FDRY Foundry Networks (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. 1)

Filed by the Registrant þ

Filed by a Party other than the Registrant o

Check the appropriate box:

o	Preliminary Proxy Statement		o	Confidential, for Use of the Commission Only
þ	Definitive Proxy Statement			(as permitted by Rule 14a-6(e)(2))
o	Definitive Additional Materials
o	Soliciting Material Pursuant to Section 240.14a-12

Foundry Networks, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

þ		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1)		Title of each class of securities to which transaction applies:
2)		Aggregate number of securities to which transaction applies:
3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
4)		Proposed maximum aggregate value of transaction:
5)		Total fee paid:
o		Fee paid previously with preliminary materials:
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
1)		Amount previously paid:
2)		Form, Schedule or Registration Statement No.:
3)		Filing Party:
4)		Date Filed:

 

 

EXPLANATORY NOTE

 

This definitive revised proxy statement amends and restates the proxy statement previously delivered to the stockholders of Foundry Networks, Inc. on or about September 25, 2008 with respect to the proposed acquisition of Foundry by Brocade Communications Systems, Inc. to (1) revise the date of the special meeting of Foundry stockholders to December 17, 2008 and (2) revise certain disclosures related to the restructured transaction to reflect the agreements set forth in Amendment No. 1 to Agreement and Plan of Merger dated November 7, 2008 between Foundry, Brocade and a wholly-owned subsidiary of Brocade.

 

MERGER PROPOSAL — YOUR VOTE IS IMPORTANT

 

 

To the Stockholders of Foundry Networks, Inc.:

 

As previously disclosed, on July 21, 2008, Foundry Networks, Inc. entered into a merger agreement with Brocade Communications Systems, Inc. providing for the acquisition of Foundry by Brocade. Under the merger agreement, prior to its amendment, our stockholders would have been entitled to receive a combination of $18.50 in cash, without interest, and 0.0907 of a share of Brocade common stock for each share of our common stock they own as of the effective time of the merger. The transaction on those terms had the unanimous support of our board of directors.

 

Based on numerous discussions with Brocade and its representatives over the past several weeks regarding the status of Brocade’s existing financing commitments for the transaction and Brocade’s efforts to secure substitute financing from alternative sources, it became clear to our board of directors that there was a high likelihood that the merger would not be completed on its original terms prior to December 31, 2008, the date that Brocade’s financing commitment expires. The background for these discussions and the reasons for reaching this conclusion are set forth in the accompanying proxy materials. Because of the perceived likelihood of this outcome, Foundry and Brocade have recently discussed the possibility of restructuring the original transaction. On November 7, 2008, we and Brocade announced the execution of an amendment to the original merger agreement and, on that date, we announced that the board of directors had cancelled the special meeting of stockholders scheduled for that day. The enclosed proxy materials are for the rescheduled special meeting of stockholders, which will take place on December 17, 2008 and amend and restate in their entirety the proxy materials mailed to our stockholders on September 25, 2008 to reflect the restructured merger transaction set forth in the amended merger agreement.

 

Under the amended merger agreement, our stockholders will be entitled to receive $16.50 in cash, without interest, for each share of our common stock they own as of the effective time of the merger, subject to adjustment for stock splits, stock dividends and similar events, and will not be entitled to receive any shares of Brocade common stock. The merger cannot be completed unless our stockholders adopt the amended merger agreement at a special meeting of our stockholders. More detailed information about Brocade, Foundry, the proposed merger and the special meeting of stockholders is contained in this revised proxy statement. We encourage you to read this revised proxy statement carefully and in its entirety before voting.

 

The board of directors has unanimously determined that the merger and the amended merger agreement are advisable and fair to, and in the best interests of, Foundry and our stockholders, has unanimously approved the amended merger agreement and unanimously recommends that our stockholders vote “FOR” adoption of the amended merger agreement.

 

The date, time and place of the rescheduled special meeting of stockholders is as follows:

 

December 17, 2008
10:00 a.m. local time
Hilton Santa Clara Hotel
4949 Great America Parkway
Santa Clara, California 95054

Your vote is very important. Whether or not you plan to attend the special meeting of stockholders, please take the time to vote by completing and mailing to us the enclosed proxy card or grant your proxy by telephone or through the Internet. You may also cast your vote in person at the special meeting to be held on December 17, 2008. If your shares are held in “street name,” you must instruct your broker, bank or other nominee in order to vote. Failing to vote at the special meeting, in person or by proxy, will have the effect of a vote against the adoption of the amended merger agreement. If you have previously returned an executed proxy card to us, or previously granted your proxy by telephone or through the Internet, you will need to complete and mail to us the enclosed proxy card, grant your proxy by telephone or through the Internet, or attend and vote in person at the rescheduled special meeting. Proxies from the previous mailing are void and those that were previously returned or granted to us will not be counted.

 

Sincerely,

 

/s/ Bobby R. Johnson, Jr.
Bobby R. Johnson, Jr.
Chief Executive Officer
Foundry Networks, Inc.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION OR DETERMINED IF THIS PROXY STATEMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

This revised proxy statement is dated November 14, 2008 and is first being mailed to stockholders on or about November 18, 2008.

ADDITIONAL INFORMATION

 

This revised proxy statement incorporates important business and financial information about Brocade from documents that Brocade has filed with the Securities and Exchange Commission, or the SEC, that are not included in or delivered with this revised proxy statement. This information is available to you without charge upon your written or oral request. You can obtain the documents incorporated by reference in this revised proxy statement through the SEC website at http://www.sec.gov or by submitting an oral or written request to:

 

BROCADE COMMUNICATIONS SYSTEMS, INC.

1745 Technology Drive
San Jose, CA 95110
Attention: Investor Relations
Telephone: (408) 333-6758

 

PLEASE REQUEST DOCUMENTS FROM BROCADE NO LATER THAN DECEMBER 10, 2008 TO RECEIVE THEM BEFORE THE MEETING. UPON REQUEST, BROCADE WILL MAIL ANY DOCUMENTS TO YOU BY FIRST CLASS MAIL PROMPTLY.

 

In addition, you may obtain copies of this information from Brocade’s website, http://www.brocade.com, or by sending an email to investor-relations@brocade.com. Information contained on Brocade’s website does not constitute part of this revised proxy statement. See the sections entitled “Documents Incorporated by Reference” and “Where You Can Find More Information” beginning on pages 92 and 93, respectively of this revised proxy statement for more information about the documents incorporated by reference into this revised proxy statement.

 

You should rely only on the information contained in, or incorporated by reference into, this revised proxy statement in deciding how to vote on each of the proposals. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this revised proxy statement. This revised proxy statement is dated November 14, 2008. You should not assume that the information contained in, or incorporated by reference into, this revised proxy statement is accurate as of any date other than that date.

 

This revised proxy statement does not constitute the solicitation of a proxy in any jurisdiction to or from any person to whom it is unlawful to make any such solicitation in such jurisdiction. Information contained in this revised proxy statement regarding Brocade and Falcon Acquisition Sub, Inc. has been provided by Brocade and information contained in this revised proxy statement regarding Foundry has been provided by us.

 

VOTING ELECTRONICALLY OR BY TELEPHONE

 

Stockholders of record at the close of business on November 7, 2008, the record date for the special meeting of stockholders, may submit their proxies:

 

 

To vote via the telephone or Internet, please have in front of you either your proxy card, or if you have consented to receive your materials electronically, your email notification advising that materials are available online. A phone number and an Internet website address are contained on each of the documents. Upon entering either the phone number or the Internet website address, you will be instructed on how to proceed.

 

If a stockholder holds shares registered in the name of a broker, bank or other nominee, that broker, bank or other nominee will enclose or provide a voting instruction card for use in directing that broker, bank or other nominee how to vote those shares.

 

4980 Great America Parkway
Santa Clara, CA 95054
(408) 207-1700

NOTICE OF RESCHEDULED SPECIAL MEETING OF STOCKHOLDERS
To Be Held December 17, 2008

 

Dear Stockholders of Foundry Networks, Inc.:

 

On July 21, 2008, Foundry Networks, Inc. entered into a merger agreement with Brocade Communications Systems, Inc. providing for the acquisition of Foundry by Brocade. Under the merger agreement, prior to its amendment, our stockholders would have been entitled to receive a combination of $18.50 in cash, without interest, and 0.0907 of a share of Brocade common stock for each share of our common stock they owned as of the effective time of the merger, had it been completed under its original terms. On November 7, 2008, we and Brocade announced the execution of an amendment to the merger agreement to, among other things, reduce the amount of consideration our stockholders would be entitled to receive in the merger to $16.50 for each share of our common stock they own as of the effective time of the merger. Our stockholders will not receive any shares of Brocade common stock under the amended merger agreement. On November 7, 2008, we also announced that the board of directors had cancelled the special meeting of stockholders scheduled for that day. The enclosed proxy materials are for the rescheduled special meeting of stockholders, which will take place on December 17, 2008. The special meeting of stockholders of Foundry Networks, Inc., which we may refer to as “Foundry,” will be held at the Hilton Santa Clara Hotel located at 4949 Great America Parkway, Santa Clara, California 95054, on December 17, 2008, at 10:00 a.m., local time. The board of directors has fixed the close of business on November 7, 2008 as the record date for the determination of stockholders entitled to notice of and to vote at the special meeting and any adjournments thereof.

 

At the special meeting, you will be asked to consider and vote upon and approve the following proposals:

 

1. Adoption of the Agreement and Plan of Merger, dated as of July 21, 2008 as amended by Amendment No. 1 thereto, dated as of November 7, 2008, which we refer to as the “amended merger agreement”, among Brocade Communications Systems, Inc., which we refer to as “Brocade,” Falcon Acquisition Sub, Inc., a wholly-owned subsidiary of Brocade, and Foundry.

 

2. Approval of a resolution to adjourn the special meeting to permit further solicitation of proxies if there are not sufficient votes at the special meeting to approve the first proposal described above.

 

3. Transaction of such other business as may properly come before the special meeting or any adjournment or postponement thereof.

 

No other business will be conducted at the special meeting. The proposals are described more fully in this revised proxy statement. Please give your careful attention to all of the information in this revised proxy statement.

 

The adoption of the amended merger agreement requires the affirmative vote of at least a majority of the outstanding shares of common stock entitled to vote at the special meeting. Pursuant to voting agreements entered into between Brocade and our directors in connection with the merger, as amended, our directors have agreed to vote their shares of common stock “FOR” adoption of the amended merger agreement. In addition, as of November 7, 2008, the record date for the special meeting, our directors collectively owned an aggregate of 11,019,223 shares of common stock entitled to vote at the special meeting, which represents approximately 7.35% of the outstanding shares of common stock entitled to vote at the special meeting. In addition to the shares of our common stock that are subject to the amended voting agreements, as of the record date for the special meeting, Brocade owned and was entitled to vote an aggregate of 14,000,000 shares of our common stock, or approximately 9.34% of the total outstanding shares of our common stock as of the record date. Brocade acquired all of its shares of our common stock in the open market following the announcement of the proposed merger in July 2008, and has agreed to vote them “FOR” adoption of the amended merger agreement and “FOR” adjournment of the special meeting, if necessary.

The board of directors has unanimously determined that the merger and the amended merger agreement are advisable and fair to, and in the best interests of, Foundry and its stockholders, has unanimously approved the merger and the amended merger agreement and unanimously recommends that our stockholders vote “FOR” adoption of the amended merger agreement and “FOR” adjournment of the special meeting, if necessary.

 

This revised proxy statement contains detailed information about Foundry, Brocade, and the proposed merger. We urge you to read this revised proxy statement carefully and in its entirety. For specific instructions on how to vote your shares, please refer to the section entitled “The Special Meeting of Stockholders” beginning on page 12 of this revised proxy statement.

 

Whether or not you plan to attend the special meeting, please vote as soon as possible so that your shares are represented at the meeting. If you do not vote, it will have the same effect as a vote against the proposals to adopt the amended merger agreement and the adjournment of the special meeting, if necessary. Only stockholders of record at the close of business on November 7, 2008 are entitled to notice of and to vote at the special meeting and any adjournments or postponements thereof. To vote your shares, please complete and return the enclosed proxy card to us or grant your proxy by telephone or through the Internet. You may also cast your vote in person at the special meeting. If you have previously returned an executed proxy card to us, or previously granted your proxy by telephone or through the Internet, you will need to complete and mail to us the enclosed proxy card, grant your proxy by telephone or through the Internet, or attend and vote in person at the rescheduled special meeting. Proxies from the previous mailing are void and those that were previously returned or granted to us will not be counted.

 

By Order of the Board of Directors,

 

/s/ Daniel W. Fairfax
Daniel W. Fairfax
Vice President, Finance and Administration,
Chief Financial Officer and Principal
Accounting Officer

 

Santa Clara, California

November 14, 2008

TABLE OF CONTENTS

 

 

The following are some questions that you may have regarding the merger and the special meeting of stockholders and brief answers to such questions. We urge you to read carefully the entirety of this revised proxy statement because the information in this section does not provide all the information that may be important to you with respect to the merger or the adoption of the amended merger agreement. Additional information is also contained in the annexes to, and the documents incorporated by reference into, this revised proxy statement.

 

 

 

To complete the merger, our stockholders must adopt the amended merger agreement, and all other conditions to the completion of the merger must be satisfied or waived. We will hold the special meeting of our stockholders to seek the adoption of the amended merger agreement.

 

This revised proxy statement contains important information about both Brocade and Foundry, the merger, the amended merger agreement and the special meeting of the stockholders. You should read this revised proxy statement carefully.

 

Your vote is very important. We encourage you to vote as soon as possible. The enclosed voting materials allow you to vote your shares without attending the special meeting. For more specific information on how to vote, please see the questions and answers below and the section entitled “The Special Meeting of Stockholders — How You Can Vote” beginning on page 13 of this revised proxy statement.

 

 

 

At the effective time of the merger, each outstanding share of our common stock will be converted into the right to receive $16.50 in cash, without interest. Holders of our common stock will not be entitled to receive any shares of Brocade common stock in the merger.

 

Most of our outstanding stock options and restricted stock units will, at the effective time of the merger and subject to applicable withholding requirements, be assumed by Brocade or replaced with reasonably equivalent Brocade equity awards based on a conversion ratio derived from the per-share merger consideration as more fully set forth in the amended merger agreement. However, certain of our outstanding stock options and restricted stock units will terminate at the effective time of the merger without consideration. In addition, under certain circumstances, certain of our outstanding stock options will terminate as of the effective time of the merger and Brocade will grant, in lieu thereof, a fully-vested right to be issued Brocade common stock upon settlement thereof based on a conversion ratio derived from the per-share merger consideration as more fully set forth in the amended merger agreement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Your attendance at the special meeting alone will not revoke your proxy.

 

If you have instructed a broker, bank or other nominee to vote your shares by executing a voting instruction card or by using the telephone or Internet, you must follow directions from your broker, bank or other nominee to change those instructions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For more information concerning the U.S. federal income tax consequences of the merger, please see the section entitled “Proposal No. 1 — The Merger — Material United States Federal Income Tax Consequences of the Merger” beginning on page 58 of this revised proxy statement.

 

Tax matters are very complicated and the consequences of the merger to any particular stockholder will depend on that stockholder’s particular facts and circumstances. Our stockholders are strongly urged to consult their own tax advisors to determine their own tax consequences from the merger.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders who hold shares of our common stock in “street name” may vote by following the instructions provided by their broker, bank or other nominee, including by one of the following methods:

 

 

For a more detailed explanation of the voting procedures, please see the section entitled “The Special Meeting of Stockholders — How You Can Vote” beginning on page 13 of this revised proxy statement.

 

 

 

 

 

1200 Wall Street West, 3rd Floor

Lyndhurst, NJ 07071

Telephone: 1-866-721-1399

email: Foundryinfo@altmangroup.com

 

SUMMARY

 

The Companies

 

Structure of the Merger (See page 64)

 

Completion of the Merger (See page 64)

 

Consideration in the Merger (See page 65)

 

Special Dividend (See page 65)

 

Treatment of Options, Restricted Stock Units and Restricted Stock (See page 65)

 

Treatment of Rights Under the Employee Stock Purchase Plan (See page 67)

 

Conditions to Completion of the Merger (See page 77)

 

Limitation on the Solicitation, Negotiation and Discussion by Foundry of Other Acquisition Proposals (See page 79)

	•	solicit, initiate, knowingly encourage, induce or knowingly facilitate the making, submission or announcement of any acquisition proposal or acquisition inquiry, each as defined in the amended merger agreement;
	•	furnish any nonpublic information regarding us or any of our subsidiaries to any person in connection with or in response to an acquisition proposal or acquisition inquiry;
	•	engage in discussions or negotiations with any person with respect to any acquisition proposal or acquisition inquiry, except as provided in the amended merger agreement;
	•	approve, endorse or recommend any acquisition proposal or acquisition inquiry; or
	•	enter into any letter of intent or similar document or any contract contemplating or otherwise relating to any acquisition transaction, as defined in the amended merger agreement.

