10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended July 28, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                      to                     

Commission file number: 000-25601

BROCADE COMMUNICATIONS SYSTEMS, INC.

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization) 77-0409517
(I.R.S. employer identification no.)

1745 Technology Drive
San Jose, CA 95110
(408) 333-8000
(Address, including zip code, of Registrant’s
principal executive offices and telephone
number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ      No o 

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

Large accelerated filer þ      Accelerated filer o      Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o      No þ 

The number of shares outstanding of the Registrant’s Common Stock on August 28, 2007 was 389,774,362 shares.

BROCADE COMMUNICATIONS SYSTEMS, INC.

FORM 10-Q

QUARTER ENDED July 28, 2007

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements		4
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended July 28, 2007 and July 29, 2006		4
	Condensed Consolidated Balance Sheets as of July 28, 2007 and October 28, 2006		5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended July 28, 2007 and July 29, 2006		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		43
Item 4.	Controls and Procedures		43
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		44
Item 1A.	Risk Factors		46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		59
Item 6.	Exhibits		60
SIGNATURES			61
EXHIBIT 3.1
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

2

Forward-Looking Statements

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

3

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

BROCADE COMMUNICATIONS SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

	Three months ended						Nine months ended
	July 28,			July 29,			July 28,			July 29,
	2007			2006			2007			2006
Net revenues
Product	$	282,855		$	174,209		$	790,509		$	500,177
Service		44,600			14,738			106,370			41,594
Total revenue		327,455			188,947			896,879			541,771
Cost of revenues
Product		131,862			67,220			345,153			198,208
Service		29,805			9,813			73,724			25,804
Total cost of revenue		161,667			77,033			418,877			224,012
Gross margin		165,788			111,914			478,002			317,759
Operating expenses:
Research and development		54,085			42,534			154,780			121,416
Sales and marketing		57,200			35,501			155,150			100,682
General and administrative		12,536			8,426			33,511			23,523
Legal fees associated with indemnification obligations, defense, and other related costs		17,984			2,990			38,446			10,179
Acquisition and integration costs		4,055			—			19,051			585
Provision for SEC settlement		—			—			—			7,000
Amortization of intangible assets		7,924			888			16,810			1,406
Facilities lease losses		—			—			—			3,775
Total operating expenses		153,784			90,339			417,748			268,566
Income from operations		12,004			21,575			60,254			49,193
Interest and other income, net		10,913			8,133			29,157			22,391
Gain on investments		1,240			2,685			1,240			2,663
Interest expense		(2,683	)		(1,863	)		(4,741	)		(5,478	)
Income before provision for income taxes		21,474			30,530			85,910			68,769
Income tax provision		10,784			6,032			41,058			21,098
Net income	$	10,690		$	24,498		$	44,852		$	47,671
Net income per share — Basic	$	0.03		$	0.09		$	0.13		$	0.18
Net income per share — Diluted	$	0.03		$	0.09		$	0.12		$	0.17
Shares used in per share calculation — Basic		392,450			269,417			353,627			269,794
Shares used in per share calculation — Diluted		407,113			273,959			368,080			273,484

See accompanying notes to condensed consolidated financial statements.

4

BROCADE COMMUNICATIONS SYSTEMS, INC.

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

	July 28,			October 28,
	2007			2006
Assets
Current assets:
Cash and cash equivalents	$	374,408		$	274,368
Short-term investments		313,902			267,694
Total cash, cash equivalents and short-term investments		688,310			542,062
Accounts receivable, net of allowances of $7,091 and $4,842 at July 28, 2007 and October 28, 2006, respectively		162,524			98,394
Inventories		21,770			8,968
Prepaid expenses and other current assets		43,511			43,365
Total current assets		916,115			692,789
Long-term investments		117,865			40,492
Property and equipment, net		200,978			104,299
Goodwill		434,489			41,013
Intangible assets, net		292,724			15,465
Other assets		26,146			6,660
Total assets	$	1,988,317		$	900,718
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	131,250		$	56,741
Accrued employee compensation		76,456			62,842
Deferred revenue		86,442			52,051
Current liabilities associated with lease losses		15,629			4,931
Purchase commitments		43,240			6,104
Income tax payable		56,594			39,076
Other accrued liabilities		59,485			42,811
Total current liabilities		469,096			264,556
Non-current liabilities associated with lease losses		21,802			11,105
Non-current deferred revenue		42,374			8,827
Convertible subordinated debt		166,957			—
Other non-current liabilities		1,533			—
Total liabilities		701,762			284,488
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.001 par value 5,000 shares authorized, no shares outstanding		—			—
Common stock, $0.001 par value, 800,000 shares authorized:
Issued and outstanding: 392,261 and 272,141 shares at July 28, 2007 and October 28, 2006, respectively		392			272
Additional paid-in capital		1,499,931			888,978
Accumulated other comprehensive income/(loss)		13,583			(817	)
Accumulated deficit		(227,351	)		(272,203	)
Total stockholders’ equity		1,286,555			616,230
Total liabilities and stockholders’ equity	$	1,988,317		$	900,718

See accompanying notes to condensed consolidated financial statements.

5

BROCADE COMMUNICATIONS SYSTEMS, INC.

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

	Nine Months Ended
	July 28,			July 29,
	2007			2006
Cash flows from operating activities:
Net income	$	44,852		$	47,671
Adjustments to reconcile net income to net cash provided by operating activities:
Excess tax benefit from employee stock plans		(9,120	)		(8,810	)
Depreciation and amortization		69,560			27,073
Loss on disposal of property and equipment		812			308
Amortization of debt issuance costs		—			1,297
Equity based compensation expense		24,443			23,366
Net (gains) losses on investments and marketable equity securities		—			(2,663	)
Provision for doubtful accounts receivable and sales allowance		3,115			1,558
Provision for SEC settlement		—			7,000
Non-cash facilities lease loss expense		—			3,775
Changes in operating assets and liabilities:
Accounts receivable		41,354			(10,045	)
Inventories		51			1,871
Prepaid expenses and other assets		(2,077	)		(13,308	)
Accounts payable		32,515			12,124
Accrued employee compensation		(37,701	)		8,396
Deferred revenue		15,101			11,798
Other accrued liabilities		(61,522	)		6,193
Liabilities associated with lease losses		(5,519	)		(3,586	)
Net cash provided by operating activities		115,864			114,018
Cash flows from investing activities:
Purchases of property and equipment		(41,526	)		(22,950	)
Purchases of short-term investments		(397,863	)		(259,263	)
Proceeds from maturities and sale of short-term investments		588,159			245,455
Purchases of long-term investments		(152,602	)		(13,252	)
Proceeds from maturities and sale of long-term investments		10,862			—
Proceeds from sales of property and equipment		1,336			—
Purchases of restricted short-term investments		—			(2,216	)
Proceeds from maturities of restricted short-term investments		—			2,859
Purchases of non-marketable investments		(5,000	)		(4,575	)
Proceeds from sale of marketable equity securities and equity investments		—			10,185
Decrease in restricted cash		12,422			—
Cash acquired in connection with merger with McDATA		147,407			—
Cash paid in connection with acquisitions, net of cash acquired		(7,704	)		(59,887	)
Net cash provided by (used in) investing activities		155,491			(103,644	)
Cash flows from financing activities:
Excess tax benefit from employee stock plans		9,120			8,810
Payments on capital lease obligations		(712	)		—
Common stock repurchases		(140,883	)		(40,206	)
Termination of interest rate swap		(4,989	)		—
Redemption of outstanding convertible debt		(124,185	)		—
Proceeds from issuance of common stock, net		90,670			23,328
Net cash provided by(used in) financing activities		(170,979	)		(8,068	)
Effect of exchange rate fluctuations on cash and cash equivalents		(336	)		177
Net increase (decrease) in cash and cash equivalents		100,040			2,483
Cash and cash equivalents, beginning of period		274,368			182,001
Cash and cash equivalents, end of period	$	374,408		$	184,484

See accompanying notes to condensed consolidated financial statements.

6

BROCADE COMMUNICATIONS SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Operations of Brocade

     Brocade Communications Systems, Inc. (“Brocade” or the “Company”) develops, markets, sells, and supports data storage networking products and services, offering a line of storage networking products that enable companies to implement and manage highly available, scalable, and secure environments for data storage networks. The Brocade family of storage area networking (“SAN”) products is designed to help companies reduce the cost and complexity of managing business information within a data storage environment, ensure high availability of mission critical applications and serve as a platform for corporate data backup and disaster recovery. In addition, the Brocade family of application infrastructure solutions extends the ability to proactively manage and optimize application and information resources across the enterprise. Brocade products are installed around the world at companies, institutions, and other entities ranging from large enterprises to small and medium size businesses. Brocade products and services are marketed, sold, and supported worldwide to end-user customers primarily through distribution partners, including original equipment manufacturers (“OEMs”), distributors, systems integrators, and value-added resellers.

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

     Brocade(R), the Brocade B-wing logo(TM), Fabric OS(R), File Lifecycle Manager(R), My View(R), Secure Fabric OS(R), and StorageX(R) are registered trademarks of Brocade Communications Systems, Inc., in the United States and/or in other countries. All other brands, products, or service names identified are or may be trademarks or service marks of, and are used to identify, products or services of their respective owners.

2. Summary of Significant Accounting Policies

Basis of Presentation

     The accompanying financial data as of July 28, 2007, and for the three and nine months ended July 28, 2007 and July 29, 2006, has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The October 28, 2006 Condensed Consolidated Balance Sheet was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 28, 2006.

     In the opinion of management, all adjustments (which include only normal recurring adjustments, except as otherwise indicated) necessary to present a fair statement of financial position as of July 28, 2007, results of operations for the three and nine months ended July 28, 2007 and July 29, 2006, and cash flows for the three and nine months ended July 28, 2007 and July 29, 2006 have been made. The results of operations for the three and nine months ended July 28, 2007 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Fiscal Year

     The Company’s fiscal year is the 52 or 53 weeks ending on the last Saturday in October. As is customary for companies that use the 52/53-week convention, every fifth year contains a 53-week year. Both fiscal years 2007 and 2006 are 52-week fiscal years.

Reclassifications

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

7

Cash and Cash Equivalents

     The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents.

Investments and Equity Securities

     Investment securities with original or remaining maturities of more than three months but less than one year are considered short-term investments. Investment securities with original or remaining maturities of one year or more are considered long-term investments. Short-term and long-term investments consist of auction rate securities, debt securities issued by United States government agencies, municipal government obligations, and corporate bonds and notes.

     Short-term and long-term investments are maintained at five major financial institutions, are classified as available-for-sale, and are recorded on the accompanying Condensed Consolidated Balance Sheets at fair value. Fair value is determined using quoted market prices for those securities. Unrealized holding gains and losses are included as a separate component of accumulated other comprehensive income on the accompanying Condensed Consolidated Balance Sheets, net of any related tax effect. Realized gains and losses are calculated based on the specific identification method and are included in interest and other income, net, on the Condensed Consolidated Statements of Operations.

     The Company recognizes an impairment charge when the declines in the fair values of its investments below the cost basis are judged to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the length of time and extent to which the fair value has been less than the Company’s cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

     Equity securities consist of equity holdings in public companies and are classified as available-for-sale when there are no restrictions on the Company’s ability to immediately liquidate such securities. Marketable equity securities are recorded on the accompanying Condensed Consolidated Balance Sheets at fair value. Fair value is determined using quoted market prices for those securities. Unrealized holding gains and losses are included as a separate component of accumulated other comprehensive income on the accompanying Condensed Consolidated Balance Sheets, net of any related tax effect. Realized gains and losses are calculated based on the specific identification method and are included in interest and other income, net on the Condensed Consolidated Statements of Operations.

     From time to time the Company makes equity investments in non-publicly traded companies. These investments are included in other assets on the accompanying Condensed Consolidated Balance Sheets, and are generally accounted for under the cost method as the Company does not have the ability to exercise significant influence over the respective company’s operating and financial policies nor does it have a liquidation preference that is substantive. The Company monitors its investments for impairment on a quarterly basis and makes appropriate reductions in carrying values when such impairments are determined to be other-than-temporary. Impairment charges are included in interest and other income, net on the Condensed Consolidated Statements of Operations. Factors used in determining an impairment include, but are not limited to, the current business environment including competition and uncertainty of financial condition; going concern considerations such as the rate at which the investee company utilizes cash, and the investee company’s ability to obtain additional private financing to fulfill its stated business plan; the need for changes to the investee company’s existing business model due to changing business environments and its ability to successfully implement necessary changes; and comparable valuations. If an investment is determined to be impaired, a determination is made as to whether such impairment is other-than-temporary. As of July 28, 2007 and October 28, 2006, the carrying values of the Company’s equity investments in non-publicly traded companies were $5.8 million and $0.8 million, respectively.

     On February 13, 2007, one of the non-publicly traded entities that the Company has an equity investment in, completed its initial public offering (“IPO”). Subject to the agreement, there is a lockup period not to exceed 180 days following the effective date of the registration statement filed under the Securities Act of 1933, as amended (the “Securities Act”), during which the Company cannot sell or otherwise transfer any securities. As of July 28, 2007, the Company has an investment of 735,293 converted shares of stock at a fair value price of $17.83, for a total carrying value of $13.1 million. The carrying value of the securities is included in short term investments, and the unrealized gain related to this investment is included in accumulated other comprehensive income.

8

Goodwill and Other Intangible Assets

     The Company accounts for goodwill in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 142 requires that goodwill be capitalized at cost and tested annually for impairment. The Company evaluates goodwill on an annual basis during its second fiscal quarter, or whenever events and changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s implied fair value. Events which might indicate impairment include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of economic environment on the Company’s customer base, material negative changes in relationships with significant customers, and/or a significant decline in the Company’s stock price for a sustained period.

     For purposes of SFAS 142, the goodwill test for impairment is conducted at the reporting unit level. To determine the reporting unit’s fair value, the Company utilizes the income valuation approach as well as the market valuation approach in the current year valuation. The income approach provides an estimation of the fair value of the Company based on the cash flows that the Company can be expected to generate over its remaining life. The market approach provides an estimate of the fair value of the Company by comparing it to publicly traded companies in similar lines of business. No goodwill impairment was recorded for the periods presented.

     Intangible assets other than goodwill are amortized over their estimated useful lives, unless these lives are determined to be indefinite. Intangible assets are carried at cost less accumulated amortization. Amortization is recognized over the estimated useful life of the respective asset. Intangible assets are reviewed for impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). The Company performs impairment test for long-lived assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Examples of such events or circumstances include significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of acquired assets or the strategy for its business, significant negative industry or economic trends, and/or a significant decline in the Company’s stock price for a sustained period. Impairments are recognized based on the difference between the fair value of the asset and its carrying value, and fair value is generally measured based on discounted cash flow analyses. No intangible asset impairment was recorded for the periods presented.

Concentrations

     Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term and long-term investments, and accounts receivable. Cash, cash equivalents, and short-term and long-term investments are primarily maintained at five major financial institutions in the United States. Deposits held with banks may be redeemed upon demand and may exceed the amount of insurance provided on such deposits. The Company principally invests in United States government debt securities, United States government agency debt securities and corporate bonds and notes, and limits the amount of credit exposure to any one entity.

     A majority of the Company’s trade receivable balance is derived from sales to OEM partners in the computer storage and server industry. As of July 28, 2007, three customers accounted for 20 percent, 15 percent, and 13 percent respectively, of total accounts receivable. As of October 28, 2006, three customers accounted for 44 percent, 21 percent, and 8 percent, respectively, of total accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable balances. The Company has established reserves for credit losses, sales returns, and other allowances. While the Company has not experienced material credit losses in any of the periods presented, there can be no assurance that the Company will not experience material credit losses in the future.

     For the three months ended July 28, 2007 and July 29, 2006, three customers each represented ten percent or more of the Company’s total revenues for combined totals of 64 percent and 74 percent of total revenues, respectively. For the nine months ended July 28, 2007 and July 29, 2006, three customers each represented ten percent or more of the Company’s total revenues for combined totals of 67 percent and 72 percent of total revenues, respectively. The level of sales to any one of these customers may vary, and the loss of, or a decrease in the level of sales to, any one of these customers could seriously harm the Company’s financial condition and results of operations.

     The Company currently relies on single and limited supply sources for several key components used in the manufacture of its products. Additionally, the Company relies on one contract manufacturer for a significant portion of the production of its products. The inability of any single and limited source suppliers or the inability of a contract manufacturer to fulfill supply and production requirements, respectively, could have a material adverse effect on the Company’s future operating results.

9

     The Company’s business is concentrated in the SAN industry, which from time to time has been impacted by unfavorable economic conditions and reduced information technology (“IT”) spending rates. Accordingly, the Company’s future success depends upon the buying patterns of customers in the SAN industry, their response to current and future IT investment trends, and the continued demand by such customers for the Company’s products. The Company’s future success, in part, will depend upon its ability to enhance its existing products and to develop and introduce, on a timely basis, new cost-effective products and features that keep pace with technological developments and emerging industry standards.

Revenue Recognition

     Product revenue. Product revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is probable. However, for newly introduced products, many of the Company’s large OEM customers require a product qualification period during which the Company’s products are tested and approved by the OEM customer for sale to its customers. Revenue recognition, and related cost, is deferred for shipments to new OEM customers and for shipments of newly introduced products to existing OEM customers until satisfactory evidence of completion of the product qualification has been received from the OEM customer. Revenue from sales to the Company’s master reseller customers is recognized in the same period in which the product is actually sold by the master reseller (sell-through).

     The Company reduces revenue for estimated sales returns, sales programs, and other allowances at the time of shipment. Sales returns, sales programs, and other allowances are estimated based upon historical experience, current trends, and the Company’s expectations regarding future experience. In addition, the Company maintains allowances for doubtful accounts, which are also accounted for as a reduction in revenue. The allowance for doubtful accounts is estimated based upon analysis of accounts receivable, historical collection patterns, customer concentrations, customer creditworthiness, current economic trends, and changes in customer payment terms and practices.

     Service revenue. Service revenue consists of training and maintenance arrangements, including post-contract customer support (“PCS”) services. PCS services are offered under renewable, annual fee-based contracts or as part of multiple element arrangements and typically include upgrades and enhancements to the Company’s software operating system, and telephone support. Service revenue, including revenue allocated to PCS elements, is deferred and recognized ratably over the contractual period. Service contracts are typically one to three years in length. Training revenue is recognized upon completion of the training.

     Multiple-element arrangements. The Company’s multiple-element product offerings include computer hardware and software products, and support services. The Company also sells certain software products and support services separately. The Company’s software products are essential to the functionality of its hardware products and are, therefore, accounted for in accordance with Statement of Position 97-2, Software Revenue Recognition (“SOP 97-2”), as amended. The Company allocates revenue to each element in a multiple element arrangement based upon vendor-specific objective evidence (“VSOE”) of the fair value of the element or, if VSOE is not available for the delivered element, by application of the residual method. In the application of the residual method, the Company allocates revenue to the undelivered elements based on VSOE for those elements and allocate the residual revenue to the delivered elements. VSOE of the fair value for an element is based upon the price charged when the element is sold separately. Revenue allocated to each element is then recognized when the basic revenue recognition criteria are met for each element.

10

Warranty Expense

     The Company provides warranties on its products ranging from one to three years. Estimated future warranty costs are accrued based upon historical experience at the time of shipment and charged to cost of revenues.

Foreign Currency

     The financial statements of the Company’s international subsidiaries have been translated into U.S. dollars. Assets and liabilities are translated into U.S. dollars at period-end exchange rates. Income and expenses are translated at the average exchange rates during the period. The resulting translation adjustments are included in the Company’s Condensed Consolidated Balance Sheet in the stockholders’ equity section as a component of accumulated other comprehensive loss.

     The Company is exposed to market risks related to fluctuations in foreign exchange rates because some sales transactions, and the assets and liabilities of its foreign subsidiaries, are denominated in foreign currencies. The Company uses forward exchange contracts to address the risk of certain currency fluctuations. See Note 8, Derivative Accounting Policies. For amounts not associated with forward contracts, gains and losses from transactions denominated in foreign currencies are included in the Company’s net income (loss) as part of interest and other income in the accompanying Condensed Consolidated Statements of Operations. The Company recognized foreign currency transaction gains and (losses) for the three and nine months ended July 28, 2007, of $0.4 million and $0.8 million, respectively.

Stock-Based Compensation

     Effective October 30, 2005, the Company began recording compensation expense associated with stock-based awards and other forms of equity compensation in accordance with Statement of Financial Accounting Standards No. 123-R, Share-Based Payment, (“SFAS 123R”) as interpreted by SEC Staff Accounting Bulletin No. 107. The Company adopted the modified prospective transition method provided for under SFAS 123R. Under this transition method, compensation cost associated with stock-based awards recognized beginning in the first quarter of fiscal year 2006 includes 1) quarterly amortization related to the remaining unvested portion of stock-based awards granted prior to October 30, 2005, based on the grant date fair value estimated in accordance with the original provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (“SFAS 123”); and 2) quarterly amortization related to stock-based awards, stock options and restricted stock, granted subsequent to October 30, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. In addition, the Company records expense over the offering period and vesting term in connection with shares issued under its employee stock purchase plan. The compensation expense for stock-based awards includes an estimate for forfeitures and is recognized over the expected term of the award under an accelerated vesting method.

     Prior to October 30, 2005, the Company accounted for stock-based awards using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), whereby the difference between the exercise price and the fair market value on the date of grant is recognized as compensation expense. Under the intrinsic value method of accounting, no compensation expense was recognized in the Company’s Condensed Consolidated Statements of Operations when the exercise price of the Company’s employee stock option grant equals the market price of the underlying common stock on the date of grant, and the measurement date of the option grant is certain. The measurement date is certain when the date of grant is fixed and determinable. Prior to October 30, 2005, when the measurement date was not certain, the Company recorded stock-based compensation expense using variable accounting under APB 25. From May 1999 through July 2003, the Company granted 98.8 million options that were subject to variable accounting under APB 25 because the measurement date of the options granted was not certain. Effective October 30, 2005, if the measurement date is not certain, the Company records stock-based compensation expense under SFAS 123R.

     On November 10, 2005, the Financial Accounting Standards Board issued FASB Staff Position No. FAS 123R-3, Transition Election Related to Accounting for tax Effects of Share-Based Payment Awards (“FAS 123R-3”). The Company has elected to adopt the alternative transition method provided in the FASB Staff Position for calculating the tax effects of equity-based compensation pursuant to SFAS 123R. The alternative transition method includes simplified methods to establish the beginning balance of the Additional Paid-In Capital Pool (“APIC Pool”) related to the tax effects of employee equity-based compensation, and to determine the subsequent impact on the APIC Pool and Condensed Consolidated Statement of Cash Flows of the tax effects of employee equity-based compensation awards that were outstanding upon the implementation of SFAS 123R.

Employee Stock Plans

     The Company has several stock-based compensation plans that are described in the Company’s Annual Report on Form 10-K for the fiscal year ended October 28, 2006, as well as several stock-based compensation plans assumed in connection with the acquisition of McDATA Corporation and filed on Form S-8 with the Securities and Exchange Commission on January 30, 2007 (collectively, the “Plans”).

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The Company, under the various equity plans, grants stock options for shares of the Company’s common stock to its employees and directors. The Company also grants restricted stock and restricted stock units under the Plans. In accordance with the Plans, incentive stock options may not be granted at less than 100 percent of the estimated fair market value of the common stock, and incentive stock options granted to a person owning more than 10 percent of the combined voting power of all classes of stock of the Company must be issued at 110 percent of the fair market value of the stock on the date of grant. Nonstatutory stock options may be granted at any price. Under the Plans, options or restricted stock typically have a maximum term of seven or ten years. The majority of options granted under the Plans vest over a period of four years. Certain options granted under the Plans vest over shorter or longer periods. At July 28, 2007, an aggregate of 160.8 million shares were authorized for future issuance under the Plans, which includes stock options, shares issued pursuant to the Employee Stock Purchase Plan, and restricted stock units and other awards. A total of 113.1 million shares of common stock were available for grant under the Plans as of July 28, 2007. Awards that expire, or are cancelled without delivery of shares, generally become available for issuance under the Plans.

