Exercise | ||||||||||||||||||||||
Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
Outstanding at beginning of year | 49,524 | $ | 7.12 | 46,591 | $ | 7.70 | 78,982 | $ | 34.71 | |||||||||||||||
Granted | 11,488 | $ | 5.15 | 15,319 | $ | 5.52 | 42,272 | $ | 6.04 | |||||||||||||||
Exercised | (3,836 | ) | $ | 4.98 | (2,705 | ) | $ | 4.83 | (1,113 | ) | $ | 0.61 | ||||||||||||
Cancelled | (11,997 | ) | $ | 8.02 | (9,681 | ) | $ | 7.52 | (73,550 | ) | $ | 35.82 | ||||||||||||
Outstanding at end of year | 45,179 | $ | 6.59 | 49,524 | $ | 7.14 | 46,591 | $ | 7.70 | |||||||||||||||
Exercisable at end of year | 25,963 | $ | 7.52 | 24,654 | $ | 7.99 | 19,475 | $ | 8.33 |
F-27
Table of Contents
Options Outstanding | ||||||||||||||||||||
Weighted | Options Exercisable | |||||||||||||||||||
Average | Weighted | Weighted | ||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||
Range of Exercise Prices | Number | Years | Exercise Price | Number | Exercise Price | |||||||||||||||
$0.01 - $4.93 | 9,041 | 6.58 | $ | 3.72 | 2,919 | $ | 3.34 | |||||||||||||
$4.97 - $6.93 | 34,071 | 6.59 | $ | 6.08 | 21,174 | $ | 6.19 | |||||||||||||
$7.06 - $25.34 | 1,552 | 5.24 | $ | 14.93 | 1,363 | $ | 15.45 | |||||||||||||
$28.11 - $45.53 | 181 | 4.47 | $ | 36.96 | 181 | $ | 36.97 | |||||||||||||
$62.00 - $104.94 | 334 | 4.73 | $ | 81.39 | 326 | $ | 81.39 | |||||||||||||
$0.01 - $104.94 | 45,179 | 6.52 | $ | 6.59 | 25,963 | $ | 7.52 | |||||||||||||
A | B | C | ||||||||||
Number of Securities | ||||||||||||
Remaining Available | ||||||||||||
Number of | Weighted | for Future Issuance | ||||||||||
Securities to be | Average | Under Equity | ||||||||||
Issued upon | Exercise Price | Compensation Plans | ||||||||||
Exercise of | of Outstanding | (Excluding Securities | ||||||||||
Plan Category | Outstanding Options | Options | Reflected in Column A) | |||||||||
Equity compensation plans approved by shareholders(1) | 34,093 | (3) | $ | 6.17 | 41,129 | (4) | ||||||
Equity compensation plans not approved by shareholders(2) | 11,086 | (5) | $ | 7.88 | 33,828 | |||||||
Total | 45,179 | $ | 6.59 | 74,957 | ||||||||
(1) | Consists of the Purchase Plan, the Director Plan, the 1999 Plan, the Rhapsody Plan, and the Therion Plan. Both the Rhapsody Plan and Therion Plan were assumed in connection with acquisitions. | |
(2) | Consists solely of the NSO Plan. | |
(3) | Excludes purchase rights accruing under the Purchase Plan. As of October 29, 2005, the Purchase Plan had a shareholder-approved reserve of 37.2 million shares, of which 28.3 million shares were available for future issuance. | |
(4) | Consists of shares available for future issuance under the Purchase Plan, the Director Plan, the 1999 Plan, the Rhapsody Plan, and the Therion Plan. | |
(5) | Substantially all shares were granted prior to fiscal year ended October 25, 2003. |
F-28
Table of Contents
11. | Income Taxes |
Fiscal Year Ended | ||||||||||||
October 29, | October 30, | October 25, | ||||||||||
2005 | 2004 | 2003 | ||||||||||
United States | $ | 20,398 | $ | (46,684 | ) | $ | (137,293 | ) | ||||
International | 34,800 | 27,060 | 2,596 | |||||||||
Total | $ | 55,198 | $ | (19,624 | ) | $ | (134,697 | ) | ||||
Fiscal Year Ended | ||||||||||||
October 29, | October 30, | October 25, | ||||||||||
2005 | 2004 | 2003 | ||||||||||
Federal: | ||||||||||||
Current | $ | 2,942 | $ | — | $ | — | ||||||
Deferred | — | — | — | |||||||||
2,942 | — | — | ||||||||||
State: | ||||||||||||
Current | 2,826 | 428 | 431 | |||||||||
Deferred | — | — | — | |||||||||
2,826 | 428 | 431 | ||||||||||
Foreign: | ||||||||||||
Current | 6,309 | 13,642 | 11,421 | |||||||||
Deferred | — | — | — | |||||||||
6,309 | 13,642 | 11,421 | ||||||||||
Total | $ | 12,077 | $ | 14,070 | $ | 11,852 | ||||||
F-29
Table of Contents
Fiscal Year Ended | ||||||||||||
October 29, | October 30, | October 25, | ||||||||||
2005 | 2004 | 2003 | ||||||||||
Provision for (benefit from) income taxes at statutory rate | 35.0 | % | (35.0 | )% | (35.0 | )% | ||||||
State taxes, net of federal tax benefit | 4.1 | 1.8 | 0.3 | |||||||||
Foreign income taxed at other than U.S. rates | (10.7 | ) | 14.7 | 7.5 | ||||||||
In-process research and development | 4.9 | — | 35.0 | |||||||||
Research and development credit | (0.3 | ) | (31.5 | ) | (10.7 | ) | ||||||
Other permanent items | 2.9 | 1.7 | (0.9 | ) | ||||||||
Tax on repatriated foreign earnings under Act, net of credits | 7.2 | — | — | |||||||||
Change in valuation allowance | (21.2 | ) | 120.0 | 12.6 | ||||||||
Provision for income taxes | 21.9 | % | 71.7 | % | 8.8 | % | ||||||
October 29, | October 30, | |||||||
2005 | 2004 | |||||||
Net operating loss carryforwards | $ | 157,393 | $ | 152,744 | ||||
Variable stock option compensation charge | 4,957 | 5,741 | ||||||
Tax credit carryforwards | 66,046 | 62,883 | ||||||
Reserves and accruals | 57,631 | 70,135 | ||||||
Capitalized research expenditures | 22,257 | 27,526 | ||||||
Net unrealized losses on investments | 1,675 | 3,569 | ||||||
Other | 177 | 262 | ||||||
Total | 310,136 | 322,860 | ||||||
Less: Valuation allowance | (310,136 | ) | (322,860 | ) | ||||
Net deferred tax assets | $ | — | $ | — | ||||
F-30
Table of Contents
12. | Segment Information |
Fiscal Year Ended | ||||||||||||
October 29, | October 30, | October 25, | ||||||||||
2005 | 2004 | 2003 | ||||||||||
Net Revenues: | ||||||||||||
North America (principally the United States) | $ | 373,710 | $ | 387,225 | $ | 351,576 | ||||||
Europe, the Middle East, and Africa | 139,741 | 153,114 | 134,669 | |||||||||
Asia Pacific | 60,669 | 55,926 | 39,032 | |||||||||
Total | $ | 574,120 | $ | 596,265 | $ | 525,277 | ||||||
F-31
Table of Contents
13. | Interest and Other Income, net |
Fiscal Year Ended | ||||||||||||
October 29, | October 30, | October 25, | ||||||||||
2005 | 2004 | 2003 | ||||||||||
Interest income | $ | 22,270 | $ | 19,619 | $ | 19,099 | ||||||
Other income (expense), net | 386 | (833 | ) | (675 | ) | |||||||
Total | $ | 22,656 | $ | 18,786 | $ | 18,424 | ||||||
14. | Gain on Investments, net |
15. | Net Income (Loss) per Share |
Fiscal Year Ended | ||||||||||||
October 29, | October 30, | October 25, | ||||||||||
2005 | 2004 | 2003 | ||||||||||
Net income (loss) | $ | 43,121 | $ | (33,694 | ) | $ | (146,549 | ) | ||||
Basic and diluted net income (loss) per share: | ||||||||||||
Weighted-average shares of common stock outstanding | 268,256 | 260,849 | 251,275 | |||||||||
Less: Weighted-average shares of common stock subject to repurchase | (80 | ) | (403 | ) | (665 | ) | ||||||
Weighted-average shares used in computing basic net income (loss) per share | 268,176 | 260,446 | 250,610 | |||||||||
Dilutive potential common shares | 2,084 | — | — | |||||||||
Weighted-average shares used in computing diluted net income per share | 270,260 | 260,446 | 250,610 | |||||||||
Basic net income (loss) per share | $ | 0.16 | $ | (0.13 | ) | $ | (0.58 | ) | ||||
Diluted net income (loss) per share | $ | 0.16 | $ | (0.13 | ) | $ | (0.58 | ) | ||||
F-32
Table of Contents
16. | Related Party and Other Transactions |
F-33
Table of Contents
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
(In thousands, except per share and stock price amounts) | ||||||||||||||||
Quarterly Data: | ||||||||||||||||
Fiscal Year Ended October 29, 2005 | ||||||||||||||||
Net revenues | $ | 161,578 | $ | 144,753 | $ | 122,273 | $ | 145,516 | ||||||||
Gross margin | $ | 97,172 | $ | 82,834 | $ | 62,386 | $ | 80,567 | ||||||||
Income (loss) from operations | $ | 30,162 | $ | 19,448 | $ | (14,311 | ) | $ | 7,680 | |||||||
Net income (loss) | $ | 27,943 | $ | 21,357 | $ | (7,235 | ) | $ | 1,056 | |||||||
Per share amounts: | ||||||||||||||||
Basic | $ | 0.10 | $ | 0.08 | $ | (0.03 | ) | $ | 0.00 | |||||||
Diluted | $ | 0.10 | $ | 0.08 | $ | (0.03 | ) | $ | 0.00 | |||||||
Shares used in computing per share amounts: | ||||||||||||||||
Basic | 266,218 | 268,043 | 268,765 | 269,679 | ||||||||||||
Diluted | 271,422 | 269,823 | 268,765 | 270,311 | ||||||||||||
Closing prices: | ||||||||||||||||
High | $ | 7.99 | $ | 6.42 | $ | 4.49 | $ | 4.49 | ||||||||
Low | $ | 5.83 | $ | 4.35 | $ | 3.88 | $ | 3.51 | ||||||||
Fiscal Year Ended October 30, 2004 | ||||||||||||||||
Net revenues | $ | 145,040 | $ | 145,579 | $ | 150,040 | $ | 155,606 | ||||||||
Gross margin | $ | 77,404 | $ | 78,793 | $ | 84,213 | $ | 86,881 | ||||||||
Income (loss) from operations | $ | (68,154 | $ | (6,214 | ) | $ | 18,635 | $ | 21,951 | |||||||
Net income (loss) | $ | (69,485 | ) | $ | 1,883 | $ | 13,620 | $ | 20,288 | |||||||
Per share amounts: | ||||||||||||||||
Basic | $ | (0.27 | ) | $ | 0.01 | $ | 0.05 | $ | 0.08 | |||||||
Diluted | $ | (0.27 | ) | $ | 0.01 | $ | 0.05 | $ | 0.08 | |||||||
Shares used in computing per share amounts: | ||||||||||||||||
Basic | 257,796 | 259,265 | 261,481 | 263,242 | ||||||||||||
Diluted | 257,796 | 263,373 | 263,541 | 265,194 | ||||||||||||
Closing prices: | ||||||||||||||||
High | $ | 7.95 | $ | 7.44 | $ | 6.14 | $ | 6.80 | ||||||||
Low | $ | 5.49 | $ | 5.35 | $ | 4.41 | $ | 4.04 |
F-34
Table of Contents
Three Months Ended | Nine Months Ended | |||||||||||||||
July 29, | July 30, | July 29, | July 30, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Net revenues | $ | 188,947 | $ | 122,273 | $ | 541,771 | $ | 428,604 | ||||||||
Cost of revenues(1) | 77,033 | 59,887 | 224,012 | 186,212 | ||||||||||||
Gross margin | 111,914 | 62,386 | 317,759 | 242,392 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development(1) | 42,534 | 34,214 | 121,416 | 97,380 | ||||||||||||
Sales and marketing(1) | 35,501 | 25,009 | 100,682 | 74,917 | ||||||||||||
General and administrative(1) | 8,426 | 5,968 | 23,523 | 18,323 | ||||||||||||
SEC investigation and other related costs | 2,990 | 3,722 | 10,179 | 8,826 | ||||||||||||
Provision for SEC settlement | — | — | 7,000 | — | ||||||||||||
Acquisition related compensation expense | — | — | 585 | — | ||||||||||||
Amortization of intangible assets | 888 | — | 1,406 | — | ||||||||||||
Facilities lease losses | — | — | 3,775 | — | ||||||||||||
In-process research and development | — | 7,784 | — | 7,784 | ||||||||||||
Restructuring costs (benefit) | — | — | — | (137 | ) | |||||||||||
Total operating expenses | 90,339 | 76,697 | 268,566 | 207,093 | ||||||||||||
Income (loss) from operations | 21,575 | (14,311 | ) | 49,193 | 35,299 | |||||||||||
Interest and other income, net | 8,133 | 5,916 | 22,391 | 16,602 | ||||||||||||
Interest expense | (1,863 | ) | (1,633 | ) | (5,478 | ) | (5,696 | ) | ||||||||
Gain on sale of investments | 2,685 | 20 | 2,663 | 116 | ||||||||||||
Gain on repurchases of convertible subordinated debt | — | — | — | 2,318 | ||||||||||||
Income before provision for (benefit from) income taxes | 30,530 | (10,008 | ) | 68,769 | 48,639 | |||||||||||
Income tax provision (benefit) | 6,032 | (2,773 | ) | 21,098 | 6,574 | |||||||||||
Net income (loss) | $ | 24,498 | $ | (7,235 | ) | $ | 47,671 | $ | 42,065 | |||||||
Net income (loss) per share — Basic | $ | 0.09 | $ | (0.03 | ) | $ | 0.18 | $ | 0.16 | |||||||
Net income (loss) per share — Diluted | $ | 0.09 | $ | (0.03 | ) | $ | 0.17 | $ | 0.16 | |||||||
Shares used in per share calculation — Basic | 269,417 | 268,765 | 269,794 | 267,676 | ||||||||||||
Shares used in per share calculation — Diluted | 273,959 | 268,765 | 273,484 | 270,239 | ||||||||||||
(1) | Amounts for the three and nine months ended July 29, 2006 include stock-based compensation expense for stock options and employee stock purchases recognized under SFAS 123R (see Note 2, “Summary of Significant Accounting Policies,” of the Notes to Condensed Consolidated Financial Statements). |
F-35
Table of Contents
July 29, | October 29, | |||||||
2006 | 2005 | |||||||
(Unaudited) | ||||||||
(In thousands, except | ||||||||
par value) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 184,484 | $ | 182,001 | ||||
Short-term investments | 311,569 | 209,865 | ||||||
