S-4 1 d187471ds4.htm FORM S-4 Form S-4
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As filed with the Securities and Exchange Commission on April 29, 2016

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Brocade Communications Systems, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   3577   77-0409517

(State or other jurisdiction of

incorporation or organization)

  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

130 Holger Way

San Jose, CA 95134-1376

(408) 333-8000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Ellen A. O’Donnell

Senior Vice President, General Counsel and Corporate

Secretary

Brocade Communications Systems, Inc.

130 Holger Way

San Jose, CA 95134-1376

(408) 333-8000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

 

David K. Ritenour
Senior Director, Corporate

Legal Affairs
Brocade Communications Systems, Inc.
130 Holger Way
San Jose, CA 95134-1376
(408) 333-8000

   Rob R. Carlson, Esq.
Claudia K. Simon, Esq.
Paul Hastings LLP
1117 S. California Avenue
Palo Alto, CA 94304
(650) 320-1800
   Scott Maples

Vice President Legal &
General Counsel

Ruckus Wireless, Inc.

350 West Java Drive
Sunnyvale, CA 94089
(650) 265-4200

   Alexandra D. Korry

Sullivan & Cromwell LLP

125 Broad Street

New York, NY 10004

(212) 558-4000

   Sarah P. Payne

Sullivan & Cromwell LLP

1870 Embarcadero Road

Palo Alto, CA 94303

(650) 461-5600

 

 

Approximate date of commencement of proposed sale of the securities to the public: April 29, 2016 the date on which the preliminary prospectus and tender offer materials are filed and sent to securityholders. The offer cannot, however, be completed prior to the time this Registration Statement becomes effective. Accordingly, any actual sale or purchase of securities pursuant to the offer will occur only after this Registration Statement is effective, subject to the conditions to the transactions described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

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

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

If applicable, place an x in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Amount

to be
registered

 

Proposed

maximum
offering price
per share

 

Proposed

maximum
aggregate

offering price

 

Amount of

registration fee

Common stock, par value $.001 per share

  79,859,214 shares(1)   N/A   $735,324,076.32(2)   $74,047.13(3)

 

 

(1) Represents the maximum number of shares of Brocade Communications Systems, Inc. (“Brocade”) common stock estimated to be issuable upon consummation of the offer and subsequent merger, including those issuable as consideration with respect to outstanding equity awards of Ruckus Wireless, Inc. (“Ruckus”), pursuant to the terms of the merger agreement.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act on the basis of the market value of the shares of Ruckus common stock to be cancelled in the offer and the subsequent merger, computed in accordance with Rule 457(f)(1) and Rule 457(f)(3) based on (a) the product of (i) $13.63, the average of the high and low sales prices per share of Ruckus common stock on April 22, 2016, as reported by the NYSE, and (ii) 102,412,824, the estimated number of shares of Ruckus common stock to be exchanged in the offer and the merger for the transaction consideration (including shares of Ruckus common stock that may become outstanding as a result of the exercise of vested options of Ruckus and the vesting of restricted stock units of Ruckus and issuance of shares pursuant to Ruckus’ 2012 Employee Stock Purchase Plan), less (b) the product of (i) $6.45, the per share cash consideration that will be paid by Brocade to Ruckus stockholders in the offer and the merger and (ii) 102,412,824, the estimated number of shares of Ruckus common stock to be exchanged in the offer and the merger for the transaction consideration (including shares of Ruckus common stock that may become outstanding as a result of the exercise of vested options of Ruckus and the vesting of restricted stock units of Ruckus and issuance of shares pursuant to Ruckus’ 2012 Employee Stock Purchase Plan).
(3) The amount of the registration fee, calculated in accordance with Rule 457(f) under the Securities Act, equals .0001007 multiplied by the proposed maximum aggregate offering price.

 

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this document may change. The registrant may not complete the offer or the merger and issue these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This document is not an offer to sell these securities, and the registrant is not soliciting an offer to buy these securities in any state or jurisdiction in which such offer is not permitted.

 

PRELIMINARY AND SUBJECT TO CHANGE, DATED APRIL 29, 2016

Offer by

STALLION MERGER SUB INC.,

a direct wholly owned subsidiary of

BROCADE COMMUNICATIONS SYSTEMS, INC.

to exchange each outstanding share of common stock of

RUCKUS WIRELESS, INC.

for

$6.45 in cash

and

0.75 of a share of common stock of Brocade Communications Systems, Inc.

 

 

THE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN TIME, AT THE END OF MAY 26, 2016, UNLESS EARLIER EXTENDED OR TERMINATED.

Brocade Communications Systems, Inc., a Delaware corporation (“Brocade”), through its direct wholly owned subsidiary Stallion Merger Sub Inc., a Delaware corporation (the “Offeror”), is offering, upon the terms and subject to the conditions set forth in this prospectus/offer to exchange and in the accompanying letter of transmittal, to exchange for each outstanding share of common stock of Ruckus Wireless, Inc., a Delaware corporation (“Ruckus”), par value $0.001 per share (“Ruckus common stock” and such shares of Ruckus common stock, “Ruckus shares”), that is validly tendered and not validly withdrawn in the offer:

 

    $6.45 in cash; and

 

    0.75 of a share of common stock of Brocade, par value $0.001 per share ( “Brocade common stock,” and such shares of Brocade common stock, “Brocade shares”), together with cash in lieu of any fractional shares of Brocade common stock;

in each case, without interest and less any applicable withholding taxes (such offer, the “offer”). We refer to the above as the “transaction consideration.”

The Offeror’s obligation to accept for exchange, and to exchange, shares of Ruckus common stock for the transaction consideration is subject to a number of conditions, including there having been validly tendered and not validly withdrawn, in accordance with the terms of the offer and prior to the expiration of the offer, a number of shares of Ruckus common stock that, together with any shares of Ruckus common stock then owned by Brocade, the Offeror or Brocade’s other subsidiaries, represents at least a majority of the then-outstanding shares of Ruckus common stock (such condition, the “minimum tender condition”). See “Merger Agreement—Conditions—Conditions to the Offer” for a description of all of such conditions.

The offer is being made pursuant to an Agreement and Plan of Merger (as it may be amended from time to time, the “merger agreement”), dated April 3, 2016, among Brocade, the Offeror and Ruckus. A copy of the merger agreement is attached to this document as Annex A.

The purpose of the offer and the merger (defined below) is for Brocade to acquire control of, and ultimately the entire equity interest in, Ruckus. The offer is the first step in Brocade’s plan to acquire all of the outstanding Ruckus shares. As a second step in such plan, if the offer is completed, Brocade intends to consummate, as promptly as practicable following the consummation of the offer, a merger of the Offeror with and into Ruckus (the “merger”), with Ruckus surviving the merger as the surviving corporation (the “surviving corporation”). The purpose of the merger is for Brocade to acquire all remaining shares of Ruckus common stock that it did not acquire in the offer. In the merger, each share of Ruckus common stock that was not acquired by Brocade or the Offeror in the offer (except for shares of Ruckus common stock with respect to which appraisal rights under the General Corporation Law of the State of Delaware (the “DGCL”) have been properly exercised and shares of Ruckus common stock that are owned, directly or indirectly, by Brocade, Ruckus (including shares held as treasury stock or otherwise) or the Offeror) and that is issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive the transaction consideration. Upon consummation of the merger, Ruckus will be a direct wholly owned subsidiary of Brocade, and the former stockholders of Ruckus will no longer have any direct ownership interest in the surviving corporation. If the offer is completed (such that Brocade and the Offeror and Brocade’s other subsidiaries own at least a majority of the outstanding shares of Ruckus common stock), the merger will be governed by Section 251(h) of the DGCL, and accordingly, no stockholder vote will be required to complete the merger.

The board of directors of Ruckus has unanimously (i) determined that the terms of the transactions contemplated by the merger agreement, including the offer and the merger (which are collectively referred to as the “transactions contemplated by the merger agreement”), are fair to, and in the best interests of, Ruckus and its stockholders, (ii) determined that it is in the best interests of Ruckus and its stockholders to enter into, and declared advisable, the merger agreement, (iii) approved the execution and delivery by Ruckus of the merger agreement, the performance by Ruckus of its covenants and agreements contained in the merger agreement and the consummation of the transactions contemplated by the merger agreement, including the offer and the merger, upon the terms, and subject to the conditions, contained therein and (iv) recommended that Ruckus stockholders accept the offer and tender their Ruckus shares to the Offeror pursuant to the offer.

The board of directors of Brocade also approved the merger agreement and determined that the merger agreement and the transactions contemplated by the merger agreement, including the offer, the merger and the issuance of Brocade common stock as part of the transaction consideration, are fair to, and in the best interests of, Brocade and its stockholders.

Brocade common stock is listed on the NASDAQ Global Select Market (the “NASDAQ”) under the symbol “BRCD,” and Ruckus common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “RKUS.” You are encouraged to obtain current market quotations for Brocade common stock and Ruckus common stock in connection with your decision whether to tender your shares in the offer.

The merger will entitle Ruckus stockholders to appraisal rights under Delaware law. To exercise appraisal rights, a Ruckus stockholder must strictly comply with all of the procedures under the DGCL. These procedures are described more fully in the section entitled “The Offer and the Merger—Appraisal Rights.”

 

 

For a discussion of certain factors that Ruckus stockholders should consider in connection with the offer, please read the section of this document entitled “Risk Factors” beginning on page 25.

You are encouraged to read this entire document and the related letter of transmittal carefully, including the annexes to, and the information referred to or incorporated by reference in, this document.

Neither Brocade nor the Offeror has authorized any person to provide any information or to make any representation in connection with the offer other than the information contained or incorporated by reference in this document, and if any person provides any information or makes any representation of this kind, that information or representation must not be relied upon as having been authorized by Brocade or the Offeror.

Neither the U.S. Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense.

The date of this prospectus/offer to exchange is April 29, 2016.


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE OFFER AND THE MERGER

     1   

SUMMARY

     10   

The Offer and the Merger

     10   

Transaction Consideration

     10   

Treatment of Ruckus Equity Awards

     10   

The Offer

     11   

The Merger

     11   

The Companies

     11   

Conditions of the Offer

     12   

Extension, Termination and Amendment of the Offer

     13   

Withdrawal Rights

     14   

Procedures for Tendering

     14   

Support Agreement

     14   

Regulatory Approvals

     15   

Source and Amount of Funds

     15   

Interests of Certain Persons in the Offer and the Merger

     15   

Appraisal Rights

     15   

Comparative Market Price and Dividend Matters

     15   

Listing of Brocade Common Stock

     16   

Ownership of Brocade Common Stock After the Offer and the Merger

     16   

Comparison of Stockholders’ Rights

     16   

Material U.S. Federal Income Tax Consequences

     16   

Accounting Treatment

     17   

Questions about the Offer and the Merger

     17   

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF BROCADE

     18   

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF RUCKUS

     19   

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

     21   

UNAUDITED COMPARATIVE PER SHARE DATA

     23   

RISK FACTORS

     25   

Risk Factors Relating to the Offer and the Merger

     25   

Risk Factors Relating to Brocade and the Combined Company

     30   

Risks Related to Brocade’s Business

     33   

Risks Related to Ruckus’ Business

     34   

 

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Table of Contents

FORWARD-LOOKING STATEMENTS

     35   

THE COMPANIES

     37   

Brocade

     37   

Offeror

     37   

Ruckus

     37   

THE OFFER AND THE MERGER

     39  

General

     39  

Background of the Offer and the Merger

     39  

Brocade’s Reasons for the Offer and the Merger

     55  

Ruckus’ Reasons for the Offer and the Merger; Recommendation of the Ruckus Board of Directors

     57  

Opinion of Ruckus’ Financial Advisor

     61  

Certain Financial Forecasts

     72   

No Stockholder Approval

     77  

Appraisal Rights

     77  

Regulatory Approvals

     78  

Litigation Related to the Transaction

     79  

Interests of Certain Persons in the Offer and the Merger

     80  

Certain Relationships With Ruckus

     85  

Non-Applicability of Rules Regarding “Going Private” Transactions

     86  

Ownership of Brocade Common Stock After the Offer and the Merger

     86  

Plans for Ruckus

     86  

Effect of the Offer on Ruckus Shares

     87   

Source and Amount of Funds

     89  

Fees and Expenses

     91  

Brocade Stock Repurchase Program

     91  

Accounting Treatment

     92  

Listing of Brocade Common Stock

     92  

Resale of Brocade Common Stock

     92  

EXCHANGE OFFER PROCEDURES

     93  

Distribution of Offering Materials

     93   

Expiration of the Offer

     93  

Extension, Termination and Amendment of the Offer

     93  

Exchange of Shares; Delivery of Cash and Shares of Brocade Common Stock

     95  

Procedure for Tendering

     95  

No Guaranteed Delivery

     97  

 

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Grant of Proxy

     97  

Withdrawal Rights

     97  

Matters Concerning Validity and Eligibility

     98   

Announcement of Results of the Offer

     99   

Fees and Commissions

     99   

Exchange Agent Contact Information

     99   

MERGER AGREEMENT

     100   

The Offer

     100   

The Merger

     100   

Transaction Consideration

     101   

Treatment of Ruckus Equity Awards

     102   

Conditions

     104   

Representations and Warranties

     106   

Material Adverse Effect

     108   

No Solicitation of Other Offers by Ruckus

     109   

Change of Recommendation

     111   

Conduct of Business Before Completion of the Merger

     113   

Access to Information

     116   

Financing Cooperation

     117   

Additional Agreements

     117   

Employee Matters

     117   

Directors’ and Officers’ Indemnification

     118   

Termination of the Merger Agreement

     119   

Termination Fee and Expenses

     121   

Effect of Termination

     121   

Enforcement

     122   

SUPPORT AGREEMENT

     123   

COMPARATIVE MARKET PRICE AND DIVIDEND MATTERS

     124   

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     125   

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

     140   

DESCRIPTION OF BROCADE CAPITAL STOCK

     143   

 

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COMPARISON OF STOCKHOLDERS’ RIGHTS

     146   

LEGAL MATTERS

     150   

EXPERTS

     150   

Annex A    Agreement and Plan of Merger

  

Annex B    Support Agreement

  

Annex C    Opinion of Morgan Stanley & Co. LLC

  

Annex D    Directors and Executive Officers of Brocade and the Offeror

  

 

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ADDITIONAL INFORMATION

This document incorporates by reference important business and financial information about Brocade, Ruckus and their respective subsidiaries from documents filed with the SEC that have not been included in or delivered with this document. This information is available without charge at the SEC’s website at www.sec.gov, as well as from other sources. See “Where to Obtain More Information.”

You can obtain the documents incorporated by reference in this document, without charge, by requesting them in writing or by telephone at the following address and telephone number:

Brocade Communications Systems, Inc.

130 Holger Way San Jose, CA 95134-1376 Attention: Investor Relations (408) 333-6208

In addition, if you have questions about the offer or the merger, or if you need to obtain copies of this document and the letter of transmittal or other documents incorporated by reference in this document, you may contact the information agent for this transaction. You will not be charged for any of the documents you request.

D.F. King & Co., Inc. 48 Wall Street New York, New York 10005 Banks and Brokers Call Collect: (212) 269-5550 All Others Call Toll-Free: (866) 620-2535 Email: Ruckus@dfking.com

If you would like to request documents, in order to receive timely delivery prior to the expiration of the offer, please make your request at least five business days prior to the expiration date of the offer. The offer is scheduled to expire at 12:00 midnight, Eastern time, at the end of May 26, 2016, unless earlier extended or terminated. Unless the offer is extended or terminated, this means that the latest you should request documents is May 19, 2016.

Ruckus has supplied all information contained or incorporated by reference in this document relating to Ruckus, and Brocade has supplied all information contained or incorporated by reference in this document relating to Brocade and the Offeror. Both Ruckus and Brocade have contributed information relating to the offer and the merger.

Certain information relating to Ruckus appears in the Solicitation/Recommendation Statement on Schedule 14D-9 dated as of the date of this document and filed by Ruckus with the SEC (the “Schedule 14D-9”). The Schedule 14D-9 is being mailed to Ruckus stockholders together with this document.

 

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QUESTIONS AND ANSWERS ABOUT THE OFFER AND THE MERGER

Below are some of the questions that you as a holder of Ruckus shares may have regarding the offer and the merger and answers to those questions. You are urged to carefully read the remainder of this document, the related letter of transmittal, the annexes to this document and the other documents to which we have referred or incorporated by reference because the information contained in this section and in the “Summary” section is not complete. See “Where to Obtain More Information.”

As used in this document, unless otherwise indicated or the context requires otherwise: “Brocade” (or “we,” “us” and “our”) refers to Brocade Communications Systems, Inc., a Delaware corporation, and its consolidated subsidiaries; the “Offeror” refers to Stallion Merger Sub Inc., a Delaware corporation and direct wholly owned subsidiary of Brocade; “Ruckus” refers to Ruckus Wireless, Inc., a Delaware corporation, and its consolidated subsidiaries; “Brocade common stock” refers to the common stock of Brocade, par value $0.001 per share; “Ruckus common stock” refers to the common stock of Ruckus, par value $0.001 per share; “Brocade shares” refers to shares of Brocade common stock; and “Ruckus shares” refers to shares of Ruckus common stock.

Who is offering to buy my Ruckus shares?

Brocade Communications Systems, Inc., through the Offeror, its direct wholly owned subsidiary, is offering, upon the terms and subject to the conditions set forth in this prospectus/offer to exchange and in the accompanying letter of transmittal, to exchange (referred to as the “offer”) each outstanding share of Ruckus common stock that is validly tendered and not validly withdrawn in the offer for $6.45 in cash and 0.75 of a share of Brocade common stock (together with cash in lieu of any fractional shares of Brocade common stock), in each case, without interest and less any applicable withholding taxes.

Brocade is a leading supplier of networking hardware, software and services, including Storage Area Networking solutions and Internet Protocol Networking solutions for businesses and organizations of various types and sizes. Brocade’s end customers include global enterprises and other organizations that use Brocade’s products and services as part of their communications infrastructure and service providers, such as telecommunication firms, cable operators and mobile carriers, that use Brocade’s products and services as part of their commercial operations. Brocade offers a comprehensive line of high-performance networking hardware and software products and services that enable businesses and organizations to make their data centers and networks more efficient, reliable and adaptable to the changing demands of new network traffic patterns and volumes.

Why is Brocade making this offer?

Pursuant to the terms of and subject to the conditions set forth in the Agreement and Plan of Merger entered into by Brocade, the Offeror and Ruckus on April 3, 2016 (as such agreement may be amended from time to time, referred to as the “merger agreement”), Brocade proposes to acquire control of, and ultimately, all of the outstanding equity in, Ruckus. The offer is the first step in Brocade’s plan to acquire all of the outstanding Ruckus shares, and the merger is the second step in such plan.

If a sufficient number of shares of Ruckus common stock are tendered into the offer such that Brocade and the Offeror and Brocade’s other subsidiaries own at least a majority of the outstanding shares of Ruckus common stock, subject to the satisfaction or waiver of the other conditions to the offer, Brocade and the Offeror will accept for exchange, and exchange, the shares validly tendered and not validly withdrawn in the offer. The time at which the Offeror first irrevocably accepts for purchase and payment the shares of Ruckus common stock tendered in the offer is referred to as the “acceptance time.”

Then, as promptly as practicable thereafter and as the second step in Brocade’s plan to acquire all of the outstanding shares of Ruckus common stock, Brocade intends to consummate a merger of the Offeror with and into Ruckus, with Ruckus surviving the merger (referred to as the “merger”) as the surviving corporation

 

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(referred to as the “surviving corporation”). The purpose of the merger is for Brocade to acquire all remaining shares of Ruckus common stock that it did not acquire in the offer. In the merger, each share of Ruckus common stock that was not acquired by Brocade or the Offeror in the offer (except for shares of Ruckus common stock with respect to which appraisal rights under the General Corporation Law of the State of Delaware (referred to as the “DGCL”) have been properly exercised and shares of Ruckus common stock that are owned, directly or indirectly, by Brocade, Ruckus (including shares held as treasury stock or otherwise) or the Offeror, collectively referred to as “excluded shares”) and that is issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive the transaction consideration described herein. Upon consummation of the merger, Ruckus will be a direct wholly owned subsidiary of Brocade, and the former stockholders of Ruckus will no longer have any direct ownership interest in the surviving corporation. If the offer is completed (such that Brocade and the Offeror and Brocade’s other subsidiaries own at least a majority of the outstanding shares of Ruckus common stock), the merger will be governed by Section 251(h) of the DGCL, and accordingly no stockholder vote will be required to consummate the merger.

What are the classes and amounts of Ruckus securities that Brocade is offering to acquire?

Brocade is seeking to acquire all issued and outstanding shares of Ruckus common stock, par value $0.001 per share.

What will I receive for my shares of Ruckus common stock?

Brocade, through the Offeror, its direct wholly owned subsidiary, is offering, upon the terms and subject to the conditions set forth in this prospectus/offer to exchange and in the accompanying letter of transmittal, to exchange for each outstanding share of Ruckus common stock validly tendered and not validly withdrawn in the offer:

 

    $6.45 in cash (referred to as the “cash consideration”); and

 

    0.75 of a share of Brocade common stock, par value $0.001 per share, together with cash in lieu of any fractional shares of Brocade common stock (referred to as the “stock consideration”);

in each case, without interest and less any applicable withholding taxes. We refer to the cash consideration and the stock consideration above collectively as the “transaction consideration.”

If you do not tender your shares into the offer but the merger is completed (pursuant to Section 251(h) of the DGCL without a stockholder vote), you will also receive the transaction consideration in exchange for your shares of Ruckus common stock that are issued and outstanding immediately prior to the effective time of the merger (except excluded shares).

What will happen to my options to purchase shares of Ruckus common stock in the offer?

The offer is made only for shares of Ruckus common stock and is not made for any stock options to purchase shares of Ruckus common stock (referred to as “Ruckus options”). If you hold a Ruckus option that is exercisable, you may, in accordance with the terms and conditions governing such Ruckus option and subject to any applicable blackout period(s), exercise such Ruckus option for shares of Ruckus common stock and thereafter participate in the offer, subject to the terms and conditions governing the offer. Any Ruckus options that remain outstanding and unexercised as of the effective time of the merger shall be treated in accordance with the terms of the merger agreement. See “Merger Agreement—Treatment of Ruckus Equity Awards.”

What will happen to my restricted stock units relating to shares of Ruckus common stock in the offer?

The offer is made only for shares of Ruckus common stock and is not made for any restricted stock units that relate to shares of Ruckus common stock (referred to as “Ruckus restricted stock units”). Any Ruckus restricted stock units shall be treated in accordance with the terms of the merger agreement. See “Merger Agreement—Treatment of Ruckus Equity Awards.”

 

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What does the Ruckus board of directors recommend?

The board of directors of Ruckus has unanimously (i) determined that the terms of the transactions contemplated by the merger agreement, including the offer and the merger (collectively referred to as the “transactions contemplated by the merger agreement”), are fair to, and in the best interests of, Ruckus and its stockholders, (ii) determined that it is in the best interests of Ruckus and its stockholders to enter into, and declared advisable, the merger agreement, (iii) approved the execution and delivery by Ruckus of the merger agreement, the performance by Ruckus of its covenants and agreements contained in the merger agreement and the consummation of the transactions contemplated by the merger agreement upon the terms, and subject to the conditions, contained therein and (iv) recommended that Ruckus stockholders accept the offer and tender their Ruckus shares to the Offeror pursuant to the offer.

See “The Offer and the Merger—Ruckus’ Reasons for the Offer and the Merger; Recommendation of the Ruckus Board of Directors” for more information. A description of the reasons for this recommendation is also set forth in Ruckus’ Solicitation/Recommendation Statement on Schedule 14D-9 (referred to as the “Schedule 14D-9”) that is being mailed to you together with this document.

Do the officers and members of the Ruckus board of directors have interests in the offer and the merger that are different from stockholders generally?

Yes. Certain of Ruckus’ executive officers (within the meaning of Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) and directors have financial and other interests in the transactions contemplated by the merger agreement that are different from, or in addition to, the interests of the Ruckus’ stockholders generally. See “The Offer and the Merger—Interests of Certain Persons in the Offer and the Merger” for more information.

What are the most significant conditions of the offer?

The offer is conditioned upon, among other things, the following:

 

    Minimum Tender Condition—Ruckus stockholders must have validly tendered and not validly withdrawn, in accordance with the terms of the offer and prior to the expiration of the offer, a number of shares of Ruckus common stock that, together with any shares of Ruckus common stock then owned by Brocade, the Offeror or Brocade’s other subsidiaries, represents at least a majority of all then-outstanding shares of Ruckus common stock. This is referred to as the “minimum tender condition.”

 

    Regulatory Approvals—The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (referred to as the “HSR Act”), relating to the transactions contemplated by the merger agreement must have expired or been terminated and the clearances, approvals and consents required to be obtained under the competition laws of Germany must have been obtained. This is referred to as the “regulatory approvals condition.”

 

    No Governmental Prohibition—No law, order or injunction prohibiting or making illegal the consummation of any of the offer, the merger or the issuance of Brocade common stock as consideration in connection with the offer or the merger must have been promulgated, entered, enforced, enacted or issued or be applicable to the offer, the merger or the issuance of Brocade common stock in connection with the offer or the merger by a governmental entity having jurisdiction over a material portion of the business of Ruckus, Brocade or the Offeror (or the effect of which would have a material effect on any of Ruckus, Brocade or the Offeror) (such laws, orders and injunctions are referred to as “governmental prohibitions”).

 

    Effectiveness of Form S-4—The registration statement on Form S-4, of which this document is a part, must have become effective under the Securities Act of 1933, as amended (referred to as the “Securities Act”), and must not be the subject of any stop order that is in effect or any pending proceeding seeking a stop order.

 

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    Listing of Brocade Common Stock—The shares of Brocade common stock to be issued as consideration in connection with the offer and the merger must have been approved for listing on the NASDAQ Global Select Market (referred to as “NASDAQ”), subject to official notice of issuance.

 

    Accuracy of Representations and Warranties—The representations and warranties of each of Ruckus, on the one hand, and Brocade and the Offeror, on the other hand, contained in the merger agreement must be true and correct as of the expiration of the offer, subject to specified materiality standards.

 

    Compliance with Covenants—Each of Ruckus, on the one hand, and Brocade and the Offeror, on the other hand, must have performed in all material respects their respective covenants and obligations under the merger agreement required to be performed by them at or prior to the expiration of the offer or cured any failure to so perform on or prior to the expiration of the offer.

 

    No Ruckus Material Adverse Effect—There must not have occurred or arisen after the date of the merger agreement, any material adverse effect (as defined in the merger agreement and described under “Merger Agreement—Material Adverse Effect”) with respect to Ruckus and its subsidiaries that is continuing.

 

    No Brocade Material Adverse Effect—There must not have occurred or arisen after the date of the merger agreement, any material adverse effect (as defined in the merger agreement and described under “Merger Agreement—Material Adverse Effect”) with respect to Brocade and its subsidiaries that is continuing.

 

    No Termination of the Merger Agreement—The merger agreement must not have been terminated in accordance with its terms.

The offer is subject to certain other conditions set forth in the section entitled “Merger Agreement—Conditions—Conditions to the Offer.” Subject to Ruckus’ right to require that Brocade and the Offeror waive the conditions to the offer related to the accuracy of Brocade’s and the Offeror’s representations, Brocade’s and the Offeror’s compliance with covenants, there not having occurred a material adverse effect of Brocade that is continuing, and Brocade’s delivery of the certificate described in the section entitled “Merger Agreement—Conditions—Conditions to the Offer,” the foregoing conditions may be asserted by Brocade or the Offeror prior to the expiration of the offer regardless of the circumstances giving rise to any such conditions, and may be waived by Brocade or the Offeror in whole or in part at any time and from time to time in their sole and absolute discretion, in each case, subject to the terms of the merger agreement and the applicable rules and regulations of the SEC (including, without limitation, Section 14(e) of the Exchange Act), except certain specified conditions (including all the conditions noted above other than the conditions related to accuracy of Ruckus’ representations, Ruckus’ compliance with covenants and a material adverse effect of Ruckus) may only be waived by Brocade or the Offeror with the prior written consent of Ruckus in its sole discretion. The offer is not conditioned on Brocade or the Offeror obtaining any financing.

Does Brocade or the Offeror currently own any Ruckus shares?

No. None of Brocade, the Offeror or any of their respective controlled affiliates beneficially owns (as such term is used in Rule 13d-3 promulgated under the Exchange Act) any Ruckus shares or any options, warrants or other rights to acquire Ruckus shares or other securities of, or any other economic interest (through derivatives, securities or otherwise) in Ruckus.

Does Brocade plan to repurchase shares following the closing of the offer and the merger?

In connection with Brocade’s announcement on April 4, 2016 of its execution of the merger agreement and its intent to commence the offer, Brocade also announced that its board of directors had authorized an additional $800 million under Brocade’s stock repurchase program. The increase in Brocade’s stock repurchase program is intended to facilitate the repurchase of a number of Brocade shares equivalent to the number of Brocade shares issued as stock consideration in the offer and the merger, although Brocade has not committed to repurchasing

 

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any specific number of shares. Proceeds from borrowings under a new senior credit facility together with cash on hand will be sufficient to pay the cash consideration payable in the offer and the merger and pay related fees and expenses. In addition, Brocade expects that the remaining proceeds from the new senior credit facility together with cash on hand would be sufficient to fund the anticipated share repurchases.

How long will it take to complete the proposed transaction?

The transaction is expected to be completed in Brocade’s third fiscal quarter ending July 30, 2016, subject to the satisfaction or waiver of the conditions described in “Merger Agreement—Conditions.”

Will I have to pay any fee or commission to exchange my shares of Ruckus common stock?

If you are the record owner of your shares of Ruckus common stock and you tender these shares in the offer, you will not have to pay any brokerage fees, commissions or similar expenses. If you own your shares of Ruckus common stock through a broker, dealer, commercial bank, trust company or other nominee and your broker, dealer, commercial bank, trust company or other nominee tenders your Ruckus shares on your behalf, your broker or such other nominee may charge a fee for doing so. You should consult your broker, dealer, commercial bank, trust company or other nominee to determine whether any charges will apply.

How long do I have to decide whether to tender my Ruckus shares in the offer?

The offer is scheduled to expire at 12:00 midnight, Eastern time, at the end of May 26, 2016, unless earlier extended or terminated. The Offeror will effect any extension, termination, amendment or delay of the offer by giving oral or written notice to the exchange agent and by making a public announcement as promptly as practicable thereafter. In the case of an extension, any such announcement will be issued no later than 9:00 a.m., Eastern time, on the next business day following the previously scheduled expiration date. During any such extension, all Ruckus shares previously tendered and not validly withdrawn will remain subject to the offer, subject to the rights of a tendering stockholder to withdraw such stockholder’s shares (as described below). “Expiration date” means 12:00 midnight, Eastern time, at the end of May 26, 2016, unless and until the Offeror has extended the period during which the offer is open, in which event the term “expiration date” means the latest time and date at which the offer, as so extended by the Offeror, will expire.

Subject to the provisions of the merger agreement and the applicable rules and regulations of the SEC, the Offeror must (i) extend the offer in the event that any of the offer conditions (including the minimum tender condition) have not been satisfied or waived as of any then scheduled expiration of the offer, for successive extension periods of up to ten business days each in order to permit the satisfaction of the conditions to the offer, and (ii) extend the offer for any period required by any law, rule, regulation, interpretation or position of the SEC or its staff or the New York Stock Exchange (referred to as the “NYSE”) which is applicable to the offer or the merger. However, the Offeror is not permitted or required to extend the offer beyond the later of August 3, 2016 (as may be extended as described below, the “outside date”), or, if all of the conditions to the offer have been satisfied or waived except the regulatory approvals condition, then upon notice by either Brocade or Ruckus, October 3, 2016, other than any such extension requested by Ruckus, to the extent Brocade or the Offeror would be prohibited from terminating the merger agreement for failure of the acceptance time to occur by the outside date, or any such extension effected by Brocade or the Offeror, to the extent Ruckus would be prohibited from terminating the merger agreement for failure of the acceptance time to occur by the outside date (as described under “The Merger Agreement—Termination of the Merger Agreement—Termination by Brocade or Ruckus”).

Any decision to extend the offer will be made public by an announcement regarding such extension as described under “Exchange Offer Procedures—Extension, Termination and Amendment of Offer.”

How do I tender my Ruckus shares?

To tender your Ruckus shares represented by physical certificates or that are held in book-entry form through the direct registration system into the offer, you must deliver a completed letter of transmittal, along with any

 

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required signature guarantees and any other documents required by the exchange agent, and certificates representing such shares, if applicable, to Wells Fargo Bank, N.A., the depositary and exchange agent (referred to as the “exchange agent”) for the offer, not later than the expiration date. The letter of transmittal is enclosed with this document.

If your Ruckus shares are held in “street name” (i.e., shares held in electronic book-entry form other than through the direct registration system), these shares can be tendered by your nominee by book-entry transfer through The Depository Trust Company (referred to as “DTC”). To tender your Ruckus shares held in “street name,” you must contact the institution that holds your shares for instructions on how to tender your shares.

We are not providing for guaranteed delivery procedures and therefore you must allow sufficient time for the necessary tender procedures to be completed prior to the expiration of the offer. If you hold shares through a DTC participant, you must allow sufficient time for the necessary tender procedures to be completed during normal business hours of DTC prior to expiration of the offer. Tenders received by the exchange agent after the expiration date will be disregarded and of no effect. In all cases, you will receive your consideration for your tendered Ruckus shares only after timely receipt by the exchange agent of certificates for such shares or timely confirmation of a book-entry transfer of such shares into the exchange agent’s account at DTC, as applicable, a properly completed and duly executed letter of transmittal or an agent’s message (as described under “Exchange Offer Procedures—Procedure for Tendering”), as applicable, and any other documents required by the exchange agent.

For a complete discussion of the procedures for tendering your Ruckus shares, see “Exchange Offer Procedures—Procedure for Tendering.”

Until what time can I withdraw tendered Ruckus shares?

You may withdraw your previously tendered Ruckus shares at any time until the offer has expired and, if the Offeror has not accepted your Ruckus shares for payment on or prior to June 27, 2016, you may withdraw them at any time after that date until the Offeror accepts such shares for payment. Once the Offeror accepts your tendered Ruckus shares for payment upon or after expiration of the offer, however, you will no longer be able to withdraw them. For a complete discussion of the procedures for withdrawing your Ruckus shares, see “Exchange Offer Procedures—Withdrawal Rights.”

How do I withdraw previously tendered Ruckus shares?

To withdraw previously tendered Ruckus shares, you must deliver a written notice of withdrawal with the required information to the exchange agent at any time at which you have the right to withdraw shares. If you tendered Ruckus shares by giving instructions to a broker, dealer, commercial bank, trust company or other nominee, you must instruct such broker, dealer, commercial bank, trust company or other nominee to arrange for the withdrawal of your Ruckus shares and such broker, dealer, commercial bank, trust company or other nominee must validly withdraw such Ruckus shares at any time at which you have the right to withdraw shares. For a discussion of the procedures for withdrawing your Ruckus shares, including the applicable deadlines for effecting withdrawals, see “Exchange Offer Procedures—Withdrawal Rights.”

When and how will I receive the transaction consideration in exchange for my tendered Ruckus shares?

The Offeror will irrevocably accept for purchase and payment all Ruckus shares validly tendered and not validly withdrawn in the offer promptly after the expiration date of the offer, and promptly thereafter pay for such shares, subject to the terms of the offer and the satisfaction or waiver of the conditions to the offer, as set forth in “Merger Agreement—Conditions—Conditions to the Offer.” The Offeror will deliver the consideration for your validly tendered and not validly withdrawn shares through the exchange agent, which will act as your agent for the purpose of receiving the transaction consideration from the Offeror and transmitting such consideration to you. In all cases, you will receive your consideration for your tendered Ruckus shares only after timely receipt by the exchange agent of certificates for such Ruckus shares (or a timely confirmation of a book-entry transfer of

 

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such shares into the exchange agent’s account at DTC, as described in “Exchange Offer Procedures—Procedure for Tendering”, as applicable) and a properly completed and duly executed letter of transmittal (or an agent’s message, as applicable) and any other documents required by the exchange agent.

Why does the cover page to this document state that this offer is preliminary and subject to change, and that the registration statement filed with the SEC is not yet effective? Does this mean that the offer has not commenced?

No. Completion of this document and effectiveness of the registration statement are not necessary to commence the offer. The offer was commenced on the date of the initial filing of the registration statement on Form S-4 of which this document is a part. Brocade and the Offeror cannot, however, accept for exchange any Ruckus shares tendered in the offer or exchange any shares until the registration statement is declared effective by the SEC and the other conditions to the offer have been satisfied or waived.

What happens if I do not tender my Ruckus shares?

Assuming that the offer is completed, Brocade and Ruckus are required to consummate the merger as promptly as practicable after the consummation of the offer on the terms and subject to the satisfaction or waiver of the conditions set forth in the merger agreement. Upon consummation of the merger, each Ruckus share that has not been tendered and accepted for exchange in the offer (except for excluded shares) immediately prior to the effective time of the merger, will be converted into the right to receive the transaction consideration. Following the consummation of the offer, a letter of transmittal will be sent to stockholders who did not tender their shares in the offer.

Does Brocade have the financial resources to complete the offer and the merger?

Yes. The transaction consideration will consist of Brocade common stock and cash. Brocade’s obligation to consummate the offer and the merger is not conditioned on Brocade or the Offeror obtaining any financing.

If the offer and the merger are completed, will Ruckus continue as a public company?

No. Brocade and Ruckus are required, on the terms and subject to the satisfaction or waiver of the conditions set forth in the merger agreement, to consummate the merger as promptly as practicable following the consummation of the offer. If the merger takes place, Ruckus shares will no longer be publicly traded. Brocade expects that the merger will be consummated on the same day as the consummation of the offer.

Will the offer be followed by a merger if all Ruckus shares are not tendered in the offer?

Yes, if the conditions to the merger set forth in the merger agreement and described under “Merger Agreement—Conditions—Conditions to the Merger” are satisfied or waived. Under the terms of the merger agreement, assuming the conditions to the offer (including the minimum tender condition) have been satisfied or waived, the Offeror must accept for payment all Ruckus shares validly tendered and not validly withdrawn in the offer promptly after the expiration of the offer and promptly thereafter pay for such shares. If the conditions to the merger are satisfied or waived, the merger will take place as promptly as practicable following consummation of the offer. Brocade expects that the merger will be consummated on the same day as the consummation of the offer. Following the merger, Brocade will own 100% of the equity of Ruckus, and all of the Ruckus stockholders who did not tender their shares in the offer, other than Brocade, the Offeror, any wholly owned subsidiary of Brocade or Ruckus and any stockholders who are properly exercising their right for appraisal in compliance with the DGCL, will have the right to receive the transaction consideration.

 

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Will there be a stockholder vote to approve the merger?

If the offer is completed (such that Brocade and the Offeror and Brocade’s other subsidiaries own at least a majority of the outstanding shares of Ruckus common stock), the merger will be governed by Section 251(h) of the DGCL, and accordingly no stockholder vote will be required to consummate the merger in the event that the offer is consummated. Brocade is required, on the terms and subject to the satisfaction or waiver of the conditions set forth in the merger agreement, to consummate the merger as promptly as practicable following the consummation of the offer. Brocade expects that the merger will be consummated on the same day as the consummation of the offer.

What are the U.S. federal income tax consequences of receiving shares of Brocade common stock and cash in exchange for my Ruckus shares in the offer and the merger?

The exchange of Ruckus shares for cash and Brocade common stock pursuant to the offer or the merger will be a taxable transaction to U.S. Holders (as such term is described under “Material U.S. Federal Income Tax Consequences”) for U.S. federal income tax purposes.

Each Ruckus stockholder should read the discussion under “Material U.S. Federal Income Tax Consequences” for a more complete discussion of the U.S. federal income tax consequences of the offer and the merger. Tax matters can be complicated, and the tax consequences of the offer and the merger to a particular Ruckus stockholder will depend on such stockholder’s particular facts and circumstances. Ruckus stockholders should consult their own tax advisors to determine the specific consequences to them of exchanging their shares of Ruckus common stock for the transaction consideration pursuant to the offer or the merger.

Will I have the right to have my Ruckus shares appraised?

No appraisal rights are available to Ruckus stockholders in connection with the offer. However, if the offer is completed and the merger is consummated, the holders of Ruckus shares immediately prior to the effective time of the merger who (i) did not tender their Ruckus shares in the offer; (ii) follow the procedures set forth in Section 262 of the DGCL; and (iii) do not thereafter withdraw their demand for appraisal of such shares, in each case, in accordance with Section 262 of the DGCL, will be entitled to have their shares appraised by the Delaware Court of Chancery and receive payment of the “fair value” of such shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any, as determined by the Delaware Court of Chancery.

The “fair value” of any Ruckus shares could be based upon considerations other than, or in addition to, the price paid in the offer and the merger and the market value of such shares. Ruckus stockholders should recognize that the value determined in an appraisal proceeding of the Delaware Court of Chancery could be higher or lower than, or the same as, the transaction consideration. Moreover, Brocade and Ruckus may argue in an appraisal proceeding that, for purposes of such proceeding, the fair value of such shares of Ruckus common stock is less than the transaction consideration.

Under Section 262 of the DGCL, where a merger is approved under Section 251(h) of the DGCL, either a constituent corporation before the effective date of the merger, or the surviving corporation within ten days thereafter, must notify each of the holders of any class or series of stock of such constituent corporation who is entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and will include in such notice a copy of Section 262 of the DGCL. The Schedule 14D-9 constitutes the formal notice of appraisal rights under DGCL Section 262. Failure to follow the steps required by DGCL Section 262 for perfecting appraisal rights will result in the loss of such rights.

 

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The foregoing summary of the rights of dissenting stockholders under the DGCL does not purport to be a complete statement of the procedures to be followed by Ruckus stockholders desiring to exercise any available appraisal rights under Section 262 of the DGCL, and is qualified in its entirety by the full text of Section 262 of the DGCL. See “The Offer and the Merger—Appraisal Rights.”

Whom should I call if I have questions about the offer?

You may call D.F. King & Co., Inc., the information agent, toll free at (866) 620-2535 or contact the information agent via e-mail at Ruckus@dfking.com.

Where can I find more information about Brocade and Ruckus?

You can find more information about Brocade and Ruckus from various sources described in the section of this document entitled “Where to Obtain More Information.”

 

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SUMMARY

This section summarizes material information presented in greater detail elsewhere in this document. However, this summary does not contain all of the information that may be important to Ruckus stockholders. You are urged to carefully read the remainder of this document, the related letter of transmittal, the annexes to this document and the other information referred to or incorporated by reference in this document because the information in this section and in the “Questions and Answers About the Offer and the Merger” section is not complete. See “Where to Obtain More Information.”

The Offer and the Merger (Page 39)

The purpose of the offer and the merger is for Brocade to acquire control of, and ultimately the entire equity interest in, Ruckus. The offer is the first step in Brocade’s plan to acquire all of the outstanding Ruckus shares, and the merger is the second step in such plan. If the offer is completed, shares of Ruckus common stock that are validly tendered and not validly withdrawn in the offer will be exchanged for the transaction consideration, and if the merger is completed, any remaining shares of Ruckus common stock that were not exchanged in the offer (except for excluded shares) and that are issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive the transaction consideration.

Transaction Consideration (Page 101)

The transaction consideration consists of:

 

    $6.45 in cash; and

 

    0.75 of a share of Brocade common stock, par value $0.001 per share, together with cash in lieu of any fractional shares of Brocade common stock;

in each case, without interest and less any applicable withholding taxes.

Brocade will not issue fractional shares of Brocade common stock in the offer or the merger. Instead, each holder of shares of Ruckus common stock who otherwise would be entitled to receive a fractional share of Brocade common stock will be entitled to an amount in cash (without interest and rounded to the nearest cent) equal to the amount of the fractional share interest in a share of Brocade common stock to which such holder would otherwise be entitled pursuant to the offer or the merger, as applicable, multiplied by the average of the volume weighted average price per share of Brocade common stock on NASDAQ (as reported by Bloomberg L.P. or, if not reported therein, in another authoritative source mutually selected by Brocade and Ruckus) on each of the ten consecutive trading days ending with and including the complete trading day immediately prior to the acceptance time. See “Merger Agreement—Transaction Consideration—Fractional Shares.”

Treatment of Ruckus Equity Awards (Page 102)

If the merger is consummated, in general, (i) out of the money Ruckus stock options, Ruckus restricted stock units and Ruckus restricted stock units subject to a performance-based vesting condition (“Ruckus performance-based restricted stock units”) will be rolled over into Brocade equity awards (which for the restricted stock units subject to a performance-based vesting condition will be at the target level of performance), (ii) vested Ruckus options that are in the money will be cashed out and (iii) unvested Ruckus stock options that are in the money will be rolled over into restricted stock units of Brocade (“Brocade restricted stock units”) based on the in the money spread value of the Ruckus options. See “Merger Agreement—Treatment of Ruckus Equity Awards.”

 



 

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The Offer (Page 100)

Brocade, through the Offeror, its direct wholly owned subsidiary, is offering, upon the terms and subject to the conditions set forth in this prospectus/offer to exchange and in the accompanying letter of transmittal, to exchange the transaction consideration for each outstanding share of Ruckus common stock validly tendered and not validly withdrawn in the offer.

The Merger (Page 100)

As soon as practicable following the consummation of the offer, Brocade and Ruckus are required to complete the merger, assuming the satisfaction of the conditions to the consummation of the merger. The obligations of Brocade, the Offeror and Ruckus to consummate the merger are subject to the satisfaction of the following conditions (which may be waived, in whole or in part, to the extent permitted by law, by the mutual consent of Brocade and Ruckus):

 

    Purchase of Shares of Ruckus Common Stock—The Offeror must have accepted for payment all of the shares of Ruckus common stock validly tendered and not validly withdrawn in the offer.

 

    No Governmental Prohibition—No law or order (whether temporary, preliminary or permanent) must have been promulgated, entered, enforced, enacted or issued or be applicable to the merger or the issuance of Brocade common stock in connection with the offer or the merger by any governmental authority that prohibits or makes illegal the consummation of the merger or the issuance of Brocade common stock in connection with the offer or the merger.

The purpose of the merger is for Brocade to acquire all remaining shares of Ruckus common stock that it did not acquire in the offer. If the offer is completed (such that Brocade and the Offeror and Brocade’s other subsidiaries own at least a majority of the then-outstanding shares of Ruckus common stock), the merger will be governed by Section 251(h) of the DGCL, and accordingly no stockholder vote will be required to consummate the merger.