Stock Options

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

	Three Months Ended						Nine Months Ended
	July 28,			July 29,			July 28,			July 29,
Stock Options	2007			2006			2007			2006
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free interest rate		5.0 — 5.1	%		5.1 — 5.2	%		4.5 — 5.3	%		4.5 — 5.2	%
Expected volatility		43.9	%		47.4	%		46.5	%		48.7	%
Expected term (in years)		4.0			3.2			3.8			3.3

     The Company recorded $5.4 million and $4.2 million of compensation expense relative to stock options for the quarters ended July 28, 2007 and July 29, 2006, respectively, in accordance with SFAS 123R. The Company recorded $24.4 million and $12.1 million of compensation expense relative to stock options for the nine months ended July 28, 2007 and July 29, 2006, respectively, in accordance with SFAS 123R. A summary of stock option activity under the Plans for the nine months ended July 28, 2007 and July 29, 2006 is presented as follows:

						Weighted Average
						Remaining
	Shares			Weighted Average		Contractual Term		Aggregate Intrinsic
	(in thousands)			Exercise Price		(Years)		Value ($000)
Outstanding, October 28, 2006		39,954		$	6.35
Granted		2,180		$	9.14
Exercised		(4,249	)	$	5.58
Forfeited or Expired		(546	)	$	5.28
Outstanding, January 27, 2007		37,339		$	6.62
Assumed upon McDATA acquisition		15,632		$	11.12
Granted		4,314		$	9.08
Exercised		(8,044	)	$	9.36
Forfeited or Expired		(2,683	)	$	12.71
Outstanding, April 28, 2007		46,558		$	7.53
Granted		1,563		$	8.73
Exercised		(1,036	)	$	5.43
Forfeited or Expired		(1,649	)	$	16.13
Outstanding, July 28, 2007		45,436		$	7.30		5.1	$	53,895
Ending Vested and Expected to Vest		43,051		$	8.23		5.5	$	51,631
Exercisable and Vested, July 28, 2007		27,877		$	8.96		4.5	$	33,898

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						Weighted Average
						Remaining
	Shares			Weighted Average		Contractual Term		Aggregate Intrinsic
	(in thousands)			Exercise Price		(Years)		Value ($000)
Outstanding, October 29, 2005		45,179		$	6.59
Granted		1,165		$	4.19
Exercised		(204	)	$	0.68
Forfeited or Expired		(3,209	)	$	6.14
Outstanding, January 28, 2006		42,931		$	6.57
Granted		2,025		$	5.52
Exercised		(2,061	)	$	5.50
Forfeited or Expired		(1,965	)	$	6.09
Outstanding, April 29, 2006		40,930		$	6.60
Granted		3,357		$	6.07
Exercised		(261	)	$	4.99
Forfeited or Expired		(2,354	)	$	10.50
Outstanding, July 29, 2006		41,672		$	6.39		5.9	$	27,240
Ending Vested and Expected to Vest		39,347		$	6.45		5.9	$	25,337
Exercisable and Vested, July 29, 2006		24,781		$	7.10		5.9	$	12,704

     The weighted-average fair value of employee stock options granted during the three months ended July 28, 2007 and July 29, 2006 were $8.73 and $2.14, respectively. The total intrinsic value of stock options exercised for the three months ended July 28, 2007 and July 29, 2006 were $3.4 million and $2.6 million, respectively.

     As of July 28, 2007 and July 29, 2006, there was $25.6 million and $22.3 million, respectively, of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 1.5 years and 3.6 years, respectively.

Employee Stock Purchase Plan

     Under Brocade’s Employee Stock Purchase Plan, eligible employees can participate and purchase shares semi-annually through payroll deductions at the lower of 85% of the fair market value of the stock at the commencement or end of the offering period. The Employee Stock Purchase Plan permits eligible employees to purchase common stock through payroll deductions for up to 15% of qualified compensation. The Company accounts for the Employee Stock Purchase Plan as a compensatory plan and recorded compensation expense of $2.1 million and $1.3 million for the three months ended July 28, 2007 and July 29, 2006, respectively, and $4.6 million and $3.3 million for the nine months ended July 28, 2007 and July 29, 2006, respectively, in accordance with SFAS 123R.

     The fair value of the option component of the Employee Stock Purchase Plan shares was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	Three Months Ended						Nine Months Ended
	July 28,			July 29,			July 28,			July 29,
Employee Stock Purchase Plan	2007			2006			2007			2006
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free interest rate		5.0 — 5.1	%		5.1 — 5.2	%		5.0 — 5.2	%		3.4 — 5.2	%
Expected volatility		37.5	%		42.6	%		48.2	%		43.7	%
Expected term (in years)		0.5			0.5			0.5			0.5

     As of July 28, 2007 and July 29, 2006, there was $1.2 million and $1.5 million, respectively, of total unrecognized compensation costs related to employee stock purchases. These costs were expected to be recognized over a weighted average period of 0.34 years and 0.34 years, respectively.

Restricted Stock Awards

     For the nine months ended July 28, 2007 and July 29, 2006, Brocade issued 0.1 million and 1.9 million restricted stock awards, respectively, to certain eligible employees at a purchase price of $0.00 and $0.001 per share, respectively. These restricted shares are not transferable until fully vested and are subject to repurchase for all unvested shares upon termination. The fair value of each award is based on the Company’s closing stock price on the date of grant. In addition, as part of its acquisition of McDATA, the Company became the administrator of retention compensation plans for certain employees. The plans provide the employees restricted stock that vest generally over a two year service period under certain conditions, subject to full acceleration of vesting upon termination without cause and execution of a release in favor of the Company. The Company recorded stock-based compensation consistent with the provisions of SFAS 123R using a two year service period.

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     Compensation expense computed under the fair value method for stock awards issued is being amortized under a graded vesting method over the awards’ vesting period and was $1.1 million and $1.0 million, for the three months ended July 28, 2007 and July 29, 2006, respectively, and $3.3 million and $2.8 million, for the nine months ended July 28, 2007 and July 29, 2006, respectively.

     The weighted-average fair value of the restricted stock awards granted during the nine months ended July 28, 2007 and July 29, 2006 was $3.73 and $4.43, respectively. The total fair value of stock awards vested for both the nine months ended July 28, 2007 and July 29, 2006 was zero. At July 28, 2007, unrecognized costs related to restricted stock awards totaled approximately $1.9 million. These costs are expected to be recognized over a weighted average period of 0.5 years. A summary of the nonvested restricted stock awards for the nine months ended July 28, 2007 and July 29, 2006, respectively, is presented as follows:

	Shares			Weighted Average
	(in thousand)			Grant-Date Fair Value
Nonvested, October 28, 2006		1,848		$	4.44
Granted		130		$	8.98
Vested		(3	)	$	7.05
Forfeited		—			—
Nonvested, January 27, 2007		1,975		$	4.73
Assumed upon McDATA merger		1,058		$	3.08
Granted		—		$	—
Vested		(50	)	$	0.01
Forfeited		(174	)	$	0.99
Nonvested, April 28, 2007		2,809		$	3.27
Granted		—		$	—
Vested		(129	)	$	0.01
Forfeited		(27	)	$	0.01
Nonvested, July 28, 2007		2,641		$	3.48
Expected to vest, July 28, 2007		2,377		$	3.48
	Shares			Weighted Average
	(in thousand)			Grant-Date Fair Value
Nonvested, October 29, 2005		13		$	7.05
Granted		1,923		$	4.43
Vested		(3	)	$	7.05
Forfeited		—			—
Nonvested, January 29, 2006		1,933		$	4.44
Granted		—			—
Vested		(3	)	$	7.05
Forfeited		(20	)	$	4.43
Nonvested, April 29, 2006		1,910		$	4.44
Granted		—			—
Vested		(3	)	$	7.05
Forfeited		(18	)	$	4.43
Nonvested, July 29, 2006		1,889		$	4.44
Expected to vest, July 29, 2006		1,700		$	4.44

Restricted Stock Units

     During the nine months ended July 28, 2007, Brocade issued 2.3 million restricted stock units. No restricted stock units were issued for the nine months ended July 29, 2006. Typically, vesting of restricted stock units occurs over two to three years and is subject to the employee’s continuing service to Brocade. The compensation expense of $1.2 million related to these awards was determined using the fair market value of Brocade’s common stock on the date of the grant and is recognized under a graded vesting method over the vesting period.

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     A summary of the changes in restricted stock units outstanding under Brocade’s equity-based compensation plans during the nine months ended July 28, 2007 is presented as follows:

				Weighted
				Average
	Shares			Grant-Date
	(in thousand)			Fair Value
Nonvested, October 28, 2006		—			—
Granted		346		$	9.19
Vested		—			—
Forfeited		—			—
Nonvested, January 27, 2007		346		$	9.19
Granted		15		$	10.11
Vested		—			—
Forfeited		(5	)	$	9.19
Nonvested, April 28, 2007		356		$	9.19
Granted		1,963		$	8.05
Vested		—			—
Forfeited		(12	)	$	9.19
Nonvested, July 28, 2007		2,307		$	8.23
Nonvested expected to vest at July 28, 2007		1,890		$	8.23

     As of July 28, 2007, Brocade had $13.6 million of total unrecognized compensation expense, net of estimated forfeitures, related to restricted stock unit grants, which is expected to be recognized over a weighted average period of 1.9 years.

Tender Offer

     On June 12, 2006, the Company completed a tender offer that allowed employees to amend or cancel certain options to remedy potential adverse personal tax consequences. As a result, the Company amended certain options granted after August 14, 2003 that were or may have been granted at a discount to increase the option grant price to the fair market value on the date of grant, and to give the employee a cash payment for the difference in option grant price between the amended option and the original discounted price. In addition, for certain options granted prior to August 14, 2003 that were or may have been granted at a discount, the Company canceled the options in exchange for a cash payment based on the Black-Scholes estimate of fair value of the option. The Company accounted for these modifications and settlements in accordance with SFAS 123R and as a result recorded incremental compensation expense of $2.1 million during the three months ended July 29, 2006 and recognized a liability of $3.3 million for the cash payments. The liability was paid in January 2007.

Reverse/forward stock split

     Effective June 26, 2007, the Company implemented a 1-for-100 reverse stock split (the “Reverse Split”) immediately followed by a 100-for-1 forward stock split of the Company’s Common Stock (together with the Reverse Split, the “Reverse/Forward Split”) by filing amendments to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. For stockholders that held less than 100 shares of common stock prior to the Reverse Split, shares of common stock that would have been converted into less than one share in the Reverse Split were instead converted into the right to receive a cash payment equal to $8.44 per share, an amount equal to the average of the closing prices per share of common stock on the NASDAQ Global Select Market for the period of ten consecutive trading days ending on (and including) the effective date. For stockholders that held 100 or more shares of common stock in their account prior to the Reverse Split, any fractional share in such account resulting from the Reverse Split were not cashed out and the total number of shares held by such stockholder did not change as a result of the Reverse/Forward Split. A total of approximately 2.5 million shares of the Company’s common stock were cashed out into an aggregate of approximately $20.8 million as a result of the Reverse/Forward Split.

Computation of Net Income per Share

     Basic net income per share is computed using the weighted-average number of common shares outstanding during the period, less shares subject to repurchase. Diluted net income per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares result from the assumed exercise of outstanding stock options, by application of the treasury stock method, that have a dilutive effect on earnings per share.

15

Comprehensive Income

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

	Three Months Ended				Nine Months Ended
	July 28,		July 29,		July 28,		July 29,
	2007		2006		2007		2006
Net income	$	10,690	$	24,498	$	44,852	$	47,671
Other comprehensive income:
Change in net unrealized gains (losses) on marketable equity securities, cash flow hedges and investments		601		1,404		13,624		2,369
Cumulative translation adjustments		372		79		775		177
Total comprehensive income	$	11,663	$	25,981	$	59,251	$	50,217

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3. Balance Sheet Details

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

	July 28,			October 28,
	2007			2006
Inventories:
Raw materials	$	1,193		$	82
Finished goods		20,577			8,886
Total	$	21,770		$	8,968
Property and equipment, net:
Computer equipment and software	$	98,750		$	73,421
Engineering and other equipment		175,829			144,530
Furniture and fixtures		10,559			4,360
Leasehold improvements		53,394			43,519
Land and building		76,775			30,000
Subtotal		415,307			295,830
Less: Accumulated depreciation and amortization		(214,329	)		(191,531	)
Total	$	200,978		$	104,299

     Leasehold improvements as of July 28, 2007 and October 28, 2006, are shown net of estimated asset impairments related to facilities lease losses.

	July 28,		October 28,
	2007		2006
Other accrued liabilities:
Accrued warranty		6,143		2,230
Accrued sales programs		12,287		12,051
Other		41,055		28,530
Total	$	59,485	$	42,811

4. Investments and Equity Securities

     The following tables summarize the Company’s investments and equity securities (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
July 28, 2007
U.S. government and its agencies and municipal obligations	$	153,129	$	—	$	(141	)	$	152,988
Corporate bonds and notes		248,524		52		(566	)		248,010
Marketable equity securities		30,093		676		—			30,769
Total	$	431,746	$	728	$	(707	)	$	431,767
Reported as:
Short-term investments								$	313,902
Long-term investments									117,865
Total								$	431,767
October 28, 2006
U.S. government and its agencies and municipal obligations	$	124,105	$	5	$	(556	)	$	123,554
Corporate bonds and notes		185,183		32		(583	)		184,632
Total	$	309,288	$	37	$	(1,139	)	$	308,186
Reported as:
Short-term investments								$	267,694
Long-term investments									40,492
Total								$	308,186

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     For the three months ended July 28, 2007 loss of $0.7 million were realized on the sale of short term investments. For the three months ended July 29, 2006, no gains were realized on the sale of investments or marketable equity securities. As of July 28, 2007 and October 28, 2006, net unrealized holding losses of $0.7 million and $1.1 million, respectively, were included in accumulated other comprehensive income in the accompanying Condensed Consolidated Balance Sheets.

5. Liabilities Associated with Facilities Lease Losses

     During the three months ended October 27, 2001, the Company recorded a charge of $39.8 million related to estimated facilities lease losses, net of expected sublease income, and a charge of $5.7 million in connection with the estimated impairment of certain related leasehold improvements. These charges represented the low-end of an estimated range of $39.8 million to $63.0 million and have been adjusted upon the occurrence of certain triggering events.

     During the three months ended July 27, 2002, the Company completed a transaction to sublease a portion of these vacant facilities. Accordingly, based on then current market data, the Company revised certain estimates and assumptions, including those related to estimated sublease rates, estimated time to sublease the facilities, expected future operating costs, and expected future use of the facilities. The Company reevaluates its estimates and assumptions on a quarterly basis and makes adjustments to the reserve balance if necessary.

     In November 2003, the Company purchased a previously leased building. In addition, the Company consolidated the engineering organization and development, test and interoperability laboratories into the purchased facilities and vacated other existing leased facilities. As a result, the Company recorded adjustments to the facilities lease loss reserve recorded in fiscal year 2001 described above, and recorded additional reserves in connection with the facilities consolidation.

     During the three months ended April 29, 2006, the Company recorded a charge of $3.8 million related to estimated facilities lease losses, net of expected sublease income. This charge represented an estimate based on current market data. As a result, the Company revised certain estimates and assumptions, including those related to estimated sublease rates, estimated time to sublease the facilities, expected future operating costs, and expected future use of the facilities.

     During the three months ended January 2007, the Company recorded a charge of $0.6 million related to estimated lease losses, net of expected sublease income as a result of the acquisition of Silverback Systems, Inc. During the three months ended April 28, 2007, the Company recorded a purchase accounting adjustment of $26.3 million related to estimated losses, net of expected sublease income, as a result of the acquisition of McDATA Corporation. The Company reevaluates its estimates and assumptions on a quarterly basis and makes adjustments to the reserve balance if necessary.

     The following table summarizes the activity related to the facilities lease losses reserve, net of expected sublease income (in thousands), as of July 28, 2007:

	Lease Loss
	Reserve
Reserve balances at October 28, 2006	$	16,036
Additional reserves related to acquisitions		27,004
Cash payments on facilities leases		(5,615	)
Non-cash charges		6
Reserve balance at July 28, 2007	$	37,431

     Cash payments for facilities leases related to the above noted facilities lease losses will be paid over the respective lease terms through fiscal year 2010.

6. Convertible Subordinated Debt

     Convertible subordinated debt includes $172.5 million outstanding 2.25% convertible subordinated notes (the “2.25% Notes”) due February 15, 2010 previously issued by McDATA. In accordance with purchase accounting rules, the Notes were adjusted to their aggregate fair value of $167.0 million based on the quoted market closing price as of the acquisition date.

     On January 29, 2007, effective upon the consummation of the merger, the Company fully and unconditionally guaranteed the 2.25% Notes and became a co-obligor on the 2.25% Notes with McDATA. The 2.25% Notes were convertible into Class A common stock at a conversion rate of 93.3986 shares per $1,000 principal amount of notes (aggregate of approximately 16.1 million shares) at any time prior to February 15, 2010, subject to adjustments. As of July 28, 2007, the approximate aggregate fair value of the outstanding debt was $159.2 million. We estimated the fair value of the outstanding debt by using the high and low prices per $100 of the Company’s 2.25% Notes as of the last day of trading for the third fiscal quarter, which were $92.3 and $92.3, respectively.

18

Pursuant to the merger agreement, at the effective time of the Merger each outstanding share of the McDATA’s Class A common stock, $0.01 part value per share, was converted into the right to receive 0.75 shares of Brocade’s common stock, $0.001 par value per share, together with cash in lieu of fractional shares. As a result of the conversion, an approximate aggregate of 12.1 million shares are subject to conversion at any time prior to February 15, 2010, subject to adjustments.

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

     Prior to the merger, McDATA entered into an interest rate swap agreement with a notional amount of $155.3 million that had the economic effect of modifying that dollar portion of the fixed interest obligations associated with the 2.25% Notes so that the interest payable effectively became variable based on the six—month London Interbank Offered Rate (LIBOR) minus 152 basis points. The reset dates of the swap were February 15 and August 15 of each year until maturity on February 15, 2010. On July 24, 2007, the Company settled the interest rate swap and accrued interest related to the debt and paid $7.4 million.

     In addition, effective upon the consummation of the merger with McDATA, the Company fully and unconditionally guaranteed, and became a co-obligor, in the $122.4 million outstanding 3.00% convertible subordinated notes (the “3% Notes”) due February 15, 2007, previously issued by Computer Network Technology, Inc. (“CNT”), and assumed on June 1, 2005 by McDATA, upon McDATA’s acquisition of CNT. On February 15, 2007, the Company paid the remaining balance due on the 3.00% Notes and also paid $1.4 million to settle the related swap agreement.

7. Commitments and Contingencies

Operating and Capital Leases

     The Company leases its facilities and certain equipment under various operating and capital lease agreements expiring through August 2016. In connection with its facilities lease agreements, the Company has signed unconditional, irrevocable letters of credit totaling $2.7 million as security for the leases. Future minimum lease payments under all non-cancelable operating leases as of July 28, 2007 were $110.6 million, net of contractual sublease income of $8.5 million. In addition to base rent, many of the facilities lease agreements require that the Company pay a proportional share of the respective facilities’ operating expenses.

     As of July 28, 2007, the Company had recorded $37.4 million in facilities lease loss reserves related to future lease commitments, net of expected sublease income (see Note 5).

Product Warranties

     The Company provides warranties on its products ranging from one to three years. Estimated future warranty costs are accrued at the time of shipment and charged to cost of revenues based upon historical experience. The Company’s accrued liability for estimated future warranty costs is included in other accrued liabilities on the accompanying Condensed Consolidated Balance Sheets. The following table summarizes the activity related to the Company’s accrued liability for estimated future warranty costs during the nine months ended July 28, 2007 and July 29, 2006 (in thousands), respectively:

	Nine Months Ended
	July 28,			July 29,
	2007			2006
Beginning Balance	$	2,230		$	1,746
Liabilities accrued for warranties issued during the period		7,390			1,464
Warranty claims paid and uses during the period		(2,659	)		(532	)
Changes in liability for pre-existing warranties during the period		(818	)		(231	)
Ending Balance	$	6,143		$	2,447

     In addition, the Company has standard indemnification clauses contained within its various customer contracts. As such, the Company indemnifies the parties to whom it sells its products with respect to the Company’s product infringing upon any patents, trademarks, copyrights, or trade secrets, as well as against bodily injury or damage to real or tangible personal property caused by a defective Company product. As of July 28, 2007, there have been no known events or circumstances that have resulted in a customer contract related indemnification liability to the Company.

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Manufacturing and Purchase Commitments

     The Company has manufacturing agreements with Hon Hai Precision Industry Co. (“Foxconn”), SCI - -Sanmina (“Sanmina”) and Solectron under which the Company provides twelve-month product forecasts and places purchase orders in advance of the scheduled delivery of products to the Company’s customers. The required lead-time for placing orders with Foxconn, Sanmina and Solectron depends on the specific product. As of July 28, 2007, the Company’s aggregate commitment to Foxconn, Sanmina and Solectron for inventory components used in the manufacture of Brocade products was $127.6 million, net of purchase commitment reserves of $43.2 million, which the Company expects to utilize during future normal ongoing operations. The Company’s purchase orders placed with Foxconn, Sanmina and Solectron are cancelable, however if cancelled, the agreements require the Company to purchase all inventory components not returnable, usable by, or sold to, other customers of the aforementioned contract manufacturers. The Company’s purchase commitments reserve reflects the Company’s estimate of purchase commitments it does not expect to consume in normal operations.

Legal Proceedings

     From time to time, claims are made against Brocade in the ordinary course of its business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties or injunctions prohibiting Brocade from selling one or more products or engaging in other activities. The occurrence of an unfavorable outcome in any specific period could have a material adverse affect on the Company’s results of operations for that period or future periods.

     On July 20, 2001, the first of a number of putative class actions for violations of the federal securities laws was filed in the United States District Court for the Southern District of New York against Brocade, certain of its officers and directors, and certain of the underwriters for Brocade’s initial public offering of securities. A consolidated amended class action captioned In Re Brocade Communications Systems, Inc. Initial Public Offering Securities Litigation was filed on April 19, 2002. The complaint generally alleges that various underwriters engaged in improper and undisclosed activities related to the allocation of shares in Brocade’s initial public offering and seeks unspecified damages on behalf of a purported class of purchasers of common stock from May 24, 1999 to December 6, 2000. The lawsuit against Brocade is being coordinated for pretrial proceedings with a number of other pending litigations challenging underwriter practices in over 300 cases as In Re Initial Public Offering Securities Litigation, 21 MC 92(SAS). In October 2002, the individual defendants were dismissed without prejudice from the action, pursuant to a tolling agreement. On February 19, 2003, the Court issued an Opinion and Order dismissing all of the plaintiffs’ claims against Brocade. In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including Brocade, was submitted to the Court for approval. On August 31, 2005, the Court granted preliminary approval of the settlement. In December 2006, the appellate Court overturned the certification of classes in the six test cases (of which Brocade is not one) that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among parties to the settlement. Plaintiffs have filed amended master allegations and amended complaints in the six test cases.

     McDATA Corporation, Mr. John F. McDonnell, the former Chairman of the board of directors of McDATA, Mrs. Dee J. Perry and Mr. Thomas O. McGimpsey, both former officers of McDATA were named as defendants in purported securities class action lawsuits filed in the United States District Court, Southern District of New York. The first of these lawsuits, filed on July 20, 2001, is captioned Gutner v. McDATA Corporation, Credit Suisse First Boston (CSFB), Merrill Lynch, Pierce Fenner & Smith Incorporated, Bear, Stearns & Co., Inc., FleetBoston Robertson Stephens et al., No. 01 CIV. 6627. Three other similar suits were filed against McDATA and the individuals. The complaints are identical to numerous other complaints filed against other companies that went public in 1999 and 2000. These lawsuits generally allege, among other things, that the registration statements and prospectus filed with the SEC by such companies were materially false and misleading because they failed to disclose (a) that certain underwriters had allegedly solicited and received excessive and undisclosed commissions from certain investors in exchange for which the underwriters allocated to those investors material portions of shares in connection with the initial public offerings, or IPOs, and (b) that certain of the underwriters had allegedly entered into agreements with customers whereby the underwriters agreed to allocate IPO shares in exchange for which the customers agreed to purchase additional company shares in the aftermarket at pre-determined prices. The complaints allege claims against McDATA, the named individuals, and CSFB, the lead underwriter of McDATA’s August 9, 2000 initial public offering, under Sections 11 and 15 of the Securities Act. The complaints also allege claims solely against CSFB and the other underwriter defendants under Section 12(a) (2) of the Securities Act, and claims against the individual defendants under Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In October 2002, the individual defendants were dismissed without prejudice from the action, pursuant to a tolling agreement. On February 19, 2003, the Court entered a ruling on the

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pending motions to dismiss, which dismissed some, but not all, of the plaintiffs’ claims against McDATA. These lawsuits have been consolidated as part of In Re Initial Public Offering Securities Litigation (SDNY). In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including McDATA, was submitted to the Court for approval. On August 31, 2005, the Court preliminarily approved the proposed settlement. In December 2006, the appellate Court overturned the certification of classes in the six test cases (of which McDATA is not one) that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have filed amended master allegations and amended complaints in the six test cases.