Total cash, cash equivalents and short-term investments | 496,053 | 391,866 | ||||||
Restricted short-term investments | 280,481 | 277,230 | ||||||
Accounts receivable, net of allowances of $4,281 and $4,942 at July 29, 2006 and October 29, 2005, respectively | 79,163 | 70,104 | ||||||
Inventories | 9,159 | 11,030 | ||||||
Prepaid expenses and other current assets | 62,496 | 19,908 | ||||||
Total current assets | 927,352 | 770,138 | ||||||
Long-term investments | 20,944 | 95,306 | ||||||
Property and equipment, net | 103,735 | 108,118 | ||||||
Goodwill | 41,013 | — | ||||||
Intangible assets, net | 16,353 | — | ||||||
Other long-term assets | 6,844 | 8,168 | ||||||
Total assets | $ | 1,116,241 | $ | 981,730 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 35,902 | $ | 23,778 | ||||
Accrued employee compensation | 46,158 | 37,762 | ||||||
Deferred revenue | 57,286 | 45,488 | ||||||
Current liabilities associated with lease losses | 4,980 | 4,659 | ||||||
Other accrued liabilities | 110,793 | 69,832 | ||||||
Convertible subordinated debt | 278,883 | 278,883 | ||||||
Total current liabilities | 534,002 | 460,402 | ||||||
Non-current liabilities associated with lease losses | 12,338 | 12,481 | ||||||
Total liabilities | 546,340 | 472,883 | ||||||
Commitments and contingencies (Note 9) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.001 par value 5,000 shares authorized, no shares outstanding | — | — | ||||||
Common stock, $0.001 par value, 800,000 shares authorized: | ||||||||
Issued and outstanding: 270,207 and 269,695 shares at July 29, 2006 and October 29, 2005, respectively | 270 | 270 | ||||||
Additional paid-in capital | 863,220 | 855,563 | ||||||
Deferred stock compensation | — | (3,180 | ) | |||||
Accumulated other comprehensive loss | (1,428 | ) | (3,974 | ) | ||||
Accumulated deficit | (292,161 | ) | (339,832 | ) | ||||
Total stockholders’ equity | 569,901 | 508,847 | ||||||
Total liabilities and stockholders’ equity | $ | 1,116,241 | $ | 981,730 | ||||
F-36
Table of Contents
Nine Months Ended | ||||||||
July 29, | July 30, | |||||||
2006 | 2005 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 47,671 | $ | 42,065 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Excess tax benefit from employee stock plans | (8,810 | ) | — | |||||
Depreciation and amortization | 27,073 | 36,092 | ||||||
Loss on disposal of property and equipment | 308 | 1,026 | ||||||
Amortization of debt issuance costs | 1,297 | 1,053 | ||||||
Gain on repurchases of convertible subordinated debt | — | (2,318 | ) | |||||
In-process research and development | — | 7,784 | ||||||
Net (gains) losses on investments and marketable equity securities | (2,663 | ) | (116 | ) | ||||
Non-cash compensation expense (benefit) | 23,366 | (367 | ) | |||||
Provision for doubtful accounts receivable and sales returns | 1,558 | 2,334 | ||||||
Provision for SEC settlement | 7,000 | — | ||||||
Non-cash facilities lease loss expense | 3,775 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (10,045 | ) | 14,066 | |||||
Inventories | 1,871 | (7,912 | ) | |||||
Prepaid expenses and other assets | (13,308 | ) | (2,404 | ) | ||||
Accounts payable | 12,124 | (3,251 | ) | |||||
Accrued employee compensation | 8,396 | (6,608 | ) | |||||
Deferred revenue | 11,798 | 8,327 | ||||||
Other accrued liabilities and long-term debt | 6,193 | 661 | ||||||
Liabilities associated with lease losses | (3,586 | ) | (3,952 | ) | ||||
Net cash provided by operating activities | 114,018 | 86,480 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (22,950 | ) | (18,909 | ) | ||||
Purchases of short-term investments | (259,263 | ) | (232,569 | ) | ||||
Proceeds from sale of marketable equity securities and equity investments | 10,185 | 752 | ||||||
Proceeds from maturities of short-term investments | 245,455 | 417,297 | ||||||
Purchases of long-term investments | (13,252 | ) | (202,764 | ) | ||||
Proceeds from maturities of long-term investments | — | 8,538 | ||||||
Purchases of restricted short-term investments | (2,216 | ) | — | |||||
Proceeds from maturities of restricted | ||||||||
short-term investments | 2,859 | — | ||||||
Purchases of non-marketable minority equity investments | (4,575 | ) | (4,250 | ) | ||||
Cash held in escrow in connection with acquisition of NuView | (32,031 | ) | — | |||||
Cash paid in connection with acquisitions, net of cash acquired | (27,856 | ) | (7,185 | ) | ||||
Net cash used in investing activities | (103,644 | ) | (39,090 | ) | ||||
Cash flows from financing activities: | ||||||||
Purchases of convertible subordinated debt | — | (70,485 | ) | |||||
Proceeds from issuance of common stock, net | 23,328 | 29,755 | ||||||
Common stock repurchase program | (40,206 | ) | (7,050 | ) | ||||
Excess tax benefit from employee stock plans | 8,810 | — | ||||||
Net cash used in financing activities | (8,068 | ) | (47,780 | ) | ||||
Effect of exchange rate fluctuations on cash and cash equivalents | 177 | (364 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 2,483 | (754 | ) | |||||
Cash and cash equivalents, beginning of period | 182,001 | 79,375 | ||||||
Cash and cash equivalents, end of period | $ | 184,484 | $ | 78,621 | ||||
F-37
Table of Contents
1. | Organization and Operations of Brocade |
2. | Summary of Significant Accounting Policies |
F-38
Table of Contents
F-39
Table of Contents
F-40
Table of Contents
F-41
Table of Contents
F-42
Table of Contents
Three Months Ended | Nine Months Ended | |||||||||||||||
July 29, | July 30, | July 29, | July 30, | |||||||||||||
Stock Options | 2006 | 2005 | 2006 | 2005 | ||||||||||||
Expected dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||
Risk-free interest rate | 5.1 - 5.2 | % | 3.9 -4.1 | % | 4.5 - 5.2 | % | 3.4 - 3.9 | % | ||||||||
Expected volatility | 47.4 | % | 45.6 | % | 48.7 | % | 46.8 | % | ||||||||
Expected term (in years) | 3.2 | 2.6 | 3.3 | 2.8 |
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | |||||||||||||||
Average | Contractual | |||||||||||||||
Exercise | Term | Aggregate | ||||||||||||||
Shares | Price | (Years) | Intrinsic Value | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Outstanding, April 29, 2006 | 40,930 | $ | 6.60 | |||||||||||||
Granted | 3,357 | $ | 6.07 | |||||||||||||
Exercised | (261 | ) | $ | 4.99 | ||||||||||||
Forfeited or Expired | (2,354 | ) | $ | 10.50 | ||||||||||||
Outstanding, July 29, 2006 | 41,672 | $ | 6.39 | 5.92 | $ | 27,240 | ||||||||||
F-43
Table of Contents
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | |||||||||||||||
Average | Contractual | |||||||||||||||
Exercise | Term | Aggregate | ||||||||||||||
Shares | Price | (Years) | Intrinsic Value | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Outstanding, October 29, 2005 | 45,179 | $ | 6.59 | |||||||||||||
Granted | 6,547 | $ | 5.57 | |||||||||||||
Exercised | (2,526 | ) | $ | 5.06 | ||||||||||||
Forfeited or Expired | (7,528 | ) | $ | 7.49 | ||||||||||||
Outstanding, July 29, 2006 | 41,672 | $ | 6.39 | 5.92 | $ | 27,240 | ||||||||||
Ending Vested and Expected to Vest | 39,347 | $ | 6.45 | 5.90 | $ | 25,337 | ||||||||||
Exercisable and Vested, July 29, 2006 | 24,781 | $ | 7.10 | 5.89 | $ | 12,704 | ||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
Employee Stock | July 29, | July 30, | July 29, | July 30, | ||||||||||||
Purchase Plan | 2006 | 2005 | 2006 | 2005 | ||||||||||||
Expected dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||
Risk-free interest rate | 5.1 - 5.2 | % | 2.5 - 3.4 | % | 3.4 - 5.2 | % | 2.0 - 3.4 | % | ||||||||
Expected volatility | 42.6 | % | 45.8 | % | 43.7 | % | 48.8 | % | ||||||||
Expected term (in years) | 0.5 | 0.5 | 0.5 | 0.5 |
F-44
Table of Contents
Three Months | Nine Months | |||||||
Ended | Ended | |||||||
July 29, | July 29, | |||||||
2006 | 2006 | |||||||
Restricted stock awards | $ | 1,032 | $ | 2,823 | ||||
Options remeasured at their intrinsic value | (170 | ) | 1,878 | |||||
Acquisition related amortization of stock compensation | 296 | 1,498 | ||||||
Incremental expense related to the adoption of SFAS 123R | 5,203 | 15,059 | ||||||
Incremental expense related to tender offer | 2,108 | 2,108 | ||||||
Total | $ | 8,469 | $ | 23,366 | ||||
Three Months | Nine Months | |||||||
Ended | Ended | |||||||
July 29, | July 29, | |||||||
2006 | 2006 | |||||||
Stock-based compensation expense for stock options and employee stock purchases included in operations: | ||||||||
Cost of revenues | $ | (1,457 | ) | $ | (4,382 | ) | ||
Research and development | (1,769 | ) | (5,054 | ) | ||||
Sales and marketing | (1,301 | ) | (3,701 | ) | ||||
General and administrative | (676 | ) | (1,922 | ) | ||||
Total | (5,203 | ) | (15,059 | ) | ||||
Tax benefit | 80 | 233 | ||||||
Net decrease in net income | $ | (5,123 | ) | $ | (14,826 | ) | ||
Effect on: | ||||||||
Net income per share — Basic | $ | (0.02 | ) | $ | (0.05 | ) | ||
Net income per share — Diluted | $ | (0.02 | ) | $ | (0.05 | ) |
F-45
Table of Contents
Three Months | Nine Months | |||||||
Ended | Ended | |||||||
July 30, | July 30, | |||||||
2005 | 2005 | |||||||
Net income (loss) — as reported | $ | (7,235 | ) | $ | 42,065 | |||
Add(Deduct): Stock-based compensation expense (benefit) included in reported net income, net of tax | 755 | (886 | ) | |||||
Deduct: Stock-based compensation expense determined under the fair value based method, net of tax | (4,576 | ) | (14,115 | ) | ||||
Pro forma net income (loss) | $ | (11,056 | ) | $ | 27,064 | |||
Basic net income (loss) per share: | ||||||||
As reported | $ | (0.03 | ) | $ | 0.16 | |||
Pro forma | $ | (0.04 | ) | $ | 0.10 | |||
Diluted net income (loss) per share: | ||||||||
As reported | $ | (0.03 | ) | $ | 0.16 | |||
Pro forma | $ | (0.04 | ) | $ | 0.10 |
F-46
Table of Contents
Weighted | ||||||||
Average | ||||||||
Grant-Date | ||||||||
Shares | Fair Value | |||||||
(In thousand) | ||||||||
Nonvested, October 29, 2005 | 13 | $ | 7.05 | |||||
Granted | 1,923 | $ | 4.43 | |||||
Vested | (3 | ) | $ | 7.05 | ||||
Forfeited | — | — | ||||||
Nonvested, January 29, 2006 | 1,933 | $ | 4.44 | |||||
Granted | — | — | ||||||
Vested | (3 | ) | $ | 7.05 | ||||
Forfeited | (20 | ) | $ | 4.43 | ||||
Nonvested, April 29, 2006 | 1,910 | $ | 4.44 | |||||
Granted | — | — | ||||||
Vested | (3 | ) | $ | 7.05 | ||||
Forfeited | (18 | ) | $ | 4.43 | ||||
Nonvested, July 29, 2006 | 1,889 | $ | 4.44 |
Three Months Ended | Nine Months Ended | |||||||||||||||
July 29, | July 30, | July 29, | July 30, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Net income (loss) | $ | 24,498 | $ | (7,235 | ) | $ | 47,671 | $ | 42,065 | |||||||
Other comprehensive income (loss): | ||||||||||||||||
Change in net unrealized gains (losses) on marketable equity securities and investments | 1,404 | (1,363 | ) | 2,369 | (8,034 | ) | ||||||||||
Cumulative translation adjustments | 79 | (523 | ) | 177 | (364 | ) | ||||||||||
Total comprehensive income (loss) | $ | 25,981 | $ | (9,121 | ) | $ | 50,217 | $ | 33,667 | |||||||
F-47
Table of Contents
3. | Acquisitions |
Assets acquired | ||||
Cash | $ | 130 | ||
Accounts receivable | 1,947 | |||
Identifiable intangible assets | ||||
Tradename | 932 | |||
Core/Developed technology | 7,896 | |||
Customer relationships | 8,931 | |||
Goodwill | 41,013 | |||
Other assets | 114 | |||
Total assets acquired | 60,963 | |||
Liabilities assumed | ||||
Accounts payable and accrued liabilities | 230 | |||
Deferred revenue | 220 | |||
Total liabilities acquired | 450 | |||
Net assets acquired | $ | 60,513 | ||
F-48
Table of Contents
4. | Goodwill and Intangible Assets |
Balance at October 29, 2005 | $ | — | ||
NuView acquisition | 41,013 | |||
Balance at July 29, 2006 | $ | 41,013 | ||
Gross | Net | |||||||||||
Carrying | Accumulated | Carrying | ||||||||||
Value | Amortization | Value | ||||||||||
Tradename | $ | 932 | $ | 73 | $ | 859 | ||||||
Core/Developed technology | 7,896 | 625 | 7,271 | |||||||||
Customer relationships | 8,931 | 708 | 8,223 | |||||||||