In the merger, the Offeror will be merged with and into Ruckus, with Ruckus surviving the merger as the surviving corporation. At the effective time of the merger, each share of Ruckus common stock that was not acquired by Brocade or the Offeror in the offer (except for excluded shares) and that is issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive the transaction consideration. Upon consummation of the merger, Ruckus will be a direct wholly owned subsidiary of Brocade, and the former stockholders of Ruckus will no longer have any direct ownership interest in the surviving corporation.

The Companies (Page 37)

Brocade

Brocade Communications Systems, Inc.

130 Holger Way

San Jose, California 95134

(408) 333-8000

Brocade is a leading supplier of networking hardware, software and services, including Storage Area Networking solutions and Internet Protocol Networking solutions for businesses and organizations of various types and sizes. Brocade’s end customers include global enterprises and other organizations that use Brocade’s products and services as part of their communications infrastructure and service providers, such as telecommunication firms, cable operators and mobile carriers, that use Brocade’s products and services as part of their commercial operations. Brocade offers a comprehensive line of high-performance networking hardware and software

 



 

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products and services that enable businesses and organizations to make their data centers and networks more efficient, reliable and adaptable to the changing demands of new network traffic patterns and volumes.

Brocade Communications Systems, Inc. was incorporated in Delaware in 1999 and became a publicly traded company that same year. Brocade’s common stock is traded on the NASDAQ under the ticker symbol “BRCD.”

Offeror

Stallion Merger Sub Inc.

c/o Brocade Communications Systems, Inc.

130 Holger Way

San Jose, California 95134

(408) 333-8000

The Offeror, a Delaware corporation, is a direct wholly owned subsidiary of Brocade. The Offeror is newly formed and was organized for the purpose of making the offer and consummating the merger. The Offeror has engaged in no business activities to date and has no material assets or liabilities of any kind, other than those incident to its formation and those incurred in connection with the offer and the merger.

Ruckus

Ruckus Wireless, Inc.

350 West Java Drive

Sunnyvale, California 94089

(650) 265-4200

Ruckus is a global supplier of advanced Wi-Fi solutions. Ruckus’ solutions, which are called Smart Wi-Fi, are used by service providers and enterprises to solve a range of network capacity, coverage and reliability challenges associated with increasing wireless traffic demands created by the growth in the number of users equipped with more powerful smart wireless devices using increasingly data rich applications and services. Ruckus markets and sells its products and technology directly and indirectly through a vast network of channel partners to a variety of service providers and enterprises around the world.

Ruckus Wireless, Inc. was incorporated in Delaware in 2002 and became a publicly traded company in 2012. Ruckus’ shares of common stock are traded on the NYSE under the ticker symbol “RKUS.”

Conditions to the Offer (Page 104)

The offer is subject to certain conditions, including:

 

    satisfaction of the minimum tender condition;

 

    satisfaction of the regulatory approvals condition;

 

    lack of governmental prohibitions;

 

    the registration statement on Form S-4 of which this document is a part being effective and not subject to any stop order that is in effect or any pending proceeding seeking a stop order;

 

    the shares of Brocade common stock to be issued as consideration in connection with the offer and the merger having been approved for listing on NASDAQ, subject to official notice of issuance;

 



 

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    the truth and accuracy of each of Ruckus’, on the one hand, and Brocade’s and the Offeror’s, on the other hand, representations and warranties made in the merger agreement, subject to materiality qualifiers with respect to certain representations and warranties;

 

    each of Ruckus, on the one hand, and Brocade and the Offeror, on the other hand, being in material compliance with their respective covenants under the merger agreement (subject to an opportunity to cure);

 

    no material adverse effect (as such term is defined in the merger agreement and described under “Merger Agreement—Material Adverse Effect”) having occurred with respect to Ruckus and its subsidiaries that is continuing;

 

    no material adverse effect (as such term is defined in the merger agreement and described under “Merger Agreement—Material Adverse Effect”) having occurred with respect to Brocade and its subsidiaries that is continuing; and

 

    the merger agreement not having been terminated.

The offer is subject to certain other conditions set forth in the section below entitled “Merger Agreement—Conditions—Conditions to the Offer.” Subject to applicable SEC rules and regulations (including, without limitation, Section 14(e) of the Exchange Act), the Offeror reserves the right to waive or modify any of the conditions to the offer and to make any change in the terms of, or conditions to, the offer; provided, however, that, without the prior written consent of Ruckus in its sole discretion, the Offeror may not (i) waive certain specified conditions (including all the conditions noted above other than the conditions related to a material adverse effect of Ruckus, accuracy of Ruckus’ representations and Ruckus’ compliance with covenants), (ii) make any change in the terms of or conditions to the offer that (A) changes the form or amount of consideration to be paid in the offer (provided, however, that the Offeror may increase the amount of such consideration (irrespective of form), subject to certain limitations set forth in the merger agreement), (B) decreases the number of shares of Ruckus common stock sought in the offer, (C) extends the offer (other than as expressly required or permitted by the merger agreement), (D) imposes additional conditions to the offer other than those set forth in the merger agreement, or (E) amends or modifies any other term of or any condition to the offer in any manner that is adverse to the holders of Ruckus shares, or (iii)  provide for a “subsequent offering period” within the meaning of Rule 14d-11 under the Exchange Act.

Extension, Termination and Amendment of the Offer (Page 93)

The offer is currently scheduled to expire at 12:00 midnight, Eastern time, at the end of May 26, 2016, unless earlier extended or terminated. The Offeror will effect any extension, termination, amendment or delay of the offer by giving oral or written notice to the exchange agent and by making a public announcement as promptly as practicable thereafter. In the case of an extension, any such announcement will be issued no later than 9:00 a.m., Eastern time, on the next business day following the previously scheduled expiration date. During any such extension, all Ruckus shares previously tendered and not validly withdrawn will remain subject to the offer, subject to the rights of a tendering stockholder to withdraw such stockholder’s shares. “Expiration date” means 12:00 midnight, Eastern time, at the end of May 26, 2016, unless and until the Offeror has extended the period during which the offer is open, in which event the term “expiration date” means the latest time and date at which the offer, as so extended by the Offeror, will expire.

Subject to the provisions of the merger agreement and the applicable rules and regulations of the SEC, the Offeror must (i) extend the offer in the event that any of the offer conditions (including the minimum tender condition) have not been satisfied or waived as of any then scheduled expiration of the offer, for successive extension periods of up to ten business days each in order to permit the satisfaction of the conditions to the offer, and (ii) extend the offer for any period required by any law, rule, regulation, interpretation or position of the SEC

 



 

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or its staff or the NYSE which is applicable to the offer or the merger. However, the Offeror is not permitted or required to extend the offer beyond the outside date, other than any such extension requested by Ruckus, to the extent Brocade or the Offeror would be prohibited from terminating the merger agreement for failure of the acceptance time to occur by the outside date, or any such extension effected by Brocade or the Offeror, to the extent Ruckus would be prohibited from terminating the merger agreement for failure of the acceptance time to occur by the outside date (as described under “The Merger Agreement—Termination of the Merger Agreement—Termination by Brocade or Ruckus”).

Any decision to extend the offer will be made public by an announcement regarding such extension as described under “Exchange Offer Procedures—Extension, Termination and Amendment of Offer.”

Withdrawal Rights (Page 97)

Ruckus shares tendered pursuant to the offer may be withdrawn at any time prior to the expiration date of the offer, as it may be extended. Further, if the Offeror has not accepted Ruckus shares for exchange on or prior to June 27, 2016, Ruckus stockholders can thereafter withdraw them from tender at any time after that date until the Offeror accepts such shares for exchange.

Procedure for Tendering (Page 95)

To validly tender shares of Ruckus common stock held of record in certificated form or in book-entry form through the direct registration system, Ruckus stockholders must deliver a properly completed and duly executed letter of transmittal, along with any required signature guarantees and any other documents required by the exchange agent, and certificates representing such shares, if applicable, to the exchange agent for the offer, at its address set forth elsewhere in this document, all of which must be received by the exchange agent prior to the expiration date.

To validly tender shares held in “street name” (i.e., shares held in electronic book-entry form other than through the direct registration system), you must contact the institution that holds your shares for instructions on how to tender your shares.

For a complete discussion of the procedures for tendering your Ruckus shares, see “Exchange Offer Procedures—Procedure for Tendering.”

Support Agreement (Page 123)

Concurrently with the execution of the merger agreement, Selina Lo, Ruckus’ President and Chief Executive Officer and a director of Ruckus, entered into a support agreement with Brocade and the Offeror (referred to as the “support agreement”) covering all of the Ruckus shares beneficially owned by her. She has, in her capacity as a Ruckus stockholder, agreed, among other things: (i) to cause all Ruckus shares beneficially owned by her to be tendered into the offer promptly (and, in any event, not later than the tenth business day) after the commencement of the offer (except that the support agreement does not require Ms. Lo to convert, exercise or exchange any securities convertible into or exercisable or exchangeable for shares of Ruckus common stock and only outstanding shares of Ruckus common stock beneficially owned by her are required to be tendered into the offer); (ii) not to withdraw any such shares from the offer unless and until the support agreement is terminated in accordance with its terms; and (iii) to certain restrictions on the encumbering or disposing of any such shares prior to the termination of the support agreement. The support agreement terminates automatically upon the earliest to occur of the following: (a) termination of the merger agreement in accordance with its terms, (b) the consummation of the merger, (c) the termination or withdrawal of the offer, (d) any modification, change or amendment of, or any waiver of Ruckus’ rights under or conditions set forth in, the merger agreement or the offer, without the prior written consent of Ms. Lo, that results in any decrease in the amount of the transaction consideration, and (e) the date on which Brocade, Offeror and Ms. Lo mutually agree to terminate the support agreement.

 



 

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Regulatory Approvals (Page 78)

The completion of the offer is subject to the expiration or termination of the applicable waiting period under the HSR Act, and the receipt of any applicable approvals, consents or clearances under the competition laws of Germany. On April 28, 2016, Ruckus and Brocade were informed that the Federal Trade Commission (the “FTC”) granted early termination of the waiting period under the HSR Act. These requirements are discussed under “The Offer and the Merger—Regulatory Approvals.”

Source and Amount of Funds (Page 89)

Brocade’s obligation to consummate the offer and the merger is not conditioned on Brocade or the Offeror obtaining any financing.

Brocade estimates that the aggregate amount of cash consideration required to purchase the outstanding shares of Ruckus common stock, complete the merger and pay related fees and expenses is approximately $737.0 million. Brocade anticipates that the funds needed to complete the offer and the merger and pay related fees and expenses and to fund the anticipated repurchases of Brocade shares following the consummation of the merger will be derived from a combination of cash on hand and borrowings under a new senior credit facility. Concurrently with the execution of the merger agreement, Brocade entered into a commitment letter (referred to as the “commitment letter”) with Wells Fargo Bank, National Association, Wells Fargo Securities, LLC, Deutsche Bank AG New York Branch, Deutsche Bank Securities Inc., SunTrust Bank and SunTrust Robinson Humphrey, Inc., pursuant to which certain of such parties have committed, subject to the satisfaction of certain conditions, to provide Brocade with a term loan facility of $800 million and a revolving credit facility of $100 million. The financing contemplated by the commitment letter is referred to as the “debt financing.” See “The Offer and the Merger—Source and Amount of Funds.”

Interests of Certain Persons in the Offer and the Merger (Page 80)

Certain of Ruckus’ executive officers and directors have financial and other interests in the transactions contemplated by the merger agreement that are different from, or in addition to, the interests of Ruckus stockholders generally. The Ruckus board of directors was aware of these differing interests and considered them, among other matters, in evaluating and negotiating the merger agreement and in reaching its decision to approve the merger agreement and the transactions contemplated by the merger agreement.

For a full discussion on the interests of Ruckus’ directors and officers in the transactions contemplated by the merger agreement, see “The Offer and the Merger—Interests of Certain Persons in the Offer and the Merger.”

Appraisal Rights (Page 77)

Appraisal rights are not available in connection with the offer. However, Ruckus stockholders who have not properly tendered in the offer, and who otherwise comply with the applicable procedures for demanding appraisal under Section 262 of the DGCL, will be entitled to seek appraisal for the “fair value” of their shares as determined by the Delaware Court of Chancery. See “The Offer and the Merger—Appraisal Rights.”

Comparative Market Price and Dividend Matters (Page 124)

Brocade common stock is listed on NASDAQ under the symbol “BRCD,” and Ruckus common stock is listed on the NYSE under the symbol “RKUS.” The parties announced the execution of the merger agreement prior to commencement of trading on April 4, 2016. The following table sets forth the closing prices of Brocade common

 



 

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stock on NASDAQ and Ruckus common stock on the NYSE as reported on April 1, 2016, the trading day prior to the public announcement of the merger, and on April 28, 2016, the most recent trading day prior to the mailing of this document. The table also shows the implied value of one share of Ruckus common stock on such dates, which was calculated by adding (i) the per-share cash consideration of $6.45 and (ii) the product of the exchange ratio of 0.75 multiplied by the closing price of Brocade common stock on such date.

 

     Per-Share Ruckus
Closing Price
     Per-Share Brocade
Closing Price
     Implied Transaction
Value of Ruckus
Share
 

April 1, 2016

   $ 10.00       $ 10.64       $ 14.43   

April 28, 2016

   $ 13.84       $ 9.86       $ 13.85   

The market value of the stock consideration will change as the market value of Brocade common stock fluctuates during the offer period and thereafter. Ruckus stockholders should obtain current market quotations for shares of Ruckus common stock and Brocade common stock before deciding whether to tender their Ruckus shares in the offer.

Listing of Brocade Common Stock (Page 92)

Brocade will submit the necessary applications to seek to cause the shares of its common stock to be issued as transaction consideration in the offer and the merger to be approved for listing on NASDAQ. Approval of this listing is a condition to consummation of the offer.

Ownership of Brocade Common Stock After the Offer and the Merger (Page 86)

Brocade estimates that the former stockholders of Ruckus will own, in the aggregate, approximately 14.5% of the outstanding shares of Brocade common stock immediately following consummation of the offer and the merger. For a detailed discussion of the assumptions on which this estimate is based, see “The Offer and the Merger—Ownership of Brocade Common Stock After the Offer and the Merger.”

Comparison of Stockholders’ Rights (Page 146)

The rights of Brocade stockholders are different in some respects from the rights of Ruckus stockholders. Therefore, Ruckus stockholders will have different rights as stockholders once they become Brocade stockholders. These differences are described in more detail under “Comparison of Stockholders’ Rights.”

Material U.S. Federal Income Tax Consequences (Page 140)

The exchange of Ruckus shares for cash and Brocade common stock pursuant to the offer or the merger will be a taxable transaction to U.S. Holders (as such term is described under “Material U.S. Federal Income Tax Consequences”) for U.S. federal income tax purposes.

Each Ruckus stockholder should read the discussion under “Material U.S. Federal Income Tax Consequences” for a more complete discussion of the U.S. federal income tax consequences of the offer and the merger. Tax matters can be complicated, and the tax consequences of the offer and the merger to a particular Ruckus stockholder will depend on such stockholder’s particular facts and circumstances. Ruckus stockholders should consult their own tax advisors to determine the specific consequences to them of exchanging their shares of Ruckus common stock for the transaction consideration pursuant to the offer or the merger.

 



 

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Accounting Treatment (Page 92)

In accordance with generally accepted accounting principles in the United States of America (referred to as “GAAP”), Brocade will account for the acquisition of shares through the offer and the merger under the acquisition method of accounting for business combinations.

Questions about the Offer and the Merger

Questions or requests for assistance or additional copies of this document may be directed to the information agent at the telephone number and addresses set forth below. Stockholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the offer.

The information agent for the offer is:

D.F. King & Co., Inc.

48 Wall Street

New York, New York 10005

Banks and Brokers Call Collect: (212) 269-5550

All Others Call Toll-Free: (866) 620-2535

Email: Ruckus@dfking.com

 



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF BROCADE

The following table sets forth selected consolidated financial data of Brocade as of the dates and for the periods indicated.

The selected consolidated financial data as of October 31, 2015 and November 1, 2014, and for the fiscal years ended October 31, 2015, November 1, 2014 and October 26, 2013, were derived from Brocade’s audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended October 31, 2015, filed with the SEC on December 22, 2015, and incorporated by reference into this document. The selected consolidated financial data as of October 26, 2013, October 27, 2012 and October 29, 2011, and for the years ended October 27, 2012 and October 29, 2011, were derived from Brocade’s audited consolidated financial statements not included or incorporated by reference into this document. The selected consolidated financial data as of January 30, 2016 and for the three month periods ended January 30, 2016 and January 31, 2015 were derived from Brocade’s unaudited consolidated financial statements included in its Quarterly Report on Form 10-Q for the period ended January 30, 2016, previously filed with the SEC on March 4, 2016 and incorporated by reference into this document. The selected historical consolidated financial data may not be indicative of the results of operations or financial position of Brocade that may be expected in the future.

Such financial data should be read together with, and is qualified in its entirety by reference to, Brocade’s historical consolidated financial statements and the accompanying notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are set forth in Brocade’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015, previously filed with the SEC on December 22, 2015, and Brocade’s Quarterly Report on Form 10-Q for the three months ended January 30, 2016, previously filed with the SEC on March 4, 2016, and incorporated by reference into this document.

 

    Three Months Ended     Year Ended  
    January 30,
2016
    January 31,
2015
    October 31,
2015
    November 1,
2014
    October 26,
2013
    October 27,
2012
    October 29,
2011
 
    (in thousands, except per share data)  

Consolidated statement of income data:

             

Net revenues

  $ 574,284      $ 576,239      $ 2,263,460      $ 2,211,267      $ 2,222,864      $ 2,237,770      $ 2,147,442   

Gross profit

  $ 388,815      $ 389,683      $ 1,528,073      $ 1,465,793      $ 1,408,879      $ 1,383,019      $ 1,283,534   

Net income

  $ 93,646      $ 87,267      $ 340,362      $ 237,971      $ 208,623      $ 195,181      $ 50,610   

Net income per share-basic

  $ 0.23      $ 0.20      $ 0.81      $ 0.55      $ 0.46      $ 0.43      $ 0.11   

Net income per share-diluted

  $ 0.23      $ 0.20      $ 0.79      $ 0.53      $ 0.45      $ 0.41      $ 0.10   

Shares used in per share calculation-basic

    407,902        428,536        420,331        435,258        450,516        456,629        474,259   

Shares used in per share calculation-diluted

    415,085        439,156        430,556        446,859        463,705        472,343        497,030   

Net cash provided by operating activities

  $ 112,200      $ 10,393      $ 447,499      $ 541,597      $ 451,029      $ 590,870      $ 449,232   

Ratio of earnings to fixed charges

    11.1        5.3        8.3        9.5        6.4        5.0        1.8   

Consolidated balance sheet data (at period end):

             

Cash, cash equivalents, and investments

  $ 1,392,009      $ 1,359,365      $ 1,440,882      $ 1,255,017      $ 986,997      $ 713,226      $ 414,976   

Current assets

  $ 1,661,060      $ 2,094,514      $ 1,852,199      $ 1,658,005      $ 1,422,803      $ 1,155,579      $ 844,201   

Non-current assets(1)

  $ 2,247,835      $ 2,086,675      $ 2,183,953      $ 2,074,820      $ 2,197,656      $ 2,425,682      $ 2,630,107   

Total assets(1)

  $ 3,908,895      $ 4,181,189      $ 4,036,152      $ 3,732,825      $ 3,620,459      $ 3,581,261      $ 3,474,308   

Current liabilities

  $ 484,839      $ 806,030      $ 562,364      $ 587,308      $ 560,663      $ 610,468      $ 565,987   

Non-current liabilities(1)

  $ 922,863      $ 930,158      $ 944,305      $ 739,156      $ 714,847      $ 734,973      $ 894,183   

Convertible senior unsecured notes(1)

  $ 501,645      $ 485,081      $ 497,427      $ —        $ —        $ —        $ —     

Senior unsecured notes

  $ 296,457      $ 296,040      $ 296,351      $ 295,938      $ 295,545      $ —        $ —     

Senior secured notes

  $ —        $ 300,000      $ —        $ 298,373      $ 298,127      $ 596,264      $ 595,803   

Term loan

  $ —        $ —        $ —        $ —        $ —        $ —        $ 186,858   

Capital lease obligations

  $ 215      $ 963      $ 298      $ 2,115      $ 4,600      $ 4,916      $ 6,782   

Book value per share

  $ 6.21               

 

(1) In the first fiscal quarter of fiscal year 2016, Brocade adopted ASC 835, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. Under this update, debt issuance costs are required to be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts. Brocade retrospectively applied this update to all prior periods presented.

 



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF RUCKUS

The following table sets forth selected consolidated financial data of Ruckus as of as of the dates and for the periods indicated.

The selected consolidated financial data as of December 31, 2015 and 2014, and for the years ended December 31, 2015, 2014 and 2013, were derived from Ruckus’ audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on February 24, 2016 and incorporated by reference into this document. The selected consolidated financial data as of December 31, 2013, 2012 and 2011, and for the years ended December 31, 2012 and 2011, were derived from Ruckus’ audited consolidated financial statements not included or incorporated by reference into this document. The selected historical consolidated financial data may not be indicative of the results of operations or financial position of Ruckus that may be expected in the future.

Such financial data should be read together with, and is qualified in its entirety by reference to, Ruckus’ historical consolidated financial statements and the accompanying notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which are set forth in the above-referenced Annual Report on Form 10-K.

 

    Fiscal Year Ended December 31,  
    2015     2014     2013     2012     2011  
    (in thousands, except per share data)  

Consolidated statement of income data:

         

Revenue:

         

Product

  $ 343,659      $ 303,446      $ 245,935      $ 201,913      $ 114,684   

Service

    29,717        23,473        17,132        12,740        5,339   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    373,376        326,919        263,067        214,653        120,023   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue:

         

Product

    105,314        90,651        78,344        70,478        44,705   

Service

    14,741        12,454        9,844        5,306        2,502   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    120,055        103,105        88,188        75,784        47,207   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    253,321        223,814        174,879        138,869        72,816   

Operating expenses:

         

Research and development

    94,234        77,164        61,783        43,821        24,892   

Sales and marketing

    109,864        98,634        79,185        56,209        32,659   

General and administrative

    41,799        33,622        33,752        20,237        8,524   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    245,897        209,420        174,720        120,267        66,075   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    7,424        14,394        159        18,602        6,741   

Interest income (expense)

    701        199        187        (472     (1,025

Other expense, net

    (524     (463     (456     (3,664     (1,215
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    7,601        14,130        (110     14,466        4,501   

Income tax expense (benefit)

    2,911        5,940        (1,899     (17,238     315   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 4,690      $ 8,190      $ 1,789      $ 31,704      $ 4,186   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

  $ 4,690      $ 8,190      $ 1,789      $ 9,036      $ 379   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share attributable to common stockholders:

         

Basic

  $ 0.05      $ 0.10      $ 0.02      $ 0.36      $ 0.02   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ 0.05      $ 0.09      $ 0.02      $ 0.24      $ 0.02   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares used in computing net income per share attributable to common stockholders:

         

Basic

    87,418        82,908        76,744        24,847        15,584   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    95,851        93,668        93,361        37,775        23,269   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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    Fiscal Year Ended December 31,  
    2015     2014     2013     2012     2011  
    (in thousands, except per share data)  

Consolidated balance sheet data (at period end):

         

Cash and cash equivalents

  $ 69,687      $ 56,083      $ 91,282      $ 133,386      $ 11,200   

Short-term investments

    160,791        142,706        60,878        —          —     

Working capital (deficit)

    252,943        213,576        160,435        141,093        (2,927

Current assets

    342,555        295,392        230,695        210,688        45,656   

Non-current assets

    76,266        58,602        52,527        33,151        20,034   

Total assets

    418,821        353,994        283,222        243,839        65,690   

Deferred revenue, current and non-current

    51,126        49,785        40,237        40,486        17,181   

Current liabilities

    89,612        81,816        70,260        69,595        48,583   

Non-current liabilities

    17,676        12,529        9,113        4,033        10,593   

Redeemable convertible preferred stock

    —          —          —          —          51,257   

Total stockholders’ equity (deficit)

  $ 311,533      $ 259,649      $ 203,849      $ 170,211      $ (44,743

Book value per share

  $ 3.49           

 



 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The following selected unaudited pro forma condensed combined financial data has been prepared to reflect the offer, the merger and the debt financing. Following the consummation of the merger, Brocade intends to use a portion of the proceeds from the debt financing and cash on hand to repurchase a number of Brocade shares equivalent to the number of Brocade shares issued as stock consideration in the offer and the merger. See “The Offer and the Merger—Brocade Stock Repurchase Program.” However, Brocade has not committed to repurchasing any specific number of shares. Because the anticipated share repurchases are not directly related to the transactions contemplated by the merger agreement, the selected unaudited pro forma condensed combined financial data do not reflect the impact of those share repurchases. See “Supplemental Information—Brocade Share Repurchases” following “Unaudited Pro Forma Condensed Combined Financial Statements” for an analysis of the impact of such share repurchases on selected line items of the unaudited pro forma condensed combined financial statements.

The selected unaudited pro forma condensed combined balance sheet data as of January 30, 2016 combines the historical consolidated balance sheets of Brocade and Ruckus as of January 30, 2016 and December 31, 2015, respectively, giving effect to the offer, the merger and the debt financing as if they had been completed on January 30, 2016. The selected unaudited pro forma condensed combined statement of income for the three months ended January 30, 2016 combines the historical consolidated statements of income of Brocade and Ruckus for the three months ended January 30, 2016 and the three months ended December 31, 2015, respectively, and the selected unaudited pro forma condensed combined statement of income for the fiscal year ended October 31, 2015 combines the historical consolidated statements of income of Brocade and Ruckus for the fiscal year ended October 31, 2015 and the fiscal year ended December 31, 2015, respectively, in each case, giving effect to the offer, the merger and the debt financing as if they had occurred on November 2, 2014.

The selected unaudited pro forma condensed combined financial information has been prepared for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Brocade would have been had the offer, the merger and the debt financing occurred on the dates assumed, nor is this information necessarily indicative of future consolidated results of operations or financial position. The unaudited pro forma condensed combined financial information includes adjustments and assumptions that are factually supportable and that Brocade believes are reasonable. These assumptions, however, are only preliminary and may vary significantly from the fair values that will be recorded upon completion of the offer, the merger and the debt financing. The unaudited pro forma condensed combined statements of operations are based upon the historical financial statements of Brocade and Ruckus and include all adjustments that give effect to the events directly attributable to the offer, the merger and the debt financing, and are expected to have a continuing impact and are factually supportable. See “Risk Factors—Risk Factors Relating to Brocade and the Combined Company—Brocade’s and Ruckus’ actual financial positions and results of operations may differ materially from the unaudited pro forma financial data included in this document.” The following information has been derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial statements and the related notes included in this document. See “Unaudited Pro Forma Condensed Combined Financial Statements.”

 



 

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     Three Months Ended
January 30,

2016
     Fiscal Year Ended
October 31,

2015
 
    

(In thousands, except per share amounts and

ratio of earnings to fixed charges)

 

Pro Forma Statement of Income Data:

  

Net revenues

   $ 674,400       $ 2,636,836   

Gross margin

     442,426         1,722,514   

Income from continuing operations before income tax

     100,211         382,676   

Net income

     86,620         303,468   

Net income per common share:

  

Basic

   $ 0.18       $ 0.62   

Diluted

   $ 0.18       $ 0.61   

Weighted-average shares outstanding:

  

Basic

     475,854         488,283   

Diluted

     484,574         500,045   

Ratio of earnings to fixed charges

     7.39         5.84   

Pro Forma Balance Sheet Data (at period end):

     

Cash and cash equivalents

   $ 1,524,734      

Current assets

   $ 2,104,062      

Non-current assets

   $ 3,312,732      

Total assets

   $ 5,416,794      

Current liabilities

   $ 628,375      

Non-current liabilities

   $ 1,667,108      

Total debt, including current portion

   $ 1,583,808      

Total stockholders’ equity

   $ 3,121,311      

Book value per share

   $ 6.63      

 



 

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UNAUDITED COMPARATIVE PER SHARE DATA

The following table reflects historical information about basic and diluted earnings per share, cash dividends per share, and book value per share, of Brocade for the three months ended January 31, 2016 and the fiscal year ended October 31, 2015, and for Ruckus for the fiscal year ended December 31, 2015, and for Brocade and Ruckus on an unaudited pro forma combined basis after giving effect to the offer, the merger and the debt financing. Following the consummation of the merger, Brocade intends to use a portion of the proceeds from the debt financing and cash on hand to repurchase a number of Brocade shares equivalent to the number of Brocade shares issued as stock consideration in the offer and the merger. See “The Offer and the Merger—Brocade Stock Repurchase Program.” However, Brocade has not committed to repurchasing any specific number of shares. Because the anticipated share repurchases are not directly related to the transactions contemplated by the merger agreement, the selected unaudited pro forma condensed combined financial data do not reflect the impact of those share repurchases. See “Supplemental Information—Brocade Share Repurchases” following “Unaudited Pro Forma Condensed Combined Financial Statements” for an analysis of the impact of such share repurchases on selected line items of the unaudited pro forma condensed combined financial statements.

The pro forma data of the combined company assumes the acquisition of 100% of the shares of Ruckus common stock by Brocade and was derived by combining the historical consolidated financial information of Brocade and Ruckus as described elsewhere in this document. For a discussion of the assumptions and adjustments made in preparing the pro forma financial information presented in this document, see “Unaudited Pro Forma Condensed Combined Financial Statements.”

Ruckus stockholders should read the information presented in the following table together with the historical financial statements of Brocade and Ruckus and the related notes which are incorporated herein by reference, and the “Unaudited Pro Forma Condensed Combined Financial Statements” appearing elsewhere in this document. The pro forma data is unaudited and for illustrative purposes only. Ruckus stockholders should not rely on this information as being indicative of the historical results that would have been achieved during the periods presented had the companies been combined on the dates assumed or the future results that the combined company will achieve after the consummation of the offer and the merger. This pro forma information is subject to risks and uncertainties, including those discussed in “Risk Factors.”

 

     Three Months
Ended

January 30,
2016
     Fiscal Year
Ended

October 31,
2015
 

BROCADE HISTORICAL:

     

Basic net income per common share

   $ 0.23       $ 0.81   

Diluted net income per common and dilutive potential common share

   $ 0.23       $ 0.79   

Cash dividends declared per share

   $ 0.045       $ 0.16   

Book value per share at period end

   $ 6.21       $ 6.12   

 

     Fiscal Year
Ended
December 31,
2015
 

RUCKUS HISTORICAL:

  

Basic net income per common share

   $ 0.05   

Diluted net income per common and dilutive potential common share

   $ 0.05   

Cash dividends declared per share

   $ —     

Book value per share at period end

   $ 3.49   

 



 

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     Three Months
Ended

January 30,
2016
     Fiscal Year
Ended

October 31,
2015
 

UNAUDITED PRO FORMA COMBINED:

     

Basic net income per common share

   $ 0.18       $ 0.62   

Diluted net income per common and dilutive potential common share

   $ 0.18       $ 0.61   

Cash dividends declared per share

   $ 0.05       $ 0.16   

Book value per share at period end

   $ 6.63         N/A   

 

     Three Months
Ended

January 30,
2016
     Fiscal Year
Ended

October 31,
2015
 

UNAUDITED PRO FORMA EQUIVALENT RUCKUS (1):

     

Basic net income per common share

   $ 0.14       $ 0.47   

Diluted net income per common and dilutive potential common share

   $ 0.13       $ 0.46   

Cash dividends declared per share

   $ 0.03       $ 0.12   

Book value per share at period end

   $ 4.98         N/A   

 

(1) The Ruckus pro forma equivalent per share amounts were calculated by multiplying the pro forma combined amounts by the exchange ratio of 0.75. This presentation does not take into account the cash consideration payable for each Ruckus share in the offer and the merger.

 



 

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RISK FACTORS

Ruckus stockholders should carefully read this document and the other documents referred to or incorporated by reference into this document, including in particular the following risk factors, in deciding whether to tender shares pursuant to the offer.

Risk Factors Relating to the Offer and the Merger

The stock portion of the transaction consideration is fixed and will not be adjusted. Because the market price of Brocade common stock may fluctuate, Ruckus stockholders cannot be sure of the market value of the transaction consideration they will receive in exchange for their Ruckus shares in connection with the offer and the merger.

In connection with the offer and the merger, Ruckus stockholders will receive cash and a fixed number of shares of Brocade common stock for each of their shares of Ruckus common stock (i.e., 0.75 of a share of Brocade common stock for each Ruckus share). Because the number of shares of Brocade common stock being offered as part of the transaction consideration will not vary based on the market value of Brocade common stock, the portion of the market value of the transaction consideration that Ruckus stockholders will receive in the offer or the merger that is based on the value of Brocade common stock will vary based on the price of Brocade common stock at the time the transaction consideration is received. The market price of Brocade common stock may decline after the date of this document, after you tender your shares and/or after the offer and the merger are completed.

A decline in the market price of Brocade common stock could result from a variety of factors beyond Brocade’s control, including, among other things, the possibility that Brocade may not achieve the expected benefits of the acquisition of Ruckus as rapidly or to the extent anticipated, Ruckus’ business may not perform as anticipated following the offer and the merger, the effect of Brocade’s acquisition of Ruckus on Brocade’s financial results may not meet the expectations of Brocade, financial analysts or investors, the addition and integration of Ruckus’ business may be unsuccessful, take longer or be more disruptive than anticipated, or Brocade’s increased indebtedness incurred to finance the offer, the merger and the contemplated share repurchases may limit its ability to incur additional debt for other business purposes and in turn limit its ability to pursue elements of its business strategy.

A decline in the market price of Brocade common stock could also result from numerous factors unrelated to the offer and the merger including, among others:

 

    actual or anticipated changes in Brocade’s operating results;

 

    whether Brocade’s operating results or forecasts meet the expectations of securities analysts or investors;

 

    actual or anticipated changes in the expectations of securities analysts or investors;

 

    recommendations by securities analysts or changes in their earnings estimates;

 

    the announcement or timing of announcement of Brocade’s quarterly or annual operating results;

 

    announcements of actual or anticipated operating results by Brocade’s competitors, Brocade’s original equipment manufacturer partners, and other companies in the IT industry;

 

    speculation, coverage or sentiment in the media or the investment community about, or actual changes in, Brocade’s business, strategic position, competitive position, market share, operations, prospects, future stock price performance, or Brocade’s industry in general;

 

    the announcement of new, planned, or contemplated products; services; commercial relationships; technological innovations; acquisitions; divestitures; or other significant transactions by Brocade or its competitors;

 

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    adverse changes to Brocade’s relationships with any of its original equipment manufacturer partners;

 

    changes in the business strategy or execution of any of Brocade’s original equipment manufacturer partners;

 

    departures of key employees;

 

    litigation or disputes involving Brocade, Brocade’s industry, or both;

 

    general economic conditions and trends;

 

    sales of Brocade’s stock by Brocade’s officers, directors, or significant stockholders; and

 

    the timing and amount of dividends and stock repurchases.

In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Accordingly, broad market and industry factors may adversely affect Brocade’s stock price regardless of Brocade’s operating performance. In addition, Brocade’s stock price might also fluctuate in reaction to events that affect other companies in Brocade’s industry even if these events do not directly affect or involve Brocade.

Because the offer will not be completed until certain conditions have been satisfied or waived, a significant period of time may pass between the commencement of the offer, the time you tender your shares and the time that the Offeror accepts your shares for payment. Therefore, at the time you tender your shares of Ruckus common stock pursuant to the offer, you will not know the exact market value of the stock portion of the transaction consideration that will be issued if the Offeror accepts such shares for payment.

In addition, although Brocade intends to implement a share repurchase plan promptly following the closing of the offer and the merger that Brocade intends to fund in part with proceeds from the debt financing (as described under “The Offer and the Merger—Source and Amount of Funds”), there is no guarantee that Brocade will do so, and any decision by Brocade not to implement such a plan or to implement such a plan in a manner that results in a lesser amount of share repurchases being executed than expected may adversely affect the market price of Brocade common stock.

See “Comparative Market Price and Dividend Matters” of this document. You are urged to obtain current market quotations for shares of Ruckus common stock and for shares of Brocade common stock.

The offer remains subject to conditions that Brocade cannot control.

The offer is subject to the following conditions:

 

    satisfaction of the minimum tender condition;

 

    satisfaction of the regulatory approvals condition;

 

    lack of governmental prohibitions;

 

    the registration statement on Form S-4 of which this document is a part being effective and not subject to any stop order that is in effect or pending proceeding seeking a stop order;

 

    the shares of Brocade common stock to be issued as consideration in connection with the offer and the merger having been approved for listing on NASDAQ, subject to official notice of issuance;

 

    the truth and accuracy of each of Ruckus’, on the one hand, and Brocade’s and the Offeror’s, on the other hand, representations and warranties made in the merger agreement, subject to materiality qualifiers with respect to certain representations and warranties;

 

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    each of Ruckus, on the one hand, and Brocade and the Offeror, on the other hand, being in material compliance with their respective covenants under the merger agreement (subject to an opportunity to cure);

 

    no material adverse effect (as such term is defined in the merger agreement and described under “Merger Agreement—Material Adverse Effect”) having occurred with respect to Ruckus and its subsidiaries that is continuing;

 

    no material adverse effect (as such term is defined in the merger agreement and described under “Merger Agreement—Material Adverse Effect”) having occurred with respect to Brocade and its subsidiaries that is continuing;

 

    the merger agreement not having been terminated in accordance with its terms; and

 

    each of Ruckus and Brocade having delivered an officer’s certificate to the other certifying as to the satisfaction of certain conditions.

There are no assurances that all of the conditions to the offer will be satisfied or that the conditions will be satisfied in the time frame expected. See “Merger Agreement—Conditions—Conditions to the Offer” for a discussion of the conditions to the offer.

If the offer and the merger are completed, Ruckus stockholders will receive Brocade common stock as part of the transaction consideration and will accordingly become Brocade stockholders. Brocade common stock may be affected by factors different from those affecting Ruckus common stock, and Brocade stockholders will have different rights than Ruckus stockholders.

Upon consummation of the offer and the merger, Ruckus stockholders will receive shares of Brocade common stock as part of the transaction consideration and will accordingly become Brocade stockholders. Brocade’s business differs from that of Ruckus, and Brocade’s results of operations and the trading price of Brocade common stock may be adversely affected by factors different from those that would affect Ruckus’ results of operations and stock price.

In addition, holders of shares of Brocade common stock will have rights as Brocade stockholders that differ from the rights they had as Ruckus stockholders before the offer and the merger. For a comparison of the rights of Brocade stockholders to the rights of Ruckus stockholders, see “Comparison of Stockholders’ Rights.”

Ruckus stockholders, in the aggregate, will have a reduced ownership and voting interest in Brocade, compared to their aggregate ownership in Ruckus.

Brocade estimates that the former stockholders of Ruckus will own, in the aggregate, approximately 14.5% of the outstanding shares of Brocade common stock immediately following consummation of the offer and the merger. Consequently, Ruckus stockholders will not be able to exercise as much influence over the management and policies of Brocade as they currently exercise over Ruckus.

The merger agreement limits Ruckus’ ability to pursue alternative transactions, and in certain instances requires payment of a termination fee, which could deter a third party from proposing an alternative transaction.

The merger agreement contains provisions that, subject to certain exceptions, limit Ruckus’ ability to solicit, initiate, support, knowingly induce or knowingly encourage, or take any other action with the intent to facilitate, any inquiries, proposals, indications of interest or offers which constitute, or could reasonably be expected to lead to, a proposal for an alternative transaction. See “Merger Agreement—No Solicitation of Other Offers by Ruckus.” In addition, under specified circumstances where the merger agreement is terminated, Ruckus is required to pay a termination fee of $50 million. See “Merger Agreement—Termination Fee and Expenses—

 

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Termination Fee.” It is possible that these or other provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Ruckus from considering or proposing an acquisition or might result in a potential competing acquirer proposing to pay a lower per share price to acquire Ruckus than it might otherwise have proposed to pay.

The stock price of Ruckus common stock may be adversely affected if the offer and the merger are not completed.

If the offer and the merger are not completed, the price of Ruckus common stock may decline to the extent that the current market price of Ruckus common stock reflects a market assumption that the offer and the merger will be completed and have value.

Lawsuits have been filed, and further lawsuits may be filed, against Ruckus, the Ruckus board of directors, Brocade and the Offeror challenging the offer and the merger. An adverse ruling in any such lawsuit may delay or prevent the offer from being consummated or delay or prevent the merger from becoming effective, and may result in substantial costs to Brocade and Ruckus.

Following the announcement of the entry into the merger agreement, two putative class action complaints were filed on behalf of purported Ruckus stockholders in the Superior Court of California, County of Santa Clara. The complaints contain similar allegations and name Ruckus, members of the Ruckus board of directors, Brocade and the Offeror as defendants. In general, the complaints allege that the members of the Ruckus board of directors breached their fiduciary duties to Ruckus stockholders by doing one or more of the following: (i) agreeing to unfair and inadequate transaction consideration for the Ruckus shares, (ii) accepting unreasonable deal protection measures in the merger agreement that dissuade other potential bidders from making competing offers, (iii) failing to properly value Ruckus and take steps to maximize the value of Ruckus, and (iv) engaging in self-dealing. The two complaints also allege that one or more of Ruckus, Brocade and the Offeror aided and abetted the members of the Ruckus board of directors in breaching their fiduciary duties to Ruckus stockholders. The plaintiffs have requested, among other things: (i) certification as a class, (ii) rescission and invalidation of the merger agreement or related agreements, (iii) injunctive relief, (iv) imposition of a constructive trust, and (v) an award of the costs and disbursements of the action, including reasonable attorneys’ and experts’ fees.

Ruckus stockholders, as plaintiffs, may initiate further stockholder class action lawsuits seeking, among other things, to enjoin the offer and the merger. If such a lawsuit were to lead to an injunction issued by a court, the condition to the offer requiring that there be no governmental prohibitions prohibiting or making illegal the consummation of any of the offer, the merger or the issuance of Brocade common stock as consideration in connection with the offer or the merger may not be met.

Pursuant to Ruckus’ amended and restated bylaws and indemnification agreements, Ruckus has an obligation to indemnify the members of the Ruckus board of directors to the extent not prohibited by the DGCL or other applicable law, subject to certain exceptions not applicable here. This obligation may apply with respect to any stockholder class action lawsuits. There can be no assurance that Ruckus and the other defendants in these lawsuits will be successful in their defenses. An unfavorable outcome in any such lawsuit could prevent or delay the consummation of the offer and the merger and, regardless of the outcome, may result in substantial costs to Ruckus and/or Brocade.

The financial analyses and forecasts considered by Brocade, Ruckus and Ruckus’ financial advisor may not be realized.

While the financial analyses and forecasts utilized by Brocade, Ruckus and Ruckus’ financial advisor in connection with the offer and the merger and summarized in this document were prepared in good faith based on information available at the time of preparation, no assurances can be made regarding future events or that the assumptions made in preparing such forecasts will accurately reflect future conditions. In preparing such

 

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forecasts, the managements of Brocade and Ruckus and Ruckus’ financial advisor made assumptions regarding, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant uncertainties and contingencies, including, among others, risks and uncertainties described in this section and under “Forward-Looking Statements” or incorporated by reference in this document, all of which are difficult to predict and many of which are beyond the control of Ruckus and Brocade and will be beyond the control of the combined company. There can be no assurance that the underlying assumptions or forecasted results will be realized, and actual results will likely differ, and may differ materially, from those reflected in the unaudited financial forecasts, whether or not the offer and the merger are completed. As a result, these unaudited financial forecasts cannot be considered predictive of actual future operating results, and this information should not be relied on as such. In addition, since such forecasts cover multiple years, the information by its nature becomes less predictive with each successive year.

The opinion of Ruckus’ financial advisor will not reflect changes in circumstances between the signing of the merger agreement and the completion of the merger.

In connection with the offer and the merger, at the meeting of the Ruckus board of directors on April 3, 2016, Morgan Stanley & Co. LLC (referred to as “Morgan Stanley”), Ruckus’ financial advisor, rendered to the Ruckus board of directors its oral opinion, subsequently confirmed in writing, that as of April 3, 2016, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations upon the scope of the review undertaken by Morgan Stanley as set forth in the written opinion, the transaction consideration to be received by the holders of Ruckus shares (other than excluded shares) pursuant to the merger agreement was fair from a financial point of view to such holders. The full text of the written opinion of Morgan Stanley, dated as of April 3, 2016, is attached as Annex C to this document and is incorporated by reference in this document in its entirety.

Ruckus has not obtained an updated opinion from Morgan Stanley as of the date of this document and does not expect to receive an updated opinion. Changes in the operations and prospects of Ruckus or Brocade, general market and economic conditions and other factors that may be beyond the control of Ruckus or Brocade, and on which Ruckus’ financial advisor’s opinion was based, may significantly alter the value of Ruckus or Brocade or the prices of Ruckus or Brocade common stock by the time the offer and the merger are completed. The opinion does not speak as of the time the offer and the merger will be completed or as of any date other than the date of such opinion. Because Ruckus’ financial advisor will not be updating its opinion, the opinion will not address the fairness of the transaction consideration from a financial point of view at the time the offer and the merger are completed.

If the offer and the merger are completed, Ruckus stockholders who participate in the offer and the merger will be forfeiting all rights with respect to their Ruckus shares other than the right to receive the transaction consideration.

If the offer and the merger are completed, stockholders of Ruckus will cease to have any equity interest in Ruckus. In addition, Ruckus stockholders who validly tender their Ruckus shares (and do not validly withdraw such shares) in the offer will forfeit their appraisal rights with respect to such shares under Delaware law in connection with the subsequent merger. Holders of Ruckus shares who perfect their appraisal rights under Delaware law could realize a higher or lower, or the same, value for their shares than the transaction consideration.

 

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The receipt of Brocade shares and cash in the transactions contemplated by the merger agreement will be fully taxable to Ruckus stockholders.

The exchange of Ruckus shares for Brocade shares and cash in the transactions contemplated by the merger agreement will be fully taxable to Ruckus stockholders that are U.S. Holders (as described under “Material U.S. Federal Income Tax Consequences”) for U.S. federal income tax purposes. These consequences are described more fully under “Material U.S. Federal Income Tax Consequences.” Ruckus stockholders should consult their tax advisors to determine the specific tax consequences to them of the transactions contemplated by the merger agreement, including any federal, state, local, foreign or other tax consequences, and any tax return filing or other reporting requirements.