     A shareholder class action lawsuit was filed against Inrange Technologies Corporation (which was first acquired by CNT and subsequently acquired by McDATA as part of the CNT acquisition) and certain of its officers on November 30, 2001, in the United States District Court for the Southern District of New York, seeking recovery of damages caused by Inrange’s alleged violation of securities laws, including section 11 of the Securities Act and section 10(b) of the Exchange Act. The complaint, which was also filed against the various underwriters that participated in Inrange’s initial public offering (IPO), is identical to hundreds of shareholder class actions pending in this Court in connection with other recent IPOs and is generally referred to as In re Initial Public Offering Securities Litigation. The complaint alleges, in essence, (a) that the underwriters combined and conspired to increase their respective compensation in connection with the IPO by (i) receiving excessive, undisclosed commissions in exchange for lucrative allocations of IPO shares, and (ii) trading in Inrange’s stock after creating artificially high prices for the stock post-IPO through “tie-in” or “laddering” arrangements (whereby recipients of allocations of IPO shares agreed to purchase shares in the aftermarket for more than the public offering price for Inrange shares) and dissemination of misleading market analysis on Inrange’s prospects; and (b) that Inrange violated federal securities laws by not disclosing these underwriting arrangements in its prospectus. The defense has been tendered to the carriers of Inrange’s director and officer liability insurance, and a request for indemnification has been made to the various underwriters in the IPO. At this point, the insurers have issued a reservation of rights letter and the underwriters have refused indemnification. The Court has granted Inrange’s motion to dismiss claims under section 10(b) of the Exchange Act because of the absence of a pleading of intent to defraud. The Court granted plaintiffs leave to replead these claims, but no further amended complaint has been filed. The Court denied Inrange’s motion to dismiss claims under section 11 of the Securities Act. The Court has also dismissed Inrange’s individual officers without prejudice pursuant to a tolling agreement with the plaintiffs. In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including Inrange, was submitted to the Court for approval. On August 31, 2005, the Court preliminarily approved the proposed settlement. In December 2006, the appellate Court overturned the certification of classes in the six test cases (of which Inrange is not one) that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have filed amended master allegations and amended complaints in the six test cases.

     On May 16, 2005, Brocade announced that the SEC and the Department of Justice, or the DOJ, at the time were conducting an investigation regarding Brocade’s historical stock option granting processes. Brocade has been cooperating with the SEC and DOJ. During the first quarter of fiscal year 2006, Brocade began active settlement discussions with the Staff of the SEC’s Division of Enforcement, or the Staff, regarding its financial restatements related to stock option accounting. As a result of these discussions, for the three months ended January 28, 2006, Brocade recorded a $7.0 million provision for an estimated settlement expense. The $7.0 million estimated settlement expense was based on an offer of settlement that Brocade made to the Staff and was subject to final approval by the SEC’s Commissioners. On May 31, 2007, the offer of settlement was approved by the SEC’s Commissioners. On August 27, 2007, final judgment approving the settlement was entered by the United States District Court for the Northern District of California. The $7.0 million was paid on August 31, 2007.

     Beginning on or about May 19, 2005, several securities class action complaints were filed against Brocade and certain of its current and former officers. These actions were filed in the United States District Court for the Northern District of California on behalf of purchasers of Brocade’s stock from February 2001 to May 2005. These lawsuits followed Brocade’s restatement of certain financial results due to stock-based compensation accounting issues. On January 12, 2006, the Court appointed a lead plaintiff and lead counsel. On April 14, 2006, the lead plaintiff filed a consolidated complaint on behalf of purchasers of Brocade’s stock from May 2000 to May 2005. The consolidated complaint alleges, among other things, violations of sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The consolidated complaint generally alleges that Brocade and the individual defendants made false or misleading public statements regarding Brocade’s business and operations and seeks unspecified monetary damages and other relief against the defendants. These lawsuits followed Brocade’s restatement of certain financial results due to stock-based compensation accounting issues.

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     Beginning on or about May 24, 2005, several derivative actions were also filed against certain of Brocade’s current and former directors and officers. These actions were filed in the United States District Court for the Northern District of California and in the California Superior Court in Santa Clara County. The complaints allege that certain of Brocade’s officers and directors breached their fiduciary duties to Brocade by engaging in alleged wrongful conduct including conduct complained of in the securities litigation described above. Brocade is named solely as a nominal defendant against whom the plaintiffs seek no recovery. The derivative actions pending in the District Court for the Northern District of California were consolidated and the Court created a Lead Counsel structure. The derivative plaintiffs filed a consolidated complaint in the District Court for the Northern District of California on October 7, 2005, and Brocade filed a motion to dismiss that action on October 27, 2005. On January 6, 2006, Brocade’s motion was granted and the consolidated complaint in the District Court for the Northern District of California was dismissed with leave to amend. The parties to this action subsequently reached a preliminary settlement, and on February 14, 2007, the Court entered an Order granting preliminary approval of the settlement. Objections to the settlement have been filed, and the settlement remains subject to final approval by the Court.

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

     No amounts have been recorded in Brocade’s Consolidated Financial Statements associated with these matters as the amounts are not probable and reasonably estimable other than the $7.0 million provision for an estimated settlement expense with the SEC as noted above, which settlement received final Court approval on August 27, 2007 and the $7.0 million settlement amount was released to the SEC.

Legal fees associated with indemnification obligations, defense, and other related costs

     Pursuant to the Company’s charter documents and indemnification agreements, the Company has certain indemnification obligations to its directors, officers, and certain former directors and officers. Pursuant to such obligations, the Company has incurred expenses related to amounts paid to certain former executive officers of the Company who are subject to pending criminal and/or civil charges by the SEC and other governmental agencies in connection with Brocade’s historical stock option grant practices.

Integration costs

     In connection with the acquisition of McDATA, the Company recorded acquisition and integration costs of $4.1 million and $19.1 million for the three and nine months ended July 28, 2007, respectively, which consisted primarily of costs incurred for consulting services and other professional fees. No amounts have been recorded in Brocade’s Condensed Consolidated Financial Statements associated with acquisition and integration costs for the three and nine months ended July 29, 2006.

8. Derivative Accounting Policies

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

     The derivatives are recognized on the balance sheet at their respective fair values. Unrealized gain positions are recorded as other current assets. Unrealized loss positions are recorded as other liabilities or other non-current liabilities. Changes in fair values of outstanding cash flow hedges that are highly effective as per the definition in SFAS 133 are recorded in other comprehensive income, until earnings are affected by the variability of cash flows of the underlying hedged transaction. In most cases amounts recorded in other comprehensive income will be released to earnings at maturity of the related derivative. The recognition of effective hedge results offsets the gains or losses on the underlying exposure. Cash flows from derivative transactions are classified according to the nature of the risk being hedged.

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     The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking hedge transactions. This documentation includes linking all derivatives either to specific assets and liabilities on the balance sheet or specific firm commitments or forecasted transactions. The Company also formally assesses both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, the Company discontinues hedge accounting prospectively, as discussed below.

     The Company discontinues hedge accounting prospectively when (1) the derivative is no longer highly effective in offsetting changes in the cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate.

     When the Company discontinues hedge accounting but it continues to be probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified into earnings when the forecasted transaction affects earnings. However, if it is no longer probable that a forecasted transaction will occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet until maturity, recognizing future changes in the fair value in current-period earnings. Any hedge ineffectiveness is recorded in current-period earnings in other expense (income), net. Effectiveness is assessed based on the comparison of current forward rates to the rates established on the Company’s hedges.

     The Company assumed two interest rate swaps as part of the McDATA acquisition to address interest rate market risk exposure of the two debt agreements assumed. On February 15, 2007, the Company paid approximately $1.4 million to settle its interest rate swap agreement associated with the debt purchased from CNT in conjunction with the payment of the underlying debt. On July 24, 2007, the Company paid approximately $7.4 million to settle its interest rate swap agreement associated with the debt purchased from McDATA (see Note 6).

     Foreign Currency Cash Flow Hedge

     As of July 28, 2007, losses of $0.5 million, net, which represented effective hedges of net investments, were reported as a component of accumulated other comprehensive income/(loss) within unrealized translation adjustment. Hedge ineffectiveness, which is reported in the Condensed Consolidated Statements of Operations was not significant.

9. Segment Information

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

     Prior to the Merger with McDATA during the second quarter of the current fiscal year, the Company had one reporting segment relating to the design, development, manufacture and sale of data access and storage networking solutions that provide highly-available, scalable and centrally-managed storage area networks . The Company’s CODM, as defined by SFAS 131, has allocated resources and assessed the performance of the Company based on consolidated revenue and overall profitability. Because of the completion of the integration of McDATA’s service business, the Company is operating in two distinct reporting segments, one for products and the other for services. The products segment consists of hardware and software products. The services segment consists of break/fix maintenance, extended warranty, installation, consulting, network management, related software maintenance and support revenue, and telecommunications services.

     Financial decisions and the allocation of resources are based on the information from the Company’s management reporting system. At this point in time, the Company does not track all of its assets by operating segments. Consequently, it is not practical to show assets by operating segments.

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     Summarized financial information by operating segment for the three and nine months ended July 28, 2007 and July 29, 2006, based on the internal management system is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	July 28,		July 29,		July 28,		July 29,
	2007		2006		2007		2006
Revenue
Product	$	282,855	$	174,209	$	790,509	$	500,177
Service		44,600		14,738		106,370		41,594
Total		327,455		188,947		896,879		541,771
Cost of Revenue
Product		131,862		67,220		345,153		198,208
Service		29,805		9,813		73,724		25,804
Total		161,667		77,033		418,877		224,012
Gross margin
Product		150,993		106,989		445,356		301,969
Service		14,795		4,925		32,646		15,790
Total	$	165,788	$	111,914	$	478,002	$	317,759

10. Net Income per Share

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

	Three Months Ended						Nine Months Ended
	July 28,			July 29,			July 28,			July 29,
	2007			2006			2007			2006
Net income	$	10,690		$	24,498		$	44,852		$	47,671
Basic and diluted net income per share:
Weighted-average shares of common stock outstanding		397,397			271,307			357,104			271,905
Less: Weighted-average shares of common stock subject to repurchase		(4,947	)		(1,889	)		(3,477	)		(1,911	)
Weighted-average shares used in computing basic net income per share		392,450			269,417			353,627			269,794
Dilutive effect of common share equivalents		14,663			4,542			14,453			3,690
Weighted-average shares used in computing diluted net income per share		407,113			273,959			368,080			273,484
Basic net income per share	$	0.03		$	0.09		$	0.13		$	0.18
Diluted net income per share	$	0.03		$	0.09		$	0.12		$	0.17

     For the three months ended July 28, 2007 and July 29, 2006, potential common shares in the form of stock options to purchase 14.4 million and 25.3 million weighted-average shares of common stock, respectively, were antidilutive and, therefore, not included in the computation of diluted earnings per share. For the nine months ended July 28, 2007 and July 29, 2006, potential common shares in the form of stock options to purchase 4.9 million and 32.6 million weighted-average shares of common stock, respectively, were antidilutive and, therefore, not included in the computation of diluted earnings per share. For both the three months and the nine months ended July 28, 2007 and July 29, 2006, potential common shares of 12.1 million and 6.4 million, respectively, resulting from the potential conversion, on a weighted average basis, of the Company’s convertible subordinated debt were antidilutive and therefore not included in the computation of diluted earnings per share for that period. No dilutive effect has been included for the share options sold in relation to the convertible subordinated debt because of their anti-dilutive impact.

11. Acquisitions

McDATA Corporation

     On January 29, 2007, the Company completed its acquisition of McDATA Corporation by the merger of Worldcup Merger Corporation (“Merger Sub”), a Delaware corporation and wholly-owned subsidiary of the Company, with and into McDATA, in accordance with the Agreement and Plan of Reorganization, dated as of August 7, 2006, as amended, by and among the Company, Merger Sub and McDATA, which is hereafter referred to as the Merger Agreement. As a result of the Merger, McDATA is now a wholly-owned subsidiary of the Company. McDATA provides storage networking and data infrastructure solutions.

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     Pursuant to the terms of the Merger Agreement, each outstanding share of Class A and Class B common stock of McDATA was converted into the right to receive 0.75 shares of the Company’s common stock. Additionally, each outstanding option to purchase McDATA Class A or Class B common stock was assumed by the Company and now represents an option to acquire shares of common stock of the Company, subject to the applicable conversion ratio, on the terms and conditions set forth in the Merger Agreement. Based on Brocade’s closing stock price on January 26, 2007, the transaction was valued at approximately $658.9 million.

     The results of operations of McDATA are included in the accompanying Condensed Consolidated Statement of Operations from the date of the acquisition. The Company considers the acquisition of McDATA to be material to its results of operations, and therefore is presenting pro forma statements of operations for the three and nine months ended July 28, 2007 and July 29, 2006.

     The following unaudited pro forma information presents a summary of the results of operations of the Company assuming the acquisition of McDATA occurred at the beginning of each of the periods presented. The pro forma financial information (in thousands) , except per share information, is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the Merger had taken place at the beginning of each of the periods presented, nor is it indicative of future operating results:

	Three Months Ended					Nine Months Ended
	July 28,		July 29,			July 28,		July 29,
	2007		2006 (1)			2007 (2)		2006 (3)
Total Revenue	$	327,455	$	339,077		$	1,052,968	$	1,041,964
Pretax income		21,474		275			46,727		15,689
Net Income (loss)		10,690		(5,414	)		5,201		(4,672	)
Basic earnings per share	$	0.03	$	(0.01	)	$	0.01	$	(0.01	)

(1)	The financial pro forma results for the three months ended July 29, 2006 include Brocade’s historical three months ended July 29, 2006 and McDATA’s historical three months ended July 31, 2006, including amortization related to fair value adjustments based on the fair values of assets acquired and liabilities assumed and deferred compensation recognized as of the McDATA acquisition date of January 29, 2007.
(2)	The financial pro forma results for the nine months ended July 28, 2007 include Brocade’s historical results for the nine months ended July 28, 2007 and McDATA’s historical results for the three months ended October 31, 2006, including amortization related to fair value adjustments based on the fair values of assets acquired and liabilities assumed and deferred compensation recognized as of the McDATA acquisition date of January 29, 2007.
(3)	The financial pro forma results for the nine months ended July 29, 2006 include Brocade’s historical nine months ended July 29, 2006 and McDATA’s historical three months ended January 31, 2006 and six months ended July 31, 2006, including amortization related to fair value adjustments based on the fair values of assets acquired and liabilities assumed and deferred compensation recognized as of the McDATA acquisition date of January 29, 2007.

     The total purchase price was $658.9 million. The purchase price included direct acquisition costs of $23.4 million.

     In connection with this acquisition, the Company allocated the total purchase consideration to the net assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the acquisition date, resulting in goodwill of approximately $370.3 million which is not expected to be deductible for income tax purposes. The following table summarizes the initial allocation of the purchase price based on the fair value of the assets and liabilities acquired (in thousands):

Assets acquired:
Cash and cash equivalents	$	147,407
Short term investments		78,315
Accounts receivable, net		108,426
Inventory, net		12,559
Fixed assets, net		90,015
Identifiable intangible assets
Tradename		10,341
Core/Developed technology		147,191
Customer relationships		157,501
Goodwill		370,296
Other assets		112,887
Total assets acquired		1,234,938

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Liabilities assumed:
Debt assumed		282,050
Other liabilities		293,971
Total liabilities assumed		576,021
Net assets acquired	$	658,917

During the three months ended July 28, 2007, the Company determined it was appropriate to record certain adjustments to the fair value of assets and liabilities acquired from McDATA. See Note 12 for details.

Silverback Systems, Inc.

     On January 5, 2007, the Company completed its acquisition of Silverback Systems, Inc. (“Silverback”), a privately held provider of network acceleration technology headquartered in Campbell, California. This acquisition further enables the Company to provide communications solutions for SAN networks.

     The results of operations of Silverback are included in the accompanying Condensed Consolidated Statement of Operations from the date of the acquisition. The Company does not consider the acquisition of Silverback to be material to its results of operations, and therefore is not presenting pro forma statements of operations for the three and nine months ended July 28, 2007 and July 29, 2006.

     The total purchase price was $7.8 million, consisting of $4.5 million cash consideration and $3.3 million related to cash settlement of debt assumed. Of the $4.5 million cash consideration, $1.2 million will be held in escrow for a period of 18 months from the transaction date and will be released subject to certain contingencies. In addition, the Company paid direct acquisition costs of $0.4 million.

     In connection with this acquisition, the Company allocated the total purchase consideration to the net assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the acquisition date, resulting in goodwill of approximately $8.3 million which is not expected to be deductible for income tax purposes. The following table summarizes the allocation of the purchase price to the fair value of the assets and liabilities acquired (in thousands):

Assets acquired
Cash	$	98
Accounts receivable		172
Identifiable intangible assets
Tradename		100
Core/Developed technology		590
Customer relationships		400
Non-compete agreements		370
Backlog		80
Goodwill		8,345
Other assets		1,644
Total assets acquired		11,799
Liabilities assumed
Accounts payable and accrued liabilities		3,995
Total liabilities assumed		3,995
Net assets acquired	$	7,804

NuView, Inc.

     On March 6, 2006, the Company completed its acquisition of NuView, Inc. (“NuView”), a privately held software developer based in Houston, Texas. Of the total purchase price of $60.5 million, $32.0 million was held in escrow for a period of 15 months from the transaction date. In August 2006, $25.0 million and in June 2007, $7.0 million, were released from the NuView acquisition-related escrow fund as the conditions of its release were deemed to have been satisfied.

     Additionally, for the three months ended July 28, 2007, the Company recorded total acquisition-related retention and bonus compensation expense of $1.2 million. Of that amount, $0.2 million was related to the acquisition of McDATA in January 2007, $0.6 million was related to the acquisition of NuView, Inc. in March 2006 and $0.4 million was related to the acquisition of Silverback in January 2007.

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12. Goodwill and Intangible Assets

     The Company’s carrying value of goodwill as of July 28, 2007 consisted of the following (in thousands):

Balance at October 28, 2006	$	41,013
Silverback acquisition		8,395
McDATA acquisition (1)		385,081
Balance at July 28, 2007	$	434,489

(1) There is an allocation period, following the consummation of a business combination, during which a Company may be able to make adjustments to the fair values of assets and liabilities acquired. During the three months ended July 28, 2007, the Company recorded the following adjustments to the fair value of assets and liabilities acquired from McDATA:

Balance at April 28, 2007	$	370,296
Adjustments related to inventory purchase commitments		11,524
Adjustment related to tax liabilities, net		(3,817	)
Fair value adjustment related to debt assumed		6,038
Other adjustments		1,040
Balance at July 28, 2007	$	385,081

     The Company amortizes intangible assets over a useful life ranging from 6 months to 7 years. Intangible assets as of July 28, 2007 consisted of the following (in thousands):

	Gross				Net
	Carrying		Accumulated		Carrying
	Value		Amortization		Value
Tradename	$	10,164	$	940	$	9,224
Core/Developed technology		143,014		11,328		131,686
Customer relationships		158,510		6,908		151,602
Non-compete agreements		272		62		210
Backlog		16		16		—
Total intangible assets	$	311,976	$	19,254	$	292,722

     For the three and nine months ended July 29, 2006, total amortization expense related to intangible assets was $0.9 million and $1.4 million, respectively. For the three months ended July 28, 2007, total amortization expense related to intangible assets of $11.3 million is included in cost of revenues and $7.9 million is included in operating expenses in the Condensed Consolidated Statement of Operations. For the nine months ended July 28, 2007, total amortization expense related to intangible assets of $22.6 million is included in cost of revenues and $16.8 million is included in operating expenses in the Condensed Consolidated Statement of Operations. The following table presents the estimated future amortization of intangible assets (in thousands):

	Future
	Estimated
Fiscal Years	Amortization
2007 (1)	$	19,237
2008		67,775
2009		64,600
2010		51,748
2011		41,748
2012		28,393
2013		16,070
2014		3,151
Total	$	292,722

(1) Reflects the remaining 3 months of fiscal 2007

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

You should read the following discussion and analysis in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report filed on Form 10-K with the Securities and Exchange Commission on January 9, 2007.

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Results of Operations

     The following table sets forth certain financial data for the periods indicated as a percentage of total net revenues except for cost of revenues and gross margin which are indicated as a percentage of the respective segment net revenues:

	Three months ended						Nine months ended
	July 28,			July 29,			July 28,			July 29,
	2007			2006			2007			2006
Product		86.4	%		92.2	%		88.1	%		92.3	%
Service		13.6			7.8			11.9			7.7
Net Revenues		100.0			100.0			100.0			100.0
Product		46.6			38.6			43.7			39.6
Service		66.8			66.6			69.3			62.0
Cost of revenues		49.4			40.8			46.7			41.3
Product		53.4			64.4			56.3			60.4
Service		33.2			33.4			30.7			38.0
Gross margin		50.6			59.2			53.3			58.7
Operating expenses:
Research and development		16.5			22.5			17.3			22.4
Sales and marketing		17.5			18.8			17.3			18.6
General and administrative		3.8			4.5			3.7			4.3
Legal fees associated with indemnification obligations, defense, and other related costs		5.5			1.6			4.3			1.9
Acquisition and integration costs		1.2			—			2.1			0.1
Provision for SEC settlement		—			—			—			1.3
Amortization of intangible assets		2.4			0.5			1.9			0.3
Facilities lease loss		—			—			—			0.7
Total operating expenses		47.0			47.8			46.6			49.6
Income from operations		3.7			11.4			6.7			9.1
Interest and other income, net		3.4			4.3			3.2			4.1
Interest expense		(0.8	)		(1.0	)		(0.5	)		(1.0	)
Gain on sale of investments		0.3			1.4			0.2			0.5
Income before provision for income taxes		6.6			16.2			9.6			12.7
Income tax provision		3.3			3.2			4.6			3.9
Net income		3.3	%		13.0	%		5.0	%		8.8	%

     Revenues. Our revenues are derived primarily from sales of our family of SAN products and our service and support offerings related to those products. Our fabric switches and directors, which range in size from 8 ports to 512 ports, connect our customers’ servers and storage devices creating a SAN.

Our total net revenues for the three months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

	Three Months Ended
	July 28,		% of Net			July 29,		% of Net			Increase/		%
	2007		Revenue			2006		Revenue			(Decrease)		Change
Product	$	282,855		86	%	$	174,209		92	%	$	108,646		78	%
Services		44,600		14	%		14,738		8	%		29,862		203	%
Total Net Revenue	$	327,455		100	%	$	188,947		100	%	$	138,508		73	%

     The increase in net revenues for the three months ended July 28, 2007 as compared with net revenues for the three months ended July 29, 2006 reflects growth in sales of both product and services offerings. The increase in product revenues for the period reflected a 72 percent increase in the number of ports shipped, due in part to the our acquisition of McDATA in January 2007, partially offset by an 8 percent decline in average selling price per port. The increase in service revenues is a result of the McDATA acquisition as well as the continued expansion of our installed base.

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     Our total net revenues for the nine months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

	Nine Months Ended
	July 28,		% of Net			July 29,		% of Net			Increase/		%
	2007		Revenue			2006		Revenue			(Decrease)		Change
Product	$	790,509		88	%	$	500,177		92	%	$	290,333		58	%
Services		106,370		12	%		41,594		8	%		64,776		156	%
Total Net Revenue	$	896,879		100	%	$	541,771		100	%	$	355,109		66	%

     The increase in net revenues for the nine months ended July 28, 2007 as compared with net revenues for the nine months ended July 29, 2006 reflects growth in sales of both products and services offerings. The increase in product revenues for the period reflected a 65 percent increase in the number of ports shipped, partially offset by a 5 percent decline in average selling price per port. The increase in service revenues is a result of the McDATA acquisition as well as the continued expansion of our installed base.

     For both the three and nine months ended July 28, 2007, the declines in average selling prices are the result of a continuing competitive pricing environment and change in product mix. We believe the increase in the number of ports shipped reflects higher demand for our products due in part to expansion of our installed base as a result of the McDATA acquisition as well as higher market demand as end-users continue to consolidate storage and servers infrastructures using SANs, expand SANs to support more applications, and deploy SANs in new environments.

     Going forward, we expect the number of ports shipped to fluctuate depending on the demand for our existing and recently introduced products as well as the timing of product transitions by our OEM customers. We also expect that average selling prices per port will likely decline at rates consistent with or slightly below historical rates, unless they are adversely affected by accelerated pricing pressures, new product introductions by us or our competitors, or other factors that may be beyond our control. We expect quarterly fluctuations in revenue to be consistent with historic seasonal trends. Historically, we experience the highest level of demand in our first quarter, followed by our fourth quarter, with the lowest seasonal demand occurring in our third quarter, followed by our second quarter.