 

Change of Recommendation (See page 82)

 

Termination of the Amended Merger Agreement (See page 83)

 

Expenses and Termination Fees (See page 85)

 

Recommendation of the Board of Directors to its Stockholders (See page 12)

 

Opinion of Our Financial Advisors (See page 36 and page 42)

 

Vote Required by Our Stockholders (See page 14)

 

Interests of Our Directors and Executive Officers in the Merger (See page 49)

	•	with respect to certain of our executive officers (other than Bobby R. Johnson, Jr., our chief executive officer):

	•	the eligibility to receive certain severance payments in the event the executive officer’s employment is terminated by us without “cause” or is terminated by the executive officer for “good reason” (as such terms are defined in the applicable agreement) during the period commencing three months prior to the completion date of the merger and ending on the first anniversary of the merger;
	•	partial acceleration of vesting of restricted stock units granted to the executive officer on July 31, 2008 in the event his or her employment is terminated by us or Brocade in connection with the merger prior to July 31, 2009, and
	•	full acceleration of vesting of all other stock-based awards held by the executive officer in the event the executive officer’s employment is terminated by us without “cause” or is terminated by the executive officer for “good reason” during the period commencing three months prior to the completion date of the merger and ending on the first anniversary of the merger;

	•	the continued indemnification of our directors and officers under existing indemnification agreements and our charter documents and their continued coverage by directors’ and officers’ liability insurance after the merger;
	•	the retention of some of our executive officers as officers, employees or consultants of Brocade or its subsidiaries following the merger; and
	•	with respect to our directors, full acceleration of vesting of stock-based awards granted to them in their capacities as our directors.

 

Regulatory Approvals (See page 55)

 

Litigation Relating to the Merger (See page 55)

 

We will Delist and Deregister our Shares of Common Stock (See page 56)

 

Appraisal Rights (See page 56)

 

Material United States Federal Income Tax Consequences of the Merger (See page 58)

 

Financing Commitment (See page 60)

 

Our common stock trades on the NASDAQ Global Select Market under the symbol “FDRY.”

 

The following table shows the closing sales price per share of our common stock as reported on the NASDAQ Global Select Market on (i) July 21, 2008, the last full trading day preceding public announcement that we and Brocade had entered into the merger agreement dated July 21, 2008, (ii) October 29, 2008, the last full trading day preceding public announcement that we and Brocade had reached an agreement in principle to amend the merger agreement, and (iii) November 12, 2008, the last full trading day for which closing price per share information was available at the time of the printing of this revised proxy statement.

 

 

The following table sets forth the high and low closing sales prices of our common stock for the periods indicated.

 

 

The foregoing tables show only historical information. These tables may not provide meaningful information to you in determining whether to vote in favor of the proposal to adopt the amended merger agreement. Our stockholders should obtain current market quotations for our common stock and review carefully the other information contained in this revised proxy statement in considering whether to adopt the amended merger agreement.

 

We have never paid cash dividends on our common stock. The terms of the amended merger agreement permit us to, and we currently intend to, declare a special dividend on our common stock in connection with the anticipated merger with Brocade, which we refer to as the special dividend. The special dividend, which would be payable only if the merger occurs, of up to a per share amount determined by dividing (i) the lesser of (a) the net cash proceeds of the sale of any auction rate securities held by us on November 7, 2008, the date of the execution of the amendment, and (b) $50,000,000 by (ii) the total number of outstanding shares of our common stock as of the record date for the special dividend calculated on a fully diluted basis based on the treasury stock method and assuming a market value for our common stock equal to the sum of $16.50 plus the actual per share amount of the special dividend. The calculation of the fully diluted number of shares of our common stock will exclude the unvested options and restricted stock units held by our employees whose employment will be terminated as of the date of completion of the merger, after giving effect to any acceleration of vesting of such options or restricted stock units in connection with the merger under any applicable agreements with such employees. As of November 7, 2008, Brocade

beneficially owned 14,000,000 shares of our common stock. As a holder of our common stock, Brocade would be entitled to receive a special dividend based on the number of shares of our common stock that it holds as of the record date for the special dividend. The payment of the special dividend is conditioned on our ability to sell the auction rate securities we held as of November 7, 2008. Due to recent failures in the auction process for these types of securities, holders of these securities have recently been unable to sell them, or had difficulties selling them. We may not be able to sell the auction rate securities we hold prior to completion of the merger, and therefore may not pay any special dividend to our stockholders.

 

This revised proxy statement and the documents incorporated by reference into this revised proxy statement contain forward-looking statements that involve risks and uncertainties, as well as assumptions, that, if they never materialize or prove incorrect, could cause the results of Brocade, Foundry or the combined company to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements generally are identified by the words “expects,” “anticipates,” “believes,” “intends,” “estimates,” “should,” “would,” “strategy,” “plan” and similar expressions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations, certain assumptions related to Brocade’s ability and willingness to obtain the financing necessary to complete the merger and the anticipated timing of approvals and the completion of the merger; any statements concerning proposed new products, services, developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the risk that the merger will not be completed, including the risk that Brocade does not obtain the financing necessary to complete the merger and that the required stockholder approval for the merger may not be obtained. You should note that the descriptions of the opinion of our financial advisors contain forward-looking statements that describe beliefs, assumptions and estimates as of the indicated dates and those forward-looking expectations may have changed as of the date of this revised proxy statement.

 

If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, our or Brocade’s results could differ materially from the expectations in these statements. The forward-looking statements included in this revised proxy statement are made only as of the date of this revised proxy statement, and neither we nor Brocade are under any obligation to update such forward-looking statements and intend to do so.

 

Brocade is the leading supplier of storage area network equipment and a leading provider of data center networking solutions that help enterprises connect and manage their information. Brocade offers a comprehensive line of data center networking products, software and services that enable businesses to make their data centers more efficient, reliable and adaptable. Brocade products and services are designed to help information technology organizations manage their data assets in an efficient, cost-effective manner. In the first fiscal quarter of 2008, Brocade reorganized itself into four operating units. The objective of this new organization is to allow Brocade to more effectively focus on growth opportunities, while being well-positioned to more rapidly scale and accommodate new business opportunities, including potential future acquisitions. The four operating units are as follows:

 

 

Together, Brocade’s products and services simplify information technology infrastructure, increase resource utilization, ensure availability of mission critical applications and serve as a platform for corporate data back up and disaster recovery. Brocade products and services are marketed, sold and supported worldwide to end-user customers through distribution partners, including OEMs, distributors, systems integrators, value-added resellers and by Brocade directly.

Brocade was incorporated in California on August 24, 1995 and re-incorporated in Delaware on May 14, 1999. Brocade’s mailing address and executive offices are located at 1745 Technology Drive, San Jose, California 95110. Brocade’s telephone number is (408) 333-8000. Brocade’s corporate website is www.brocade.com. Brocade’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on Brocade’s website when such reports are available on the SEC website. The public may read and copy any materials filed by Brocade with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The contents of these websites are not incorporated into this filing. Further, Brocade’s references to the URLs for these websites are intended to be inactive textual references only.

 

We are furnishing this revised proxy statement to our stockholders in connection with the solicitation of proxies by the board of directors for use at the rescheduled special meeting of stockholders, which will take place on December 17, 2008.

 

We will hold the special meeting of stockholders on December 17, 2008, promptly at 10:00 a.m. local time at the Hilton Santa Clara Hotel, located at 4949 Great America Parkway, Santa Clara, California 95054.

 

At the special meeting, including any adjournment or postponement thereof, our stockholders will be asked to consider and vote upon and approve the following proposals:

 

1. The adoption of the Agreement and Plan of Merger, dated as of July 21, 2008, as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of November 7, 2008, among Foundry, Brocade and Falcon Acquisition Sub, Inc. a wholly-owned subsidiary of Brocade.

 

2. The adjournment of the special meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1.

 

3. The transaction of such other business as may properly come before the special meeting or any adjournment or postponement thereof.

 

A copy of the merger agreement is attached to this revised proxy statement as Annex A-1 and a copy of the amendment to the merger agreement is attached to this revised proxy statement as Annex A-2. We encourage our stockholders to read the amended merger agreement in its entirety.

 

THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE TO OUR STOCKHOLDERS. ACCORDINGLY, WE URGE OUR STOCKHOLDERS TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS REVISED PROXY STATEMENT AND THE OTHER INFORMATION INCORPORATED BY REFERENCE HEREIN, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED GREEN PROXY CARD IN THE ENCLOSED PRE-ADDRESSED POSTAGE-PAID ENVELOPE OR GRANT YOUR PROXY BY TELEPHONE OR THROUGH THE INTERNET. IF YOU HAVE PREVIOUSLY RETURNED AN EXECUTED PROXY CARD TO US, YOU WILL NEED TO COMPLETE AND MAIL TO US THE ENCLOSED GREEN PROXY CARD, GRANT YOUR PROXY BY TELEPHONE OR THROUGH THE INTERNET, OR ATTEND AND VOTE IN PERSON AT THE RESCHEDULED SPECIAL MEETING. PROXIES FROM THE PREVIOUS MAILING ARE VOID AND THOSE THAT WERE PREVIOUSLY RETURNED OR GRANTED TO US WILL NOT BE COUNTED.

Recommendation of the Board of Directors

 

After careful consideration, the board of directors unanimously determined that the merger and the amended merger agreement are advisable and fair to, and in the best interests of, Foundry and its stockholders, and unanimously approved the merger and the amended merger agreement. The board of directors unanimously recommends that our stockholders vote “FOR” adoption of the amended merger agreement and “FOR” adjournment of the special meeting, if necessary.

 

In considering such recommendation, stockholders should be aware that some of our directors and executive officers have interests in the merger that are different from, or in addition to, those of our stockholders generally. See the section entitled “Proposal No. 1 — The Merger — Interests of Our Directors and Executive Officers in the Merger” beginning on page 49 of this revised proxy statement.

If your submitted green proxy card does not specify how you want to vote your shares, your shares will be voted “FOR” adoption of the amended merger agreement and “FOR” adjournment of the special meeting, if necessary.

 

Only stockholders as of the close of business on November 7, 2008, and other persons holding valid proxies for the special meeting are entitled to attend the special meeting. Stockholders and their proxies should be prepared to present valid government-issued photo identification. Stockholders who are not record holders but hold shares through a broker, bank or other nominee (i.e., in “street name”) should provide proof of beneficial ownership on the record date for the special meeting, such as their most recent account statement prior to November 7, 2008, or other similar evidence of ownership. Anyone who does not provide valid government-issued photo identification or comply with the other procedures outlined above upon request may not be admitted to the special meeting.

 

Record Holders.   Record holders of common stock at the close of business on November 7, 2008, the record date, may vote at the special meeting. On November 7, 2008, we had 149,943,346 outstanding shares of common stock, which were held by approximately 243 record holders.

 

Registered Stockholders.   If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares, the stockholder of record, and these proxy materials are being sent to you by us. As the stockholder of record, you have the right to grant your voting proxy directly to us or to vote in person at the special meeting.

 

Street Name Stockholder.   If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in “street name.” These proxy materials are being forwarded to you by your broker, bank or other nominee, who is considered, with respect to those shares, the record holder. As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote, and you are also invited to attend the special meeting. However, since you are not the record holder, you may not vote these shares in person at the special meeting unless you follow the applicable procedures for obtaining a legal proxy from your broker, bank or other nominee. Your broker, bank or nominee has enclosed a voting instruction card for you to use.

 

A complete list of the stockholders entitled to vote at the special meeting will be available for examination by any stockholder for any purpose germane to the special meeting, during ordinary business hours for a period of at least 10 days prior to the special meeting, at the offices of Foundry Networks, Inc., 4980 Great America Parkway, Santa Clara, CA 95054. Such list will also be available for examination at the special meeting.

 

You can only vote your shares if you are either represented by proxy or eligible to vote your shares in person at the special meeting. You can submit your proxy by:

 

 

If you hold shares through a bank, broker or other nominee, please provide your voting instructions by Internet, telephone or mail in accordance with the instructions contained on your voting instruction card. If you return a properly signed proxy card, we will vote your shares as you direct.

 

Stockholders may receive more than one set of voting materials, including multiple copies of this revised proxy statement and multiple green proxy cards or voting instruction cards. For example, stockholders who hold shares in more than one brokerage account may receive a separate voting instruction card for each brokerage account in which shares are held. Stockholders of record whose shares are registered in more than one name will receive more

than one green proxy card. The board of directors urges stockholders to complete, sign, date and return each green proxy card and voting instruction card they receive for the special meeting.

 

Our bylaws provide that a special meeting of the stockholders may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares present and entitled to vote at a special meeting, excluding abstentions. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, we may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days or if after the adjournment a new record date is fixed for the adjourned special meeting, a notice of the adjourned special meeting shall be given to each stockholder of record entitled to vote at the special meeting.

 

Each share of our common stock receives one vote on all matters properly brought before the special meeting. In order to conduct business at the special meeting, a quorum of a majority of the total number of votes entitled to be cast must be present in person or represented by proxy.

 

The required vote of the our stockholders on the proposal to adopt the amended merger agreement is a majority of the outstanding shares of common stock entitled to vote at the special meeting. The required vote of the stockholders on the proposal to adjourn the special meeting of stockholders, if necessary, is the affirmative vote of the holders of a majority of the shares of common stock present and entitled to vote at the special meeting. All abstentions and broker non-votes (as defined below) will be included as shares that are present and entitled to vote for purposes of determining the presence of a quorum at the meeting.

 

For the approval of Proposal 1, the adoption of the amended merger agreement, (i) abstentions will have the effect of a vote against the proposal and (ii) proxies for which a broker, bank or other nominee does not have discretionary voting authority and has not received voting instructions from the beneficial owner of the shares, or broker non-votes, have the effect of a vote against the proposal.

 

For the approval of Proposal 2, the possible adjournment of the special meeting, (i) abstentions will have the effect of a vote against the proposal, and (ii) broker non-votes will have no effect.

 

Computershare Trust Company, N.A., our transfer agent, will tally the votes. Proxy instructions, ballots and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. We will not disclose your vote except to allow for the tabulation of votes and certification of the vote, to facilitate a successful proxy solicitation and as necessary to meet applicable legal requirements.

 

As of the record date for the special meeting, our directors, executive officers and their affiliates, as a group, beneficially owned and were entitled to vote an aggregate of 11,794,362 shares of common stock, or approximately 7.87% of the total outstanding shares of our common stock.

 

Pursuant to voting agreements entered into between Brocade and our directors in connection with the merger, as amended, our directors have agreed to vote their shares of our common stock in favor of adoption of the amended merger agreement. As of the record date for the special meeting, our directors collectively owned an aggregate of 11,019,223 million shares of common stock entitled to vote at the special meeting, or approximately 7.35% of the total outstanding shares of our common stock as of the record date.

 

In addition to the shares of our common stock that are subject to the amended voting agreements, as of the record date for the special meeting, Brocade owned and was entitled to vote an aggregate of 14,000,000 shares of our common stock, or approximately 9.34% of the total outstanding shares of our common stock as of the record date. Brocade acquired its shares of our common stock in the open market following the announcement of the

merger and has agreed to vote them “FOR” adoption of the amended merger agreement and “FOR” the adjournment of the special meeting, if necessary.

 

You can change your vote or revoke your proxy at any time before the final vote at the special meeting. To do so, if you are the record holder, you may:

 

 

If you hold shares through a bank, broker or other nominee, you must contact your financial institution, broker or nominee for information on how to revoke your proxy or change your vote. Attendance at the meeting will not cause your previously granted proxy to be revoked unless you specifically so request.

 

Written notices of revocation should be addressed to Foundry Networks, Inc., Attn: Corporate Secretary, 4980 Great America Parkway, Santa Clara, CA 95054.

 

If you hold your shares in “street name”, you must give new instructions to your bank, broker or other nominee prior to the special meeting or obtain a signed legal proxy from the bank, broker or other nominee to revoke your prior instructions and vote in person at the meeting.

 

Any stockholder who has a question about the merger or the adoption of the amended merger agreement, or how to vote or revoke a proxy, or who wishes to obtain additional copies of this revised proxy statement, should contact:

 

Investor Relations
Foundry Networks, Inc.
4980 Great America Parkway
Santa Clara, CA 95054
(408) 207-1399
email: ir@foundrynet.com

Other Matters

 

Other than the proposal described in this revised proxy statement, the board of directors knows of no other matters to be acted upon at the special meeting. If any other matter should be duly presented at the special meeting upon which a vote properly may be taken, shares represented by all proxies received by us will be voted with respect thereto in accordance with the judgment of the persons named as attorneys in the proxies.