Total intangible assets | $ | 17,759 | $ | 1,406 | $ | 16,353 | ||||||
Three months ending October 28, 2006 | $ | 888 | ||
Fiscal Years: | ||||
2007 | 3,552 | |||
2008 | 3,552 | |||
2009 | 3,552 | |||
2010 | 3,552 | |||
2011 | 1,257 | |||
Total | $ | 16,353 | ||
F-49
Table of Contents
5. | Balance Sheet Details |
July 29, | October 29, | |||||||
2006 | 2005 | |||||||
Inventories: | ||||||||
Raw materials | $ | 11 | $ | 1,517 | ||||
Finished goods | 9,148 | 9,513 | ||||||
Total | $ | 9,159 | $ | 11,030 | ||||
Property and equipment, net: | ||||||||
Computer equipment and software | $ | 72,173 | $ | 68,294 | ||||
Engineering and other equipment | 138,378 | 123,811 | ||||||
Furniture and fixtures | 4,311 | 4,136 | ||||||
Leasehold improvements | 44,142 | 41,696 | ||||||
Land and building | 30,000 | 30,000 | ||||||
Subtotal | 289,004 | 267,937 | ||||||
Less: Accumulated depreciation and amortization | (185,269 | ) | (159,819 | ) | ||||
Total | $ | 103,735 | $ | 108,118 | ||||
July 29, | October 29, | |||||||
2006 | 2005 | |||||||
Other accrued liabilities: | ||||||||
Income taxes payable | $ | 37,821 | $ | 36,923 | ||||
Accrued warranty | 2,447 | 1,746 | ||||||
Inventory purchase commitments | 6,041 | 6,634 | ||||||
Acquisition related escrow | 32,373 | — | ||||||
Other | 32,111 | 24,529 | ||||||
Total | $ | 110,793 | $ | 69,832 | ||||
F-50
Table of Contents
6. | Investments and Equity Securities |
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
July 29, 2006 | ||||||||||||||||
U.S. government and its agencies and municipal obligations | $ | 411,933 | $ | 2 | $ | (838 | ) | $ | 411,097 | |||||||
Corporate bonds and notes | 202,862 | 69 | (1,034 | ) | 201,897 | |||||||||||
Total | $ | 614,795 | $ | 71 | $ | (1,872 | ) | $ | 612,994 | |||||||
Reported as: | ||||||||||||||||
Short-term investments | $ | 311,569 | ||||||||||||||
Restricted short-term investments | 280,481 | |||||||||||||||
Long-term investments | 20,944 | |||||||||||||||
Total | $ | 612,994 | ||||||||||||||
October 29, 2005 | ||||||||||||||||
U.S. government and its agencies and municipal obligations | $ | 413,574 | $ | — | $ | (2,629 | ) | $ | 410,945 | |||||||
Corporate bonds and notes | 173,021 | 11 | (1,576 | ) | 171,456 | |||||||||||
Equity securities | 34 | 2 | — | 36 | ||||||||||||
Total | $ | 586,629 | $ | 13 | $ | (4,205 | ) | $ | 582,437 | |||||||
Reported as: | ||||||||||||||||
Short-term investments | $ | 209,865 | ||||||||||||||
Restricted short-term investments | 277,230 | |||||||||||||||
Other current assets | 36 | |||||||||||||||
Long-term investments | 95,306 | |||||||||||||||
Total | $ | 582,437 | ||||||||||||||
Amortized | Fair | |||||||
Cost | Value | |||||||
Less than one year | $ | 593,405 | $ | 592,050 | ||||
Due in 1 - 2 years | 21,390 | 20,944 | ||||||
Total | $ | 614,795 | $ | 612,994 | ||||
F-51
Table of Contents
7. | Liabilities Associated with Facilities Lease Losses |
Lease Loss | ||||
Reserve | ||||
Reserve balances at October 29, 2005 | $ | 17,140 | ||
Cash payments on facilities leases | (3,477 | ) | ||
Non-cash charges | (120 | ) | ||
Additional reserve booked based on current market data | 3,775 | |||
Reserve balance at July 29, 2006 | $ | 17,318 | ||
8. | Convertible Subordinated Debt |
F-52
Table of Contents
9. | Commitments and Contingencies |
F-53
Table of Contents
July 29, | July 30, | |||||||
2006 | 2005 | |||||||
Beginning balance | $ | 1,746 | $ | 4,669 | ||||
Liabilities accrued for warranties issued during the period | 1,464 | 749 | ||||||
Warranty claims paid during the period | (532 | ) | (447 | ) | ||||
Changes in liability for pre-existing warranties during the period | (231 | ) | (3,287 | ) | ||||
Ending balance | $ | 2,447 | $ | 1,684 | ||||
F-54
Table of Contents
F-55
Table of Contents
10. | Segment Information |
Three Months Ended | Nine Months Ended | |||||||||||||||
July 29, | July 30, | July 29, | July 30, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues by geography: | ||||||||||||||||
Domestic | 65 | % | 58 | % | 64 | % | 64 | % | ||||||||
International | 35 | % | 42 | % | 36 | % | 36 | % | ||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % |
Three Months Ended | Nine Months Ended | |||||||||||||||
July 29, | July 30, | July 29, | July 30, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
# of customers representing ten percent or more of total revenues | 3 | 3 | 3 | 3 | ||||||||||||
Revenue from customers representing ten percent or more of total revenues | 74 | % | 67 | % | 72 | % | 71 | % |
F-56
Table of Contents
11. | Net Income (loss) per Share |
Three Months Ended | Nine Months Ended | |||||||||||||||
July 29, | July 30, | July 29, | July 30, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Net income (loss) | $ | 24,498 | $ | (7,235 | ) | $ | 47,671 | $ | 42,065 | |||||||
Basic and diluted net income per share: | ||||||||||||||||
Weighted-average shares of common stock outstanding | 271,307 | 268,804 | 271,705 | 267,776 | ||||||||||||
Less: Weighted-average shares of common stock subject to repurchase | (1,889 | ) | (39 | ) | (1,911 | ) | (101 | ) | ||||||||
Weighted-average shares used in computing basic net income per share | 269,417 | 268,765 | 269,794 | 267,676 | ||||||||||||
Dilutive effect of common share equivalents | 4,542 | — | 3,690 | 2,563 | ||||||||||||
Weighted-average shares used in computing diluted net income per share | 273,959 | 268,765 | 273,484 | 270,239 | ||||||||||||
Basic net income (loss) per share | $ | 0.09 | $ | (0.03 | ) | $ | 0.18 | $ | 0.16 | |||||||
Diluted net income (loss) per share | $ | 0.09 | $ | (0.03 | ) | $ | 0.17 | $ | 0.16 | |||||||
12. | Subsequent Events |
F-57
Table of Contents
BY AND AMONG
BROCADE COMMUNICATIONS SYSTEMS, INC.,
WORLDCUP MERGER CORPORATION
AND
MCDATA CORPORATION
Dated as of August 7, 2006
Table of Contents
Page | ||||
ARTICLE I THE MERGER | A-1 | |||
1.1 The Merger | A-1 | |||
1.2 Closing; Effective Time | A-1 | |||
1.3 Effect of the Merger | A-2 | |||
1.4 Certificate of Incorporation and Bylaws | A-2 | |||
1.5 Directors and Officers | A-2 | |||
1.6 Effect on Capital Stock | A-2 | |||
1.7 Surrender of Certificates | A-3 | |||
1.8 No Further Ownership Rights in Company Common Stock | A-5 | |||
1.9 Lost, Stolen or Destroyed Certificates | A-5 | |||
1.10 Tax Consequences | A-5 | |||
1.11 Further Action | A-5 | |||
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY | A-6 | |||
2.1 Organization; Standing; Charter Documents; Subsidiaries | A-6 | |||
2.2 Capital Structure | A-6 | |||
2.3 Authority; Non-Contravention; Necessary Consents | A-9 | |||
2.4 SEC Filings; Financial Statements | A-10 | |||
2.5 Absence of Certain Changes or Events | A-11 | |||
2.6 Taxes | A-12 | |||
2.7 Intellectual Property | A-13 | |||
2.8 Compliance; Permits; Exports; FCPA | A-16 | |||
2.9 Litigation | A-17 | |||
2.10 Brokers’ and Finders’ Fees; Fees and Expenses | A-17 | |||
2.11 Transactions with Affiliates | A-17 | |||
2.12 Employee Benefit Plans | A-18 | |||
2.13 Title to Properties | A-20 | |||
2.14 Environmental Matters | A-21 | |||
2.15 Contracts | A-21 | |||
2.16 Insurance | A-23 | |||
2.17 Disclosure | A-23 | |||
2.18 Board Approval | A-23 | |||
2.19 Fairness Opinion | A-23 | |||
2.20 Rights Plan | A-23 | |||
2.21 Takeover Statutes | A-24 | |||
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB | A-24 | |||
3.1 Organization; Standing; Charter Documents; Subsidiaries | A-24 | |||
3.2 Capital Structure | A-24 | |||
3.3 Authority; Non-Contravention; Necessary Consents | A-26 | |||
3.4 SEC Filings; Financial Statements | A-26 | |||
3.5 Absence of Certain Changes or Events | A-28 | |||
3.6 Taxes | A-28 | |||
3.7 Intellectual Property | A-28 |
A-i
Table of Contents
Page | ||||
3.8 Compliance; Permits | A-29 | |||
3.9 Litigation | A-29 | |||
3.10 Brokers’ and Finders’ Fees | A-29 | |||
3.11 Employee Benefit Plans | A-30 | |||
3.12 Environmental Matters | A-31 | |||
3.13 Material Contracts | A-31 | |||
3.14 Disclosure | A-31 | |||
3.15 Board Approval | A-32 | |||
3.16 Fairness Opinion | A-32 | |||
3.17 Rights Plan | A-32 | |||
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME | A-32 | |||
4.1 Conduct of Business by the Company | A-32 | |||
4.2 Conduct of Business by Parent | A-35 | |||
ARTICLE V ADDITIONAL AGREEMENTS | A-36 | |||
5.1 Proxy Statement/Prospectus; Registration Statement | A-36 | |||
5.2 Meeting of Stockholders; Board Recommendation | A-37 | |||
5.3 Acquisition Proposals | A-38 | |||
5.4 Confidentiality; Access to Information; No Modification of Representations, Warranties or Covenants | A-40 | |||
5.5 Public Disclosure | A-41 | |||
5.6 Regulatory Filings; Reasonable Best Efforts | A-41 | |||
5.7 Notification of Certain Matters | A-43 | |||
5.8 Third-Party Consents | A-43 | |||
5.9 Equity Awards and Employee Benefits | A-43 | |||
5.10 Indemnification | A-45 | |||
5.11 Form S-8 | A-46 | |||
5.12 Nasdaq Listing | A-46 | |||
5.13 Company Affiliates; Restrictive Legend | A-46 | |||
5.14 Treatment as Reorganization | A-47 | |||
5.15 Company Rights Plan | A-47 | |||
5.16 Board of Directors | A-47 | |||
5.17 Section 16 Matters | A-47 | |||
5.18 Merger Sub Compliance | A-47 | |||
5.19 Convertible Debt | A-47 | |||
ARTICLE VI CONDITIONS TO THE MERGER | A-48 | |||
6.1 Conditions to the Obligations of Each Party to Effect the Merger | A-48 | |||
6.2 Additional Conditions to the Obligations of the Company | A-48 | |||
6.3 Additional Conditions to the Obligations of Parent | A-49 | |||
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER | A-50 | |||
7.1 Termination | A-50 | |||
7.2 Notice of Termination; Effect of Termination | A-51 | |||
7.3 Fees and Expenses | A-51 |
A-ii
Table of Contents
Page | ||||
7.4 Amendment | A-53 | |||
7.5 Extension; Waiver | A-53 | |||
ARTICLE VIII GENERAL PROVISIONS | A-53 | |||
8.1 Non-Survival of Representations and Warranties | A-53 | |||
8.2 Notices | A-53 | |||
8.3 Interpretation; Knowledge | A-55 | |||
8.4 Counterparts | A-56 | |||
8.5 Entire Agreement; Third-Party Beneficiaries | A-56 | |||
8.6 Severability | A-56 | |||
8.7 Other Remedies | A-56 | |||
8.8 Governing Law; Specific Performance; Jurisdiction | A-56 | |||
8.9 Rules of Construction | A-57 | |||
8.10 Assignment | A-57 | |||
8.11 Waiver of Jury Trial | A-57 |
A-iii
Table of Contents
Term | Reference | |
2.25% Notes | 2.2(c) | |
3.00% Notes | 2.2(c) | |
401(k) Plans | 5.9(h)(i) | |
Acquisition | 7.3(b)(iv) | |
Acquisition Proposal | 5.3(g)(i) | |
Action of Divestiture | 5.6(e) | |
Agreement | Preamble | |
Approval | 2.12(c)(ii) | |
Book Entry Shares | 1.7(c) | |
Briefings | 5.6(b) | |
business day | 8.3(a) | |
Certificate of Merger | 1.2 | |
Certificates | 1.7(c) | |
Change of Recommendation | 5.3(d)(i) | |
Change of Recommendation Notice | 5.3(d)(i)(3) | |
Closing | 1.2 | |
Closing Date | 1.2 | |
CNT | 2.2(c) | |
CNT Indenture | 5.19 | |
Code | Recitals | |
Company | Preamble | |
Company Affiliate | 2.11 | |
Company Balance Sheet | 2.4(b) | |
Company Benefit Plans | 2.12(a) | |
Company Board Approval | 2.18 | |
Company Charter Documents | 2.1(b) | |
Company Class A Common Stock | 1.6(a) | |
Company Class B Common Stock | 1.6(a) | |
Company Common Stock | 1.6(a) | |
Company Disclosure Letter | Article II | |
Company Financials | 2.4(b) | |
Company Intellectual Property | 2.7(a)(ii) | |
Company Lease | 2.13(a) | |
Company Leased Property | 2.13(a) | |
Company Material Contract | 2.15(a) | |
Company Options | 2.2(b) | |
Company Owned Property | 2.13(b) | |
Company Permits | 2.8(b) | |
Company Preferred Stock | 2.2(a) | |
Company Privacy Policy | 2.7(a)(vii) | |
Company Products | 2.7(c) | |
Company Purchase Plan | 1.6(e) | |
Company Real Property | 2.13(b) |
A-iv
Table of Contents
Term | Reference | |
Company Registered Intellectual Property | 2.7(a)(iv) | |
Company Restricted Stock | 2.2(a) | |
Company Rights | 2.2(a) | |
Company Rights Agreement | 2.2(a) | |
Company SEC Reports | 2.4(a) | |
Company’s FSA | 5.9(d) | |