     Our total net revenues by geographical area for the three months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

	Three Months Ended
	July 28,		% of Net			July 29,		% of Net			Increase/		%
	2007		Revenue			2006		Revenue			(Decrease)		Change
Domestic	$	189,672		58	%	$	122,597		65	%	$	67,075		55	%
International		137,783		42	%		66,350		35	%		71,433		108	%
Total Net Revenue	$	327,455		100	%	$	188,947		100	%	$	138,508		73	%

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     From a geographical perspective, our total net revenues for the nine months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

	Nine Months Ended
	July 28,		% of Net			July 29,		% of Net			Increase/		%
	2007		Revenue			2006		Revenue			(Decrease)		Change
Domestic	$	548,018		61	%	$	345,734		63	%	$	202,284		59	%
International		348,861		39	%		196,037		37	%		152,824		78	%
Total Net Revenue	$	896,879		100	%	$	541,771		100	%	$	355,108		66	%

     Historically, domestic revenues have accounted for between 60 percent and 70 percent of total revenues. International revenues primarily consist of sales to customers in Western Europe and the greater Asia Pacific region. For the three months ended July 28, 2007 as compared to the three months ended July 29, 2006, international revenues increased as a percentage of revenue primarily as a result of slower growth in the North America region relative to Europe. For the nine months ended July 28, 2007 as compared to the nine months ended July 29, 2006, the mix between domestic and international revenues is relatively unchanged. Revenues are attributed to geographic areas based on where our products are shipped. However, certain OEM customers take possession of our products domestically and then distribute these products to their international customers. Because we account for all of those OEM revenues as domestic revenues, we cannot be certain of the extent to which our domestic and international revenue mix is impacted by the practices of our OEM customers, but we believe international revenue is a larger percent of our revenue than the attributed revenues may indicate.

     A significant portion of our revenue is concentrated among a relatively small number of OEM customers. For the three months ended July 28, 2007, three customers each represented ten percent or more of our total revenues for a combined total of 64 percent of our total revenues. For the three months ended July 29, 2006, the same three customers each represented ten percent or more of our total revenues for combined total of 74 percent of total revenues. We expect that a significant portion of our future revenues will continue to come from sales of products to a relatively small number of OEM customers. Therefore, the loss of, or a decrease in the level of sales to, or a change in the ordering pattern of, any one of these customers could seriously harm our financial condition and results of operations.

     Cost of Goods Sold. Cost of goods sold consists of product costs, which typically vary with volume and manufacturing operations costs, which do not change directly with volume.

     Cost of goods sold for the three months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

	Three Months Ended
	July 28,		% of Net			July 29,		% of Net			Increase/		% Points
	2007		Revenue			2006		Revenue			(Decrease)		Change
Product	$	131,862		47	%	$	67,220		39	%	$	64,642		8	%
Services		29,805		67	%		9,813		67	%		19,992		—	%
Total Cost of Goods Sold	$	161,667		49	%	$	77,033		41	%	$	84,634		8	%

     Gross margin for the three months ended July 28, 2007 was 50.6 percent, a decrease of 8.6 percentage points from 59.2 percent for the three months ended July 29, 2006. For the three months ended July 28, 2007, product costs relative to net revenues increased by 0.4 percent as compared to the three months ended July 29, 2006. This is primarily the result of $11.3 million in intangibles amortization included in product costs in the 2007 period compared with no intangibles amortization included in product costs in the 2006 period. During the three months ended July 28, 2007, product costs aside from amortization were relatively unchanged, as declines in average selling price were matched by declines in product costs, in part due to an increase in the volume of shipments. Manufacturing operations costs and service operations costs increased by 8.3 percent relative to net revenues primarily due to increased headcount, as the service and support organizations were expanded as a result of the McDATA acquisition as well as due to increased engineering charges, as products moved from the development phase into the sustaining phase. Amortization of intangibles of $11.3 million in the three months ended July 28, 2007 resulted from the McDATA acquisition.

     Cost of goods sold for the nine months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

	Nine Months Ended
	July 28,		% of Net			July 29,		% of Net			Increase/		% Points
	2007		Revenue			2006		Revenue			(Decrease)		Change
Product	$	345,153		44	%	$	198,208		40	%	$	146,945		4	%
Services		73,724		69	%		25,804		62	%		47,920		7	%
Total Cost of Goods Sold	$	418,877		47	%	$	224,012		41	%	$	194,865		6	%

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     Gross margin for the nine months ended July 28, 2007 was 53.3 percent, a decrease of 5.4 percentage points from 58.7 percent for the nine months ended July 29, 2006. For the nine months ended July 28, 2007, product costs relative to net revenues remained flat as compared to the nine months ended July 29, 2006. Declines in average selling price were less than declines in product costs in part due to an increase in the volume of shipments. For the nine months ended July, 28, 2007, manufacturing operation costs and service operation costs increased by 6.5 percent relative to net revenues primarily due to increased headcount as our service and support organizations were expanded as a result of the McDATA acquisition as well as increased engineering charges as products transitioned into the sustaining phase from the development phase.

     Gross margin is primarily affected by average selling price per port, number of ports shipped, and cost of goods sold. As described above, we expect that average selling prices per port for our products will continue to decline at rates consistent with, or slightly below, historical rates, unless they are further affected by accelerated pricing pressures, new product introductions by us or our competitors, or other factors that may be beyond our control. We believe that we have the ability to partially mitigate the effect of declines in average selling price per port on gross margins through our product and manufacturing operations cost reductions. However, the average selling price per port could decline at a faster pace than we anticipate. If this dynamic occurs, we may not be able to reduce our costs fast enough to prevent a decline in our gross margins. In addition, we must continue to increase the current volume of ports shipped to maintain our current gross margins. If we are unable to offset future reductions of average selling price per port with reductions in product and manufacturing operations costs, or if as a result of future reductions in average selling price per port our revenues do not grow, our gross margins would be negatively affected.

     We recently introduced several new products and expect to introduce additional new products in the near future. As new or enhanced products are introduced, we must successfully manage the transition from older products in order to minimize disruption in customers’ ordering patterns, avoid excessive levels of older product inventories, and provide sufficient supplies of new products to meet customer demands. Our gross margins would likely be adversely affected if we fail to successfully manage the introductions of these new products. However, we currently anticipate that fluctuations in cost of goods sold related expenses will be consistent with fluctuations in revenue.

     Research and development expenses. Research and development (“R&D”) expenses consist primarily of salaries and related expenses for personnel engaged in engineering and R&D activities; fees paid to consultants and outside service providers; nonrecurring engineering charges; prototyping expenses related to the design, development, testing and enhancement of our products; depreciation related to engineering and test equipment; and IT and facilities expenses.

     Research and development expenses for the three months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

July 28,	% of Net	July 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$54,085	17%	$42,534	23%	(6)%

     For the three months ended July 28, 2007 as compared to the three months ended July 29, 2006, R&D expenses increased by $11.6 million, or 27 percent. This increase is primarily due to a $5.7 million increase in salaries and headcount related costs as a result of the McDATA acquisition and the acquisition of Silverback Systems, Inc., $3.9 million in additional outside service related expenses resulting from growth in product development and new product introductions, a $7.0 million increase in amortization of intangible assets, offset by a decrease of $5.8 million related to more products transitioned into the sustaining phase from the development phase. R&D expenses fell 6 percentage points as a percent of total net revenue in the three months ended July 28, 2007 compared with the three months ended July 29, 2006.

     Research and development expenses for the nine months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

July 28,	% of Net	July 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$154,780	17%	$121,416	22%	(5)%

     For the nine months ended July 28, 2007 as compared to the nine months ended July 29, 2006, R&D expenses increased by $33.4 million, or 27 percent. This increase is primarily due to a $24.0 million increase in salaries and headcount related costs as a result of the McDATA and Silverback acquisitions, $9.2 million additional outside service related expenses resulting from growth in product

31

development and new product introductions, and a $15.3 million increase in amortization of intangible assets, offset by a decrease of $16.9 million related to more products transitioned into the sustaining phase from the development phase. R&D expenses fell 5 percentage points as a percent of total net revenue in the nine months ended July 28, 2007 compared with the nine months ended July 29, 2006.

     We currently anticipate that R&D expenses, as a percent of revenue, for the three months ended October 27, 2007, will increase as compared to the three months ended July 28, 2007.

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

     Sales and marketing expenses for the three months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

July 28,	% of Net	July 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$57,200	17%	$35,501	19%	(2)%

     For the three months ended July 28, 2007 as compared to the three months ended July 29, 2006, sales and marketing expenses increased by $21.7 million, or 61 percent. This increase is primarily due to the McDATA acquisition, and included a $13.0 million increase in salaries and headcount related expenses, a $4.6 million increase in outside service related expenses and a $0.9 million increase in IT and related expenses. Sales and marketing expenses fell 2 percentage points as a percent of total revenue in the three months ended July 28, 2007 compared to the three months ended July 29, 2006.

     Sales and marketing expenses for the nine months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

July 28,	% of Net	July 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$155,150	17%	$100,682	19%	(2)%

     For the nine months ended July 28, 2007 as compared to the nine months ended July 29, 2006, sales and marketing expenses increased by $54.5 million, or 54 percent. This increase is primarily due to the McDATA acquisition including; a $33.2 million increase in salaries and headcount related expenses, a $10.3 million increase in outside services, a $0.7 million increase in equity based compensation, and a $2.6 million increase in IT and related expenses. Sales and marketing expenses fell 2 percentage points as a percent of total revenue in the nine months ended July 28, 2007 compared to the nine months ended July 29, 2006.

     We currently anticipate that sales and marketing expenses for the three months ended October 27, 2007 will be consistent with the three months ended July 28, 2007.

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

     General and administrative expenses for the three months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

July 28,	% of Net	July 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$12,536	4%	$8,426	4%	—%

     G&A expenses for the three months ended July 28, 2007 as compared to the three months ended July 29, 2006 increased by $4.1 million, or 49 percent. The increase in G&A is primarily due to the McDATA acquisition and reflects a $5.4 million increase in salaries and headcount related. G&A expenses as a percent of total net revenue were relatively unchanged in the three months ended July 28, 2007 as compared with the three months ended July 29, 2006.

     General and administrative expenses for the nine months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

July 28,	% of Net	July 29,	% of Net	% Points
2007	Revenue	2006	Revenue	Change
$33,511	4%	$23,523	4%	—%

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     G&A expenses for the nine months ended July 28, 2007 as compared to the nine months ended July 29, 2006, increased by $10.0 million, or 42 percent. The increase in G&A is primarily due to the McDATA acquisition and reflects a $12.6 million increase in salaries and headcount related expenses. G&A expenses as a percent of total net revenue were relatively unchanged in the nine months ended July 28, 2007 as compared with the nine months ended July 29, 2006.

     We currently anticipate that G&A expenses, as a percent of revenue, for the three months ending October 27, 2007 will be consistent with the three months ended July 28, 2007.

     Legal fees associated with indemnification obligations, defense, and other related costs. These expenses consist of professional legal and accounting service fees for various matters, including applicable indemnification obligations, defense of the Company in legal proceedings, the completed internal reviews and the SEC and Department of Justice (“DOJ”) joint investigations regarding historical stock option granting practices. Pursuant to the Company’s charter documents and indemnification agreements, the Company has certain indemnification obligations to its directors, officers, and certain former directors and officers. Pursuant to such obligations, the Company incurred expenses related to amounts paid to certain former executive officers of the Company who are subject to pending criminal and/or civil charges by the SEC and other governmental agencies in connection with Brocade’s historical stock option grant practices.

     Legal fees associated with indemnification obligations, defense, and other related costs for the three months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Points Change
$17,984	5%	$2,990	2%	3%

     Legal fees associated with indemnification obligations, defense, and other related costs for the nine months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Points Change
$38,446	4%	$10,179	2%	2%

     Fluctuations in legal fees for the three and nine months ended July 28, 2007 as compared to the three and nine months ended July 29, 2006 are due to the timing of costs incurred.

     Acquisition and integration costs.

     Acquisition and integration costs for the three months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Points Change
$4,055	1%	$ —	—%	1%

     Acquisition and integration costs for the nine months ended July 28, 2007 and July 29, 2006 were as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Points Change
19,051	2%	$585	—%	2%

     In connection with our acquisition of McDATA (see Note 11 “Acquisitions” of the Notes to Condensed Consolidated Financial Statements), we recorded acquisition and integration costs during the three and nine months ended July 28, 2007, which consisted primarily of costs incurred for consulting services, other professional fees, and bonuses paid to transitional employees. In connection with our acquisition of NuView we recorded acquisition related expenses of $0.6 million during the nine months ended July 29, 2006.

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     Provision for SEC settlement.

     Provision for SEC settlement for the nine months ended July 28, 2007 and July 29, 2006 was as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Points Change
$ —	—%	$7,000	1%	(1)%

     Following investigations by the SEC and DOJ regarding the Company’s historical stock option granting practices and as a result of settlement discussions with the Staff of the SEC’s Division of Enforcement, for the three months ended January 28, 2006, Brocade recorded a $7.0 million provision for estimated settlement expense. The $7.0 million estimated settlement expense was based on an offer of settlement that Brocade made to the Staff and was subject to final approval by the SEC’s Commissioners. On May 31, 2007, the offer of settlement was approved by the SEC’s Commissioners. On August 27, 2007, final judgment approving the settlement was entered by the United States District Court for the Northern District of California and the $7.0 million settlement amount was released to the SEC.

     Amortization of intangible assets.

     Amortization of intangible assets for the three months ended July 28, 2007 and July 29, 2006 was as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Point Change
$7,924	2%	$888	0.5%	2%

     Amortization of intangible assets for the nine months ended July 28, 2007 and July 29, 2006 was as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Point Change
$16,810	2%	$1,406	0.3%	2%

     During the three and nine months ended July 28, 2007, we recorded amortization of intangible assets related to the acquisitions of McDATA, Silverback and NuView. The increase in amortization of intangible assets for the three and nine months ended July 28, 2007 as compared to the three and nine months ended July 29, 2006 is due to the McDATA acquisition which was completed near the beginning of our second fiscal quarter of 2007. We account for intangible assets in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Intangible assets are recorded based on estimates of fair value at the time of the acquisition and identifiable intangible assets are amortized on a straight line basis over their estimated useful lives (see Note 12: “Goodwill and Other Identifiable Intangible Assets,” of the Notes to Condensed Consolidated Financial Statements).

     Interest and other income, net.

     Interest and other income, net, for the three months ended July 28, 2007 and July 29, 2006 was as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Point Change
$11,058	3%	$8,133	4%	(1)%

     Interest and other income, net, for the nine months ended July 28, 2007 and July 29, 2006 was as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Point Change
$28,565	3%	$22,391	4%	(1)%

     For the three and nine months ended July 28, 2007 as compared to the three and nine months ended July 29, 2006, the increase in interest and other income was primarily related to higher average rates of return due to investment mix and an increase in interest rates, as well as increased average cash, cash equivalent, and short and long-term investment balances as a result of the McDATA acquisition.

     Facilities Lease losses.

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Point Change
$ —	—%	$3,775	0.02%	(100)%

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     During the nine months ended July 29, 2006, the Company recorded a charge of $3.8 million related to estimated facilities lease losses, net of expected sublease income. This charge represented an estimate based on current market data. The Company revised certain estimates and assumptions, including those related to estimated sublease rates, estimated time to sublease the facilities, expected future operating costs, and expected future use of the facilities. No charges were recorded during the three months ended July 29, 2006 and no charges were recorded during the three and nine months ended July 28, 2007.

     Interest expense.

     Interest expense primarily represents the interest cost associated with our convertible subordinated debt (see Note 6: “Convertible Subordinated Debt,” of the Notes to the Condensed Consolidated Financial Statements).

     Interest expense for the three months ended July 28, 2007 and July 29, 2006 was as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Point Change
$(2,683)	(1%)	$(1,863)	(1%)	(0%)

     The increase in interest expense for the three months ended July 28, 2007 as compared to the three months ended July 29, 2006 was primarily the result of the assumption of debt as a result of the McDATA acquisition.

     Interest expense for the nine months ended July 28, 2007 and July 29, 2006 was as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Point Change
$(4,741)	(1%)	$(5,478)	(1%)	(0%)

     The decrease in interest expense for the nine months ended July 28, 2007 as compared to the nine months ended July 29, 2006 was primarily due to a reduction in the outstanding balance of our convertible subordinated debt during the first nine months of fiscal 2006 compared to the outstanding balance and interest rate of our convertible subordinated debt during the first nine months of fiscal 2007. As of July 28, 2007 and July 29, 2006, the fair value of the outstanding balance of our convertible subordinated debt was $167.0 and $278.9 million, respectively.

Provision for income taxes

     Provision for income taxes for the three months ended July 28, 2007 and July 29, 2006 was as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Point Change
$10,784	3%	$6,032	4%	(1%)

     Provision for income taxes for the nine months ended July 28, 2007 and July 29, 2006 was as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Point Change
$41,058	5%	$21,098	4%	1%

     For the three and nine months ended July 28, 2007, our income tax provision was based on both domestic and international operations. We expect to continue to record an income tax provision for our international and domestic operations in the future. Since we have a full valuation allowance against deferred tax assets which result from U.S. operations, U.S. income tax expense or benefits are offset by releasing or increasing, respectively, the valuation allowance. Our U.S. federal income tax liability is reduced by the utilization of net operating loss and credit carryforwards from prior years such that only alternative minimum tax results. To the extent utilization of net operating losses or credit carryforwards are attributable to the operations of McDATA prior to the acquisition; the resulting tax benefit is recorded to goodwill. If these carryforwards are fully utilized against future earnings, our U.S. federal effective tax rate is expected to increase. To the extent that international revenues and earnings differ from those historically achieved, a factor largely influenced by the buying behavior of our OEM partners, or unfavorable changes in tax laws and regulations occur, our income tax provision could change.

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     Estimates and judgments are required in the calculation of certain tax liabilities and in the determination of the recoverability of certain of the deferred tax assets, which arise from variable stock option expenses, net operating losses, tax carryforwards and temporary differences between the tax and financial statement recognition of revenue and expense. SFAS No. 109, Accounting for Income Taxes (“SFAS 109”), also requires that the deferred tax assets be reduced by a valuation allowance, if based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods.

     In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence including our past operating results, the existence of cumulative losses in the most recent fiscal years and our forecast of future taxable income on a jurisdiction by jurisdiction basis. In determining future taxable income, we are responsible for assumptions utilized including the amount of state and federal pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgments about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. The combined company’s consecutive losses in two of the last four fiscal quarters and uncertainties related to our integration of McDATA, and subsequent business risks represented sufficient negative evidence to require a full valuation allowance. As of July 28, 2007, we had a valuation allowance against the deferred tax assets, which we intend to maintain until sufficient positive evidence exists to support reversal of the valuation allowance. Future reversals or increases to our valuation allowance could have a significant impact on our future operating results.

     In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions. We recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If our estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.

     In November 2005, we were notified by the Internal Revenue Service (“IRS”) that our domestic federal income tax return for the year ended October 25, 2003 was subject to audit. The IRS has issued two Notices of Proposed Adjustment (“NOPAs”) related to the research and development credit which the Company is contesting. In the second quarter of fiscal year 2007 we received three NOPAs related to transfer pricing. The Company is currently contesting these three adjustments and we believe we have adequate reserves to cover any potential assessments that may result from the examination. If upon resolution, we are required to pay an amount in excess of our provision, an incremental charge to earnings may result in the current period. No payments will result as we have sufficient loss carryforwards to offset the incremental taxable income resulting from the assessment.

     Stock compensation expense.

     Stock compensation expense for the three months ended July 28, 2007 and July 29, 2006 was as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Point Change
$9,712	3%	$8,469	5%	(2)%

     Stock compensation expense for the nine months ended July 28, 2007 and July 29, 2006 was as follows (in thousands):

July 28, 2007	% of Net Revenue	July 29, 2006	% of Net Revenue	% Point Change
$24,443	3%	$23,366	4%	(1)%

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     Stock compensation expense was included in the following statements of operations line items for the three and nine months ended July 28, 2007 and July 29, 2006 as follows (in thousands):

	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	July 28, 2007		July 29, 2006		July 28, 2007		July 29, 2006
Cost of goods sold	$	3,128	$	2,027	$	7,500	$	6,163
Research and development		2,992		3,403		7,802		9,084
Sales and marketing		2,453		2,029		6,114		5,457
General and administrative		1,139		1,010		3,027		2,662
Total stock compensation	$	9,712	$	8,469	$	24,443	$	23,366

     Included in the amounts presented above is stock compensation arising from stock option grants remeasured at their intrinsic value and subject to change in measurement date. Stock based compensation expense for these options was ($0.4) million and $1.8 million for the three months ended July 28, 2007 and July 29, 2006, respectively. Stock based compensation expense for these options was ($0.5) million and $1.9 million for the nine months ended July 28, 2007 and July 29, 2006, respectively. The stock compensation expense associated with remeasuring awards at their intrinsic value each reporting period will vary significantly as a result of future changes in the market value of our common stock until those options are either exercised or expire unexercised. The change in stock-based compensation for these awards during the three and nine months ended July 28, 2007 as compared to the three and nine months ended July 29, 2006 is due to a change in market values of our common stock during the reported periods as well as exercise behaviors of the holders of these options.

Liquidity and Capital Resources

	July 28,			October 28,			Increase/
	2007			2006			(Decrease)
	(in thousands)
Cash and cash equivalents	$	374,408		$	274,368		$	100,040
Short-term investments, restricted and unrestricted		313,902			267,694			46,208
Long-term investments		117,865			40,492			77,373
Total	$	806,175		$	582,554		$	223,621
Percentage of total assets		41	%		65	%

     Cash, cash equivalents, restricted short-term investments, and short-term and long-term investments as of July 28, 2007 increased $223.6 million over the balance as of October 28, 2006. For the three months and nine months ended July 28, 2007, we generated $36.3 million and $115.9 million in cash from operating activities, respectively, which significantly exceeded net income for the three and nine months ended July 28, 2007, respectively, as a result of non-cash items related to depreciation and amortization as well as acquisition related accounts receivable coupled with a relatively high level of collections during the periods. Days sales outstanding in receivables for the nine months ended July 28, 2007 was 45 days, compared with 38 days for the nine months ended July 29, 2006.

     Net cash provided by investing activities for the nine months ended July 28, 2007 totaled $155.5 million and was the result of $588.2 million in proceeds resulting from maturities and sales of short-term investments, $147.4 million cash acquired in connection with the merger with McDATA, proceeds from maturities and sale of long term investments of $10.9 million, offset by purchases of short-term and long-term investments for a total of $550.5 million and purchases of property and equipment of $41.5 million.

     Net cash used in financing activities for the nine months ended July 28, 2007 totaled $171.0 million. Net cash provided by financing activities was primarily the result of the redemption of the acquired CNT convertible debt for a total of $124.2 million, which we assumed in connection with the McDATA acquisition, coupled with common stock repurchases of $140.9 million, offset by proceeds from the issuance of common stock, net, of $90.7 million.

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

     We have manufacturing agreements with Foxconn, Sanmina and Solectron under which we provide twelve-month product forecasts and place purchase orders in advance of the scheduled delivery of products to our customers. The required lead-time for placing orders with Foxconn, Sanmina and Solectron depends on the specific product. As of July 28, 2007, our aggregate commitment

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for inventory components used in the manufacture of Brocade products was $127.6 million, net of purchase commitment reserves of $43.2 million, as reflected in the Condensed Consolidated Balance Sheet, which we expect to utilize during future normal ongoing operations. Although the purchase orders we place with Foxconn, Sanmina and Solectron are cancelable, the terms of the agreements require us to purchase all inventory components not returnable or usable by, or sold to, other customers of the aforementioned contract manufacturers. Our purchase commitments reserve reflects our estimate of purchase commitments we do not expect to consume in normal operations within the next twelve months, in accordance with our policy.

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

     The following table summarizes our contractual obligations (including interest expense) and commitments as of July 28, 2007 (in thousands):

				Less than						More than
	Total			1 Year		1—3 Years		3—5 Years		5 Years
Contractual Obligations:
Non-cancelable operating leases		110,641	(1)		25,576		48,162		13,918		22,985
Capital leases		2,566			1,989		577		—		—
Purchase commitments, gross		127,571	(2)		127,571		—		—		—
Total contractual obligations	$	240,778		$	155,136	$	48,739	$	13,918	$	22,985
Other Commitments:
Standby letters of credit	$	2,693		$	n/a	$	n/a	$	n/a	$	n/a
Guarantee	$	1,015		$	n/a	$	n/a	$	n/a	$	n/a

(1)	Amount excludes contractual sublease income of $8.5 million, which consists of $2.8 million to be received in less than 1 year, $5.6 million to be received in 1 through 3 years, and $0.1 million to be received in 3 to 5 years.
(2)	Amount reflects total gross purchase commitments under our manufacturing agreements with third party contract manufacturers. Of this amount, we have accrued $43.2 million for estimated purchase commitments that we do not expect to consume in normal operations within the next twelve months, in accordance with our policy.

     Share Repurchase Program. On January 29, 2007, the Company announced the authorization of $200 million for stock repurchases, which is in addition to the $52.7 million remaining under the previously announced $100 million stock repurchase program approved by our board of directors on August 2004. The purchases may be made, from time to time, in the open market or by privately negotiated transactions and will be funded from available working capital. The Company has also entered into written plan for the automatic repurchase of its securities in accordance with Section 10b5-1 of the Securities Exchange Act of 1934 as part of its share repurchase program. The number of shares to be purchased and the timing of purchases will be based on the level of our cash balances, general business and market conditions, and other factors, including alternative investment opportunities. For the three months ended July 28, 2007, we have repurchased 6.9 million shares for an aggregate purchase price of $60.2 million. As such, $132.7 million remains available for future repurchases under this program.