Risk Factors Relating to Brocade and the Combined Company

Brocade may fail to realize all of the anticipated benefits of the offer and the merger or those benefits may take longer to realize than expected.

The full benefits of the offer and the merger, including the anticipated sales or growth opportunities, may not be realized as expected or may not be achieved within the anticipated time frame, or at all. Brocade may also encounter difficulties, costs and delays as a result of the acquisition of Ruckus, including due to complexities associated with leveraging scale and coordinating expertise. Failure to achieve the anticipated benefits of the offer and the merger could adversely affect Brocade’s results of operations or cash flows, cause dilution to the earnings per share of Brocade, decrease or delay the expected accretive effect of the offer and the merger, and negatively impact the price of Brocade common stock. Brocade and Ruckus will incur direct and indirect costs as a result of the offer and the merger.

Brocade and Ruckus will incur substantial expenses in connection with the offer and the merger and, following the completion of the merger, Brocade expects to incur additional expenses in connection with aligning the businesses, operations, policies and procedures of Brocade and Ruckus. Factors beyond Brocade’s and Ruckus’ control could affect the total amount or timing of these expenses, many of which, by their nature, are difficult to estimate accurately. In addition, if the offer and merger are not completed, Brocade and Ruckus would have to recognize these expenses without realizing the expected benefits of the acquisition.

Matters relating to the offer and the merger may divert management’s attention away from Brocade’s and Ruckus’ day-to-day operations.

The process of effecting the offer and the merger and the preparation for integration of Brocade’s and Ruckus’ businesses and operations may place a significant burden on both companies’ management and internal resources. Diversion of management’s focus and resources from the day-to-day operations of the businesses to matters relating to the offer and the merger could adversely affect the companies’ businesses, regardless of whether the offer and the merger are completed.

In addition, successful coordination, alignment and targeted integration of Brocade’s and Ruckus’ operations, brands, products and personnel may place a significant burden on the management and internal resources of Brocade and Ruckus following completion of the offer and the merger. The transition process could disrupt each of Brocade’s and Ruckus’ ongoing businesses and divert management’s focus from other opportunities and challenges. The diversion of management’s attention and any difficulties encountered during this period could harm the business, financial condition and operating results of the combined company and limit the anticipated benefits of the offer and the merger.

Brocade’s and Ruckus’ actual financial positions and results of operations may differ materially from the unaudited pro forma financial data included in this document.

The unaudited pro forma condensed combined financial information contained in this document is presented for illustrative purposes only and may differ materially from what Brocade’s actual financial position or results of

 

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operations would have been had the offer and the merger been completed, and the indebtedness expected to be incurred in connection therewith been incurred, on the dates indicated. The unaudited pro forma condensed combined financial information has been derived from the audited and unaudited historical financial statements of Brocade and Ruckus, and certain adjustments and assumptions have been made regarding the combined company after giving effect to the offer, the merger and the debt financing. The assets and liabilities of Ruckus have been measured at fair value based on various preliminary estimates using assumptions that Brocade management believes are reasonable utilizing information currently available. The process for estimating the fair value of acquired assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. These estimates may vary significantly as additional information becomes available and as additional analyses are performed. Differences between preliminary estimates in the unaudited pro forma condensed combined financial information and the final acquisition accounting may occur and are not necessarily indicative of financial position or results of operations in future periods or that would have been realized in historical periods presented.

Following the consummation of the merger, Brocade intends to use a portion of the proceeds from the debt financing and cash on hand to repurchase a number of Brocade shares equivalent to the number of Brocade shares issued as stock consideration in the offer and the merger. See “The Offer and the Merger—Brocade Stock Repurchase Program.” However, Brocade has not committed to repurchasing any specific number of shares. Because the anticipated share repurchases are not directly related to the transactions contemplated by the merger agreement, the selected unaudited pro forma condensed combined financial data do not reflect the impact of those share repurchases.

In addition, the assumptions used in preparing the unaudited pro forma condensed combined financial information may not prove to be accurate, and other factors may affect Brocade’s financial condition or results of operations following the completion of the offer and the merger. Any potential decline in Brocade’s financial condition or results of operations may cause significant variations in the share price of Brocade. See “Unaudited Pro Forma Condensed Combined Financial Statements.”

Brocade will incur significant additional indebtedness in connection with the offer, the merger and the anticipated repurchases of shares following the offer and the merger, which will decrease Brocade’s business flexibility and increase its interest expense.

As of January 30, 2016, Brocade had approximately $875 million in principal amount of outstanding indebtedness, including $575 million of indebtedness under the 1.375% convertible senior unsecured notes due 2020 and $300 million of unsecured indebtedness under the 4.625% senior notes due 2023. Brocade’s indebtedness after giving effect to the debt financing is expected to be approximately $1.7 billion. Brocade’s substantially increased indebtedness following completion of the offer and the merger could have the effect, among other things, of reducing Brocade’s flexibility to respond to changing business and economic conditions and will increase Brocade’s interest expense. Brocade will also incur various costs and expenses associated with the debt financing. The amount of cash required to pay interest on Brocade’s increased indebtedness levels following completion of the offer and the merger, and thus the demands on Brocade’s cash resources, will be greater than the amount of cash required to service Brocade’s indebtedness prior to the offer and the merger. The amount of cash on hand will be significantly impacted by the extent to which Brocade effects the anticipated repurchase of Brocade shares following the consummation of the offer and the merger. Brocade’s increased indebtedness following completion of the offer and the merger could also reduce funds available for working capital, capital expenditures, acquisitions, share repurchases and other general corporate purposes and may limit the ability of Brocade to meet its target of returning at least 60% of its annual adjusted free cash flow to Brocade stockholders in the form of share repurchases or cash dividends. In addition, Brocade’s increased indebtedness following completion of the offer and the merger could create competitive disadvantages for Brocade relative to other companies with lower indebtedness levels. If Brocade does not achieve the expected benefits and cost savings from the offer and the merger, or if the financial performance of the combined company does not meet current expectations, then Brocade’s ability to service its indebtedness may be adversely impacted.

 

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It is expected that indebtedness borrrowed in connection with the debt financing will bear interest at variable interest rates. If interest rates increase, variable rate debt will create higher debt service requirements, which could further adversely affect Brocade’s cash flows.

Brocade may be required to raise additional financing to fund working capital, capital expenditures, acquisitions, share repurchases or other general corporate requirements. Brocade’s ability to arrange additional financing will depend on, among other factors, Brocade’s financial position and performance, as well as prevailing market conditions and other factors beyond Brocade’s control. Brocade cannot assure you that it will be able to obtain additional financing on terms acceptable to Brocade or at all.

The definitive documentation governing the debt financing has not been finalized. However, it is expected that the definitive documentation governing the debt financing will contain various affirmative and negative covenants that impose restrictions on Brocade and certain of its subsidiaries and that may affect their ability to operate their businesses. These covenants could have the effect, among other things, of reducing Brocade’s flexibility to respond to changing business and economic conditions and increased borrowing costs should further financing be desired, and may adversely affect Brocade’s operations and financial results. In addition, such documentation is expected to contain financial covenants that will require Brocade to maintain certain financial ratios. See “The Offer and the Merger—Source and Amount of Funds.” The ability of Brocade and its subsidiaries to comply with these provisions may be affected by events beyond their control. Failure to comply with these covenants could result in an event of default under the senior credit facility, which, if not cured or waived, could accelerate Brocade’s repayment obligations with respect to the senior credit facility and its other debt.

If the value of Ruckus’ business, together with any synergies to be achieved from Brocade’s acquisition of Ruckus, is less than the value of the transaction consideration, the trading price of shares of Brocade common stock could decrease.

If investors believe that the value of the cash consideration and stock consideration to be exchanged for Ruckus shares in connection with the offer and the merger, together with transaction costs, is greater than the value of Ruckus’ business, together with any synergies expected to be achieved in connection with Brocade’s acquisition of Ruckus, the trading price of Brocade common stock could decrease and the offer and the merger could have a dilutive effect on the value of common shares held by Brocade stockholders (including former Ruckus stockholders).

Executive officers and directors of Ruckus have interests in the offer and the merger that differ from or are in addition to the interests of Ruckus stockholders generally.

Certain of Ruckus’ executive officers and directors have financial and other interests in the transactions contemplated by the merger agreement that are different from, or in addition to, the interests of Ruckus stockholders generally. These interests include, but are not limited to, entitlement to certain compensation and benefits. These interests are described more fully under “The Offer and the Merger—Interests of Certain Persons in the Offer and the Merger.”

Uncertainty during the pendency of the offer and the merger may cause suppliers, customers or other business partners to delay or defer decisions concerning Brocade and/or Ruckus or re-negotiate agreements with Brocade and/or Ruckus, and completion of the offer and the merger could cause suppliers, customers and other business partners to terminate or re-negotiate their relationships with the surviving corporation or Brocade.

The offer and the merger will be completed only if specified conditions are met, many of which are outside the control of Brocade and Ruckus. In addition, both parties have rights to terminate the merger agreement under

 

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specified circumstances. Accordingly, there may be uncertainty regarding the consummation of the offer and the merger, both as to whether and when they will be consummated. This uncertainty may cause suppliers, customers or other business partners of Brocade and/or Ruckus to delay or defer decisions concerning such company’s products or businesses, or they may seek to change existing agreements with Brocade and/or Ruckus, which could negatively affect their respective businesses, results of operations and financial conditions.

Additionally, if the offer and the merger are completed, certain suppliers, customers or other business partners may attempt to terminate or change their relationships with the surviving corporation or Brocade. For example, Brocade currently partners with other companies, including Aruba, a Hewlett Packard Enterprise company, and Aerohive Networks, Inc., that market and sell products that compete with Ruckus’ products. If the offer and the merger are completed, these companies may decline to continue partnering with Brocade, which could adversely affect Brocade’s revenue and decrease the expected benefits of the acquisition. These decisions could have an adverse effect on the business of the combined company.

Brocade’s acquisition of Ruckus could trigger certain change-of-control or similar provisions contained in Ruckus’ agreements with third parties that could permit such parties to terminate or re-negotiate those agreements.

Ruckus may be a party to agreements that permit a counterparty to terminate an agreement or receive payments because the offer or the merger would cause a default or violate an anti-assignment, change-of-control or similar clause in such agreement. If this happens, Brocade may have to seek to replace that agreement with a new agreement or make additional payments under such agreement. However, Brocade may be unable to replace a terminated agreement on comparable terms or at all. Depending on the importance of such agreement to Ruckus’ business, the failure to replace a terminated agreement on similar terms or at all, and requirements to pay additional amounts, may increase the costs to Brocade of operating Ruckus’ business or decrease the expected benefits of the acquisition to the surviving corporation and Brocade.

Failure to effectively attract, retain and motivate key employees could diminish the anticipated benefits of the merger.

The success of the acquisition of Ruckus will depend in part on the attraction, retention and motivation of personnel critical to the business and operations of the surviving corporation due to, for example, their technical skills or industry and management expertise. Employees and consultants may experience uncertainty about their future roles with Brocade and Ruckus during the pendency of the offer and the merger or after their completion. Brocade and Ruckus, while similar and sharing a number of core values, do not have identical corporate cultures, and some employees or consultants may not want to work for the surviving corporation. In addition, competitors may recruit employees during the pendency of the offer and the merger or after their completion. If the companies are unable to attract, retain and motivate personnel that are critical to the successful operation of the combined company, the combined company could face disruptions in its operations, loss of existing customers, key information, expertise or know-how and unanticipated additional recruiting and training costs. In addition, the loss of key personnel could diminish the anticipated benefits of the acquisition of Ruckus to Brocade.

Risks Related to Brocade’s Business

You should read and consider the risk factors specific to Brocade’s business that will also affect the combined company after the merger. These risks are described in Brocade’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015 and in Brocade’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 30, 2016, each of which is incorporated by reference into this document, and in other documents that are incorporated by reference into this document. See “Where to Obtain More Information” for the location of information incorporated by reference in this document.

 

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Risks Related to Ruckus’ Business

You should read and consider the risk factors specific to Ruckus’ business that will also affect the combined company after the merger. These risks are described in Ruckus’ Annual Report on Form 10-K for the fiscal year ended December 31, 2015, which is incorporated by reference into this document, and in other documents that are incorporated by reference into this document. See “Where to Obtain More Information” for the location of information incorporated by reference in this document.

 

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FORWARD-LOOKING STATEMENTS

Information both included and incorporated by reference in this document contains forward-looking statements regarding future events and future results. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Words such as “expects,” “anticipates,” “assumes,” “targets,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “should,” “could,” “will,” “potential,” “opportunity” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections that Brocade’s management or Ruckus’ management believe are reasonable and appropriate under the circumstances. However, these statements are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may differ materially from those expected, estimated, forecasted or projected. We cannot guarantee that we actually will achieve these plans, intentions or expectations, including completing the offer and the merger on the terms summarized in this document. Forward-looking statements speak only as of the date they are made, and neither Brocade nor Ruckus undertakes any obligation to publicly update or revise any of them in light of new information, future events or otherwise.

All subsequent written and oral forward-looking statements attributable to Brocade, Ruckus, the Offeror or any person acting on Brocade’s or Ruckus’ behalf are qualified by the cautionary statements in this section.

Factors that could have a material adverse effect on Brocade’s or Ruckus’ operations and future prospects or the consummation of the offer and the merger, many of which are difficult to predict and beyond the control of Brocade or Ruckus, include, but are not limited to:

 

    failure to satisfy the conditions to consummate the offer and the merger;

 

    the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement;

 

    the failure of the offer or the merger to close in a timely manner or at all for any other reason;

 

    the availability of financing in connection with the acquisition on the terms anticipated or at all;

 

    the ability to successfully integrate Brocade and Ruckus following completion of the offer and the merger;

 

    realization of the expected benefits of the offer and the merger in a timely manner or at all;

 

    the amount of the costs, fees, expenses and charges related to the offer and the merger;

 

    effects of the pendency of the offer and the merger on relationships with employees, suppliers, customers and other business partners;

 

    increases in the costs of credit and the availability of credit or additional capital only under more restrictive conditions or not at all;

 

    unanticipated changes in Brocade’s or Ruckus’ tax obligations, results of tax examinations or exposure to additional income tax liabilities;

 

    changes in generally accepted accounting principles;

 

    environmental or other regulatory matters or litigation, or any matters involving contingent liabilities or other claims;

 

    difficulties in determining the scope of, and procuring and maintaining, adequate insurance coverage;

 

    general political, economic and business conditions and industry conditions;

 

    challenges to intellectual property and the ability to maintain and enforce intellectual property rights;

 

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    global economic growth and activity;

 

    competitive conditions in the markets in which Brocade and Ruckus compete;

 

    the ability of Brocade and Ruckus to successfully introduce and achieve acceptance of new products and support offerings on a timely basis;

 

    reliance on a limited number of customers, partners or suppliers;

 

    the loss of the services of any of key employees, the inability to attract or retain qualified employees in the future, or delays in hiring required employees;

 

    changes in laws or regulations or adverse government action;

 

    risks associated with international operations;

 

    the inherent uncertainty associated with financial or other projections;

 

    the ability to implement and achieve business strategies successfully; and

 

    the timing and amount of dividends and stock repurchases.

These risks and uncertainties, along with the risk factors discussed under “Risk Factors” in this document, should be considered in evaluating any forward-looking statements contained in this document.

 

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THE COMPANIES

Brocade

Brocade is a leading supplier of networking hardware, software, and services, including Storage Area Networking solutions and Internet Protocol Networking solutions for businesses and organizations of various types and sizes. Brocade’s end customers include global enterprises and other organizations that use Brocade’s products and services as part of their communications infrastructure and service providers, such as telecommunication firms, cable operators, and mobile carriers, that use Brocade’s products and services as part of their commercial operations. Brocade offers a comprehensive line of high-performance networking hardware and software products and services that enable business and organizations to make their data centers and networks more efficient, reliable, and adaptable to the changing demands of new network traffic patterns and volumes. Brocade’s products and services are focused on meeting the stringent requirements necessary for data center infrastructure and applications. Many of Brocade’s products have been designed to enable customers to deploy next-generation data center architectures and technologies, which the networking industry refers to as the New IP, including virtualization, cloud computing, software-defined networking, network functions virtualization, and network visibility and analytics. Brocade products and services are marketed, sold, and supported worldwide to end-user customers through distribution partners, including original equipment manufacturers, distributors, systems integrators, and value-added resellers, as well as directly to end users by Brocade’s sales force.

Brocade Communications Systems, Inc. was incorporated in Delaware in 1999 and became a publicly traded company that same year. Brocade’s common stock is traded on the NASDAQ under the ticker symbol “BRCD.”

The address of Brocade’s principal executive offices is 130 Holger Way, San Jose, California 95134. Brocade’s telephone number is (408) 333-8000.

Brocade also maintains an Internet site at www.brocade.com. Brocade’s website and the information contained therein or connected thereto shall not be deemed to be incorporated herein, and you should not rely on any such information in making an investment decision.

Offeror

Stallion Merger Sub Inc., a Delaware corporation, is a direct wholly owned subsidiary of Brocade. The Offeror is newly formed and was organized for the purpose of making the offer and consummating the merger. The Offeror has engaged in no business activities to date and it has no material assets or liabilities of any kind, other than those incident to its formation and those incurred in connection with the offer and the merger. The Offeror’s address is c/o Brocade Communications Systems, Inc., 130 Holger Way, San Jose, California 95134, and its telephone number is (408) 333-8000.

Ruckus

Ruckus is a global supplier of advanced Wi-Fi solutions. Ruckus’ solutions, which are called Smart Wi-Fi, are used by service providers and enterprises to solve a range of network capacity, coverage and reliability challenges associated with increasing wireless traffic demands created by the growth in the number of users equipped with more powerful smart wireless devices using increasingly data rich applications and services. Ruckus markets and sells its products and technology directly and indirectly through a vast network of channel partners to a variety of service providers and enterprises around the world. Ruckus’ Smart Wi-Fi solutions offer features and functionality such as enhanced reliability, consistent performance, extended range and massive scalability. Ruckus’ products include high capacity controllers, indoor and outdoor access points, wireless bridges, controller software platforms, software management solutions including reporting and analytics and unique Wi-Fi-related cloud services, such as location-based positioning, and certificate-based security and on-

 

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boarding of Wi-Fi devices. These hardware and software products and services incorporate various elements of Ruckus’ proprietary technologies, including Smart Radio, SmartCast, SmartMesh and Smart Scaling, to enable high performance in a variety of challenging operating environments.

Ruckus Wireless, Inc. was incorporated in 2002 and became a publicly traded company in 2012. Ruckus’ shares of common stock are traded on the NYSE under the ticker symbol “RKUS.”

The address of Ruckus’ principal executive offices is 350 West Java Drive, Sunnyvale, California 94089. Ruckus’ telephone number is (650) 265-4200.

Ruckus also maintains an Internet site at www.ruckuswireless.com. Ruckus’ website and the information contained therein or connected thereto shall not be deemed to be incorporated herein, and you should not rely on any such information in making an investment decision.

 

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THE OFFER AND THE MERGER

General

Brocade, through the Offeror, its direct wholly owned subsidiary, is offering, upon the terms and subject to the conditions set forth in this prospectus/offer to exchange and in the accompanying letter of transmittal, to exchange for each outstanding share of Ruckus common stock validly tendered and not validly withdrawn in the offer:

 

    $6.45 in cash; and

 

    0.75 of a share of Brocade common stock, par value $0.001 per share, together with cash in lieu of any fractional shares of Brocade common stock;

in each case, without interest and less any applicable withholding taxes.

Ruckus stockholders will not receive any fractional shares of Brocade common stock in the offer or the merger, and each Ruckus stockholder who otherwise would be entitled to receive a fraction of a share of Brocade common stock pursuant to the offer or the merger will be paid an amount in cash (without interest) in lieu thereof.

The purpose of the offer and the merger is for Brocade to acquire control of, and ultimately the entire equity interest in, Ruckus. The offer is the first step in Brocade’s plan to acquire all of the outstanding Ruckus shares, and the merger is the second step in such plan. If the offer is completed, shares of Ruckus common stock that are validly tendered and not validly withdrawn in the offer will be exchanged for the transaction consideration, and if the merger is completed, any remaining shares of Ruckus common stock that were not tendered into the offer (except for excluded shares) and that are issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive the transaction consideration. Brocade and Ruckus are required, on the terms and subject to the satisfaction or waiver of the conditions set forth in the merger agreement, to consummate the merger as promptly as practicable following the consummation of the offer, and Brocade expects that the merger will be consummated on the same day as the consummation of the offer. The purpose of the merger is for Brocade to acquire all remaining shares of Ruckus common stock that it did not acquire in the offer. Upon consummation of the merger, Ruckus will be a direct wholly owned subsidiary of Brocade, and the former stockholders of Ruckus will no longer have any direct ownership interest in the surviving corporation.

Background of the Offer and the Merger

As part of their ongoing evaluation of Ruckus’ business, members of Ruckus’ senior management and the Ruckus board of directors, respectively, from time to time engage in the review and assessment of Ruckus’ operations and financial performance, industry conditions and regulatory developments that may impact Ruckus’ long-term strategic goals and plans, including the review of potential opportunities for business combinations, acquisitions and other financial and strategic alternatives as a means to enhance or improve shareholder value.

Beginning in Spring 2015, following the announcement of the acquisition of Aruba Networks by Hewlett-Packard, Ruckus approached Brocade and a number of other possible commercial partners to ascertain whether they might be interested in entering into a commercial relationship with Ruckus to deliver open wired and wireless networking solutions, and to collaborate on go-to-market opportunities. In March 2015, Selina Lo, Chief Executive Officer of Ruckus, met with Lloyd Carney, Chief Executive Officer of Brocade, to inquire into Brocade’s interest in such a partnership with Ruckus. Mr. Carney and Ms. Lo have known each other for over twenty years, having worked together (she in marketing, he in customer service) at Bay Networks Inc., which in 1995, acquired Centillion Networks Inc., a company that Ms. Lo co-founded. At the March meeting, Mr. Carney said that he needed time to consider Brocade’s strategy for campus networking given the existing relationships between Brocade and Hewlett-Packard and Aruba. Ms. Lo and Mr. Carney agreed to review the situation in a few months. On April 28, 2015, Ms. Lo met with Mr. Carney, at which time Mr. Carney agreed to a non-exclusive

 

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commercial relationship between Brocade and Ruckus regarding “open systems” for wired and wireless networking using products from both companies. Mr. Carney suggested Ms. Lo work with Mr. Ken Cheng, Chief Technology Officer and Senior Vice President of Corporate Development and Emerging Business of Brocade, to implement such a commercial relationship. While no formal arrangement was entered into in the Spring of 2015, Brocade and Ruckus began engaging, informally, in joint bids in the K-12 space, and on August 28, 2015, the parties entered into a standard Ruckus Ecosystem Partner Program Agreement to formalize its engagement in joint marketing and selling opportunities. Shortly thereafter, Brocade announced its open mobility solutions program, which consisted of strategic partnerships with wireless companies, including Ruckus. Separately, on August 5, 2015, Mr. Carney contacted Ms. Lo regarding the possibility of exploring a potential strategic transaction between the two companies. Mr. Carney did not propose any terms (and none were discussed) or make any offer but suggested to Ms. Lo that he thought Brocade would be willing to pay an attractive premium for Ruckus.

On August 7, 2015, after receiving word from Ms. Lo of the outreach by Mr. Carney, the Ruckus board of directors held a special meeting, at which members of Ruckus’ senior management and a representative of Cooley LLP, regular external corporate counsel to Ruckus, were in attendance, to discuss Mr. Carney’s overture. The Ruckus board of directors discussed the overture as well as the wireless landscape and other parties who might be interested in a potential strategic transaction. The Ruckus board of directors also discussed hiring financial advisors to evaluate a possible transaction or any alternatives to a transaction. The Ruckus board of directors decided not to immediately engage with Brocade as to a possible transaction as there was no interest on the part of the Ruckus board of directors in selling Ruckus at the time and no specific Brocade proposal to consider; however, the Ruckus board of directors instructed management to maintain communications with Brocade. The Ruckus board of directors further instructed management to prepare a detailed analysis of Ruckus’ business and financial expectations for the following eight quarters so it could be best prepared and informed for any developments with Brocade or with respect to pursuing any alternatives, including continuing to execute its standalone strategy.

On August 18, 2015, Ms. Lo informed Mr. Carney that the Ruckus board of directors was not interested in engaging with respect to a strategic opportunity at the time and that she thought Ruckus was undervalued. In the conversation, she informed Mr. Carney that Ruckus had been investing in a market opportunity that they would begin unveiling in early 2016, that she believed would expand its total addressable market and that may boost the Ruckus’ market price. Mr. Carney noted to Ms. Lo that Brocade would be willing to pay an attractive premium for Ruckus, particularly if he better understood the market expansion opportunities. Mr. Carney requested that Brocade be permitted to do some high level due diligence on Ruckus.

On August 20, 2015, the Ruckus board of directors held a special meeting, at which members of Ruckus’ senior management were in attendance, to discuss further Brocade’s desire to perform high level due diligence and the possible metrics for establishing for Brocade or any other possible bidder the true value of Ruckus. The Ruckus board of directors authorized Ruckus to provide Brocade with a high level overview of Ruckus’ product roadmap.

On October 5, 2015, members of Ruckus’ management, including Ms. Lo, Seamus Hennessy, Chief Financial Officer of Ruckus, Dan Rabinovitsj, Chief Operating Officer of Ruckus, Steve Martin, Senior Vice President and General Manager of Emerging Technologies of Ruckus, and Bart Burstein, a member of the Ruckus board of directors, met with members of Brocade’s management, including Mr. Cheng, Dan Fairfax, Chief Financial Officer of Brocade, Ted Rado, Vice President, Corporate Development of Brocade, Jason Nolet, Senior Vice President, Switching, Routing and Analytics Products Group of Brocade, Kevin Shatzkamer, the CTO Mobile Networking of Brocade, Andrew Coward, Vice President of Service Provider Strategy of Brocade, and Kelly Herrell, Senior Vice President and General Manager of Software Networking of Brocade, in response to Brocade’s request to better understand Ruckus, to discuss with Brocade Ruckus’ product roadmap.

On November 4, 2015, the Ruckus board of directors held a regularly scheduled meeting at which, among other things, management presented on a preliminary basis its long-term forecast for Ruckus.

 

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On November 5, 2015, Mr. Rabinovitsj and Gaurav Garg, a director of Ruckus, met with the Chief Technology Officer of Party A, to discuss whether Party A had an interest in broadening the relationship between the two companies beyond the existing OEM reseller agreement, including as to whether Party A would be interested in a potential acquisition of Ruckus.

On November 9, 2015, Ms. Lo met with the chief executive officer of Party B, a long time business partner of Ruckus to discuss the two companies’ partnership in particular areas. At the meeting, Ms. Lo asked about Party B’s interest in engaging should Ruckus decide to seek a strategic alternative. The chief executive officer responded that he would be interested in discussing such a transaction.

On November 17, 2015, Mr. Carney reached out to Ms. Lo to inform her that Brocade was impressed by Ruckus’ management team at the October 5, 2015 meeting, and remained interested in Ruckus but that he would not be in a position to put forward a formal offer unless Brocade was able to do some further high level due diligence. As a follow-up, on November 20, 2015, Mr. Cheng sent Ms. Lo a list of initial diligence questions that he wanted to discuss.

On November 23, 2015, the Ruckus board of directors held a special meeting, at which members of Ruckus’ senior management and Ruckus’ regular external legal counsel were in attendance. At that meeting, Ms. Lo informed the Ruckus board of directors about the October 5, 2015 meeting with Brocade’s management and her subsequent discussion with Mr. Carney. Ms. Lo also reported to the Ruckus board of directors on discussions that she and Mohan Gyani, a member of the Ruckus board of directors, had held with a number of potential financial advisors to Ruckus to discuss generally their views of potential purchasers of Ruckus, the likely trading range of Ruckus shares should Ruckus pursue its long-term plan, and potential stand-alone alternatives for Ruckus (including continuing to execute its standalone plan or effecting a share repurchase program or a strategic acquisition). The Ruckus board of directors discussed its view of potential purchasers of Ruckus, noting that Brocade and Party A were likely the most logical buyers of Ruckus. The Ruckus board of directors also discussed whether private equity firms might be interested in a potential transaction and discussed members of the Ruckus board of directors discreetly contacting certain private equity firms with which the members had contacts to determine whether there may be interest in a potential transaction. The Ruckus board of directors decided that it would be advisable to engage a financial advisor to, among other things, evaluate any offer that may materialize from Brocade and Ruckus’ strategic alternatives and to help coordinate any potential outreach. The Ruckus board of directors created an ad hoc committee of the Ruckus board of directors (referred to as the “Ruckus Board Ad Hoc Committee”) that it charged with working with Ruckus’ management to evaluate and engage a financial advisor which could begin an outreach. The Ruckus board of directors also decided that management should meet with Brocade to provide it with more information about Ruckus, including the long-term plan management had prepared and presented at the November 4, 2015 Ruckus board of directors meeting.

During the period from November 23, 2015 to December 11, 2015, the Ruckus Board Ad Hoc Committee held conversations with a number of financial advisors about their potential engagement. On December 11, 2015, the Ruckus Board Ad Hoc Committee decided to engage Morgan Stanley as Ruckus’ financial advisor based on Morgan Stanley’s qualifications, expertise and reputation, its knowledge of and involvement in recent transactions in Ruckus’ industry, and its knowledge of Ruckus’ business and affairs. Ruckus did not execute a formal engagement letter with Morgan Stanley until January 20, 2016.

On December 1, 2015, Mr. Cheng sent Ms. Lo a request for additional preliminary due diligence, which was more extensive than the November 20, 2015 list he had previously sent. On December 4, 2015, Mr. Cheng called Ms. Lo to inquire after Ruckus’ responses to Brocade’s due diligence list. Ms. Lo responded that the Ruckus board of directors had decided to engage a financial advisor, and that Ruckus would follow-up on Brocade’s due diligence request after an advisor had been retained.

On December 10, 2015, Ms. Lo, Mr. Hennessy, Mr. Rabinovitsj and Mr. Garg met with certain members of senior management of Party A to continue the conversations Mr. Rabinovitsj and Mr. Garg had begun on

 

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November 5, 2015. Ruckus provided Party A with, among other things, its view of its market opportunities and products, product roadmap and competitive position, go-to-market profile, historical financial performance, financial projections (as described in “—Certain Financial Forecasts”), and the possible strategic benefits from a combination of the two companies.

In December 2015 and early January 2016, Ruckus’ management worked to put together a presentation to be in a position to respond to Brocade’s December 1, 2015 list of diligence questions that Brocade had said was a predicate to making a formal offer for Ruckus and also to schedule an in person meeting with Brocade.

Also during December 2015, members of the Ruckus board of directors reached out to certain private equity firms with whom they had relationships to inquire as to whether they would be interested in evaluating a potential acquisition of Ruckus. None of those firms indicated any interest.

On December 23, 2015, Mr. Rabinovitsj inquired of Party C’s representatives whether they may be interested in a meeting to discuss a possible transaction involving Ruckus.

During the week of January 4, 2016, representatives of Morgan Stanley reached out to Party A to follow up on the previous meetings between Ruckus and Party A to ascertain Party A’s potential level of interest in a strategic transaction with Ruckus.

On January 14, 2016, Mr. Rabinovitsj and Mr. Hennessy met with representatives of Party C to inquire as to whether Party C might be interested in an acquisition of Ruckus.

On January 15, 2016, members of Ruckus’ management, including Ms. Lo, Mr. Hennessy, Mr. Rabinovitsj and Greg Beach, VP Product Management of Ruckus, as well as Mr. Burstein, met with members of management of Brocade, including Mr. Cheng Mr. Fairfax, Mr. Rado, Mr. Nolet, Jeff Lindholm, Senior Vice President of Worldwide Sales of Brocade, and Carol Goode, Senior Vice President of Human Resources of Brocade, and representatives of Morgan Stanley and representatives of Evercore Group L.L.C. (referred to as “Evercore”), Brocade’s financial advisor, to present Brocade with responses to Brocade’s December 1, 2015 due diligence request. Ruckus provided Brocade with, among other things, its view of its market opportunities and products, product roadmap and competitive position, go-to-market profile, historical financial performance, financial projections (as described in “—Certain Financial Forecasts” below), and the possible strategic benefits from a combination of the two companies.

On January 21, 2016, representatives of Evercore informed representatives of Morgan Stanley that Brocade expected to make a cash and stock acquisition proposal for Ruckus. Representatives of Evercore indicated in that call that they did not expect Brocade to be in a position to make an all cash proposal for Ruckus because Brocade was not prepared to pay the premium that it expected Ruckus would require for an all-cash transaction.

On January 22, 2016, Ruckus and Party C entered into a confidentiality agreement, which provided, among other things, for a one-year standstill that by its terms terminated upon Ruckus’ entry into a merger agreement with a third party, including Brocade.

On January 25, 2016, representatives of Morgan Stanley followed up with Party C to ascertain the degree of interest Party C may have in a strategic acquisition.

On January 27, 2016, Ruckus received a written non-binding proposal from Brocade to acquire Ruckus for $6.00 in cash and 0.75 of a share of Brocade common stock per Ruckus share (referred to as the “January 27th proposal”), implying a total value of approximately $12.00 per Ruckus share based on the closing price of Brocade common stock on January 26, 2016. This represented a premium of 41% to Ruckus’ closing price as of January 26, 2016. Scott Maples, General Counsel of Ruckus, promptly distributed the January 27th proposal to members of the Ruckus board of directors. The January 27th proposal did not contain a financing condition. The

 

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January 27th proposal expired on February 5, 2016 and contemplated a 30-day exclusivity period that automatically extended for unlimited successive one-week periods as long as Brocade and Ruckus were negotiating in good faith towards a definitive agreement.

On January 29, 2016, representatives of Morgan Stanley contacted a representative of Party D to inquire whether they would be interested in evaluating a potential strategic transaction with Ruckus.

On February 1, 2016, the Ruckus board of directors held a regularly scheduled meeting, at which members of Ruckus’ senior management and Ruckus’ regular external legal counsel and representatives of Morgan Stanley were in attendance. The Ruckus board of directors discussed, among other things, the financial performance of Ruckus in FY 2015 against plan, and the FY 2016 plan, as well as the long-term forecasts that management had prepared in November 2015 and previously presented to the Ruckus board of directors and that were included in the management presentations Ruckus had made to Party A and Brocade in December 2015 and January 2016, respectively. The Ruckus board of directors approved the FY 2016 Plan, which the Ruckus board of directors considered fairly aggressive but that Ruckus’ management believed was achievable so long as Ruckus executed well.

At that meeting, representatives of Morgan Stanley updated the Ruckus board of directors on the meetings that had taken place between management of Ruckus and the managements of each of Brocade and Party A, and representatives of Party C, noting that Party A was unlikely to make a bid for Ruckus in any near term scenario because of its own strategic reasons. Representatives of Morgan Stanley also discussed with the Ruckus board of directors the various considerations relating to whether Ruckus should continue on a standalone basis, engage in a strategic transaction with Brocade or another potential interested party, make a strategic acquisition and/or engage in a share repurchase program. They also discussed with the Ruckus board of directors their preliminary view as to Ruckus’ standalone value and the January 27th proposal, noting that the stock component of the January 27th proposal appeared to be more attractive than the cash component based on their view that Brocade appeared to be undervalued, and that there could be significant accretion based on future synergies generated by the combined company. The Ruckus board of directors determined, based on the implied price of the January 27th proposal and its preliminary view of the standalone value of Ruckus, and considering the views of Morgan Stanley, to reject the January 27th proposal and instructed Morgan Stanley to advise Evercore that, while Ruckus may be interested in a transaction with Brocade, the January 27th proposal was not acceptable. The Ruckus board of directors also decided that it should continue to selectively and discreetly reach out to potentially interested parties, based on its own understanding of the market and the views of Morgan Stanley as to likely interested parties. The Ruckus board of directors instructed Morgan Stanley to broaden its outreach to date and to focus its outreach on those strategic and private equity parties that likely would have the interest and financial wherewithal to acquire Ruckus. Representatives of Morgan Stanley informed the Ruckus board of directors that private equity firms would likely be less interested in pursuing a potential transaction with Ruckus and any offers from private equity firms would likely be less competitive than their strategic counterparts given Ruckus’ current profit margin structure. Taking into account these considerations, the Ruckus board of directors directed representatives of Morgan Stanley to reach out to Party B, to continue engaging with Party A, Party C and Party D, and to reach out to the following additional private equity firms: Party E, Party F and Party G. The Ruckus board of directors also approved Morgan Stanley’s target guidance to private equity firms and any other all-cash bidders that Ruckus would expect an offer price of no less than $15.00 in cash per Ruckus share.

On February 3, 2016, representatives of Morgan Stanley advised representatives of Evercore that the Ruckus board of directors had rejected the January 27th proposal and that Ruckus would require a materially higher offer than $12.00 per Ruckus share before it engaged further with Brocade. Representatives of Evercore requested a counter-offer and informed representatives of Morgan Stanley that Brocade indicated that it would want to announce any transaction with Ruckus prior to the announcement of its first fiscal quarter 2016 results on February 17, 2016. Representatives of Evercore also informed representatives of Morgan Stanley that Brocade had indicated that it expected its results for the first fiscal quarter 2016 to be strong, that it was not willing to increase the stock component of its proposal, and that Brocade was contemplating a transaction that would not

 

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require a vote by the stockholders of Brocade under the NASDAQ rules with respect to stock issuances. Representatives of Morgan Stanley informed Evercore representatives that, if Ruckus were to permit Brocade to conduct further due diligence of Ruckus, Brocade would have to enter into a confidentiality agreement that was specific to a potential transaction, rather than continue to rely on the existing commercial confidentiality agreement between the companies.

Also on February 3, 2016, representatives of Morgan Stanley reached out to a member of senior management of Party D to inquire as to whether Party D may be interested in a potential strategic transaction with Ruckus, and were informed that Party D would need to evaluate internally and would revert.

On February 5, 2016, at a special meeting of the Ruckus board of directors at which members of Ruckus’ senior management and representatives of Morgan Stanley were in attendance, representatives of Morgan Stanley updated the Ruckus board of directors on its discussions with Evercore, Party A, Party C and Party D, and its planned outreach that week to Party B, Party E, Party F and Party G, and noted that both Party A and Party C expressed interest in potentially pursuing an acquisition of Ruckus, though the interest was very preliminary in both instances.

Also on February 5, 2016, Ruckus engaged Sullivan & Cromwell LLP (referred to as “Sullivan & Cromwell”) as its external mergers and acquisitions legal advisor.

Later in the day on February 5, 2016, Ruckus and Brocade entered into a confidentiality agreement with respect to a potential transaction which, among other things, provided for a one-year standstill that by its terms would terminate upon Ruckus’ entry into a merger agreement with a third party, including Brocade.

Also on February 5, 2016, Mr. Hennessy, with representatives of Morgan Stanley in attendance, held a financial due diligence call with a representative of Party C, who indicated during the call that he did not expect to be able to make a proposal at an attractive premium to Ruckus’ then-current Ruckus share trading price.

On February 6, 2016, in light of Brocade’s request that Ruckus provide Brocade with a counter-offer, members of Ruckus’ management, including Ms. Lo, Mr. Hennessy, Ian Whiting, Chief Commercial Officer of Ruckus, and Mr. Burstein, met with members of Brocade’s management, including Mr. Carney, Mr. Fairfax, Jack Rondoni, Vice President of Storage Networking of Brocade, Mr. Nolet, Rob Eggers, Vice President of Finance, Mr. Herrell, Mr. Rado and Mr. Cheng, to better understand the business and prospects of Brocade. At this meeting, Brocade presented Ruckus with information regarding its business, historical financial performance, go-to-market strategy, product roadmap and Brocade’s projections for the Brocade low range forecasts and Brocade high range forecasts as described under “—Certain Financial Forecasts –Financial Forecasts for Parent.” Ruckus discussed potential synergy opportunities between the two companies. Representatives of Morgan Stanley and representatives of Evercore also attended the meeting. Members of Brocade’s management also presented Ruckus with an updated and more detailed list of items that Brocade requested Ruckus provide as part of its due diligence on Ruckus.

On February 7, 2016, representatives of Sullivan & Cromwell delivered to Paul Hastings LLP, Brocade’s legal advisor (“Paul Hastings”), a due diligence request list of matters concerning Brocade that Ruckus would need to review if Ruckus were to engage in a transaction with Brocade.

On February 8, 2016, representatives of Morgan Stanley discussed with a representative of Party B whether Party B may be interested in exploring an acquisition of Ruckus and were informed that Party B would be interested in meeting with Ruckus’ management.

Also on February 8, 2016, representatives of Morgan Stanley discussed with a representative of Party E whether Party E may be interested in exploring an acquisition of Ruckus and were informed that Party E would discuss internally and respond.

 

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Also on February 8, 2016, representatives of Morgan Stanley discussed with a representative of Party F whether they may be interested in exploring an acquisition of Ruckus and were informed that Party F would discuss internally and respond.

Also on February 8, 2016, representatives of Ruckus, including Ms. Lo, Mr. Hennessy, and Mr. Rabinovitsj, and Morgan Stanley discussed with management of Party A responses to high level diligence questions regarding Ruckus’ business and go-to-market strategy.

On February 9, 2016, Ruckus announced its financial results for the fourth quarter and fiscal year ended December 31, 2015.

Also on February 9, 2016, representatives of Morgan Stanley discussed with a representative of Party G whether Party G may be interested in exploring an acquisition of Ruckus and were informed that Party G would be interested in an initial meeting with Ruckus’ management.

On February 10, 2016, the Ruckus board of directors held a special meeting at which members of Ruckus’ senior management and representatives of Sullivan & Cromwell and Morgan Stanley were in attendance. Representatives of Morgan Stanley updated the Ruckus board of directors on the discreet outreach to potential interested parties, their follow up conversations with Party A, Party B and Party C, and the February 6 meeting between members of management of Ruckus and Brocade. They noted that Party D seemed reluctant to engage. Representatives of Morgan Stanley and Ruckus’ senior management also discussed with the Ruckus board of directors the financial information, including Brocade’s projections discussed at the February 6 meeting with Ruckus’ management, as well as certain other information regarding Ruckus and Brocade.

Also on February 10, 2016, representatives of Evercore informed representatives of Morgan Stanley that Brocade would not change its original proposal of $6.00 in cash and 0.75 of a share of Brocade common stock per Ruckus share, as communicated in the January 27th proposal, as Ruckus had not engaged in any negotiations.

Around February 11, 2016, a representative from Party H contacted representatives of Morgan Stanley expressing interest in discussing a potential strategic transaction with Ruckus.

Also around February 11, 2016, Party D informed representatives of Morgan Stanley that it was not interested in exploring an acquisition of Ruckus at this time.

On February 12, 2016, the Ruckus board of directors held a special meeting at which members of Ruckus’ senior management and representatives of Sullivan & Cromwell and Morgan Stanley were in attendance, to complete the matters that they had had on their agenda for their February 10, 2016 meeting but had not been able to cover. Representatives of Morgan Stanley informed the Ruckus board of directors of its discussions with Evercore and updated the Ruckus board of directors on their outreach to other potential interested parties since the Ruckus board of directors last met, noting in particular that a management session had been scheduled for Party B. Representatives of Morgan Stanley also reviewed with the Ruckus board of directors financial aspects of the January 27th proposal, noting that its implied value, while representing an approximately 40% premium to then current trading price of Ruckus common stock, still was under $12.00 per Ruckus share. Representatives of Morgan Stanley also discussed with the Ruckus board of directors whether, and if so, when Ruckus might put forward to Brocade a counter-offer, as well as the value of specific counter-offers, depending on the amount of stock and cash in the counter-offer.

At the meeting, the Ruckus board of directors also discussed whether this was a good time to explore a sale transaction, its views regarding Brocade’s January 27th proposal and the value of Brocade long-term, and the advisability of talking to other potential interested parties. The Ruckus board of directors determined that it would not make a decision as to whether and how to engage further with Brocade until after Brocade released its first quarter fiscal year 2016 earnings on February 17, 2016, to see how Brocade’s quarterly results affected

 

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Brocade’s stock price and to ensure that there was nothing that would be a surprise to Ruckus. The Ruckus board of directors also discussed its desire to better understand the potential alternatives to a sale transaction, including the scenarios attendant to a stand-alone alternative. In that regard, the Ruckus board of directors determined that it would request that representatives of Morgan Stanley and senior management provide the Ruckus board of directors with a more in-depth review of potential alternatives to a sale that would best maximize the value of Ruckus while at the same time continue its outreach to potential interested parties.

Also on February 12, 2016, Mr. Garg, in the course of a discussion with a member of management of Party A about a number of topics unrelated to Ruckus, discussed Party A’s potential interest in a strategic transaction between Party A and Ruckus.

Also on February 12, 2016, Ruckus and Party B entered into a confidentiality agreement, which, among other things, provided for a one-year standstill that by its terms terminated upon Ruckus’ entry into a merger agreement with a third party, including Brocade.

Also on February 12, 2016, Party F informed representatives of Morgan Stanley that it was not interested in evaluating a potential transaction with Ruckus.

On February 15, 2016, Ms. Lo, Mr. Hennessy and Mr. Rabinovitsj conducted a management presentation for certain members of management of Party B, which also included a discussion regarding the potential revenue synergy opportunities between the two companies. Representatives of Morgan Stanley also attended the presentation. At that meeting, representatives of Party B indicated that Party B did not expect to be in a position to make a decision on whether it wanted to explore a transaction with Ruckus until the end of February or beginning of March, unless Morgan Stanley advised them in the interim that circumstances required a quicker decision.

Also on February 15, 2016, Party E informed representatives of Morgan Stanley that it may be challenging to pursue a transaction with Ruckus at the premium that Ruckus would be interested in, but that it would still be interested in meeting with Ruckus’ management.

On February 16, 2016, a representative of Party C reached out to Mr. Rabinovitsj expressing a desire to have an additional diligence session with Ruckus’ management, even though it had indicated previously that it would not be in a position to make an attractive offer for Ruckus.

Also on February 16, 2016, representatives of Morgan Stanley discussed with management of Party A next steps in terms of evaluating a potential strategic transaction between Party A and Ruckus.

On February 17, 2016, Brocade announced its financial results for the first fiscal quarter ended January 30, 2016, which exceeded its revenue and earnings guidance.

On February 18, 2016, Party C also informed representatives of Morgan Stanley that it may be interested in further exploring a potential transaction.