Company Stock Option Plans | 2.2(b) | |
Company Stock-Based Award | 5.9(c) | |
Company Termination Fee | 7.3(b)(i)(1) | |
Confidentiality Agreement | 5.4(a) | |
Continuing Employees | 5.9(d) | |
Contract | 2.2(a) | |
Controlled Group Affiliate | 2.12(e) | |
Convertible Debt | 2.2(c) | |
Credit Suisse | 2.10 | |
D&O Insurance | 5.10(b) | |
Delaware Law | Recitals | |
Distribution Date | 5.15 | |
DOJ | 5.6(a) | |
Domain Names | 2.7(a)(i) | |
Effect | 8.3(c) | |
Effective Time | 1.2 | |
Employee | 2.12(a) | |
End Date | 7.1(b) | |
ERISA | 2.12(c)(i) | |
Exchange Act | 2.3(c) | |
Exchange Agent | 1.7(a) | |
Exchange Fund | 1.7(b) | |
Exchange Ratio | 1.6(a) | |
Export Approvals | 2.8(c)(i) | |
FCPA | 2.8(d) | |
FTC | 5.6(a) | |
GAAP | 2.4(b) | |
Governmental Entity | 2.3(c) | |
Hazardous Material | 2.14(a) | |
Hazardous Material Activities | 2.14(b) | |
Hazardous Materials Laws | 2.14(b) | |
HSR Act | 2.3(c) | |
include, includes and including | 8.3(a) | |
Indemnified Parties | 5.10(a) | |
Indenture | 5.19 | |
Intellectual Property | 2.7(a)(i) | |
IP Contracts | 2.7(j) | |
Issued Calls | 5.19 |
A-v
Table of Contents
Term | Reference | |
Knowledge | 8.3(b) | |
Legal Requirements | 2.2(e) | |
Liens | 2.1(d) | |
Material Adverse Effect | 8.3(c) | |
Merger | 1.1 | |
Merger Sub | Preamble | |
Merger Sub Common Stock | 1.6(d) | |
Nasdaq | 1.6(f) | |
Necessary Consents | 2.3(c) | |
Open Source Material | 2.7(q) | |
Parent | Preamble | |
Parent Balance Sheet | 3.4(b) | |
Parent Benefit Plan | 3.11(a)(i) | |
Parent Board Approval | 3.15 | |
Parent Charter Documents | 3.1(b) | |
Parent Common Stock | 1.6(a) | |
Parent Disclosure Letter | Article III | |
Parent Financials | 3.4(b) | |
Parent Material Contract | 3.13 | |
Parent Options | 3.2(b) | |
Parent Permits | 3.8(b) | |
Parent Preferred Stock | 3.2(a) | |
Parent Purchase | 4.2(b)(v) | |
Parent Rights | 3.2(a) | |
Parent Rights Agreement | 3.2(a) | |
Parent SEC Reports | 3.4(a) | |
Parent Stock Option Plans | 3.2(b) | |
Parent Termination Fee | 7.3(b)(ii)(1) | |
Parent’s FSA | 5.9(d) | |
Parent’s Savings Plan | 5.9(h)(ii) | |
Permits | 2.8(b) | |
Person | 8.3(d) | |
Personal Data | 2.7(a)(v) | |
Proxy Statement/Prospectus | 2.17 | |
PTO | 2.7(b) | |
Purchased Calls | 5.19 | |
Registered Intellectual Property | 2.7(a)(iii) | |
Registration Statement | 2.17 | |
Representatives | 5.3(a) | |
Restricted Purchases | 4.2(b)(v) | |
Routine Grants | 4.1(b)(iv) | |
Sarbanes-Oxley Act | 2.4(c) | |
SEC | 2.2(a) | |
Securities Act | 2.4(a) |
A-vi
Table of Contents
Term | Reference | |
Share Issuance | Recitals | |
Significant Subsidiaries | 2.1(b) | |
Stockholders’ Meeting | 5.2(a) | |
Subsidiary | 2.1(a) | |
Subsidiary Charter Documents | 2.1(b) | |
Superior Offer | 5.3(g)(ii) | |
Surviving Corporation | 1.1 | |
Surviving Corporation Common Stock | 1.6(d) | |
Tax | 2.6(a) | |
Taxes | 2.6(a) | |
Tax Returns | 2.6(b)(i) | |
the business of | 8.3(a) | |
Triggering Event | 7.1(i) | |
U.S. Bank | 5.19 | |
URLs | 2.7(a)(i) | |
User Data | 2.7(a)(vi) | |
Voting Debt | 2.2(d) | |
Wells Fargo | 5.19 | |
WGM | 5.14(b) | |
WSGR | 5.14(b) |
A-vii
Table of Contents
Exhibit A Certificate of Merger | ||
Exhibit B Parent Tax Certificate | ||
Exhibit C Company Tax Certificate |
A-viii
Table of Contents
Table of Contents
A-2
Table of Contents
A-3
Table of Contents
A-4
Table of Contents
A-5
Table of Contents
A-6
Table of Contents
A-7
Table of Contents
A-8
Table of Contents
A-9
Table of Contents
A-10
Table of Contents
A-11
Table of Contents
A-12
Table of Contents
A-13
Table of Contents
A-14
Table of Contents
A-15
Table of Contents
A-16
Table of Contents
A-17
Table of Contents
A-18
Table of Contents
A-19
Table of Contents
A-20
Table of Contents
A-21
Table of Contents
A-22
Table of Contents
A-23
Table of Contents
A-24
Table of Contents
A-25
Table of Contents
A-26
Table of Contents
A-27
Table of Contents
A-28
Table of Contents
A-29
Table of Contents
A-30
Table of Contents
A-31
Table of Contents
A-32
Table of Contents
A-33
Table of Contents
A-34
Table of Contents
A-35
Table of Contents
A-36
Table of Contents
A-37
Table of Contents
A-38
Table of Contents
A-39
Table of Contents
A-40
Table of Contents
A-41
Table of Contents
A-42
Table of Contents
A-43
Table of Contents
A-44
Table of Contents
A-45
Table of Contents
A-46
Table of Contents
A-47
Table of Contents
A-48
Table of Contents
A-49
Table of Contents
A-50
Table of Contents
A-51
Table of Contents
A-52
Table of Contents
A-53
Table of Contents
1745 Technology Drive
San Jose, California 95110
Attention: Chief Executive Officer
Telephone No.:(408) 333-8000
Telecopy No.:(408) 333-5258
1745 Technology Drive
San Jose, California 95110
Attention: General Counsel
Telephone No.:(408) 333-8000
Telecopy No.:(408) 333-5630
Professional Corporation
650 Page Mill Road
Palo Alto, California94304-1050
Attention: Larry W. Sonsini
Katharine A. Martin
Bradley L. Finkelstein
Telephone No.:(650) 493-9300
Telecopy No.:(650) 493-6811
11802 Ridge Parkway
Broomfield, Colorado 80021
Attention: Chief Executive Officer
Telephone No.:(720) 558-8000
Telecopy No.:(720) 558-4747
11802 Ridge Parkway
Broomfield, Colorado 80021
Attention: Chief Legal Officer
Telephone No.:(720) 558-8000
Telecopy No.:(720) 558-4747
767 Fifth Avenue
New York, New York 10153
Attention: Thomas A. Roberts
Raymond O. Gietz
Telephone No.:(212) 310-8000
Telecopy No.:(212) 310-8007
A-54
Table of Contents
201 Redwood Shores Parkway
Redwood Shores, California 94065
Attention: Kyle C. Krpata
Telephone No.:(650) 802-3000
Telecopy No.:(650) 802-3100
A-55
Table of Contents
A-56
Table of Contents
A-57
Table of Contents
By: | /s/ MICHAEL KLAYKO |
By: | /s/ MICHAEL KLAYKO |
By: | /s/ JOHN A. KELLEY, JR. |
Table of Contents
i) | reviewed certain publicly available financial statements and other business and financial information of Brocade and McDATA, respectively; | |
ii) | reviewed certain internal financial statements and projections and other financial and operating data concerning Brocade and McDATA, prepared by the managements of Brocade and McDATA, respectively; | |
iii) | discussed the past and current operations and financial condition and the prospects of Brocade and McDATA with the managements of Brocade and McDATA, respectively; | |
iv) | discussed certain strategic, financial and operational benefits anticipated from the Merger with the managements of Brocade and McDATA, respectively; | |
v) | reviewed the pro forma financial impact of the Merger on the combined company’s earnings per share and other metrics; | |
vi) | reviewed the reported prices and trading activity for the Brocade Common Stock and the McDATA Common Stock; | |
vii) | compared the financial performance of Brocade and McDATA and the prices and trading activity of Brocade Common Stock and McDATA Common Stock with that of certain other publicly-traded companies comparable with Brocade and McDATA, respectively, and their securities; | |
viii) | discussed the strategic rationale for the Merger with the management of Brocade and McDATA; | |
ix) | reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions; | |
x) | participated in discussions and negotiations among representatives of Brocade and McDATA and their financial and legal advisors; | |
xi) | reviewed the Merger Agreement and certain related documents; and | |
xii) | performed such other analyses and considered other such factors as we have deemed appropriate. |
B-1
Table of Contents
By: | /s/ Charles R. Cory |
B-2
Table of Contents
C-1
Table of Contents
C-2
Table of Contents
C-3
Table of Contents
Item 20. | Indemnification of Officers and Directors |
II-1
Table of Contents
Item 21. | Exhibits and Financial Statement Schedules |
Exhibit | ||||
Number | Description | |||
2 | .1 | Agreement and Plan of Reorganization, dated as of August 7, 2006, among Brocade Communications Systems, Inc., Worldcup Merger Corporation and McDATA Corporation (included as Annex A to the joint proxy statement/prospectus) | ||
3 | .1 | Amended and Restated Certificate of Incorporation of Brocade Communications Systems, Inc. (incorporated by reference to Exhibit 3.1 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
3 | .2 | Amended and Restated Bylaws of Brocade Communications Systems, Inc., effective as of April 18, 2006 (incorporated by reference to Exhibit 99.1 from Registrant’sForm 8-K as filed on April 19, 2006) | ||
4 | .1 | Preferred Stock Rights Agreement between Wells Fargo Bank, N.A. and Brocade dated February 2, 2002 (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement onForm 8-A filed on February 11, 2002) | ||
4 | .2 | Amendment No. 1 to Preferred Stock Rights Agreement between Wells Fargo Bank, N.A. and Brocade dated August 7, 2006 (incorporated by reference to Exhibit 99.3 from Brocade’s Current Report onForm 8-K filed August 8, 2006) | ||
4 | .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 onForm 8-A filed on February 11, 2002) | ||
4 | .4 | Form of Registrant’s Common Stock certificate (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement onForm S-1 (Reg.No. 333-74711), as amended) | ||
4 | .5 | Form of Convertible Debenture (incorporated by reference to Exhibit 4.3 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended January 26, 2002) | ||
5 | .1 | Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation as to the issuance of shares of Brocade common stock in connection with the merger (to be filed by amendment) | ||
8 | .1 | Tax opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation (to be filed by amendment) | ||
8 | .2 | Tax opinion of Weil, Gotshal & Manges, LLP (to be filed by amendment) | ||
10 | .1 | Form of Indemnification Agreement entered into between Brocade and each of its directors and executive officers (incorporated by reference to Exhibit 10.1 from Brocade’s Registration Statement onForm S-1 (Reg.No. 333-74711), as amended) | ||
10 | .2 | Master Equipment Lease Agreement between Venture Lending & Leasing, Inc. and Brocade dated September 5, 1996 (incorporated by reference to Exhibit 10.13 from Brocade’s Registration Statement onForm S-1 (Reg.No. 333-74711), as amended) | ||
10 | .3# | Acknowledgement between Wind River Systems, Inc. and Brocade dated April 22, 1999 (incorporated by reference to Exhibit 10.18 from Brocade’s Registration Statement onForm S-1 (Reg.No. 333-74711), as amended) | ||
10 | .4# | Manufacturing Agreement between Solectron California Corporation and Brocade dated July 30, 1999 (incorporated by reference to Exhibit 10.24 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 31, 1999, as amended) |
II-2
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .5 | Master Lease Agreement between Spieker Properties and Brocade dated December 17, 1999 (incorporated by reference to Exhibit 10.25 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 31, 1999, as amended) | ||
10 | .6 | First Amendment to Lease between Spieker Properties and Brocade dated February 16, 2000 (incorporated by reference to Exhibit 10.22 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .7 | Second Amendment to Lease between Spieker Properties and Brocade dated August 11, 2000 (incorporated by reference to Exhibit 10.23 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .8 | Credit Agreement between Comerica Bank-California and Brocade dated January 5, 2000 (incorporated by reference to Exhibit 10.26 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended January 29, 2000) | ||