 

We and Brocade will share equally the expenses incurred in connection with the filing, printing and mailing of this revised proxy statement. We will be responsible for any fees incurred in connection with the solicitation of proxies for the special meeting. In addition to solicitation by mail, our directors, officers, employees and agents may solicit proxies from stockholders by telephone, email, facsimile or in person. Some of these individuals may have interests in the merger that are different from, or in addition to, the interests of our stockholders generally. See the section entitled “Proposal No. 1 — The Merger — Interests of Our Directors and Executive Officers in the Merger” beginning on page 49 of this revised proxy statement. Brokerage houses and other custodians, nominees and fiduciaries will be requested to forward soliciting materials to the beneficial owners of shares held of record by these persons, and we will reimburse them for their reasonable out-of-pocket expenses in sending proxy materials to beneficial owners. To assist in the solicitation of proxies, we have retained The Altman Group, Inc. We anticipate that The Altman Group, Inc.’s fees will be approximately $25,000 plus reimbursement of expenses.

 

Stockholders sharing an address with another stockholder may receive only one set of revised proxy materials at that address unless they have provided contrary instructions. Any such stockholder who wishes to receive a separate set of revised proxy materials now or in the future may write or call us to request a separate copy of these materials as follows: c/o Investor Relations, Foundry Networks, Inc., 4980 Great America Parkway, Santa Clara, CA 95054 or by sending an email to ir@foundrynet.com, or Investor Relations department at (408) 207-1399.

 

The following is a description of the material aspects of the merger and related transactions. The following description may not contain all of the information that is important to you. You should read this entire revised proxy statement and the other documents we refer to herein carefully for a more complete understanding of the merger and the related transactions.

 

On July 21, 2008, Brocade, Foundry and Falcon Acquisition Sub, Inc., a wholly-owned subsidiary of Brocade formed for the purpose of the merger, entered into a merger agreement providing for our acquisition by Brocade. On November 7, 2008, Brocade, Foundry and Falcon Acquisition Sub, Inc. entered into an amendment to the merger agreement. Subject to the terms and conditions of the amended merger agreement, Falcon Acquisition Sub, Inc. will be merged with and into us, and we will continue after the merger as the surviving corporation and a wholly-owned subsidiary of Brocade.

 

In the merger, our stockholders will be entitled to receive a combination of $16.50 in cash, without interest, subject to adjustment for stock splits, stock dividends and similar events.

 

Brocade and Foundry have been familiar with each other’s businesses for several years and Brocade is currently a customer of Foundry. As part of its business strategy for the past few years, Brocade has identified and pursued opportunities for growth through the acquisition of, or combination with, complementary businesses. Foundry has studied a similar strategy.

 

At several points during the fall of 2007, the Foundry board of directors met with members of Foundry’s senior management and financial advisor to discuss Foundry’s position in the networking market and the perceived direction of, and trends in, that market, the perceived threats and challenges associated with Foundry’s position in the market and the potential opportunities to grow and expand such position. These discussions involved a general review of the various strategic alternatives available to Foundry, including exploring opportunities for business combinations and acquisitions by and of Foundry, and the Foundry board of directors instructed Foundry’s senior management to explore potential strategic alternatives for Foundry.

 

At the invitation of representatives of Banc of America Securities LLC, or BAS, on December 11, 2007, Daniel Fairfax, Vice President, Finance & Administration and Chief Financial Officer of Foundry, and Michael Iburg, Vice President, Investor Relations and Treasurer of Foundry met with representatives of BAS to discuss the state of the networking market and the competitive landscape within the industry. During the meeting, the representatives of BAS inquired as to whether Foundry would be interested in entertaining strategic dialogue with other companies in the industry, and Mr. Iburg indicated Foundry’s willingness to engage in such discussions.

 

On December 28, 2007, Tejinder (T.J.) Grewal, Vice President, Corporate Development of Brocade, called Mr. Fairfax to initiate discussions regarding ways in which Brocade and Foundry might work together, and Mr. Grewal and Mr. Fairfax agreed to meet.

 

On January 8, 2008, Mr. Fairfax and Mr. Iburg met with Mr. Grewal and Jody Kirk, Director, Corporate Development of Brocade. At this meeting, Mr. Grewal and Mr. Kirk presented an overview of Brocade’s business and Brocade’s view of the consolidation within the networking industry and inquired as to whether Foundry would be interested in discussing ways in which Brocade and Foundry might work together in the future. Mr. Fairfax again indicated Foundry’s willingness to engage in such discussions.

 

From January 8 through January 10, 2008, Mr. Grewal sent several messages to Mr. Fairfax to arrange a telephone conversation between Bobby Johnson, Jr., Chief Executive Officer and President of Foundry, and Michael Klayko, Chief Executive Officer of Brocade, to discuss the possibility of Brocade and Foundry working together and, on January 10, 2008, Mr. Grewal requested that Mr. Fairfax have Mr. Johnson call Mr. Klayko directly.

On January 11, 2008, Mr. Johnson contacted Mr. Klayko by telephone. On that call, Mr. Klayko and Mr. Johnson engaged in a general discussion regarding the networking industry, including a discussion of trends in the industry.

 

On January 18, 2008, Mr. Johnson and Ken Cheng, Vice President and General Manager, High-End and Service Provider Systems Business Unit of Foundry met with Mr. Klayko and Don Jaworski, Vice President and General Manager, Files of Brocade, to discuss how Foundry and Brocade might work together within the consolidating and competitive environment of the networking industry.

 

On January 24, 2008, the Foundry board of directors met with members of Foundry’s senior management, financial advisors and legal counsel to further review strategic alternatives available to Foundry and instructed Foundry’s senior management to continue to explore ways to enhance stockholder value, including exploring potential strategic alternatives for Foundry.

 

On January 25, 2008, Mr. Klayko left a message for Mr. Johnson seeking a meeting with Mr. Johnson.

 

On January 27, 2008, Mr. Grewal contacted Mr. Fairfax to indicate Brocade’s interest in working with Foundry and to inquire as to the decision-making process within Foundry to accomplish this.

 

On January 31, 2008, Mr. Klayko sent an email to Mr. Johnson to request and schedule a meeting with Mr. Johnson and Mr. Johnson subsequently agreed to speak by telephone with Mr. Klayko on or around February 12, 2008. On that call, Mr. Klayko and Mr. Johnson further discussed how Foundry and Brocade might work together within the consolidating and competitive environment of the networking industry.

 

On February 14, 2008, Mr. Klayko sent an email to Mr. Johnson requesting a meeting on February 20, 2008. Mr. Johnson responded the next day agreeing to the meeting.

 

On February 20, 2008, Mr. Klayko delivered a written presentation to Mr. Johnson explaining the value of a potential business combination between Brocade and Foundry and how the transaction could be completed, including by way of a stock-for-stock transaction. Mr. Johnson indicated that he would discuss their conversation with the Foundry board of directors and respond to Mr. Klayko.

 

On February 25, 2008, the Foundry board of directors met with members of Foundry’s senior management, financial advisor and legal counsel. At that meeting, Mr. Johnson discussed his February 20, 2008 conversation with Mr. Klayko with the members of the Foundry board of directors and, at the conclusion of the meeting, the Foundry board of directors instructed Foundry’s senior management to continue to explore strategic alternatives for Foundry, but to inform Brocade that the Foundry board of directors was not interested in a potential business combination between Brocade and Foundry at that time.

 

On February 28, 2008, Mr. Klayko sent Mr. Johnson an email soliciting feedback from Mr. Johnson’s discussions with the Foundry board of directors. On February 29, 2008, Mr. Johnson left a voicemail for Mr. Klayko to advise him of the results of the discussion at the recent Foundry board of directors’ meeting. On March 1, 2008, Mr. Klayko contacted Mr. Johnson by telephone to discuss further the position of the Foundry board of directors.

 

On March 4, 2008, in accordance with Brocade’s instructions, BAS, acting as Brocade’s financial advisor, met with Mr. Fairfax to determine the level of interest that the Foundry board of directors might have in a potential business combination between Brocade and Foundry.

 

On March 13, 2008, Mr. Klayko sent Mr. Johnson an email communication reiterating Brocade’s interest in pursuing a potential business combination between Brocade and Foundry. At that time, Mr. Klayko proposed that representatives of Brocade and Foundry meet to exchange more detailed information about the companies’ respective strategies and to discuss the benefits of a potential business combination between Brocade and Foundry. On March 25, 2008, Mr. Klayko emailed Mr. Johnson to seek feedback on Mr. Klayko’s March 13 proposal and to schedule a meeting between representatives of Brocade and Foundry.

 

On April 1, 2008, Mr. Klayko emailed and delivered a letter to Mr. Johnson and Alfred J. Amoroso, Chairman of the Board of Foundry, reiterating the content of Mr. Klayko’s correspondence of March 13, 2008, Brocade’s desire to hold meetings between representatives of Brocade and Foundry and Brocade’s interest in pursuing a potential business combination between Brocade and Foundry.

On April 3, 2008, in accordance with Brocade’s instructions, representatives of BAS contacted Mr. Fairfax to confirm that Foundry had received Mr. Klayko’s letter dated April 1, 2008 and to inquire about the reaction of the Foundry board of directors to the letter.

 

On April 4, 2008, Mr. Amoroso called Mr. Klayko to confirm that Mr. Amoroso and Mr. Johnson had received Mr. Klayko’s letter of April 1, 2008 and that the Foundry board of directors would meet to discuss the letter. During the call, Mr. Klayko described for Mr. Amoroso Brocade’s rationale for the potential business combination between Brocade and Foundry and then sent Mr. Amoroso a copy of the written presentation that Mr. Klayko had previously given to Mr. Johnson on February 20, 2008.

 

On April 9, 2008, the Foundry board of directors met with members of Foundry’s senior management and financial advisors and legal counsel. At that meeting, the Foundry board of directors discussed the April 1 letter and, at the request of the Foundry board of directors, Merrill Lynch, Pierce, Fenner & Smith Incorporated, or Merrill Lynch, delivered a presentation regarding the networking industry generally, as well as the positions of Brocade and Foundry within the industry in particular. The Foundry board of directors then received legal advice from DLA Piper LLP (US), or DLA Piper, legal counsel to Foundry. At the conclusion of the meeting, the Foundry board of directors instructed Foundry’s senior management to continue to explore strategic alternatives for Foundry, but to inform Brocade that it was not in the best interests of Foundry’s stockholders to pursue a potential business combination between Brocade and Foundry on the terms discussed on February 20, 2008. Following the board meeting, Mr. Amoroso contacted Mr. Klayko to inform him that the Foundry board of directors had determined that it was not in the Foundry stockholders’ best interests to pursue a potential business combination between Brocade and Foundry on the terms discussed on February 20, 2008.

 

On April 28, 2008, the Foundry board of directors met with members of Foundry’s senior management and legal counsel. At that meeting, the Foundry board discussed Foundry’s prospects, risks of execution and challenges relating to the current macroeconomic environment and industry consolidation trends. In addition, the Foundry board of directors discussed alternatives to Foundry remaining independent, including possible acquisitions by Foundry, or a possible acquisition of Foundry. At the conclusion of the meeting, the Foundry board of directors authorized members of the board and senior management to interview investment banks as possible financial advisors for Foundry.

 

On May 8, 2008, the Foundry board of directors met with members of Foundry’s senior management. At that meeting, the Foundry board of directors discussed the continued need to review and consider strategic alternatives. The Foundry board of directors and senior management then received a report from Mr. Amoroso regarding the potential financial advisors he had contacted and thereafter the board instructed members of Foundry’s senior management to obtain proposals from two investment banks of international reputation.

 

At the invitation of Mr. Grewal, Mr. Fairfax met with Mr. Grewal on May 9, 2008. At that meeting, Mr. Grewal expressed Brocade’s continued interest in a proposed business combination between Brocade and Foundry. At that meeting, Mr. Grewal indicated that Brocade was likely to make a revised proposal to acquire Foundry.

 

On May 14, 2008, Foundry received an oral and written proposal from Brocade specifying that, subject to confirmatory due diligence and the preparation and negotiation of appropriate definitive documentation, Brocade would be prepared to offer to acquire all of the outstanding shares of Foundry common stock for $17.50 in cash per share. The proposal further indicated that Brocade had received commitments from two potential financing sources of international reputation to provide the necessary financing to fund the proposed purchase price.

 

On May 19, 2008, the Foundry board of directors, senior members of Foundry’s management team and representatives of Heller Ehrman LLP, legal counsel to Foundry, met separately with representatives of Merrill Lynch and representatives of another investment banking firm of international reputation to discuss the Brocade proposal and possible responses. These discussions included detailed reviews of general economic and political conditions, industry-specific trends and risks, the state of the financing market, the various valuation metrics and factors that the market, and specifically a third-party buyer, would consider in valuing Foundry and the strategic alternatives generally available to Foundry in the near-term and over the longer-term, including capital restructuring programs such as significantly increased share repurchases. The parties also discussed a list of other parties that

might be interested in acquiring Foundry and the manner in which they might be contacted to assess their interest. During the meeting, Heller Ehrman provided legal advice to the Foundry board of directors.

 

On May 21, 2008, Mr. Johnson and Mr. Amoroso, at the direction of the Foundry board of directors, met with Mr. Klayko and Mr. Grewal and indicated that the proposed price per share included in Brocade’s May 14, 2008 proposal represented insufficient value for the stockholders of Foundry, but indicated that Foundry would be interested in continuing discussions if Brocade would increase its proposed price.

 

On May 26, 2008, Mr. Klayko contacted Mr. Johnson and indicated that Brocade was willing to increase its proposed price but did not deliver a revised proposal at that time. The following day, Mr. Klayko contacted Mr. Johnson to determine steps to be taken by the parties to proceed with discussions regarding a potential business combination between Brocade and Foundry.

 

On May 28, 2008, the Foundry board of directors, senior members of Foundry’s management team and representatives of Heller Ehrman again met separately with representatives of Merrill Lynch and representatives of another investment banking firm of international reputation to discuss the selection of a financial advisor by Foundry in light of Brocade’s expressed willingness to increase its proposed price. At the conclusion of the May 28 meetings, the Foundry board of directors determined to engage Merrill Lynch as Foundry’s financial advisor, subject to negotiating acceptable terms of engagement, in connection with Foundry’s review of strategic alternatives and to direct representatives of Merrill Lynch, together with Foundry management, to continue the discussions with Brocade and to initiate contact with the other parties identified in the discussions between representatives of Merrill Lynch and the Foundry board of directors as possibly being interested in a business combination with Foundry.

 

On May 30, 2008, Foundry entered into an engagement letter with Merrill Lynch, retaining Merrill Lynch as financial advisor with respect to a possible sale of Foundry.

 

On June 4, 2008, representatives of Merrill Lynch contacted Mr. Klayko on behalf of Foundry to discuss a potential business combination between Brocade and Foundry and process considerations and to propose the execution of a mutual confidentiality agreement by Foundry and Brocade.

 

Between June 4, 2008 and June 11, 2008, at the direction of the Foundry board of directors and based on the extended discussions at the May 19 and May 28 meetings, representatives of Merrill Lynch contacted six additional companies regarding their interest in a potential business combination with Foundry. Three parties expressed an interest in pursuing a transaction — Company A, Company B and Company C. Previously, a member of the Foundry board of directors had contacted senior management at a seventh company to assess interest in a possible combination with Foundry and was informed that the company was not in a position to proceed with a transaction at this time.

 

On June 5, 2008, Brocade and Foundry executed a mutual confidentiality agreement. On the same day, representatives of Merrill Lynch spoke with representatives of BAS by telephone to discuss the potential business combination between Brocade and Foundry and process considerations.

 

On June 6, 2008, representatives of Merrill Lynch met with representatives of BAS to further discuss a potential business combination between Brocade and Foundry, including the proposed price to be paid by Brocade for Foundry shares.

 

During the week of June 9, 2008, representatives of BAS and Merrill Lynch spoke by telephone on a number of occasions to discuss Foundry’s business and valuation with respect to a potential business combination between Brocade and Foundry.

 

On June 9, 2008, the Foundry board of directors met with members of senior management. At that meeting, the Foundry board of directors received an update regarding the status of the discussions with Brocade regarding a potential business combination between Brocade and Foundry. In addition, Mr. Amoroso reported to the Foundry board of directors the preliminary results of the contacts that Merrill Lynch had made with the six additional companies to determine their interest in pursuing a potential business combination with Foundry.

On June 10, 2008, Foundry executed a confidentiality agreement with Company A in contemplation of further discussions about a potential business combination. On the same day, representatives of Merrill Lynch spoke with representatives of BAS by telephone to further discuss Foundry’s valuation with respect to a potential business combination between Brocade and Foundry.

 

On June 11, 2008, senior members of Foundry management and representatives of Merrill Lynch met with senior members of Company A management to discuss a potential business combination.