     Effective June 26, 2007, the Company implemented a 1-for-100 reverse stock split (the “Reverse Split”) immediately followed by a 100-for-1 forward stock split of the Company’s Common Stock (together with the Reverse Split, the “Reverse/Forward Split”) by filing amendments to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. For stockholders that held less than 100 shares of common stock prior to the Reverse Split, shares of common stock that would have been converted into less than one share in the Reverse Split were instead converted into the right to receive a cash payment equal to $8.44 per share, an amount equal to the average of the closing prices per share of common stock on the NASDAQ Global Select Market for the period of ten consecutive trading days ending on (and including) the effective date. For stockholders that held 100 or more shares of common stock in their account prior to the Reverse Split, any fractional share in such account resulting from the Reverse Split were not cashed out and the total number of shares held by such stockholder did not change as a result of the Reverse/Forward Split. A total of approximately 2.5 million shares of the Company’s common stock were cashed out into an aggregate of approximately $20.8 million as a result of the Reverse/Forward Split.

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Critical Accounting Policies

     Our discussion and analysis of financial condition and results of operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate, on an on-going basis, our estimates and judgments, including those related to sales returns, bad debts, excess inventory and purchase commitments, investments, warranty obligations, restructuring costs, lease losses, income taxes, and contingencies and litigation. We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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

• Revenue recognition, and allowances for sales returns, sales programs, and doubtful accounts;

• Stock-based compensation;

• Warranty reserves;

• Inventory valuation and purchase commitment liabilities;

• Restructuring charges and lease loss liabilities;

• Goodwill and intangible assets;

• Litigation costs; and

• Accounting for income taxes.

     Revenue recognition, and allowances for sales returns, sales programs, and doubtful accounts. Product revenue is generally recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is probable. However, for newly introduced products, many of our large OEM customers require a product qualification period during which our products are tested and approved by the OEM customer for sale to their customers. Revenue recognition, and related cost, is deferred for shipments to new OEM customers and for shipments of newly introduced products to existing OEM customers until satisfactory evidence of completion of the product qualification has been received from the OEM customer. In addition, revenue from sales to our master reseller customers is recognized in the same period in which the product is sold by the master reseller (sell-through).

     We reduce revenue for estimated sales returns, sales programs, and other allowances at the time of shipment. Sales returns, sales programs, and other allowances are estimated based on historical experience, current trends, and our expectations regarding future experience. Reductions to revenue associated with sales returns, sales programs, and other allowances include consideration of historical sales levels, the timing and magnitude of historical sales returns, claims under sales programs, and other allowances, and a projection of this experience into the future. In addition, we maintain allowances for doubtful accounts, which are also accounted for as a reduction in revenue, for estimated losses resulting from the inability of our customers to make required payments. We analyze accounts receivable, historical collection patterns, customer concentrations, customer creditworthiness, current economic trends, changes in customer payment terms and practices, and customer communication when evaluating the adequacy of the allowance for doubtful accounts. If actual sales returns, sales programs, and other allowances exceed our estimate, or if the financial condition of our customers was to deteriorate, resulting in an impairment of their ability to make payments, additional allowances and charges may be required.

     Service revenue consists of training and maintenance arrangements, including post-contract customer support (“PCS”) and other professional services. PCS services are offered under renewable, annual fee-based contracts or as part of multiple element arrangements and typically include upgrades and enhancements to our software operating system software, and telephone support. Service revenue, including revenue allocated to PCS elements, is deferred and recognized ratably over the contractual period. Service contracts are typically one to three years in length. Professional services are offered under fee based contracts or as part of multiple element arrangements. Professional service revenue is recognized as delivery of the underlying service occurs. Training revenue is recognized upon completion of the training.

     Our multiple-element product offerings include computer hardware and software products, and support services. We also sell certain software products and support services separately. Our software products, including those that are embedded in our hardware products and are essential to the functionality of our hardware products and are, therefore, accounted for in accordance with Statement

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of Position 97-2, Software Revenue Recognition (“SOP 97-2”), as amended. We allocate revenue to each element in a multiple element arrangement based upon vendor-specific objective evidence (“VSOE”) of the fair value of the element or, if VSOE is not available for the delivered elements, by application of the residual method. In the application of the residual method, we allocate revenue to the undelivered elements based on VSOE for those elements and allocate the residual revenue to the delivered elements. VSOE of the fair value for an element is based upon the price charged when the element is sold separately. Revenue allocated to each element is then recognized when the basic revenue recognition criteria are met for each element. Changes in the allocation of revenue to each element in a multiple element arrangement may affect the timing of revenue recognition.

     Stock-Based Compensation. Effective October 30, 2005 we began recording compensation expense associated with stock-based awards and other forms of equity compensation in accordance with SFAS 123R. We adopted the modified prospective transition method provided for under SFAS 123R. Under this transition method, compensation cost associated with stock-based awards recognized for fiscal year 2007 and fiscal year 2006 now includes 1) quarterly amortization related to the remaining unvested portion of stock-based awards granted prior to October 30, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123; and 2) quarterly amortization related to stock-based awards granted subsequent to October 30, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. In addition, we record expense over the offering period and vesting term in connection with 1) shares issued under our employee stock purchase plan and 2) stock options and restricted stock awards. The compensation expense for stock-based awards includes an estimate for forfeitures and is recognized over the expected term of the award under a graded vesting method.

     Prior to October 30, 2005, we accounted for stock-based awards using the intrinsic value method of accounting in accordance with APB 25, whereby the difference between the exercise price and the fair market value on the date of grant is recognized as compensation expense. Under the intrinsic value method of accounting, no compensation expense was recognized in our Condensed Consolidated Statements of Operations when the exercise price of our employee stock option grant equals the market price of the underlying common stock on the date of grant, and the measurement date of the option grant is certain. The measurement date is certain when the date of grant is fixed and determinable. Prior to October 30, 2005 when the measurement date was not certain, we recorded stock-based compensation expense using variable accounting under APB 25. Effective October 30 2005, for awards where the measurement date is not certain, we record stock-based compensation expense under SFAS 123R. Under SFAS 123R, we remeasure the intrinsic value of the options at the end of each reporting period until the options are exercised, cancelled or expire unexercised.

     Warranty reserves. We provide warranties on our products ranging from one to three years. Estimated future warranty costs are accrued at the time of shipment and charged to cost of revenues based upon historical experience, current trends and our expectations regarding future experience. If actual warranty costs exceed our estimate, additional charges may be required.

     Inventory valuation and purchase commitment liabilities. We write down inventory and record purchase commitment liabilities for estimated excess and obsolete inventory equal to the difference between the cost of inventory and the estimated fair value based upon forecast of future product demand, product transition cycles, and market conditions. Although we strive to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and commitments, and our reported results. If actual market conditions are less favorable than those projected, additional inventory write-downs, purchase commitment liabilities, and charges against earnings might be required.

     Restructuring charges and lease loss liabilities. We monitor and regularly evaluate our organizational structure and associated operating expenses. Depending on events and circumstances, we may decide to take additional actions to reduce future operating costs as our business requirements evolve. In determining restructuring charges, we analyze our future operating requirements, including the required headcount by business functions and facility space requirements. Our restructuring costs, and any resulting accruals, involve significant estimates made by management using the best information available at the time the estimates are made, some of which may be provided by third parties. In recording severance accruals, we record a liability when all of the following conditions have been met: employees’ rights to receive compensation for future absences is attributable to employees’ services already rendered; the obligation relates to rights that vest or accumulate; payment of the compensation is probable; and the amount can be reasonably estimated. In recording facilities lease loss accruals, we make various assumptions, including the time period over which the facilities are expected to be vacant, expected sublease terms, expected sublease rates, anticipated future operating expenses, and expected future use of the facilities. Our estimates involve a number of risks and uncertainties, some of which are beyond our control, including future real estate market conditions and our ability to successfully enter into subleases or lease termination agreements with terms as favorable as those assumed when arriving at our estimates. We regularly evaluate a number of factors to determine the appropriateness and reasonableness of our restructuring and lease loss accruals including the various assumptions noted above. If actual results differ significantly from our estimates, we may be required to adjust our restructuring and lease loss accruals in the future.

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     Goodwill and intangible assets. We account for goodwill in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 142 requires that goodwill be capitalized at cost and tested annually for impairment. We evaluate goodwill on an annual basis during our second fiscal quarter, or whenever events and changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized to the extent that the carrying amount exceeds the assets implied fair value. Events which might indicate impairment include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of economic environment on our customer base, material negative changes in relationships with significant customers, and/or a significant decline in our stock price for a sustained period. No goodwill impairment was recorded for the periods presented.

     Intangible assets other than goodwill are amortized over their useful lives, unless these lives are determined to be indefinite. Intangible assets are carried at cost less accumulated amortization. Amortization is computed over the estimated useful life of the respective asset. Intangible assets are reviewed for impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). We perform an impairment test for long-lived assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Examples of such events or circumstances include significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of acquired assets or the strategy for our business, significant negative industry or economic trends, and/or a significant decline in the Company’s stock price for a sustained period. Impairments are recognized based on the difference between the fair value of the asset and its carrying value, and fair value is generally measured based on discounted cash flow analyses. No intangible asset impairment was recorded for the periods presented.

     Litigation costs. We are subject to the possibility of legal actions arising in the ordinary course of business. We regularly monitor the status of pending legal actions to evaluate both the magnitude and likelihood of any potential loss. We accrue for these potential losses when it is probable that a liability has been incurred and the amount of loss, or possible range of loss, can be reasonably estimated. If actual results differ significantly from our estimates, we may be required to adjust our accruals in the future.

     Accounting for income taxes. We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts, along with net operating loss carryforwards and credit carryforwards. A valuation allowance is recognized to the extent that it is more likely than not that the tax benefits will not be realized. Income tax contingencies are accounted for in accordance with SFAS No. 5, Accounting for Contingencies (“SFAS 5”).

     The determination of our tax provision is subject to judgments and estimates due to operations in multiple tax jurisdictions inside and outside the United States. Sales to our international customers are principally taxed at rates that are lower than the United States statutory rates. The ability to maintain our current effective tax rate is contingent upon existing tax laws in both the United States and in the respective countries in which our international subsidiaries are located. Future changes in domestic or international tax laws could affect the continued realization of the tax benefits we are currently receiving and expect to receive from international sales. In addition, an increase in the percentage of our total revenue from international customers or in the mix of international revenue among particular tax jurisdictions could change our overall effective tax rate. Also, our current effective tax rate assumes that United States income taxes are not provided for undistributed earnings of certain non-United States subsidiaries. These earnings could become subject to United States federal and state income taxes and foreign withholding taxes, as applicable, should they be either deemed or actually remitted from our international subsidiaries to the United States.

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risks

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

Interest Rate Risk

     Our exposure to market risk due to changes in the general level of United States interest rates relates primarily to our cash equivalents and short-term and long-term investment portfolios. Our cash, cash equivalents, and short-term and long-term investments are primarily maintained at five major financial institutions in the United States. As of July 28, 2007, we held an immaterial amount of cash flow derivative instruments. The primary objective of our investment activities is the preservation of principal while maximizing investment income and minimizing risk.

     The following table presents the hypothetical changes in fair values of our investments as of July 28, 2007 that are sensitive to changes in interest rates (in thousands):

	Valuation of Securities						Fair Value		Valuation of Securities
	Given an Interest Rate						As of		Given an Interest Rate
	Decrease of X Basis Points						July 28,		Increase of X Basis Points
Issuer	(150 BPS)		(100 BPS)		(50 BPS)		2007		50 BPS		100 BPS		150 BPS
U.S. government agencies and municipal obligations	$	158,749	$	156,677	$	154,766	$	152,988	$	151,367	$	149,852	$	148,444
Corporate bonds and notes	$	251,120	$	250,067	$	249,023	$	248,010	$	246,984	$	245,964	$	244,953
Total	$	409,869	$	406,744	$	403,789	$	400,998	$	398,351	$	395,816	$	393,397

     These instruments are not leveraged and are classified as available-for-sale. The modeling technique used measures the change in fair values arising from selected potential changes in interest rates. Market changes reflect immediate hypothetical parallel shifts in the yield curve of plus or minus 50 basis points (BPS), 100 BPS, and 150 BPS, which are representative of the historical movements in the Federal Funds Rate.

     The following table (in thousands) presents our cash equivalents, short-term, restricted short-term, and long-term investments subject to interest rate risk and their related weighted average interest rates as of July 28, 2007. Carrying value approximates fair value.

			Weighted
			Average
	Amount		Interest Rate
Cash and cash equivalents	$	374,408		4.49	%
Short-term investments		313,902		5.77	%
Long-term investments		117,865		5.16	%
Total	$	806,175		5.07	%

     Our convertible subordinated debt is subject to a fixed interest rate and the notes are based on a fixed conversion ratio into common stock. As of July 28, 2007, the approximate aggregate fair value of the outstanding debt was $159.2. We estimated the fair value of the outstanding debt by using the high and low prices per $100 of the Company’s 2.25% Notes as of the last day of trading for the third fiscal quarter, which were $92.3 and $92.3, respectively.

     Our common stock is quoted on the NASDAQ Global Select Market under the symbol “BRCD.” On July 27, 2007, the last reported sale price of our common stock on the NASDAQ Global Market was $7.37 per share.

Item 4. Controls and Procedures

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

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

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

     (b) Changes in Internal Control Over Financial Reporting.

     There were no changes in our internal controls over financial reporting during the third quarter of fiscal 2007 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Limitations on the Effectiveness of Disclosure Controls and Procedures.

     Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected. The inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     From time to time, claims are made against Brocade in the ordinary course of its business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties or injunctions prohibiting Brocade from selling one or more products or engaging in other activities. The occurrence of an unfavorable outcome in any specific period could have a material adverse affect on the Brocade’s results of operations for that period or future periods.

     On July 20, 2001, the first of a number of putative class actions for violations of the federal securities laws was filed in the United States District Court for the Southern District of New York against Brocade, certain of its officers and directors, and certain of the underwriters for Brocade’s initial public offering of securities. A consolidated amended class action captioned In Re Brocade Communications Systems, Inc. Initial Public Offering Securities Litigation was filed on April 19, 2002. The complaint generally alleges that various underwriters engaged in improper and undisclosed activities related to the allocation of shares in Brocade’s initial public offering and seeks unspecified damages on behalf of a purported class of purchasers of common stock from May 24, 1999 to December 6, 2000. The lawsuit against Brocade is being coordinated for pretrial proceedings with a number of other pending litigations challenging underwriter practices in over 300 cases as In Re Initial Public Offering Securities Litigation, 21 MC 92(SAS). In October 2002, the individual defendants were dismissed without prejudice from the action, pursuant to a tolling agreement. On February 19, 2003, the Court issued an Opinion and Order dismissing all of the plaintiffs’ claims against Brocade. In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including Brocade, was submitted to the Court for approval. On August 31, 2005, the Court granted preliminary approval of the settlement. In December 2006, the appellate Court overturned the certification of classes in the six test cases (of which Brocade is not one) that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have filed amended master allegations and amended complaints in the six test cases.

     McDATA Corporation, Mr. John F. McDonnell, the former Chairman of the board of directors of McDATA, Mrs. Dee J. Perry and Mr. Thomas O. McGimpsey, both former officers of McDATA were named as defendants in purported securities class action lawsuits filed in the United States District Court, Southern District of New York. The first of these lawsuits, filed on July 20, 2001, is captioned Gutner v. McDATA Corporation, Credit Suisse First Boston (CSFB), Merrill Lynch, Pierce Fenner & Smith Incorporated, Bear, Stearns & Co., Inc., FleetBoston Robertson Stephens et al., No. 01 CIV. 6627. Three other similar suits were filed against McDATA and the individuals. The complaints are identical to numerous other complaints filed against other companies that went public in 1999 and 2000. These lawsuits generally allege, among other things, that the registration statements and prospectus filed with the SEC by such companies were materially false and misleading because they failed to disclose (a) that certain underwriters had

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allegedly solicited and received excessive and undisclosed commissions from certain investors in exchange for which the underwriters allocated to those investors material portions of shares in connection with the initial public offerings, or IPOs, and (b) that certain of the underwriters had allegedly entered into agreements with customers whereby the underwriters agreed to allocate IPO shares in exchange for which the customers agreed to purchase additional company shares in the aftermarket at pre-determined prices. The complaints allege claims against McDATA, the named individuals, and CSFB, the lead underwriter of McDATA’s August 9, 2000 initial public offering, under Sections 11 and 15 of the Securities Act. The complaints also allege claims solely against CSFB and the other underwriter defendants under Section 12(a) (2) of the Securities Act, and claims against the individual defendants under Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).. In October 2002, the individual defendants were dismissed without prejudice from the action, pursuant to a tolling agreement. On February 19, 2003, the Court entered a ruling on the pending motions to dismiss, which dismissed some, but not all, of the plaintiffs’ claims against McDATA. These lawsuits have been consolidated as part of In Re Initial Public Offering Securities Litigation (SDNY). In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including McDATA, was submitted to the Court for approval. On August 31, 2005, the Court preliminarily approved the proposed settlement. In December 2006, the appellate Court overturned the certification of the classes in the six test cases (of which McDATA is not one) that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have filed amended master allegations and amended complaints in the six test cases.

     A shareholder class action lawsuit was filed against Inrange Technologies Corporation (which was first acquired by CNT and subsequently acquired by McDATA as part of the CNT acquisition) and certain of its officers on November 30, 2001, in the United States District Court for the Southern District of New York, seeking recovery of damages caused by Inrange’s alleged violation of securities laws, including section 11 of the Securities Act and section 10(b) of the Exchange Act. The complaint, which was also filed against the various underwriters that participated in Inrange’s initial public offering (IPO), is identical to hundreds of shareholder class actions pending in this Court in connection with other recent IPOs and is generally referred to as In re Initial Public Offering Securities Litigation. The complaint alleges, in essence, (a) that the underwriters combined and conspired to increase their respective compensation in connection with the IPO by (i) receiving excessive, undisclosed commissions in exchange for lucrative allocations of IPO shares, and (ii) trading in Inrange’s stock after creating artificially high prices for the stock post-IPO through “tie-in” or “laddering” arrangements (whereby recipients of allocations of IPO shares agreed to purchase shares in the aftermarket for more than the public offering price for Inrange shares) and dissemination of misleading market analysis on Inrange’s prospects; and (b) that Inrange violated federal securities laws by not disclosing these underwriting arrangements in its prospectus. The defense has been tendered to the carriers of Inrange’s director and officer liability insurance, and a request for indemnification has been made to the various underwriters in the IPO. At this point, the insurers have issued a reservation of rights letter and the underwriters have refused indemnification. The Court has granted Inrange’s motion to dismiss claims under section 10(b) of the Exchange Act because of the absence of a pleading of intent to defraud. The Court granted plaintiffs leave to replead these claims, but no further amended complaint has been filed. The Court denied Inrange’s motion to dismiss claims under section 11 of the Securities Act. The Court has also dismissed Inrange’s individual officers without prejudice, pursuant to a tolling agreement with the plaintiffs. In June 2004, a stipulation of settlement and release against the issuer defendants, including Inrange was submitted to the Court for approval. On August 31, 2005, the Court preliminarily approved the proposed settlement. In December 2006, the appellate Court overturned the certification of classes in the six test cases (of which Inrange is not one) that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have file amended master allegations and amended complaints in the six test cases.

     On May 16, 2005, Brocade announced that the SEC and the Department of Justice, or the DOJ, at such time were conducting an investigation regarding Brocade’s historical stock option granting processes. Brocade has been cooperating with the SEC and DOJ. During the first quarter of fiscal year 2006, Brocade began active settlement discussions with the Staff of the SEC’s Division of Enforcement, or the Staff, regarding its financial restatements related to stock option accounting. As a result of these discussions, for the three months ended January 28, 2006, Brocade recorded a $7.0 million provision for an estimated settlement expense. The $7.0 million estimated settlement expense was based on an offer of settlement that Brocade made to the Staff and was subject to final approval by the SEC’s Commissioners. On May 31, 2007, the offer of settlement was approved by the SEC’s Commissioners. On August 27, 2007, final judgment approving the settlement was entered by the United States District Court for the Northern District of California. The $7.0 million was paid on August 31, 2007.

     Beginning on or about May 19, 2005, several securities class action complaints were filed against Brocade and certain of its current and former officers. These actions were filed in the United States District Court for the Northern District of California on behalf of purchasers of Brocade’s stock from February 2001 to May 2005. These lawsuits followed Brocade’s restatement of certain financial results due to stock-based compensation accounting issues. On January 12, 2006, the Court appointed a lead plaintiff and

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lead counsel. On April 14, 2006, the lead plaintiff filed a consolidated complaint on behalf of purchasers of Brocade’s stock from May 2000 to May 2005. The consolidated complaint alleges, among other things, violations of sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The consolidated complaint generally alleges that Brocade and the individual defendants made false or misleading public statements regarding Brocade’s business and operations and seeks unspecified monetary damages and other relief against the defendants. These lawsuits followed Brocade’s restatement of certain financial results due to stock-based compensation accounting issues.

     Beginning on or about May 24, 2005, several derivative actions were also filed against certain of Brocade’s current and former directors and officers. These actions were filed in the United States District Court for the Northern District of California and in the California Superior Court in Santa Clara County. The complaints allege that certain of Brocade’s officers and directors breached their fiduciary duties to Brocade by engaging in alleged wrongful conduct including conduct complained of in the securities litigation described above. Brocade is named solely as a nominal defendant against whom the plaintiffs seek no recovery. The derivative actions pending in the District Court for the Northern District of California were consolidated and the Court created a Lead Counsel structure. The derivative plaintiffs filed a consolidated complaint in the District Court for the Northern District of California on October 7, 2005, and Brocade filed a motion to dismiss that action on October 27, 2005. On January 6, 2006, Brocade’s motion was granted and the consolidated complaint in the District Court for the Northern District of California was dismissed with leave to amend. The parties to this action subsequently reached a preliminary settlement, and on February 14, 2007, the Court entered an Order granting preliminary approval of the settlement. Objections to the settlement have been filed, and the settlement remains subject to final approval by the Court.

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

     No amounts have been recorded in Brocade’s Consolidated Financial Statements associated with these matters as the amounts are not probable and reasonably estimable other than the $7.0 million provision for an estimated settlement expense with the SEC as noted above, which settlement received final court approval on August 27, 2007 and the $7.0 million settlement amount was released to the SEC.

Item 1A. Risk Factors

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

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

     Brocade has introduced a significant number of new products in recent history, including products across its SAN product family, which accounts for a substantial portion of Brocade’s revenues. For example, recent product introductions in the SAN market include the Brocade 5000, Brocade’s first interoperable platform with McDATA’s classic director and switch products. Brocade also anticipates new product offerings based on 8 Gigabit per second, or Gbit, technology solutions in fiscal year 2008.

     Brocade must achieve widespread market acceptance of Brocade’s new products and service offerings in order to realize the benefits of Brocade’s investments. The rate of market adoption is also critical. The success of Brocade’s product and service offerings depends on numerous factors, including its ability to:

• properly define the new products and services;

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• timely develop and introduce the new products and services;

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

• address the complexities of interoperability of Brocade’s products with its OEM partners’ server and storage products and its competitors’ products.

     Various factors impacting market acceptance are outside of Brocade’s control, including the availability and price of competing products, and alternative technologies; product qualification requirements by Brocade’s OEM partners, which can cause delays in the market acceptance; and the ability of its OEM partners to successfully distribute, support and provide training for its products. If Brocade is not able to successfully develop and market new and enhanced products and services, its business and results of operations will be harmed.

Brocade is currently expanding its product and service offerings in new and adjacent markets, and Brocade’s operating results will suffer if these initiatives are not successful.

     Brocade has made a series of investments, and plans to continue to invest, in offerings focused on new markets that are adjacent or related to Brocade’s traditional market, including new and emerging markets. For instance, Brocade has recently made a series of introductions in the emerging File Area Network (FAN) market with several enhancements to existing products in its family of file management software solutions which includes Brocade StorageX, Brocade Wide Area File Services, or WAFS, and Brocade File Lifecycle Manager, or FLM. Brocade has also recently announced new host bus adapter (HBA) product offerings in the Server Connectivity market. In addition, Brocade has added multiple new professional service offerings to its solution portfolio.

     Part of Brocade’s growth strategy is to derive competitive advantage and drive incremental revenue growth through such investments. As a result, Brocade believes these new markets could substantially increase its total available market opportunities. However, Brocade cannot be certain that it has accurately identified and estimated these market opportunities. Moreover, Brocade cannot assure you that its new strategic offerings will achieve market acceptance, or that Brocade will realize the full benefits from the substantial investments it has made and plans to continue to make in them. Brocade may also have only limited experience in these new markets given that such markets are adjacent or parallel to Brocade’s core market. As a result, Brocade may not be able to successfully penetrate or realize anticipated revenue from these new potential market opportunities. Brocade also faces greater challenges in accurately forecasting its revenue and margins with respect to these market opportunities.