10 | .9 | First Amendment to Credit Agreement between Comerica Bank-California and Brocade dated March 21, 2000 (incorporated by reference to Exhibit 10.25 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .10 | Second Amendment to Credit Agreement between Comerica Bank-California and Brocade dated September 20, 2000 (incorporated by reference to Exhibit 10.26 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .11 | Master Lease Agreement between Spieker Properties and Brocade dated July 26, 2000 (incorporated by reference to Exhibit 10.27 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .12# | Purchase Agreement between Compaq Computer Corporation and Brocade dated February 1, 2000 (incorporated by reference to Exhibit 10.28 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .13# | Purchase Agreement between EMC Corporation and Brocade dated January 25, 2000 (EMC Purchase Agreement) (incorporated by reference to Exhibit 10.29 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .14# | Extension Agreement between EMC Corporation and Brocade dated December 18, 2000 (incorporated by reference to Exhibit 10.23 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
10 | .15 | Extension Agreement between EMC Corporation and Brocade dated November 13, 2002 (incorporated by reference to Exhibit 10.24 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended January 25, 2003) | ||
10 | .16# | Goods Agreement between International Business Machines Corporation and Brocade dated April 15, 1999 (incorporated by reference to Exhibit 10.24 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
10 | .17 | Amendment #1 to the Goods Agreement between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.25 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
10 | .18# | Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.26 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
10 | .19# | Amendment #3 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.27 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
10 | .20# | Amendment #4 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.28 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
10 | .21# | Statement of Work #2 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.29 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) |
II-3
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .22 | Third Amendment to Credit Agreement between Comerica Bank-California and Brocade dated January 22, 2001 (incorporated by reference to Exhibit 10.2 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended January 27, 2001) | ||
10 | .23 | Lease Agreement between MV Golden State San Jose, LLC and Brocade dated December 1, 2000 (incorporated by reference to Exhibit 10.1 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended January 27, 2001) | ||
10 | .24# | Amendment No. 5 to Statement of Work No. 1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.2 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 27, 2002) | ||
10 | .25# | Amendment No. 6 to Statement of Work No. 1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.3 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 27, 2002) | ||
10 | .26# | Amendment No. 7 to Statement of Work No. 1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.37 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .27# | Amendment No. 8 to Statement of Work No. 1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.36 from Brocade’sForm 10-Q for the quarter ended January 25, 2003) | ||
10 | .28# | Amendment No. 1 to Statement of Work No. 2 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.4 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 27, 2002) | ||
10 | .29 | Amendment No. 2 to Statement of Work No. 2 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.5 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 27, 2002) | ||
10 | .30# | OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated January 28, 2000 (2000 OEM Purchase Agreement) (incorporated by reference to Exhibit 10.38 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .31# | Amendment to 2000 OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated April 20, 2001 (incorporated by reference to Exhibit 10.39 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .32 | Letter Amendment to 2000 OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated January 25, 2002 (incorporated by reference to Exhibit 10.40 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .33# | OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated April 20, 2001 (2001 OEM Purchase Agreement) (incorporated by reference to Exhibit 10.41 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .34# | Amendment No. 1 to 2001 OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated July 1, 2001 (incorporated by reference to Exhibit 10.42 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .35† | Amendment No. 2 to 2001 OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated November 6, 2001 (incorporated by reference to Exhibit 10.43 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .36# | Amendment No. 3 to 2001 OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated February 1, 2002 (incorporated by reference to Exhibit 10.44 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .37# | Amendment No. 4 to 2001 OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated June 5, 2002 (incorporated by reference to Exhibit 10.45 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .38# | OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated December 16, 2002. (incorporated by reference to Exhibit 10.48 from Brocade’sForm 10-Q for the quarter ended January 25, 2003) |
II-4
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .39# | Manufacturing and Purchase Agreement between Brocade and Hon Hai Precision Industry Co., Ltd. dated April 5, 2003 (HHPI Manufacturing and Purchase Agreement) (incorporated by reference to Exhibit 10.49 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) | ||
10 | .40 | Amendment Number One to HHPI Manufacturing and Purchase Agreement between Brocade and Hon Hai Precision Industry Co., Ltd. dated April 5, 2003 (incorporated by reference to Exhibit 10.50 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) | ||
10 | .41# | Manufacturing and Purchase Agreement between Brocade Communications Switzerland SarL and Hon Hai Precision Industry Co., Ltd. dated May 1, 2003 (incorporated by reference to Exhibit 10.51 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) | ||
10 | .42# | Manufacturing and Purchase Agreement between Brocade and Solectron Corporation dated February 21, 2003 (Solectron Manufacturing and Purchase Agreement) (incorporated by reference to Exhibit 10.52 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) | ||
10 | .43 | Amendment No. 1 to Solectron Manufacturing and Purchase Agreement between Brocade and Solectron Corporation dated March 21, 2003 (incorporated by reference to Exhibit 10.53 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) | ||
10 | .44# | Manufacturing and Purchase Agreement between Brocade Communications Switzerland SarL and Solectron Corporation dated March 21, 2003 (incorporated by reference to Exhibit 10.54 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) | ||
10 | .45# | Amendment No. 2 to EMC Purchase Agreement between Brocade and EMC dated February 18, 2003. (incorporated by reference to Exhibit 10.55 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) | ||
10 | .46# | Amendment No. 3 to EMC Purchase Agreement between Brocade and EMC dated July 30, 2003 (incorporated by reference to Exhibit 10.56 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 25, 2003) | ||
10 | .47# | Amendment #10 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.55 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .48# | Amendment #11 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.56 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .49# | Amendment #14 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.59 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .50# | Statement of Work #3 between International Business Machines Corporation and Brocade dated December 15, 2003 (incorporated by reference to Exhibit 10.60 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .51# | Amendment No. 4 to EMC Purchase Agreement between Brocade and EMC dated October 29, 2003 (incorporated by reference to Exhibit 10.61 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .52 | Third Amendment to Lease between Spieker Properties and Brocade Communications Systems, Inc. dated November 30, 2000 (incorporated by reference to Exhibit 10.62 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .53 | Fourth Amendment to Lease between Spieker Properties and Brocade Communications Systems, Inc. dated November 18, 2003 (incorporated by reference to Exhibit 10.63 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .54 | Fifth Amendment to Lease between Spieker Properties and Brocade Communications Systems, Inc. dated November 18, 2003 (incorporated by reference to Exhibit 10.64 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .55 | Sixth Amendment to Lease between Spieker Properties and Brocade Communications Systems, Inc. dated November 18, 2003 (incorporated by reference to Exhibit 10.65 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) |
II-5
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .56 | Real Estate Sale and Lease Termination Agreement between EOP-Skyport I, LLC and Brocade effective November 18, 2003 (incorporated by reference to Exhibit 10.66 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .57 | Grant Deed from EOP-Skyport I, L.L.C. to Brocade Communications Systems Skyport LLC dated November 18, 2003 (incorporated by reference to Exhibit 10.67 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .58 | Fourth Amendment to the Skyport Plaza Declaration of Common Easements, Covenants, Conditions and Restrictions dated October 18, 2003 (incorporated by reference to Exhibit 10.68 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .59 | Guaranty of Brocade Communications Systems, Inc. to EOP Skyport I, L.L.C dated November 18, 2003 (incorporated by reference to Exhibit 10.69 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .60 | Right of First Offer Agreement between EOP-Skyport I, L.L.C to Brocade Communications Systems Skyport LLC dated November 18, 2003 (incorporated by reference to Exhibit 10.70 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .61# | Amendment #15 dated March 26, 2004 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.71 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended May 1, 2004) | ||
10 | .62# | Amendment No. 6 dated April 27, 2004 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.72 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended May 1, 2004) | ||
10 | .63# | Amendment No. 5 dated May 4, 2004 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.73 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 31, 2004) | ||
10 | .64# | Amendment #1 dated May 12, 2004 to Statement of Work #3 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.76 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 31, 2004) | ||
10 | .65# | Amendment #18 dated October 5, 2004 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.77 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .66# | Amendment No. 7 dated July 28, 2004 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.78 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .67# | Amendment No. 8 dated November 1, 2004 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.79 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .68# | Amendment #1 dated November 2, 2004 to OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated December 16, 2002 (incorporated by reference to Exhibit 10.80 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .69# | Amendment #2 dated October 27, 2004 to OEM Purchase Agreement between Brocade andHewlett-Packard Company dated December 16, 2002 (incorporated by reference to Exhibit 10.81 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .70* | Employment Letter for Michael Klayko (incorporated by reference to Exhibit 10.85 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .71* | Employment Letter for Don Jaworski (incorporated by reference to Exhibit 10.86 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .72† | Amendment #19 dated January 28, 2005 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.88 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 29, 2005) |