 

On June 12, 2008, in accordance with Brocade’s instructions, representatives of BAS, on behalf of Brocade, contacted representatives of Merrill Lynch to indicate that Brocade may be willing to offer $18.50 in cash per share of Foundry common stock. Later that day, the Foundry board of directors, senior members of Foundry’s management team, representatives of Heller Ehrman and representatives of Merrill Lynch spoke by telephone to discuss transaction considerations and alternatives in responding to the valuation discussions previously held between representatives of BAS and Merrill Lynch.

 

During their discussions with representatives of Merrill Lynch between June 12, 2008 and June 27, 2008, in accordance with instructions from Brocade, representatives of BAS communicated a request that Foundry enter into an exclusivity agreement with Brocade, which was rejected by Foundry.

 

On June 13, 2008, Foundry executed a confidentiality agreement with Company B and senior members of Foundry management, along with representatives of Merrill Lynch, met with senior members of Company B management to discuss a potential business combination.

 

On June 16, 2008, at a meeting with Mr. Johnson at Brocade’s offices, Mr. Klayko delivered a revised written proposal to acquire Foundry for $18.50 in cash per outstanding share of Foundry common stock.

 

On June 18, 2008, Mr. Johnson contacted Mr. Klayko to discuss Brocade’s analysis supporting its proposed purchase price. On the same day, Mr. Fairfax met with Mr. Grewal to have a similar discussion.

 

On June 19, 2008, the Foundry board of directors met with members of Foundry’s senior management and representatives of Heller Ehrman and Merrill Lynch to consider the revised proposal submitted by Brocade and to review the status of discussions with other parties. The Foundry board of directors reviewed information related to transaction considerations, comparable company analyses and other financial analyses. The Foundry board of directors also reviewed analyses with respect to valuation of the common stock of Foundry, including information regarding analyst research, public market valuations of comparable companies, discounted cash flow analyses and other potential strategic alternatives available to Foundry. During the meeting, Heller Ehrman provided legal advice to the Foundry board of directors. Later that day, a representative of Merrill Lynch, on behalf of Foundry, informed representatives of BAS that the proposed price per share included in Brocade’s revised proposal represented insufficient value for the stockholders of Foundry.

 

On June 20, 2008, Foundry executed a confidentiality agreement with Company C, and senior members of Foundry management, along with representatives of Merrill Lynch, met with senior members of Company C management to discuss a potential business combination. Later that day, Mr. Johnson and Mr. Fairfax contacted senior management of Company C to ascertain Company C’s level of interest in a potential business combination with Foundry. On the same day, Company A contacted representatives of Merrill Lynch to indicate that Company A would not submit a proposal for a potential business combination with Foundry.

 

On June 23, 2008, Company B contacted representatives of Merrill Lynch to indicate that Company B would not submit a proposal for a potential business combination with Foundry.

 

On June 24, 2008, in accordance with Brocade’s instructions, representatives of BAS contacted representatives of Merrill Lynch to communicate a revised proposal to acquire each share of Foundry common stock for a combination of $17.00 in cash plus a fraction of a share of Brocade common stock having a value of $2.00. Later that day, representatives of Merrill Lynch, on behalf of Foundry, contacted representatives of BAS to inquire if Brocade would consider offering to acquire each share of Foundry common stock for a combination of $18.50 in cash plus a fraction of a share of Brocade common stock having a value of $2.00.

On June 25, 2008, in accordance with Brocade’s instructions, representatives of BAS contacted representatives of Merrill Lynch to communicate a revised proposal to acquire each share of Foundry common stock for a combination of $18.50 in cash plus a fraction of a share of Brocade common stock having a value of $0.50.

 

On June 26, 2008, the Foundry board of directors met with members of Foundry’s senior management and representatives of Heller Ehrman and Merrill Lynch to consider the revised Brocade proposal and review of the status of discussions with other parties. The Foundry board of directors reviewed updated analyses with respect to valuation of the Foundry common stock, including information regarding recent transactions in the industry, premiums paid over trading price in such transactions and public market valuations of comparable companies.

 

Discussions between representatives of Brocade and Foundry regarding transaction terms continued over the following two days.

 

On June 27, 2008, in accordance with Brocade’s instructions, representatives of BAS contacted representatives of Merrill Lynch to communicate two alternative revised proposals. Under one revised proposal, Brocade would acquire each share of Foundry common stock for a combination of $18.50 in cash plus a fraction of a share of Brocade common stock valued at $0.50 at the time of the completion of the proposed transaction, and under the other revised proposal, Brocade would acquire each share of Foundry common stock for a combination of $18.50 in cash plus a fraction of a share of Brocade common stock valued at $0.75 at the time of the announcement of the proposed transaction.

 

Discussions among members of the Foundry board of directors and senior management of Foundry, together with representatives of Heller Ehrman and Merrill Lynch, ensued. At the completion of those discussions, the Foundry board of directors determined it was prepared to move forward with Brocade on the basis of the proposal that included the fraction of a share of Brocade common stock valued at $0.75 per share based on a fixed exchange ratio to be determined at the time of the announcement of the proposed transaction, subject to confirmatory due diligence for both parties and the negotiation of mutually satisfactory definitive agreements relating to the transaction.

 

On June 28, 2008, Mr. Johnson indicated to Mr. Klayko that the Foundry board of directors was willing to proceed with the negotiation of a business combination between Brocade and Foundry in which each share of Foundry common stock would be acquired for a combination of $18.50 in cash plus a fraction of a share of Brocade common stock valued at $0.75 at the time of the announcement of the proposed transaction.

 

On June 30, 2008, a representative of Heller Ehrman contacted Cooley Godward Kronish LLP, legal counsel to Brocade, to request that Brocade amend the confidentiality agreement between the parties to include a standstill provision and an employee non-solicitation provision. A representative of Cooley Godward Kronish informed Heller Ehrman that Brocade would only agree to a standstill provision in exchange for an exclusivity agreement from Foundry for an equivalent period of time. Foundry declined to enter into an exclusivity agreement with Brocade, and, on July 2, 2008, Foundry and Brocade amended their confidentiality agreement to include an employee non-solicitation provision.

 

On July 2, 2008, Brocade and certain of its representatives were provided access to an online data room containing due diligence materials regarding Foundry. Due diligence continued until the execution of the definitive agreement. On the same day, Company C contacted representatives of Merrill Lynch and indicated that Company C would not submit a proposal for a potential business combination with Foundry.

 

On July 6, 2008, representatives of Cooley Godward Kronish sent representatives of Heller Ehrman an initial draft of a merger agreement, which was subsequently sent by Heller Ehrman to senior members of Foundry management and representatives of Merrill Lynch the same day.

 

On July 8, 2008 and July 9, 2008, senior members of Foundry management, along with representatives of Merrill Lynch, made presentations to and met with members of management and various advisors of Brocade as part of Brocade’s due diligence investigation with respect to Foundry’s business.

 

On July 10, 2008, Mr. Johnson, together with other members of Foundry senior management and representatives of Heller Ehrman and Merrill Lynch, met with certain members of the Foundry board of directors to provide

an update regarding the status of the negotiations with Brocade regarding a potential business combination between Brocade and Foundry.

 

Between July 10 and July 21, 2008, several discussions took place between representatives of Brocade, Foundry and their respective advisors covering due diligence matters and negotiation of the terms of the merger agreement and the commitment letter relating to the debt financing to be obtained by Brocade in connection with the proposed business combination between Foundry and Brocade.

 

Between July 10, 2008 and July 21, 2008, representatives of Heller Ehrman and Cooley Godward Kronish engaged in negotiations with respect to the terms of the merger agreement on behalf of Foundry and Brocade, respectively.

 

On July 13, 2008, representatives of Cooley Godward Kronish sent representatives of Heller Ehrman an initial draft of a voting agreement, which was proposed to be executed by all of the members of the Foundry board of directors. This draft was subsequently sent by Heller Ehrman to senior members of Foundry management and representatives of Merrill Lynch the same day. Discussions regarding the terms of the voting agreement continued between the various parties until finalization of the agreement on July 21, 2008.

 

During the course of the discussions relating to the proposed transaction, representatives of Brocade made it known that they expected Mr. Johnson to execute a noncompetition agreement in favor of Brocade as part of the transaction. On July 15, 2008, a draft of the noncompetition agreement was sent by representatives of Cooley Godward Kronish and forwarded to Mr. Johnson and his counsel for review. Discussions regarding the terms of the noncompetition agreement continued between the various parties until finalization of the agreement on July 21, 2008.

 

On July 16, 2008, senior members of Foundry management, along with representatives of Merrill Lynch, Ernst & Young, Heller Ehrman and DLA Piper met with senior members of Brocade management to conduct a limited due diligence investigation with respect to Brocade’s business. These due diligence discussions continued between the parties over the next several days.

 

On July 17, 2008, representatives of Cooley Godward Kronish sent representatives of Heller Ehrman a draft of the financing commitment letter and related financial definitions pertaining to the potential debt financing Brocade intended to obtain to finance a portion of the merger consideration, which draft documents were subsequently sent by Heller Ehrman to senior members of Foundry management and representatives of Merrill Lynch the same day.

 

Between July 17, 2008 and July 21, 2008, representatives of Heller Ehrman and Cooley Godward Kronish discussed the terms of the draft debt commitment letter and related financial definitions on behalf of Foundry and Brocade, respectively.

 

On July 18, 2008, the Foundry board of directors met with members of senior management of Foundry and representatives of Heller Ehrman, Merrill Lynch, Ernst & Young LLP and DLA Piper to review the status of the proposed business combination between Brocade and Foundry. At the meeting, the Foundry board of directors received reports regarding due diligence investigations of Brocade and its business and discussed the results of the due diligence investigations. Following this discussion, Merrill Lynch updated its analyses with respect to valuation of the common stock of Foundry, including information regarding recent transactions in the industry, premiums paid over trading price in such transactions, public market valuations of comparable companies and discounted cash flow analyses. The board then engaged in a detailed review of the terms of the merger agreement and, thereafter, Heller Ehrman provided legal advice to the Foundry board of directors. Merrill Lynch then responded to questions raised by the Foundry board of directors regarding the proposed business combination and Merrill Lynch’s analysis.

 

On July 21, 2008, the board of directors of Brocade convened a special telephonic meeting to discuss the merger agreement and the transactions contemplated thereby. At that meeting, the Brocade board of directors determined that the transactions contemplated by the merger agreement were fair to, advisable and in the best interests of Brocade and its stockholders, and the directors voted to approve the merger and the other transactions contemplated by the merger agreement.

 

Later on July 21, 2008, the Foundry board of directors held a meeting with members of Foundry’s senior management and representatives of Merrill Lynch, Heller Ehrman and DLA Piper regarding the proposed

transaction. The Foundry board of directors then engaged in a detailed review of the terms of the merger agreement, including those terms that had been modified since the July 18, 2008 meeting of the Board. Thereafter, the Foundry board of directors received legal advice from Heller Ehrman. Merrill Lynch reconfirmed its financial analyses related to the proposed transaction and delivered its oral opinion, which was subsequently confirmed in writing, that, based upon and subject to the various considerations described in its written opinion, the consideration to be received by the holders of shares of Foundry common stock pursuant to the merger agreement was fair, as of July 21, 2008, from a financial point of view to the holders of such shares, other than Brocade and its affiliates. Representatives of Merrill Lynch then responded to questions of the Foundry board of directors regarding its analysis and written opinion. The Foundry board of directors then received legal advice from DLA Piper. The Foundry board of directors then engaged in a full discussion of the terms of the proposed merger agreement and the analyses and fairness opinion of Merrill Lynch. The board of directors of Foundry unanimously determined that the merger and the merger agreement were advisable and fair to, and in the best interests of, Foundry and its stockholders and that the merger consideration was fair to the Foundry stockholders from a financial point of view as of the date of the board meeting. Accordingly, the Foundry board of directors unanimously approved the proposed transaction and the definitive merger agreement.

 

The definitive merger agreement was executed and delivered by representatives of Brocade, Foundry and Falcon Acquisition Sub., Inc. as of July 21, 2008. In addition, Mr. Johnson executed and delivered the voting agreement and the noncompetition agreement.

 

The transaction was publicly announced on the afternoon of July 21, 2008.

 

Each of the other members of the Foundry board of directors executed a voting agreement as of August 11, 2008.

 

On October 7, 2008, Brocade, the agents and the other lenders party thereto entered into the definitive credit agreement relating to the senior secured credit facility contemplated by the financing commitment letter. Pursuant to the credit agreement, the lenders funded $1.1 billion aggregate principal amount of term loans and provided a revolving credit facility of $125 million. The proceeds of the term loans were deposited in a restricted securities account pending the completion of the merger and other release conditions.

 

On October 9, 2008, Mr. Grewal and Richard Deranleau, Vice President of Finance and Chief Financial Officer of Brocade, contacted Mr. Fairfax and discussed the status of their efforts to secure the necessary additional financing to complete the merger, including from multiple alternative sources. During the course of that discussion, Mr. Grewal indicated that there was a difference of opinion with the agents regarding certain terms of the financing commitment letter as it related to the bridge financing.

 

On October 14, 2008, representatives of Qatalyst, financial advisors to Brocade, contacted representatives of Merrill Lynch to arrange a telephonic meeting for the following day to update Merrill Lynch regarding efforts to secure financing for the merger.

 

On October 15, 2008, Brocade announced its intention to conduct an unregistered offering of $400 million of senior notes, the proceeds of which, together with cash on hand and borrowings under Brocade’s new credit facility, would be used to finance the acquisition of Foundry and pay related fees and expenses.

 

On October 15, 2008, representatives of Qatalyst and representatives of Merrill Lynch held a telephonic meeting, during which Qatalyst informed Merrill Lynch that it was investigating the possibility of other financing sources for Brocade to replace the bridge financing contemplated by the financing commitment letter. On the same day, representatives of Cooley Godward Kronish provided representatives of Heller Ehrman with copies of communications between Brocade and the agents relating to the difference of opinion regarding the terms of the financing commitment letter as it related to the bridge financing. Also that day, a representative of Qatalyst spoke with Mr. Amoroso about the deteriorating conditions in the financing markets.

 

On October 16, 2008, the Foundry board of directors met to consider, among other things, the current status of the transaction. Representatives of Merrill Lynch, Heller Ehrman and DLA Piper were also present at the meeting. During the meeting, representatives of Merrill Lynch gave an overview of the current financing market as well as their views regarding the status of the pending Brocade financing. At the conclusion of this discussion, the Foundry

board of directors directed Merrill Lynch to prepare an analysis of the likely transaction-related cash requirements for Brocade to assist the board in better understanding the structure of the financing and the likelihood of a successful financing.

 

On October 17, 2008, representatives of Qatalyst and representatives of Merrill Lynch held an additional telephonic meeting regarding the status of Brocade’s financing for the merger contemplated by the financing commitment letter and Brocade’s potential desire for alternative financing given the conditions in the financing markets and the continuing difference of opinion with the agents as to the interpretation of the financing commitment letter.

 

On October 21, 2008, Heller Ehrman contacted Cooley Godward Kronish requesting that Brocade provide Foundry with, among other things, an update as to the difference of opinion between Brocade and the agents on the interpretation of the financing commitment letter. Cooley Godward Kronish responded to Heller Ehrman on October 21, 2008, informing them that, due to Brocade’s efforts having been focused on conducting the road show for the senior note offering, there had been no material developments on resolving the issue.

 

On the evening of October 22, 2008, Cooley Godward Kronish informed Heller Ehrman that the results of Brocade’s efforts to raise funds to finance the merger through the issuance and sale of senior notes and from alternative sources of financing had not been successful to that point, and reminded Heller Ehrman of the ongoing difference of opinion between Brocade and the agents over the terms of the financing commitment letter as it relates to the bridge financing. Cooley Godward Kronish further informed Heller Ehrman that in Brocade’s view the anticipated November 3, 2008 completion date for the merger was no longer realistic and raised the question of whether Foundry had considered the ramifications of proceeding with its October 24, 2008 special meeting of stockholders to vote on the merger.

 

On the evening of October 22, 2008, a representative of Qatalyst also contacted Mr. Amoroso by telephone regarding Brocade’s concerns with its financing of the merger. During the call, the representative of Qatalyst told Mr. Amoroso that Brocade continued to work diligently to procure financing for the merger in accordance with the terms of the merger agreement, but that Brocade would not be willing to draw on the existing bridge financing under the financing commitment letter on terms worse than those Brocade believed had been agreed upon in the financing commitment letter. The representative of Qatalyst then communicated that, in light of its continuing difference of opinion with the agents on those terms, Brocade believed that a “Financing Failure” (as that term is defined in the merger agreement) was highly likely, that, in light of the turmoil in the credit markets and its ongoing inability to secure alternative financing, it was highly unlikely to secure the alternative financing required to complete the merger by December 31, 2008 and that consequently the merger would not close. Mr. Amoroso informed the representative of Qatalyst that he would convey his comments to the Foundry board of directors.