     Developing new offerings also requires significant, upfront, investments that may not result in revenue for an extended period of time, if at all. Particularly as Brocade seeks to diversify its product and service offerings, Brocade expects to incur significant costs and expenses for product development, sales, marketing and customer services, most of which are fixed in the short-term or incurred in advance of receipt of corresponding revenue. In addition, these investments have caused, and will likely continue to result in, higher operating expenses and if they are not successful, Brocade’s operating income and operating margin will deteriorate. These new offerings may also involve cost and revenue structures that are different from those experienced in Brocade’s historical business, which would impact Brocade’s operating results.

     Because these new offerings may address different market needs than those it has historically addressed, Brocade may face a number of additional challenges, such as:

• developing new customer relationships both with new and existing customers;

• expanding Brocade’s relationships with its existing OEM partners and end-users;

• managing different sales cycles;

• hiring qualified personnel with appropriate skill sets on a timely basis; and

• establishing effective distribution channels and alternative routes to market.

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     Brocade’s new product and service offerings also may contain some features that are currently offered by Brocade’s OEM partners, which could cause conflicts with partners on whom Brocade relies to bring its current products to customers and thus negatively impact Brocade’s relationship with such partners.

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

     The storage network and data management markets continue to be very competitive as new products, services and technologies are introduced by existing competitors and as new competitors enter the market. Increased competition in the past has resulted in greater pricing pressure, and reduced sales, margins, profits and market share. For example, Brocade expects to experience increased competition in future periods as other companies gain market acceptance with recently released 4 Gbit products that are intended to compete with Brocade’s 4 Gbit products. Moreover, new competitive products could be based on existing technologies or new technologies that may or may not be compatible with Brocade’s storage network technology. Technologies that could disrupt or compete with Brocade’s products could include Fibre Channel over Ethernet (“FCoE”) and non-Fibre Channel based emerging products utilizing Gigabit Ethernet, 10 Gigabit Ethernet, InfiniBand, or Internet Small Computer System Interface (“iSCSI”).

     In addition to competing technology solutions, Brocade faces significant competition from providers of Fibre Channel switching products for interconnecting servers and storage. These principle competitors include Cisco Systems and QLogic Corporation. Brocade also faces other competitors in markets adjacent to the SAN market, such as Cisco and F5 Networks in the FAN market and QLogic and Emulex in the Server Connectivity market. In addition, Brocade’s OEM partners, who also have relationships with some of Brocade’s current competitors, could become new competitors by developing and introducing products that compete with Brocade’s product offerings, by choosing to sell Brocade’s competitors’ products instead of Brocade’s products, or by offering preferred pricing or promotions on Brocade’s competitors’ products. Competitive pressure will likely intensify as Brocade’s industry experiences further consolidation in connection with mergers by Brocade, its competitors and its OEM partners.

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

     Brocade’s competitors may also put pressure on Brocade’s distribution model of selling products to customers through OEM solution providers by focusing a large number of sales personnel on end-user customers or by entering into strategic partnerships. For example, one of Brocade’s competitors has formed a strategic partnership with a provider of network storage systems, which includes an agreement whereby Brocade’s competitor resells the storage systems of its partner in exchange for sales by the partner of Brocade’s competitor’s products. Such strategic partnerships, if successful, may influence Brocade to change Brocade’s traditional distribution model.

Brocade’s revenues will be affected by changes in domestic and international information technology spending and overall demand for storage area network solutions.

     In the past, unfavorable or uncertain economic conditions and reduced global information technology spending rates have adversely affected Brocade’s operating results. For example, in the third quarter of fiscal 2007 the SAN market experienced cautious enterprise spending in North America. Brocade is unable to predict changes in general economic conditions and when information technology spending rates will be affected. If there are future reductions in either domestic or international information technology spending rates, or if information technology spending rates do not improve, Brocade’s revenues, operating results and financial condition may be adversely affected.

     Even if information technology spending rates increase, Brocade cannot be certain that the market for storage network and data management solutions will be positively impacted. Brocade’s storage networking products are sold as part of storage systems and subsystems. As a result, the demand for Brocade’s storage networking products has historically been affected by changes in storage requirements associated with growth related to new applications and an increase in transaction levels. Although in the past Brocade has experienced historical growth in Brocade’s business as enterprise-class customers have adopted storage area network technology, demand for storage network products in the enterprise-class sector could be adversely affected if the overall economy weakens or experiences greater uncertainty, or if larger businesses were to decide to limit new equipment purchases. If information technology spending levels are restricted, and new products improve Brocade’s customers’ ability to utilize their existing storage infrastructure, the demand for storage network products may decline. If this occurs, Brocade’s business and financial results will be harmed.

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

     As Brocade introduces new or enhanced products, Brocade must successfully manage the transition from older products to minimize disruption in customers’ ordering patterns, avoid excessive levels of older product inventories and provide sufficient supplies of new products to meet customer demands. For example, Brocade’s introduction of 4 Gigabit per second, or Gbit, technology solutions that replaced many of Brocade’s 2 Gbit products contributed to a quarterly drop in revenue in the third quarter of fiscal year 2005 and write-downs of $3.4 million and $1.8 million for excess and obsolete inventory during the third and fourth quarters of fiscal year 2005, respectively. When Brocade introduces new or enhanced products, such as new products based on 8 Gbit technology anticipated for fiscal 2008, Brocade faces numerous risks relating to product transitions, including the inability to accurately forecast demand, address new or higher product cost structures and manage different sales and support requirements due to the type or complexity of the new products. In addition, any customer uncertainty regarding the timeline for rolling out new products or Brocade’s plans for future support of existing products, may negatively impact customer purchase decisions.

Brocade depends on OEM partners for a majority of Brocade’s revenues, and the loss of any of these OEM partners or a decrease in their purchases could significantly reduce Brocade’s revenues and negatively affect Brocade’s financial results.

     Brocade depends on recurring purchases from a limited number of large OEM partners for the majority of its revenue. As a result, these large OEM partners have a significant influence on Brocade’s quarterly and annual financial results. Brocade’s agreements with its OEM partners are typically cancelable, non-exclusive, have no minimum purchase requirements and have no specific timing requirements for purchases. For fiscal year 2006, three customers each represented ten percent or more of Brocade’s total revenues for a combined total of 73 percent. Brocade anticipates that its revenues and operating results will continue to depend on sales to a relatively small number of OEM partners. The loss of any one significant OEM partner, or a decrease in the level of sales to any one significant OEM partner, or unsuccessful quarterly negotiation on key terms, conditions or timing of purchase orders placed during a quarter, would likely cause serious harm to Brocade’s business and financial results.

     In addition, some of Brocade’s OEM partners purchase Brocade’s products for their inventories in anticipation of customer demand. These OEM partners make decisions to purchase inventory based on a variety of factors, including their product qualification cycles and their expectations of end customer demand, which may be affected by seasonality and their internal supply management objectives. Others require that Brocade maintain inventories of Brocade’s products in hubs adjacent to their manufacturing facilities and purchase Brocade’s products only as necessary to fulfill immediate customer demand. If more of Brocade’s OEM partners transition to a hub model, form partnerships, alliances or agreements with other companies that divert business away from Brocade; or otherwise change their business practices, their ordering patterns may become less predictable. Consequently, changes in ordering patterns may affect both the timing and volatility of Brocade’s reported revenues. The timing of sales to Brocade’s OEM partners, and consequently the timing and volatility of Brocade’s reported revenues, may be further affected by the product introduction schedules of Brocade’s OEM partners.

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

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

     Brocade believes that the acquisition of McDATA will result in certain benefits, including certain cost synergies, product innovations, and operational efficiencies. However, Brocade’s ability to realize these anticipated benefits depends on successfully combining the businesses of Brocade and McDATA. Challenges of integration include the ability to incorporate acquired products and business technology into its existing product lines, including consolidating technology with duplicative functionality or designed on a different technological architecture and provide for interoperability, and its ability to sell the acquired products through Brocade’s existing or acquired sales channels. The combined company may fail to realize the anticipated benefits of the merger on a timely basis, or at all, for a variety of reasons, including the following:

• revenue attrition in excess of anticipated levels;

• existing customers may alter or reduce their historical buying patterns;

• failure to successfully manage relationships with original equipment manufacturers, (“OEMs”), end-users, distributors and suppliers;

• failure to successfully develop interoperability between the products of Brocade and McDATA;

• failure to leverage the increased scale of the combined company quickly and effectively;

• failure to combine product offerings and product lines quickly and effectively.

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

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

• the loss of key employees.

     The integration of McDATA into Brocade has resulted in and is expected to continue to result in, significant expenses and accounting charges that adversely affect Brocade’s operating results and financial condition. While Brocade believes that the integration effort is substantially completed, Brocade may continue to experience additional expenses and charges due to the acquisition. Additional costs may include: increased costs of manufacturing and service costs; costs associated with excess or obsolete inventory; costs of employee redeployment; relocation and retention, including salary increases or bonuses; accelerated amortization of deferred equity compensation and severance payments; reorganization or closure of facilities; and taxes; advisor and professional fees and termination of contracts that provide redundant or conflicting services. Some of these costs may have to be accounted for as expenses that would decrease Brocade’s net income and earnings per share for the periods in which those adjustments are made. The price of Brocade’s common stock could decline to the extent Brocade’s financial results are materially affected by the foregoing charges and costs, or if the foregoing charges and costs are larger than anticipated. In addition, Brocade may also experience claims of unlawful termination of employment in connection with the reduction in force as part of the McDATA acquisition. Employment litigation can be costly, may distract management’s attention from the day-to-day operation of the business and is inherently unpredictable. If Brocade is not able to successfully integrate McDATA’s business and operations, or if there are delays in combining the businesses, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

General customer uncertainty regarding the acquisition of McDATA Corporation could harm Brocade.

     Uncertainty about the effect of the acquisition of McDATA Corporation on customers, employees, distributors and suppliers may have an adverse effect on Brocade. Customer concerns about changes or delays in the product roadmap of the combined company may negatively affect customer purchasing decisions, such as deferral of purchase decisions or reduced purchases. Customers could be reluctant to purchase the products and services of the combined company due to uncertainty about the direction of their technology, products and services, and willingness to support and service existing products which may be discontinued. This uncertainty may also be used as a competitive advantage by Brocade’s competitors to cause customers to purchase a competitor’s products in lieu of Brocade’s products. As a result, there may be a loss of revenue opportunities and market share for the combined company. If customers delay or defer purchasing decisions, or choose to purchase from a competitor, the revenues of the combined company could materially decline or any anticipated increases in revenue could be lower than expected.

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The gross margins of the combined company’s products and services may decline, which would reduce our profitability.

     Because certain product and service offerings acquired in connection with our acquisition of McDATA have lower gross margins and higher costs than comparable product and service offerings of Brocade prior to the acquisition, the gross margins and profitability of the combined company has been adversely affected. For example, gross margin decreased from 59.2 percent in the third quarter of fiscal 2006 to 50.6 percent in the third quarter of fiscal 2007. To maintain our recent levels of gross margin, we may need to maintain or increase current shipment volumes, develop and introduce new products, product enhancements and service offerings, and reduce the costs of our products and services. Our ability to make such adjustments may be limited, particularly in the short-term. If this occurs, we could incur losses, and our revenue, gross margins and operating results may be below our expectations and those of investors and stock market analysts.

     Brocade has also elected to exit certain historical business lines of McDATA that do not provide operating margins in line with Brocade’s long-term operating model or are otherwise not deemed by Brocade to be strategic on a long-term basis. In such cases, the combined company has, and may continue to experience revenue shortfalls and existing customer relationships could be disrupted. In addition, Brocade may not be able to exit selected business lines on a timely basis, which would reduce the Company’s overall operating margins or cause customer uncertainty, thereby reducing revenues with respect to such business lines.

Failure to manage expansion effectively could seriously harm our business, financial condition and prospects.

     We continue to increase the scope of our operations domestically and internationally, particularly as a result of our acquisition of McDATA which significantly increased the size of our operations, and as a result of our expanded product and service offerings. Our ability to successfully implement our business plan, develop and offer products, and manage expansion in a rapidly evolving market requires a comprehensive and effective planning and management process. Moreover, our growth in business and relationships with customers and other third parties has placed, and will continue to place, a significant strain on management systems, resources, intercompany communications and coordination. Failure to maintain and to continue to improve upon our operational, managerial and financial controls, reporting systems, processes and procedures, and/or our failure to continue to expand, train, and manage our work force worldwide, could seriously harm our business and financial results.

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

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

     Brocade’s ability to accurately forecast demand also may become increasingly more difficult in the event of acquisitions of other companies or businesses. Acquired companies or businesses may offer less visibility into demand than Brocade typically has experienced, may cause customer uncertainty regarding purchasing decisions, and may use different measures to evaluate demand that are less familiar to Brocade and thus more difficult to accurately predict.

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

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

     The average selling price for Brocade’s products, including products of McDATA acquired in connection with our acquisition of McDATA, has declined in the past, and Brocade expects it to continue to decline in the future as a result of changes in product mix, competitive pricing pressure, increased sales discounts, new product introductions by Brocade or Brocade’s competitors, the entrance of new competitors or other factors. For example, while the pricing environment for the past several quarters has been more favorable than historical levels, price declines may increase as competitors ramp up product releases that compete with Brocade’s 4 Gbit products. If Brocade is unable to offset any negative impact that changes in product mix, competitive pricing pressures, increased sales discounts, enhanced marketing programs, new product introductions by Brocade or Brocade’s competitors, or other factors may have on it by increasing the volume of products shipped or reducing product manufacturing cost, Brocade’s total revenues and gross margins will be negatively impacted.

     In addition, to maintain Brocade’s gross margins Brocade must maintain or increase the number of products shipped, develop and introduce new products and product enhancements, and continue to reduce the manufacturing cost of Brocade’s products. While Brocade has successfully reduced the cost of manufacturing Brocade’s products in the past, Brocade may not be able to continue to reduce cost of production at historical rates. Moreover, most of Brocade’s expenses are fixed in the short-term or incurred in advance of receipt of corresponding revenue. As a result, Brocade may not be able to decrease its spending quickly enough or in sufficient amounts to offset any unexpected shortfall in revenues. If this occurs, Brocade could incur losses, Brocade’s operating results and gross margins could be below its expectations and the expectations of investors and stock market analysts, and its stock price could be negatively affected.

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

     Brocade purchases certain key components used in the manufacture of its products from single or limited sources. Brocade purchases specific ASICs from a single source, and Brocade purchases microprocessors, certain connectors, small form-factor pluggable transceivers, or SFP’s, logic chips, power supplies and programmable logic devices from limited sources. Brocade also licenses certain third-party software that is incorporated into Brocade’s operating system software and other software products. If Brocade is unable to obtain these and other components when required or Brocade experiences significant component defects, Brocade may not be able to deliver Brocade’s products to Brocade’s customers in a timely manner. As a result, Brocade’s business and financial results could be harmed.

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

Although Brocade reached a settlement with the SEC in May 2007 with regard to Brocade’s historical stock option granting practices, certain former employees of Brocade are subject to ongoing actions by the SEC and other governmental entities, which have required, and may continue to require, a significant amount of legal expense pursuant to indemnification obligations of Brocade, which could adversely affect Brocade’s results of operations and cash flows.

     In May 2007, the Company reached a settlement with the SEC regarding the previously-disclosed SEC investigation of the Company’s historical stock option granting practices. Pursuant to the terms of the settlement and without admitting or denying the allegations in the SEC’s complaint, the Company agreed to pay a civil penalty of $7 million. While Brocade does not expect or anticipate any action by the Department of Justice, or DOJ, with respect to the Company, this statement is only a prediction based on current information available to the Company and it is subject to the risk that circumstances may change with respect to the DOJ.

     In addition, the SEC and the DOJ are continuing to investigate and pursue actions against certain former executive officers of Brocade. While those actions are targeted against certain former executive officers and not Brocade, Brocade has certain indemnification obligations to such former officers for legal expenses incurred in connection with such actions, which may result in significant expense to Brocade. Whether Brocade may be entitled to recoup all or a portion of the expenses paid by Brocade on behalf of such former officers is complex and can be affected by, among other things, various state laws, the interpretation of indemnification agreements and the collectability of any such amounts.

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Brocade has been named as a party to several class action and derivative action lawsuits arising from Brocade’s internal reviews and related restatements of Brocade’s financial statements during 2005, and Brocade may be named in additional litigation, all of which could require significant management time and attention and result in significant legal expenses as well as result in an unfavorable outcome which could have a material adverse effect on Brocade’s business, financial condition, results of operations and cash flows.

     Brocade is subject to a number of lawsuits arising from Brocade’s internal reviews and the related restatements of Brocade’s financial statements in 2005, some purportedly filed on behalf of a class of Brocade’s stockholders, against Brocade and certain of its executive officers claiming violations of securities laws and others purportedly filed on behalf of Brocade against certain of Brocade’s executive officers and board members, and Brocade may become the subject of additional private or government actions. The expense of defending such litigation may be significant. The amount of time to resolve these lawsuits is unpredictable and defending Brocade may divert management’s attention from the day-to-day operations of Brocade’s business, which could adversely affect Brocade’s business, results of operations and cash flows. In addition, an unfavorable outcome in such litigation, such as a court judgment against the Company resulting in monetary damages or penalties, could have a material adverse effect on Brocade’s business, results of operations and cash flows.

The failure to successfully consolidate our third party contract manufacturing could adversely affect our business.

     We currently use three third party contract manufacturers for a substantial part of our business and have only limited overlap of our products among the contract manufacturers. Particularly as a result of our acquisition of McDATA, we may seek to consolidate product manufacturing to fewer third party contract manufacturers. To the extent we elect to change or reduce contract manufacturers, we will be subject to a number of risks, including potential product delays or other production problems, and administrative or logistical obstacles during the transition, which may result in loss of revenue and harm our customer relationships. In addition, the third party contract manufacturers would likely be located overseas, which would expose us to additional risks, including unexpected changes in regulatory requirements and tariffs, and potentially adverse tax consequences, all of which could harm our business. If we do not successfully transition our manufacturing to overseas markets, or if we are not successful in the implementation of this overseas manufacturing, our ability to manufacture and sell our products could be substantially impaired.

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

     Many of Brocade’s OEM partners experience uneven sales patterns in their businesses due to the cyclical nature of information technology spending. For example, some of Brocade’s partners close a disproportionate percentage of their sales transactions in the last month, weeks and days of each fiscal quarter, and other partners experience spikes in sales during the fourth calendar quarter of each year. Because the majority of Brocade’s sales are derived from a small number of OEM partners, when they experience seasonality, Brocade typically experiences similar seasonality. Historically, Brocade’s first and fourth fiscal quarters are seasonally stronger quarters than its second and third fiscal quarters. In addition, Brocade has experienced quarters where uneven sales patterns of Brocade’s OEM partners have resulted in a significant portion of Brocade’s revenue occurring in the last month of Brocade’s fiscal quarter. This exposes Brocade to additional inventory risk as it has to order products in anticipation of expected future orders and additional sales risk if Brocade is unable to fulfill unanticipated demand. Brocade is not able to predict the degree to which the seasonality and uneven sales patterns of Brocade’s OEM partners or other customers will affect Brocade’s business in the future particularly as Brocade release new products.

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

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

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

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

• seasonal fluctuations;

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• long and complex sales cycles;

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

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

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

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

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

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

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

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

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

• pending or threatened litigation;

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

• new legislation and regulatory developments; and

• other risk factors detailed in this section entitled “Risks Related to Brocade’s Business.”

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

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

     Brocade has in the past, and may in the future, acquire or make strategic investments in additional companies, products or technologies. Examples of recent acquisitions in addition to the acquisition of McDATA Corporation in January 2007 include the acquisition of Silverback Systems, Inc. in January 2007 and NuView, Inc. in March 2006. Brocade may not realize the anticipated benefits of these or any other mergers or strategic investments, which involve numerous risks, including:

• problems integrating the purchased operations, technologies, personnel or products over geographically disparate locations;

• assumption of debt and contingent liabilities;

• unanticipated costs, litigation and other contingent liabilities;

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

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

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

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

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

• incurrence of merger-related costs or amortization costs for acquired intangible assets that could impact Brocade’s operating results;

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

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

• dilution of the percentage of Brocade’s stockholders to the extent equity is used as consideration or option plans are assumed; and

• potential loss of Brocade’s key employees or the key employees of an acquired organization.

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

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

     Brocade’s success depends to a significant degree upon the continued contributions of key management, engineering, sales and other personnel, many of whom would be difficult to replace. Brocade believes its future success will also depend, in large part, upon Brocade’s ability to attract and retain highly skilled managerial, engineering, sales and other personnel, and on the ability of management to operate effectively, both individually and as a group, in geographically disparate locations. There are only a limited number of qualified personnel in the applicable market and competition for such employees is fierce. Brocade has experienced difficulty in hiring qualified personnel in areas such as application specific integrated circuits, software, system and test, sales, marketing, service, key management and customer support. In addition, Brocade’s past reductions in force could potentially make attracting and retaining qualified employees more difficult in the future. Brocade’s ability to hire qualified personnel may also be negatively impacted by Brocade’s internal reviews and financial statement restatements in 2005, related investigations by the SEC and DOJ, and Brocade’s stock price. Brocade’s ability to retain qualified personnel may also be affected by future acquisitions, which can cause uncertainty and loss of key personnel. The loss of the services of any of Brocade’s key employees, the inability to attract or retain qualified personnel in the future, or delays in hiring required personnel, particularly engineers and sales personnel, could delay the development and introduction of, and negatively affect Brocade’s ability to sell its products or services.

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

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

     Brocade is subject to various environmental and other regulations governing product safety, materials usage, packaging and other environmental impacts in the various countries where Brocade’s products are sold. For example, many of Brocade’s products are subject to laws and regulations that restrict the use of mercury, hexavalent chromium, cadmium and other substances, and require producers of electrical and electronic equipment to assume responsibility for collecting, treating, recycling and disposing of Brocade’s products when they have reached the end of their useful life. For example, in Europe substance restrictions apply to products sold, and certain of Brocade’s OEM partners require compliance with these or more stringent requirements. In some cases Brocade redesigned Brocade’s products to comply with these substance restrictions as well as related requirements imposed by Brocade’s OEM customers. In addition, recycling, labeling, financing and related requirements apply to products Brocade sells in Europe. China has also enacted similar legislation with a compliance deadline of March 1, 2007. Brocade is also coordinating with Brocade’s suppliers to provide Brocade with compliant materials, parts and components. Despite Brocade’s efforts to ensure that Brocade’s products comply with

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new and emerging requirements, Brocade cannot provide absolute assurance that its products will, in all cases comply with such requirements. If Brocade’s products do not comply with the substance restrictions in Europe or China or other applicable environmental laws, Brocade could become subject to fines, civil or criminal sanctions, and contract damage claims. In addition, Brocade could be prohibited from shipping non-compliant products into one or more jurisdictions, and required to recall and replace any non-compliant products already shipped, which would disrupt Brocade’s ability to ship products and result in reduced revenue, increased obsolete or excess inventories and harm to Brocade’s business and customer relationships. Brocade’s suppliers may also fail to provide it with compliant materials, parts and components despite Brocade’s requirement to them to provide compliant materials, parts and components, which could impact Brocade’s ability to timely produce compliant products and, accordingly could disrupt Brocade’s business. In addition, various other countries and states in the United States have issued, or are in the process of issuing, other environmental regulations that may impose additional restrictions or obligations and require further changes to Brocade’s products.

Brocade’s future operating expenses may be adversely affected by changes in Brocade’s stock price.

     A portion of Brocade’s outstanding stock options are subject to variable accounting. Under variable accounting, Brocade is required to remeasure the value of the options, and the corresponding compensation expense, at the end of each reporting period until the option is exercised, cancelled or expires unexercised. As a result, the stock-based compensation expense Brocade recognizes in any given period can vary substantially due to changes in the market value of Brocade’s common stock. Volatility associated with stock price movements has resulted in compensation benefits when Brocade’s stock price has declined and compensation expense when Brocade’s stock price has increased. For example, the market value of Brocade’s common stock at the end of the third and fourth quarters of fiscal year 2005 and the first quarter of 2006 was $4.48, $3.60 and $4.62 per share, respectively. Accordingly, Brocade recorded compensation expense (benefit) in the fourth quarter of fiscal year 2005 and the first quarter of fiscal year 2006 of approximately $(0.2) million and $0.3 million, respectively. Brocade is unable to predict the future market value of Brocade’s common stock and therefore is unable to predict the compensation expense or benefit that Brocade will record in future periods.

Providing telecommunications services to our customers subjects us to new risks, such as additional governmental regulation, which may impede our business.