II-6
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .73† | Amendment #3 dated November 22, 2004 to OEM Purchase Agreement between Brocade andHewlett-Packard Company dated December 16, 2002 (incorporated by reference to Exhibit 10.89 from Brocade’s quarterly reporton 10-Q for the quarter ended January 29, 2005) | ||
10 | .74* | Change of Control Retention Agreement entered into by Brocade Communications Systems, Inc. and Michael Klayko dated March 9, 2005 (incorporated by reference to Exhibit 10.90 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 29, 2005) | ||
10 | .75* | Form of Change of Control Retention Agreement entered into by Brocade Communications Systems, Inc. and each of Tom Buiocchi, T. J. Grewal, Don Jaworski, Jay Kidd and Luc Moyen dated March 9, 2005 (incorporated by reference to Exhibit 10.91 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 29, 2005) | ||
10 | .76† | Amendment #10 dated March 20, 2005 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.1 from Brocade’s quarterly report onForm 10-Q for the quarter ended April 30, 2005) | ||
10 | .77† | Amendment #11 dated March 25, 2005 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.2 from Brocade’s quarterly report onForm 10-Q for the quarter ended April 30, 2005) | ||
10 | .78* | Senior Leadership Plan as amended and restated as of October 21, 2005 (incorporated by reference to Exhibit 10.83 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
10 | .79* | Therion Software Corporation 2004 Stock Plan (incorporated by reference to Exhibit 10.1 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .80 | Fourth Amendment to Credit Agreement between Comerica Bank-California and Brocade dated July 27, 2005 (incorporated by reference to Exhibit 10.2 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .81† | Amendment #21 to Statement of Work No. 1 between International Business Machines Corporation and Brocade dated June 28, 2005 (incorporated by reference to Exhibit 10.3 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .82† | Amendment #13 dated July 12, 2005 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.4 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .83* | Form of Change of Control Retention Agreement between Brocade and Ian Whiting dated May 1, 2005 (incorporated by reference to Exhibit 10.5 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .84* | Amended and Restated 1999 Stock Plan and related forms of agreements (incorporated by reference to Exhibit 10.89 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
10 | .85* | Amended and Restated Employee Stock Purchase Plan and related forms of agreements (incorporated by reference to Exhibit 10.7 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .86* | Amended and Restated 1999 Nonstatutory Stock Option Plan and related forms of agreements (incorporated by reference to Exhibit 10.8 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .87* | Employment Letter for Ian Whiting dated May 1, 2005 (incorporated by reference to Exhibit 10.92 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
10 | .88† | Amendment #22 to Statement of Work No. 1 between International Business Machines Corporation and Brocade dated August 12, 2005 (incorporated by reference to Exhibit 10.93 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
10 | .89† | Amendment #6 to Statement of Work No. 3 between International Business Machines Corporation and Brocade dated September 13, 2005 (incorporated by reference to Exhibit 10.94 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
10 | .90† | Statement of Work No. 4 between International Business Machines Corporation and Brocade dated August 12, 2005 (incorporated by reference to Exhibit 10.95 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) |
II-7
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .91† | Amendment #14 dated October 24, 2005 to EMC Purchase Agreement between Brocade and EMC dated January 25, 2000 (incorporated by reference to Exhibit 10.96 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
10 | .92 | Fifth Amendment to Credit Agreement between Comerica Bank-California and Brocade dated January 5, 2006 (incorporated by reference to Exhibit 10.1 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 28, 2006) | ||
10 | .93 | Tolling Agreement dated as of January 1, 2006, between Gregory L. Reyes and Brocade, David House, William Krause, Nicholas Moore, William O’Brien, Christopher Paisley, Larry Sonsini, Seth Neiman, Neal Dempsey and Sanjay Vaswani (incorporated by reference to Exhibit 10.2 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 28, 2006) | ||
10 | .94† | Amendment 23 to Statement of Work #1 of the IBM/Brocade Goods Agreement ROC-P-68, dated December 15, 2005, by and between IBM Corporation and Brocade (incorporated by reference to Exhibit 10.3 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 28, 2006) | ||
10 | .95† | Amendment 24 to Statement of Work #1 of the IBM/Brocade Goods Agreement ROC-P-68, dated December 15, 2005, by and between IBM Corporation and Brocade (incorporated by reference to Exhibit 10.4 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 28, 2006) | ||
10 | .96* | Amended Director Cash Compensation Plan (incorporated by reference to Exhibit 10.5 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 28, 2006) | ||
10 | .97† | Fourth Amendment to the OEM Purchase Agreement dated December 16, 2002 by and between Hewlett-Packard Company and Registrant, effective as of January 20, 2006 (incorporated by reference to Exhibit 10.1 from Brocade’s quarterly report onForm 10-Q for the quarter ended April 29, 2006) | ||
10 | .98† | Amendment No. 12 to the OEM Purchase Agreement dated January 25, 2000 (effective as of January 31, 2006) by and among Registrant, Brocade Communications Switzerland SarL, and EMC Corporation (incorporated by reference to Exhibit 10.2 from Brocade’s quarterly report onForm 10-Q for the quarter ended April 29, 2006) | ||
10 | .99† | Amendment #25 to SOW #1 between IBM and Registrant, effective April 14, 2006 (incorporated by reference to Exhibit 10.3 from Brocade’s quarterly report onForm 10-Q for the quarter ended April 29, 2006) | ||
10 | .100† | Amendment #4 to Goods Agreement between IBM and Registrant dated March 30, 2006 (incorporated by reference to Exhibit 10.4 from Brocade’s quarterly report onForm 10-Q for the quarter ended April 29, 2006) | ||
10 | .101† | Amendment #1 to SOW #4 between International Business Machines Corporation (IBM) and Brocade, effective May 31, 2006 (incorporated by reference to Exhibit 10.1 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 29, 2006) | ||
10 | .102† | Amendment #7 to SOW #3 between International Business Machines Corporation (IBM) and Brocade, dated July 19, 2006 (incorporated by reference to Exhibit 10.2 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 29, 2006) | ||
10 | .108* | Change of Control Retention Agreement entered into by Brocade Communications Systems, Inc. and Tyler Wall dated June 22, 2005 | ||
21 | .1 | Subsidiaries (incorporated by reference to Exhibit 21.1 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
23 | .1 | Consent of KPMG LLP, independent registered public accounting firm, with respect to Brocade Communications Systems, Inc. | ||
23 | .2 | Consent of Deloitte & Touche LLP, independent registered public accounting firm, with respect to McDATA Corporation | ||
23 | .3 | Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm, with respect to McDATA Corporation | ||
23 | .4 | Consent of KPMG LLP, independent registered public accounting firm of Computer Network Technology Corporation | ||
23 | .5 | Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (set forth in Exhibit 5.1) |
II-8
Table of Contents
Exhibit | ||||
Number | Description | |||
23 | .6 | Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (set forth in Exhibit 8.1) | ||
23 | .7 | Consent of Weil, Gotshal & Manges, LLP (set forth in Exhibit 8.2) | ||
24 | .1 | Power of Attorney (set forth on signature page) | ||
99 | .1 | Form of Brocade Proxy Card | ||
99 | .2 | Form of McDATA Proxy Card | ||
99 | .3 | Consent of Morgan Stanley & Co. Incorporated | ||
99 | .4 | Consent of Credit Suisse Securities (USA) LLC |
* | Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) ofForm 10-K. | |
# | Confidential treatment granted as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission. | |
† | Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission. |
Item 22. | Undertakings |
II-9
Table of Contents
II-10
Table of Contents
Additions | ||||||||||||||||
Balance at | Charged to | Balance at | ||||||||||||||
Beginning of | Expenses/ | End of | ||||||||||||||
Description | Period | Revenues | Deductions* | Period | ||||||||||||
(In thousands) | ||||||||||||||||
Allowance for doubtful accounts: | ||||||||||||||||
2005 | $ | 409 | $ | 200 | $ | (142 | ) | $ | 467 | |||||||
2004 | $ | 639 | $ | — | $ | (230 | ) | $ | 409 | |||||||
2003 | $ | 1,927 | $ | (491 | ) | $ | (797 | ) | $ | 639 | ||||||
Sales returns and allowances: | ||||||||||||||||
2005 | $ | 3,452 | $ | 2,755 | $ | (1,732 | ) | $ | 4,475 | |||||||
2004 | $ | 3,541 | $ | 3,406 | $ | (3,495 | ) | $ | 3,452 | |||||||
2003 | $ | 1,836 | $ | 3,628 | $ | (1,923 | ) | $ | 3,541 |
* | Deductions related to the allowance for doubtful accounts and sales returns and allowances represent amounts written off against the allowance less recoveries. |
II-11
Table of Contents
By: | /s/ Michael Klayko |
Signature | Title | Date | ||||
/s/ Michael Klayko Michael Klayko | Chief Executive Officer and Director (Principal Executive Officer) | September 28, 2006 | ||||
/s/ Richard Deranleau Richard Deranleau | Chief Financial Officer and Vice President, Finance (Principal Financial and Accounting Officer) | September 28, 2006 | ||||
/s/ David House Dave House | Chairman of the Board of Directors | September 30, 2006 | ||||
/s/ Neal Dempsey Neal Dempsey | Director | September 27, 2006 | ||||
/s/ Glenn Jones Glenn Jones | Director | September 18, 2006 | ||||
/s/ L. William Krause L. William Krause | Director | September 16, 2006 | ||||
/s/ Michael J. Rose Michael J. Rose | Director | September 30, 2006 | ||||
/s/ Sanjay Vaswani Sanjay Vaswani | Director | September 18, 2006 | ||||
/s/ Robert R. Walker Robert R. Walker | Director | September 18, 2006 |
II-12
Table of Contents
Exhibit | ||||
Number | Description | |||
2 | .1 | Agreement and Plan of Reorganization, dated as of August 7, 2006, among Brocade Communications Systems, Inc., Worldcup Merger Corporation and McDATA Corporation (included as Annex A to the joint proxy statement/prospectus) | ||
3 | .1 | Amended and Restated Certificate of Incorporation of Brocade Communications Systems, Inc. (incorporated by reference to Exhibit 3.1 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
3 | .2 | Amended and Restated Bylaws of Brocade Communications Systems, Inc., effective as of April 18, 2006 (incorporated by reference to Exhibit 99.1 from Registrant’sForm 8-K as filed on April 19, 2006) | ||
4 | .1 | Preferred Stock Rights Agreement between Wells Fargo Bank, N.A. and Brocade dated February 2, 2002 (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement onForm 8-A filed on February 11, 2002) | ||
4 | .2 | Amendment No. 1 to Preferred Stock Rights Agreement between Wells Fargo Bank, N.A. and Brocade dated August 7, 2006 (incorporated by reference to Exhibit 99.3 from Brocade’s Current Report onForm 8-K filed August 8, 2006) | ||
4 | .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 onForm 8-A filed on February 11, 2002) | ||
4 | .4 | Form of Registrant’s Common Stock certificate (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement onForm S-1 (Reg.No. 333-74711), as amended) | ||