 

On October 23, 2008, representatives of Qatalyst, Cooley Godward Kronish and Brocade, on the one hand, and various members of Foundry’s management and board of directors as well as representatives of Merrill Lynch and Heller Ehrman, on the other hand, discussed how to proceed with the transaction in light of the pending special meeting of Foundry stockholders on October 24, 2008 and in light of Brocade’s communication of its belief that a Financing Failure was highly likely notwithstanding its diligent efforts to obtain financing, including financing from sources other than the agents. Brocade asked whether Foundry had considered the ramifications of proceeding with its October 24, 2008 stockholder meeting, which Foundry understood to be a request from Brocade that Foundry delay its stockholder vote on the merger agreement to allow the parties time to determine whether there was a basis for discussions on a possible restructuring of the transaction in light of Brocade’s financing issues. Mr. Grewal also contacted Mr. Johnson to encourage Foundry to consider the ramifications of proceeding with its October 24, 2008 stockholder meeting, which Foundry understood to be another request from Brocade that Foundry delay its stockholder vote, to allow time for further discussion, noting that he believed a Financing Failure was highly likely to occur and that, due to the probable lack of availability of alternative financing, Brocade would not be in a position to complete the merger on its original terms.

 

On the same day, the Foundry board of directors held a meeting attended by members of Foundry’s senior management and representatives of Merrill Lynch, Heller Ehrman, DLA Piper and Morris, Nichols, Arsht & Tunnell LLP, or Morris Nichols, legal counsel to Foundry, to discuss a possible adjournment of the scheduled special meeting of Foundry stockholders. At this meeting, Mr. Amoroso described his October 22, 2008

conversation with the representative of Qatalyst to the other directors and Mr. Johnson described his October 23, 2008 conversation with Mr. Grewal. The Foundry board of directors held a lengthy discussion and considered possible scenarios that might transpire as a result of Brocade’s request, including going forward with the special meeting, possible litigation with Brocade to enforce Brocade’s obligation to complete the merger on its original terms or seeking damages, and the possibility that Brocade might request that Foundry amend the merger agreement based on Brocade’s financing situation. At the conclusion of the Board meeting, the Foundry board of directors instructed Heller Ehrman to contact Cooley Godward Kronish to request additional information for the Foundry board of directors to consider in further evaluating whether to adjourn its October 24, 2008 special meeting and asked that Mr. Amoroso contact a representative of Qatalyst to make a similar request. The requested information included a general summary of (1) the reasons for Brocade’s desire for the delayed stockholder meeting, (2) the likely framework for any proposal that might be forthcoming from Brocade regarding a restructured transaction, and (3) the likely near term schedule for the discussions, and included a request for assurances from Brocade that Foundry’s agreement to adjourn the stockholder meeting would not constitute a breach of the merger agreement.

 

Heller Ehrman sent the request to Cooley Godward Kronish on the evening of October 23, 2008. Mr. Amoroso also spoke with a representative of Qatalyst by telephone that evening. The Qatalyst representative again informed Mr. Amoroso that Brocade would not draw on the bridge financing under the agents’ interpretation of the terms of the financing commitment letter. The Qatalyst representative further asserted Brocade’s belief that the difference of opinion with the agents presented circumstances that were highly likely to result in a Financing Failure, that Brocade was continuing to pursue alternative financing but that it appeared highly unlikely that Brocade would be able to secure alternative financing prior to December 31, 2008, and that, if unsuccessful, Brocade would not be in a position to complete the merger on its original terms by December 31, 2008. During his conversation with the representative of Qatalyst, Mr. Amoroso conveyed Foundry’s position that Foundry did not view Brocade’s reason for not proceeding with the bridge financing as a Financing Failure and that Foundry expected Brocade to comply with its obligations under the merger agreement and the financing commitment letter. The representative of Qatalyst replied that Brocade was complying with and would continue to comply with its obligations under the merger agreement, but was not obligated to take financing under terms that were worse than it believed it agreed upon in the financing commitment letter, and conveyed to Mr. Amoroso Brocade’s request that Foundry consider a potential restructuring of the transaction terms to avoid the merger not being completed by December 31, 2008. Mr. Amoroso then asked whether Brocade was making a proposal regarding a potential restructuring. The representative of Qatalyst informed Mr. Amoroso that Brocade had been totally focused on completing the financing and had not yet formulated such a proposal, but if Foundry would adjourn the special meeting, Brocade and Qatalyst would work diligently throughout the weekend to be in a position to present Foundry with a proposal for a restructured transaction on October 27, 2008. Later that evening, Cooley Godward Kronish responded to Heller Ehrman’s request for additional information.

 

On the morning of October 24, 2008, Brocade informed Foundry that it believed that a difference of opinion continued to exist with the agents and that a Financing Failure was increasingly likely. Brocade further stated that it wanted to go forward with a merger with Foundry but needed time to consider and discuss possible alternative terms with Foundry. Brocade again requested that Foundry further consider the ramifications of proceeding with the October 24, 2008 stockholder meeting, which Foundry understood to be another request from Brocade that Foundry delay its stockholder vote, and stated it would work constructively and collaboratively on a restructuring of the merger if Foundry would postpone the special meeting.

 

Following these discussions with Brocade, on the morning of October 24, 2008 and prior to the scheduled special meeting of stockholders, the Foundry board of directors held a meeting that was attended by members of Foundry’s senior management and representatives of Merrill Lynch, Heller Ehrman, DLA Piper and Morris Nichols to further consider whether to adjourn the meeting. At that meeting, the Foundry directors considered, among other things, the information provided regarding the current status of the Brocade financing, the likely effects on Foundry and its stockholders if the merger were not completed, the deterioration of the economy and the credit markets since the July 21, 2008 announcement of the merger, the possibility that Brocade would request that Foundry amend the merger agreement as well as alternative courses of action including possible litigation against Brocade regarding the merger agreement and the financing. At the conclusion of the meeting, the board of directors determined that it was in the best interests of Foundry’s stockholders to delay the stockholder vote on the merger agreement because

the delay would leave open the possibility of restructuring the transaction with Brocade and providing Foundry’s stockholders the opportunity to vote on a restructured transaction. Prior to delaying the stockholder vote, however, the board required that Foundry receive certain assurances from Brocade regarding the parameters and process of any such discussions.

 

After the October 24, 2008 board meeting, Foundry obtained the assurances it required from Brocade as a condition to continuing discussions with Brocade and adjourning the October 24, 2008 stockholder meeting, including confirmation that such adjournment would not in any manner constitute a breach of Foundry’s obligations under the merger agreement, acknowledgement from Brocade that the adjournment would not constitute a waiver by Foundry of any of its rights or remedies under the merger agreement and that Brocade’s obligations under the merger agreement continued unchanged by the adjournment.

 

Later that day, Foundry convened the special meeting of its stockholders and adjourned it until Wednesday, October 29, 2008. Following this action, a press release announcing the adjournment was disseminated and a meeting was arranged between Foundry and Brocade and their financial advisors for Monday, October 27, 2008.

 

On October 26, 2008, Mr. Amoroso, certain members of Foundry’s senior management team and Foundry’s financial advisors met to consider the possible terms of a restructuring of the Merger. The participants determined that a possible restructuring would be to reduce the cash paid in the transaction by an amount which represented the present value of the difference in cost to Brocade of the agents’ interpretation of the interest rate provisions of the financing commitment letter (as represented by Brocade to Foundry) compared to Brocade’s interpretation of those terms. Mr. Amoroso authorized Mr. Fairfax and Mr. Iburg and Foundry’s financial advisors to present this proposal to Brocade during a meeting scheduled for October 27, 2008 as one the Foundry board of directors may consider.

 

On October 27, 2008, Mr. Fairfax and Mr. Iburg of Foundry met with Mr. Deranleau and Mr. Grewal of Brocade along with each company’s respective financial advisors to discuss a possible restructuring of the transaction. Brocade repeated its position that it would not be prepared to draw on the bridge financing under the agents’ interpretation of the terms of the financing commitment letter. Brocade again asserted its belief that the difference of opinion with the agents presented circumstances that would result in a Financing Failure. Brocade then proposed that the terms of the merger agreement be amended such that Brocade would pay $15.00 in cash for each share of Foundry common stock, with no Brocade common stock as part of the merger consideration. The Foundry representatives responded that the Foundry board of directors may consider a modification to the merger agreement to reduce the cash paid in the transaction by an amount which represented the present value of the difference in cost to Brocade of the agents’ interpretation of the interest rate provisions of the financing commitment letter (as represented by Brocade to Foundry) compared to Brocade’s interpretation of those terms, an amount Foundry estimated was between $.35 and $.40 per share of Foundry common stock. A Brocade representative then stated that Brocade did not intend to access the bridge financing under the terms as interpreted by the agents regardless of whether Foundry offered to reduce the purchase price by the amount of interest represented by the difference between Brocade’s interpretation of the terms of the financing commitment letter and that of the agents. The Foundry representatives understood there was as much as a $400 million gap in financing between the amount of cash Brocade required to complete the merger on its original terms and the amount of cash that would be available to Brocade if a Financing Failure were to occur with respect to the bridge financing and Brocade was unable to secure alternative financing. The meeting then ended.

 

Promptly thereafter, a representative of Qatalyst called Mr. Amoroso and they discussed the gap in financing that had been described at the meeting. Mr. Amoroso stated that Foundry might consider a reduction in price to address the amount of cash Foundry believed Brocade needed, approximately $250 million or approximately $1.67 per Foundry share, to complete the merger and that Foundry and Merrill Lynch would be willing to discuss this approach with Brocade and Qatalyst. The representative of Qatalyst asked Mr. Amoroso to have Foundry and Merrill Lynch do so.

 

In a meeting held shortly thereafter among representatives of Foundry, Brocade, Qatalyst and Merrill Lynch, representatives of Foundry discussed the amount of the financing gap created by Brocade’s intention not to access the bridge financing on terms that it believed to be inconsistent with the financing commitment letter and its inability to obtain alternative financing. Foundry estimated that the amount would be approximately $250 million,

whereas Brocade and its representatives indicated that the amount would be at least $350 million and possibly significantly higher.

 

The Foundry board of directors convened a meeting on the evening of October 27, 2008. In attendance at the meeting were the full board of directors, members of Foundry’s senior management and representatives of Merrill Lynch, White & Lee, legal counsel to Foundry, and DLA Piper. At the meeting, the developments of that day’s meetings were discussed. The Foundry board of directors considered Brocade’s proposal for a restructured transaction as well as alternative courses, including litigation with Brocade to enforce Foundry’s rights under the merger agreement, proceeding as a stand alone company in the event the merger failed to be completed and contacting other potential acquirors in the event the merger failed to be completed. The board also discussed the deterioration in the economy and of the stock and credit markets since the July 21, 2008 announcement of the merger.

 

Later that evening, Mr. Amoroso also discussed the status of the transaction with David House, Brocade’s chairman of the board. Discussions regarding the financing gap created by Brocade’s intention not to access the bridge financing on terms that it believed to be inconsistent with the financing commitment letter and its inability to obtain alternative financing continued through the evening.

 

On the morning of October 28, 2008, the Foundry board of directors met and was briefed on the progress of the discussions from the prior day. In attendance at the meeting were the full Board of Directors, members of Foundry’s senior management and representatives of Merrill Lynch, White & Lee and DLA Piper. After considering Mr. Amoroso’s discussions with the representative of Qatalyst and further discussions with Brocade, the Foundry board of directors authorized Foundry management to reject Brocade’s offer of $15.00 per share and to send a proposed term sheet to Brocade providing for an amendment to the merger agreement pursuant to which, among other things, Brocade would purchase each share of Foundry’s common stock for $16.83 in cash together with .0907 of a share of Brocade, the reverse termination fee payable by Brocade in certain circumstances would be increased from $85 million to $185 million, and that Foundry would have the opportunity to contact potential acquirors of the company for a period of time after the announcement of the restructured transaction.

 

The Foundry board of directors met again during the evening of October 28, 2008. In attendance at the meeting were the full Board of Directors, members of Foundry’s senior management and representatives of Merrill Lynch, White & Lee and DLA Piper. During this meeting, Mr. Deranleau, the Brocade CFO, also was asked to briefly attend to provide the Foundry board of directors with an assessment of Brocade’s cash position and cash requirements to complete a transaction. In his analysis, Mr. Deranleau assumed a cash price of $16.50 per Foundry share. He also discussed Brocade’s efforts to secure alternative financing, including a summary of Brocade’s discussions to that point with private equity investors and with Brocade’s OEM strategic partners.

 

During late evening of October 28, 2008, Brocade made a counter-proposal of $16.50 in cash for each share of Foundry common stock, and an increase in the reverse termination fee payable by Brocade under certain circumstances to $125 million. In addition, Foundry would have the right to dividend to its stockholders prior to closing up to $50 million of the proceeds of the sale of Foundry’s auction rate securities. On October 29, 2008, Brocade sent Foundry a revised term sheet setting forth certain terms and conditions of this counter-proposal.

 

On October 29, 2008, Foundry’s board of directors met with representatives of Merrill Lynch, White & Lee and DLA Piper to discuss the revised proposal of $16.50 in cash per Foundry share, together with the proceeds of the sale of Foundry’s auction rate securities, up to $50 million. Discussions included the request for a “go shop” period, confirmations from Brocade’s lenders indicating their approval of the proposed amendment to the merger agreement, and an increase in the reverse termination fee. As part of the meeting, representatives of Merrill Lynch gave a summary of the general stock market conditions, including specifically the performance of Brocade, Foundry and their peer companies. Representatives of Merrill Lynch also gave a summary of general credit market conditions, focusing on the market for acquisition financing. White & Lee and DLA Piper discussed with the board the legal standards that would be applied to a decision by the board to amend the terms of the merger agreement. After a lengthy discussion, the Foundry board of directors determined it would communicate to Brocade that Foundry would agree in principle to a restructured transaction pursuant to which Brocade would purchase each share of Foundry common stock for $16.50 per share and that in certain circumstances Foundry would be permitted to sell its portfolio of auction rate securities with the proceeds of up to $50 million to be distributed to Foundry

stockholders prior to the completion of the merger, and subject to certain terms and conditions, including an increase in the reverse termination fee payable in certain circumstances to $125 million and a go-shop provision allowing Foundry and its representatives to solicit interest in the company for two weeks following the execution of the amendment. Mr. Amoroso communicated this proposal to a representative of Qatalyst.

 

During the same meeting, the Board also discussed the announced acquisition of its financial advisor, Merrill Lynch, by Bank of America (an affiliate of Brocade’s financial advisor) that had occurred following the announcement of the merger on July 21, 2008. The Board determined that it would retain another investment banking firm to provide its opinion as to the fairness from a financial standpoint of the revised merger consideration to Foundry’s stockholders.

 

The Foundry board of directors convened two additional meetings during the course of the day on October 29, 2008 to obtain updates on the status of the discussions regarding the proposed amendment to the merger agreement.

 

During the afternoon of October 29, 2008, after extended discussion, Foundry and Brocade reached an agreement in principle on the proposed amendment to the merger agreement pursuant to which Brocade would acquire each share of Foundry common stock for $16.50 in cash per share, Foundry would be permitted to sell its portfolio of auction rate securities with the proceeds of up to $50 million to be distributed to Foundry’s stockholders prior to the completing the merger, and certain other terms including an increase in the reverse termination fee to $125 million and a go-shop provision for two weeks following the amendment. As a result of the agreement in principle, the October 29, 2008 Foundry special stockholder meeting to vote on the merger was further adjourned to November 7, 2008 to provide Foundry and Brocade the time to negotiate the terms of a definitive amendment to the merger agreement reflecting the agreement in principle. Foundry issued a press release on the same day regarding the adjournment of the stockholders meeting and the agreement in principle.

 

On October 30, 2008 Foundry senior management contacted three investment banking firms of international reputation to discuss the timing of obtaining a second fairness opinion in the event that Brocade and Foundry reached a definitive agreement to amend the merger Agreement. Following various discussions with each of the three firms on November 2, 2008, Foundry engaged Houlihan Lokey Howard & Zukin Financial Advisors, Inc. to provide the board of directors with a second fairness opinion should it become required.

 

On October 30, 2008, Mr. Fairfax and representatives of Merrill Lynch and White & Lee held a conference call with representatives of Brocade and Cooley Godward Kronish to discuss Brocade’s next steps in obtaining the appropriate confirmations from the agents and lending banks regarding the proposed amendment to the merger agreement.

 

On October 31, 2008, Foundry issued a press release announcing that in the event that a definitive agreement was reached between Foundry and Brocade regarding the new agreement in principle, the Foundry stockholder meeting scheduled for November 7, 2008 would be further adjourned and additional information regarding the restructured transaction would be distributed to Foundry’s stockholders for their consideration. Foundry further announced that in addition to the $16.50 per share Foundry stockholders would receive in the restructured transaction, the agreement in principle provides that in certain circumstances Foundry stockholders could receive the proceeds of the sale of Foundry’s portfolio of auction rate securities, up to an amount of $50 million in the aggregate if Foundry is able to liquidate its portfolio of these securities prior to the completion of the merger.