     As part of our acquisition of McDATA, we now offer certain telecommunication services. Our provision of telecommunications and bandwidth to our customers subjects us to various risks. The telecommunications industry is heavily regulated by state and federal governments, and changes in these regulations could make it difficult for us to compete. In addition, the regulatory framework under which we operate and new regulatory requirements or new interpretations of existing regulatory requirements could require substantial time and resources for compliance, which could make it difficult for us to operate our business. Such regulation could also impede our ability to enter into change-of-control transactions. In addition, telecommunications networks and circuits can fail which would make it difficult for us to attract and retain clients. In addition, we may experience difficulty in obtaining or developing circuits to provide to our clients.

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

     A significant portion of Brocade’s sales occur in international jurisdictions and Brocade’s contract manufacturer has significant operations in China. Brocade also plans to continue to expand its international operations and sales activities. Expansion of international operations will involve inherent risks that Brocade may not be able to control, including:

• supporting multiple languages;

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

• increased complexity and costs of managing international operations;

• increased exposure to foreign currency exchange rate fluctuations;

• commercial laws and business practices that favor local competition;

• multiple, potentially conflicting, and changing governmental laws, regulations and practices, including differing export, import, tax, labor, anti-bribery and employment laws;

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• longer sales cycles and manufacturing lead times;

• difficulties in collecting accounts receivable;

• reduced or limited protection of intellectual property rights;

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

• more complicated logistics and distribution arrangements.

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

     To date, no material amount of Brocade’s international revenues and costs of revenues have been denominated in foreign currencies. As a result, an increase in the value of the United States dollar relative to foreign currencies could make Brocade’s products more expensive and, thus, not competitively priced in foreign markets. Additionally, a decrease in the value of the United States dollar relative to foreign currencies could increase Brocade’s operating costs in foreign locations. In the future, a larger portion of Brocade’s international revenues may be denominated in foreign currencies, which will subject Brocade to additional risks associated with fluctuations in those foreign currencies. Brocade currently does not have hedging program in place to offset its foreign currency risk.

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

     Networking products frequently contain undetected software or hardware errors, or bugs, when first introduced or as new versions are released. Brocade’s products are becoming increasingly complex and, particularly as Brocade continues to expand Brocade’s product portfolio to include software-centric products, including software licensed from third parties, errors may be found from time to time in Brocade’s products. In addition, through its acquisitions, Brocade has assumed, and may in the future assume, products previously developed by an acquired company that may not have been through the same product development, testing and quality control processes typically used for products developed internally by Brocade. that have known or undetected errors. Some types of errors also may not be detected until the product is installed in a heavy production or user environment. In addition, Brocade’s products are often combined with other products, including software, from other vendors. As a result, when problems occur, it may be difficult to identify the source of the problem. These problems may cause Brocade to incur significant warranty and repair costs, divert the attention of engineering personnel from product development efforts and cause significant customer relations problems. Moreover, the occurrence of hardware and software errors, whether caused by another vendor’s storage network and data management products or Brocade’s, could delay market acceptance of Brocade’s new products.

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

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

Third-parties may bring infringement claims against Brocade, which could be time-consuming and expensive to defend.

     In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. Brocade has in the past been involved in intellectual property-related disputes, including lawsuits with Vixel Corporation, Raytheon Company and McDATA, and Brocade may be involved in such disputes in the future, to protect Brocade’s intellectual property or as a

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result of an alleged infringement of the intellectual property of others. Brocade also may be subject to indemnification obligations with respect to infringement of third party intellectual property rights pursuant to Brocade’s agreements with OEM partners or customers. These claims and any resulting lawsuit could subject Brocade to significant liability for damages and invalidation of proprietary rights. Any such lawsuits, even if ultimately resolved in Brocade’s favor, would likely be time-consuming and expensive to resolve and would divert management’s time and attention. Any potential intellectual property dispute also could force Brocade to do one or more of the following:

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

• obtain from the owner of the infringed intellectual property a license to the relevant intellectual property, which may require Brocade to pay royalty or license fees, or to license Brocade’s intellectual property to such owner, and which may not be available on commercially reasonable terms or at all; and

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

     If Brocade is forced to take any of the foregoing actions, Brocade’s business and results of operations could be materially harmed.

Business interruptions could adversely affect Brocade’s business.

     Brocade’s operations and the operations of its suppliers, contract manufacturer and customers are vulnerable to interruption by fire, earthquake, hurricanes, power loss, telecommunications failure and other events beyond Brocade’s control. For example, a substantial portion of Brocade’s facilities, including its corporate headquarters, is located near major earthquake faults. In the event of a major earthquake, Brocade could experience business interruptions, destruction of facilities and loss of life. Brocade does not carry earthquake insurance and has not set aside funds or reserves to cover such potential earthquake-related losses. In addition, Brocade’s contract manufacturer has a major facility located in an area that is subject to hurricanes. In the event that a material business interruption occurs that affects Brocade or its suppliers, contract manufacturer or customers, shipments could be delayed and Brocade’s business and financial results could be harmed.

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

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

     Brocade is subject to periodic audits or other reviews by such governmental agencies. For example, in November 2005, Brocade was notified by the Internal Revenue Service that Brocade’s domestic federal income tax return for the year ended October 25, 2003 was subject to audit. Additionally, in May 2006, the Franchise Tax Board notified Brocade that its California income tax returns for the years ended October 25, 2003 and October 30, 2004 are subject to audit. The SEC also periodically reviews Brocade’s public company filings. Any such examination or review frequently requires management’s time and diversion of internal resources and, in the event of an unfavorable outcome, may result in additional liabilities or adjustments to Brocade’s historical financial results.

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

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

• authorizing the issuance of preferred stock without stockholder approval;

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

• prohibiting cumulative voting in the election of directors;

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

• prohibiting stockholder actions by written consent; and

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

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

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

The following table summarizes stock repurchase activity for the three months ended July 28, 2007 (in thousands excluding per share data):

							Approximate Dollar
					Total Number of		Value of Shares
	Total Number of				Shares Purchased as		that May Yet Be
	Shares Purchased		Average Price Paid		Part of Publicly		Purchased Under the
	(1)		Per Share		Announced Program		Program (2)
April 29, 2007 — May 26, 2007		—		—		—	$	192,855
May 27, 2007 — June 23, 2007		—	$	8.67		6,936	$	132,651
June 24, 2007 — July 28, 2007		3	$	0.01		—	$	132,651
Total		3	$	8.67		6,936	$	132,651

(1)	The total number of shares repurchased include those shares of Brocade common stock that employees deliver back to Brocade to satisfy tax-withholding obligations at the settlement of restricted stock exercises or upon termination of the employee, and the forfeiture of either restricted shares or unvested common stock as a result of early exercises, but does not include those shares of Brocade common stock that were cashed-out as a result of the Reverse/Forward Split effective June 26, 2007. As of July 28, 2007, approximately 4.9 million shares were subject to repurchase by Brocade.
	Effective June 26, 2007, the Company implemented a 1-for-100 reverse stock split (the “Reverse Split”) immediately followed by a 100-for-1 forward stock split of the Company’s Common Stock (together with the Reverse Split, the “Reverse/Forward Split”) by filing amendments to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. For stockholders that held less than 100 shares of common stock prior to the Reverse Split, shares of common stock that would have been converted into less than one share in the Reverse Split were instead converted into the right to receive a cash payment equal to $8.44 per share, an amount equal to the average of the closing prices per share of common stock on the NASDAQ Global Select Market for the period of ten consecutive trading days ending on (and including) the effective date. For stockholders that held 100 or more shares of common stock in their account prior to the Reverse Split, any fractional share in such account resulting from the Reverse Split were not cashed out and the total number of shares held by such stockholder did not change as a result of the Reverse/Forward Split. A total of approximately 2.5 million shares of the Company’s common stock were cashed out into an aggregate of approximately $20.8 million as a result of the Reverse/Forward Split.
(2)	On January 29, 2007, the Company announced the authorization of $200 million for stock repurchases, which is in addition to the $52.7 million remaining under the previously announced a $100 million stock repurchase program approved by our board of directors in August 2004. The purchases may be made, from time to time, in the open market or by privately negotiated transactions and will be funded from available working capital. The Company has also entered into written plan for the automatic repurchase of its securities in accordance with Section 10b5-1 of the Securities Exchange Act of 1934 as part of its share repurchase program. The number of shares to be purchased and the timing of purchases will be based on the level of our cash balances, general business and market conditions, and other factors, including alternative investment opportunities.

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Item 6. Exhibits

EXHIBIT INDEX

Exhibit
Number	Description of Document
3.1**	Amended and Restated Certificate of Incorporation
3.2	Amended and Restated Bylaws of the Registrant amended as of April 19, 2007 (incorporated by reference to Exhibit 3.1 from Brocade’s Form 8-K filed on April 25, 2007)
4.1	Form of Brocade’s Common Stock certificate (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement on Form S-1 (Reg. No. 333-74711), as amended)
4.2	First Supplemental Indenture dated as of January 29, 2007 by and among McDATA Corporation, Brocade, and Wells Fargo Bank, National Association, as successor in interest to Wells Fargo Bank Minnesota, National Association (incorporated by reference to Exhibit 4.2 from Brocade’s Form 10-Q filed on June 7, 2007)
4.3	Second Supplemental Indenture dated as of January 29, 2007 by and among McDATA Corporation, McDATA Services Corporation, a Minnesota corporation f/k/a Computer Network Technology Corporation, Brocade, and U.S. Bank National Association (incorporated by reference to Exhibit 4.3 from Brocade’s Form 10-Q filed on June 7, 2007)
4.4	Indenture dated February 7, 2003 by and among McDATA Corporation and Wells Fargo Bank Minnesota National Association (incorporated by reference to Exhibit 4.4 from Brocade’s Form 10-Q filed on June 7, 2007)
4.5	Indenture dated February 20, 2002 by and among Computer Network Technology Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.5 from Brocade’s Form 10-Q filed on June 7, 2007)
10.1*/**	Amended and Restated Change of Control Retention Agreement between Brocade and Michael Klayko effective May 11, 2007
10.2*/**	Form of Amended and Restated Change of Control Retention Agreement effective May 11, 2007 between Brocade and each of Richard Deranleau, T.J. Grewal, Don Jaworski, Tyler Wall and Ian Whiting
10.3*/**	Amended and Restated 1999 Stock Plan as amended and restated November 17, 2006 and related forms of agreements
10.4*/**	Senior Leadership Plan as amended and restated as of July 30, 2007
10.5**/†	Statement of Work #6 dated May 6, 2007 between International Business Machines Corporation and Brocade
31.1**	Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer.
31.2**	Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer.
32.1**	Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Indicates management contract or compensatory plan required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
**	Filed herewith
†	Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission

60

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BROCADE COMMUNICATIONS SYSTEMS, INC.
Date: September 4, 2007	By:	/s/  Richard Deranleau
		Richard Deranleau
		Chief Financial Officer

61

EXHIBIT INDEX

Exhibit
Number	Description of Document
3.1**	Amended and Restated Certificate of Incorporation
3.2	Amended and Restated Bylaws of the Registrant amended as of April 19, 2007 (incorporated by reference to Exhibit 3.1 from Brocade’s Form 8-K filed on April 25, 2007)
4.1	Form of Brocade’s Common Stock certificate (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement on Form S-1 (Reg. No. 333-74711), as amended)
4.2	First Supplemental Indenture dated as of January 29, 2007 by and among McDATA Corporation, Brocade, and Wells Fargo Bank, National Association, as successor in interest to Wells Fargo Bank Minnesota, National Association (incorporated by reference to Exhibit 4.2 from Brocade’s Form 10-Q filed on June 7, 2007)
4.3	Second Supplemental Indenture dated as of January 29, 2007 by and among McDATA Corporation, McDATA Services Corporation, a Minnesota corporation f/k/a Computer Network Technology Corporation, Brocade, and U.S. Bank National Association (incorporated by reference to Exhibit 4.3 from Brocade’s Form 10-Q filed on June 7, 2007)
4.4	Indenture dated February 7, 2003 by and among McDATA Corporation and Wells Fargo Bank Minnesota National Association (incorporated by reference to Exhibit 4.4 from Brocade’s Form 10-Q filed on June 7, 2007)
4.5	Indenture dated February 20, 2002 by and among Computer Network Technology Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.5 from Brocade’s Form 10-Q filed on June 7, 2007)
10.1*/**	Amended and Restated Change of Control Retention Agreement between Brocade and Michael Klayko effective May 11, 2007
10.2*/**	Form of Amended and Restated Change of Control Retention Agreement effective May 11, 2007 between Brocade and each of Richard Deranleau, T.J. Grewal, Don Jaworski, Tyler Wall and Ian Whiting
10.3*/**	Amended and Restated 1999 Stock Plan as amended and restated November 17, 2006 and related forms of agreements
10.4*/**	Senior Leadership Plan as amended and restated as of July 30, 2007
10.5**/†	Statement of Work #6 dated May 6, 2007 between International Business Machines Corporation and Brocade
31.1**	Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer.
31.2**	Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer.
32.1**	Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Indicates management contract or compensatory plan required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
**	Filed herewith
†	Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission

EX-3.1

Exhibit 3.1

STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:00 PM 11/05/1999
9914 72141 — 3003488

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

BROCADE COMMUNICATIONS SYSTEMS, INC.

     Brocade Communications Systems, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

     A. The name of the corporation is Brocade Communications Systems, Inc. The corporation was originally incorporated under the same name and the original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on February 11, 1999.

     B. This Certificate of Incorporation has been duly adopted in accordance with the provisions of the General Corporation Law of the State of Delaware by the Board of Directors and the Stockholders of the corporation.

     C. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of this corporation.

     D. The text of the Certificate of Incorporation is hereby amended and restated in its entirety to read as follows:

ARTICLE I

     The name of the corporation is Brocade Communications Systems, Inc. (the “Company”)

ARTICLE II

     The address of the Company’s registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, Delaware 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.

ARTICLE III

     The nature of the business or purposes to be conducted or promoted by the Company is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

ARTICLE IV

     1. Authorized Capital. The Company is authorized to issue two classes of stock to be designated, respectively, Common Stock and Preferred Stock. The total number of shares of Common Stock which the Company is authorized to issue is 200,000,000, $.001 par value, and the total number of shares of Preferred Stock the Company is authorized to issue is 5,000,000, $.001 par value. The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding), the number of shares of any series subsequent to the issue of shares of that series.

ARTICLE V

     The Company is to have perpetual existence.

ARTICLE VI

     Elections of directors need not be by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins or unless the Bylaws of the Company shall so provide.

ARTICLE VII

     1. The management of the business and the conduct of the affairs of the Company shall be vested in its Board of Directors. The number of directors which constitute the whole Board of Directors of the Company shall be designated in the Bylaws of the Company.

     2. The Board of Directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the date hereof, the term of office of the Class I directors shall expire and Class I directors

shall be elected for a full term of three years. At the second annual meeting of stockholders following the date hereof, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the date hereof, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting.

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

     4. Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other causes shall be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of the corporation entitled to vote generally in the election of directors (“Voting Stock”) voting together as a single class; or (ii) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director’s successor shall have been elected and qualified.

     5. The affirmative vote of sixty-six and two-thirds percent (66-2/3%) of the voting power of the then outstanding shares of Voting Stock, voting together as a single class, shall be required for the adoption, amendment or repeal of the following sections of the Company’s Bylaws by the stockholders of this corporation: 2.2 (Annual Meeting) and 2.3 (Special Meeting).

     6. No action shall be taken by the stockholders of the Company except at an annual or special meeting of the stockholders called in accordance with the Bylaws.

     7. Any director, or the entire Board of Directors, may be removed from office at any time (i) with cause by the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class; or (ii) without cause by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock.

ARTICLE VIII

     Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, this Certificate of Incorporation or any Preferred Stock Designation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal ARTICLE VII or this ARTICLE VIII.

ARTICLE IX

     The Company reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in ARTICLE VIII of this Certificate, and all rights conferred upon the stockholders herein are granted subject to this right.

ARTICLE X

     In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Company.

ARTICLE XI

     1. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Company shall be indemnified by the Company or its stockholders for monetary damages for breach of fiduciary duty as a director.

     2. The Company shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer or employee of the Company or any predecessor of the Company or serves or served at any other enterprise as a director, officer or employee at the request of the Company or any predecessor to the Company.

     3. Neither any amendment nor repeal of this Article XI, nor the adoption of any provision of this Company’s Certificate of Incorporation inconsistent with this Article XI, shall eliminate or reduce the effect of this Article XI, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article XI, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

ARTICLE XII

     Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Company may be kept (subject to any provision contained in the

statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Company.

ARTICLE XIII

     Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Company.

     IN WITNESS WHEREOF, the Company has caused this Certificate of Incorporation to be signed by Gregory L. Reyes, its Chief Executive Officer, effective as of November 4, 1999.

BROCADE COMMUNICATIONS SYSTEMS, INC.
By:	/s/ Gregory L. Reyes
	Gregory L. Reyes
	President and Chief Executive Officer

STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:30 PM 05/25/2000
001268413 — 3003488

CERTIFICATE OF AMENDMENT TO
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF BROCADE COMMUNICATIONS SYSTEMS, INC.

     Brocade Communications Systems, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY:

     FIRST: That the Board of Directors of the Corporation approved a resolution by unanimous written consent to amend Article IV of the Amended and Restated Certificate of Incorporation of the Corporation to read in its entirety as follows:

ARTICLE IV

     1. Authorized Capital. The Company is authorized to issue two classes of shares of stock to be designated, respectively, Common Stock, $.001 par value, and Preferred Stock, $0.001 par value. The total number of shares that the Company is authorized to issue is 405,000,000 shares. The number of shares of Common Stock authorized is 400,000,000. The number of shares of Preferred Stock authorized is 5,000,000. The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding), the number of shares of any series subsequent to the issue of shares of that series.

     SECOND: The Annual Meeting of Stockholders of the Corporation was duly called and held on April 20, 2000 in accordance with Section 222 of the General

Corporation law of the State of Delaware at which meeting a majority of the outstanding shares of the Corporation were voted in favor of the proposed amendment.

     THIRD: That said amendment was duly adopted by the Board of Directors and stockholders of the Corporation in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

     IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed on its behalf by the undersigned duly authorized officer of the Corporation on this 23rd day of May, 2000.

/s/ Michael J. Byrd  

Michael J. Byrd 

Chief Financial Officer 

STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 04/24/2001
010195810 — 3003488

CERTIFICATE OF AMENDMENT TO
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF BROCADE COMMUNICATIONS SYSTEMS, INC.

     Brocade Communications Systems, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY:

     FIRST: That the Board of Directors of the Corporation approved a resolution by unanimous written consent to amend Article IV of the Amended and Restated Certificate of Incorporation of the Corporation to read in its entirety as follows:

ARTICLE IV

     1. Authorized Capital. The Company is authorized to issue two classes of shares of stock to be designated, respectively, Common Stock, $.001 par value, and Preferred Stock, $0.001 par value. The total number of shares that the Company is authorized to issue is 805,000,000 shares. The number of shares of Common Stock authorized is 800,000,000. The number of shares of Preferred Stock authorized is 5,000,000. The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding), the number of shares of any series subsequent to the issue of shares of that series.

     SECOND: The Annual Meeting of Stockholders of the Corporation was duly called and held on April 4, 2001 in accordance with Section 222 of the General

Corporation law of the State of Delaware at which meeting a majority of the outstanding shares of the Corporation were voted in favor of the proposed amendment.

     THIRD: That said amendment was duly adopted by the Board of Directors and stockholders of the Corporation in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

     IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed on its behalf by the undersigned duly authorized officer of the Corporation on this 20th day of April, 2001.

/s/ Michael J. Byrd  

Michael J. Byrd 

Chief Financial Officer 

STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12:00 PM 02/12/2002
020091641 — 3003488

CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF SERIES A PARTICIPATING PREFERRED STOCK
OF BROCADE COMMUNICATIONS SYSTEMS, INC.

     The undersigned, Antonio Canova, does hereby certify:

     1. That he is the duly elected and acting Vice President, Finance and Chief Financial Officer of Brocade Communications Systems, Inc., a Delaware corporation (the “Corporation”).

     2. That pursuant to the authority conferred upon the Board of Directors by the Amended and Restated Certificate of Incorporation of the said Corporation, the said Board of Directors on February 5, 2002 adopted the following resolution creating a series of 800,000 shares of Preferred Stock designated as Series A Participating Preferred Stock:

     “RESOLVED, that pursuant to the authority vested in the Board of Directors of the corporation by the Restated Certificate of Incorporation, the Board of Directors does hereby provide for the issue of a series of Preferred Stock of the Corporation and does hereby fix and herein state and express the designations, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions of such series of Preferred Stock as follows:

     Section 1. Designation and Amount. The shares of such series shall be designated as “Series A Participating Preferred Stock.” The Series A Participating Preferred Stock shall have a par value of $0.001 per share, and the number of shares constituting such series shall be 800,000.

     Section 2. Proportional Adjustment. In the event that the Corporation shall at any time after the issuance of any share or shares of Series A Participating Preferred Stock (i) declare any dividend on Common Stock of the Corporation (“Common Stock”) payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Corporation shall simultaneously effect a proportional adjustment to the number of outstanding shares of Series A Participating Preferred Stock.

     Section 3. Dividends and Distributions.

          (a) Subject to the prior and superior right of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Participating Preferred Stock with respect to dividends, the holders of shares of Series A Participating Preferred Stock shall be entitled to receive when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of February, May, August and November in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to 1,000 times the aggregate per share amount of all cash

dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Participating Preferred Stock.

          (b) The Corporation shall declare a dividend or distribution on the Series A Participating Preferred Stock as provided in paragraph (a) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock).

          (c) Dividends shall begin to accrue on outstanding shares of Series A Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof.

     Section 4. Voting Rights. The holders of shares of Series A Participating Preferred Stock shall have the following voting rights:

          (a) Each share of Series A Participating Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation.

          (b) Except as otherwise provided herein or by law, the holders of shares of Series A Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.

          (c) Except as required by law, the holders of Series A Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent that they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

     Section 5. Certain Restrictions.

          (a) The Corporation shall not declare any dividend on, make any distribution on, or redeem or purchase or otherwise acquire for consideration any shares of Common Stock after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock unless concurrently therewith it shall declare a dividend on the Series A Participating Preferred Stock as required by Section 3 hereof.

          (b) Whenever quarterly dividends or other dividends or distributions payable on the Series A Participating Preferred Stock as provided in Section 3 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not

               (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock;

               (ii) declare or pay dividends on, or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock, except dividends paid ratably on the Series A Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

               (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Participating Preferred Stock;

               (iv) purchase or otherwise acquire for consideration any shares of Series A Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

          (c) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 5, purchase or otherwise acquire such shares at such time and in such manner.

     Section 6. Reacquired Shares. Any shares of Series A Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become

authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein and in the Restated Certificate of Incorporation, as then amended.

     Section 7. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, the holders of shares of Series A Participating Preferred Stock shall be entitled to receive an aggregate amount per share equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock plus an amount equal to any accrued and unpaid dividends on such shares of Series A Participating Preferred Stock.

     Section 8. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged.

     Section 9. No Redemption. The shares of Series A Participating Preferred Stock shall not be redeemable.

     Section 10. Ranking. The Series A Participating Preferred Stock shall rank junior to all other series of the Corporation’s Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise.

     Section 11. Amendment. The Restated Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preference or special rights of the Series A Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority of the outstanding shares of Series A Participating Preferred Stock, voting separately as a series.

     Section 12. Fractional Shares. Series A Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Participating Preferred Stock.

     RESOLVED FURTHER, that the President, Chief Operating Officer or any Vice President and the Secretary or any Assistant Secretary of this corporation be, and they hereby are, authorized and directed to prepare and file a Certificate of Designation of Rights, Preferences and Privileges in accordance with the foregoing resolution and the provisions of Delaware law and to take such actions as they may deem necessary or appropriate to carry out the intent of the foregoing resolution.”

     I further declare under penalty of perjury that the matters set forth in the foregoing Certificate of Designation are true and correct of my own knowledge.

     Executed at San Jose, California on February 7, 2002.

/s/ Antonio Canova  

Vice President, Finance and Chief Financial Officer  

State of Delaware
Secretary of State
Division of Corporations
Delivered 06:39 PM 04/22/2003
FILED 06:41 PM 04/22/2003
SRV 030262104 — 3003488 FILE

CERTIFICATE OF OWNERSHIP

MERGING

RHAPSODY NETWORKS, INC.

INTO

BROCADE COMMUNICATIONS SYSTEMS, INC.

(Pursuant to Section 253 of the Delaware General Corporation Law)

     BROCADE COMMUNICATIONS SYSTEMS, INC., a corporation incorporated on February 11, 1999 (“Brocade”), pursuant to the Delaware General Corporation Law hereby certifies as follows:

     1. Brocade owns 100% of the capital stock of Rhapsody Networks, Inc., a corporation incorporated on May 17, 2000, pursuant to the Delaware General Corporation Law.