Also on February 18, 2016, the Ruckus board of directors held a special meeting at which members of Ruckus’ senior management and representatives of Sullivan & Cromwell and Morgan Stanley were in attendance, to understand the import of Brocade’s first quarter results and receive an update on the potential bidder outreach process. During the meeting, representatives of Morgan Stanley updated the Ruckus board of directors on the status of discussions and management sessions with potential interested parties, noting that it did not believe Party A was interested in pursuing an opportunity with Ruckus at this time and that management sessions were being scheduled with Party C, Party E and Party G. Representatives of Morgan Stanley also discussed with the Ruckus board of directors the results of Brocade’s first quarter fiscal year 2016 earnings and its updated fiscal year 2016 guidance and the fact that Brocade’s stock was then trading at a range that implied that the value of the

 

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January 27th proposal was approximately $13.00 per Ruckus share. The Ruckus board of directors determined that it still did not believe the January 27th proposal was sufficiently robust to engage in exclusive discussions with Brocade and decided not to make a counter-offer to Brocade until it had understood better the potential value other bidders might offer and it had received an updated analysis from Ruckus’ senior management and representatives of Morgan Stanley of potential alternatives to a sale transaction.

Also on February 18, 2016, Ruckus and Party H entered into a confidentiality agreement that provided, among other things, for a one-year standstill that by its terms terminated upon Ruckus’ entry into a merger agreement with a third party, including Brocade.

On February 19, 2016, Ms. Lo, Mr. Hennessy, and Mr. Rabinovitsj conducted a management presentation for representatives of Party H. Representatives of Morgan Stanley also attended the meeting.

Also on February 19, 2016, Mr. Garg met with representatives of Party E to ascertain Party E’s interest in acquiring Ruckus and was informed that Party E would find a take-private of Ruckus to be challenging, but would be interested in meeting with management of Ruckus to see if there were other opportunities that Party E would find attractive.

On February 21, 2016, the Ruckus board of directors held a special meeting at which members of Ruckus’ senior management and representatives of Sullivan & Cromwell and Morgan Stanley were in attendance, to review Morgan Stanley’s and Ruckus’ management’s analyses of alternative value creation paths to selling Ruckus. Representatives of Morgan Stanley reviewed with the Ruckus board of directors financial aspects of the following potential alternatives: (i) maintaining the status quo as a standalone company under three different scenarios: (a) the management case, which reflected the fiscal 2016 operating plan (which the Ruckus board of directors considered fairly aggressive, but that Ruckus’ management believed was achievable so long as Ruckus executed well), as well as management’s long-term forecasts, and which assumes that revenue growth due to market adoption of Ruckus’ small cell technology would begin in the second half of fiscal year 2017 and that Ruckus’ WLAN revenue growth will outpace the expected market growth by 3-4% annually, (b) the “faster small cell” growth case, which assumes accelerated market adoption of Ruckus’ small cell technology together with WLAN growth consistent with that assumed in the management case and which Ruckus’ management viewed as extremely aggressive and unlikely to be achievable and therefore did not provide to Brocade and (c) the “slower small cell” growth case, which assumes that market adoption of Ruckus’ small cell technology would take one year longer to mature than in the management case and that Ruckus’ WLAN revenue would grow 16% in 2016 and then grow in line with the market’s rate of growth for fiscal years 2017 through 2020 (each of the cases as provided by Ruckus’ management and as discussed under “—Certain Financial Forecasts” below), (ii) implementing a share repurchase program (alone or in combination with the “faster small cell” and “slower small cell” alternatives), (iii) making a strategic acquisition, and (iv) engaging in a transaction with Brocade.

At the meeting, representatives of Morgan Stanley also updated the Ruckus board of directors on the status of discussions with potential interested parties, indicating that Party B was unlikely to be able to effect a transaction with Ruckus, that Party H did not appear to be interested in Ruckus’ core markets, and that Party C indicated on February 18, 2016 that it would only have interest in pursuing a potential transaction if Party C concluded that Ruckus’ margin structure could be fundamentally improved without impairing Ruckus’ expected revenue growth (which Ruckus’ management did not believe likely but indicated to the Ruckus board of directors it was evaluating). Representatives of Morgan Stanley also informed the Ruckus board of directors that none of the private equity firms appeared to be likely to bid for Ruckus given Ruckus’ current profit margin structure, with representatives of Morgan Stanley noting that private equity firms would be more likely to find the combination of Brocade and Ruckus attractive. After evaluating (i) the various risks to the potential alternatives reviewed by representatives of Morgan Stanley, including, among other things, the risks associated with the ability to execute Ruckus’ long-term plan in an increasingly competitive environment, the risks related to the timing of the small cell technology introduction, and the risks associated with the floating rate component of the stock based

 

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consideration, (ii) the fact that there did not appear to be any serious interested parties other than Brocade emerging that would be able to make competitive proposals, and (iii) the need to bring to a resolution the various discussions so that management could focus on running Ruckus’ business, the Ruckus board of directors concluded that a transaction with Brocade at the right price was the most attractive alternative and authorized representatives of Morgan Stanley to communicate a counter-offer to representatives of Brocade of $8.00 in cash and 0.75 of a share of Brocade common stock per Ruckus share, with a then indicative value of $15.19 (based on the closing price of Brocade common stock on February 19, 2016), while continuing to engage with other potential bidders.

On February 21, 2016, at the direction of the Ruckus board of directors, representatives of Morgan Stanley conveyed to representatives of Evercore Ruckus’ counter-offer to Brocade of $8.00 in cash and 0.75 of a share of Brocade common stock per Ruckus share.

On February 23, 2016, representatives of Party G reached out to representatives of Morgan Stanley to schedule a meeting with Ruckus’ management.

Also on February 23, 2016, a representative of Party A informed Morgan Stanley that it was not interested in engaging in an acquisition of Ruckus at this time.

Also on February 23, 2016, representatives of Party B’s financial advisor contacted representatives of Morgan Stanley and reported that Party B’s board of directors would be meeting during the week of February 29, 2016, and at that time would discuss whether to make a potential offer. During this time, Ruckus also responded to high level due diligence requests from Party B.

On February 26, 2016, Ruckus received from Brocade a revised written non-binding proposal to acquire Ruckus for a price of $6.25 in cash and 0.75 of a share of Brocade common stock per Ruckus share (referred to as the “February 26th proposal”), implying a total value of approximately $13.70 per Ruckus share based on the closing price of Brocade common stock on February 26, 2016. The February 26th proposal represented a premium of approximately 41% to Ruckus’ closing stock price as of February 26, 2016. Ms. Lo promptly distributed the February 26th proposal to members of the Ruckus board of directors. The February 26th proposal did not contain a financing condition. The February 26th proposal also contemplated a 30-day exclusivity period that automatically extended for unlimited successive one-week periods as long as Brocade and Ruckus were negotiating in good faith.

Also on February 26, 2016, representatives of Evercore informed representatives of Morgan Stanley that Brocade had indicated that it was unlikely to increase its proposal but that if a transaction were to proceed, Brocade had indicated that it was anticipating increasing its existing share repurchase program in order to repurchase over a near term post-transaction horizon a number of shares of Brocade common stock up to the number of shares of Brocade common stock that would be issued in the acquisition in order to offset some or all of the dilution resulting from the proposed transaction.

On February 29, 2016, the Ruckus board of directors held a special meeting at which members of Ruckus’ senior management and representatives of Sullivan & Cromwell and Morgan Stanley were in attendance, to consider the February 26th proposal and to receive an update of the outreach process to other potential bidders. Representatives of Morgan Stanley informed the Ruckus board of directors that they had not heard from Party H since the management session, but they had assessed their interest was tepid (based on Party H’s verbal feedback during the February 19, 2016 meeting between Party H and Ruckus’ management teams), that a management session with Party E was occurring later that day, that a management session with Party G was in the process of being scheduled and that Party B’s board was meeting that week to discuss a possible offer. Representatives of Morgan Stanley also updated the Ruckus board of directors with respect to its conversations with Evercore and discussed with the Ruckus board of directors the financial aspects of the February 26th proposal. Representatives of Morgan Stanley also advised the Ruckus board of directors that they did not believe that Brocade would be

 

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willing to increase its offer by more than $0.25 or $0.50 a share. Following review and discussion of an updated stand-alone versus Brocade transaction analysis prepared by representatives of Morgan Stanley, and concluding that engaging with Brocade was most likely to elicit the best alternative for Ruckus’ stockholders even at a lower price than they had been negotiating for, and that protracted management distraction was not in the best interests of Ruckus’ stockholders, the Ruckus board of directors authorized Ms. Lo to communicate directly to Mr. Carney a revised counter-proposal of $7.00 in cash and 0.75 of a share of Brocade common stock per Ruckus share (which implied a total value of $14.45 on February 29, 2016) and authorized representatives of Morgan Stanley to continue to engage with other potential bidders.

On February 29, 2016, Ruckus and Party E entered into a confidentiality agreement which, among other things, provided for a one-year standstill that by its terms terminated upon Ruckus’ entry into a merger agreement with a third party, including Brocade.

Also on February 29, 2016, Ms. Lo, Mr. Hennessy, Mr. Rabinovitsj and Mr. Garg conducted a management presentation for representatives of Party E. Representatives of Morgan Stanley also attended the meeting. At this meeting, representatives of Party E communicated to Ms. Lo that Party E would find a transaction with Ruckus at the premium that Ruckus would be interested in to be challenging and that Ruckus’ management would need to make a financial investment in any such transaction.

On March 1, 2016, Party H informed representatives of Morgan Stanley that it was not interested in engaging further in exploring a potential transaction with Ruckus.

On March 3, 2016, Ruckus and Party G entered into a confidentiality agreement which, among other things, provided for a one-year standstill that by its terms terminated upon Ruckus’ entry into a merger agreement with a third party, including Brocade. A meeting with Party G and Ruckus’ management was scheduled for March 14, 2016.

Also on March 3, 2016, Mr. Hennessy, Mr. Rabinovitsj and representatives of Morgan Stanley discussed additional financial due diligence with a representative of Party C; at the conclusion of the meeting, the Party C representative indicated that Party C would not be making a proposal to acquire Ruckus.

On March 4, 2016, Ms. Lo met with Mr. Carney and delivered Ruckus’ counter-proposal of $7.00 in cash and 0.75 of a share of Brocade common stock per Ruckus share (or an implied value of approximately $14.68 per Ruckus share based on the closing price of Brocade common stock on March 3, 2016). At that meeting, Ms. Lo impressed upon Mr. Carney the business opportunities that Ruckus was pursuing and the possible revenue synergy opportunities of a potential combination.

Around this time, representatives of Party B’s financial advisor informed representatives of Morgan Stanley that the board of directors of Party B had met and declined to approve making a proposal at that meeting but also indicated a desire to conduct more due diligence on Ruckus.

On March 7, 2016, representatives of Party B’s financial advisor reached out to representatives of Morgan Stanley requesting a further management session for March 15, 2016. Party B’s financial advisor also indicated that the timing of a transaction with Ruckus at that time was not opportune. Representatives of Morgan Stanley indicated to Party B’s financial advisor that negotiations with another party were active, that it was possible that Ruckus could enter into exclusivity with another party and that Party B would need to move quickly if it wished to participate in a potential transaction with Ruckus.

Also on March 7, 2016, Party E informed representatives of Morgan Stanley that they were unable to reach the price range that representatives of Morgan Stanley had indicated that they would need to reach with respect to an offer.

 

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On March 9, 2016, Ruckus received from Brocade a written non-binding proposal to acquire Ruckus for $6.45 in cash and 0.75 of a share of Brocade common stock per Ruckus share (referred to as the “March 9th proposal”), implying a total value of approximately $14.06 per Ruckus share based on the closing price of Brocade common stock on March 9, 2016 and cash/stock split of 46%/54%. This revised offer represented a premium of approximately 46% to the closing price of the Ruckus shares as of March 9, 2016. The March 9th proposal did not contain a financing condition. The March 9th proposal also contemplated a 30-day exclusivity period that was automatically extended for unlimited successive one-week periods as long as Brocade and Ruckus were negotiating in good faith. Following receipt of the March 9th proposal, Mr. Carney informed Ms. Lo that this was the highest price for Ruckus that Brocade was willing to offer.

Also on March 9, 2016, Ms. Lo met with a member of management of Party A who informed Ms. Lo that Party A was not interested in pursuing a potential strategic transaction with Ruckus at that time.

On March 10, 2016, the Ruckus board of directors held a special meeting at which members of Ruckus’ senior management and representatives of Sullivan & Cromwell and Morgan Stanley were in attendance, to consider the March 9th proposal and to receive an update on the outreach process to other potential bidders. Representatives of Morgan Stanley discussed the financial aspects of the March 9th proposal, noting that the premium represented by the March 9th proposal was in the upper quartile of cash/stock technology transactions in the past year, and those transactions had a greater percentage of stock than did the March 9th proposal. Representatives of Morgan Stanley also informed the Ruckus board of directors, among other things, that Brocade considered the exclusivity component of the March 9th proposal to be very important. Representatives of Morgan Stanley also updated the Ruckus board of directors on the status of discussions with potential interested parties, including that Party B had not made an offer even though its board had met to consider making an offer and it had been informed that it would need to move quickly, and that even though Party G continued to be interested in doing diligence, Morgan Stanley did not expect Party G to present an offer that would match or exceed the terms that Brocade was proposing. Ms. Lo further reported that, even if Party E were inclined to bid, which both Ms. Lo and representatives of Morgan Stanley did not think likely given the low margin structure of Ruckus, Party E had indicated that they would expect Ruckus’ management to make a financial investment in the transaction – something that was not palatable to management. Based on the fact that there did not appear to be any more real value to be extracted from Brocade and no real interest from other identified parties, the Ruckus board of directors decided it would be in the best interests of Ruckus and its stockholders to explore further a potential transaction with Brocade on the basis of the March 9th proposal and that, if exclusivity were required, it should be only for a limited period of time.

Later in the evening on March 10, 2016, Ms. Lo informed Mr. Carney that the Ruckus board of directors would be willing to proceed with discussions on the basis of the March 9th proposal but was not prepared to proceed on an exclusive basis.

Also on March 10, 2016, representatives of Morgan Stanley communicated to representatives of Evercore the fact that Brocade’s exclusivity proposal was not acceptable to the Ruckus board of directors.

On March 11, 2016, representatives of Evercore informed representatives of Morgan Stanley that Brocade was not willing to proceed with discussions on a non-exclusive basis.

Also on March 11, 2016, representatives of Party E reached out to Mr. Rabinovitsj to follow up on discussions during the February 29 meeting to try to understand management’s view of whether there was any basis for a potential transaction in light of Party E’s reticence with respect to a take-private of a high growth company like Ruckus.

Later in the day on March 11, 2016, representatives of Morgan Stanley reached out to Party B’s financial advisor indicating that it needed to move quickly if it were interested. Party B did not give any indication that it would do so.

 

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Also on March 11, 2016, Ruckus made available to Brocade and its representatives an online data site containing certain limited information concerning Ruckus.

During the period from March 11, 2016 to March 13, 2016, representatives of Sullivan & Cromwell and Paul Hastings and representatives of Morgan Stanley and Evercore negotiated the terms of the exclusivity agreement. On March 13, 2016, Ruckus and Brocade entered into an exclusivity agreement providing for a 20-day exclusivity period in connection with the negotiation of a potential transaction, with the possibility of a one-time seven-day extension so long as Brocade was acting in good faith to negotiate and promptly execute a definitive acquisition agreement on terms substantially similar to the March 9th proposal.

Also on March 13, 2016, representatives of Morgan Stanley reached out to Party G and indicated that Ruckus’ management meeting scheduled for March 14, 2016 would need to be rescheduled. Party G made no attempt to reschedule the meeting thereafter.

From March 11, 2016 through April 3, 2016, Brocade and its representatives engaged in a due diligence review of Ruckus, Ruckus and its representatives engaged in a due diligence review of Brocade, and the parties and their respective representatives had numerous discussions regarding their businesses.

On March 17, 2016, representatives of Paul Hastings sent a draft merger agreement to representatives of Sullivan & Cromwell, which included, among other things, a 5% termination fee payable in the event that, among other situations, Ruckus were to terminate the merger agreement to enter into an alternative transaction and also included a reverse break fee in the event that Brocade were to fail to close the transaction when the closing conditions had been met because it had not been able to obtain its financing, provided Brocade with the right to extend the tender offer when the closing conditions had been met if it has not obtained its financing, and required a certain undefined amount of cash to be on hand at Ruckus at closing. The draft also indicated a request that Ms. Lo and Ruckus’ other named executive officers deliver a tender and support agreement pursuant to which they agree to tender their Ruckus shares in the offer.

On March 19, 2016, representatives of Paul Hastings sent a draft of the support agreement to representatives of Sullivan & Cromwell.

On March 21, 2016, representatives of Sullivan & Cromwell sent a revised draft of the merger agreement to representatives of Paul Hastings, which, among other things, proposed a 2% termination fee, eliminated all the provisions that were conditioned on the availability of Brocade’s financing and rejected certain Brocade termination rights. In the draft, representatives of Sullivan & Cromwell indicated that Brocade’s request for a tender and support agreement from Ms. Lo and Ruckus’ other named executive officers was under consideration.

On March 22, 2016, the Ruckus board of directors held a special meeting at which members of Ruckus’ senior management and representatives of Sullivan & Cromwell and Morgan Stanley were in attendance to obtain a brief update of the process with Brocade and the negotiations of the merger agreement. During the meeting, representatives of Sullivan & Cromwell and Morgan Stanley informed the Ruckus board of directors about the key issues that had surfaced, the progress that Brocade had made with respect to its due diligence on Ruckus and the fact that Brocade’s lenders were progressing toward making the financing commitments Brocade had requested.

On March 23, 2016, Brocade made available to Ruckus and its representatives an online data site containing certain information concerning Brocade.

On March 24, 2016, the Ruckus board of directors held a special meeting, at which members of Ruckus’ senior management and representatives of Sullivan & Cromwell and Morgan Stanley were in attendance, to update the Ruckus board of directors on the process with Brocade and to discuss the key issues in the merger agreement. During the meeting, representatives of Sullivan & Cromwell and Morgan Stanley informed the Ruckus board of

 

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directors about the key issues that had surfaced, including the matters related to Brocade’s financing that had been discussed at the previous Ruckus board of directors meeting, as well as Brocade’s positions with respect to employee matters and the various triggers for receiving a break fee. The Ruckus board of directors also discussed the fact that Brocade wanted to structure the transaction as an exchange offer followed by a merger under Section 251(h) of the DGCL, and the fact that the transaction would be fully taxable to the shareholders of Ruckus because Brocade did not want to take on the risks associated with a structure that would allow for a tax-free transaction. The Ruckus board of directors concluded that there would not be a material difference to most stockholders between the effects of a taxable transaction and a “tax-free” transaction in which stockholders would be taxed on gain to the extent of the cash in the transaction.

On March 26, 2016, representatives of Paul Hastings sent a revised draft of the merger agreement to representatives of Sullivan & Cromwell, which included, among other things, a 4.5% termination fee and the same financing-related provisions contained in the initial draft of the merger agreement. The draft also reiterated a request that Ms. Lo and the other named executive officers of Ruckus deliver a tender and support agreement pursuant to which they agree to tender their Ruckus shares in the offer.

On March 27, 2016, representatives of Paul Hastings and Sullivan & Cromwell discussed their respective positions on the terms of the merger agreement and the support agreement.

Also, on March 27, 2016, representatives of Sullivan & Cromwell sent a revised draft of the merger agreement to representatives of Paul Hastings, which again included the previous key positions that were included in the March 21st draft of the merger agreement.

Also on March 27, 2016, Ms. Lo and Mr. Carney met to discuss the potential revenue opportunities of the two businesses as well as certain of the open issues between the two parties, including matters relating to the treatment of equity awards in the transaction and employee-related covenants in the merger agreement.

On March 28, 2016, Mr. Carney emailed Ms. Lo indicating that he would like most of Ruckus’ executive officers to enter into employment agreements with Brocade coincident with the signing of the transaction, which would be effective upon closing of the merger.

On March 29, 2016, the Ruckus board of directors held a special meeting, at which members of Ruckus’ senior management and representatives of Sullivan & Cromwell and Morgan Stanley were in attendance, to receive an update on the negotiations of the merger agreement and the process with Brocade. During the meeting, representatives of Sullivan & Cromwell and Morgan Stanley informed the Ruckus board of directors about the key issues that continued to be negotiated, including the financing conditionality that had been discussed at the previous Ruckus board of directors meetings, as well as Brocade’s positions with respect to employee matters and triggers for receiving a break fee, the progress that had been made on other issues, and the fact that Brocade was only requiring Ms. Lo to enter into a tender and support agreement with respect to the offer. Ms. Lo also informed the Ruckus board of directors that Mr. Carney had requested discussions with Ms. Lo about retention of executive officers in connection with any transaction. The Ruckus board of directors determined that it would not be comfortable with more than two employment agreements being entered into prior to signing any transaction.

On March 31, 2016, representatives of Paul Hastings sent representatives of Sullivan & Cromwell a revised draft of the merger agreement, which, among other things, included a 4.5% termination fee, accepted elimination of the reverse break fee and other financing-related provisions that the previous Sullivan & Cromwell drafts had eliminated, but continued to provide for a termination fee payable in the event that Ruckus breaches the no solicitation of competing proposals covenants in the merger agreement.

Later in the day on March 31, 2016, representatives of Paul Hastings and Sullivan & Cromwell discussed the terms of the merger agreement.

 

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Later in the day on March 31, 2016, the Ruckus board of directors held a special meeting, at which members of Ruckus’ senior management and representatives of Sullivan & Cromwell and Morgan Stanley were in attendance, to discuss on a preliminary basis Morgan Stanley’s analysis of the fairness from a financial point of view of the transaction consideration to be received by the holders of Ruckus shares (other than (i) Ruckus shares that are owned, directly or indirectly, by Brocade, Ruckus (including Ruckus shares held as treasury stock or otherwise) or the Offeror and (ii) Ruckus shares that are held by any person who has not tendered such Ruckus shares in the offer and is entitled to demand and properly demands appraisal of such Ruckus shares) pursuant to the merger agreement, and to receive an update on the negotiations of the merger agreement, the status of diligence of the two companies, and the commitments of Brocade’s lenders. Representatives of Morgan Stanley took the Ruckus board of directors through its analysis as of March 31, 2016. Representatives of Sullivan & Cromwell informed the Ruckus board of directors that the remaining key issues included Brocade’s desire for a 4.5% termination fee and the right to terminate the merger agreement and collect a fee upon a breach of the no-solicitation provisions, as well as certain employee-related matters. Members of Ruckus’ management and representatives of Sullivan & Cromwell and Morgan Stanley also updated the Ruckus board of directors on the results of Ruckus’ due diligence on Brocade as well as the fact that Brocade’s due diligence on Ruckus was almost completed, and that Brocade would only be requiring employment agreements from Ms. Lo and Mr. Hennessy, and that the agreements would provide for 50% of their unvested Ruckus restricted stock units and Ruckus performance-based restricted stock units to be converted into Brocade restricted stock units that would vest on the first anniversary of the closing of the transactions contemplated by the merger agreement.

On April 1, 2016, representatives of Sullivan & Cromwell sent a revised draft of the merger agreement to representatives of Paul Hastings, which included, among other things, a 2.75% termination fee and eliminated the termination fee payable in the event of Ruckus’ breach of the no solicitation of competing proposals covenants.

On April 2, 2016, representatives of Paul Hastings sent a revised draft of the merger agreement to representatives of Sullivan & Cromwell, which, among other things, included a termination fee of $50 million plus up to $10 million of expenses, representing approximately 4.1% of the equity value of the transactions contemplated by the merger agreement.

Also on April 2, 2016, the Ruckus board of directors held a special meeting at which members of Ruckus’ senior management and representatives of Sullivan & Cromwell and Morgan Stanley were in attendance, to review the outstanding issues relating to employees of Ruckus and to receive an update regarding the remaining non-employee issues outstanding in the negotiation of the merger agreement. During the meeting, Ruckus’ senior management informed the Ruckus board of directors that the respective managements of Brocade and Ruckus would be meeting later in the day to attempt to resolve the open employee-related issues, and representatives of Sullivan & Cromwell informed the Ruckus board of directors that the size of the termination fee as well as certain triggers of the termination fee remained open but that all other material non-employee related issues had been resolved and that the commitment letter documentation was almost completely negotiated.

Later in the evening on April 2, 2016, representatives of Sullivan & Cromwell sent a revised draft of the merger agreement to representatives of Paul Hastings which included, among other things, a termination fee of $44 million, representing approximately 3% of the equity value of the transactions contemplated by the merger agreement.

In the morning of April 3, 2016, Ms. Lo and Kathleen Swift, Vice President of Human Resources of Ruckus, and Mr. Carney and Ms. Goode discussed and resolved the open issues in the merger agreement pertaining to employee-related matters.

During the day on April 3, 2016, there were further negotiations regarding the size of the termination fee, with representatives of Paul Hastings first proposing $54 million (3.7% of equity value), representatives of Sullivan & Cromwell proposing $48 million (3.25% of equity value) and representatives of Paul Hastings proposing $50

 

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million (3.4% of equity value) and representatives of Paul Hastings and Sullivan & Cromwell finalizing other aspects of the merger agreement.

During the period between March 19, 2016 and April 3, 2016, representatives of Sullivan & Cromwell and Paul Hastings had numerous conversations regarding the draft merger agreement and also negotiated the terms of the support agreement.

In addition to discussions surrounding the size and triggers for the termination fee, the principal points of negotiation of the terms of the merger agreement included the scope of Ruckus’ representations and warranties, Ruckus’ obligations between signing of the merger agreement and closing of the transactions contemplated by the merger agreement, including restrictions related to non-solicitation and the recommendation of the Ruckus board of directors with respect to the offer and the merger, conditions to the offer, the level of efforts required to effect the offer and the merger, the circumstances under which the merger agreement is terminable, the timing of the payment of the termination fee, and employee-related matters.

On April 3, 2016, the Ruckus board of directors held a special meeting at which members of Ruckus’ senior management and representatives of Sullivan & Cromwell and Morgan Stanley were in attendance, to determine whether to approve the merger agreement. Representatives of Sullivan & Cromwell discussed the changes to the merger agreement since the previous Ruckus board of directors meeting, noting that the only open item was the size of the termination fee. The Ruckus board of directors determined to accept Brocade’s proposed termination fee of $50 million, after concluding that it would not deter any other bidder from making a proposal for Ruckus. Representatives of Morgan Stanley reviewed with the Ruckus board of directors Morgan Stanley’s financial analysis of the transactions contemplated by the merger agreement and rendered to the Ruckus board of directors an oral opinion, subsequently confirmed in writing, that as of April 3, 2016, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations upon the scope of the review undertaken by Morgan Stanley as set forth in the written opinion, the transaction consideration to be received by the holders of Ruckus shares (other than (i) Ruckus shares that are owned, directly or indirectly, by Brocade, Ruckus (including Ruckus shares held as treasury stock or otherwise) or the Offeror and (ii) Ruckus shares that are held by any person who has not tendered such Ruckus shares in the offer and is entitled to demand and properly demands appraisal of such Ruckus shares) pursuant to the merger agreement was fair from a financial point of view to such holders. Following further consideration and discussion, the Ruckus board of directors unanimously determined that the terms of the transactions contemplated by the merger agreement, including the offer and the merger are fair to, and in the best interests of, Ruckus and its stockholders, determined that it is in the best interests of Ruckus and its stockholders to enter into, and declared advisable, the merger agreement, approved the execution and delivery by Ruckus of the merger agreement, the performance by Ruckus of its covenants and agreements pursuant to the merger agreement and the consummation of the transactions contemplated by the merger agreement, including the offer and the merger, upon the terms, and subject to the conditions, contained in the merger agreement and resolved to recommend that Ruckus’ stockholders accept the offer and tender their Ruckus shares to the Offeror pursuant to the offer.

On April 3, 2016, Ms. Lo and Mr. Hennessy entered into offer letters with Brocade as described below under “—Interests of Certain Persons in the Offer and the Merger—Offer Letters with Brocade,” contingent upon signing the merger agreement and closing of the offer and the merger.

Later in the day on April 3, 2016, following receipt of the final lender commitment letter documents, the parties entered into the merger agreement. Also in connection with the signing of the merger agreement, Ms. Lo entered into the support agreement, as described below under “Support Agreement.”

 

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Brocade’s Reasons for the Offer and the Merger

The board of directors of Brocade approved the merger agreement and determined that the merger agreement and the transactions contemplated by the merger agreement, including the offer, the merger and the issuance of Brocade common stock as part of the transaction consideration, are fair to, and in the best interests of, Brocade and its stockholders.

In reaching its determination, the board of directors of Brocade consulted with Brocade’s management, as well as with Brocade’s legal and financial advisors, and considered a variety of factors weighing favorably towards the offer and the merger, including the factors described below.

 

    Expected Benefits of the Transaction. The board of directors of Brocade believes that the offer and the merger will allow Brocade to realize a number of significant benefits, including the following (not in any relative order of importance):

 

    Strong Strategic Alignment. As businesses and organizations digitize, they need new, modern networks. Wireless is the preferred access technology for virtually all networks today. Brocade is a leader in wired and software network solutions and Ruckus is a global supplier of advanced carrier-grade Wi-Fi solutions. Combining the two would result in a networking company with solutions that span from the heart of the data center to the wireless network edge.

 

    Expanded and Diversified Product Portfolio. The addition of Ruckus’ wireless LAN technology and solutions would significantly expand Brocade’s existing portfolio of wired and software networking products. The acquisition is also expected to further diversify Brocade’s business mix toward higher growth internet protocol networking wireless and mobile technologies.

 

    Unlocking Value in New Business Lines. Brocade expects that the combined company’s go-to-market strategy would create opportunities for cross-selling activities into Brocade’s and Ruckus’ partner and customer bases, opening up new revenue opportunities across a variety of verticals, including large enterprises, K-12 and higher education, government, hospitality, and service providers. Brocade believes that the combined company will be well positioned to pursue emerging technology opportunities including 5G mobile services, Internet of Things (IoT), Smart Cities, OpenG™ in-building wireless, and LTE/Wi-Fi convergence. In addition, the acquisition is expected to make Brocade more relevant to campus networking as customers are moving toward buying wired and wireless solutions from a single vendor.

 

    History of Successful Collaboration. The board of directors of Brocade considered the fact that Ruckus has been a partner of Brocade’s for approximately one year and a key member of Brocade’s Open Mobility Ecosystem. Ruckus and Brocade have brought to market many complementary product offerings and solutions including integrated management using Brocade Network Advisor, common subscription based purchasing using Brocade Network Subscription, joint solution testing and cooperative customer support processes. In addition, Brocade and Ruckus have been collaborating on access-independent network-based mobility management and SDN-based heterogeneous networks (HetNets) in order to drive 5G thought leadership.

 

    Shared Core Values and Culture. The board of directors of Brocade also viewed favorably the similarities of Brocade’s and Ruckus’ core values, with both companies nurturing collaborative and innovative cultures that put customers first.

 

    Financial Considerations. Brocade expects the combined company to realize both revenue and cost synergies over time from both existing and new markets. The acquisition of Ruckus is projected to be accretive to Brocade’s non-GAAP earnings per share and cash flow by Brocade’s first fiscal quarter 2017.

 

    Strategic Alternatives. The board of directors of Brocade considered the trends and competitive developments in the industry and the range of strategic alternatives available to Brocade.

 

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    Market Conditions. The board of directors of Brocade also took into account current financial market conditions and the current and historical market prices and volatility of, and trading information with respect to, shares of Ruckus and Brocade common stock.

 

    Due Diligence. The board of directors of Brocade further considered its familiarity with the business operations, strategy, earnings and prospects of each of Brocade and Ruckus and the scope and results of the due diligence investigation conducted by Brocade’s management and advisors with respect to Ruckus.

 

    Financial Terms of the Transaction. The board of directors of Brocade reviewed the amount and form of consideration to be paid in the transaction, the fact that the exchange ratio is fixed, the expected pro forma ownership of the combined company and other financial terms of the offer and the merger.

 

    Recommendation of Management. The board of directors of Brocade took into account the recommendation of Brocade’s management in favor of the offer and the merger.

 

    Increased Stock Repurchase Program. The board of directors of Brocade considered the fact that an increase to Brocade’s stock repurchase program was expected to help reduce the dilutive effect of the issuance of Brocade shares in the offer and the merger.

 

    Debt Financing. The board of directors of Brocade considered management’s expectations as to its ability to obtain debt financing to fund a portion of the cash consideration in the offer and the merger and the increase in Brocade’s stock repurchase program, and the terms of that financing, including the commitment letter for $900 million in financing, subject to certain conditions (see “The Offer and the Merger—Source and Amount of Funds”).

 

    Provisions of the Merger Agreement. The board of directors of Brocade considered the structure of the offer and the merger and the terms and conditions set forth in the merger agreement, including the financial terms, the anticipated short time period from announcement of the offer to completion of the merger achievable through the exchange offer structure, the restrictions placed on Ruckus’ ability to seek a superior proposal, the conditions to completion of the offer and the merger, the termination rights of the parties, and the obligation of Ruckus to pay a $50 million termination fee to Brocade in certain circumstances.

 

    Likelihood of Completion. The board of directors of Brocade also took into account the expectation of Brocade’s management that the conditions to the consummation of the offer and the merger will be satisfied on a timely basis.

 

    Support Agreement. The board of directors of Brocade viewed favorably the willingness of Ms. Lo, who beneficially owns approximately 2.3% of Ruckus’ outstanding common stock (not including Ruckus options or Ruckus restricted stock units), to commit to tender her outstanding Ruckus shares in the offer (see “Support Agreement”).

The board of directors of Brocade also identified and considered certain potentially negative factors in its deliberations which were balanced against the positive factors, including:

 

    the risk that the anticipated benefits of the offer and the merger will not be realized in full or in part, including the risk that expected synergies will not be achieved or not achieved on the expected timeframe;

 

    the risk that while Brocade performed due diligence on Ruckus and its business, the scope of that due diligence was limited and there may be aspects of Ruckus or its business of which Brocade is not aware;

 

    the risk that the offer and the merger may not be consummated despite the parties’ efforts or that the closing of the transaction may be unduly delayed;

 

    costs associated with the offer and the merger;

 

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    the risk that the trading price of Brocade common stock could decrease and the offer and the merger could have a dilutive effect on the value of common shares held by Brocade stockholders for any number of reasons, some of which are outside of Brocade’s control, including, for example, if investors believe that the value of the cash consideration and stock consideration to be exchanged for Ruckus shares in connection with the offer and the merger, together with transaction costs, is greater than the value of Ruckus’ business, together with any synergies expected to be achieved or actually realized from Brocade’s acquisition of Ruckus;

 

    potential challenges in integrating the two companies;

 

    the provisions of the merger agreement that place restrictions on the interim operations of Brocade and its subsidiaries pending the closing (see “Merger Agreement—Conduct of Business Before Completion of the Merger—Restrictions on Brocade’s Operations”);

 

    the amount of cash that would be required to fund the cash consideration and the fact that Brocade’s obligation to complete the offer and the merger is not conditioned on its ability to obtain financing;

 

    the greater financial leverage under which Brocade would operate as a result of the contemplated incurrence of indebtedness under the debt financing, as well as the ongoing financial and operational covenants and restrictions on Brocade proposed to be set forth in the definitive documentation for the debt financing (see “The Offer and the Merger—Source and Amount of Funds”);

 

    the risks associated with the occurrence of events that may materially adversely affect the operations or financial condition of Ruckus and its subsidiaries, which may not entitle Brocade to terminate the merger agreement;

 

    the risk of diverting Brocade management’s focus and resources from other strategic opportunities and from operational matters while working to implement the transaction with Ruckus, other potential disruptions associated with combining the two companies, and the potential effects of such diversion and disruption on the businesses and customer relationships of Brocade and Ruckus; and

 

    the risks associated with the offer and the merger, the combined company following the offer and the merger, Brocade’s business and Ruckus’ business described under the sections entitled “Forward- Looking Statements” and “Risk Factors.”

After consideration of these factors, the board of directors of Brocade determined that, overall, the potential benefits of the offer and the merger outweighed the potential risks.

This discussion of the information and factors considered by the board of directors of Brocade includes the material positive and negative factors considered by the board of directors of Brocade, but it is not intended to be exhaustive and may not include all the factors considered by the board of directors of Brocade. The board of directors of Brocade did not quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination to approve the merger agreement and the offer and the merger. Rather, the board of directors of Brocade viewed its position and recommendation as being based on the totality of the information presented to and factors considered by it. In addition, individual members of the board of directors of Brocade may have given differing weights to different factors. It should be noted that this explanation of the reasoning of the board of directors of Brocade and certain information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Forward-Looking Statements.”

Ruckus’ Reasons for the Offer and the Merger; Recommendation of the Ruckus Board of Directors

At a meeting held on April 3, 2016, the Ruckus board of directors determined that the offer and the merger was advisable, fair to, and in the best interests of, its stockholders, approved the merger agreement and the transactions contemplated by the merger agreement, including the offer and the merger, and recommended that its stockholders tender their Ruckus shares in the offer.

 

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In evaluating the offer, the merger, and the merger agreement, the Ruckus board of directors consulted with members of Ruckus’ senior management, as well as Ruckus’ external legal and financial advisors, and considered a number of factors, including the following non-exhaustive list of material factors and benefits of the offer and the merger (not in any relative order of importance), each of which the Ruckus board of directors believed supported its determination and recommendation:

 

    the historical share prices of Ruckus and Brocade, including the fact that the implied value of the transaction consideration of $14.43 per share of Ruckus common stock (based on the closing price of Brocade common stock on April 1, 2016, the last trading day prior to the approval by the Ruckus board of directors of the merger agreement) represents:

 

    an approximate premium of 44% based on the closing price per Ruckus share of $10.00 on April 1, 2016; and

 

    an approximate premium of 48% based on the average closing price per Ruckus share of $9.76 over the 30 trading day period ended April 1, 2016;

 

    the fact that a portion of the transaction consideration is comprised of shares of Brocade common stock, so that Ruckus’ stockholders will have an ability to participate in any future share price appreciation of the combined company and potential revenue and cost synergies created by the transactions contemplated by the merger agreement;

 

    the belief of the Ruckus board of directors that the offer and the merger are more favorable to Ruckus’ stockholders than the potential value that might result from the other alternatives reasonably available to Ruckus, including the alternative of remaining a standalone public company and other strategies that might be pursued as a standalone public company, including a share repurchase program or pursuing a strategic acquisition;

 

    the expectation that Brocade would repurchase approximately a number of shares equal to all shares issued in conjunction with the offer and the merger, over the near term following the closing of the merger;

 

    the risks inherent in Ruckus’ ability to execute against its standalone plan, including the increasing competition facing Ruckus, general uncertainty surrounding macroeconomic conditions in various markets in which Ruckus does business, risks associated with the timing of market adoption of Ruckus’ small cell technology and other risks set forth in “Risk Factors” above;

 

    the recent and expected continued industry consolidation in Ruckus’ markets, which has made, and is expected to make, it more difficult, for Ruckus to compete as a stand-alone company;

 

    the Ruckus board of director’s familiarity with the business, operations, financial condition, strategy, industry in which Ruckus competes, and market conditions;

 

    information and discussions with Ruckus’ management and advisors regarding Brocade’s business, operations, financial condition, strategy and prospects;

 

    the opportunity for the combined company to accelerate substantial cross-selling through complementary vertical markets;

 

    information and discussions with Ruckus’ management regarding Brocade’s business, assets, results, current business strategy and prospects, and the belief of the Ruckus board of directors that Brocade would likely be able to execute on Ruckus’ long term plan;

 

    the fact that the stock portion of the transaction consideration is fixed so that Ruckus stockholders will be able to take advantage of any increase in the trading price of Brocade common stock over time;

 

    the fact that the transaction consideration reflects extensive negotiations between Ruckus and Brocade and their respective external advisors and the Ruckus board of director’s belief, after consultation with Ruckus’ financial advisors, that the transaction consideration was the highest Brocade was willing to pay;

 

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    the oral opinion, subsequently confirmed in writing, that as of April 3, 2016, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations upon the scope of the review undertaken by Morgan Stanley as set forth in the written opinion, the transaction consideration to be received by the holders of Ruckus shares (other than excluded shares) pursuant to the merger agreement was fair, from a financial point of view, to such holders. You are urged to read Morgan Stanley’s written opinion, which is set forth in its entirety in Annex C and is incorporated herein by reference in its entirety, and the description of the opinion and the related financial analyses presented by Morgan Stanley set forth below under “—Opinion of Ruckus’ Financial Advisor;”

 

    the absence of any financing condition to consummation of the offer or the merger, and the delivery by Brocade of a commitment letter setting forth financing commitments with limited conditions (essentially co-extensive with the conditions to the offer and the merger) for debt financing to consummate the transactions contemplated by the merger agreement;

 

    Ruckus’ ability, under certain limited circumstances, to furnish information to, and conduct negotiations with, third parties who put forward an unsolicited offer regarding an acquisition proposal that is, or would reasonably be expected to lead to, a superior proposal;

 

    Ruckus’ ability, subject to certain conditions, to terminate the merger agreement in order to accept a superior proposal, subject to paying or causing to be paid to Brocade the termination fee of $50 million;

 

    the Ruckus board of director’s belief that the $50 million termination fee was reasonable and was not likely to deter any potential bidder from making a competing acquisition proposal;

 

    the ability of the Ruckus board of directors, under certain circumstances and subject to certain conditions, to change its recommendation of the offer in response to a superior proposal or in response to an intervening event;

 

    the solicitation process conducted by the Ruckus board of directors, with the assistance of Morgan Stanley, and the fact that the solicitation process did not result in any proposals to acquire Ruckus other than from Brocade; and

 

    the availability of appraisal rights under Delaware law to holders of Ruckus shares who do not tender their Ruckus shares in the offer and comply with all of the procedures required under Delaware law to perfect appraisal rights.

The Ruckus board of directors also considered a variety of risks and potentially negative factors in its deliberations concerning the merger agreement, the offer and the merger, including the following (not in any relative order of importance):

 

    the fact that the stock portion of the transaction consideration is fixed so that Ruckus stockholders could be adversely affected by a decrease in the trading price of Brocade common stock, and the fact that the merger agreement does not provide Ruckus with a right to terminate the merger agreement solely because the trading price of Brocade common stock declines;

 

    the risks and costs to Ruckus if the offer does not close, including the diversion of management and employee attention, potential employee attrition and the potential effect on business, channel partner, distributor, supplier and customer relationships and the operational restrictions imposed on Ruckus pursuant to the merger agreement between signing of the merger agreement and closing of the transactions contemplated by the merger agreement;

 

    the fact that the merger agreement restricts Ruckus’ ability to engage in discussions regarding competing proposals unless the failure to engage would be inconsistent with the Ruckus board of director’s exercise of its fiduciary duties, or to solicit competing proposals;

 

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    that Ruckus is obligated to pay Brocade a termination fee of $50 million if the merger agreement is terminated under certain circumstances, including if the Ruckus board of directors changes its recommendation (other than in certain circumstances) or if Ruckus terminates the merger agreement to accept a superior proposal;

 

    the risk that the offer or the merger may not be consummated despite the parties’ efforts or that consummation may be unduly delayed, including the possibility that the conditions to the parties’ obligations to complete the offer or the merger, including receipt of required regulatory approvals, may not be satisfied and the potential resulting disruptions to Ruckus’ business;

 

    the risk that the debt financing contemplated by the commitment letter may not be obtained despite the commitment letter Brocade has obtained;

 

    the fact that Ruckus’ executive officers and directors may have interests in the transactions contemplated by the merger agreement that are different from, or in addition to, those of Ruckus’ other stockholders, and the risk that these interests might influence their decision with respect to the transactions contemplated by the merger agreement, as more fully described below under “—Interests of Certain Persons in the Offer and the Merger;”

 

    the fact that the receipt of a combination of cash and Brocade common stock in exchange for shares of Ruckus common stock pursuant to the merger will be a taxable transaction to Ruckus stockholders for U.S. federal income tax purposes;

 

    the challenges of combining the business of Ruckus with that of Brocade and the risks associated with achieving the limited anticipated synergies; and

 

    various other risks associated with the offer and the merger and the business of Ruckus and the combined company described above under “Risk Factors.”

After considering the foregoing potentially positive and potentially negative factors, the Ruckus board of directors concluded that the potential benefits of the merger agreement, the offer and the merger outweighed the risks and other potentially negative factors associated with the merger agreement, the offer and the merger.

The foregoing discussion of the information and factors considered by the Ruckus board of directors is intended to be a summary and is not intended to be exhaustive, but includes the principal material factors considered by the Ruckus board of directors. In view of the variety of factors considered in connection with its evaluation of the offer, the merger and the merger agreement, the Ruckus board of directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The Ruckus board of directors did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The Ruckus board of directors based its recommendation on the totality of the information it received and the investigation it conducted.

It should be noted that this explanation of the reasoning of the Ruckus board of directors and certain information presented in this section is forward-looking in nature and, therefore, the information should be read in light of the factors discussed above under “Forward-Looking Statements.”

For the reasons described above, and in light of other factors that the Ruckus board of directors believed were appropriate, the Ruckus board of directors approved the merger agreement and the transactions contemplated by the merger agreement, including the offer and the merger, and unanimously recommends that Ruckus’ stockholders tender their shares of Ruckus common stock pursuant to the offer.

 

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Opinion of Ruckus’ Financial Advisor

In connection with the offer and the merger, at the meeting of the board of directors of Ruckus on April 3, 2016, Morgan Stanley & Co. LLC (referred to as “Morgan Stanley”), Ruckus’ financial advisor, rendered to the board of directors of Ruckus its oral opinion, subsequently confirmed in writing, that as of April 3, 2016, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations upon the scope of the review undertaken by Morgan Stanley as set forth in the written opinion, the transaction consideration to be received by the holders of Ruckus shares (other than excluded shares) pursuant to the merger agreement was fair from a financial point of view to such holders. The full text of the written opinion of Morgan Stanley, dated as of April 3, 2016, is attached as Annex C to this prospectus/offer to exchange and is incorporated by reference herein in its entirety. You are encouraged to read the opinion in its entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations upon the scope of the review undertaken by Morgan Stanley in rendering its opinion. The summary of the opinion of Morgan Stanley in this prospectus/offer to exchange is qualified in its entirety by reference to the full text of the opinion.

Morgan Stanley’s opinion was addressed to the board of directors of Ruckus, in its capacity as such, and addresses only the fairness from a financial point of view of the transaction consideration to be received by the holders of Ruckus shares (other than excluded shares) pursuant to the merger agreement as of the date of the opinion. Morgan Stanley’s opinion did not address any other aspects or implications of the offer and the merger and does not constitute an opinion or a recommendation as to whether the stockholders of Ruckus should tender shares of Ruckus common stock into the offer, or take any other action in connection with the offer and the merger.