 

On October 31, 2008, Cooley Godward Kronish delivered to White & Lee a first draft of the amendment to the merger agreement.

 

Between October 31, 2008 and November 7, 2008, representatives of White & Lee and Cooley Godward Kronish negotiated the terms of the amendment to the merger agreement on behalf of Foundry and Brocade, respectively. The parties also discussed the form of confirmation from the agents relating to the amendment being sought by Foundry as a condition to proceeding with the restructured transaction.

 

On each of November 2, 2008 and November 4, 2008, Foundry’s board of directors and members of Foundry’s senior management held a telephonic meeting with representatives of Merrill Lynch, White & Lee and DLA Piper to discuss the status of the proposed amendment to the merger agreement and the requested confirmations from the agents sought by the board.

On November 6, 2008, Foundry’s board of directors held a meeting attended by members of Foundry’s senior management and representatives of Merrill Lynch, Houlihan Lokey, White & Lee and DLA Piper to discuss the status of the proposed amendment to the merger Agreement and the requested confirmations from the agents sought by the board. Following the discussion, each of Merrill Lynch and Houlihan Lokey presented their analysis with respect to the valuation of the common stock of Foundry, including information regarding recent transactions in the industry, premiums paid over trading price in such transactions, public market valuations of comparable companies and discounted cash flow analyses. The board then engaged in a detailed review of the terms of the amendment to the merger agreement and, thereafter, White & Lee and DLA Piper provided legal advice to the Foundry board of directors regarding the amendment, the process leading up to the amendment and the legal standards that would be applied in reviewing a decision by the board to proceed with the amended transaction. Merrill Lynch and Houlihan Lokey then answered questions raised by members of the Foundry board of directors regarding the revised terms of the transaction, the status of Brocade’s financing efforts, and their respective financial analyses.

 

On November 7, 2008, a meeting of the Foundry board of directors was convened with members of Foundry’s senior management and representatives of Merrill Lynch, Houlihan Lokey, White & Lee and DLA Piper to discuss the status of the discussions surrounding the amendment.

 

Later in the day on November 7, 2008, the Foundry board of directors reconvened and further reviewed the terms of the amendment in a discussion led by representatives of White & Lee and DLA Piper. Thereafter, each of Merrill Lynch and Houlihan Lokey reconfirmed their respective financial analyses related to the proposed revised transaction and delivered their respective oral opinions, which was subsequently confirmed in writing, that, based upon and subject to the various considerations described in its respective written opinion, the consideration to be received by the holders of Foundry common stock pursuant to the amended merger agreement was fair, as of November 7, 2008, from a financial point of view to the holders of such shares, other than Brocade and its affiliates. The Foundry board of directors then received legal advice from White & Lee and DLA Piper regarding the legal standards that would be applied in reviewing a decision by the board to proceed with the amended transaction. The Foundry board of directors then engaged in a full discussion of the terms of the proposed amendment of the merger agreement, the factors described in the section entitled “Proposal No. 1 — The Merger — Consideration of the Merger by the Foundry Board of Directors” beginning on page 30 of this revised proxy statement, and the analyses and fairness opinions of each of Merrill Lynch and Houlihan Lokey. The board of directors of Foundry unanimously determined that the merger, on its revised terms, and the amended merger agreement were advisable and fair to, and in the best interests of, Foundry and its stockholders. Accordingly, the Foundry board of directors unanimously approved the proposed revised transaction and amendment to the merger agreement.

 

The definitive amendment to the merger agreement was executed and delivered by representatives of Brocade, Foundry and Falcon Acquisition Sub, Inc. as of November 7, 2008. In addition, each of the members of the Foundry board of directors executed and delivered amendments to their previously executed voting agreements in which they indicated their support as stockholders of the revised terms of the merger.

 

The revised transaction was publicly announced on the afternoon of November 7, 2008 and the previously scheduled special meeting of Foundry stockholders to be reconvened on November 7, 2008 was cancelled, to be rescheduled for a later date.

 

In reaching its decision to approve the amended merger agreement and based upon the developments described more fully in “Background of the Merger” beginning on page 17 of this revised proxy statement, the board of directors identified a number of reasons for and potential benefits to us and our stockholders of, the merger and the amended merger agreement, including, but not limited to, the following:

 

 

 

 

The board of directors also identified and considered a number of uncertainties, risks and potentially negative factors in its deliberations concerning the merger and the amended merger agreement, including:

 

 

 

After careful and due consideration, the board of directors unanimously concluded that overall, the risks, uncertainties, restrictions and potentially negative factors associated with entering into the amended merger agreement were outweighed by the potential benefits to our stockholders of the merger, and that many of these risks could be managed or mitigated prior to the merger by us or were unlikely to have a material adverse effect on the merger.

 

The foregoing information and factors considered by the board of directors are not intended to be exhaustive but are believed to include all of the material factors considered by the board of directors. In view of the variety of factors and the amount of information considered, the board of directors did not find it practicable to, and did not, quantify, rank or otherwise assign relative weights to the specific factors it considered in approving the merger and the amended merger agreement. In addition, individual members of the board of directors may have given different weights to different factors. The board of directors considered all of these factors as a whole, and overall considered them to be favorable to and to support its determination.

 

After careful and due consideration, the board of directors determined that the merger and the amended merger agreement are advisable and fair to, and in the best interests of, Foundry and our stockholders, and unanimously approved the merger and the merger agreement. The board of directors unanimously recommends that stockholders vote “FOR” adoption of the amended merger agreement.

 

In considering such recommendation, stockholders should be aware that some of our directors and executive officers have interests in the merger that are different from, or in addition to, those of our stockholders generally. See the section entitled “Proposal No. 1 — The Merger — Interests of Our Directors and Executive Officers in the Merger” beginning on page 49 of this revised proxy statement.

 

If your submitted green proxy card does not specify how you want to vote your shares, your shares will be voted “FOR” the proposal to adopt the amended merger agreement.

 

We provide very limited information to the public related to future financial performance. As a matter of course, we do not provide specific or detailed quantitative guidance relating to earnings or revenue performance for any future period. In connection with the preparation of the opinions of Merrill Lynch and Houlihan Lokey described below under the headings “Opinion of Merrill Lynch” and “Opinion of Houlihan Lokey” on page 36 and 42, respectively, of this revised proxy statement, we provided Merrill Lynch and Houlihan Lokey with non-public financial projections for the calendar years ending December 31, 2008, 2009 and 2010, which we refer to as the “Foundry projections.” The Foundry projections do not give effect to the merger. The Foundry projections are included in this revised proxy statement only because this information was provided to Merrill Lynch and Houlihan Lokey for use in their respective fairness opinions and are included in this revised proxy statement on that basis. The Foundry projections were not prepared with a view to public disclosure or compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts. The Foundry projections do not purport to present operations in accordance with generally accepted accounting principles, which we refer to as “GAAP,” and our independent auditors have not examined or

compiled the Foundry projections and accordingly assume no responsibility for them. The internal financial forecasts (upon which the Foundry projections were based in part) are, in general, prepared solely for internal use and capital budgeting and other management decisions and are subjective in many respects and thus susceptible to interpretations and periodic revision based on actual experience and business developments. In addition, the Foundry projections do not reflect the effect of the transactions contemplated by the amended merger agreement.

 

The Foundry projections also reflect numerous assumptions made by our management including assumptions with respect to the general business environment, IT spending, macroeconomic, market and financial conditions and other matters including effective tax rates, interest rates and anticipated market growth rates, all of which are difficult to predict and many of which are beyond our control. Accordingly, there can be no assurance that the assumptions made in preparing the Foundry projections will prove accurate. In addition, our business is subject to numerous risks and uncertainties, many of which are listed in our Quarterly Report on Form 10-Q for the period ending September 30, 2008 under the heading “Risk Factors” on file with the SEC. There will be differences between actual and projected results, and actual results may be materially greater or less than those contained in the Foundry projections. The inclusion of the Foundry projections in this revised proxy statement should not be regarded as an indication that we or our representatives considered or consider the Foundry projections to be a reliable prediction of future events, and the Foundry projections should not be relied upon as such.

 

We believe that the Foundry projections were prepared in good faith at the time they were made; however, you should not assume that the Foundry projections continue to be accurate or reflective of our management’s current view. The Foundry projections were disclosed to Merrill Lynch and Houlihan Lokey to use in preparation of their respective fairness opinions, and are included in this revised proxy statement on that basis. Neither we nor any of our representatives have made or make any representation to any person regarding our ultimate performance compared to the information contained in the Foundry projections.

 

WE DO NOT INTEND TO UPDATE OR OTHERWISE REVISE THE FOUNDRY PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING SINCE THEIR PREPARATION OR TO REFLECT THE OCCURRENCE OF SUBSEQUENT EVENTS EVEN IN THE EVENT THAT ANY OR ALL OF THE UNDERLYING ASSUMPTIONS ARE NO LONGER APPROPRIATE.

 

The Foundry projections set forth below were initially prepared in October 2008 and updated in early November 2008. Such Foundry projections were provided to our financial advisors on November 5, 2008 and to the board of directors on November 6, 2008.

 

 

Reconciliation of GAAP to Non-GAAP Operating Measures
Projected Income From Operations, Net Income and Diluted Net Income Per Share

 

The following tables reconcile our projected income from operations, net income and diluted net income per share. Our projected non-GAAP income from operations excludes acquisition-related legal expense and stock-based compensation expense. Our projected non-GAAP net income and non-GAAP diluted net income per share consists of non-GAAP income from operations and non-GAAP net income and non-GAAP diluted net income per

share, excluding other-than-temporary impairment charges on investments, and are adjusted for the tax effect related to those items that have been excluded from the projected non-GAAP results.

 

The Foundry projections include non-GAAP operating income, non-GAAP net income and non-GAAP diluted net income per share data. These non-GAAP measures are not in accordance with, or an alternative to, GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the items associated with our results of operations as determined in accordance with GAAP and these measures should only be used to evaluate our projected results of operations in conjunction with the corresponding GAAP measures.

 

We use non-GAAP operating income, non-GAAP net income and non-GAAP net income per share for internal planning purposes, to assess the results of its business on an ongoing basis, to determine management compensation, and for the convenience of analysts and investors. These measures are not in accordance with, or an alternative to, similarly-named measures under GAAP. The measures are intended to supplement GAAP financial information, and may be different from non-GAAP financial measures used by other companies. We believe these measures provide useful information to its management, board of directors and investors regarding our performance when used in conjunction with GAAP information. We believe it is useful to investors to receive information about how items in the statement of operations are affected by stock-based compensation, the costs related to the pending acquisition by Brocade and its associated litigation, other-than-temporary impairment charges on investments and the related income tax effect of these items. Stock-based compensation expense consists of expenses recorded under SFAS 123(R), “Share-Based Payment,” in connection with awards granted under our equity incentive plans and shares issued pursuant to our employee stock purchase plan. We exclude stock-based compensation expense from non-GAAP financial measures because it is a non-cash measurement that does not reflect ours ongoing business and because we believe that investors want to understand the impact on Foundry of the adoption of SFAS 123(R). We believe that the provision of non-GAAP information that excludes stock-based compensation improves the ability of investors to compare its period-over-period operating results, as there is significant variability and unpredictability across companies with respect to this expense. We also exclude costs related to the pending acquisition and its associated litigation because these expenses do not reflect our ongoing business and the exclusion of these expenses improves the ability of investors to compare its period-over-period operating results. We exclude other-than-temporary impairment charges on investments because these charges do not reflect our ongoing business and the exclusion of these charges improves the ability of investors to compare period-over-period operating results. However, investors should be aware that non-GAAP measures have inherent limitations and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP.

 

The foregoing items excluded from our projected non-GAAP operations are consistently excluded by our management for internal planning and forecasting purposes as well as employee compensation decisions.

 

 

 

We retained Merrill Lynch to act as our financial advisor with respect to the merger. In connection with that engagement, we requested that Merrill Lynch evaluate the fairness, from a financial point of view, of the consideration to be received by the holders of shares of our common stock, other than Brocade and its affiliates, pursuant to the amended merger agreement. At the meeting of the board of directors on November 7, 2008, Merrill Lynch rendered its oral opinion to the board of directors, which opinion was subsequently confirmed in writing, that as of November 7, 2008, based upon the assumptions made, matters considered and limits of such review, as set forth in its opinion, the consideration to be received by the holders of the shares of our common stock pursuant to the amended merger agreement was fair from a financial point of view to the holders of such shares, other than Brocade and its affiliates.

 

The full text of Merrill Lynch’s written opinion, which sets forth material information relating to such opinion, including the assumptions made, matters considered and qualifications and limitations on the scope of review undertaken by Merrill Lynch, is attached as Annex D and is incorporated into this document by reference in its entirety. This description of Merrill Lynch’s opinion is qualified in its entirety by reference to, and should be reviewed together with, the full text of the opinion. You are urged to read the opinion and consider it carefully.

 

Merrill Lynch’s opinion is addressed to the board of directors and addresses only the fairness, from a financial point of view, of the consideration to be received by holders of shares of our common stock, other than Brocade and its affiliates, pursuant to the amended merger agreement, as of November 7, 2008. The opinion is for the use and benefit of the board of directors, does not address the merits of our underlying decision to amend the merger agreement or engage in the merger and does not constitute a recommendation to any stockholder as to how such stockholder should vote on the merger or any matter related thereto. In addition, we have not asked Merrill Lynch to address, and the opinion does not address, the fairness to, or any other consideration of, the holders of any class of our securities, creditors or other constituencies, other than the holders of the shares of our common stock. In rendering the opinion, Merrill Lynch expressed no view or opinion with respect to the fairness (financial or otherwise) of the amount or nature or any other aspect of any compensation payable to or to be received by any officers, directors, or employees of any parties to the merger, or any class of such persons, relative to the consideration to be received by the holders of the shares of our common stock pursuant to the amended merger agreement.

 

In arriving at its opinion, Merrill Lynch, among other things:

 

 

 

In preparing its opinion, Merrill Lynch assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to it, discussed with or reviewed by or for it, or that was publicly available, and Merrill Lynch did not assume any responsibility for independently verifying such information or undertaking an independent evaluation or appraisal of any of our assets or liabilities, nor was Merrill Lynch furnished with any such evaluation or appraisal. Merrill Lynch did not evaluate our solvency or fair value under any state or federal laws relating to bankruptcy, insolvency or similar matters. In addition, Merrill Lynch did not assume any obligation to conduct any physical inspection of our properties or facilities. With respect to the financial forecast information furnished to or discussed with Merrill Lynch by us, Merrill Lynch assumed that such information was reasonably prepared and reflected the best currently available estimates and judgment of our management as to our expected future financial performance. Merrill Lynch also assumed that the final form of the amendment to the merger agreement would be substantially similar to the last draft Merrill Lynch reviewed.

 

Merrill Lynch’s opinion was necessarily based upon market, economic and other conditions as they existed and could be evaluated on the date of the opinion, and upon the information made available to Merrill Lynch as of the date of the opinion.

 

Merrill Lynch’s Financial Analyses

 

At the meeting of the board of directors held on November 7, 2008, Merrill Lynch presented certain financial analyses accompanied by delivery of its written materials in connection with the delivery of its oral opinion at that meeting and its subsequent written opinion. The following is a summary of the material financial analyses performed by Merrill Lynch in arriving at its opinion.

 

Unaffected Research Analyst Stock Price Targets.   Merrill Lynch reviewed fourteen research analyst price targets for us that were publicly available on July 21, 2008 (i.e. prior to announcement of a transaction with Brocade and thus unaffected by such announcement) and observed that the range of the research analyst share price targets was $13.00 to $17.00, excluding the highest and lowest observations as outliers. Discounted back one year at a 12.0% discount rate, which is the midpoint of the range of discount rates used for the discounted cash flow analysis described below, the range was $11.61 to $15.18. Merrill Lynch compared this range to the $16.50 per share consideration to be received by holders of our common stock, and observed that this consideration was above the range of research analyst share price targets after discounting the price targets back one year as described above.

Comparable Public Trading Multiples Analysis.   Merrill Lynch compared selected financial and trading data for us with similar data for eight publicly traded networking companies that Merrill Lynch deemed to be relevant to its analysis of us. These companies were:

 

 

For each of the companies identified above, Merrill Lynch calculated various valuation multiples, including:

 

 

Based upon its analysis of the full ranges of multiples calculated for the companies identified above and its consideration of various factors and judgments about current market conditions and the characteristics of such companies (including qualitative factors and judgments involving non-mathematical considerations), Merrill Lynch determined relevant ranges of multiples for such companies (which relevant ranges were narrower than the full ranges of such multiples). The relevant ranges of such multiples, as determined by Merrill Lynch, are set forth in the table below.