4 | .5 | Form of Convertible Debenture (incorporated by reference to Exhibit 4.3 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended January 26, 2002) | ||
5 | .1 | Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation as to the issuance of shares of Brocade common stock in connection with the merger (to be filed by amendment) | ||
8 | .1 | Tax opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation (to be filed by amendment) | ||
8 | .2 | Tax opinion of Weil, Gotshal & Manges, LLP (to be filed by amendment) | ||
10 | .1 | Form of Indemnification Agreement entered into between Brocade and each of its directors and executive officers (incorporated by reference to Exhibit 10.1 from Brocade’s Registration Statement onForm S-1 (Reg.No. 333-74711), as amended) | ||
10 | .2 | Master Equipment Lease Agreement between Venture Lending & Leasing, Inc. and Brocade dated September 5, 1996 (incorporated by reference to Exhibit 10.13 from Brocade’s Registration Statement onForm S-1 (Reg.No. 333-74711), as amended) | ||
10 | .3# | Acknowledgement between Wind River Systems, Inc. and Brocade dated April 22, 1999 (incorporated by reference to Exhibit 10.18 from Brocade’s Registration Statement onForm S-1 (Reg.No. 333-74711), as amended) | ||
10 | .4# | Manufacturing Agreement between Solectron California Corporation and Brocade dated July 30, 1999 (incorporated by reference to Exhibit 10.24 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 31, 1999, as amended) | ||
10 | .5 | Master Lease Agreement between Spieker Properties and Brocade dated December 17, 1999 (incorporated by reference to Exhibit 10.25 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 31, 1999, as amended) | ||
10 | .6 | First Amendment to Lease between Spieker Properties and Brocade dated February 16, 2000 (incorporated by reference to Exhibit 10.22 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .7 | Second Amendment to Lease between Spieker Properties and Brocade dated August 11, 2000 (incorporated by reference to Exhibit 10.23 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .8 | Credit Agreement between Comerica Bank-California and Brocade dated January 5, 2000 (incorporated by reference to Exhibit 10.26 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended January 29, 2000) |
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .9 | First Amendment to Credit Agreement between Comerica Bank-California and Brocade dated March 21, 2000 (incorporated by reference to Exhibit 10.25 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .10 | Second Amendment to Credit Agreement between Comerica Bank-California and Brocade dated September 20, 2000 (incorporated by reference to Exhibit 10.26 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .11 | Master Lease Agreement between Spieker Properties and Brocade dated July 26, 2000 (incorporated by reference to Exhibit 10.27 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .12# | Purchase Agreement between Compaq Computer Corporation and Brocade dated February 1, 2000 (incorporated by reference to Exhibit 10.28 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .13# | Purchase Agreement between EMC Corporation and Brocade dated January 25, 2000 (EMC Purchase Agreement) (incorporated by reference to Exhibit 10.29 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 28, 2000) | ||
10 | .14# | Extension Agreement between EMC Corporation and Brocade dated December 18, 2000 (incorporated by reference to Exhibit 10.23 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
10 | .15 | Extension Agreement between EMC Corporation and Brocade dated November 13, 2002 (incorporated by reference to Exhibit 10.24 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended January 25, 2003) | ||
10 | .16# | Goods Agreement between International Business Machines Corporation and Brocade dated April 15, 1999 (incorporated by reference to Exhibit 10.24 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
10 | .17 | Amendment #1 to the Goods Agreement between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.25 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
10 | .18# | Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.26 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
10 | .19# | Amendment #3 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.27 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
10 | .20# | Amendment #4 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.28 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
10 | .21# | Statement of Work #2 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.29 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 27, 2001) | ||
10 | .22 | Third Amendment to Credit Agreement between Comerica Bank-California and Brocade dated January 22, 2001 (incorporated by reference to Exhibit 10.2 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended January 27, 2001) | ||
10 | .23 | Lease Agreement between MV Golden State San Jose, LLC and Brocade dated December 1, 2000 (incorporated by reference to Exhibit 10.1 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended January 27, 2001) | ||
10 | .24# | Amendment No. 5 to Statement of Work No. 1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.2 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 27, 2002) | ||
10 | .25# | Amendment No. 6 to Statement of Work No. 1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.3 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 27, 2002) |
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .26# | Amendment No. 7 to Statement of Work No. 1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.37 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .27# | Amendment No. 8 to Statement of Work No. 1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.36 from Brocade’sForm 10-Q for the quarter ended January 25, 2003) | ||
10 | .28# | Amendment No. 1 to Statement of Work No. 2 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.4 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 27, 2002) | ||
10 | .29 | Amendment No. 2 to Statement of Work No. 2 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.5 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 27, 2002) | ||
10 | .30# | OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated January 28, 2000 (2000 OEM Purchase Agreement) (incorporated by reference to Exhibit 10.38 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .31# | Amendment to 2000 OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated April 20, 2001 (incorporated by reference to Exhibit 10.39 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .32 | Letter Amendment to 2000 OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated January 25, 2002 (incorporated by reference to Exhibit 10.40 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .33# | OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated April 20, 2001 (2001 OEM Purchase Agreement) (incorporated by reference to Exhibit 10.41 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .34# | Amendment No. 1 to 2001 OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated July 1, 2001 (incorporated by reference to Exhibit 10.42 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .35† | Amendment No. 2 to 2001 OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated November 6, 2001 (incorporated by reference to Exhibit 10.43 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .36# | Amendment No. 3 to 2001 OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated February 1, 2002 (incorporated by reference to Exhibit 10.44 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .37# | Amendment No. 4 to 2001 OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated June 5, 2002 (incorporated by reference to Exhibit 10.45 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 27, 2002) | ||
10 | .38# | OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated December 16, 2002. (incorporated by reference to Exhibit 10.48 from Brocade’sForm 10-Q for the quarter ended January 25, 2003) | ||
10 | .39# | Manufacturing and Purchase Agreement between Brocade and Hon Hai Precision Industry Co., Ltd. dated April 5, 2003 (HHPI Manufacturing and Purchase Agreement) (incorporated by reference to Exhibit 10.49 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) | ||
10 | .40 | Amendment Number One to HHPI Manufacturing and Purchase Agreement between Brocade and Hon Hai Precision Industry Co., Ltd. dated April 5, 2003 (incorporated by reference to Exhibit 10.50 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) | ||
10 | .41# | Manufacturing and Purchase Agreement between Brocade Communications Switzerland SarL and Hon Hai Precision Industry Co., Ltd. dated May 1, 2003 (incorporated by reference to Exhibit 10.51 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) | ||
10 | .42# | Manufacturing and Purchase Agreement between Brocade and Solectron Corporation dated February 21, 2003 (Solectron Manufacturing and Purchase Agreement) (incorporated by reference to Exhibit 10.52 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) |
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .43 | Amendment No. 1 to Solectron Manufacturing and Purchase Agreement between Brocade and Solectron Corporation dated March 21, 2003 (incorporated by reference to Exhibit 10.53 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) | ||
10 | .44# | Manufacturing and Purchase Agreement between Brocade Communications Switzerland SarL and Solectron Corporation dated March 21, 2003 (incorporated by reference to Exhibit 10.54 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) | ||
10 | .45# | Amendment No. 2 to EMC Purchase Agreement between Brocade and EMC dated February 18, 2003. (incorporated by reference to Exhibit 10.55 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended April 26, 2003) | ||
10 | .46# | Amendment No. 3 to EMC Purchase Agreement between Brocade and EMC dated July 30, 2003 (incorporated by reference to Exhibit 10.56 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 25, 2003) | ||
10 | .47# | Amendment #10 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.55 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .48# | Amendment #11 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.56 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .49# | Amendment #14 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.59 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .50# | Statement of Work #3 between International Business Machines Corporation and Brocade dated December 15, 2003 (incorporated by reference to Exhibit 10.60 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .51# | Amendment No. 4 to EMC Purchase Agreement between Brocade and EMC dated October 29, 2003 (incorporated by reference to Exhibit 10.61 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .52 | Third Amendment to Lease between Spieker Properties and Brocade Communications Systems, Inc. dated November 30, 2000 (incorporated by reference to Exhibit 10.62 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .53 | Fourth Amendment to Lease between Spieker Properties and Brocade Communications Systems, Inc. dated November 18, 2003 (incorporated by reference to Exhibit 10.63 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .54 | Fifth Amendment to Lease between Spieker Properties and Brocade Communications Systems, Inc. dated November 18, 2003 (incorporated by reference to Exhibit 10.64 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .55 | Sixth Amendment to Lease between Spieker Properties and Brocade Communications Systems, Inc. dated November 18, 2003 (incorporated by reference to Exhibit 10.65 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .56 | Real Estate Sale and Lease Termination Agreement between EOP-Skyport I, LLC and Brocade effective November 18, 2003 (incorporated by reference to Exhibit 10.66 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .57 | Grant Deed from EOP-Skyport I, L.L.C. to Brocade Communications Systems Skyport LLC dated November 18, 2003 (incorporated by reference to Exhibit 10.67 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .58 | Fourth Amendment to the Skyport Plaza Declaration of Common Easements, Covenants, Conditions and Restrictions dated October 18, 2003 (incorporated by reference to Exhibit 10.68 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .59 | Guaranty of Brocade Communications Systems, Inc. to EOP Skyport I, L.L.C dated November 18, 2003 (incorporated by reference to Exhibit 10.69 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) |