Ruckus retained Morgan Stanley to provide it and the board of directors of Ruckus with financial advisory services and the board of directors of Ruckus with a financial opinion in connection with the sale of Ruckus. Ruckus selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation, its knowledge of and involvement in recent transactions in Ruckus’ industry, and its knowledge of Ruckus’ business and affairs. At the meeting of the board of directors of Ruckus on April 3, 2016, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that as of April 3, 2016, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations upon the scope of the review undertaken by Morgan Stanley as set forth in the written opinion, the transaction consideration to be received by the holders of Ruckus shares (other than excluded shares) pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Morgan Stanley, dated as of April 3, 2016, is attached to this prospectus/offer to exchange as Annex C and is incorporated by reference in this prospectus/offer to exchange in its entirety. You are encouraged to read the opinion in its entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations upon the scope of the review undertaken by Morgan Stanley in rendering its opinion. Morgan Stanley’s opinion was addressed to the board of directors of Ruckus, in its capacity as such, and addresses only the fairness from a financial point of view of the transaction consideration to be received by the holders of Ruckus shares (other than excluded shares) pursuant to the merger agreement as of the date of the opinion. It did not address any other aspects or implications of the offer and the merger and does not constitute an opinion or a recommendation as to whether the stockholders of Ruckus should tender shares of Ruckus common stock into the offer, or take any other action in connection with the offer and the merger. The summary of the opinion of Morgan Stanley set forth below is qualified in its entirety by reference to the full text of the opinion.

 

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In connection with rendering its opinion, Morgan Stanley, among other things:

 

    reviewed certain publicly available financial statements and other business and financial information of Ruckus and Brocade, respectively;

 

    reviewed certain internal financial statements and other financial and operating data concerning Ruckus and Brocade, respectively;

 

    reviewed certain financial projections prepared by the managements of Ruckus and Brocade, respectively;

 

    reviewed information relating to certain strategic, financial and operational benefits anticipated from the merger, prepared by the managements of Ruckus and Brocade, respectively;

 

    discussed the past and current operations and financial condition and the prospects of Ruckus, including information relating to certain strategic, financial and operational benefits anticipated from the merger, with Ruckus’ senior executives;

 

    discussed the past and current operations and financial condition and the prospects of Brocade, including information relating to certain strategic, financial and operational benefits anticipated from the merger, with senior executives of Brocade;

 

    reviewed the pro forma impact of the merger on Brocade’s earnings per share, cash flow, consolidated capitalization and financial ratios;

 

    reviewed the reported prices and trading activity for the shares of Ruckus common stock and shares of Brocade common stock;

 

    compared the financial performance of Ruckus and Brocade and the prices and trading activity of the shares of Ruckus common stock and shares of Brocade common stock with that of certain other publicly-traded companies comparable with Ruckus and Brocade, respectively, and their securities;

 

    reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;

 

    participated in certain discussions and negotiations among representatives of Ruckus and Brocade and their financial and legal advisors;

 

    reviewed a final draft, dated April 3, 2016, of the merger agreement and certain related documents; and

 

    performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Morgan Stanley by Ruckus and Brocade, and formed a substantial basis for its opinion. Morgan Stanley further relied upon the assurances of the management of Ruckus and Brocade that it was not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the financial projections, including information relating to certain strategic, financial and operational benefits anticipated from the merger, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the respective managements of Ruckus and Brocade of the future financial performance of Ruckus and Brocade. In addition, Morgan Stanley assumed that the offer and the merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver or amendment of any terms or conditions and that the definitive merger agreement would not differ in any material respect from the draft furnished to Morgan Stanley. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed offer and the merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed merger. Morgan Stanley

 

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relied upon, without independent verification, the assessment by the managements of Ruckus and Brocade of: (i) the strategic, financial and other benefits expected to result from the offer and the merger; (ii) the timing and risks associated with the integration of Ruckus and Brocade; and (iii) the validity of, and risks associated with, Ruckus and Brocade’s existing and future technologies, intellectual property, products, services and business models. Morgan Stanley is not a legal, tax or regulatory advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of Brocade and Ruckus and their respective legal, tax or regulatory advisors with respect to legal, tax or regulatory matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of Ruckus’ officers, directors or employees, or any class of such persons, relative to the transaction consideration to be received by the holders of shares of Ruckus common stock in the offer and the merger. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of Ruckus or Brocade, nor was Morgan Stanley furnished with any such valuations or appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, April 3, 2016. Events occurring after April 3, 2016 may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

Summary of Financial Analyses

The following is a brief summary of the material analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion letter to the board of directors of Ruckus dated April 3, 2016. The following summary is not a complete description of Morgan Stanley’s opinion or the financial analyses performed and factors considered by Morgan Stanley in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before April 1, 2016, the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated by the merger agreement, including the offer and the merger. The various analyses summarized below were based on the closing price of $10.00 per share of Ruckus common stock and $10.64 per share of Brocade common stock as of April 1, 2016 (the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement), and are not necessarily indicative of current market conditions. Based on the closing price per share of the Brocade common stock of $10.64 and the per share of Ruckus common stock transaction consideration comprised of $6.45 in cash and an exchange ratio of 0.75 of a share of Brocade common stock for each share of Ruckus common stock, the implied value of the transaction price per share of Ruckus common stock was $14.43 and the implied all-stock exchange ratio was 1.36x as of April 1, 2016.

Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. The analyses listed in the tables and described below must be considered as a whole; considering any portion of such analyses and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanley’s opinion.

In performing the financial analyses summarized below and arriving at its opinion, Morgan Stanley used and relied upon the company forecasts (defined below). These financial projections are more fully described below under the heading “Certain Financial Forecasts.”

Public Trading Comparables Analysis

Morgan Stanley performed a public trading comparables analysis, which attempts to provide an implied value of a company by comparing it to similar companies that are publicly traded. Morgan Stanley reviewed and

 

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compared certain financial estimates for Ruckus with comparable publicly available consensus equity analyst research estimates for selected companies that share similar business characteristics and have certain comparable operating characteristics including, among other things, similarly sized revenue and/or revenue growth rates, market capitalizations, profitability, scale and/or other similar operating characteristics (we refer to these companies as the comparable companies). These companies were the following:

 

    A10 Networks, Inc.

 

    Aerohive Networks, Inc.

 

    Brocade Communications Systems, Inc.

 

    Cisco Systems, Inc.

 

    Extreme Networks, Inc.

 

    F5 Networks, Inc.

 

    Hewlett Packard Enterprise Company

 

    Juniper Networks, Inc.

 

    Ubiquiti Networks, Inc.

 

    Zebra Technologies Corporation

For purposes of this analysis, Morgan Stanley analyzed the ratio of aggregate value, which Morgan Stanley defined as fully-diluted market capitalization plus total debt, plus non-controlling interest, less cash and cash equivalents, to adjusted EBITDA, which Morgan Stanley defined as net income excluding net interest expense, income tax expense and certain other non-cash and non-recurring items, principally depreciation, amortization and stock-based compensation, as well as of price to earnings, which Morgan Stanley defined as the ratio of price per share to estimated earnings per share, for calendar years 2016 and 2017, of each of these comparable companies based on publicly available financial information compiled by Thomson Reuters for comparison purposes. For the purposes of this analysis and certain other analyses described below, unless otherwise indicated, Morgan Stanley utilized publicly available Thomson Reuters financial information for Ruckus available as of April 1, 2016 (the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement), which is referred to below as the “street case.”

Based on its analysis of the relevant metrics for each of the comparable companies and upon the application of its professional judgment and experience, Morgan Stanley selected representative ranges of aggregate value to adjusted EBITDA multiples and of price to earnings multiples and applied these ranges of multiples to the estimated relevant metric for Ruckus. For purposes of this analysis, Morgan Stanley utilized publicly available estimates of aggregate values and adjusted EBITDA, and price as a multiple of earnings prepared by equity research analysts, available as of April 1, 2016 (the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement).

Based on the outstanding shares of Ruckus common stock on a fully-diluted basis (including outstanding Ruckus options, Ruckus restricted stock awards and Ruckus restricted stock units) as of April 1, 2016, Morgan Stanley calculated the estimated implied value per Share as of April 1, 2016 as follows:

 

Calendar Year Financial Statistic    Comparable Company
Multiple Ranges
   Implied Value
Per Share ($)

Street Case

     

Aggregate Value to Estimated 2016 Adjusted EBITDA

   9.0x – 11.0x    8.60 – 9.95

Price to Estimated 2016 Earnings

   16.0x – 20.0x    8.83 – 11.04

Aggregate Value to Estimated 2017 Adjusted EBITDA

   7.0x – 10.0x    8.61 – 11.22

Price to Estimated 2017 Earnings

   13.0x –17.0x    7.83 – 10.23

 

 

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No company utilized in the public trading comparables analysis is identical to Ruckus. In evaluating the comparable companies, Morgan Stanley made numerous assumptions with respect to industry performance, general business, regulatory, economic, market and financial conditions and other matters, many of which are beyond Ruckus’ and Morgan Stanley’s control. These include, among other things, the impact of competition on Ruckus’ business and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of Ruckus and the industry, and in the financial markets in general. Mathematical analysis (such as determining the average or median) is not in and of itself a meaningful method of using comparable company data.

Precedent Transactions Analysis

Morgan Stanley performed a precedent transactions analysis, which is designed to imply a value of a company based on publicly available financial terms and premia of selected transactions. Morgan Stanley compared publicly available statistics for select networking equipment vendor transactions occurring between 2008 and 2016. Morgan Stanley selected such comparable transactions because they shared certain characteristics with the offer and the merger, most notably because they were similar networking equipment transactions. The following is a list of the networking equipment transactions reviewed:

Selected Networking Equipment Vendor Transactions (Target / Acquiror)

Alcatel-Lucent / Nokia Corporation

Aruba Networks, Inc. / Hewlett-Packard Company

Riverbed Technology, Inc. / Thoma Bravo

Motorola Solutions, Inc. Enterprise Business / Zebra Technologies Corporation

3Com Corporation / Hewlett-Packard Company

Tandberg ASA / Cisco Systems, Inc.

Foundry Networks, Inc. / Brocade Communications Systems, Inc.

For the transactions listed above, Morgan Stanley noted the following financial statistics where available: (1) the multiple of aggregate value of the transactions contemplated by the merger agreement to the last twelve months revenue and (2) the multiple of price per share of the transaction to last twelve months earnings per share, in each case based on publicly available information as of April 1, 2016 (the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement).

In connection with the precedent transaction premia analysis, Morgan Stanley also reviewed 24 select precedent transactions occurring between 2014 and April 1, 2016 that involved the acquisition of U.S. publicly-listed companies for values greater than $300 million in which both the stock consideration and the cash consideration were between 40% and 60% of the total consideration. For these transactions, Morgan Stanley noted the distributions of the following financial statistics, where available: (1) the implied premium to the acquired company’s closing share price on the last trading day prior to announcement (or the last trading day prior to the share price being affected by acquisition rumors or similar merger-related news); (2) the implied premium to the acquired company’s 30-trading-day average closing share price prior to announcement (or the last 30-trading-day average closing share price prior to the share price being affected by acquisition rumors or similar merger-related news); and (3) the implied premium to the acquired company’s last twelve month high share price prior to announcement (or the last twelve month high share price prior to the share price being affected by acquisition rumors or similar merger-related news).

 

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Based on its analysis of the relevant metrics and time frame for each of the transactions listed above and upon the application of its professional judgment and experience, Morgan Stanley selected representative ranges of implied premia and financial multiples of the transactions and applied these ranges of premia and financial multiples to the relevant financial statistic for Ruckus. For purposes of aggregate value to LTM revenue and price per share to LTM earnings per share, Morgan Stanley utilized 2015 actual values for Ruckus. The following table summarizes Morgan Stanley’s analysis:

 

Precedent Transactions Financial Statistics    Representative
Ranges
   Implied Value
Per Share ($)

Precedent Networking Equipment Vendor M&A Transaction Multiples

     

Aggregate Value to LTM Revenue

   2.0x – 3.5x    9.66 – 14.98

Price to LTM Earnings per Share

   18.0x – 25.0x    7.74 – 10.75

Precedent Cash/Stock Transaction Premia

     

Premium to 1-Day Prior Closing Share Price

   15% – 40%    11.50 – 14.00

Premium to 30-Day Average Closing Share Price

   20% – 40%    11.72 – 13.67

Premium to Last Twelve Month High Share Price

   (5%) – 5%    12.64 – 13.97

No company or transaction utilized in the precedent transactions analysis is identical to Ruckus or the offer and the merger. In evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with respect to industry performance, general business, regulatory, economic, market and financial conditions and other matters, many of which are beyond Ruckus’ control. These include, among other things, the impact of competition on Ruckus’ business and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of Ruckus and the industry, and in the financial markets in general, which could affect the public trading value of the companies and the aggregate value of the transactions to which they are being compared. The fact that points in the range of implied value per share of Ruckus common stock derived from the valuation of precedent transactions were less than or greater than the transaction consideration to be received by the holders of Ruckus shares (other than excluded shares) is not necessarily dispositive in connection with Morgan Stanley’s analysis of such consideration, but one of many factors Morgan Stanley considered.

Discounted Cash Flow Analysis

Morgan Stanley performed a discounted cash flow analysis, which is designed to provide an implied value of a company by calculating the present value of the estimated future cash flows and terminal value of such company. Morgan Stanley calculated a range of equity values per share of Ruckus common stock based on a discounted cash flow analysis to value Ruckus as a stand-alone entity. Morgan Stanley utilized estimates from the “Ruckus forecasts” (consisting of the Ruckus slower small cell forecasts, the Ruckus management case forecasts and the Ruckus faster small cell forecasts, each as defined below) for purposes of its discounted cash flow analysis, as more fully described below. The Ruckus forecasts are more fully described below under the heading “Certain Financial Forecasts—Financial Forecasts of Ruckus”.

Morgan Stanley first calculated the estimated free cash flow, which is defined as adjusted earnings before interest, taxes, depreciation and amortization, less (1) stock-based compensation expense, (2) taxes and (3) capital expenditures, and less or plus, as applicable, (4) changes in working capital. The Ruckus forecasts through 2020 were based on projections prepared by Ruckus’ management, and the estimates for calendar years 2021 through 2025 represented an extrapolation of 2020 estimates. Based on the variable year-to-year growth rate present in these projections and extrapolations, Morgan Stanley calculated the net present value of free cash flows for Ruckus for the years 2016 through 2025 and calculated terminal values in the year 2025. The free cash flows and terminal values were discounted to present values as of April 1, 2016 (the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement) at rates of 8.7%, 9.7%, and 10.7%, which discount rates were selected, upon the application of Morgan Stanley’s professional judgment and experience, to reflect Ruckus’ weighted average cost of capital.

 

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Based on its analysis and upon the application of its professional judgment and experience, Morgan Stanley selected representative ranges of perpetual growth rates and applied these ranges of growth rates to calculate the terminal value of Ruckus.

Based on the outstanding shares of Ruckus common stock on a fully-diluted basis (including outstanding Ruckus options, Ruckus restricted stock awards and Ruckus restricted stock units) as of April 1, 2016 (the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement), Morgan Stanley calculated the estimated implied value per share of Ruckus common stock as of April 1, 2016 as follows:

 

     Terminal Value
Perpetual
Growth Rate
   Implied
Value Per
Share ($)

Ruckus Slower Small Cell Forecasts

   1.0% – 3.0%    11.51 – 16.17

Ruckus Management Case Forecasts

   1.0% – 3.0%    14.57 – 21.10

Ruckus Faster Small Cell Forecasts

   1.0% – 3.0%    17.12 – 25.43

Morgan Stanley then compared these per share values with the discounted cash flow value per share of Ruckus common stock value of the transaction consideration as of April 1, 2016 that each shareholder of Ruckus would receive in the offer and the merger in exchange for a share of Ruckus common stock. The value that would be received for each share of Ruckus common stock was defined as the discounted cash flow value per share of the common stock of Brocade, after giving effect to the merger and incorporating the value of certain synergy forecasts (the “synergies,” which are described below under “Certain Financial Forecasts—Estimated Synergies”), multiplied by the 0.75 transaction exchange ratio, plus $6.45 of cash consideration per share of Ruckus common stock.

Morgan Stanley utilized estimates from the “Brocade forecasts” (consisting of the Brocade low range forecasts, the Brocade mid range forecasts and the Brocade high range forecasts, each as defined below) and the synergies for purposes of its discounted cash flow analysis of the combined Brocade and Ruckus discounted cash flow analysis. The Brocade forecasts and the synergies are more fully described below under the heading “Certain Financial Forecasts.” Morgan Stanley’s calculation of Brocade free cash flow used the same methodology as described for Ruckus’ free cash flow above. The Brocade forecasts through 2018 were based on projections prepared by Brocade for fiscal years 2016 and 2017 and a financial model prepared by Brocade for fiscal year 2018 (as described below under the heading, “Certain Financial Forecasts—Financial Forecasts for Brocade”), and the estimates for calendar years 2019 through 2025 represented an extrapolation of 2018 estimates. Morgan Stanley calculated the net present value of free cash flows for Brocade for the years 2016 through 2025 and calculated terminal values in the year 2025. The free cash flows and terminal values were discounted to present values as of April 1, 2016 (the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement) at rates of 6.7%, 7.5%, and 8.4% and at perpetual growth rates ranging from -1.0% – 2.0% depending on the particular Brocade forecast case. The discount rates and perpetual growth rates were selected, upon the application of Morgan Stanley’s professional judgment and experience, to reflect Brocade’s weighted average cost of capital and estimates long-term growth rate.

Morgan Stanley calculated the implied value of the transaction consideration received per share of Ruckus common stock as follows:

 

     Implied
Value Per
Share ($)
 

Ruckus Slower Small Cell Forecasts/ Brocade Low Range Forecasts

     15.95 – 19.56   

Ruckus Management Case Forecasts / Brocade Mid Range Forecasts

     17.61 – 22.35   

Ruckus Faster Small Cell Forecasts / Brocade High Range Forecasts

     19.17 – 25.18   

 

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Morgan Stanley then calculated the implied exchange ratio of Ruckus’ discounted cash flow per share of Ruckus common stock divided by Brocade’s discounted cash flow per share values. For each set of Ruckus and Brocade forecasts, the low end of the range of Ruckus per share values was divided by the low end of the range of Brocade per share values and the high end of the range of Ruckus per share values was divided by the high end of the range of Brocade per share values.

The following table summarizes Morgan Stanley’s analysis of the implied exchange ratio of the relative discounted cash flows per share of Ruckus common stock of Ruckus and Brocade (without taking account of synergies):

 

     Implied
Exchange Ratio
 

Ruckus Slower Small Cell Forecasts / Brocade Low Range Forecasts

     0.92x – 0.98x   

Ruckus Management Case Forecasts/ Brocade Mid Range Forecasts

     1.02x – 1.08x   

Ruckus Faster Small Cell Forecasts / Brocade High Range Forecasts

     1.07x – 1.11x   

Morgan Stanley noted that the all-stock exchange ratio implied by the transactions contemplated by the merger agreement, based on the implied value of the transaction price per share of Ruckus common stock of $14.43 divided by $10.64 (the closing share price of Brocade common stock on April 1, 2016, the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement), was 1.36x Ruckus shares per share of Brocade common stock.

Discounted Equity Value Analysis

Morgan Stanley performed a discounted equity value analysis, which is designed to provide insight into the potential future equity value of a company as a function of the company’s estimated future earnings. The resulting equity value is subsequently discounted to arrive at an estimate of the implied present value for such company’s potential future equity value. In connection with this analysis, Morgan Stanley calculated a range of implied present equity values per share of Ruckus common stock on a standalone basis. To calculate the discounted equity value, Morgan Stanley used calendar year 2018 EPS estimates from the Ruckus forecasts. Morgan Stanley also adjusted Ruckus’ projected earnings per share of Ruckus common stock to reflect a possible share buyback of Ruckus common stock, which assumes a $100 million share buyback of Ruckus common stock using existing cash at a buyback price of $10.00 per share of Ruckus common stock as of April 1, 2016 (the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement). Based upon the application of its professional judgment and experience, Morgan Stanley applied a range of price to earnings multiples (based on the range of price to earnings multiples for the comparable companies and the growth profile of Ruckus) to these estimates and applied a discount rate of 9.7%, which rate was selected based on Ruckus’ estimated cost of equity.

The following table summarizes Morgan Stanley’s analysis:

 

Calendar Year 2018 EPS    P/E Multiple Range      Implied Present
Value Per
Share ($)
 

Ruckus Slower Small Cell Forecasts

     17.0x – 19.0x         11.25 – 12.57   

Ruckus Management Case Forecasts

     18.0x – 20.0x         14.98 – 16.64   

Ruckus Faster Small Cell Forecasts

     19.0x – 21.0x         17.10 – 18.90   

Morgan Stanley then compared these Ruckus per share values with the potential future equity value of Brocade, giving effect to the offer and the merger and the contribution of Ruckus based on the Ruckus management case forecasts and the synergies. In connection with this analysis, Morgan Stanley calculated a range of implied present equity values per share of Ruckus common stock. To calculate the discounted equity value, Morgan Stanley used calendar year 2018 EPS estimates from the Brocade forecasts. Morgan Stanley also adjusted the

 

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projected Brocade earnings per share to reflect the contemplated buyback of shares of Brocade common stock, which assumes a 77 million share buyback using new debt and existing cash at a buyback price of $10.64 per share of Brocade common stock as of April 1, 2016 (the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement). Using its professional judgment and experience, Morgan Stanley applied a range of P/E multiples (based on the range of price to earnings multiples for the comparable companies and the growth profile of Ruckus) to these estimates and applied a discount rate of 8.4%, which rate was selected based on Brocade’s estimated cost of equity. Morgan Stanley then calculated the implied value per share of Ruckus common stock by multiplying the Brocade value per Ruckus share by the 0.75 exchange ratio and adding the $6.45 per Ruckus share of cash consideration.

The following table summarizes Morgan Stanley’s analysis:

 

Calendar Year 2018 EPS    P/E Multiple
Range
     Implied Present
Value Per
Share ($)
 

Brocade Low Range Forecasts

     10.0x – 12.0x         15.00 – 16.71   

Brocade Mid Range Forecasts

     10.0x – 12.0x         15.57 – 17.39   

Brocade High Range Forecasts

     11.0x – 13.0x         17.10 – 19.04   

Trading Range Analysis

Morgan Stanley performed a trading range analysis with respect to the historical trading prices of the shares of Ruckus common stock. Morgan Stanley reviewed the range of closing trading prices of the shares of Ruckus common stock for various periods ending on April 1, 2016 (the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement). Morgan Stanley observed the following:

 

Period Ending April 1, 2016    Range of Trading
Prices of Shares($)
 

Last 1 Month

     9.39 – 10.22   

Last 3 Months

     7.48 – 10.38   

Last 6 Months

     7.48 – 13.30   

Last 12 Months

     7.48 – 13.30   

Morgan Stanley observed that the shares of Ruckus common stock closed at $10.00 on April 1, 2016 (the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement). Morgan Stanley noted that the implied value of the transaction consideration per share of Ruckus common stock of $14.43 reflected a 44% premium to the closing trading price per share of Ruckus common stock on April 1, 2016, a 48% premium to the average closing trading price per share of Ruckus common stock for the 30 trading days prior to and including April 1, 2016, and an 8.5% premium to the highest closing trading price per share of Ruckus common stock for the twelve months prior to and including April 1, 2016.

Morgan Stanley also performed a historical exchange ratio analysis, dividing the historical trading price of shares of Ruckus common stock by the historical share trading price of shares of Brocade common stock for various periods ending on April 1, 2016 (the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement). Morgan Stanley observed the following:

 

Period Ending April 1, 2016    Range of Exchange
Ratios
 

Last 30 Days

     0.91x – 0.99x   

Last 6 Months

     0.91x –  1.18x   

Last 1 Year

     0.81x – 1.29x  

Last 2 Years

     0.79x – 1.46x   

 

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Equity Research Analysts’ Future Price Targets

Morgan Stanley reviewed and analyzed future public market trading price targets for the shares of Ruckus common stock prepared and published by equity research analysts prior to April 1, 2016 (the last full trading day prior to the meeting of the board of directors of Ruckus to approve and adopt the merger agreement). These targets reflected each analyst’s estimate of the future public market trading price of the shares of Ruckus common stock. The range of undiscounted analyst price targets for the shares of Ruckus common stock was $8.50 to $15.00 per share of Ruckus common stock as of April 1, 2016. Morgan Stanley discounted the range of analyst price targets per share of Ruckus common stock by one year at a rate of 9.7%, which discount rate was selected by Morgan Stanley, upon the application of its professional judgment and experience, to reflect Ruckus’ cost of equity. This analysis indicated an implied range of equity values for the shares of Ruckus common stock of $7.75 to $13.67 per share.

Morgan Stanley also calculated the exchange ratio implied by dividing the low end of analyst price targets for the shares of Ruckus common stock by the low end of analyst price targets for Brocade common stock and dividing the high end of analyst price targets for the shares of Ruckus common stock by the high end of analyst price targets for Brocade common stock. The resulting analysis yielded an exchange ratio range of 0.85x – 1.07x shares of Ruckus common stock per share of Brocade common stock compared with the implied exchange ratio of the transactions contemplated by the merger agreement (assuming an all-stock transaction) of 1.36x Ruckus shares per share of Brocade common stock.

The public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for the shares of Ruckus common stock or the shares of Brocade common stock, and these estimates are subject to uncertainties, including the future financial performance of Ruckus and Brocade and future financial market conditions.

Relative Contribution Analysis

Morgan Stanley calculated the implied exchange ratio using the size of Ruckus’ revenue, gross profit, adjusted EBITDA and adjusted net income for calendar years 2015 through 2017 relative to the same metrics for Brocade. Calendar year 2015 financial metrics were based on the actual financial performance of Ruckus and Brocade. Calendar years 2016 and 2017 financial metrics were based on the Ruckus management case forecasts and the Brocade mid range forecasts. The relative contribution was further adjusted for the relative cash and debt balances of Ruckus and Brocade.

The following table summarizes Morgan Stanley’s analysis:

 

     Range of Exchange
Ratios

2015 – 2017 Revenue

   0.82x – 1.07x

2015 – 2017 Gross Profit

   0.82x – 1.10x

2015 – 2017 EBITDA

   0.50x – 0.79x

2015 – 2017 Net Income

   0.41x – 0.63x

General

In connection with the review of the offer and the merger by the board of directors of Ruckus, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various

 

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analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of Ruckus. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business, regulatory, economic, market and financial conditions and other matters, many of which are beyond Ruckus’ control. These include, among other things, the impact of competition on Ruckus’ business and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of Ruckus and the industry, or in the financial markets in general. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness from a financial point of view of the transaction consideration to be received by the holders of Ruckus shares (other than excluded shares) pursuant to the merger agreement and in connection with the delivery of its opinion, dated April 3, 2016, to the board of directors of Ruckus. These analyses do not purport to be appraisals or to reflect the prices at which shares of Ruckus common stock might actually trade.

The consideration to be received by the holders of Ruckus shares (other than excluded shares) pursuant to the merger agreement was determined through arm’s-length negotiations between Ruckus and Brocade and was approved by the board of directors of Ruckus. Morgan Stanley provided advice to the board of directors of Ruckus during these negotiations but did not, however, recommend any specific consideration to Ruckus or the board of directors of Ruckus, nor did Morgan Stanley opine that any specific consideration constituted the only appropriate consideration for the offer and the merger. Morgan Stanley’s opinion did not address the relative merits of the offer and the merger as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are available. Morgan Stanley’s opinion was not intended to, and does not, constitute an opinion or recommendation as to whether the stockholders of Ruckus should tender shares of Ruckus common stock into the offer, or take any other action in connection with the offer and the merger.

Morgan Stanley’s opinion and its presentation to the board of directors of Ruckus was one of many factors taken into consideration by the board of directors of Ruckus in deciding to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated by the merger agreement, including the offer and the merger. Consequently, the analyses as described above should not be viewed as determinative of the opinion of the board of directors of Ruckus with respect to the transaction consideration or of whether the board of directors of Ruckus would have been willing to agree to different consideration. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with Morgan Stanley’s customary practice.

Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, or may trade or otherwise structure and effect transactions, for their own account or the accounts of their customers, in debt or equity securities or loans of Brocade, Ruckus, or any other company, or any currency or commodity, that may be involved in the offer and the merger, or any related derivative instrument.

Under the terms of its engagement letter, Morgan Stanley provided Ruckus and the board of directors of Ruckus with financial advisory services and the board of directors of Ruckus with a financial opinion, described in this section and attached to this prospectus/offer to exchange as Annex C, in connection with the offer and the merger, and Ruckus has agreed to pay Morgan Stanley a fee of approximately $19.7 million for its services

 

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(which represents 1.3% of the transaction value as of the closing of the merger with the transaction value determined by reference to the fully diluted shares of Ruckus common stock as of the closing of the merger and a ten day average of the closing price of Brocade common stock prior to the announcement of the proposed merger), approximately $18.7 million of which is contingent upon the closing of the merger and $1 million of which has already been paid following the execution of the merger agreement. Ruckus has also agreed to reimburse Morgan Stanley for certain of its expenses, including fees of outside counsel and other professional advisors, incurred in connection with its engagement. In addition, Ruckus has agreed to indemnify Morgan Stanley and its affiliates, its and their respective directors, officers, agents and employees and each other person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses relating to, arising out of or in connection with Morgan Stanley’s engagement.

In the two years prior to the date of its opinion, Morgan Stanley has not provided financial advisory services or financing services to Ruckus or Brocade. Morgan Stanley may seek to provide financial advisory and financing services to Brocade and Ruckus and their respective affiliates in the future and would expect to receive fees for the rendering of these services.

Certain Financial Forecasts

Financial Forecasts of Ruckus

Ruckus does not, as a matter of course, publicly disclose long-term forecasts or internal projections as to future revenues, earnings or other results, due to, among other reasons, the unpredictability of the underlying assumptions and estimates.

The management of Ruckus prepared certain unaudited, non-public financial projections for the fiscal years 2016 through 2020 as set forth below. The unaudited projections reflected three alternative long-term scenarios: a “management case” scenario, which assumes that revenue growth due to market adoption of Ruckus’ small cell technology will begin in the second half of fiscal year 2017 and that Ruckus’ WLAN revenue growth will outpace the expected market growth by 3-4% annually (the “Ruckus management case forecasts”), a “faster small cell” scenario, which assumes accelerated market adoption of Ruckus’ small cell technology and WLAN revenue growth consistent with that assumed in the Ruckus management case forecasts (the “Ruckus faster small cell forecasts”), and a “slower small cell” scenario, which assumes that market adoption of Ruckus’ small cell technology will take one year longer than in the Ruckus management case forecasts and that Ruckus’ WLAN revenue will grow 16% in 2016 and then grow in line with the market’s rate of growth for fiscal years 2017 through 2020 (the “Ruckus slower small cell forecasts,” and together with the Ruckus management case forecasts and the Ruckus faster small cell forecasts, the “Ruckus forecasts”). Each of the Ruckus management case forecasts, the Ruckus faster small cell forecasts and the Ruckus slower small cell forecasts was prepared and provided to the board of directors of Ruckus in connection with its evaluation of Ruckus’ business as a result of having received an acquisition proposal from Brocade. The Ruckus forecasts were also provided to Morgan Stanley for purposes of its financial analyses and opinion. Morgan Stanley’s financial analyses and opinion are described above under the heading “—Opinion of Ruckus’ Financial Advisor.” Ruckus also provided to Brocade a nearly identical version of the Ruckus management case forecasts, which only contained immaterial differences.

 

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The following is a summary of the Ruckus forecasts:

 

($MM, except percentages and per share amounts)    Fiscal Year(1)  
     2016     2017     2018     2019     2020  

Ruckus Management Case Forecasts

          

Revenue

   $ 450      $ 550      $ 667      $ 798      $ 946   

Revenue Growth %

     20     22     21     20     19

Adjusted EBITDA(2)

   $ 72      $ 110      $ 156      $ 196      $ 241   

Adjusted EBITDA Margin %(2)

     16     20     23     25     25

Non-GAAP EPS(3)

   $ 0.55      $ 0.67      $ 0.95      $ 1.16      $ 1.37   

Non-GAAP EPS Growth %(3)

     29     22     41     22     19

Ruckus Faster Small Cell Forecasts

          

Revenue

   $ 450      $ 557      $ 696      $ 856      $ 1,047   

Revenue Growth %

     20     24     25     23     22

Adjusted EBITDA(2)

   $ 72      $ 112      $ 168      $ 206      $ 258   

Adjusted EBITDA Margin %(2)

     16     20     24     24     25

Non-GAAP EPS(3)

   $ 0.55      $ 0.69      $ 1.02      $ 1.22      $ 1.48   

Non-GAAP EPS Growth %(3)

     29     25     49     19     22

Ruckus Slower Small Cell Forecasts

          

Revenue

   $ 432      $ 515      $ 602      $ 689      $ 790   

Revenue Growth %

     16     19     17     14     15

Adjusted EBITDA(2)

   $ 64      $ 94      $ 128      $ 173      $ 205   

Adjusted EBITDA Margin %(2)

     15     18     21     25     26

Non-GAAP EPS(3)

   $ 0.48      $ 0.56      $ 0.75      $ 1.01      $ 1.16   

Non-GAAP EPS Growth %(3)

     12     18     34     34     15

 

(1) Ruckus’ fiscal year end is December 31.
(2) Adjusted EBITDA, a non-GAAP financial measure which Ruckus reconciles to net income (loss), represents earnings before interest, taxes, depreciation, and amortization, adjusted to exclude stock-based compensation expense, amortization of intangible assets, acquisition-related payments and to account for GAAP to non-GAAP tax adjustments.
(3) Ruckus derives non-GAAP EPS from non-GAAP net income (loss) using non-GAAP fully diluted share count.

Financial Forecasts for Brocade

Brocade’s management prepared certain unaudited financial projections for Brocade for fiscal years 2016 and 2017 and a financial model for fiscal year 2018, as set forth below. The projections for the fiscal years 2016 and 2017 were based upon a financial model made publicly available by Brocade at its Investor Day in September 2015, and subsequently published on Brocade’s website, with respect to Brocade’s revenue, revenue growth percentage, non-GAAP gross margins, non-GAAP operating margins, non-GAAP structural tax rate and anticipated share count reductions with respect to Brocade’s fiscal year 2016 and fiscal year 2017. Brocade also provided Morgan Stanley with a financial model extrapolated for the fiscal year 2018 assuming that fiscal year 2018 revenue and non-GAAP earnings data would be in the same ranges as assumed in the publicly available financial model for fiscal years 2016 and 2017. Morgan Stanley prepared estimates of Adjusted EBITDA and Adjusted EBITDA margin percentage for fiscal years 2016 through 2018 based upon Brocade’s non-GAAP financial projections for fiscal years 2016 and 2017 and the extrapolated financial projections for fiscal year 2018 both derived as described in the preceding sentence. These projections reflect three alternative long-term scenarios: a “low range” scenario, assuming the low end of the range of Brocade’s modeled annual revenue growth rates; a “high range” scenario, assuming the high end of the range of Brocade’s modeled annual revenue growth rates; and a “mid-range” scenario which Morgan Stanley prepared, solely as an interpolation of the low

 

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range forecast and high range forecast. Such low, mid- and high range forecasts and estimates are referred to as the “Brocade low range forecasts,” “Brocade mid range forecasts” and the “Brocade high range forecasts,” respectively, and collectively as the “Brocade forecasts.” Each of the Brocade forecasts, which is consistent with the modeling guidance provided publicly by Brocade at its Investor Day in September 2015, was provided to Brocade’s management for purposes of considering and evaluating Brocade’s acquisition proposal and to Morgan Stanley in connection with performing its related financial analyses. Morgan Stanley’s financial analyses and opinion are described above under the heading “Opinion of Ruckus’ Financial Advisor.”

The following is a summary of the Brocade forecasts:

 

($MM, except percentages and per share amounts)    Fiscal Year(1)  
     2016     2017     2018  

Brocade Low Range Forecasts

      

Revenue

   $ 2,292      $ 2,327      $ 2,365   

Revenue Growth %

     1.3     1.5     1.6

Adjusted EBITDA(2)

   $ 650      $ 658      $ 670   

Adjusted EBITDA Margin %(2)

     28.3     28.3     28.3

Non-GAAP EPS(3)

   $ 1.01      $ 1.05      $ 1.10   

Non-GAAP EPS Growth %(3)

     0     3     5

Brocade Mid Range Forecasts

   $ 2,321      $ 2,387      $ 2,458   

Revenue

   $ 2,321      $ 2,387      $ 2,458   

Revenue Growth %

     2.6     2.8     3.0

Adjusted EBITDA(2)

   $ 681      $ 699      $ 722   

Adjusted EBITDA Margin %(2)

     29.3     29.3     29.3

Non-GAAP EPS(3)

   $ 1.07      $ 1.12      $ 1.20   

Non-GAAP EPS Growth %(3)

     5     5     7

Brocade High Range Forecasts

      

Revenue

   $ 2,350      $ 2,446      $ 2,552   

Revenue Growth %

     3.8     4.1     4.3

Adjusted EBITDA(2)

   $ 712      $ 741      $ 773   

Adjusted EBITDA Margin %(2)

     30.3     30.3     30.3

Non-GAAP EPS(3)

   $ 1.12      $ 1.20      $ 1.29   

Non-GAAP EPS Growth %(3)

     11     6     8

 

(1) For each of fiscal years 2016, 2017 and 2018, Brocade’s fiscal year end is the final Saturday in October.
(2) Adjusted EBITDA, a non-GAAP financial measure, represents earnings before interest, taxes, depreciation, and amortization, adjusted to exclude stock-based compensation expense. Brocade does not report Adjusted EBITDA or Adjusted EBITDA margin percentage.
(3) Brocade derives non-GAAP EPS from non-GAAP net income (loss) using the same measures of outstanding shares as are used to calculate net income (loss) per share in accordance with GAAP.

 

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Estimated Synergies

Based on discussions with Ruckus’ management and Brocade’s management, Morgan Stanley prepared estimates of synergies (which are not included in the Ruckus forecasts or the Brocade forecasts) that the combined company could potentially realize in the fiscal years 2016, 2017 and 2018. Morgan Stanley presented these estimates to the Ruckus’ and Brocade’s managements, respectively. Based on comments received from the respective managements of Ruckus and Brocade, Morgan Stanley prepared estimates of synergies for the fiscal years 2016 through 2020 for use in its financial analyses. These estimates are referred to as the “synergies” under the heading “Opinion of Ruckus’ Financial Advisor” and are summarized in the following table:

 

($MM, except percentages and per share amounts)    Calendar Year  
     2016     2017      2018      2019      2020  

Net Revenue Synergies

   $ —        $ 19.7       $ 41.9       $ 44.5       $ 47.3   

Total Cost Synergies (Dis-synergies)(1)

   $ (40.0   $ 9.6       $ 20.2       $ 21.2       $ 22.6   

Pre-Tax Synergies

   $ (40.0   $ 29.2       $ 62.1       $ 65.7       $ 69.9   

Post-Tax Synergies

   $ (30.8   $ 22.5       $ 47.8       $ 50.6       $ 53.8   

 

(1) Cost dis-synergy in 2016 is due to one-time expense of $40.0 million in connection with the transaction contemplated by the merger agreement.

The actual synergies realized by the combined company may be less than, or exceed, these estimates.

Information about Non-GAAP Financial Measures

The Ruckus forecasts and the Brocade forecasts contain non-GAAP financial measures. Each of Ruckus’ and Brocade’s management believes such measures are helpful in understanding forecasts of Ruckus’ and Brocade’s respective future results. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in accordance with GAAP. The calculations of non-GAAP financial measures reflected in the Ruckus forecasts and the Brocade forecasts may differ from others in Ruckus’ and Brocade’s industry and are not necessarily comparable with similar titles used by other companies. Each of Ruckus and Brocade strongly encourages you to review all of its financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure.

Additional Information Concerning the Ruckus Forecasts and the Brocade Forecasts

The summary of the Ruckus forecasts and the Brocade forecasts is included in this prospectus/offer to exchange solely to give Ruckus’ stockholders access to information that was made available to the board of directors of Ruckus or to Morgan Stanley, or that was prepared by Morgan Stanley based on the information provided by one or both of the respective management teams, and with respect to the Ruckus management case forecasts, that was made available to Brocade and its representatives. These summaries of the Ruckus forecasts, the Brocade forecasts and the synergies are not being included in this prospectus/offer to exchange to influence any stockholder’s decision whether to tender shares of Ruckus common stock in the offer or for any other purpose. The inclusion of this information should not be regarded as an indication that the board of directors of Ruckus, its advisors or any other person considered, or now considers, it to be a reliable prediction of actual future results, and should not be relied upon as such. The Ruckus forecasts, the Brocade forecasts and the synergies were not developed with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial data. The Ruckus forecasts, the Brocade forecasts and the synergies are forward-looking statements.

No independent registered public accounting firm provided any assistance in preparing the Ruckus forecasts, the Brocade forecasts or the synergies. Accordingly, no independent registered public accounting firm has examined,

 

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compiled or otherwise performed any procedures with respect to the Ruckus forecasts, the Brocade forecasts or the synergies or expressed any opinion or given any other form of assurance with respect thereto, and no independent registered public accounting firm assumes any responsibility for the information contained in the Ruckus forecasts, the Brocade forecasts or the synergies. The Deloitte & Touche LLP report included in Ruckus’ Annual Report on Form 10-K for the fiscal year ended December 31, 2015 relates solely to the historical financial information of Ruckus and to an assessment of Ruckus’ internal control over financial reporting. The KPMG LLP report included in Brocade’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015 relates solely to the historical financial information of Brocade and to an assessment of Brocade’s internal control over financial reporting. Such reports do not extend to the Ruckus forecasts, the Brocade forecasts or the synergies and should not be read to do so. Deloitte & Touche LLP and KPMG LLP disclaim any association with the Ruckus forecasts, the Brocade forecasts and the synergies.

By including the Ruckus forecasts, the Brocade forecasts and the synergies in this prospectus/offer to exchange, neither Ruckus nor any of its representatives has made or makes any representation to any security holder regarding the information included in the Ruckus forecasts, the Brocade forecasts or the synergies or the ultimate performance of Ruckus, Brocade, the combined company following the transactions contemplated by the merger agreement or any of their affiliates compared to the information contained in the Ruckus forecasts, the Brocade forecasts and the synergies. The assumptions and estimates underlying the company forecasts, the parent forecasts and the synergies, all of which are difficult to predict and many of which are beyond the control of Ruckus and Brocade, may not be realized. There can be no assurance that the forecasted results or underlying assumptions will be realized, and actual results likely will differ, and may differ materially, from those reflected in the Ruckus forecasts, the Brocade forecasts and the synergies, whether or not the offer and the merger are completed.

In particular, the Ruckus forecasts, the Brocade forecasts and the synergies, while presented with numerical specificity necessarily, were based on numerous variables and assumptions that are inherently uncertain. Since the Ruckus forecasts, the Brocade forecasts and the synergies cover multiple years, by their nature, they become subject to greater unpredictability with each successive year. Important factors that may affect actual results and cause results in the Ruckus forecasts, the Brocade forecasts and the synergies to not be achieved include, but are not limited to, the risk factors described in Ruckus’ and Brocade’s SEC filings, including Ruckus’ Annual Report on Form 10-K for the fiscal year ended December 31, 2015, Brocade’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015 and Brocade’s Quarterly Report on Form 10-Q for the quarterly period ended January 30, 2016, and described below under the heading “Forward-Looking Statements.” The Ruckus forecasts, the Brocade forecasts and the synergies also reflect assumptions as to certain business decisions that are subject to change are susceptible to multiple interpretations and periodic revisions based on actual results, revised prospects for Ruckus’ business or Brocade’s business, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the Ruckus forecasts, the Brocade forecasts or the synergies were prepared. The information set forth in the Ruckus forecasts, the Brocade forecasts and the synergies is not fact and should not be relied upon as being necessarily indicative of actual future results.

The Ruckus forecasts and the Brocade forecasts were each developed on a standalone basis without giving effect to the offer and the merger, and therefore the Ruckus forecasts and the Brocade forecasts do not give effect to the offer, the merger or any changes to Ruckus’ or Brocade’s operations or strategy that may be implemented after the consummation of the offer and the merger, if the offer and merger are consummated, including potential cost synergies to be realized as a result of the offer and the merger, or to any costs incurred in connection with the offer and the merger. Furthermore, the Ruckus forecasts and the Brocade forecasts do not take into account the effect of any failure of the offer and the merger to be completed and should not be viewed as accurate or continuing in that context.

The Ruckus forecasts, the Brocade forecasts and the synergies summarized in this section were prepared prior to the execution of the merger agreement and have not been updated to reflect any changes after the date they were

 

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prepared. Neither Ruckus nor Brocade undertakes any obligation, except as required by law, to update or otherwise revise the Ruckus forecasts, the Brocade forecasts or the synergies to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error or to not be appropriate, or to reflect changes in general economic or industry conditions.

In light of the foregoing factors and the uncertainties inherent in the Ruckus forecasts, the Brocade forecasts and the synergies, readers of this prospectus/offer to exchange are cautioned not to place undue, if any, reliance on the Ruckus forecasts, the Brocade forecasts and the synergies.

No Stockholder Approval

If the offer is consummated, Brocade is not required to and will not seek the approval of Ruckus’ remaining public stockholders before effecting the merger.

Section 251(h) of the DGCL provides that following the consummation of a successful tender offer for a public corporation, and subject to certain statutory provisions, if the acquiring corporation owns at least the amount of shares of each class of stock of the target corporation that would otherwise be required to approve a merger involving the target corporation, and the other stockholders receive the same consideration for their stock in the merger as was payable in the tender offer, the acquiring corporation can effect a merger without the action of the other stockholders of the target corporation. If the offer is completed, it will mean that the minimum tender condition has been satisfied, and if the minimum tender condition has been satisfied, it will mean that the merger will be subject to Section 251(h) of the DGCL. Accordingly, if the offer is completed, Brocade intends to effect the closing of the merger without a vote of the Ruckus stockholders in accordance with Section  251(h) of the DGCL.