 

For purposes of its analysis, Merrill Lynch calculated the enterprise value as the market capitalization plus total debt, minority interests and preferred stock, less cash and cash equivalents, and Merrill Lynch calculated the estimated cash EPS as estimated EPS under generally accepted accounting principles excluding amortization of intangible property and stock-based compensation. To calculate these trading multiples, Merrill Lynch used EBITDA and EPS projections reported by independent research analyst reports and First Call estimates and closing trading prices of equity securities of each identified company on November 6, 2008. First Call is an online aggregator of independent research analyst estimates managed by Thomson Financial. For us, Merrill Lynch used EBITDA and EPS projections based, separately, on estimates reported by research analysts and on internal management projections.

 

 

Merrill Lynch observed that the implied multiples being paid for us were above the range of the comparable public trading multiples projected for calendar year 2009 based on estimated EBITDA and cash EPS for the research analyst estimates and estimated cash EPS for the management estimates for us.

 

It should be noted that no company used in the above analysis is identical to us. In evaluating companies identified by Merrill Lynch as comparable to us, Merrill Lynch made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond our control, such as the impact of competition on our business and the industry generally, industry growth and the absence of any material change in our financial condition and prospects or the industry or in the

financial markets in general. A complete analysis involves complex considerations and judgments concerning differences in financial and operating characteristics of the comparable companies and other factors that could affect the public trading values of such comparable companies.

 

Comparable Transaction Analysis.   Using publicly available research analyst estimates and other publicly available information, Merrill Lynch examined the following precedent transactions in the networking industry which Merrill Lynch deemed to be relevant.

 

 

For each of the transactions identified above, Merrill Lynch calculated various valuation multiples, including the ratio of enterprise value to the estimated EBITDA for the identified company for the next twelve months immediately following the period in which the relevant transaction was announced.

 

Based upon its analysis of the full ranges of multiples calculated for the transactions identified above and its consideration of various factors and judgments about current market conditions and the characteristics of such transactions and the companies involved in such transactions (including qualitative factors and judgments involving non-mathematical considerations), Merrill Lynch determined relevant ranges of multiples for such transactions (which relevant ranges were narrower than the full ranges of such multiples). The relevant range of such multiples, as determined by Merrill Lynch, was 10.0x to 14.0x, as set forth in the table below.

 

All calculations of multiples paid in the transactions identified above were based on public information available at the time of public announcement of such transactions. Merrill Lynch’s analysis did not take into account different market and other conditions during the period in which the selected transactions occurred.

 

The following table summarizes the derived relevant range of multiples for the transactions identified above and the ranges of share prices of our shares, implied by such multiples:

 

 

Merrill Lynch observed that the $16.50 per share to be received by holders of our common stock was within the range of the implied share prices of our shares derived from the application of the relevant transaction multiples to estimated EBITDA for us for the next twelve months based on research analyst estimates.

 

It should be noted that no transaction utilized in the analysis above is identical to the merger. A complete analysis involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved in these transactions and other factors that could affect the transaction multiples in such transactions to which the merger is being compared.

 

Premiums Paid Analysis.   Merrill Lynch reviewed premiums to stock price paid in recent technology transactions that it deemed to be relevant, including certain of the transactions identified above. Merrill Lynch reviewed the premiums paid in these transactions over the price of the target stock as reported by FactSet at various dates (or for various periods) before the approximate date on which the public became aware of the possibility of such transactions. FactSet is an online investment research and database service used by many financial institutions.

Based upon its analysis of the full ranges of premiums calculated for technology transactions having been announced since January 1, 2007 and its consideration of various factors and judgments about current market conditions and the characteristics of such transactions and the companies involved in such transactions (including qualitative factors and judgments involving non-mathematical considerations), Merrill Lynch determined relevant ranges of premiums for such transactions (which relevant ranges were narrower than the full ranges of such premiums). The relevant range of such premiums, as determined by Merrill Lynch, was 25.0% to 50.0%, as set forth in the table below.

 

To calculate an implied range of share prices for us derived from the relevant range of premiums described above, Merrill Lynch performed an adjusted share price analysis to account for the fact that, as a result of the announcement of the transaction with Brocade on July 21, 2008, our share price remained relatively unaffected by the general price declines in public equity markets between the announcement of the merger and November 6, 2008. Specifically, Merrill Lynch calculated a range of adjusted share prices for us after taking into account the changes since July 18, 2008 (i.e. one day prior to announcement of a merger with Brocade) in (i) the average of the NASDAQ Composite Index and share prices of an equally-weighted index of the eight publicly traded networking companies referenced above, (ii) enterprise valuations of the eight publicly traded networking companies referenced above, and (iii) the mean ratio of CY09 Enterprise Value to EBITDA for the eight publicly traded networking companies referenced above. The following table summarizes the derived range of premiums and the ranges of our share prices, implied by such range of premiums, using a range of adjusted share prices calculated by Merrill Lynch for us as of November 6, 2008:

 

 

Merrill Lynch observed that the $16.50 per share to be received by holders of our shares was within the range of the implied share prices of our shares derived from the spot premiums paid in the recent technology transactions deemed relevant by Merrill Lynch.

 

It should be noted that no transaction utilized in the analysis above is identical to the merger. A complete analysis involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved in these transactions and other factors that could affect the premiums paid in such transactions to which the merger is being compared.

 

Discounted Cash Flow Analysis.   Merrill Lynch performed a discounted cash flow analysis of us, without giving effect to the merger, for the period December 31, 2009 through December 31, 2013. Merrill Lynch calculated ranges of equity values per share based upon the sum of the discounted net present value of our five-year stream of projected unlevered free cash flows plus the discounted net present value of the terminal value based on a range of multiples applied to our projected 2014 EBITDA. In the Research Analyst Case, the projected unlevered free cash flows were based on independent Wall Street research analyst reports for calendar year 2009 and our management’s guidance for calendar years 2010 through 2013 as set forth in the table below. In the Management Case, the projected unlevered cash flows were based on the Foundry projections for calendar years 2009 and 2010 and our management’s guidance for calendar years 2011 through 2013 as set forth in the table below. For purposes of calculating the terminal value, Merrill Lynch used 2014 EBITDA of $221.8 million in the Research Analyst Case and $275.6 million in the Management Case, based on Foundry management’s guidance. In its discounted cash flow analysis, Merrill Lynch used discount rates ranging from 10.0% to 14.0% and terminal value multiples of estimated calendar year 2014 EBITDA ranging from 6.0x to 8.0x.

 

 

 

Using the discount rates and terminal value multiples of estimated calendar year 2014 EBITDA referred to above, Merrill Lynch calculated the following range of implied equity values per share:

 

 

Merrill Lynch observed that the $16.50 per share to be received by holders of our shares was:

 

 

The summary set forth above does not purport to be a complete description of the analyses performed by Merrill Lynch in arriving at its opinion. The fact that any specific analysis has been referred to in the summary above or in this revised proxy statement is not meant to indicate that such analysis was given more weight than any other analysis. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances; therefore, such an opinion is not readily susceptible to partial analysis or summary description. No company, business or transaction used in such analyses as a comparison is identical to us or the merger, nor is an evaluation of such analyses entirely mathematical. In arriving at its opinion, Merrill Lynch did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Merrill Lynch believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all factors and analyses, would, in the view of Merrill Lynch, create an incomplete and misleading view of the analyses underlying Merrill Lynch’s opinion.

 

Some of the summaries of financial analyses above include information presented in tabular format. In order to fully understand Merrill Lynch’s analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses. Considering the data described above without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Merrill Lynch’s analyses.

 

The analyses performed by Merrill Lynch include analyses based upon forecasts of future results, which results may be significantly more or less favorable than those upon which Merrill Lynch’s analyses were based. The analyses do not purport to be appraisals or to reflect the prices at which our shares may trade at any time after announcement of the merger. Because the analyses are inherently subject to uncertainty, being based upon numerous factors and events, including, without limitation, factors relating to general economic and competitive conditions beyond the control of the parties or their respective advisors, neither Merrill Lynch nor any other person assumes responsibility if future results or actual values are materially different from those contemplated above.

 

We retained Merrill Lynch based upon Merrill Lynch’s experience and expertise. Merrill Lynch is an internationally recognized investment banking firm with substantial experience in transactions similar to the merger. Merrill Lynch, as part of its investment banking business, is continually engaged in the valuation of businesses and securities in connection with business combinations and acquisitions and for other purposes.

 

Under the terms of the engagement letter between Merrill Lynch and us, Merrill Lynch agreed to provide financial advisory services to us, including an opinion as to the fairness from a financial point of view of the consideration to be received pursuant to the merger by holders of shares of our common stock, and we agreed to pay

Merrill Lynch a customary fee, which is contingent upon completion of the merger. In addition, we have has agreed to indemnify Merrill Lynch and its affiliates (and their respective directors, officers, agents, employees and controlling persons) against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Merrill Lynch’s engagement.

 

Merrill Lynch and its affiliates have, in the past, provided financial advisory and financing services to us and may continue to do so in the future and have received, and may receive, fees for the rendering of such services. In addition, in the ordinary course of its business, Merrill Lynch or its affiliates may actively trade shares of our common stock and its other securities, as well as securities of Brocade for its own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities.

 

On November 7, 2008, Houlihan Lokey rendered an oral opinion to the board of directors (which was confirmed in writing by delivery of Houlihan Lokey’s written opinion dated November 7, 2008), to the effect that, as of November 7, 2008 and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion, the consideration to be received by the holders of our common stock (other than Brocade, Falcon Acquisition Sub, Inc. and their respective affiliates) in the merger was fair, from a financial point of view, to the holders of our common stock (other than Brocade, Falcon Acquisition Sub, Inc. and their respective affiliates).

 

Houlihan Lokey’s opinion was directed to the board of directors and only addressed the fairness from a financial point of view of the consideration to be received by the holders of our common stock (other than Brocade, Falcon Acquisition Sub, Inc. and their respective affiliates) and does not address any other aspect or implication of the merger. The summary of Houlihan Lokey’s opinion in this revised proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex E to this revised proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion. We encourages our stockholders to carefully read the full text of Houlihan Lokey’s written opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this revised proxy statement are intended to be, and do not constitute advice or a recommendation to the board of directors or any stockholder as to how to act or vote with respect to the merger or related matters.

 

In arriving at its opinion, Houlihan Lokey, among other things:

 

 

conducted such other financial studies, analyses and inquiries and considered such other information and factors as Houlihan Lokey deemed appropriate. Houlihan Lokey has relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to Houlihan Lokey, discussed with or reviewed by Houlihan Lokey, or publicly available, and does not assume any responsibility with respect to such data, material and other information. In addition, our management has advised Houlihan Lokey, and Houlihan Lokey has assumed, that the financial projections reviewed by Houlihan Lokey have been reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management as to our future financial results and condition, and Houlihan Lokey expresses no opinion with respect to such projections or the assumptions on which they are based. With respect to the publicly available research analyst estimates for us referred to above, Houlihan Lokey has reviewed and discussed such estimates with our management and has assumed, with the consent of the board of directors, that such estimates represent reasonable estimates and judgments of our future financial results and condition, and Houlihan Lokey expresses no opinion with respect to such estimates or the assumptions on which they are based. Houlihan Lokey has relied upon and assumed, without independent verification, that there has been no material change in our business, assets, liabilities, financial condition, results of operations, cash flows or prospects since the date of the most recent financial statements provided to Houlihan Lokey, and that there is no information or any facts that would make any of the information reviewed by Houlihan Lokey incomplete or misleading.

 

Houlihan Lokey has relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the agreements identified in the first bullet above and all other related documents and instruments that are referred to therein are true and correct, (b) each party to all such agreements and such other related documents and instruments will fully and timely perform all of the covenants and agreements required to be performed by such party, (c) all conditions to the consummation of the merger will be satisfied without waiver thereof, and (d) the merger will be consummated in a timely manner in accordance with the terms described in the agreements and documents provided to Houlihan Lokey, without any amendments or modifications thereto. Houlihan Lokey also has relied upon and assumed, without independent verification, that (i) the merger will be consummated in a manner that complies in all respects with all applicable federal and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the merger will be obtained and that no delay, limitations, restrictions or conditions will be imposed or amendments, modifications or waivers made that would have an adverse effect on us. In addition, Houlihan Lokey has relied upon and assumed, without independent verification, that the final forms of any draft documents identified above will not differ in any material respect from the drafts of said documents.

 

Furthermore, in connection with its opinion, Houlihan Lokey has not been requested to make, and has not made, any physical inspection or independent appraisal or evaluation of any of our assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) or those of any other party, nor was Houlihan Lokey provided with any such appraisal or evaluation. Houlihan Lokey has undertaken no independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which we are or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which we are or may be a party or is or may be subject.

 

Houlihan Lokey has not been requested to, and did not, (a) initiate or participate in any discussions or negotiations with, or solicit any indications of interest from, third parties with respect to the merger, our assets, businesses or operations or any other party, or any alternatives to the merger, (b) negotiate the terms of the merger, or (c) advise the board of directors or any other party with respect to alternatives to the merger. Houlihan Lokey’s opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, the date thereof. Houlihan Lokey has not undertaken, and is under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring after the date thereof.

 

Houlihan Lokey has not been requested to opine as to, and its opinion does not express an opinion as to or otherwise address, among other things: (i) our underlying business decision or that of our security holders or any other party to proceed with or effect the merger, (ii) the terms of any arrangements, understandings, agreements or documents related to, or the form or any other portion or aspect of, the merger or otherwise (other than the merger consideration to the extent expressly specified therein), (iii) the fairness of any portion or aspect of the merger to the

holders of any class of our securities, our creditors or other constituencies, or to any other party, except as set forth in Houlihan Lokey’s opinion, (iv) the relative merits of the merger as compared to any alternative business strategies that might exist for us or any other party or the effect of any other merger in which we or any other party might engage, (v) the fairness of any portion or aspect of the merger to any one class or group of our or any other party’s security holders vis-à-vis any other class or group of our or such other party’s security holders (including, without limitation, the allocation of any consideration amongst or within such classes or groups of security holders), (vi) whether or not we, our security holders or any other party is receiving or paying reasonably equivalent value in the merger, (vii) our solvency, creditworthiness or fair value or that of any other participant in the merger under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or (vii) the fairness, financial or otherwise, of the amount or nature of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the merger, any class of such persons or any other party, relative to the merger consideration or otherwise. Furthermore, no opinion, counsel or interpretation is intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. It is assumed that such opinions, counsel or interpretations have been or will be obtained from the appropriate professional sources. Furthermore, Houlihan Lokey has relied, with the consent of the board of directors, on the assessment by us and our advisers, as to all legal, regulatory, accounting, insurance and tax matters with respect to us and the merger.

 

In preparing its opinion to the board of directors, Houlihan Lokey performed a variety of analyses, including those described below. The summary of Houlihan Lokey’s analyses is not a complete description of the analyses underlying Houlihan Lokey’s opinion. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytical methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither a fairness opinion nor its underlying analyses is readily susceptible to summary description. Houlihan Lokey arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis. Accordingly, Houlihan Lokey believes that its analyses must be considered as a whole and that selecting portions of its analyses or focusing on information presented in tabular format, without considering the analyses as a whole or the narrative description of the analyses, could create an incomplete view of the processes underlying Houlihan Lokey’s analyses. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques.

 

In performing its analyses, Houlihan Lokey considered general business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of the opinion. Houlihan Lokey’s analyses involved judgments and assumptions with regard to industry performance, general business, economic, regulatory, market and financial conditions and other matters, many of which are beyond our control, such as the impact of competition on our business and on the industry generally, industry growth and the absence of any adverse material change in our financial condition and prospects or the industry or in the markets generally. No company, transaction or business used in Houlihan Lokey’s analyses for comparative purposes is identical to us or the proposed merger and an evaluation of the results of those analyses is not entirely mathematical. Houlihan Lokey believes that mathematical derivations (such as determining average and median) of financial data are not by themselves meaningful and should be considered together with qualities, judgments and informed assumptions. The estimates contained in our analyses and the implied reference range values indicated by Houlihan Lokey’s analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond our control. Much of the information used in, and accordingly the results of, Houlihan Lokey’s analyses are inherently subject to substantial uncertainty.

 

Houlihan Lokey’s opinion was provided to the board of directors in connection with its consideration of the proposed merger and was only one of many factors considered by the board of directors in evaluating the proposed merger. Neither Houlihan Lokey’s opinion nor its analyses were determinative of the merger consideration or of the views of the board of directors or management with respect to the merger or the merger consideration. The type and

amount of consideration payable in the merger were determined through negotiation between us and Brocade, and the decision to enter into the merger was solely that of the board of directors.

 

The following is a summary of the material analyses reviewed by Houlihan Lokey with the board of directors in connection with Houlihan Lokey’s opinion rendered on November 7, 2008. The order of the analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the assumptions, qualifications and limitations affecting each analysis, could create an incomplete view of Houlihan Lokey’s analyses.