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .60 | Right of First Offer Agreement between EOP-Skyport I, L.L.C to Brocade Communications Systems Skyport LLC dated November 18, 2003 (incorporated by reference to Exhibit 10.70 from Brocade’s Report onForm 10-Q for the fiscal quarter ended January 24, 2004) | ||
10 | .61# | Amendment #15 dated March 26, 2004 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.71 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended May 1, 2004) | ||
10 | .62# | Amendment No. 6 dated April 27, 2004 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.72 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended May 1, 2004) | ||
10 | .63# | Amendment No. 5 dated May 4, 2004 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.73 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 31, 2004) | ||
10 | .64# | Amendment #1 dated May 12, 2004 to Statement of Work #3 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.76 from Brocade’s Quarterly Report onForm 10-Q for the fiscal quarter ended July 31, 2004) | ||
10 | .65# | Amendment #18 dated October 5, 2004 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.77 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .66# | Amendment No. 7 dated July 28, 2004 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.78 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .67# | Amendment No. 8 dated November 1, 2004 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.79 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .68# | Amendment #1 dated November 2, 2004 to OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated December 16, 2002 (incorporated by reference to Exhibit 10.80 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .69# | Amendment #2 dated October 27, 2004 to OEM Purchase Agreement between Brocade and Hewlett-Packard Company dated December 16, 2002 (incorporated by reference to Exhibit 10.81 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .70* | Employment Letter for Michael Klayko (incorporated by reference to Exhibit 10.85 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .71* | Employment Letter for Don Jaworski (incorporated by reference to Exhibit 10.86 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 30, 2004) | ||
10 | .72† | Amendment #19 dated January 28, 2005 to Statement of Work #1 between International Business Machines Corporation and Brocade (incorporated by reference to Exhibit 10.88 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 29, 2005) | ||
10 | .73† | Amendment #3 dated November 22, 2004 to OEM Purchase Agreement between Brocade andHewlett-Packard Company dated December 16, 2002 (incorporated by reference to Exhibit 10.89 from Brocade’s quarterly reporton 10-Q for the quarter ended January 29, 2005) | ||
10 | .74* | Change of Control Retention Agreement entered into by Brocade Communications Systems, Inc. and Michael Klayko dated March 9, 2005 (incorporated by reference to Exhibit 10.90 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 29, 2005) | ||
10 | .75* | Form of Change of Control Retention Agreement entered into by Brocade Communications Systems, Inc. and each of Tom Buiocchi, T. J. Grewal, Don Jaworski, Jay Kidd and Luc Moyen dated March 9, 2005 (incorporated by reference to Exhibit 10.91 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 29, 2005) | ||
10 | .76† | Amendment #10 dated March 20, 2005 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.1 from Brocade’s quarterly report onForm 10-Q for the quarter ended April 30, 2005) | ||
10 | .77† | Amendment #11 dated March 25, 2005 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.2 from Brocade’s quarterly report onForm 10-Q for the quarter ended April 30, 2005) |
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .78* | Senior Leadership Plan as amended and restated as of October 21, 2005 (incorporated by reference to Exhibit 10.83 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
10 | .79* | Therion Software Corporation 2004 Stock Plan (incorporated by reference to Exhibit 10.1 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .80 | Fourth Amendment to Credit Agreement between Comerica Bank-California and Brocade dated July 27, 2005 (incorporated by reference to Exhibit 10.2 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .81† | Amendment #21 to Statement of Work No. 1 between International Business Machines Corporation and Brocade dated June 28, 2005 (incorporated by reference to Exhibit 10.3 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .82† | Amendment #13 dated July 12, 2005 to EMC Purchase Agreement between Brocade and EMC (incorporated by reference to Exhibit 10.4 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .83* | Form of Change of Control Retention Agreement between Brocade and Ian Whiting dated May 1, 2005 (incorporated by reference to Exhibit 10.5 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .84* | Amended and Restated 1999 Stock Plan and related forms of agreements (incorporated by reference to Exhibit 10.89 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
10 | .85* | Amended and Restated Employee Stock Purchase Plan and related forms of agreements (incorporated by reference to Exhibit 10.7 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .86* | Amended and Restated 1999 Nonstatutory Stock Option Plan and related forms of agreements (incorporated by reference to Exhibit 10.8 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 30, 2005) | ||
10 | .87* | Employment Letter for Ian Whiting dated May 1, 2005 (incorporated by reference to Exhibit 10.92 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
10 | .88† | Amendment #22 to Statement of Work No. 1 between International Business Machines Corporation and Brocade dated August 12, 2005 (incorporated by reference to Exhibit 10.93 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
10 | .89† | Amendment #6 to Statement of Work No. 3 between International Business Machines Corporation and Brocade dated September 13, 2005 (incorporated by reference to Exhibit 10.94 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
10 | .90† | Statement of Work No. 4 between International Business Machines Corporation and Brocade dated August 12, 2005 (incorporated by reference to Exhibit 10.95 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
10 | .91† | Amendment #14 dated October 24, 2005 to EMC Purchase Agreement between Brocade and EMC dated January 25, 2000 (incorporated by reference to Exhibit 10.96 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
10 | .92 | Fifth Amendment to Credit Agreement between Comerica Bank-California and Brocade dated January 5, 2006 (incorporated by reference to Exhibit 10.1 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 28, 2006) | ||
10 | .93 | Tolling Agreement dated as of January 1, 2006, between Gregory L. Reyes and Brocade, David House, William Krause, Nicholas Moore, William O’Brien, Christopher Paisley, Larry Sonsini, Seth Neiman, Neal Dempsey and Sanjay Vaswani (incorporated by reference to Exhibit 10.2 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 28, 2006) | ||
10 | .94† | Amendment 23 to Statement of Work #1 of the IBM/Brocade Goods Agreement ROC-P-68, dated December 15, 2005, by and between IBM Corporation and Brocade (incorporated by reference to Exhibit 10.3 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 28, 2006) | ||
10 | .95† | Amendment 24 to Statement of Work #1 of the IBM/Brocade Goods Agreement ROC-P-68, dated December 15, 2005, by and between IBM Corporation and Brocade (incorporated by reference to Exhibit 10.4 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 28, 2006) | ||
10 | .96* | Amended Director Cash Compensation Plan (incorporated by reference to Exhibit 10.5 from Brocade’s quarterly report onForm 10-Q for the quarter ended January 28, 2006) |
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .97† | Fourth Amendment to the OEM Purchase Agreement dated December 16, 2002 by and between Hewlett-Packard Company and Registrant, effective as of January 20, 2006 (incorporated by reference to Exhibit 10.1 from Brocade’s quarterly report onForm 10-Q for the quarter ended April 29, 2006) | ||
10 | .98† | Amendment No. 12 to the OEM Purchase Agreement dated January 25, 2000 (effective as of January 31, 2006) by and among Registrant, Brocade Communications Switzerland SarL, and EMC Corporation (incorporated by reference to Exhibit 10.2 from Brocade’s quarterly report onForm 10-Q for the quarter ended April 29, 2006) | ||
10 | .99† | Amendment #25 to SOW #1 between IBM and Registrant, effective April 14, 2006 (incorporated by reference to Exhibit 10.3 from Brocade’s quarterly report onForm 10-Q for the quarter ended April 29, 2006) | ||
10 | .100† | Amendment #4 to Goods Agreement between IBM and Registrant dated March 30, 2006 (incorporated by reference to Exhibit 10.4 from Brocade’s quarterly report onForm 10-Q for the quarter ended April 29, 2006) | ||
10 | .101† | Amendment #1 to SOW #4 between International Business Machines Corporation (IBM) and Brocade, effective May 31, 2006 (incorporated by reference to Exhibit 10.1 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 29, 2006) | ||
10 | .102† | Amendment #7 to SOW #3 between International Business Machines Corporation (IBM) and Brocade, dated July 19, 2006 (incorporated by reference to Exhibit 10.2 from Brocade’s quarterly report onForm 10-Q for the quarter ended July 29, 2006) | ||
10 | .108* | Change of Control Retention Agreement entered into by Brocade Communications Systems, Inc. and Tyler Wall dated June 22, 2005 | ||
21 | .1 | Subsidiaries (incorporated by reference to Exhibit 21.1 from Brocade’s Annual Report onForm 10-K for the fiscal year ended October 29, 2005) | ||
23 | .1 | Consent of KPMG LLP, independent registered public accounting firm, with respect to Brocade Communications Systems, Inc. | ||
23 | .2 | Consent of Deloitte & Touche LLP, independent registered public accounting firm, with respect to McDATA Corporation | ||
23 | .3 | Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm, with respect to McDATA Corporation | ||
23 | .4 | Consent of KPMG LLP, independent registered public accounting firm of Computer Network Technology Corporation | ||
23 | .5 | Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (set forth in Exhibit 5.1) | ||
23 | .6 | Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (set forth in Exhibit 8.1) | ||
23 | .7 | Consent of Weil, Gotshal & Manges, LLP (set forth in Exhibit 8.2) | ||
24 | .1 | Power of Attorney (set forth on signature page) | ||
99 | .1 | Form of Brocade Proxy Card | ||
99 | .2 | Form of McDATA Proxy Card | ||
99 | .3 | Consent of Morgan Stanley & Co. Incorporated | ||
99 | .4 | Consent of Credit Suisse Securities (USA) LLC |
* | Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) ofForm 10-K. | |
# | Confidential treatment granted as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission. | |
† | Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission. |