Appraisal Rights

No appraisal rights are available to Ruckus stockholders in connection with the offer. However, if the offer is completed and the merger is consummated, the holders of record of Ruckus shares immediately prior to the effective time of the merger who (i) did not tender their Ruckus shares in the offer; (ii) follow the procedures set forth in Section 262 of the DGCL; and (iii) do not thereafter withdraw their demand for appraisal of such shares in accordance with Section 262 of the DGCL, will be entitled to have their shares appraised by the Delaware Court of Chancery and receive payment of the “fair value” of such shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any, as determined by the Delaware Court of Chancery.

The “fair value” of any Ruckus shares could be based upon considerations other than, or in addition to, the price paid in the offer and the merger and the market value of such shares. Ruckus stockholders should recognize that the value determined in an appraisal proceeding of the Delaware Court of Chancery could be higher or lower than, or the same as, the transaction consideration. Moreover, Brocade and Ruckus may argue in an appraisal proceeding that, for purposes of such proceeding, the fair value of such shares of Ruckus common stock is less than the transaction consideration.

Under Section 262 of the DGCL, if a merger is approved under Section 251(h) of the DGCL, either a constituent corporation before the effective date of the merger, or the surviving corporation within ten days thereafter, must notify each of the holders of any class or series of stock of such constituent corporation who is entitled to appraisal rights of the approval of the merger and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of Section 262 of the DGCL. The Schedule 14D-9 constitutes the formal notice of appraisal rights under Section 262 of the DGCL. Failure to follow the steps required by Section 262 of the DGCL for perfecting appraisal rights will result in the loss of such rights.

 

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As is described more fully in the Schedule 14D-9, if a Ruckus stockholder elects to exercise appraisal rights under Section 262 of the DGCL, such stockholder must do ALL of the following, among other things:

 

    the stockholder must, within the later of the consummation of the offer and twenty days after the mailing of the Schedule 14D-9, deliver to Ruckus a written demand for appraisal of shares of Ruckus common stock held, which demand must reasonably inform Ruckus of the identity of the stockholder and that the stockholder is demanding appraisal;

 

    the stockholder must not tender his, her or its Ruckus shares pursuant to the offer; and

 

    the stockholder must continuously hold of record such shares from the date of making the demand through the effective time of the merger.

The foregoing summary of the right of Ruckus stockholders to seek appraisal rights under Delaware law does not purport to be a complete statement of the procedures to be followed by Ruckus stockholders desiring to exercise any appraisal rights available thereunder and is qualified in its entirety by reference to Section 262 of the DGCL. The proper exercise of appraisal rights requires strict adherence to the applicable provisions of the DGCL. A copy of Section 262 of the DGCL is included as Annex  B to the Schedule 14D-9.

Regulatory Approvals

General

Brocade is not aware of any governmental license or regulatory permit that appears to be material to Ruckus’ business that might be adversely affected by the acquisition of Ruckus shares pursuant to the offer or the merger or, except as described below, of any approval or other action by any government or governmental administrative or regulatory authority or agency, domestic or foreign, that would be required for the acquisition or ownership of Ruckus shares pursuant to the offer or the merger. Should any of these approvals or other actions be required, Brocade and the Offeror currently contemplate that these approvals or other actions will be sought. There can be no assurance that (i) any of these approvals or other actions, if needed, will be obtained (with or without substantial conditions), (ii) if these approvals were not obtained or these other actions were not taken, adverse consequences would not result to Ruckus’ business, or (iii) certain parts of Ruckus’ or any of its subsidiaries’ businesses would not have to be disposed of or held separate. The Offeror’s obligation under the offer to accept for exchange and pay for shares is subject to certain conditions. See “Merger Agreement—Conditions—Conditions to the Offer.”

Subject to the terms and conditions set forth in the merger agreement, Brocade and Ruckus have agreed to use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, and assist and cooperate with the other in doing, all things necessary, proper or advisable under applicable laws to consummate the offer and the merger as soon as reasonably practicable after the date of the merger agreement.

HSR Act

Under the HSR Act and the related rules and regulations issued by the FTC and the Antitrust Division of the U.S. Department of Justice (“DOJ”) under the HSR Act, the offer cannot be completed until the expiration or termination of a 30-day waiting period following the filing by Brocade of its Premerger Notification and Report Form with respect to the offer. Expiration or termination of the waiting period under the HSR Act is also a condition to the consummation of the offer.

Pursuant to the requirements of the HSR Act, Brocade and Ruckus each filed a Notification and Report Form with respect to the offer with the DOJ and the FTC on April 15, 2016, which began the 30-day waiting period required under the HSR Act. On April 28, 2016, Brocade and Ruckus were informed that the FTC granted early

 

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termination of the waiting period under the HSR Act. Accordingly, the condition of the offer relating to the expiration or termination of the waiting period under the HSR Act has been satisfied.

At any time before or after consummation of the offer and the merger, notwithstanding the termination of the waiting period under the HSR Act, the FTC or the DOJ could take such action under the antitrust laws as either deems necessary or desirable in the public interest, including seeking to enjoin the completion of the offer or the merger, seeking the divestiture of shares acquired by Brocade or seeking the divestiture of substantial assets of the parties or each of their respective subsidiaries, or requiring the parties to license, or hold separate, assets or terminate existing relationships and contractual rights. At any time before or after the completion of the offer and the merger, and notwithstanding the termination of the waiting period under the HSR Act, any state could also take legal action under federal and state antitrust laws and consumer protection laws as it deems necessary. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

There can be no assurance that a challenge to the offer and the merger on antitrust grounds will not be made, or if such a challenge is made, what the result will be. See “Merger Agreement—Conditions—Conditions to the Offer” for certain conditions to the offer, including conditions with respect to regulatory approvals and certain governmental actions.

Other Regulatory Approvals

Brocade and Ruckus derive revenues in other jurisdictions where antitrust or competition law filings or clearances are or may be required. Brocade has also submitted a pre-merger notification to the German Federal Cartel Office pursuant to applicable laws in Germany. The deadline for the German Federal Cartel Office’s decision in its Phase I investigation is May 16, 2016. At or before the end of its Phase I investigation, the German Federal Cartel Office may approve the transaction or it may extend its review for up to an additional three months. It is a condition to the offer that the German Federal Cartel Office has granted approval with respect to the offer and the merger.

Litigation Related to the Transaction

Following the announcement that Ruckus had entered into the merger agreement with Brocade and the Offeror on April 3, 2016, two putative stockholder class action complaints challenging the offer and the merger were filed on behalf of purported Ruckus stockholders in the Superior Court of California, County of Santa Clara. The first complaint was filed on April 12, 2016 and is captioned: Macuire v. Ruckus Wireless, Inc., et al., Case No.16CV293800 (referred to as the “Macuire complaint”). On April 19, 2016, another putative stockholder class action complaint was filed and is captioned: Jaljouli v. Ruckus Wireless, Inc., et al., Case No. 16CV294075 (referred to as the “Jaljouli complaint”).

Both the Macuire complaint and the Jaljouli complaint contain similar allegations and name Ruckus, members of the Ruckus board of directors, Brocade and the Offeror as defendants. In general, the complaints allege that the members of the Ruckus board of directors breached their fiduciary duties to Ruckus stockholders by doing one or more of the following: (i) agreeing to unfair and inadequate transaction consideration for the Ruckus shares, (ii) accepting unreasonable deal protection measures in the merger agreement that dissuade other potential bidders from making competing offers, (iii) failing to properly value Ruckus and take steps to maximize the sale value of Ruckus, and (iv) engaging in self-dealing.

The two complaints also allege that one or more of Ruckus, Brocade and the Offeror aided and abetted the members of the Ruckus board of directors in breaching their fiduciary duties to Ruckus stockholders.

The plaintiffs have requested certification as a class, rescission and invalidation of the merger agreement or related agreements, injunctive relief, imposition of a constructive trust, an award of the costs and disbursements

 

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of the action (including reasonable attorneys’ and experts’ fees), and other equitable relief that the court may deem just and proper.

The lawsuits are in their early stages and it is not possible to determine the potential outcome of the lawsuits or to make any estimate of probable losses at this time. Each of Ruckus, the Ruckus board of directors, Brocade and the Offeror believes that the lawsuits are completely without merit and each intends to vigorously defend against all allegations that have been asserted.

Interests of Certain Persons in the Offer and the Merger

Certain of Ruckus’ executive officers and directors have financial and other interests in the transactions contemplated by the merger agreement that are different from, or in addition to, the interests of Ruckus stockholders generally. The Ruckus board of directors was aware of these differing interests and considered them, among other matters, in evaluating and negotiating the merger agreement and in reaching its decision to approve the merger agreement and the transactions contemplated by the merger agreement. See the section entitled “The Offer and the Merger—Ruckus’ Reasons for the Offer and the Merger; Recommendation of the Ruckus Board of Directors.”

Consideration for Ruckus Shares

Ruckus’ executive officers and directors who tender the Ruckus shares they own pursuant to the offer will be entitled to receive the same transaction consideration per Ruckus share on the same terms and conditions as the other Ruckus stockholders who tender Ruckus shares into the offer. If the merger is consummated, any Ruckus shares owned by a director or executive officer of Ruckus that were not tendered into the offer will be converted into the right to receive the same transaction consideration per Ruckus share on the same terms and conditions as the other Ruckus stockholders whose Ruckus shares are converted in the merger.

The table below sets forth the approximate value of the cash payments and number of shares of Brocade common stock that each executive officer and director of Ruckus would receive in exchange for his or her Ruckus shares in the offer if he or she was to tender his or her Ruckus shares into the offer, including any Ruckus shares issuable upon exercise of any vested Ruckus options held by such executive officer or director (assuming he or she exercised each such vested Ruckus option by withholding the number of Ruckus shares equal to the aggregate exercise price of the Ruckus options exercised prior to tendering the underlying Ruckus shares in the offer). Brocade will not issue fractional shares of Brocade common stock in the offer or the merger. Instead, each holder of Ruckus shares who otherwise would be entitled to receive a fractional share of Brocade common stock will be entitled to an amount in cash (without interest and rounded to the nearest cent) equal to the amount of the fractional share interest in a share of Brocade common stock to which such holder would otherwise be entitled pursuant to the offer or the merger, as applicable, multiplied by the average of the volume weighted average price per share of Brocade common stock on NASDAQ (as reported by Bloomberg L.P. or, if not reported therein, in another authoritative source mutually selected by Brocade and Ruckus) on each of the ten consecutive trading days ending with and including the complete trading day immediately prior to the acceptance time. Except as otherwise noted in the table below, the information in the table is based on the number of Ruckus shares held by Ruckus’ executive officers and directors as of April 26, 2016 (and takes into account any Ruckus options that would vest on or prior to the expiration of the offer (which is expected to occur at 12:00 midnight Eastern time, at the end of May 26, 2016, unless the offer is earlier extended or terminated)), a price per share of Brocade common stock of $9.61, which is the average closing price per share of Brocade common stock as quoted on NASDAQ over the first five business days following the first public announcement of the merger on April 4, 2016, and a price per Ruckus share of $13.60, which is the average closing price per Ruckus share as quoted on the NYSE over the first five business days following the first public announcement of the merger on April 4, 2016. The amounts set forth in the table below are as calculated before any taxes that may be due on such amounts paid.

 

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Name

     Number of
Ruckus
Shares(1)
     Cash
Consideration
for
Ruckus
Shares(2)
       Number of Shares
of Brocade
Common
Stock
Received
for Ruckus
Shares
       Total Value of
Ruckus
Shares
(3)
 

Executive Officers(4)

  

Selina Lo(5)

       5,719,991       $ 36,893,942           4,289,991         $ 78,120,777   

Seamus Hennessy

       533,730       $ 3,442,559           400,296         $ 7,289,417   

Dan Rabinovitsj

       41,919       $ 270,378           31,438         $ 572,509   

Ian Whiting

       46,004 (6)     $ 296,726           34,502         $ 628,300   

Scott Maples

       181,326 (7)     $ 1,169,553           135,992         $ 2,476,460   

Directors(8)

  

Georges Antoun

       99,987 (9)     $ 644,916           74,998         $ 1,365,572   

Barton M. Burstein

       35,995       $ 232,168           26,995         $ 491,602   

Gaurav Garg

       536,126       $ 3,458,013           402,093         $ 7,322,141   

Stewart Grierson

       81,379       $ 524,895           61,032         $ 1,111,434   

Mohan Gyani

       281,300       $ 1,814,385           210,937         $ 3,841,855   

Richard Lynch

       106,071       $ 684,158           79,551         $ 1,530,605   

 

(1) Includes (i) Ruckus shares held as of April 26, 2016 (except as otherwise indicated in footnotes 6, 7 and 9) and (ii) Ruckus shares underlying Ruckus options held as of such date that will vest on or prior to the expected expiration of the offer, assuming the holder thereof exercises each such vested Ruckus option by withholding the number of Ruckus shares equal to the aggregate exercise price of the Ruckus options exercised prior to tendering the underlying Ruckus shares in the offer and that the price per Ruckus share as of the date of such exercise is $13.60, which is the average closing price per Ruckus share as quoted on the NYSE over the first five business days following the first public announcement of the merger on April 4, 2016.
(2) Includes the cash consideration to be received for Ruckus shares owned and Ruckus shares underlying Ruckus options held that will vest on or prior to the expected expiration of the offer which are deemed exercised as described above.
(3) Calculated based on the sum of (i) the cash consideration to be received for Ruckus shares owned and Ruckus shares underlying Ruckus options held that will vest on or prior to the expected expiration of the offer which are deemed exercised as described above, (ii) cash to be received in lieu of fractional shares of Brocade common stock (calculated based on an assumed price per share of Brocade common stock of $9.61), and (iii) the aggregate value of Brocade common stock to be exchanged for Ruckus shares owned (and Ruckus shares underlying stock options held that will vest on or prior to the expected expiration of the offer which are deemed exercised as described above) based on a price per share of Brocade common stock of $9.61, which is the average closing price per share of Brocade common stock as quoted on NASDAQ over the first five business days following the first public announcement of the merger on April 4, 2016.
(4) Ruckus’ executive officers (who are also Ruckus’ named executive officers) are Ms. Lo, Mr. Hennessy, Mr. Rabinovitsj, Mr. Whiting and Mr. Maples. Ruckus has no other executive officers.
(5) Ms. Lo is both an executive officer and a director.
(6) The number of Ruckus shares reported for Mr. Whiting includes 41,857 Ruckus shares in connection with the vesting and settlement of 70,000 Ruckus restricted stock units less Ruckus shares withheld for taxes on May 3, 2016.
(7) The number of Ruckus shares reported for Mr. Maples accounts for Mr. Maples’ scheduled purchase of 1,000 Ruckus shares under Ruckus’ 2012 Employee Stock Purchase Plan on May 13, 2016 and his scheduled sale of 5,200 Ruckus shares pursuant to a 10b5-1 plan, with 2,600 Ruckus shares to be sold on each of May 6, 2016 and May 18, 2016.
(8) Ruckus’ six non-employee directors are Messrs. Antoun, Burstein, Garg, Grierson, Gyani and Lynch.
(9) The number of Ruckus shares reported for Mr. Antoun accounts for Mr. Antoun’s scheduled sale of 3,700 Ruckus shares pursuant to a 10b5-1 plan on May 10, 2016.

 

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Treatment of Equity-Based Awards

Certain of Ruckus’ directors and executive officers hold one or more of the following equity-based awards: Ruckus options, Ruckus restricted stock units, and Ruckus performance-based restricted stock units, which will be treated as described under “Merger Agreement—Treatment of Ruckus Equity Awards” in connection with the Merger.

Change in Control Agreements

Each of Ruckus’ named executive officers is a participant in Ruckus’ Severance Benefit Plan. As described below, as a condition to entry into the merger agreement, Ms. Lo and Mr. Hennessy executed offer letters with Brocade. These offer letters will become effective as of the closing of the offer and the merger and are conditioned upon the occurrence of the closing of the offer and the merger. Thereafter, Ms. Lo and Mr. Hennessy will not be entitled to any benefits under Ruckus’ Severance Benefit Plan. The material terms of Ruckus’ Severance Benefit Plan, which will continue to apply to the named executive officers (other than Ms. Lo and Mr. Hennessy) after the closing of the offer and the merger, are described below.

In accordance with Ruckus’ Severance Benefit Plan and the participation notices thereunder, each of the executive officers is entitled to receive certain compensation and benefits upon a termination without “cause” or a “constructive termination,” in either case occurring three months prior to or one year following a “change in control,” as each term is defined in Ruckus’ Severance Benefit Plan. The merger will constitute a “change in control” for purposes of Ruckus’ Severance Benefit Plan. These payments and benefits, which are subject to applicable withholding, are as follows:

For each of the executive officers:

 

  (a) a lump sum cash payment equal to one times his or her then current annual base salary;

 

  (b) a lump sum cash payment equal to one times his or her annual target bonus under Ruckus’ 2016 Bonus Program;

 

  (c) payment by Ruckus of the executive’s COBRA premiums for up to 12 months; and

 

  (d) acceleration of vesting for all Ruckus options, Ruckus restricted stock units and Ruckus performance-based restricted stock units that are outstanding and unvested as of the date of termination of employment, including, to the extent the compensation committee of the Ruckus board of directors has not determined the number of earned Ruckus performance-based restricted stock units as of such date, vesting in (i) the target number of operating margin metrics Ruckus performance-based restricted stock units; and (ii) the full number of revenue metrics Ruckus performance-based restricted stock units.

Subject to the terms stated above, each participating executive will receive all of the foregoing severance benefits on the 60th day following his or her termination, conditioned upon his or her execution (and non-revocation) of a general release of all claims against Ruckus and its affiliates within 45 days of a qualifying termination.

In the event that any of the foregoing payments and benefits would be deemed to be excess parachute payments, Ruckus’ Severance Benefit Plan provides that the payments and benefits will be reduced if such a reduction maximizes the executive’s net after tax benefit, after taking into account any excise taxes payable under Section 4999 of the Internal Revenue Code of 1986, as amended (referred to as the “Code”).

Offer Letters with Brocade

As a condition to entering into the merger agreement, Brocade required Ms. Lo and Mr. Hennessy to execute offer letters. The offer letters specify certain compensation and benefits payable to Ms. Lo and Mr. Hennessy for their continuing employment with Brocade following the closing of the offer and the merger and are generally

 

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consistent, in most respects, with the compensation and benefits arrangements that currently apply to their employment with Ruckus other than with respect to certain differences described below. Each of these agreements becomes effective as of, and is conditioned upon the occurrence of, the closing of the offer and the merger. Upon and following the closing of the offer and the merger, the offer letters determine Ms. Lo’s and Mr. Hennessy’s terms of employment, and Ms. Lo and Mr. Hennessy will not be entitled to any benefits under Ruckus’ Severance Benefit Plan upon a qualifying termination.

Offer Letter between Brocade and Ms. Lo

Ms. Lo’s offer letter provides for her to serve as Chief Executive Officer of the Ruckus Wireless Business Unit of Brocade, reporting to the Chief Executive Officer of Brocade. She will continue to be paid her current annual base salary of $375,000. For the period between the closing of the offer and the merger and October 29, 2016, Ms. Lo will continue to participate in a leadership incentive plan under which she will be eligible to receive her existing semi-annual bonus at 100% of target ($140,625), payable in September 2016, subject to her continued employment through the payment date, and for the period from July 1, 2016 through October 29, 2016, Ms. Lo will be eligible to receive her existing semi-annual bonus at 100% of target ($140,625), payable in December 2016, subject to her continued employment through the payment date. In the event Ms. Lo’s employment is terminated by Brocade due to an “involuntary termination without cause” or by Ms. Lo due to “good reason” (each, as defined in her offer letter), the bonuses described above will be paid on the regular payment date. Beginning on October 30, 2016, Ms. Lo will be eligible to participate in the Brocade Senior Leadership Plan at the rate of 75% of her annual base salary, payable annually, subject to achievement of performance objectives.

Under the terms of her offer letter, Ms. Lo’s existing Ruckus equity-based awards will be treated as follows: (i) the vesting of 50% of her unvested Ruckus restricted stock units and Ruckus performance-based restricted stock units (at target) will accelerate and will be paid upon the closing of the offer and the merger, and (ii) 50% of her unvested Ruckus restricted stock units and Ruckus performance-based restricted stock units will convert into 230,250 Brocade restricted stock units, which will vest on the one-year anniversary of the closing of the offer and the merger, subject to her continued employment with Brocade, and will be settled as soon as practicable thereafter. The unvested portion of the Brocade restricted stock units will vest in the event Ms. Lo’s employment is terminated by Brocade due to an involuntary termination without cause, due to Ms. Lo’s termination due to good reason or due to her death or disability, in each case, subject to her executing a general release of claims in the form prescribed by Brocade, except in connection with her death. Any vested Ruckus equity awards and unvested Ruckus options will be treated as described in the merger agreement.

In the event Ms. Lo’s employment is terminated following the closing of the offer and the merger, Ms. Lo will be eligible to receive severance benefits in accordance with Brocade’s U.S. severance guidelines on the same terms and conditions as similarly situated employees of Brocade, which is nine months of base salary and benefits. As of the closing of the offer and the merger, Ms. Lo’s offer letter will supersede her employment and compensation agreements with Ruckus, including her participation in Ruckus’ Severance Benefit Plan.

Offer Letter between Brocade and Mr. Hennessy

Mr. Hennessy’s offer letter provides for him to serve as Chief Financial Officer of the Ruckus Wireless Business Unit of Brocade, reporting to the Chief Financial Officer of Brocade. He will be paid an annual base salary of $340,000. For the period between the closing of the offer and the merger and October 29, 2016, Mr. Hennessy will continue to participate in a leadership incentive plan under which he will be eligible to receive a semi-annual bonus at 100% of target ($93,500), payable in September 2016, subject to his continued employment through the payment date, and for the period from July 1, 2016 through October 29, 2016, Mr. Hennessy will be eligible to receive a semi-annual bonus at 100% of target ($93,500), payable in December 2016, subject to his continued employment through the payment date. In the event Mr. Hennessy’s employment is terminated by Brocade due to an “involuntary termination without cause” or by Mr. Hennessy due to “good reason” (each, as defined in his offer letter), the bonuses described above will be paid on the regular payment date. Beginning on October 30,

 

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2016, Mr. Hennessy will be eligible to participate in the Brocade Senior Leadership Plan at the rate of 55% of his annual base salary, payable annually, subject to achievement of performance objectives.

As described above, under the terms of his offer letter with Brocade, Mr. Hennessy’s existing Ruckus equity-based awards will be treated as follows: (i) the vesting of 50% of his unvested Ruckus restricted stock units and Ruckus performance-based restricted stock units (at target) will accelerate and will be paid upon the closing of the offer and the merger, and (ii) 50% of his unvested Ruckus restricted stock units and Ruckus performance-based restricted stock units will convert into 150,000 Brocade restricted stock units, which will vest on the one-year anniversary of the closing of the offer and the merger, subject to his continued employment with Brocade, and will be settled as soon as practicable thereafter. The unvested portion of the Brocade restricted stock units will vest in the event Mr. Hennessy’s employment is terminated by Brocade due to an involuntary termination without cause, due to Mr. Hennessy’s termination due to good reason or due to his death or disability, in each case, subject to his executing a general release of claims in the form prescribed by Brocade, except in connection with his death. Any vested Ruckus equity awards and unvested Ruckus options will be treated as described in the merger agreement.

In the event Mr. Hennessy’s employment is terminated following the closing of the offer and the merger, Mr. Hennessy will be eligible to receive severance benefits in accordance with Brocade’s U.S. severance guidelines on the same terms and conditions as similarly situated employees of Brocade, which is nine months of base salary and benefits.

As of the closing of the offer and the merger, Mr. Hennessy’s offer letter will supersede his employment and compensation agreements with Ruckus, including his participation in Ruckus’ Severance Benefit Plan. As of the date of this prospectus/offer to exchange, no other executive officer of Ruckus has entered into any agreement with Brocade, Ruckus or any of their respective affiliates regarding employment with Brocade, Ruckus or their respective affiliates after the effective time of the merger, although it is possible that Brocade, Ruckus or their respective affiliates may enter into new or amended employment or other arrangements with Ruckus’ executive officers in the future.

Indemnification

The merger agreement provides that from and after the acceptance time, subject to applicable law, all rights to indemnification of each former and present director or officer of Ruckus or any of its subsidiaries with respect to acts or omissions occurring at or prior to the effective time of the merger as provided in their respective certificates of incorporation or by-laws in effect on the date of the merger agreement or in certain agreements to which Ruckus or any of its subsidiaries is a party will survive the merger and continue in full force and effect in accordance with their terms, and that Brocade will cause the surviving corporation to honor all the terms of such indemnification. In addition, for a period of no less than six years after the effective time of the merger, Brocade, to the fullest extent permitted by applicable law, will cause to be maintained in effect the provisions in the organizational documents of the surviving corporation and each subsidiary of Ruckus regarding indemnification, exculpation and expense advancement in effect as of immediately prior to the effective time of the merger.

Brocade has also agreed to cause the surviving corporation to either continue to maintain in effect for a period of no less than six years after the effective time of the merger Ruckus’ directors’ and officers’ insurance policies in place as of the date of the merger agreement or purchase comparable insurance for such six-year period, in each case, with coverage for the persons covered by Ruckus’ existing directors’ and officers’ insurance policies, with terms, conditions, retentions and levels of coverage at least as favorable to the insured individuals as Ruckus’ existing insurance policies with respect to matters existing or occurring prior to the effective time of the merger, subject to a premium cap. However, at Ruckus’ option, in lieu of Brocade’s obligations described above, Ruckus may instead purchase, prior to the effective time of the merger, a prepaid “tail policy” with coverage for the persons covered by Ruckus’ existing directors’ and officers’ insurance policies, with terms, conditions, retentions and levels of coverage at least as favorable to the insured individuals as Ruckus’ existing policies with respect to

 

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matters existing or occurring prior to the effective time of the merger, which Brocade must cause the surviving corporation to maintain in full force and effect for a period of no less than six years after the effective time of the merger, subject to a premium cap.

Section 16 Matters

The merger agreement provides that prior to the acceptance time, Ruckus and Brocade will each use reasonable best efforts to take all steps required to cause any disposition of shares of Ruckus common stock (including derivative securities with respect to such shares) or acquisitions of shares of Brocade common stock (including derivative securities with respect to such shares) resulting from the merger and the offer by each individual who is subject to reporting requirements of Section 16(a) of the Exchange Act with respect to Ruckus or will become subject to such reporting requirements with respect to Brocade, to be exempt under Rule 16b-3 under the Exchange Act, to the extent permitted by applicable law.

Rule 14d-10(d) Matters

The merger agreement provides that prior to the acceptance time, Ruckus will take all steps required to cause to be exempt under Rule 14d-10(d) of the Exchange Act any employment compensation, severance or employee benefit arrangements that have been or will be entered into after the date of the merger agreement by Ruckus or its subsidiaries with current or future directors, officers or employees of Ruckus or its subsidiaries and to ensure that any such arrangements fall within the safe harbor provisions under Rule 14d-10(d).

Certain Relationships With Ruckus

As of the date of this document, neither Brocade nor Offeror nor any of their respective associates or wholly owned subsidiaries owns any shares of Ruckus common stock. Neither Brocade nor the Offeror nor any of their respective associates or wholly owned subsidiaries has effected any transaction in securities of Ruckus in the past 60 days. To the best of Brocade’s and the Offeror’s knowledge, after reasonable inquiry, none of the individuals listed on Annex D hereto, nor any of their respective associates, beneficially owns or has the right to acquire any securities of Ruckus or has effected any transaction in securities of Ruckus during the past 60 days.

Brocade and Ruckus regularly collaborate to provide integrated wired and wireless access solutions to customers. This collaboration includes engaging in coordinated sales, marketing, and research and development efforts. However, each company sells its own products to the end-user customer, and neither company is a reseller of the other’s products. As such, the companies do not generally enter into transactions directly with one another that involve the payment of any amounts by or to Brocade or its affiliates, on the one hand, to or from Ruckus or its affiliates, on the other hand.

Prior to signing the merger agreement and in connection with discussions between Brocade and Ruckus regarding a potential transaction between them, Brocade and Ruckus entered into a confidentiality agreement dated as of February 5, 2016 (referred to as the “confidentiality agreement”) and an exclusivity agreement on March 13, 2016 (referred to as the “exclusivity agreement”). Under the terms of the confidentiality agreement, Brocade and Ruckus each agreed to use their respective reasonable best efforts to keep confidential, subject to certain exceptions, information furnished by the other party in furtherance of the proposed transaction between the parties and to use such information solely for the purpose of evaluating, or consummating a possible transaction between the parties. Each of Brocade and Ruckus agreed, subject to certain exceptions, that it and its representatives would not, for a period of one year from the date of the confidentiality agreement, solicit the services of certain employees of the other party or any of the other party’s subsidiaries or affiliates, in each case, with whom such party had direct interaction during discussions and negotiations regarding a possible strategic transaction. Brocade and Ruckus also agreed to certain standstill provisions that prohibit each party and its respective representatives from taking certain actions involving or with respect to the other party for a one-year period, subject to certain exceptions set forth in the confidentiality agreement.

 

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Pursuant to the exclusivity agreement, Ruckus agreed, among other things, that from the date thereof through 11:59 p.m. San Francisco time on March 31, 2016 (referred to as the “exclusivity period”), neither Ruckus nor any of its officers, directors, representatives, affiliates, employees or agents, would directly or knowingly indirectly solicit, respond to or initiate or enter into discussions or any transaction with, or knowingly encourage, or provide any information to, any person, corporation, partnership or other entity or group, in each case concerning any sale of more than 15% of Ruckus shares by the stockholders of, or any merger or sale of more than 15% of the outstanding equity securities or any substantial assets of, or any similar transaction involving, Ruckus. The exclusivity agreement also provided for a one time seven-day extension of the exclusivity period so long as Brocade was acting in good faith to negotiate and promptly execute a definitive acquisition agreement.

Except as described above and in connection with the offer and the merger as described elsewhere in this document, there have been no transactions in the past two years between Brocade, the Offeror and the individuals listed on Annex D, on the one hand, and Ruckus or its directors, executive officers or affiliates, on the other hand, concerning any merger, consolidation, acquisition, tender offer or other acquisition of Ruckus’ securities, a sale or transfer of a material amount of Ruckus’ assets or the election of Ruckus’ directors.

Non-Applicability of Rules Regarding “Going Private” Transactions

The SEC has adopted Rule 13e-3 under the Exchange Act, which is applicable to certain “going private” transactions, and which may under certain circumstances be applicable to the merger or another business combination following the purchase of shares pursuant to the offer in which the Offeror seeks to acquire the remaining shares not held by it. The Offeror believes that Rule 13e-3 will not be applicable to the merger because it is anticipated that the merger will be effected within one year following the consummation of the offer and, in the merger, stockholders will receive the same consideration as that paid in the offer. It is anticipated that, because the merger will be subject to Section 251(h) of the DGCL, if the offer is consummated, the merger will be consummated on the same day as the consummation of the offer.

Ownership of Brocade Common Stock After the Offer and the Merger

Brocade estimates that former stockholders of Ruckus will own, in the aggregate, approximately 14.5% of the outstanding shares of Brocade common stock immediately following consummation of the offer and the merger, assuming that:

 

    Brocade acquires through the offer and the merger 100% of the outstanding shares of Ruckus common stock;

 

    in the offer and the merger, Brocade issues 67,952,479 shares of Brocade common stock as part of the transaction consideration (See note 2 in “Unaudited Pro Forma Condensed Combined Financial Statements” for the estimated number of shares to be issued); and

 

    immediately following completion of the offer and the merger, there are 467,316,769 shares of Brocade common stock outstanding (calculated by adding 399,364,290, the number of shares of Brocade common stock outstanding as of April 27, 2016, plus 67,952,479, the number of shares of Brocade common stock estimated to be issued as part of the transaction consideration).

Plans for Ruckus

In connection with the offer, Brocade has reviewed and will continue to review various possible business strategies that it might consider in the event that Brocade acquires control of Ruckus, whether pursuant to the offer and/or the merger or otherwise. Following a review of additional information regarding Ruckus, these changes could include, among other things, changes in Ruckus’ business, operations, management, personnel, employee benefit plans, corporate structure and capitalization. See also “The Offer and the Merger—Brocade’s Reasons for the Offer and the Merger.”

 

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Delisting and Termination of Registration

Following consummation of the offer and the merger, shares of Ruckus common stock will no longer be eligible for inclusion on the NYSE and will be withdrawn from listing. Assuming that Ruckus common stock qualifies for termination of registration under the Exchange Act after the offer and the merger are consummated, Brocade also intends to seek to terminate the registration of Ruckus common stock under the Exchange Act. See “—Effect of the Offer on Ruckus Shares.”

Board of Directors and Management; Organizational Documents

From and after the effective time of the merger, the directors and officers of the Offeror immediately prior to the effective time of the merger will be the directors and officers, respectively, of the surviving corporation, until their respective successors have been duly elected or appointed and qualified, or until their earlier death, resignation or removal. At the effective time of the merger, the certificate of incorporation of Ruckus, as in effect immediately prior to the effective time of the merger, as amended as set forth in the merger agreement, will be the certificate of incorporation of the surviving corporation until further amended in accordance with applicable law, and the bylaws of the surviving corporation will be amended so as to read in their entirety as the bylaws of the Offeror as in effect immediately prior to the effective time of the merger (except the references to the Offeror’s name will be replaced by references to Ruckus), until further amended in accordance with the provisions thereof and applicable law.

In connection with the execution of the merger agreement, each of Selina Y. Lo, President and Chief Executive Officer of Ruckus, and Seamus Hennessy, Chief Financial Officer of Ruckus, entered into an offer letter with Brocade. These offer letters specify certain compensation and benefits payable to Ms. Lo and Mr. Hennessy for their continuing employment with Brocade following the consummation of the merger as the Chief Executive Officer and Chief Financial Officer, respectively, of the Ruckus Wireless Business Unit of Brocade. Each of these agreements becomes effective as of, and is conditioned upon the occurrence of, the consummation of the merger. For a more detailed description of the material terms of the agreements, see “Interests of Certain Persons in the Offer and the Merger—Offer Letters with Brocade.”

For a period of no less than six years after the effective time of the merger, Brocade, to the fullest extent permitted under applicable law, will cause to be maintained in effect the provisions in the certificates of incorporation and bylaws and comparable organization documents of the surviving corporation and each subsidiary of Ruckus (or in such documents of any successor thereto) regarding indemnification, exculpation and expense advancement in effect as of immediately prior to the effective time of the merger, and, during such six-year period, will not amend, repeal or otherwise modify any such provisions in any manner that would adversely affect the rights thereunder of any individual that, immediately before the acceptance time, was a former or present director or officer of Ruckus or any of its subsidiaries, except as required by applicable law.

Effect of the Offer on Ruckus Shares

Market for Ruckus Shares

It is anticipated that, if the offer is consummated, because the merger will be subject to Section 251(h) of the DGCL, the merger will be consummated on the same date as the consummation of the offer. As a result of the merger, shares of Ruckus common stock will no longer qualify for inclusion on the NYSE and will be withdrawn from listing. In the event that there is a delay between completion of the offer and consummation of the merger, the purchase of Ruckus shares by the Offeror pursuant to the offer will reduce the number of holders of Ruckus shares and the number of Ruckus shares that might otherwise trade publicly and could adversely affect the liquidity and market value of the remaining Ruckus shares held by the public. The extent of the public market for Ruckus shares after consummation of the offer and the availability of quotations for such shares will depend upon a number of factors, including the number of stockholders holding Ruckus shares, the aggregate market

 

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value of the Ruckus shares held by the public at such time, the interest of maintaining a market in the Ruckus shares, analyst coverage of Ruckus on the part of any securities firms and other factors.

NYSE Listing

The shares of Ruckus common stock are currently listed on the NYSE. As a result of the merger, shares of Ruckus common stock will no longer qualify for inclusion on the NYSE and will be withdrawn from listing. In the event that there is a delay between completion of the offer and consummation of the merger, then depending upon the number of Ruckus shares accepted by the Offeror in the offer, the Ruckus shares may no longer meet the published guidelines for continued inclusion on the NYSE following consummation of the offer. Among such guidelines are the number of stockholders, the number of shares publicly held and the aggregate market value of the shares publicly held. If, as a result of the Offeror’s purchase of shares of Ruckus common stock pursuant to the offer or otherwise, shares of Ruckus common stock no longer meet the requirements of the NYSE for continued listing and the shares of Ruckus common stock are delisted, the market for such shares would be adversely affected.

Following the consummation of the offer, if the merger is for some reason not consummated, it is possible that shares of Ruckus common stock would be traded on other securities exchanges (with trades published by such exchanges), the OTC Bulletin Board or in a local or regional over-the-counter market. The extent of the public market for such shares would, however, depend upon the number of Ruckus stockholders and the aggregate market value of shares of Ruckus common stock remaining at such time, the interest in maintaining a market in such shares on the part of securities firms, the possible termination of registration of shares of Ruckus common stock under the Exchange Act and other factors.

Margin Regulations

The shares of Ruckus common stock are currently “margin securities” under the Regulations of the Board of Governors of the Federal Reserve System (referred to as the “Federal Reserve Board”), which designation has the effect, among other effects, of allowing brokers to extend credit on the collateral of such shares of Ruckus common stock. Depending upon factors similar to those described above regarding the market for Ruckus shares and stock quotations, it is possible that, following the offer, shares of Ruckus common stock would no longer constitute “margin securities” for the purposes of the margin regulations of the Federal Reserve Board and, therefore, could no longer be used as collateral for loans made by brokers. As a result of the merger, shares of Ruckus common stock will no longer constitute “margin securities.”

Registration Under the Exchange Act

The shares of Ruckus common stock are currently registered under the Exchange Act. After consummation of the offer and the merger, Brocade intends to cause Ruckus to terminate the registration of Ruckus shares under the Exchange Act. Such registration may be terminated upon application by Ruckus to the SEC if Ruckus shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of Ruckus shares under the Exchange Act would substantially reduce the information required to be furnished by Ruckus to its stockholders and to the SEC and would make certain provisions of the Exchange Act no longer applicable to Ruckus, such as the short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the requirement of furnishing a proxy statement pursuant to Section 14(a) of the Exchange Act in connection with meetings of stockholders and the related requirement of furnishing an annual report to stockholders and the requirements of Rule 13e-3 under the Exchange Act with respect to “going private” transactions. Furthermore, the ability of “affiliates” of Ruckus and persons holding “restricted securities” of Ruckus to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act may be impaired. If registration of shares of Ruckus common stock under the Exchange Act were terminated, such shares would no longer be “margin securities” or be eligible for quotation on the NYSE.

 

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Source and Amount of Funds

Brocade estimates that the aggregate amount of cash consideration required to purchase the outstanding shares of Ruckus common stock, complete the merger and pay related fees and expenses is approximately $737.0 million. Brocade anticipates that the funds needed to complete the offer and the merger and to pay related fees and expenses, and to fund the anticipated repurchases of Brocade shares following the consummation of the merger, will be derived from a combination of cash on hand and borrowings under a new senior credit facility. Brocade’s obligation to consummate the offer and the merger is not conditioned on Brocade or the Offeror obtaining any financing.

Concurrently with the execution of the merger agreement, Brocade entered into a commitment letter with Wells Fargo Bank, National Association, Wells Fargo Securities, LLC, Deutsche Bank AG New York Branch, Deutsche Bank Securities Inc., SunTrust Bank and SunTrust Robinson Humphrey, Inc. (collectively referred to as the “commitment parties”), pursuant to which certain of the commitment parties have committed to provide Brocade with a term loan facility of $800 million and a revolving credit facility of $100 million (collectively referred to as the “senior credit facility”). Such commitment parties’ commitment to provide the loans under the senior credit facility is subject to the satisfaction of certain conditions, including the negotiation of definitive documentation for the senior credit facility and other customary closing conditions. Brocade expects to enter into definitive documentation for the senior credit facility concurrently with the consummation of the offer and the merger.

The proceeds of the term loan would be used to (i) finance a portion of the cash consideration in the offer and the merger, (ii) pay fees and expenses related to the offer, the merger and the senior credit facility and (iii) finance the repurchase of Brocade shares following the consummation of the offer and the merger. The proceeds from the revolving credit facility may be used to (i) finance a portion of the cash consideration in the offer and the merger and (ii) finance ongoing working capital requirements and for other general corporate purposes.

The availability of the senior credit facility is conditioned on the consummation of Brocade’s acquisition of Ruckus in all material respects in accordance with the merger agreement, and other conditions, including, but not limited to:

 

    the execution and delivery by the borrower and the guarantors of customary financing documentation consistent with the commitment letter;

 

    there not having occurred or arisen since April 3, 2016 a material adverse effect (as such term is defined in the merger agreement and described under “Merger Agreement—Material Adverse Effect”) with respect to Ruckus and its subsidiaries that is continuing;

 

    the lead arranger having received certain historical financial statements for each of Brocade and Ruckus, and certain pro forma historical financial statements for the combined company giving effect to the consummation of the offer and the merger, the incurrence of debt under the senior credit facility and the payment of related fees and expenses;

 

    the chief financial officer of Brocade having delivered a solvency certificate in a pre-agreed upon form;

 

    the payment of certain fees and expenses;

 

    the delivery of documentation and other information about the borrower and the guarantors required under applicable “know your customer” and anti-money laundering rules and regulations (including the PATRIOT Act);

 

    if Brocade’s corporate family rating is below certain thresholds, subject to a customary limited condition provision, the taking of certain actions necessary to establish and perfect a security interest in specified items of collateral;

 

    the closing date for the senior credit facility not occurring on a date that is earlier than the 37th business day following April 3, 2016; and

 

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    the accuracy in all material respects of specified representations and warranties in the merger agreement and specified representations and warranties to be contained in the definitive documentation.

Loans under the senior credit facility are expected to bear interest, at the option of the borrower, either (i) at a base rate which is based in part on the prime rate, plus an applicable margin expected to vary between 0.00% and 0.75% based on Brocade’s total leverage ratio or (ii) at a LIBOR-based rate, plus an applicable margin expected to vary between 1.00% and 1.75% based on Brocade’s total leverage ratio. For purposes of calculating the applicable rate, the base rate and LIBOR-based rate are subject to a floor of 0.00%. Commitments under senior credit facility will be subject to an undrawn commitment fee starting at 0.30%, and later subject to adjustment between 0.20% and 0.35% based on Brocade’s total leverage ratio.

The final maturity of the senior credit facility will occur on the fifth anniversary of the closing date of the senior credit facility, except that if any of Brocade’s existing 1.375% convertible senior unsecured notes due 2020 remain outstanding on October 2, 2019 and certain other conditions have not been met, then the final maturity of the senior credit facility will occur on October 2, 2019. Notwithstanding the foregoing, upon the request of Brocade made to all applicable lenders, and provided that no event of default exists or will occur immediately thereafter, individual lenders may agree to extend the maturity date of its commitments under the revolving credit facility and loans under the term loan facility.

Brocade’s obligations under the senior credit facility will be unsecured, provided that upon the occurrence of certain events (including if Brocade’s corporate family rating from Moody’s falls below Ba1 and from S&P falls below BB+ at any time (referred to as a “ratings downgrade”)) then Brocade’s obligations shall be secured, subject to certain exceptions, by 100% of the equity interests of all present and future restricted subsidiaries directly held by Brocade or any guarantor. To the extent a ratings downgrade occurs prior to the closing of the senior credit facility, Brocade shall provide such security on the closing date (subject to a customary limited condition provision). To the extent that a ratings downgrade occurs after the closing date, Brocade shall provide such security within 90 days (or 20 business days with respect to the equity interests of material U.S. subsidiaries) of such ratings downgrade.

The senior credit facility is expected to contain financial maintenance covenants, including a (i) maximum total leverage ratio as of the last date of any fiscal quarter not to exceed 3.50:1.00; subject to certain step-downs to 3.25:1.00 and 3.00:1.00 for fiscal periods ending on or after April 30, 2017 and April 30, 2018, respectively, and (ii) a minimum interest coverage ratio of not less than 3.50 to 1.00. The senior credit facility is also expected to contain restrictive covenants that limit, among other things, Brocade’s and its restricted subsidiaries’ ability to incur additional indebtedness or issue certain preferred equity, pay dividends or make other distributions or other restricted payments (including stock repurchases), sell assets other than on terms specified by the senior credit facility, amend the terms of certain other indebtedness and organizational documents, create liens on certain assets to secure debt, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets, enter into certain transactions with affiliates and change its line of business, fiscal year and accounting practices, in each case, subject to customary exceptions to be agreed. The senior credit facility is also expected to contain customary events of default, including upon the failure to make timely payments under the senior credit facility, the failure to satisfy certain covenants, cross-default and cross-acceleration to other material debt for borrowed money, the occurrence of a change of control and specified events of bankruptcy and insolvency. If Brocade has a significant increase in its outstanding debt or if its earnings decrease significantly, Brocade may be unable to incur additional amounts of indebtedness, and the lenders under the senior credit facility may be unwilling to permit Brocade to amend the financial or restrictive covenants described above to provide additional flexibility.

The definitive documentation governing the senior credit facility has not been finalized and, accordingly, the actual terms of the senior credit facility may differ from those described in this document. In addition, certain terms of the senior credit facility are subject to the “market flex” provisions of a fee letter entered into on April 3, 2016 with the commitment parties in connection with the commitment letter. Although the obligation of the

 

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commitment parties to provide the senior credit facility on the terms set forth in the commitment letter is not subject to due diligence or a “market out,” such financing is subject to a number of conditions and may not be considered assured. There is a risk that these conditions will not be satisfied and the senior credit facility may not be available when needed. In the event that the senior credit facility is not available to Brocade on the terms set forth in the commitment letter or Brocade anticipates that the senior credit facility will not be available on the terms set forth in the commitment letter due to the failure of a condition thereto or for any other reason, Brocade has the obligation under the merger agreement to seek alternative financing. As of the date of this document, no alternative financing arrangements or alternative financing plans have been made in the event the senior credit facility described herein is not available.

Fees and Expenses

Brocade has retained D.F. King & Co., Inc. (referred to as the “information agent”) as information agent in connection with the offer and the merger. The information agent may contact holders of shares by mail, email, telephone, facsimile and personal interview and may request brokers, dealers and other nominee stockholders to forward material relating to the offer and the merger to beneficial owners of shares. Brocade will pay the information agent reasonable and customary compensation for these services in addition to reimbursing the information agent for its reasonable out-of-pocket expenses. Brocade agreed to indemnify the information agent against certain liabilities and expenses arising out of or in connection with the information agent’s engagement.