 

For purposes of its analyses, Houlihan Lokey reviewed a number of financial and operating metrics, including:

 

 

Unless the context indicates otherwise, enterprise values and equity values derived from the selected companies analysis described below were calculated using the closing price of our common stock and the common stock of the selected networking companies listed below as of October 29, 2008, and transaction values for the target companies derived from the selected transactions analysis described below were calculated as of the announcement date of the relevant transaction based on the estimated purchase prices paid in the selected transactions. Accordingly, this information may not reflect current or future market conditions. Estimates of 2008 and 2009 Revenue, EBITDA and Net Income for us were based on estimates provided by our management and certain publicly available research analyst estimates. Estimates of 2008 and 2009 Revenue, EBITDA and Net Income for the selected networking companies listed below were based on certain publicly available research analyst estimates for those networking companies.

 

Selected Companies Analysis.   Houlihan Lokey calculated multiples of enterprise value and equity value based on certain financial data for us and the following selected networking companies:

 

 

 

The calculated multiples included:

 

 

Houlihan Lokey applied the following selected multiple ranges derived from the selected companies to corresponding financial data for us using management estimates and certain publicly available research analyst estimates:

 

 

The selected companies analysis indicated the following implied per share reference range for us, as compared to the proposed per share merger consideration:

 

Wall Street Research Case:

 

 

Management Estimate Case:

 

Selected Transactions Analysis.   Houlihan Lokey calculated multiples of enterprise value and per share equity value based on the estimated purchase prices paid in the following selected publicly-announced networking industry transactions:

 

 

The calculated multiples included:

 

 

Houlihan Lokey applied the following selected multiple ranges derived from the selected transactions to corresponding financial data for us:

 

 

The selected transactions analysis indicated the following implied per share reference range for us, as compared to the proposed per share merger consideration:

 

Wall Street Research Case:

 

Management Estimate Case:

 

 

Premiums Paid Analysis.   Houlihan Lokey calculated per share equity value based on the estimated purchase prices paid in the following selected publicly-announced networking industry transactions:

 

 

The premiums paid analysis indicated the following implied per share reference range for us, as compared to the proposed per share merger consideration:

 

 

Discounted Cash Flow Analysis.   Houlihan Lokey also calculated the net present value of our unlevered, after-tax cash flows based on certain publicly available research analyst estimates with respect to our future financial performance, Foundry projections for the calendar years 2009 and 2010 and our management’s guidance for the calendar years 2011 through 2014, based on discussions with our management regarding the financial projections for such years prepared by Houlihan Lokey. In performing this analysis, Houlihan Lokey used discount rates ranging from 11.0% to 15.0% taking into account our estimated weighted average cost of capital and the range of implied perpetual growth rates selected by Houlihan Lokey. The discounted cash flow analysis indicated the following implied per share reference range for us, as compared to the proposed per share merger consideration:

 

Wall Street Research Case:

 

 

Management Estimate Case:

 

Certain Houlihan Lokey Projections.

 

 

Other Matters.   Houlihan Lokey was engaged by us to provide an opinion to the board of directors regarding the fairness from a financial point of view of the consideration to be received by the holders of our common stock (other than Brocade, Falcon Acquisition Sub, Inc. and their respective affiliates). We engaged Houlihan Lokey based on Houlihan Lokey’s experience and reputation. Houlihan Lokey is regularly engaged to render financial opinions in connection with mergers, acquisitions, divestitures, leveraged buyouts, recapitalizations, and for other purposes. Pursuant to the engagement letter, we will pay Houlihan Lokey a customary fee for its services, a portion of which became payable upon the execution of Houlihan Lokey’s engagement letter and the balance of which became payable upon the delivery of Houlihan Lokey’s opinion, regardless of the conclusion reached therein. No portion of Houlihan Lokey’s fee is contingent upon the successful completion of the merger. We have also agreed to reimburse Houlihan Lokey for certain expenses and to indemnify Houlihan Lokey, its affiliates and certain related parties against certain liabilities and expenses, including certain liabilities under the federal securities laws arising out of or relating to Houlihan Lokey’s engagement.

 

In the ordinary course of business, certain of Houlihan Lokey’s affiliates, as well as investment funds in which they may have financial interests, may acquire, hold or sell, long or short positions, or trade or otherwise effect transactions, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or investments in, Foundry, Brocade or any other party that may be involved in the merger and their respective affiliates or any currency or commodity that may be involved in the merger. In addition, Houlihan Lokey will receive a fee for rendering its opinion, which is not contingent upon the successful completion of the merger. We have agreed to reimburse certain of Houlihan Lokey’s expenses and to indemnify Houlihan Lokey and certain related parties for certain liabilities arising out of Houlihan Lokey’s engagement.

 

Houlihan Lokey and certain of its affiliates have in the past provided and are currently providing investment banking, financial advisory and other financial services to Brocade, for which Houlihan Lokey and such affiliates have received, and may receive, compensation. Houlihan Lokey and certain of its affiliates may provide investment banking, financial advisory and other financial services to us, Brocade and other participants in the merger and certain of their respective affiliates in the future, for which Houlihan Lokey and such affiliates may receive compensation.

 

Stockholders considering the recommendation of the board of directors regarding the merger should be aware that our directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of our stockholders generally. The board of directors was aware of and considered these potentially conflicting interests when they approved the amended merger agreement and the merger.

 

Stock-Based Awards

 

Pursuant to the terms of our 1999 Director’s Stock Option Plan, the vesting of all stock options granted under such plan to our directors will accelerate in full upon the completion of the merger. See the section entitled

“Proposal No. 1 — The Merger — Interests of Our Directors and Executive Officers in the Merger — Summary of Equity, Incentive and Other Awards of Our Directors and Executive Officers” beginning on page 53 of this revised proxy statement.

 

On July 31, 2008, the board of directors, upon the recommendation of the compensation committee, granted restricted stock units, referred to as the July 2008 RSUs, to certain of our executive officers, excluding our chief executive officer. The July 2008 RSUs vest ratably over three years, with one-third of the restricted stock units vesting on the first anniversary of the grant date, and one-third of the restricted stock units vesting on each of the second and third anniversaries of the grant date. The stock unit agreements evidencing the July 2008 RSUs provide that they will not be subject to the terms of any acceleration of vesting provisions contained in any agreement between the executive officer and us, including the severance agreements described below. However, the stock unit agreements evidencing the July 2008 RSUs also provide that if an executive officer’s employment is terminated by us or Brocade in connection with the merger prior to July 31, 2009, and such executive officer is a party to a severance agreement or any other agreement with us providing for acceleration of vesting in connection with the merger, then, upon such termination of employment, the vesting of a certain number of the July 2008 RSUs held by such executive officer will be accelerated, which number will be determined by multiplying (i) the total number of days elapsed from July 21, 2008 (the date of the merger agreement) through the date of such termination, divided by 365, by (ii) the number of July 2008 RSUs granted to such executive officer that would have vested under such stock unit agreement on July 31, 2009.

 

Pursuant to severance agreements with certain of our executive officers, excluding our chief executive officer, the vesting of stock options, restricted stock units and restricted stock awards held by the executive officer, other than any July 2008 RSUs, will accelerate in full upon the termination of the executive officer’s employment by us without “cause” or by the executive officer for “good reason” (as such terms are defined below) during the period commencing three months prior to the completion date of the merger and ending on the first anniversary of the merger. See the sections entitled “Proposal No. 1 — The Merger — Interests of Our Directors and Executive Officers in the Merger — Severance Agreements” beginning on page 50 of this revised proxy statement and “Proposal No. 1 — The Merger — Interests of Our Directors and Executive Officers in the Merger — Summary of Equity, Incentive and Other Awards of Our Directors and Executive Officers” beginning on page 53 of this revised proxy statement.

 

Pursuant to agreements executed on or about November 7, 2008 with our directors, officers and certain other employees of ours, such directors, officers and other employees have agreed that, prior to the earlier of the completion of the merger or the termination of the amended merger agreement, and subject to certain limited exceptions set forth therein, they will not exercise any of their stock-based awards for our common stock or sell any of our common stock owned by them.

 

Severance Agreements

 

Certain of our executive officers, excluding our chief executive officer, have entered into severance agreements with us. Generally, benefits under the severance agreements may be triggered if the executive officer’s employment is terminated by us without “cause” or is terminated by the executive officer for “good reason” (as such terms are defined below) during the period commencing three months prior to our change of control and ending on the first anniversary of the change of control. The severance agreements provide cash benefits equal to twelve months of base salary, payable in a lump sum. In addition, upon such termination of employment, except with respect to any July 2008 RSUs, the vesting of awards relating to common stock held by the executive officer will be accelerated in full and such executive officer will be entitled to reimbursement of his or her health, dental and vision benefits pursuant to the Consolidated Omnibus Budget Reconciliation Act, or COBRA, for a period of twelve months. Finally, financial assistance and other lesser benefits may be provided as well under the severance agreements. In the event that any severance or other benefits provided for in the severance agreement or otherwise payable to the executive officer would be subject to the excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, or the Code, the severance benefits pursuant to the terms of the severance agreements will be (i) paid in full or (ii) reduced to the maximum amount that would result in no portion of the severance benefits being subject to such excise tax, whichever of the foregoing amounts results in the receipt by the executive officer on an after-tax

basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code.

 

Each executive officer’s right to receive any severance or other benefits under the severance agreements is conditioned upon such executive officer:

 

 

For purposes of the severance agreements, “cause” means: (i) willful and continued failure to perform the duties and responsibilities of the executive officer’s position (other than as a result of illness or injury) after there has been delivered a written demand for performance from the board of directors which describes the basis for the board of directors’ belief that the executive officer has not substantially performed his duties and provides such executive officer with thirty days to take corrective action; (ii) any material act of personal dishonesty taken in connection with the executive officer’s responsibilities as our employee with the intention that such action may result in the substantial personal enrichment of such executive officer; (iii) such executive officer’s conviction of, or plea of nolo contendere to, a felony that the board of directors reasonably believes has had or will have a material detrimental effect on our reputation or business; (iv) a willful breach by such executive officer of any fiduciary duty owed to us that has a material detrimental effect on our reputation and business; (v) such executive officer’s being found liable in any SEC or other civil or criminal securities law action (regardless of whether or not such executive officer admits or denies liability), which the board of directors determines, in its reasonable discretion, will have a material detrimental effect on our reputation or business; (vi) such executive officer’s entering any cease and desist order with respect to any action which would bar such executive officer from service as an executive officer or member of a board or directors of any publicly-traded company (regardless of whether or not such executive officer admits or denies liability); (vii) such executive officer’s obstructing or impeding, endeavoring to obstruct or impede, or failing to materially cooperate with, any investigation authorized by the board of directors or any governmental or self-regulatory entity, provided that such executive officer’s failure to waive attorney-client privilege relating to communications with such executive officer’s own attorney in connection with such an investigation will not constitute “cause”; or (viii) such executive officer’s disqualification or bar by any governmental or self-regulatory authority from serving in such executive officer’s position with us if (A) the disqualification or bar continues for more than thirty days, and (B) during that period we use commercially reasonable efforts to cause the disqualification or bar to be lifted, provided that while any disqualification or bar continues during such executive officer’s employment, such executive officer will serve in the capacity contemplated by the severance agreement to whatever extent legally permissible and, if such executive officer’s employment is not permissible, such executive officer will be placed on administrative leave (which will be paid to the extent legally permissible).

 

For purposes of the severance agreements, “good reason” means the occurrence of any of the following, without the executive officer’s consent: (i) a significant reduction of the executive officer’s responsibilities and duties, relative to the executive officer’s responsibilities and duties in effect immediately prior to such reduction, provided, however, that a reduction in responsibilities or a change in duties, by virtue of our being acquired and made part of another entity (as, for example, when our chief executive officer remains as the senior executive officer of a division or subsidiary of the acquirer which division or subdivision either contains substantially all of our business or is a comparable size) shall not be considered “good reason”; (ii) a material and significant reduction in the executive officer’s base salary or target annual incentive as in effect immediately prior to such reduction other than pursuant to a reduction that also is applied to substantially all of our other executive officers and which reduction reduces the base salary and/or target annual incentive by a percentage reduction that is no greater than 10%; (iii) relocation of the executive officer to a facility or location more than thirty-five miles from his primary place of employment; (iv) any purported termination of the executive officer’s employment for “cause” without first

satisfying the procedural protections, as applicable, required by the definition of “cause” set forth above; or (v) our failure to obtain the assumption of the executive officer’s severance agreement by a successor and/or acquirer and an agreement that the executive officer will retain substantially similar responsibilities in the acquirer or the merged or surviving company as he had prior to the transaction. An executive officer may not resign for good reason without first providing us with written notice within sixty days of the event that such executive officer believes constitutes good reason specifically identifying the acts or omissions constituting the grounds for good reason and a reasonable cure period of not less than thirty days following the date of such notice.

 

Certain of our executive officers that have entered into the severance agreements may terminate their employment for good reason or may have their employment terminated by us without “cause” under the terms of the severance agreements at the effective time of the merger, which would result in entitlement to benefits as described above (subject to compliance with the applicable provisions of the severance agreements). See the section entitled “Proposal No. 1 — The Merger — Interests of Our Directors and Executive Officers in the Merger — Summary of Equity, Incentive and Other Awards of Our Directors and Executive Officers” beginning on page 53 of this revised proxy statement.

 

Continued Benefits

 

The amended merger agreement provides that Brocade, at its option, will, for a period of at least one year following the merger, either continue our benefit plans or, subject to certain limitations, allow our employees who continue employment with Brocade to participate in Brocade’s benefit plans on terms no less favorable than those provided to similarly situated Brocade employees, or a combination of both. All of our executive officers are currently eligible to participate in our benefit plans, which include medical, dental, vision, life insurance, accidental death and dismemberment insurance, short term and long term disability, employee assistance plan, flexible spending accounts, 401(k) plan, bonus plans, stock option plans, employee stock purchase plans and other welfare fringe benefit plans.

 

Unless otherwise indicated by Brocade at least five days prior to the completion of the merger, we will terminate our bonus vacation and related cash bonus program no later than one day prior to the completion of the merger. Pursuant to the bonus vacation and related cash bonus program, our employees, after completing each four years of service to us, are provided an opportunity to take ten days of bonus vacation and receive a cash bonus equal to 5% of their annual base salary after returning from such vacation. We began phasing out the vacation bonus program prior to the date of the merger and, pursuant to this process, employees starting on or after January 1, 2008 are not eligible for this program, and employees who started prior to January 1, 2008 will remain eligible to receive their upcoming bonus vacation as their final bonus vacation with no subsequent bonus vacation thereafter. In the event that we are required to terminate the bonus vacation and related cash bonus program pursuant to the amended merger agreement, our employees will no longer be eligible to receive the cash bonus portion of the program but we will, effective upon termination of the program, award each employee eligible to earn a bonus vacation the prorated number of bonus vacation days or partial days that, when compared with the full award of ten days, corresponds to the proportion that the number of days of service performed by such employee as of the date of the merger bears toward the four-year period required to earn a final vacation bonus award. All of our executive officers are currently eligible to participate in our vacation bonus and related cash bonus program.

 

The amended merger agreement also provides that Brocade will comply with the terms of our executive incentive plan following the completion of the merger. Pursuant to the executive incentive plan, our non-commissioned executive officers that are either employed, or have been employed, by us in an executive role for a minimum of (i) three months or (ii) for one full quarter during the performance period, are eligible to receive cash bonuses based upon the achievement of certain of our revenue, gross margin, operating profit goals, and certain other individual or department objectives. The total target bonus for each such executive officer is equal to 40% of such executive officer’s base salary earned during the performance period. Pursuant to the amended merger agreement, for purposes of determining the amount payable by Brocade to each eligible executive officer under the executive incentive plan, we shall be deemed to have achieved at least 100% of our performance goals under the executive incentive plan and each eligible executive officer shall be deemed to have achieved 100% of such executive officer’s individual performance goals under such plan. Our chief executive officer has waived any right to receive any payment under the executive incentive plan.

Summary of Equity, Incentive and Other Awards of Our Directors and Executive Officers

 

The following table identifies, for each of our directors and executive officers, as of October 31, 2008, such person’s relationship to us, the aggregate number of shares subject to outstanding options to purchase shares of our common stock held by such individual, the aggregate number of shares of our common stock subject to vested options held by such individual, the aggregate number of shares of our common stock held by such individual that are subject to accelerated vesting upon the occurrence of the merger, the weighted average exercise price of all outstanding options to purchase our common stock held by such individual, the aggregate number of restricted stock awards held by such individual that are subject to accelerated vesting upon the occurrence of the merger, the aggregate number of restricted stock units held by such individual, the aggregate number of restricted stock units held by such individual that are subject to accelerated vesting upon the occurrence of the merger and the estimated severance payments to be received by such individual.