In addition, Brocade has retained Wells Fargo Bank, N.A. as the depositary and exchange agent in connection with the offer and the merger. Brocade will pay the exchange agent reasonable and customary compensation for its services in connection with the offer and the merger, will reimburse the exchange agent for its reasonable out-of-pocket expenses and will indemnify the exchange agent against certain liabilities and expenses arising out of or in connection with the exchange agent’s engagement.

Brocade will reimburse brokers, dealers, commercial banks and trust companies and other nominees, upon request, for customary clerical and mailing expenses incurred by them in forwarding offering materials to their customers. Except as set forth above, neither Brocade nor the Offeror will pay any fees or commissions to any broker, dealer or other person for soliciting tenders of shares pursuant to the offer.

Brocade Stock Repurchase Program

In connection with Brocade’s announcement on April 4, 2016 of its execution of the merger agreement and its intent to commence the offer, Brocade also announced that its board of directors had authorized an additional $800 million under Brocade’s stock repurchase program. The increase in Brocade’s stock repurchase program is intended to facilitate the repurchase of a number of Brocade shares equivalent to the number of Brocade shares issued as stock consideration in the offer and the merger, although Brocade has not committed to repurchasing any specific number of shares. Brocade intends to use a portion of the proceeds from the debt financing and cash on hand to fund the share repurchases. The timing and amounts of specific repurchases will be determined by Brocade from time to time based on Brocade’s cash balances, the trading price of Brocade’s common stock, general business and market conditions, and other factors, including alternative investment opportunities.

From April 4, 2016, the date of public announcement of the offer and the merger, through April 7, 2016, Brocade purchased an aggregate of 242,851 shares of its common stock for an aggregate of approximately $2.3 million, at an average price per share of $9.43. All such repurchases were executed under a Rule 10b5-1 trading plan implemented by Brocade in December 2015. Brocade did not purchase any shares of its common stock from April 8, 2016 through the date of this document. Brocade expects to resume purchasing shares under its stock repurchase program following the completion of the offer and the merger.

 

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Accounting Treatment

In accordance with GAAP, Brocade will account for the acquisition of shares through the offer and the merger under the acquisition method of accounting for business combinations.

Listing of Brocade Common Stock

Shares of Brocade common stock are listed on the NASDAQ under the symbol “BRCD.” Brocade intends to submit a supplemental listing application to list on the NASDAQ the shares of Brocade common stock that Brocade will issue in the offer and the merger as part of the transaction consideration. Such listing is a condition to completion of the offer.

Resale of Brocade Common Stock

All Brocade common stock received by Ruckus stockholders as consideration in the offer and the merger will be freely tradable for purposes of the Securities Act, except for Brocade common stock received by any person who is deemed an “affiliate” of Brocade at the time of the closing of the merger. Brocade common stock held by an affiliate of Brocade may be resold or otherwise transferred without registration in compliance with the volume limitations, manner of sale requirements, notice requirements and other requirements under Rule 144 promulgated under the Securities Act or as otherwise permitted under the Securities Act. This document does not cover resales of Brocade common stock received upon completion of the offer or the merger by any person, and no person is authorized to make any use of this document in connection with any resale.

 

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EXCHANGE OFFER PROCEDURES

Distribution of Offering Materials

This document, the related letter of transmittal and other relevant materials will be delivered to record holders of shares of Ruckus common stock and to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on Ruckus’ stockholder list or, if applicable, who are listed as participants in a clearing agency’s security position listing, so that they can in turn send these materials to beneficial owners of shares.

Expiration of the Offer

The offer is scheduled to expire at 12:00 midnight, Eastern time, at the end of May 26, 2016, unless earlier extended or terminated.

Extension, Termination and Amendment of the Offer

Subject to the provisions of the merger agreement and the applicable rules and regulations of the SEC, the Offeror must (i) extend the offer in the event that any of the offer conditions (including the minimum tender condition) have not been satisfied or waived as of any then scheduled expiration of the offer, for successive extension periods of up to ten business days each in order to permit the satisfaction of the conditions to the offer, and (ii) extend the offer for any period required by any law, rule, regulation, interpretation or position of the SEC or its staff or the NYSE which is applicable to the offer or the merger. However, the Offeror is not permitted or required to extend the offer beyond the outside date, other than any such extension requested by Ruckus, to the extent Brocade or the Offeror would be prohibited from terminating the merger agreement for failure of the acceptance time to occur by the outside date, or any such extension effected by Brocade or the Offeror, to the extent Ruckus would be prohibited from terminating the merger agreement for failure of the acceptance time to occur by the outside date (as described under “The Merger Agreement—Termination of the Merger Agreement—Termination by Brocade or Ruckus”). No extension of the offer will impair, limit or otherwise restrict the right of the parties to terminate the merger agreement pursuant to its terms.

Subject to applicable SEC rules and regulations, the Offeror also reserves the right to waive or modify any of the conditions to the offer and to make any change in the terms of, or conditions to the offer; except that without the prior written consent of Ruckus in its sole discretion, the Offeror may not waive any of the following conditions:

 

    Minimum Tender Condition—Ruckus stockholders must have validly tendered and not validly withdrawn, in accordance with the terms of the offer and prior to the expiration of the offer, a number of shares of Ruckus common stock that, together with any shares of Ruckus common stock then owned by Brocade, the Offeror or Brocade’s other subsidiaries, represents at least a majority of all then-outstanding shares of Ruckus common stock.

 

    Regulatory Approvals—The waiting period under the HSR Act relating to the transactions contemplated by the merger agreement must have expired or been terminated and the clearances, approvals and consents required to be obtained under the competition laws of Germany must have been obtained.

 

    No Governmental Prohibition—No law, order or injunction prohibiting or making illegal the consummation of any of the offer, the merger or the issuance of Brocade common stock as consideration in connection with the offer or the merger must have been promulgated, entered, enforced, enacted or issued or be applicable to the offer, the merger or the issuance of Brocade common stock in connection with the offer or the merger by a governmental entity having jurisdiction over a material portion of the business of Ruckus, Brocade or the Offeror (or the effect of which would have a material effect on any of Ruckus, Brocade or the Offeror).

 

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    Effectiveness of Form S-4—The registration statement on Form S-4, of which this document is a part, must have become effective under the Securities Act, and must not be the subject of any stop order that is in effect or any pending proceeding seeking a stop order.

 

    Listing of Brocade Common Stock—The shares of Brocade common stock to be issued as consideration in connection with the offer and the merger must have been approved for listing on NASDAQ, subject to official notice of issuance.

 

    Accuracy of Brocade’s and the Offeror’s Representations and Warranties—The representations and warranties of Brocade and the Offeror contained in the merger agreement must be true and correct as of the expiration of the offer, subject to specified materiality standards.

 

    Brocade’s and the Offeror’s Compliance with Covenants—Brocade and the Offeror must have performed in all material respects their respective covenants and obligations under the merger agreement required to be performed by them at or prior to the expiration of the offer or cured any failure to so perform on or prior to the expiration of the offer.

 

    No Brocade Material Adverse Effect—There must not have occurred or arisen after the date of the merger agreement, any material adverse effect (as defined in the merger agreement and described under “Merger Agreement—Material Adverse Effect”) with respect to Brocade and its subsidiaries that is continuing.

 

    No Termination of the Merger Agreement—The merger agreement must not have been terminated in accordance with its terms.

 

    Delivery of Brocade’s Officer Certificate—Ruckus must have received an officer’s certificate from Brocade and the Offeror certifying on behalf of Brocade and the Offeror as to the satisfaction of certain conditions to the offer.

However, Brocade and the Offeror must waive the conditions relating to the accuracy of Brocade’s and the Offeror’s representations and warranties, Brocade’s and the Offeror’s compliance with covenants, no Brocade material adverse effect and the Brocade certificate if requested to do so by Ruckus.

In addition, the Offeror may not, without the prior written consent of Ruckus in its sole discretion, (i) make any change in the terms of or conditions to the offer that (A) changes the form or amount of consideration to be paid in the offer (provided, however, that the Offeror may increase the amount of such consideration (irrespective of form), subject to certain limitations set forth in the merger agreement), (B) decreases the number of shares of Ruckus common stock sought in the offer, (C) extends the offer (other than as expressly permitted by the merger agreement), (D) imposes additional conditions to the offer, or (E) amends or modifies any other term of or any condition to the offer in any manner that is adverse to the holders of Ruckus shares, or (ii) provide for a “subsequent offering period” within the meaning of Rule 14d-11 under the Exchange Act.

Neither Brocade nor the Offeror may terminate or withdraw the offer prior to the scheduled expiration of the offer unless the merger agreement is validly terminated in accordance with its terms, in which case the Offeror must irrevocably and unconditionally terminate the offer promptly, but in no event more than one business day, after such termination of the merger agreement.

The Offeror will effect any extension, termination, amendment or delay of the offer by giving oral or written notice to the exchange agent and by making a public announcement as promptly as practicable thereafter. In the case of an extension, any such announcement will be issued no later than 9:00 a.m., Eastern time, on the next business day following the previously scheduled expiration date. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the offer be promptly disseminated to stockholders in a manner reasonably designed to inform them of such change) and without limiting the manner in which the Offeror may

 

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choose to make any public announcement, the Offeror assumes no obligation to publish, advertise or otherwise communicate any such public announcement of this type other than by issuing a press release.

If the Offeror materially changes the terms of the offer or the information concerning the offer, or if the Offeror waives a material condition of the offer, the Offeror will extend the offer to the extent legally required under the Exchange Act.

For purposes of the offer, a “business day” means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time.

No subsequent offering period will be available after the offer.

Exchange of Shares; Delivery of Cash and Shares of Brocade Common Stock

Brocade has retained Wells Fargo Bank, N.A. as the depositary and exchange agent for the offer to handle the exchange of Ruckus shares for the transaction consideration in both the offer and the merger.

On the terms and subject to the conditions set forth in the merger agreement and the offer, the Offeror shall irrevocably accept for purchase and payment all shares of Ruckus common stock that are validly tendered and not validly withdrawn in the offer promptly after the expiration date of the offer and promptly thereafter pay for such shares. In all cases, a Ruckus stockholder will receive consideration for tendered Ruckus shares only after timely receipt by the exchange agent of certificates for those shares or a confirmation of a book-entry transfer of those shares into the exchange agent’s account at DTC, as applicable, a properly completed and duly executed letter of transmittal or an agent’s message (as described below), as applicable, and any other documents required by the exchange agent.

For purposes of the offer, the Offeror will be deemed to have accepted for exchange shares validly tendered and not validly withdrawn in the offer if and when it notifies the exchange agent of its acceptance of those shares pursuant to the offer. The exchange agent will deliver to the applicable Ruckus stockholders any cash and shares of Brocade common stock issuable in exchange for shares validly tendered and accepted pursuant to the offer promptly after receipt of such notice informing it of the Offeror’s acceptance. The exchange agent will act as the agent for tendering Ruckus stockholders for the purpose of receiving cash and shares of Brocade common stock from the Offeror and transmitting such cash and stock to the tendering Ruckus stockholders. Ruckus stockholders will not receive any interest on any cash that the Offeror pays in the offer, even if there is a delay in making the exchange.

Without the prior written consent of Ruckus, the Offeror shall not accept for payment, or pay for, any shares of Ruckus common stock if, as a result, the Offeror would acquire less than the number of shares of Ruckus common stock necessary to satisfy the minimum tender condition.

If the offer is terminated or withdrawn by the Offeror, or the merger agreement is terminated in accordance with its terms, prior to the acceptance for payment of shares of Ruckus common stock tendered in the offer, the Offeror shall promptly return, and shall cause any depository acting on behalf of the Offeror to return, all tendered shares of Ruckus common stock to the registered holders thereof.

Procedure for Tendering

To validly tender shares of Ruckus common stock held of record in certificated form or in book-entry form through the direct registration system, Ruckus stockholders must deliver a properly completed and duly executed letter of transmittal, along with any required signature guarantees and any other documents required by the exchange agent, and certificates, if applicable, for tendered Ruckus shares to the exchange agent for the offer, at its address set forth elsewhere in this document, all of which must be received by the exchange agent prior to the expiration date.

 

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To validly tender shares held in “street name” (i.e., shares held in electronic book-entry form other than through the direct registration system), you must contact the institution that holds your shares for instructions on how to tender your shares. The valid tender of shares held in “street name” requires that an agent’s message be utilized.

The term “agent’s message” means a message transmitted by DTC to, and received by, the exchange agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the DTC participant tendering the shares that are the subject of such book-entry confirmation, that such participant has received and agrees to be bound by the terms of the letter of transmittal and that the Offeror may enforce that agreement against such participant.

The exchange agent has established an account with respect to the shares at DTC in connection with the offer, and any financial institution that is a participant in DTC may make book-entry delivery of shares by causing DTC to transfer such shares prior to the expiration date into the exchange agent’s account in accordance with DTC’s procedure for such transfer. However, although delivery of shares may be effected through book-entry transfer at DTC, the letter of transmittal with any required signature guarantees or an agent’s message (as applicable), along with any other required documents, must, in any case, be received by the exchange agent at one of its addresses set forth elsewhere in this document prior to the expiration date. The Offeror cannot assure Ruckus stockholders that book-entry delivery of shares will be available in the event of systems failures. If book-entry delivery is not available due to systems failures, Ruckus stockholders must tender shares by means of delivery of Ruckus stock certificates. The Offeror is not providing for guaranteed delivery procedures and therefore Ruckus stockholders who hold their shares through a DTC participant must allow sufficient time for the necessary tender procedures to be completed during normal business hours of DTC prior to the expiration of the offer. Tenders received by the exchange agent after the expiration of the offer will be disregarded and of no effect.

Signatures on all letters of transmittal must be guaranteed by an eligible institution, except in cases in which shares are tendered either by a registered holder of shares who has not completed the box entitled “Special Issuance or Payment Instructions” on the letter of transmittal or for the account of an eligible institution. An “eligible institution” is a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a member in the Security Transfer Agents Medallion Program or any other “eligible guarantor institution,” as such term is defined in Rule 17Ad-15 under the Exchange Act.

If the certificates for shares are registered in the name of a person other than the person who signs the letter of transmittal, the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates, with the signature or signatures on the certificates or stock powers guaranteed by an eligible institution.

The method of delivery of Ruckus share certificates and all other required documents, including delivery through DTC, is at the option and risk of the tendering Ruckus stockholder, and delivery will be deemed made only when actually received by the exchange agent. If delivery is by mail, the Offeror recommends registered mail with return receipt requested and properly insured. In all cases, Ruckus stockholders should allow sufficient time to ensure timely delivery.

To prevent U.S. federal backup withholding, each Ruckus stockholder that is a U.S. person (as defined in the Code), other than a stockholder exempt from backup withholding as described elsewhere in this document, must provide the exchange agent with its correct taxpayer identification number and certify that it is not subject to backup withholding of U.S. federal income tax by completing the Internal Revenue Service (referred to as the “IRS”) Form W-9 included with the letter of transmittal. Certain stockholders (including, among others, certain foreign persons) are not subject to these backup withholding requirements. In order for a Ruckus stockholder that is a foreign person to qualify as an exempt recipient for purposes of U.S. federal backup withholding, the stockholder must submit an IRS Form W-8BEN, or other applicable IRS Form W-8, signed under penalties of perjury, attesting to such person’s exempt status. In addition, Ruckus stockholders that are foreign persons may be subject to U.S. federal withholding tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) with respect to cash received pursuant to the offer. See the discussion under “Material U.S. Federal Income Tax Consequences.”

 

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The tender of shares pursuant to any of the procedures described in this document and the letter of transmittal will constitute a binding agreement between the Offeror and the tendering Ruckus stockholder upon the terms, and subject to the satisfaction or waiver of the conditions, of the offer (including, if the offer is extended or amended, the terms and conditions of any such extension or amendment).

No Guaranteed Delivery

The Offeror is not providing for guaranteed delivery procedures, and therefore Ruckus stockholders must allow sufficient time for the necessary tender procedures to be completed prior to the expiration date. If Ruckus stockholders hold shares through a DTC participant, such stockholders must allow sufficient time for the necessary tender procedures to be completed during normal business hours of DTC prior to the expiration of the offer. Ruckus stockholders must tender their Ruckus shares in accordance with the procedures set forth in this document. In all cases, the Offeror will exchange shares validly tendered and accepted for exchange pursuant to the offer only after timely receipt by the exchange agent of certificates for shares or timely confirmation of a book-entry transfer of such shares into the exchange agent’s account at DTC (as described elsewhere in this document), as applicable, a properly completed and duly executed letter of transmittal or an agent’s message, as applicable, and any other documents required by the exchange agent.

Grant of Proxy

By executing a letter of transmittal, a Ruckus stockholder will irrevocably appoint the Offeror’s designees as such stockholder’s agents, attorneys-in-fact and proxies, each with full power of substitution, to exercise to the full extent such stockholder’s rights with respect to its shares tendered and accepted for exchange by the Offeror and with respect to any and all dividends, distributions, rights, and other Ruckus shares issued or issuable in respect of those shares on or after the date hereof (or on or after the date of the applicable agent’s message) (referred to herein as “distributions”). That appointment is effective when and only to the extent that the Offeror accepts such tendered Ruckus shares for exchange pursuant to the offer and deposits with the exchange agent the transaction consideration for such shares. All such powers of attorney and proxies will be considered coupled with an interest in the tendered shares and therefore will not be revocable. Upon the effectiveness of such appointment, without further action, all prior powers of attorney and proxies that the Ruckus stockholder has given with respect to such shares (and any and all distributions) will be revoked, and such stockholder may not give any subsequent powers of attorney, proxies, consents or revocations with respect thereto (and, if given, they will not be deemed effective). The Offeror’s designees will, with respect to the shares for which the appointment is effective, be empowered, to exercise all of such stockholder’s voting, consent and other rights as they, in their discretion, deem proper at any annual or special meeting of Ruckus stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise.

The Offeror reserves the right to require that, in order for shares to be deemed validly tendered, immediately upon the Offeror’s acceptance of such shares for exchange, the Offeror must be able to exercise full voting, consent and other rights with respect to such shares (and any and all distributions). However, prior to acceptance of such shares for exchange by the Offeror in accordance with terms of the offer, the appointment will not be effective, and the Offeror will have no voting or consent rights as a result of the tender of such shares until such acceptance.

Withdrawal Rights

Ruckus stockholders may withdraw tendered Ruckus shares (other than shares subject to the support agreement) at any time until the expiration of the offer and, if the Offeror has not agreed to accept the shares for exchange on or prior to June 27, 2016, Ruckus stockholders can thereafter withdraw their shares from tender at any time after such date until the Offeror accepts such shares for exchange. If a Ruckus stockholder tenders Ruckus shares by giving instructions to a broker, dealer, commercial bank, trust company or other nominee, the Ruckus stockholder must instruct such broker, dealer, commercial bank, trust company or other nominee to arrange for

 

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the withdrawal of the Ruckus shares, and such broker, dealer, commercial bank, trust company or other nominee must validly withdraw such Ruckus shares at any time at which the Ruckus stockholder has the right to withdraw shares.

For the withdrawal of shares to be effective, the exchange agent must receive a written notice of withdrawal from the Ruckus stockholder at one of the addresses set forth elsewhere in this document, prior to the expiration time of the offer on the expiration date. The notice must include the Ruckus stockholder’s name, address, social security number (or tax identification number in the case of entities), the certificate number(s), if any, the number of shares to be withdrawn and the name of the registered holder, if it is different from that of the person who tendered those shares, and any other information required pursuant to the offer or the procedures of DTC, if applicable.

A financial institution must guarantee all signatures on the notice of withdrawal, unless the shares to be withdrawn were tendered for the account of an eligible institution. Most banks, savings and loan associations and brokerage houses are able to provide signature guarantees.

If shares have been tendered pursuant to the procedures for book-entry transfer, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn shares and must otherwise comply with DTC’s procedures. If certificates have been delivered or otherwise identified to the exchange agent, the name of the registered holder and the serial numbers of the particular certificates evidencing the shares withdrawn must also be furnished to the exchange agent, as stated above, prior to the physical release of such certificates.

The Offeror will decide all questions as to the form and validity (including time of receipt) of any notice of withdrawal in its sole discretion, and its decision will be final and binding, provided that applicable securityholders may challenge any such determination in a court of competent jurisdiction. None of the Offeror, Brocade, Ruckus, the exchange agent, the information agent or any other person is under any duty to give notification of any defects or irregularities in any tender or notice of withdrawal or will incur any liability for failure to give any such notification. Any shares validly withdrawn will be deemed not to have been validly tendered for purposes of the offer. However, a Ruckus stockholder may re-tender withdrawn shares by following the applicable procedures discussed under the section “—Procedure for Tendering” at any time prior to the expiration date.

Matters Concerning Validity and Eligibility

The Offeror will determine questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of Ruckus shares and any notice of withdrawal, in its sole discretion, and its determination will be final and binding to the fullest extent permitted by law; provided that applicable securityholders may challenge any such determination in a court of competent jurisdiction. The Offeror reserves the absolute right to reject any and all tenders of shares that it determines are not in the proper form or the acceptance of or exchange for which may be unlawful. The Offeror also reserves the absolute right to waive any defect or irregularity in the tender of any shares. No tender of shares will be deemed to have been validly made until all defects and irregularities in tenders of such shares have been cured or waived. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as the Offeror shall determine. None of the Offeror, Brocade, Ruckus or any of their affiliates or assigns, the exchange agent, the information agent or any other person is or will be under any duty to give notification of any defects or irregularities in the tender of any shares, or to waive any such defect or irregularity, and none of them will incur any liability for failure to give any such notification or waiver. The Offeror’s interpretation of the terms and conditions of the offer (including the letter of transmittal and instructions thereto) will be final and binding to the fullest extent permitted by law; provided that applicable securityholders may challenge any such determination in a court of competent jurisdiction.

 

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Ruckus stockholders who have any questions about the procedure for tendering shares in the offer should contact the information agent at the address and telephone number set forth elsewhere in this document.

Announcement of Results of the Offer

Brocade will announce the final results of the offer, including whether all of the conditions to the offer have been satisfied or waived and whether the Offeror will accept the tendered shares of Ruckus common stock for exchange, as promptly as practicable following the expiration date. The announcement will be made by a press release or Current Report on Form 8-K in accordance with applicable securities laws and stock exchange requirements.

Fees and Commissions

Registered Ruckus stockholders who tender shares directly to the exchange agent will not be obligated to pay any charges or expenses of the exchange agent or any brokerage commissions. Tendering Ruckus stockholders who hold Ruckus shares through a broker, dealer, commercial bank, trust company or other nominee should consult that institution as to whether or not such institution will charge the stockholder any service fees in connection with tendering shares pursuant to the offer.

Exchange Agent Contact Information

The contact information for the exchange agent for the offer and the merger is:

By Mail:

Wells Fargo Bank, N.A.

Shareowner Services

Voluntary Corporate Actions

P.O. Box 64858

St. Paul, Minnesota 55164-0858

By Hand or Overnight Courier:

Wells Fargo Bank, N.A.

Shareowner Services

Voluntary Corporate Actions

1110 Centre Pointe Curve, Suite 101

Mendota Heights, Minnesota 55120

 

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MERGER AGREEMENT

This section describes the material terms of the merger agreement. The description in this section and elsewhere in this document is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached hereto as Annex A and is incorporated by reference into this document. The legal rights and obligations of the parties to the merger agreement are governed by the specific language of the merger agreement and not this document. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. We encourage you to read the merger agreement carefully and in its entirety.

The Offer

Brocade, through the Offeror, is offering to exchange the transaction consideration for each outstanding share of Ruckus common stock validly tendered and not validly withdrawn in the offer.

The Offeror’s obligation to accept for exchange, and to exchange, shares of Ruckus common stock for the transaction consideration in the offer is subject to a number of conditions, including there having been validly tendered and not validly withdrawn in accordance with the terms of the offer and prior to the expiration of the offer a number of shares of Ruckus common stock that, together with any shares of Ruckus common stock then owned by Brocade, the Offeror or Brocade’s other subsidiaries, represents at least a majority of the then-outstanding shares of Ruckus common stock, as more fully described under “—Conditions—Conditions to the Offer.”

The offer is scheduled to expire at 12:00 midnight, Eastern time, at the end of May 26, 2016, unless earlier extended or terminated. Under the merger agreement, the Offeror must extend the offer:

 

    for any period required by law, or by any rule, regulation, interpretation or position of the SEC or its staff or the NYSE applicable to the offer or the merger; and

 

    for successive periods of up to ten business days each in order to further seek the satisfaction of the conditions to the offer if, as of any then scheduled expiration of the offer, any conditions to the offer have not been satisfied and not otherwise waived in accordance with the terms of the merger agreement.

No extension of the offer will impair, limit or otherwise restrict the right of the parties to terminate the merger agreement pursuant to its terms, including the right of Brocade or Ruckus to terminate the merger agreement if the acceptance time has not occurred on or before the outside date (the later of August 3, 2016, or, if all of the conditions to the offer have been satisfied or waived except the regulatory approvals condition, then upon notice by either Brocade or Ruckus, October 3, 2016). The Offeror will not be required to extend the offer beyond the outside date, subject to certain exceptions set forth in the merger agreement.

For a more complete description of the offer, see “The Offer and the Merger.”

The Merger

The merger agreement provides that, promptly following the acceptance for purchase of Ruckus shares validly tendered and not validly withdrawn in the offer, and in any case no later than the second business day after satisfaction or waiver of the conditions to closing the merger (see “—Conditions—Conditions to the Merger”), unless the parties agree otherwise in writing, the Offeror will be merged with and into Ruckus, whereupon the separate existence of the Offeror will cease, and Ruckus will continue as the surviving corporation and a direct wholly owned subsidiary of Brocade. Assuming the requirements of Section 251(h) of the DGCL are satisfied, no stockholder vote will be required to adopt the merger agreement or to consummate the merger. The merger will become effective upon the filing of the certificate of merger with the Secretary of State of the State of Delaware unless a later date is specified in the certificate of merger.

 

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In the merger, except as provided below, each outstanding share of Ruckus common stock that was not purchased by the Offeror pursuant to the offer will be converted into the right to receive the transaction consideration.

In the merger, shares of Ruckus common stock that are owned, directly or indirectly, by Brocade, Ruckus (including shares held as treasury stock or otherwise) or the Offeror immediately prior to the effective time of the merger will be cancelled without any consideration being delivered. In addition, shares of Ruckus common stock that are held by holders who are properly exercising appraisal rights will not be converted into the right to receive the transaction consideration.

Transaction Consideration

The transaction consideration consists of:

 

    $6.45 in cash; and

 

    0.75 of a share of Brocade common stock, par value $0.001 per share, together with cash in lieu of any fractional shares of Brocade common stock;

in each case, without interest and less any applicable withholding taxes.

Fractional Shares

Brocade will not issue fractional shares of Brocade common stock in the offer or the merger. Instead, each holder of shares of Ruckus common stock who otherwise would be entitled to receive a fractional share of Brocade common stock will be entitled to an amount in cash (without interest and rounded to the nearest cent) equal to the amount of the fractional share interest in a share of Brocade common stock to which such holder would otherwise be entitled pursuant to the offer or the merger, as applicable, multiplied by the average of the volume weighted average price per share of Brocade common stock on NASDAQ (as reported by Bloomberg L.P. or, if not reported therein, in another authoritative source mutually selected by Brocade and Ruckus) on each of the ten consecutive trading days ending with and including the complete trading day immediately prior to the acceptance time.

Exchange of Ruckus Shares

Brocade has retained Wells Fargo Bank, N.A. as the depositary and exchange agent for the offer and the merger to handle the exchange of Ruckus shares for the transaction consideration.

In order to tender Ruckus shares in the offer and receive the transaction consideration, holders of Ruckus shares must follow the procedures described under “Exchange Offer Procedures—Procedure for Tendering” and in the letter of transmittal.

To effect the exchange of Ruckus shares that were converted into the right to receive the transaction consideration pursuant to the merger, as soon as reasonably practicable after the effective time of the merger and in any event not later than the fifth business day following the closing date of the merger, the exchange agent will send to each holder of record of Ruckus shares represented by a stock certificate, a letter of transmittal and instructions for use in effecting the surrender of Ruckus stock certificates in exchange for the transaction consideration. Upon surrender of a Ruckus stock certificate for cancellation, together with a duly executed letter of transmittal, and any other documents as may reasonably be required by the exchange agent, to the exchange agent, the holder of record of the surrendered Ruckus stock certificate will be entitled to receive, and the exchange agent will pay and deliver as promptly as practicable, the transaction consideration for such Ruckus shares, any dividends or other distributions payable pursuant to merger agreement and cash in lieu of fractional shares, as applicable. No interest will be paid or accrue on any cash payable upon surrender of any Ruckus stock certificates.

 

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Holders of Ruckus shares held in book-entry form will not be required to deliver a stock certificate or, unless required by the exchange agent, an executed letter of transmittal to the exchange agent to receive the transaction consideration pursuant to the merger. In lieu thereof, each holder of record of book-entry shares whose shares of Ruckus common stock were converted into the right to receive the transaction consideration pursuant to merger will automatically, upon the effective time of the merger, be entitled to receive, and the exchange agent will pay and deliver as promptly as practicable after the effective time of the merger, the transaction consideration, any dividends or other distributions payable pursuant to merger agreement and cash in lieu of fractional shares, as applicable. No interest will be paid or accrue on any cash payable upon conversion of any book-entry shares.

Treatment of Ruckus Equity Awards

Vested Ruckus Options

At the effective time of the merger, each outstanding vested Ruckus option with an exercise price that is less than the “dollar value of the transaction consideration” (as described above under “The Offer and the Merger—Interests of Certain Persons in the Offer and the Merger”) will, without any further action on the part of any holder, be cancelled and the holder thereof will be entitled to receive a cash payment equal to the difference between the dollar value of the transaction consideration and the exercise price applicable to the Ruckus option, multiplied by the number of Ruckus shares for which the vested Ruckus option was exercisable, less applicable tax withholding. Each outstanding vested Ruckus option with an exercise price that is equal to or greater than the dollar value of the transaction consideration will, without any further action on the part of any holder, be cancelled and the holder thereof will be entitled to receive a replacement award of options to purchase shares of Brocade common stock (referred to as “Brocade options”) pursuant to the terms and conditions of a Brocade equity plan with terms and conditions substantially similar to Brocade’s 2009 Stock Plan (referred to as a “Brocade plan”) and applicable grant award. The number of Brocade shares covered by the Brocade option will be the number of Ruckus shares covered by the Ruckus option multiplied by the “option exchange ratio” (as described below), rounded down to the nearest whole number of shares of Brocade common stock, and the exercise price for the replacement award will be the quotient obtained by dividing the exercise price of the Ruckus option by the option exchange ratio, rounded up to the nearest whole cent.

The “dollar value of the transaction consideration” as referred to herein is equal to the cash consideration ($6.45)

plus the cash value of the stock consideration, which is determined by multiplying (i) 0.75 by (ii) the average of the volume weighted average price per share of Brocade common stock on NASDAQ on each of the ten consecutive trading days ending with and including the complete trading day immediately prior to the effective time of the merger (referred to as the “Brocade stock price”).

“Option exchange ratio” refers to an amount equal to the quotient obtained by dividing the dollar value of the transaction consideration by the Brocade stock price.

Unvested Ruckus Options

At the effective time of the merger, each outstanding unvested Ruckus option with an exercise price that is less than the dollar value of the transaction consideration will, without any further action on the part of any holder, be cancelled and the holder thereof will be entitled to receive an award of Brocade restricted stock units relating to the number of shares of Brocade common stock equal to the quotient obtained by dividing the Brocade stock price into (i) (A) the dollar value of the transaction consideration, (B) less the exercise price of the Ruckus options multiplied by (ii) the number of Ruckus shares for which the unvested Ruckus option was exercisable, with any fractional shares rounded down to the next whole number of shares of Brocade common stock. The Brocade restricted stock units will be subject to the same vesting period as the Ruckus options and will otherwise be subject to the terms and conditions of a Brocade plan and applicable award agreement. Each outstanding unvested Ruckus option with an exercise price that is equal to or greater than the dollar value of the transaction consideration will, without any further action on the part of any holder, be cancelled and the holder thereof will

 

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be entitled to receive a Brocade option with the same vesting schedule as the Ruckus option and will otherwise be subject to the terms and conditions of a Brocade plan and applicable grant award. The number of shares of Brocade common stock covered by the Brocade option will be the number of Ruckus shares covered by the Ruckus option multiplied by the option exchange ratio, rounded down to the nearest whole number of shares of Brocade common stock, and the exercise price for the replacement award will be the quotient obtained by dividing the exercise price of the Ruckus option by the option exchange ratio, rounded up to the nearest whole cent.

Ruckus Restricted Stock Units and Ruckus Performance-Based Restricted Stock Units

At the effective time of the merger, each outstanding unvested Ruckus restricted stock unit that is subject solely to a time-based vesting condition will, without any further action on the part of any holder, be cancelled, and the holder thereof will be entitled to receive a Brocade restricted stock unit relating to the number of Brocade shares equal to the product of (i) (x) the dollar value of the transaction consideration divided by (y) the Brocade stock price multiplied by (ii) the number of Ruckus shares subject to such unvested Ruckus restricted stock unit, with any fractional shares rounded down to the nearest whole number of shares of Brocade common stock. The Brocade restricted stock unit will be subject to the same vesting terms as the Ruckus restricted stock unit and will otherwise be subject to the terms and conditions of a Brocade plan and applicable award agreement.

At the effective time of the merger, each outstanding unvested Ruckus performance-based restricted stock unit will, without any further action on the part of any holder, be cancelled, and the holder thereof will be entitled to receive a Brocade restricted stock unit relating to the number of Brocade shares equal to the product of (i) (x) the dollar value of the transaction consideration divided by (y) the Brocade stock price multiplied by (ii) the target number of Ruckus shares subject to such unvested Ruckus performance-based restricted stock unit, with any fractional shares rounded down to the nearest whole number of shares of Brocade common stock. The Brocade restricted stock unit will be subject to the same vesting schedule (but without any performance conditions) as the Ruckus performance-based restricted stock unit and will otherwise be subject to the terms and conditions of a Brocade plan and applicable award agreement.

Alternative Equity-Based Award Treatment

Notwithstanding the treatment described above for Ruckus options, Ruckus restricted stock units and Ruckus performance-based restricted stock units, to the extent that Brocade determines, in its sole discretion, that there are impediments under applicable law to issuing Brocade replacement awards for such Ruckus awards, in lieu of the treatment described above, Brocade may instead provide the holder thereof with the following: (i) with respect to vested and unvested “underwater” Ruckus options, a cash payment or deferred cash award (with the same vesting schedule as the Ruckus options), respectively, equal to the Black-Scholes option value for such out-of-the-money Ruckus options; (ii) with respect to unvested in-the-money Ruckus options, a deferred cash award equal to the product of (i) (A) the dollar value of the transaction consideration, (B) less the exercise price of the Ruckus options, multiplied by (ii) the number of Ruckus shares for which the unvested Ruckus option was exercisable with the same vesting schedule as the Ruckus option, and (iii) with respect to Ruckus restricted stock units and Ruckus performance-based restricted stock units, Brocade may instead provide the holder thereof with an equivalent deferred cash award equal to the dollar value of the transaction consideration multiplied by the number of Ruckus shares subject to such unvested Ruckus restricted stock unit or Ruckus performance-based restricted stock unit with the same vesting schedule (but without any performance conditions, if any) as the Ruckus restricted stock unit and Ruckus performance-based restricted stock unit. The alternative treatment described in the preceding sentence is referred to as the “alternative cash treatment. ”

In connection with the merger, Brocade will assume such portion of the available Ruckus common stock share reserve under the Ruckus 2012 Employee Stock Purchase Plan (referred to as the “2012 ESPP”) as will, when taken together with the aggregate number of shares of Brocade common stock to be issued in respect of the offer and the merger and the aggregate number of shares of Brocade common stock underlying Brocade equity-based awards issued in replacement of Ruckus equity-based awards as described above, not exceed an amount equal to

 

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19.9% of the issued and outstanding shares of Brocade common stock immediately prior to the effective time of the merger, as may be permitted pursuant to NASDAQ Listing Rule 5635. To the extent that treatment of the outstanding equity awards as described above would cause such 19.9% number to be exceeded, then, instead of the treatment outlined above, Ruckus equity-based awards will instead receive the alternative cash treatment in the following order: (i) out-of-the-money vested Ruckus options; (ii) out-of-the-money unvested Ruckus options; (iii) in-the-money unvested Ruckus options; (iv) unvested time-based Ruckus restricted stock units; and (v) unvested Ruckus performance-based restricted stock units, with the methodology for determining which equity awards in each such tranche will receive the alternative cash treatment to be determined by Brocade.

Ruckus 2012 Employee Stock Purchase Plan

Only participants in the current purchase period of the 2012 ESPP may continue to participate in the 2012 ESPP. Pursuant to the terms of the merger agreement, Ruckus suspended the commencement of any future offering periods or purchase periods under the 2012 ESPP as of the date of the merger agreement, and such suspension shall continue through the effective time of the merger and thereafter, subject only to Ruckus’ or Brocade’s ability to reverse such suspension.

Conditions

Conditions to the Offer

Notwithstanding any other provisions of the offer, and in addition to Brocade’s and the Offeror’s rights to extend, amend or terminate the offer in accordance with the provisions of the merger agreement and applicable law, and in addition to the obligations of the Offeror to extend the offer pursuant to the terms and conditions of the merger agreement and applicable law, neither Brocade nor the Offeror is required to accept for payment or, subject to any applicable rules and regulations of the SEC (including Rule 14e-1(c) promulgated under the Exchange Act (relating to the obligation of the Offeror to pay for or return tendered shares of Ruckus common stock promptly after termination or withdrawal of the offer)), pay for any Ruckus shares that are validly tendered and not validly withdrawn in the offer prior to the expiration of the offer in the event that, at the expiration of the offer, any of the following conditions have not been satisfied or waived:

 

  (a) Minimum Tender Condition—Ruckus stockholders must have validly tendered and not validly withdrawn in accordance with the terms of the offer and prior to the expiration of the offer a number of Ruckus shares that, together with any Ruckus shares then owned by Brocade, the Offeror or any of Brocade’s other subsidiaries, represent at least a majority of all then-outstanding Ruckus shares.

 

  (b) Regulatory Approvals—The waiting period under the HSR Act relating to the transactions contemplated by the merger agreement must have expired or been terminated and any applicable clearances, approvals and consents required to be obtained under the competition laws of Germany must have been obtained.

 

  (c) No Governmental Prohibition—No law, order or injunction prohibiting or making illegal the consummation of any of the offer, the merger or the issuance of Brocade common stock as consideration in connection with the offer or the merger must have been promulgated, entered, enforced, enacted or issued or be applicable to the offer, the merger or the issuance of Brocade common stock in connection with the offer or the merger by any governmental entity having jurisdiction over a material portion of the business of Ruckus, Brocade or the Offeror (or the effect of which would have a material effect on any of Ruckus, Brocade or the Offeror).

 

  (d) Effectiveness of Form S-4—The registration statement on Form S-4, of which this document is a part, must have become effective under the Securities Act, and must not be the subject of any stop order that is in effect or any pending proceeding seeking a stop order.

 

  (e) Listing of Brocade Common Stock—The shares of Brocade common stock to be issued as consideration in connection with the offer and the merger must have been approved for listing on NASDAQ, subject to official notice of issuance.

 

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  (f) Accuracy of Ruckus’ Representations and Warranties—The representations and warranties of Ruckus contained in the merger agreement must be true and correct in all respects (disregarding all materiality and material adverse effect qualifiers contained therein, other than qualifiers contained in the representation relating to the absence of certain changes), in each case, as of the expiration of the offer as if made at the expiration of the offer (other than any such representations and warranties that by their terms address matters only as of another specified time, which must be true and correct in all respects (disregarding all materiality and material adverse effect qualifiers contained therein, other than qualifiers contained in the representation relating to the absence of certain changes) only as of such time), except where the failure of such representations and warranties to be so true and correct has not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Ruckus and its subsidiaries (as defined in the merger agreement and described under “—Material Adverse Effect”); except that (i) certain representations and warranties of Ruckus relating to corporate existence and power, corporate authorization, the opinion of its financial advisor and antitakeover statutes must, if qualified by materiality or material adverse effect, be true and correct in all respects, or, if not so qualified by materiality or material adverse effect, be true and correct in all material respects, in each case, as of the expiration of the offer as if made at the expiration of the offer (other than any such representations and warranties that by their terms address matters only as of another specified time, which must be true and correct in all material respects only as of such time), and (ii) certain representations and warranties of Ruckus relating to capitalization must be true and correct in all respects, other than de minimis inaccuracies, as of the expiration of the offer as if made at the expiration of the offer (other than any representations and warranties that by their terms address matters only as of another specified time, which must be true and correct in all material respects only as of such time).

 

  (g) Ruckus’ Compliance with Covenants—Ruckus must have performed in all material respects its covenants and obligations under the merger agreement required to be performed by it at or prior to the expiration of the offer or cured any failure to so perform on or prior to the expiration of the offer.

 

  (h) No Ruckus Material Adverse Effect—There must not have occurred or arisen after the date of the merger agreement, any material adverse effect (as defined in the merger agreement and described under “—Material Adverse Effect”) with respect to Ruckus and its subsidiaries that is continuing.

 

  (i) Accuracy of Brocade’s and the Offeror’s Representations and Warranties—The representations and warranties of Brocade and the Offeror contained in the merger agreement must be true and correct in all respects (disregarding all materiality and material adverse effect qualifiers contained therein, other than qualifiers contained in the representation relating to the absence of certain changes), in each case, as of the expiration of the offer as if made at the expiration of the offer (other than any such representations and warranties that by their terms address matters only as of another specified time, which must be true and correct in all respects (disregarding all materiality and material adverse effect qualifiers contained therein, other than qualifiers contained in the representation relating to the absence of certain changes) only as of such time), except where the failure of such representations and warranties to be so true and correct has not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Brocade and its subsidiaries (as defined in the merger agreement and described under “—Material Adverse Effect”); except that certain representations and warranties of Brocade and the Offeror relating to corporate existence and power and corporate authorization must, if qualified by materiality or material adverse effect, be true and correct in all respects, or, if not qualified by materiality or material adverse effect, be true and correct in all material respects, in each case, as of the expiration of the offer as if made at the expiration of the offer (other than any representations and warranties that by their terms address matters only as of another specified time, which must be true and correct in all material respects only as of such time).

 

  (j)

Brocade’s and the Offeror’s Compliance with Covenants—Brocade and the Offeror must have performed in all material respects their respective covenants and obligations under the merger

 

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  agreement required to be performed by them at or prior to the expiration of the offer or cured any failure to so perform on or prior to the expiration of the offer.

 

  (k) No Brocade Material Adverse Effect—There must not have occurred or arisen after the date of the merger agreement, any material adverse effect (as defined in the merger agreement and described under “—Material Adverse Effect”) with respect to Brocade and its subsidiaries that is continuing.

 

  (l) No Termination of the Merger Agreement—The merger agreement must not have been terminated in accordance with its terms.

 

  (m) Delivery of Ruckus Officer’s Certificate—Brocade must have received a certificate signed by an executive officer of Ruckus certifying on behalf of Ruckus, as to the satisfaction of the conditions described under (f), (g) and (h) above.

 

  (n) Delivery of Brocade Officer’s Certificate—Ruckus must have received a certificate signed by an executive officer of Brocade and the Offeror certifying on behalf of Brocade and the Offeror, as to the satisfaction of the conditions described under (i), (j) and (k) above.

Subject to Ruckus’ right to require that Brocade and the Offeror waive the conditions described in (i), (j), (k) and (n) above, the foregoing conditions may be asserted by Brocade or the Offeror prior to the expiration of the offer regardless of the circumstances giving rise to any such conditions, and may be waived by Brocade or the Offeror in whole or in part at any time and from time to time in their sole and absolute discretion, in each case, subject to the terms of the merger agreement and the applicable rules and regulations of the SEC (including, without limitation, Section 14(e) of the Exchange Act), except that the conditions described in (a) through (e) above and under (i), (j), (k), (l) and (n) above may only be waived by the Offeror with the prior written consent of Ruckus in its sole discretion. The offer is not conditioned on Brocade or the Offeror obtaining any financing.

Conditions to the Merger

The respective obligations of each of Brocade, the Offeror and Ruckus to consummate the merger are subject to the satisfaction of the following two conditions (which may be waived, in whole or in part, to the extent permitted by law, by the mutual consent of Brocade and Ruckus):

 

    Purchase of Shares of Ruckus Common Stock—The Offeror must have accepted for purchase all of the shares of Ruckus common stock validly tendered and not validly withdrawn in the offer.

 

    No Governmental Prohibition—No law or order (whether temporary, preliminary or permanent) must have been promulgated, entered, enforced, enacted or issued or be applicable to the merger or the issuance of Brocade common stock in connection with the offer or the merger by any governmental authority that prohibits or makes illegal the consummation of the merger or the issuance of Brocade common stock in connection with the offer or the merger.

Representations and Warranties

The merger agreement contains customary representations and warranties of the parties. These include representations and warranties of Ruckus with respect to:

 

    corporate existence and power;

 

    corporate authorization;

 

    governmental authorization;

 

    non-contravention;

 

    capitalization;

 

    subsidiaries;

 

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    SEC filings and the Sarbanes-Oxley Act of 2002, as amended;

 

    financial statements;

 

    information supplied;

 

    absence of certain changes;

 

    no undisclosed material liabilities;

 

    compliance with laws and court orders; governmental authorizations;

 

    litigation;

 

    properties;

 

    intellectual property;

 

    data privacy and security;

 

    taxes;

 

    employees and employee benefit plans;

 

    environmental matters;

 

    material contracts;

 

    finders’ fees;

 

    opinion of financial advisor to Ruckus;

 

    antitakeover statutes;

 

    anti-corruption and export control;

 

    insurance; and

 

    material distributors.

The merger agreement also contains customary representations and warranties of Brocade and the Offeror with respect to:

 

    corporate existence and power;

 

    corporate authorization;

 

    governmental authorization;

 

    non-contravention;

 

    capitalization;

 

    SEC filings and the Sarbanes-Oxley Act of 2002, as amended;

 

    financial statements;

 

    information supplied;

 

    financing;

 

    absence of certain changes;

 

    solvency;

 

    no undisclosed material liabilities;

 

    compliance with laws and court orders; governmental authorizations;

 

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    litigation; and

 

    ownership of Ruckus securities.

The representations and warranties contained in the merger agreement are generally qualified by “material adverse effect,” as defined in the merger agreement and described under “—Material Adverse Effect” below, and will expire at the effective time of the merger. The representations, warranties and covenants made by Ruckus in the merger agreement are qualified by information contained in the confidential disclosure schedules delivered by Ruckus to Brocade in connection with the execution of the merger agreement and by certain filings that Ruckus has made with the SEC prior to the date of the merger agreement. The representations, warranties and covenants made by Brocade and the Offeror in the merger agreement are qualified by information contained in the confidential disclosure schedules delivered by Brocade and the Offeror to Ruckus in connection with the execution of the merger agreement and by certain filings that Brocade has made with the SEC prior to the date of the merger agreement. Stockholders are not express third-party beneficiaries of the representations, warranties and covenants under the merger agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or conditions as of the date of this document of Ruckus or any of its affiliates or of Brocade or any of its affiliates. The representations, warranties and covenants contained in the merger agreement are made solely between the parties thereto and are not being made to any stockholder by reason of their inclusion in or references thereto in this document.

Material Adverse Effect

A “material adverse effect” with respect to Brocade or Ruckus, means any effect, change, condition, fact, development, occurrence or event (whether or not foreseeable as of the date of the merger agreement) that, individually or in the aggregate with all other effects, changes, conditions, facts, developments, occurrences or events, has had or would reasonably be expected to have a material adverse effect on the business, assets, results of operations or condition (financial or otherwise) of such party and its subsidiaries, taken as a whole, excluding any effect, change, condition, fact, development, occurrence or event resulting from or arising out of:

 

  (a) general economic or political conditions in the United States or any foreign jurisdiction or in securities, credit or financial markets, including changes in interest rates and changes in exchange rates;

 

  (b) changes or conditions generally affecting the industries, markets or geographical areas in which such party operates;

 

  (c) the outbreak or escalation of hostilities, acts of war (whether or not declared), terrorism or sabotage;

 

  (d) any natural disasters (including hurricanes, tornadoes, floods or earthquakes), except to the extent that any such effect, change, condition, fact, development, occurrence or event has a materially disproportionate effect on such party and its subsidiaries, taken as a whole, relative to other participants in the industries and geographies in which such party and its subsidiaries operate;

 

  (e) any failure by such party or its subsidiaries to meet any internal or published (including analyst) projections, forecasts or predictions in respect of financial or operating performance for any period ending after January 1, 2016 (with respect to Ruckus) or January 31, 2016 (with respect to Brocade); however neither party is prevented from asserting that any effect, change, condition, fact, development, occurrence or event that may have contributed to such failure may be taken into account in determining whether there has been a material adverse effect with respect to the other party if not otherwise excluded;

 

  (f) changes in GAAP or the authoritative interpretation of GAAP or changes in any law applicable to the operation of the business of such party or any of its subsidiaries;

 

  (g) the taking of any specific action expressly required by, or the failure to take any specific action expressly prohibited by, the merger agreement, or the taking of any action or refraining from taking any action at the other party’s written request;

 

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  (h) any change in the market price or trading volume of such party’s securities; however, neither party is prevented from asserting that any effect, change, condition, fact, development, occurrence or event that may have contributed to such change in market price or trading volume may be taken into account in determining whether there has been a material adverse effect with respect to the other party if not otherwise excluded;

 

  (i) the execution and delivery of the merger agreement or the public announcement or pendency of the merger agreement, the offer or the merger (including any resulting loss or departure of officers or other employees of such party or any of its subsidiaries, or the termination or reduction (or potential reduction) or any other resulting negative development in such party’s or any of its subsidiaries’ relationships with any of its customers, suppliers, distributors or other business partners, solely to the extent attributable to the execution and delivery of the merger agreement or the public announcement or pendency of the merger agreement, the offer or the merger); and

 

  (j) any proceeding brought or threatened by stockholders of either party (whether on behalf of Brocade, Ruckus or otherwise) asserting allegations of breach of fiduciary duty relating to the merger agreement or violations of securities laws solely in connection with the offer or the merger (but excluding any damages award in any such proceeding).

The exceptions described in (a), (b), (c), and (f) above will not apply to the extent any such effect, change, condition, fact, development, occurrence or event has a materially disproportionate effect on a party and its subsidiaries, taken as a whole, relative to other participants in the industries in which the party and its subsidiaries operate.

No Solicitation of Other Offers by Ruckus

Subject to certain exceptions described below, Ruckus has agreed that, from the date of the merger agreement until the earlier of the acceptance time or the date the merger agreement is terminated, it will not (and will cause its subsidiaries not to), and Ruckus will not authorize or knowingly permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by it or any of its subsidiaries to (and will use reasonable best efforts to cause such persons not to), directly or indirectly:

 

    solicit, initiate, support, knowingly induce or knowingly encourage (including by way of furnishing information which has not been previously publicly disseminated), or take any other action with the intent to facilitate, any inquiry, proposal, indication of interest or offer which constitutes, or could reasonably be expected to lead to, an acquisition proposal (as described below);

 

    approve, endorse or recommend, or authorize any public statement approving, endorsing or recommending, or execute or enter into any letter of intent, memorandum of understanding, agreement in principle, merger agreement or other agreement, arrangement, or contract relating to an acquisition proposal (other than an acceptable confidentiality agreement);

 

    enter into, continue or otherwise participate in any discussions or negotiations regarding any acquisition proposal;

 

    furnish to any person (other than Brocade, its affiliates and their respective representatives) any non-public information or data relating to Ruckus or any of its subsidiaries, in connection with, or with the intent of encouraging or facilitating an acquisition proposal or that could reasonably be expected to be used for the purposes of any acquisition proposal;

 

    submit any acquisition proposal to a vote of Ruckus stockholders; or

 

    agree or publicly propose to do any of the foregoing.

 

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In addition, under the merger agreement, Ruckus has agreed that:

 

    it will cause each of its subsidiaries, and will direct and use reasonable best efforts to cause each of its and its subsidiaries’ representatives, to immediately cease and cause to be terminated any discussions, activities or negotiations with any person that may be ongoing with respect to an acquisition proposal (including terminating access to any physical or electronic data rooms relating to a possible acquisition proposal);

 

    it will request each person that has executed a confidentiality agreement in connection with a possible acquisition proposal to return to Ruckus or destroy any confidential information that has been provided to any person in any such discussions or negotiations occurring in the twelve months prior to the date of the merger agreement (other than such confidential information that may be retained pursuant to the terms of the applicable confidentiality agreement); and

 

    it will not, and will cause its subsidiaries not to, release any person from, or waive, amend or modify any provision of, or grant any permission under, any standstill provision or similar provision with respect to Ruckus securities in any contract to which Ruckus or any of its subsidiaries is a party, or any confidentiality agreement to which Ruckus or any of its subsidiaries is a party, except that the Ruckus board of directors shall be permitted to grant waivers of, and not enforce, any standstill provision to the extent that such provision would otherwise prohibit the counterparty from making a confidential acquisition proposal directly to the Ruckus board of directors in accordance with the merger agreement and the Ruckus board of directors determines in good faith, after consultation with Ruckus’ outside legal counsel, that failure to take such action would reasonably be expected to be inconsistent with its fiduciary duties to Ruckus stockholders under applicable law.

Ruckus is obligated to promptly advise Brocade orally and in writing of any inquiries, proposals or offers with respect to an acquisition proposal that are received by, or any non-public information with regard to such acquisition proposal that is requested from, or any discussions or negotiations sought to be initiated regarding such acquisition proposal with, Ruckus (or to the knowledge of Ruckus, any of its representatives). Such notice must include the identity of the person or group of persons making the inquiry, proposal or offer and the material terms and conditions of any such inquiries, proposals or offers. Ruckus must also thereafter advise and confer with Brocade and keep Brocade reasonably informed, on a prompt basis, regarding any material changes to the status and material terms of any such inquiries, proposals or offers (including any material amendments thereto or any material change to the scope or material terms or conditions thereof including proposed agreements and material modifications thereto).

Notwithstanding the prohibitions described above, following the receipt of an unsolicited bona fide written acquisition proposal made after the date of the merger agreement (that did not result from a material breach of Ruckus’ non-solicitation obligations under the merger agreement) that the Ruckus board of directors determines in good faith, after consultation with Ruckus’ outside financial advisors and outside legal counsel is or could reasonably be expected to lead to a superior proposal (as described below) and failure to take such action would reasonably be expected to be inconsistent with its fiduciary duties to Ruckus stockholders under applicable law, then Ruckus may, in response to such acquisition proposal, furnish information relating to Ruckus or any of its subsidiaries to the person or group (or any of their representatives) making such acquisition proposal and engage in discussions or negotiations with such person or group and their representatives regarding such acquisition proposal so long as:

 

    prior to furnishing any nonpublic information relating to Ruckus or any of its subsidiaries to such person or group or their respective representatives, Ruckus enters into a confidentiality agreement with the person or group making such acquisition proposal that does not contain any provision that would prevent Ruckus from complying with its disclosure obligations to Brocade as described above and contains provisions that in the aggregate are no less restrictive on such person than those contained in the confidentiality agreement between Brocade and Ruckus (provided that any such confidentiality agreement need not contain any “standstill” or similar provisions); and

 

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    substantially concurrently with furnishing any such nonpublic information to such person, Ruckus must furnish such nonpublic information to Brocade, to the extent such nonpublic information has not been previously furnished to Brocade or its representatives.

Ruckus and its subsidiaries and representatives may in any event seek to clarify the terms and conditions of any bona fide written acquisition proposal solely to determine whether such acquisition proposal constitutes or could reasonably be expected to lead to a superior proposal and inform a person or group that has made or, to the knowledge of Ruckus, is considering making, an acquisition proposal of Ruckus’ non-solicitation obligations under the merger agreement as described above.

An “acquisition proposal” for purposes of the merger agreement means any proposal, inquiry, indication of interest or offer (whether or not in writing) from any person (other than Brocade and its subsidiaries or affiliates) relating to or involving, whether in a single transaction or series of related transactions:

 

    any direct or indirect acquisition, lease, exchange, license, transfer, disposition (including by way of liquidation or dissolution of Ruckus or any of its subsidiaries) or purchase of any business, businesses or assets (including equity interests in subsidiaries but excluding sales of assets in the ordinary course of business) of Ruckus or any of its subsidiaries that constitute or account for 15% or more of the consolidated net revenues, net income or net assets of Ruckus and its subsidiaries, taken as a whole; or

 

    any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, sale of securities, reorganization, recapitalization, tender offer, exchange offer, liquidation, dissolution, extraordinary dividend, or similar transaction involving Ruckus or any of its subsidiaries and a person or “group” (as defined in Section 13(d) of the Exchange Act) pursuant to which the stockholders of Ruckus immediately preceding such transaction hold less than 85% of the equity interests in the surviving or resulting entity of such transaction immediately following such transaction; or

 

    any combination of the foregoing.

A “superior proposal” for purposes of the merger agreement means a bona fide written acquisition proposal from any person (other than Brocade and its subsidiaries or affiliates) (for this purpose, with all references to “15% or more” in the description of “acquisition proposal” above being deemed to reference “50% or more”), which the board of directors of Ruckus has, after consultation with Ruckus’ outside financial advisors and outside legal counsel, determined in its good faith judgment, is reasonably capable of being consummated, and would, if consummated, result in a transaction more favorable to the Ruckus stockholders (in their capacity as such) than the transactions contemplated by the merger agreement after taking into account all legal, financial, regulatory and other aspects of such acquisition proposal (including the existence of financing conditions, the conditionality of any financing commitments and the likelihood and timing of consummation (as compared to the transactions contemplated by the merger agreement)) and such other matters that the Ruckus board of directors deems relevant.

Change of Recommendation

The merger agreement requires the Ruckus board of directors to recommend that Ruckus stockholders accept the offer and tender their shares of Ruckus common stock to the Offeror pursuant to the offer except as provided below. Other than as described below (any of the following being a “change of recommendation”), the Ruckus board of directors may not:

 

    withdraw (or amend, modify or qualify in a manner adverse to Brocade) or propose publicly to withdraw (or amend, modify or qualify in a manner adverse to Brocade), the recommendation to accept the offer and tender shares of Ruckus common stock to the Offeror pursuant to the offer;

 

    fail to make the recommendation to accept the offer and tender shares of Ruckus common stock to the Offeror pursuant to the offer in the initial Schedule 14D-9; or

 

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    approve, recommend, or otherwise declare or endorse publicly to be advisable or publicly propose to approve, adopt or recommend to be advisable any acquisition proposal or contract requiring Ruckus to abandon, terminate or fail to consummate the offer, the merger or any other transaction contemplated by the merger agreement.

Notwithstanding the foregoing, the Ruckus board of directors may make a change of recommendation if, prior to the acceptance time:

 

    Ruckus has received a bona fide written acquisition proposal that was not solicited in violation of Ruckus’ non-solicit obligations under the merger agreement and that has not been withdrawn and the Ruckus board of directors concludes in good faith, after consultation with Ruckus’ outside financial advisors and outside legal counsel, that such acquisition proposal constitutes a superior proposal and concludes, in good faith, after consultation with Ruckus’ outside legal counsel, that failure to make a change of recommendation would reasonably be expected to be inconsistent with its fiduciary duties to Ruckus stockholders under applicable law; or

 

    an intervening event (as described below) has occurred, and the Ruckus board of directors concludes in good faith, after consultation with Ruckus’ outside legal counsel, that failure to make a change of recommendation would reasonably be expected to be inconsistent with its fiduciary duties to Ruckus stockholders under applicable law.

Ruckus must give Brocade four business days’ prior written notice of its intent to make a change of recommendation. The notice must include, as applicable, the identity of the person or group of persons making the acquisition proposal and the material terms and conditions of such acquisition proposal, including a copy of such acquisition proposal, or the facts and circumstances in reasonable detail of the intervening event. In each case, the Ruckus board of directors must negotiate in good faith, and cause its representatives to negotiate in good faith, with Brocade (to the extent Brocade desires to negotiate), regarding any revisions to the terms of the transactions contemplated by the merger agreement proposed by Brocade in response to such superior proposal or intervening event, as applicable, and the Ruckus board of directors must make the required determination regarding its fiduciary duties again, in good faith and after consultation with Ruckus’ outside legal counsel and outside financial advisors (and taking into account any legally binding (if accepted by Ruckus) adjustment or modification of the terms of the merger agreement proposed in writing by Brocade), at the end of such four business day negotiation period. With respect to any change of recommendation in response to a superior proposal, each time there is any material amendment or modification to the terms of the then-existing superior proposal, Ruckus must give prompt notice to Brocade of such amendment or modification and the match rights period described above will be extended until the later to occur of two business days after the board of directors of Ruckus provides such notice to Brocade and the end of the original four business day period described above.

An “intervening event” for purposes of the merger agreement is any material event, condition, fact, occurrence, change or development that is not known or reasonably foreseeable to the Ruckus board of directors as of the date of the merger agreement that becomes known to the Ruckus board of directors prior to the acceptance time; provided, however, that in no event will any event, condition, fact, occurrence, change or development resulting from or arising out of any of the following be deemed to give rise to an intervening event:

 

  (a) any acquisition proposal;

 

  (b) any actions taken by Brocade or Ruckus required by the merger agreement with respect to its efforts obligations under the merger agreement to consummate the offer or the merger (including obtaining approvals) or the consequences of any such action (see “—Additional Agreements”);

 

  (c) the fact that Ruckus or its subsidiaries have exceeded or met (or the failure of Brocade to meet) any internal or published projections, forecasts or predictions in respect of financial or operating performance for any period ending on or after the date of the merger agreement; or

 

  (d) any change in the market price or trading volume of the respective securities of Ruckus or Brocade.

 

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The exceptions described under (c) and (d) above will not prevent Ruckus from asserting that any event, condition, fact, occurrence, change or development that may have contributed to exceeding or meeting such projections, forecasts or predictions or such change in market price or trading volume be taken into account in determining whether there has been an intervening event if not otherwise excluded.

Subject to Ruckus’ notification and negotiation obligations with respect to a potential change of recommendation, as applicable, nothing in the merger agreement prohibits the Ruckus board of directors from taking and disclosing to Ruckus stockholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or making a statement contemplated by Item 1012(a) of Regulation M-A or Rule 14d-9 promulgated under the Exchange Act.

Conduct of Business Before Completion of the Merger

Restrictions on Ruckus’ Operations

The merger agreement provides for certain restrictions on Ruckus’ and its subsidiaries’ activities until the earlier of the effective time of the merger or the termination of the merger agreement. In general, Ruckus is required to conduct its business in all material respects in the ordinary course consistent with past practice, and, to the extent consistent with the foregoing, use its commercially reasonable efforts to preserve intact its current business organization, goodwill and reputation and maintain generally its business relationships with its significant customers and suppliers and others having significant business relationships with it and with governmental authorities with jurisdiction over Ruckus’ or any of its subsidiaries’ significant operations, except as contemplated by the merger agreement, as set forth in confidential disclosure schedules, as consented to in writing by Brocade (which consent cannot be unreasonably withheld, conditioned or delayed) or as required by applicable law. In addition, unless contemplated by the merger agreement, as set forth in confidential disclosure schedules, as consented to in writing by Brocade (which consent cannot be unreasonably withheld, conditioned or delayed, other than with respect to the actions described in (q) below) or as required by applicable law, Ruckus must not and must not permit any of its subsidiaries to:

 

  (a) amend the certificate of incorporation, bylaws or other similar organizational documents of Ruckus or any of its subsidiaries;

 

  (b) split, combine or reclassify any shares of capital stock of Ruckus or any of its subsidiaries or declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of the capital stock of Ruckus or its subsidiaries, or redeem, repurchase or otherwise acquire or offer to redeem, repurchase, or otherwise acquire any Ruckus securities or any Ruckus subsidiary securities, except for the declaration, setting aside or payment of any dividends or other distributions by any of its subsidiaries to Ruckus or to another subsidiary in the ordinary course of business consistent with past practice;

 

  (c) (i) issue, deliver or sell, or authorize the issuance, delivery or sale of, any securities of Ruckus or its subsidiaries, other than (x) the issuance of any shares of Ruckus common stock upon the exercise of options or the settlement of Ruckus restricted stock units that are outstanding on the date of the merger agreement or that are issued or granted after the date of the merger agreement to the extent permitted by the merger agreement and (y) the issuance of Ruckus subsidiary securities to Ruckus or to wholly-owned subsidiaries of Ruckus or (ii) amend any term of any Ruckus security;

 

  (d) incur or commit to any capital expenditures or any obligations or liabilities in respect thereof, except for those as may be contemplated by Ruckus’ fiscal 2016 budget and capital expenditure plan or any other capital expenditures not to exceed $2 million in the aggregate;

 

  (e)

acquire directly or indirectly, any assets, securities or businesses, other than acquisitions of supplies, materials and similar assets in the ordinary course of business in a manner that is consistent with past practice, pursuant to contracts in effect on the date of the merger agreement, any other acquisitions for consideration that is not in excess of $2 million, individually or in the aggregate, acquisitions solely

 

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  involving one or more of Ruckus and any of its wholly-owned subsidiaries and as contemplated by Ruckus’ fiscal 2016 budget and capital expenditure plan;

 

  (f) sell, assign, license, lease or otherwise transfer, or abandon or create or incur any material lien on any of Ruckus’ or its subsidiaries’ assets, securities, properties, interests or businesses in excess of $1 million in the aggregate, other than sales, leases or transfers in the ordinary course of business consistent with past practice, non-exclusive licenses granted to customers, suppliers, distributors, resellers, channel partners and other third parties in the ordinary course of business consistent with past practice, certain permissible liens or the abandonment of non-material intellectual property rights of Ruckus in the ordinary course of business consistent with past practice; except Ruckus and its subsidiaries must not assign or grant any exclusive licenses of any intellectual property rights or technology of Ruckus, or grant any other licenses of any intellectual property rights or technology of Ruckus other than non-exclusive licenses granted in the ordinary course of business consistent with past practice to the extent permitted above;

 

  (g) make any loans, advances or capital contributions to, or investments in, any other person in excess of $3 million in the aggregate, other than intercompany indebtedness;

 

  (h) create, incur, suffer to exist or assume any indebtedness for borrowed money or guarantees thereof, other than intercompany indebtedness;

 

  (i) other than in the ordinary course of business consistent with past practice, enter into any agreement or arrangement that limits or otherwise restricts in any material respect Ruckus or any of its subsidiaries from engaging or competing in any line of business, in any location or with any person, or would purport to limit, after the effective time of the merger, Brocade or any of its subsidiaries from engaging or competing in any line of business in any material respect;

 

  (j) other than in the ordinary course of business consistent with past practice (including renewals consistent with the their terms), amend or modify in any material respect or terminate (excluding terminations or renewals upon expiration in accordance with their terms) any material contract or waive, release or assign any material rights, claims or benefits under any material contract or enter into material contracts;

 

  (k) recognize any new labor organization, union, employee association, trade union, works council or other similar employee representative, or negotiate, enter into, amend, modify or terminate any collective bargaining agreement;

 

  (l) grant or modify any equity or equity-based awards, other than awards granted pursuant to a Ruckus benefit plan consistent with the schedule of terms agreed between Brocade and Ruckus, in each case, in the ordinary course of business consistent with past practice, except in no event can such equity or equity-based award contain any “single trigger,” “double trigger,” or other vesting acceleration provisions and such equity or equity-based award cannot be subject to acceleration (in whole or in part) as a result of the consummation of the transactions contemplated by the merger agreement (whether alone or in combination with any termination of employment or other event);

 

  (m)

except as required pursuant to a Ruckus employee benefit plan or a contract in effect prior to the date of the merger agreement, or as otherwise required by applicable law, grant or provide any severance, retention or termination payments or benefits to any current or former employee, officer, non-employee director, independent contractor or consultant of Ruckus or any of its subsidiaries (including any obligation to gross-up, indemnify or otherwise reimburse any such individual for any tax incurred by any such individual, including under Section 409A or 4999 of the Code); accelerate the time of payment or vesting of, or the lapsing of restrictions with respect to, or fund or otherwise secure the payment of, any compensation or benefits to any current or former employee, officer, non-employee director, independent contractor or consultant of Ruckus or any of its subsidiaries; increase the compensation payable to any current or former employee, officer, non-employee director, independent contractor or consultant of Ruckus or any of its subsidiaries, other than increases in base salaries or

 

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  hourly base wage rates, as applicable, to employees in the ordinary course of business consistent with past practice and not in excess of Ruckus’ 2016 established budget; establish, adopt, terminate or amend any Ruckus employee benefit plan, hire any employee of Ruckus or any of its subsidiaries or engage any other individual to provide services to the Ruckus or any of its subsidiaries (subject to certain exceptions); terminate the employment of any current employee or the engagement of any individual independent contractor of Ruckus or any of its subsidiaries other than for cause or for performance-related reasons or a non-merger related reason; or promote any employee of Ruckus or any of its subsidiaries to a position that reports directly to the Chief Executive Officer of Ruckus;

 

  (n) knowingly waive, release, limit or condition any restrictive covenant obligation of any current or former employee or independent contractor of Ruckus or any of its subsidiaries, in each case that would reasonably be expected to have more than a de minimis adverse effect on Ruckus and its subsidiaries, taken as a whole;

 

  (o) change Ruckus’ methods of financial accounting, except as required by GAAP or in Regulation S-X of the Exchange Act (or any interpretation thereof), any governmental authority or applicable law;

 

  (p) make or change any material election with respect to taxes, amend any tax return that would have the effect of causing a material amount of taxes to be due in a taxable period (or portion thereof) following the consummation of the merger, agree or settle any claim or assessment in respect of a material amount of taxes, agree to an extension or waiver of the limitation period for any claim or assessment in respect of a material amount of taxes, enter into any closing agreement within the meaning of Section 7121 of the Code (or any similar provision of state, local, or non-U.S. law) with respect to a material amount of taxes or surrender any right to a material refund of taxes;

 

  (q) adopt or publicly propose a plan of complete or partial liquidation or resolutions providing for or authorizing such a liquidation or a dissolution, in each case, of Ruckus or any material subsidiary of Ruckus;

 

  (r) enter into any material interest rate swaps, foreign exchange or other similar hedging arrangements other than for purposes of offsetting a bona fide exposure (including counterparty risk);

 

  (s) fail to maintain, allow to lapse or abandon any owned intellectual property rights of Ruckus or any intellectual property rights that are exclusively licensed to Ruckus or any of its subsidiaries (other than to the extent permitted as described under (f) above);

 

  (t) settle, offer or propose to settle any proceeding involving or against Ruckus or any of its subsidiaries that requires payment by Ruckus or any of its subsidiaries in excess of $2.5 million or that would include any non-monetary relief that would have more than a de minimis adverse effect on Ruckus and its subsidiaries, taken as a whole, or commence any proceeding other than the commencement of any proceeding seeking damages of less than $2.5 million or relating to the transactions contemplated by the merger agreement; or

 

  (u) agree, resolve or commit to do any of the foregoing.

Restrictions on Brocade’s Operations

The merger agreement provides for certain restrictions on Brocade’s and its subsidiaries’ activities until the earlier of the effective time of the merger or the termination of the merger agreement. In general, Brocade is required to conduct its business in all material respects in the ordinary course consistent with past practice, and, to the extent consistent with the foregoing, use its commercially reasonable efforts to preserve intact its current business organization, maintain generally its business relationships with its customers, lenders, suppliers and others having significant business relationships with it and with governmental authorities with jurisdiction over Brocade’s or any of its subsidiaries’ operations, except as contemplated by the merger agreement, as set forth in confidential disclosure schedules, as consented to in writing by Brocade (which consent cannot be unreasonably withheld, conditioned or delayed) or as required by applicable law. In addition, unless contemplated by the

 

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merger agreement, as set forth in confidential disclosure schedules, as consented to in writing by Ruckus (which consent cannot to be unreasonably withheld, conditioned or delayed) or as required by applicable law, Brocade must not and must not permit any of its subsidiaries to:

 

    amend the certificate of incorporation or bylaws of Brocade in a manner that would have an adverse impact on the value of Brocade common stock or that would reasonably be expected to prevent, or impede or delay, the consummation of the transactions contemplated by the merger agreement;

 

    adopt or publicly propose a plan of complete or partial liquidation, restructuring, recapitalization or other reorganization, or resolutions providing for or authorizing such a liquidation, dissolution, restructuring, recapitalization or other reorganization of Brocade;

 

    acquire or sell (by merger, consolidation, acquisition of stock or assets or otherwise), directly or indirectly, any assets, securities or businesses or make investments in any other person, in each case that would reasonably be expected to prevent, or impede or delay, the consummation of the transactions contemplated by the merger agreement;

 

    authorize or pay any dividends on or make any distribution with respect to its outstanding shares, except regular quarterly cash dividends by Brocade at a rate not in excess of $0.045 per share of Brocade common stock, dividends and distributions paid or made on a pro rata basis by subsidiaries of Brocade or by a wholly owned subsidiary of Brocade to Brocade or another wholly owned subsidiary of Brocade;

 

    except for any Brocade shares issued, delivered, sold or authorized in connection with the transactions contemplated by the merger agreement, issue, deliver or sell, or authorize the issuance, delivery or sale of a number of Brocade securities in excess of 20% of the number of outstanding Brocade shares as of the date of the merger agreement (measured on an as-converted, as-exercised basis), other than the issuance of any shares of Brocade common stock upon the exercise of options or the settlement of Brocade restricted stock units that are outstanding on the date of the merger agreement or that are issued or granted after the date of the merger agreement under Brocade’s equity plans, or Brocade securities where such issuance, delivery or sale would impede or delay the consummation of the transactions contemplated by the merger agreement;

 

    adopt or publicly propose a plan of complete or partial liquidation or resolutions providing for or authorizing such a liquidation or a dissolution of Brocade;

 

    take any action (or omit to take any action) with the knowledge that such action (or omission) would reasonably be expected to result in a requirement to seek the approval by holders of Brocade common stock of the transactions contemplated by the merger agreement; or

 

    agree, resolve or commit to do any of the foregoing.

Access to Information

The merger agreement provides that Brocade and Ruckus will give the other party and its representatives reasonable access during normal business hours to all of its and its subsidiaries’ properties, books, contracts, commitments, records, officers and employees and, during such period upon reasonable request, will furnish promptly all other information concerning it, its subsidiaries and each of their respective businesses, properties and personnel; however, Ruckus’ access is limited to that which is reasonably necessary to confirm the accuracy of the representations and warranties of Brocade and the Offeror or the compliance by Brocade and the Offeror with their respective covenants set forth in the merger agreement. Brocade and Ruckus may restrict the foregoing access and the disclosure of information to the extent that, in their good faith judgment, is required under any applicable law, the information is subject to confidentiality obligations to a third party, disclosure of any such information could result in the loss of attorney-client privilege or such access would unreasonably disrupt their and their subsidiaries’ operations.

 

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Financing Cooperation

Brocade is required to use its reasonable best efforts to, as promptly as possible, obtain and consummate the debt financing on the terms and conditions set forth in the commitment letter with Wells Fargo Bank, National Association, Wells Fargo Securities, LLC, Deutsche Bank AG New York Branch, Deutsche Bank Securities Inc., SunTrust Bank and SunTrust Robinson Humphrey, Inc. (subject to modifications resulting from the “market flex” provisions in the related fee letter). Such efforts include Brocade using its reasonable best efforts to maintain in effect the commitment letter and comply with all obligations under the commitment letter, negotiate, enter into and deliver definitive agreements with respect to the debt financing and enforce its rights under the commitment letter. If funds in the amounts set forth in the commitment letter, or any portion thereof, become unavailable, Brocade must use its reasonable best efforts to obtain substitute financing as promptly as practicable (on terms and conditions that are not materially less favorable to Brocade, taken as a whole, than the terms and conditions as set forth in the commitment letter, taking into account any “market flex” provisions related thereto) sufficient to enable Brocade to consummate the transactions contemplated by the merger agreement. Ruckus has agreed to use its reasonable best efforts to provide Brocade customary cooperation, as reasonably requested by Brocade to assist Brocade in arranging the debt financing. Brocade has agreed, promptly upon the request of Ruckus, to reimburse Ruckus for all reasonable and documented out-of-pocket fees and expenses incurred by it, any of its subsidiaries or their representatives in connection with such cooperation and to indemnify and hold harmless Ruckus, its subsidiaries and their representatives for and against any losses and damages incurred as a result of, or in connection with, such cooperation for the debt financing.

Brocade’s obligation to consummate the offer and the merger is not conditioned on Brocade or the Offeror obtaining any financing.

Additional Agreements

Brocade and Ruckus are required to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, and assist and cooperate with the other in doing, all things necessary, proper or advisable under applicable law to consummate and make effective the transactions contemplated by the merger agreement as promptly as reasonably practicable, including preparing and filing as promptly as reasonably practicable all documentation to effect all necessary, proper or advisable filings, notices, petitions, statements, registrations, submissions of information, applications and other documents and obtaining and maintaining all approvals, consents, registrations, permits, authorizations and other confirmations required to be obtained that are necessary, proper or advisable to consummate and make effective the transactions contemplated by the merger agreement. Each of Ruckus and Brocade must use its reasonable best efforts to supply as promptly as practicable any additional information and documentary material that may be reasonably requested pursuant to such filings.

Notwithstanding the foregoing, Brocade is not obligated to do any of the following:

 

    propose or agree to accept any undertaking or condition;

 

    enter into any consent decree, to make any divestiture;

 

    accept any operational restriction; or

 

    take any other action that, in the reasonable judgment of Brocade, could be expected to limit the rights of Brocade with respect to any product lines or assets of Brocade or Ruckus.

Employee Matters

The merger agreement provides that for a period of twelve months following the effective time of the merger (referred to as the “continuation period”), Brocade will provide each employee of Ruckus or its subsidiaries employed immediately prior to the effective time of the merger and who remains employed during such period with (i) a base salary or base wage that is no less favorable than the base salary or base wage in effect for such

 

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employee immediately prior to the effective time of the merger, and (ii) retirement and health and welfare benefits that are no less favorable in the aggregate than those provided by Ruckus and its subsidiaries to continuing employees immediately prior to the effective time of the merger (for this purpose including Ruckus’ 401(k) plan that may be terminated in connection with the closing of the merger). During the continuation period, Brocade will also either (i) continue the agreements covering non-U.S. service providers on terms that are substantially comparable in all respects to the agreements as in effect immediately prior to the effective time of the merger, or (ii) to the extent that Brocade elects to hire any such non-U.S. service provider, Brocade shall provide each such non-U.S. service provider with base compensation, incentive opportunities and employee benefits that are substantially comparable to the base compensation, incentive opportunities and employee benefits provided to similarly situated employees of Brocade.

Each continuing employee and non-U.S. service provider will be given service credit for his or her years of service with Ruckus and its subsidiaries for purposes of vesting, benefit accrual, level of benefit and eligibility to participate under each applicable Brocade benefit plan, as if such service had been performed with Brocade (including, for purposes of determining vacation, other paid time off and severance benefits), except for benefit accrual under defined benefit pension plans, for purposes of qualifying for subsidized early retirement benefits or to the extent it would result in a duplication of benefits. At least ten business days prior to the closing of the merger, Ruckus will terminate its 401(k) plan, subject to the consummation of the offer and the merger, if Brocade directs Ruckus to do so.

At the effective time of the merger, the individuals who received participation notices in accordance with Ruckus’ Severance Benefit Plan (other than Ms. Lo and Mr. Hennessy) will remain eligible to receive such severance benefits described therein during the continuation period. The merger agreement also provides a method of determining the severance benefits, if any, for which continuing employees and non-U.S. service providers who are not participants in Ruckus’ Severance Benefit Plan will be eligible to receive.

Directors’ and Officers’ Indemnification

The merger agreement provides that from and after the acceptance time, subject to applicable law, all rights to indemnification of each former and present director or officer of Ruckus or any of its subsidiaries (each a “Ruckus indemnified party”) with respect to acts or omissions occurring at or prior to the effective time of the merger as provided in their respective certificates of incorporation or by-laws as in effect on the date of the merger agreement or in any agreement to which Ruckus or any of its subsidiaries is a party which is in effect on the date of the merger agreement and a copy of which has been provided to Brocade, will survive the merger and will continue in full force and effect in accordance with their terms. Brocade will cause the surviving corporation to honor all the terms of such indemnification. For a period of no less than six years after the effective time, Brocade, to the fullest extent permitted under applicable law, will cause to be maintained in effect the provisions in the organizational documents of the surviving corporation and each subsidiary of Ruckus regarding indemnification, exculpation and expense advancement in effect as of immediately prior to the effective time of the merger and during such six year period will not amend, repeal or otherwise modify any such provisions in any manner that would adversely affect the rights of any individual who immediately before the acceptance time was a Ruckus indemnified party, except as required by applicable law.

Brocade has also agreed to cause the surviving corporation to either (i) continue to maintain in effect for a period of no less than six years after the effective time, Ruckus’ directors’ and officers’ insurance policies in place as of the date of the merger agreement or (ii) purchase comparable directors’ and officers’ insurance (from a carrier with the same or better credit rating as Ruckus’ directors’ and officers’ insurance carrier) for such six-year period, in each case, with coverage for the persons who are covered by Ruckus’ existing directors’ and officers’ insurance, with terms, conditions, retentions and levels of coverage at least as favorable to the insured individuals as Ruckus’ existing policies with respect to matters existing or occurring prior to the effective time, except that the cost of such policies may not exceed 300% of the annual premium paid by Ruckus in its last full fiscal year (the “premium cap”), provided further, that if the amount necessary to procure such insurance coverage exceeds

 

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the premium cap, Ruckus may purchase the most advantageous policy available for an amount not to exceed the premium cap.

Alternatively, Ruckus may elect to purchase, prior to the effective time of the merger, a prepaid “tail policy” for a period of no more than six years after the effective time, subject to the premium cap described above.

In the event that either Brocade or the surviving corporation or any of its successors or assigns (i) consolidates with or merges into any other entity and is not the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties, rights and other assets to any entity, then, and in each such case, Brocade will cause the successors and assigns of Brocade or the surviving corporation, as the case may be, to succeed to or assume the applicable obligations with respect to indemnification and directors’ and officers’ insurance.

Termination of the Merger Agreement

Termination by Brocade or Ruckus

The merger agreement may be terminated at any time prior to the acceptance time:

 

    by mutual written consent of Brocade and Ruckus; or

 

    by either Brocade or Ruckus, if:

 

    the acceptance time does not occur on or before 11:59 p.m. New York City time on the outside date (the later of August 3, 2016, or, if on such date the regulatory approvals condition has not been satisfied but all other conditions to the offer have been satisfied or waived in accordance with the merger agreement, then upon notice by Brocade or Ruckus to the other in writing, October 3, 2016); provided that neither Brocade nor Ruckus, respectively, may terminate the merger agreement under this right if such party’s breach of any of its obligations under the merger agreement proximately caused the failure of the acceptance time to occur before the outside date;

 

    a governmental authority of competent jurisdiction having jurisdiction over a material portion of the business of Ruckus, Brocade or the Offeror (or the effect of which would have a material effect on Ruckus, Brocade or the Offeror) issued an order that has become final and non-appealable permanently prohibiting the offer, the merger or the issuance of Brocade common stock in connection with the offer or the merger; however, neither Brocade nor Ruckus, respectively, may terminate the merger agreement under this right if such party’s breach of its obligations under the merger agreement proximately caused such order to have been issued; or

 

    the offer (as the same may be extended in accordance with the terms of the merger agreement) has expired or been terminated in accordance with the terms of the merger agreement without the minimum tender condition having been satisfied; however, neither Brocade nor Ruckus, respectively, may terminate the merger agreement under this right if such party’s breach of any of its obligations under the merger agreement proximately caused the failure to satisfy the minimum tender condition.

Termination by Brocade

The merger agreement may be terminated at any time before the acceptance time by Brocade if:

 

    a triggering event (as described below) occurs; or

 

   

Ruckus breached or failed to perform any of its representations or warranties or covenants or agreements set forth in the merger agreement, which breach or failure to perform would give rise to the failure of the condition to the offer related to the accuracy of Ruckus’ representation and warranties or compliance with Ruckus’ covenants, and such breach or failure to perform is incapable of being cured

 

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by Ruckus by the outside date, or, if capable of being cured by the outside date, has not been cured by the outside date (following receipt from Brocade of written notice of such breach or failure to perform); however, if such breach or failure to perform is capable of being cured by Ruckus by the outside date and Ruckus ceases using reasonable best efforts to cure such breach or failure to perform following written notice from Brocade, then Brocade may terminate the merger agreement under this right, but Brocade may not terminate the merger agreement under this right if Brocade or the Offeror is in breach of any of their respective representations, warranties, covenants or agreements under the merger agreement such that Ruckus has the right to terminate the merger agreement as described in the first bullet point below under “—Termination of the Merger Agreement—Termination by Ruckus.”

A “triggering event” for purposes of the merger agreement is the occurrence of any of the following:

 

    a change of recommendation (as described under “—Change of Recommendation”);

 

    entry by Ruckus or any of its subsidiaries into an agreement or contract relating to an acquisition proposal (other than an acceptable confidentiality agreement, as discussed above under “—No Solicitation of Other Offers by Ruckus”);

 

    after public announcement of any acquisition proposal, the Ruckus board of directors or one of its committees fails to issue a press release that expressly reaffirms, without qualification, its recommendation that Ruckus stockholders accept the offer and tender their shares of Ruckus common stock to the Offeror pursuant to the offer, within four business days following Brocade’s written request to do so; or

 

    after the commencement of any acquisition proposal that is a tender offer or exchange offer relating to the securities of Ruckus, the Ruckus board of directors is publicly neutral or fails to send to Ruckus stockholders a statement rejecting and recommending against any such tender offer or exchange offer, within ten business days of commencement of such tender offer or exchange offer.

Termination by Ruckus

The merger agreement may be terminated at any time before the acceptance time by Ruckus if:

 

    Brocade or the Offeror breached or failed to perform any of their respective representations or warranties or covenants or agreements set forth in the merger agreement, which breach or failure to perform would give rise to the failure of the condition to the offer related to the accuracy of Brocade’s and the Offeror’s representation and warranties or compliance with Brocade’s and the Offeror’s covenants, and such breach or failure to perform is incapable of being cured by Brocade and the Offeror by the outside date, or, if capable of being cured by the outside date, has not been cured by the outside date (following receipt from Ruckus of written notice of such breach or failure to perform); however, if such breach or failure to perform is capable of being cured by Brocade by the outside date and Brocade ceases using reasonable best efforts to cure such breach or failure to perform following written notice from Ruckus, then Ruckus may terminate the merger agreement under this right, but Ruckus may not terminate the merger agreement under this right if Ruckus is in breach of any of its representations, warranties, covenants or agreements under the merger agreement such that Brocade has the right to terminate the merger agreement as described in the second bullet above under “—Termination by Brocade”; or

 

    the Ruckus board of directors authorizes Ruckus to enter into an agreement with respect to a superior proposal that did not result from a breach of Ruckus’ non-solicit obligations under the merger agreement and Ruckus did not breach its notification and negotiation obligations with respect to such superior proposal under the merger agreement and Ruckus enters into such definitive agreement substantially concurrently with the termination of the merger agreement; however, Ruckus must pay Brocade the fee described under “—Termination Fees and Expenses—Termination Fee” prior to or concurrently with the termination of the merger agreement under this right.

 

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Termination Fee and Expenses

Expenses

All fees and expenses incurred in connection with the filings under applicable competitions laws (other than Ruckus’ attorneys’ fees) and all filing fees and printing and mailing costs for the registration statement on Form S-4, of which this document is a part, will be paid by Brocade. All other costs and expenses incurred in connection with the merger agreement will be paid by the party incurring such cost or expense.

Termination Fee

The merger agreement provides that Ruckus will pay Brocade a termination fee of $50 million if:

 

    Brocade terminates the merger agreement because of a triggering event (other than a change of recommendation relating to an intervening event consisting of any event, condition, fact, occurrence, change or development that has had or would reasonably be expected to have an adverse effect on Brocade and its subsidiaries taken as a whole);

 

    Ruckus terminates the merger agreement in order to enter into an agreement providing for a superior proposal;

 

    (i) either (A) Brocade or Ruckus terminates the merger agreement due to the failure of the acceptance time to occur on or before the outside date, or (B) Brocade terminates the merger agreement as a result of a willful breach by Ruckus of its representations, warranties or covenants under the merger agreement, (ii) an acquisition proposal has been made to the board of directors of Ruckus after the date of the merger agreement and not withdrawn, and (iii) within twelve months of such termination, a definitive agreement with respect to an acquisition proposal is entered into or consummated (for this purpose, with all references to “15%” in the description of “acquisition proposal” above being replaced with “50%”); however, in the case of a termination by Ruckus due to the failure of the acceptance time to occur on or before the outside date at a time when Brocade would not be permitted to terminate the merger agreement under such right, the acquisition proposal must be consummated in order for the termination fee to be payable; or

 

    (i) Brocade or Ruckus terminates the merger agreement as a result of failing to meet the minimum tender condition, (ii) an acquisition proposal has been publicly announced after the date of the merger agreement and not withdrawn prior to the expiration of the offer, and (iii) within twelve months of such termination, Ruckus enters into an agreement with respect to an acquisition proposal (for this purpose, with all references to “15%” in the description of “acquisition proposal” above being replaced with “50%”).

Other than with respect to claims for fraud or willful breach by Ruckus, in the event that the merger agreement is terminated under circumstances where the termination fee is payable, the payment of the termination fee will be the sole and exclusive remedy of Brocade, its subsidiaries, stockholders, affiliates, officers, directors, employees and representatives against Ruckus or any of its representatives, affiliates, officers, directors or employees.

Effect of Termination

In the event of termination of the merger agreement, the merger agreement will become void and have no effect, without any liability or obligation on the part of any party thereto (or any stockholder, director, officer, employee, agent, consultant or representative of such party), other than with respect to the confidentiality agreement between Brocade and Ruckus, certain reimbursements to Ruckus with respect to its cooperation with Brocade in seeking to obtain the debt financing and provisions relating to the termination fee and effect of termination, and certain miscellaneous provisions of the merger agreement; however, no party will be relieved from liability for any fraud or willful breach of the merger agreement.

 

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Enforcement

Prior to the valid termination of the merger agreement, each party to the merger agreement will be entitled to an injunction or injunctions to prevent breaches or threatened breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement, this being in addition to any other remedy to which they are entitled at law or in equity.

 

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SUPPORT AGREEMENT

This section describes the material terms of the support agreement. The description in this section and elsewhere in this document is qualified in its entirety by reference to the complete text of the support agreement, a copy of which is attached hereto as Annex B and is incorporated by reference into this document. The legal rights and obligations of the parties to the support agreement are governed by the specific language of the support agreement and not this document. This summary does not purport to be complete and may not contain all of the information about the support agreement that is important to you. We encourage you to read the support agreement carefully and in its entirety.

Concurrently with the execution of the merger agreement, Selina Lo, President and Chief Executive Officer and a director of Ruckus, entered into a support agreement with Brocade and the Offeror covering all of the Ruckus shares beneficially owned by her. Pursuant to the terms of the support agreement, Ms. Lo has, in her capacity as a Ruckus stockholder, agreed, among other things:

 

    to cause all such Ruckus shares beneficially owned by her to be tendered into the offer promptly (and, in any event, not later than the tenth business day) after commencement of the offer (except that the support agreement does not require Ms. Lo to convert, exercise or exchange any securities convertible into or exercisable or exchangeable for shares of Ruckus common stock and only outstanding shares of Ruckus common stock beneficially owned by her are required to be tendered into the offer);

 

    not to withdraw any of such shares from the offer unless and until the support agreement is terminated in accordance with its terms;

 

    to certain restrictions on the encumbering or disposing of any such Ruckus shares prior to the termination of the support agreement; and

 

    to certain restrictions with respect to the solicitation of acquisition proposals in her capacity as a stockholder of Ruckus.

The support agreement terminates automatically upon the earliest to occur of the following: (a) termination of the merger agreement in accordance with its terms, (b) the consummation of the merger, (c) the termination or withdrawal of the offer, (d) any modification, change or amendment of, or any waiver of Ruckus’ rights under or conditions set forth in, the merger agreement or the offer, without the prior written consent of Ms. Lo, that results in any decrease in the amount of the transaction consideration and (e) the date on which Brocade, Offeror and Ms. Lo mutually agree to terminate the support agreement.

The shares subject to the support agreement represent approximately 2.3% of the Ruckus shares outstanding as of April 20, 2016.

 

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COMPARATIVE MARKET PRICE AND DIVIDEND MATTERS

Market Price History

Brocade common stock is listed on the NASDAQ under the symbol “BRCD,” and Ruckus common stock is listed on the NYSE under the symbol “RKUS.” The following table sets forth, for the periods indicated, as reported by the NASDAQ or the NYSE, as applicable, the per share high and low sales prices of each company’s common stock.