     2. Brocade, by a resolution of its Board of Directors duly adopted on April 11, 2003, determined to merge into itself said Rhapsody Networks, Inc. with Brocade continuing as the surviving corporation, which resolutions are in the following words to wit:

     “WHEREAS this corporation lawfully owns 100% of the outstanding stock of Rhapsody Networks, Inc., a corporation organized and existing under the laws of Delaware, and

     “WHEREAS this corporation desires to merge into itself the said Rhapsody Networks, Inc., and to be possessed of all the estate, property, rights, privileges and franchises of said corporation,

     “NOW, THEREFORE, BE IT RESOLVED, that this corporation merge into itself said Rhapsody Networks, Inc. and assumes all of its liabilities and obligations, and

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     “FURTHER RESOLVED, that an authorized officer of this corporation be and he/she is hereby directed to make and execute a certificate of ownership setting forth a copy of the resolutions to merge said Rhapsody Networks, Inc. and assume its liabilities and obligations, and the date of adoption thereof, and to file the same in the office of the Delaware Secretary of the State; and

     “FURTHER RESOLVED, that the officers of this corporation be and hereby are authorized and directed to do all acts and things whatsoever, whether within or without the State of Delaware; which may be in any way necessary or proper to effect said merger.”

     IN WITNESS WHEREOF, Brocade Communications Systems, Inc. has caused this certificate to be signed by the undersigned authorized officer this 22nd day of April, 2003.

By:	/s/ Antonio Canova
	Antonio Canova
	Vice President, Finance and Chief Financial Officer

2

State of Delaware
Secretary of State
Division of Corporations
Delivered 10:02 PM 12/12/2005
FILED 10:02 PM 12/12/2005
SRV 051012158 — 3003488 FILE

CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
THERION SOFTWARE CORPORATION
INTO
BROCADE COMMUNICATIONS SYSTEMS, INC.

     Pursuant to Section 253 of the General Corporation Law of the State of Delaware, Brocade Communications Systems, Inc., a Delaware corporation (the “Company”), does hereby certify:

     FIRST: That the Company is incorporated pursuant to the General Corporation Law of the State of Delaware.

     SECOND: That the Company owns all of the outstanding shares of each class of the capital stock of Therion Software Corporation, a Delaware corporation (“Therion”).

     THIRD: That the Company, by the following resolutions of its Board of Directors, duly adopted by unanimous written consent as of December 12, 2005, determined to merge Therion with and into the Company on the terms and conditions set forth therein:

NOW THEREFORE BE IT RESOLVED, that the Board hereby authorizes the Merger and the assumption by the Company of Therion’s liabilities and obligations.

RESOLVED FURTHER, that each outstanding share of capital stock of Therion shall be canceled and extinguished in the Merger and no consideration issued in exchange therefor.

RESOLVED FURTHER, that such merger shall be effective upon filing of a Certificate of Ownership and Merger with the Secretary of State of the State of Delaware.

RESOLVED FURTHER, that the Merger is intended to be tax-free for United States federal income tax purposes.

RESOLVED FURTHER, that upon the filing of the Certificate of Ownership and Merger with the Secretary of State of the State of Delaware, the Certificate of Incorporation and the Bylaws of the Company in effect immediately prior to the effectiveness of the Merger shall be the Company’s Certificate of Incorporation and Bylaws.

RESOLVED FURTHER, that upon the filing of the Certificate of Ownership and Merger with the Secretary of State of the State of Delaware, the directors and officers of the Company, as constituted immediately prior to the effectiveness of the Merger, will be the directors and officers of the Company.

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RESOLVED FURTHER, that the Board hereby authorizes and directs the appropriate officers of the Company, and each of them, to execute and file all documents, including a Certificate of Ownership and Merger, and to take all other actions which may be necessary or proper to effect the Merger and hereby ratifies and confirms any and all actions taken heretofore to accomplish such purposes.

[Remainder of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF, the Company has caused this certificate to be signed by its authorized officer, this 12^th day of December, 2005.

BROCADE COMMUNICATIONS SYSTEMS, INC.
Signature:	/s/ Thomas L. MacMitchell
Print Name:	Thomas L. MacMitchell
Title:	Assistant Secretary

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State of Delaware
Secretary of State
Division of Corporations
Delivered 09:53 AM 02/13/2007
FILED 09:53 AM 02/13/2007
SRV 070152418 — 3003488 FILE

CERTIFICATE OF ELIMINATION

OF

SERIES A PARTICIPATING PREFERRED STOCK

OF BROCADE COMMUNICATIONS SYSTEMS, INC.

(Pursuant to Section 151(g) of the General Corporation Law of the State of Delaware)

     The undersigned, Richard Deranleau, does hereby certify that:

     1. The undersigned is the duly elected and acting Chief Financial Officer and Vice President, Finance of Brocade Communications Systems, Inc., a Delaware corporation (the “Corporation”).

     2. Pursuant to authority conferred upon the Board of Directors of the Corporation by the Certificate of Incorporation of the Corporation, as amended, on February 9, 2007, the Board of Directors adopted the following resolutions:

     “WHEREAS, none of the authorized shares of Series A Participating Preferred Stock, par value $0.001 per share, of the Corporation (“Series A Preferred Stock”), are outstanding, and none of the authorized shares of Series A Preferred Stock were issued prior to the Final Expiration Date (as defined in that certain Preferred Stock Rights Agreement, dated as of February 7, 2002, as amended to date, between the Corporation and Wells Fargo Bank, MN N.A.) subject to that certain Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of the Corporation filed with the Secretary of State of the State of Delaware on February 12, 2002 (the “Certificate of Designation”).

     RESOLVED: That the Corporation be, and hereby is, authorized and directed to file with the Secretary of State of the State of Delaware a certificate containing these resolutions, with the effect under the General Corporation Law of the State of Delaware of eliminating from the Certificate of Incorporation of the Corporation all matters set forth in the Certificate of Designation with respect to the Series A Preferred Stock.

     RESOLVED FURTHER: That the proper officers of the Corporation are authorized and directed, for and on behalf of the Corporation and in its name, to execute and file a certificate of elimination relating to the Series A Preferred Stock, and to take such further actions as he may deem necessary or appropriate to carry out the intent of the foregoing resolutions in accordance with the applicable provisions of the General Corporation Law of the State of Delaware.”

     I further declare under penalty of perjury that the matters set forth in this Certificate are true and correct of my own knowledge.

     Executed at San Jose, California on February 24, 2007.

/s/ Richard Deranleau  

Richard Deranleau 

Chief Financial Officer and Vice President, Finance 

State of Delaware
Secretary of State
Division of Corporations
Delivered 03:57 PM 06/26/2007
FILED 03:57 PM 06/26/2007
SRV 070752909 — 3003488 FILE

CERTIFICATE OF AMENDMENT

TO

RESTATED AND AMENDED CERTIFICATE OF INCORPORATION

OF

BROCADE COMMUNICATIONS SYSTEMS, INC.

     Brocade Communications Systems, Inc., a Delaware corporation (the “Company”), does hereby certify that:

     FIRST: This Certificate of Amendment (this “Certificate of Amendment”) amends the provisions of the Company’s Restated and Amended Certificate of Incorporation (the “Certificate of Incorporation”).

     SECOND: The terms and provisions of this Certificate of Amendment have been duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware and shall become effective at 6:00 p.m., Eastern Daylight Time, on June 26, 2007.

     THIRD: Article IV of the Certificate of Incorporation is hereby amended by deleting Section 1 in its entirety and replacing it with the following:

     “1. The Company is authorized to issue two classes of shares of stock to be designated, respectively, Common Stock, $.001 par value, and Preferred Stock, $0.001 par value. The total number of shares that the Company is authorized to issue is 805,000,000 shares. The number of shares of Common Stock authorized is 800,000,000. The number of shares of Preferred Stock authorized is 5,000,000. The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board of Directors). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding), the number of shares of any series subsequent to the issue of shares of that series.

     Without regard to any other provision of this Certificate of Incorporation, each one (1) share of Common Stock, either issued and outstanding or held by the Company as treasury stock, immediately prior to the time this amendment becomes effective shall be and is hereby automatically reclassified and changed (without any further act) into one-hundredth (l/100th) of a fully-paid and nonassessable share of Common Stock, without increasing or decreasing the amount of stated capital

or paid-in surplus of the Company, provided that no fractional shares shall be issued to any holder of fewer than one hundred (100) shares of Common Stock immediately prior to the time this amendment becomes effective, and that instead of issuing such fractional shares, the Company shall pay in cash the fair value of such fractions of a share as of the time when this Certificate of Amendment becomes effective.”

     IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment to be signed by its officer thereunto duly authorized this 21^st day of June, 2007.

By:	/s/ Richard Deranleau
	Richard Deranleau
	VP, Finance and Chief Financial Officer

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State of Delaware
Secretary of State
Division of Corporations
Delivered 03:57 PM 06/26/2007
FILED 03:57 PM 06/26/2007
SRV 070752918 — 3003488 FILE

CERTIFICATE OF AMENDMENT

TO

RESTATED AND AMENDED CERTIFICATE OF INCORPORATION

OF

BROCADE COMMUNICATIONS SYSTEMS, INC.

     Brocade Communications Systems, Inc., a Delaware corporation (the “Company”), does hereby certify that:

     FIRST: This Certificate of Amendment amends the provisions of the Company’s Restated and Amended Certificate of Incorporation (the “Certificate of Incorporation”).

     SECOND: The terms and provisions of this Certificate of Amendment have been duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware and shall become effective at 6:01 p.m., Eastern Daylight Time, on June 26, 2007.

     THIRD: Article IV of the Certificate of Incorporation is hereby amended by deleting Section 1 in its entirety and replacing it with the following:

     “1. The Company is authorized to issue two classes of shares of stock to be designated, respectively, Common Stock, $.001 par value, and Preferred Stock, $0.001 par value. The total number of shares that the Company is authorized to issue is 805,000,000 shares. The number of shares of Common Stock authorized is 800,000,000. The number of shares of Preferred Stock authorized is 5,000,000. The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding), the number of shares of any series subsequent to the issue of shares of that series.

     Without regard to any other provision of this Certificate of Incorporation, each one (1) share of Common Stock (as defined below), either issued and outstanding or held by the Company as treasury stock (and including each fractional share in excess of one (1) share held by any stockholder and each fractional interest in excess of one (1) share held by the Company or its agent pending disposition on behalf of those entitled thereto), immediately prior to the time this amendment becomes effective shall be and are hereby automatically reclassified and changed (without any

further act) into one hundred (100) fully-paid and nonassessable shares of Common Stock (or, with respect to such fractional shares and interests, such lesser number of shares and fractional shares as may be applicable based upon such 100 -1 ratio), without increasing or decreasing the amount of stated capital or paid-in surplus of the Company, provided that no fractional shares shall be issued.”

     IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment to be signed by its officer thereunto duly authorized this 21^st day of June, 2007.

By:	/s/ Richard Deranleau
	Richard Deranleau
	VP, Finance and Chief Financial Officer

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EX-10.1

Exhibit 10.1

BROCADE COMMUNICATIONS SYSTEMS, INC.

AMENDED AND RESTATED

CHANGE OF CONTROL RETENTION AGREEMENT

     This Amended and Restated Change of Control Retention Agreement (the “Agreement”) is entered into as of May 11, 2007 (the “Effective Date”) by and between Brocade Communications Systems, Inc. (the “Company”) and Michael Klayko (“Executive”).

RECITALS

     A. It is expected that the Company from time to time will consider the possibility of a Change of Control. The Board of Directors of the Company (the “Board”) recognizes that such consideration can be a distraction to the Executive and can cause the Executive to consider alternative employment opportunities.

     B. The Board believes that it is in the best interests of the Company and its shareholders to provide the Executive with an incentive to continue his or her employment and to maximize the value of the Company upon a Change of Control for the benefit of its shareholders.

     C. In order to provide the Executive with enhanced financial security and sufficient encouragement to remain with the Company notwithstanding the possibility of a Change of Control, the Board believes that it is imperative to provide the Executive with certain severance benefits upon the Executive’s termination of employment.

     D. The Company and Executive wish to amend and restate that certain Change of Control Retention Agreement dated as of March 9, 2007.

AGREEMENT

     In consideration of the mutual covenants herein contained and the continued employment of Executive by the Company, the parties agree as follows:

     1. At-Will Employment. Executive and the Company agree that Executive’s employment with the Company is and shall continue to be “at-will” employment. Executive and the Company acknowledge that this employment relationship may be terminated at any time, upon written notice to the other party, with or without good cause or for any or no cause, at the option either of the Company or Executive. However, as described in this Agreement, Executive may be entitled to severance benefits depending upon the circumstances of Executive’s termination of employment.

     2. Severance Benefits.

          (a) Termination of Employment. In the event Executive’s employment with the Company terminates for any reason during the Term or any duly authorized extension thereof (as set forth in Section 9 below), Executive will be entitled to any (i) unpaid Base Salary accrued up to the effective date of termination, (ii) unpaid, but earned and accrued annual incentive for any completed

fiscal year as of his termination of employment, (iii) benefits or compensation as provided under the terms of any employee benefit and compensation agreements or plans applicable to Executive, and (iv) unreimbursed business expenses required to be reimbursed to Executive.

          (b) Termination Without Cause not in Connection with a Change of Control. If Executive’s employment is terminated by the Company without Cause during the Term or any duly authorized extension thereof (as set forth in Section 9 below), and such termination does not occur in Connection with a Change of Control, then, subject to Sections 3, 5 and 6, Executive will receive: (i) twelve (12) months of Executive’s base salary, as in effect immediately prior to the date of termination, payable in a lump sum payment within thirty (30) days of the Release Effective Date, (ii) 100% of Executive’s target cash bonus under the Company’s Senior Leadership Plan for the fiscal year in which Executive’s termination occurs, payable in a lump sum payment within thirty (30) days of the Release Effective Date, and (iii) reimbursement for premiums paid for medical, dental and vision benefits (the “COBRA Benefits”) for Executive and Executive’s eligible dependents under the Company’s benefit plans for twelve (12) months following Executive’s termination of employment, payable when such premiums are due, or, at the Company’s sole discretion, in a one-time lump sum payment when such premiums are first due (provided Executive and Executive’s eligible dependents validly elect to continue coverage under applicable law).

          (c) Termination Without Cause or Resignation for Good Reason in Connection with a Change of Control. If Executive’s employment is terminated by the Company without Cause or by Executive for Good Reason, in either case during the Term or any duly authorized extension thereof (as set forth in Section 9 below), and the termination is in Connection with a Change of Control, then, subject to Sections 3, 5 and 6, Executive will receive: (i) twenty-four (24) months of Executive’s base salary, as in effect immediately prior to the date of termination, payable in a lump sum payment within thirty (30) days of the Release Effective Date, (ii) 200% of Executive’s target cash bonus under the Company’s Senior Leadership Plan for the fiscal year in which Executive’s termination occurs, payable in a lump sum payment within thirty (30) days of the Release Effective Date, (iii) reimbursement for premiums paid for COBRA Benefits for Executive and Executive’s eligible dependents under the Company’s benefit plans for eighteen (18) months following Executive’s termination of employment, payable when such premiums are due, or, at the Company’s sole discretion, in a one-time lump sum payment when such premiums are first due (provided Executive and Executive’s eligible dependents validly elect to continue coverage under applicable law), and (iv) full accelerated vesting with respect to Executive’s then outstanding, unvested equity awards that were granted to Executive on or prior to the date hereof or during the Term (or any duly authorized extension thereof). For purposes of clarification, any subsequent determination by the Board or Compensation Committee of the Board to reduce the amount of acceleration following the term of this Agreement shall not affect any grants of equity awards made prior to the expiration of such term unless otherwise agreed to in writing by the Executive.

          (d) Voluntary Termination without Good Reason; Termination for Cause. If Executive’s employment with the Company terminates voluntarily by Executive without Good Reason or is terminated for Cause by the Company, then (i) all further vesting of Executive’s outstanding equity awards will terminate immediately, (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately, and (iii) Executive will be eligible for severance benefits only in accordance with the Company’s then established plans, programs, and practices.

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          (e) Termination due to Death or Disability. Notwithstanding anything to the contrary in this Agreement, if Executive’s employment terminates by reason of death or Disability, then (i) Executive’s outstanding equity awards will terminate in accordance with the terms and conditions of the applicable award agreement(s); (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately, and (iii) Executive will be entitled to receive benefits only in accordance with the Company’s then established plans, programs, and practices.

          (f) Sole Right to Severance. This Agreement is intended to represent Executive’s sole entitlement to severance payments and benefits in connection with the termination of Executive’s employment. To the extent Executive is entitled to receive severance or similar payments and/or benefits under any other Company plan, program, agreement, policy, practice, or the like, severance payments and benefits due to Executive under this Agreement will be so reduced, except where the Company (as authorized by the Compensation Committee or Board) and Executive expressly agree in writing that such additional benefits are intended to be in addition to (and not in lieu of) the severance benefits under this Agreement.

     3. Conditions to Receipt of Severance; No Duty to Mitigate.

          (a) Separation Agreement and Release of Claims. The receipt of any severance pursuant to Section 2 will be subject to Executive signing and not revoking a separation agreement and release of claims in the form provided to Executive by the Company. No severance will be paid or provided until the separation agreement and release agreement becomes effective (the “Release Effective Date”).

          (b) Nondisparagement. During the term of Executive’s employment and for 12 months thereafter, Executive will not knowingly disparage, criticize, or otherwise make any derogatory statements regarding the Company, its directors, or its officers. The foregoing restrictions will not apply to any statements that are made truthfully in response to a subpoena or other compulsory legal process.

          (c) Other Requirements. Executive agrees to continue to comply with the terms of the Company’s Employment, Confidential Information, Invention Assignment and Arbitration Agreement entered into by Executive (the “Confidential Information Agreement”).

          (d) No Duty to Mitigate. Executive will not be required to mitigate the amount of any payment contemplated by this Agreement, nor will any earnings that Executive may receive from any other source reduce any such payment.

     4. Definitions.

          (a) Cause. For purposes of this Agreement, “Cause” means (i) Executive’s willful and continued failure to perform the duties and responsibilities of his position that is not corrected within a thirty (30) day correction period that begins upon delivery to Executive of a written demand for performance from the Board that describes the basis for the Board’s belief that Executive has not substantially performed his duties; (ii) any act of personal dishonesty taken by Executive in connection with his responsibilities as an employee of the Company with the intention or reasonable expectation that such may result in substantial personal enrichment of Executive; (iii) Executive’s conviction of, or plea of nolo contendre to, a felony that the Board reasonably

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believes has had or will have a material detrimental effect on the Company’s reputation or business, or (iv) Executive materially breaching Executive’s Confidential Information Agreement, which breach is (if capable of cure) not cured within thirty (30) days after the Company delivers written notice to Executive of the breach.

          (b) Change of Control. “Change of Control” shall mean the occurrence of any of the following events:

               (i) the consummation by the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;

               (ii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

               (iii) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities; or

               (iv) a change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those directors whose election or nomination was not in connection with any transactions described in subsections (i), (ii), or (iii) or in connection with an actual or threatened proxy contest relating to the election of directors of the Company.

          (c) Disability. For purposes of this Agreement, Disability will have the same defined meaning as in the Company’s long-term disability plan.

          (d) Good Reason. For purposes of this Agreement, “Good Reason” means the occurrence of any of the following, without Executive’s consent: (i) a material reduction of Executive’s duties, title, authority or responsibilities in effect immediately prior to a Change of Control; (ii) a reduction in Executive’s base salary or target annual cash incentive compensation; (iii) the failure of the Company to obtain the assumption of the Agreement by the successor, or (iv) the Company requiring Executive to relocate his or her principal place of business or the Company relocating its headquarters, in either case to a facility or location outside of a thirty-five (35) mile radius from Executive’s current principal place of employment; provided, however, that Executive only will have Good Reason if the Executive gives written notice to the Board of the event or circumstance constituting Good Reason specified in any of the preceding clauses within ninety (90) days of its initial occurrence and such event or circumstance is not cured within thirty (30) days after Executive gives such written notice to the Board. Executive’s actions approving any

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of the foregoing changes (that otherwise may be considered Good Reason) will be considered consent for the purposes of this Good Reason definition.

          (e) In Connection with a Change of Control. For purposes of this Agreement, a termination of Executive’s employment with the Company is “in Connection with a Change of Control” if Executive’s employment is terminated within thirty (30) days prior to, or twelve (12) months following, a Change of Control.

     5. Excise Taxes. In the event that the benefits provided for in this Agreement constitute “parachute payments” within the meaning of Section 280G of the Code and will be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then Executive’s severance benefits payable under the terms of this Agreement will be either

          (a) delivered in full, or

          (b) delivered as to such lesser extent which would result in no portion of such severance benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by Executive on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code.

     Unless the Company and Executive otherwise agree in writing, any determination required under this Section 5 will be made in writing by the Company’s independent public accountants or another nationally-recognized public accounting firm chosen by the Company (the “Accountants”), whose determination will be conclusive and binding upon Executive and the Company for all purposes. For purposes of making the calculations required by this Section 5, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and Executive will furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 5. The Company will bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 5.

     6. Section 409A.

          (a) Notwithstanding Sections 2 and 3 hereof, if Executive is a “specified employee” within the meaning of Section 409A of the Code and the final regulations and any other guidance promulgated thereunder (“Section 409A”) at the time of his termination, and the severance payable to Executive, if any, pursuant to this Agreement, when considered together with any other severance payments or separation benefits which are considered deferred compensation under Section 409A (together, the “deferred compensation separation benefits”) will not and could under no circumstances, regardless of when such termination occurs, be paid in full by March 15 of the year following Executive’s termination, then only that portion of the severance payments (and any other deferred compensation separation benefits) which does not exceed the Section 409A Limit (as defined above) may be made within the first six (6) months following Executive’s termination of employment in accordance with the payment schedule set forth in Sections 2 and 3 (or, with respect

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to other deferred compensation separation benefits, the payment schedule applicable to each such payment or benefit).

          (b) Section 409A Limit. “Section 409A Limit” shall mean the lesser of two (2) times: (i) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during the Company’s taxable year preceding the Company’s taxable year of Executive’s termination of employment; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the “Code”) for the year in which Executive’s employment is terminated.

          (c) Any portion of the severance payments or other deferred compensation separation benefits in excess of the Section 409A Limit shall accrue and, to the extent such portion of the severance payments or other deferred compensation separation benefits would otherwise have been payable within the first six (6) months following Executive’s termination of employment, they will become payable on the date that is six (6) months and one (1) day following the date of Executive’s termination of employment.

          (d) All subsequent severance payments or other deferred compensation separation benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit.

          (e) For these purposes, each severance payment is hereby designated as a separate payment and will not collectively be treated as a single payment.

          (f) This provision is intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Executive under Section 409A.

     7. Assignment. This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors, and legal representatives of Executive upon Executive’s death, and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, “successor” means any person, firm, corporation, or other business entity which at any time, whether by purchase, merger, or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance, or other disposition of Executive’s right to compensation or other benefits will be null and void.

     8. Notices. All notices, requests, demands, and other communications called for hereunder will be in writing and will be deemed given (a) on the date of delivery if delivered personally, (b) one day after being sent overnight by a well established commercial overnight service, or (c) four days after being mailed by registered or certified mail, return receipt requested,

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prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing:

If to the Company:

Attn: General Counsel
Brocade Communications Systems, Inc.
1745 Technology Drive
San Jose, CA 95110

If to Executive:

at the last residential address known by the Company.

     9. Term. The term of this Agreement (the “Term”) shall be five (5) years from the date hereof and may be extended upon mutual written consent of the Executive and the Company (as authorized by the Compensation Committee or Board); provided, however, the Term shall be automatically extended without any further action if the Company has entered into a definitive agreement regarding a Change of Control (a “Pending Transaction”) until (i) twelve (12) months following the consummation of such Pending Transaction or (ii) such definitive agreement has terminated pursuant to its terms without a Change of Control occurring. Notwithstanding the foregoing, the acceleration provision set forth in Section 2(c)(iv) hereof with respect to equity awards granted prior to the expiration of the Term (or any extension thereof) shall survive expiration of the Term (and any duly authorized extension thereof).

     10. Severability. If any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable, or void, this Agreement will continue in full force and effect without said provision.

     11. Arbitration. The Parties agree that any and all disputes arising out of the terms of this Agreement, their interpretation, and any of the matters herein released, will be subject to binding arbitration in Santa Clara County, California before the American Arbitration Association under its National Rules for the Resolution of Employment Disputes, supplemented by the California Rules of Civil Procedure. The Parties agree that the prevailing party in any arbitration will be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The Parties hereby agree to waive their right to have any dispute between them resolved in a court of law by a judge or jury. This paragraph will not prevent either party from seeking injunctive relief (or any other provisional remedy) from any court having jurisdiction over the Parties and the subject matter of their dispute relating to Executive’s obligations under this Agreement.

     12. Integration. This Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral, including any agreements that provide for severance benefits and any agreements that provide for vesting acceleration of Executive’s outstanding equity awards (except for any terms that provide for the accelerated vesting of Executive’s equity awards if they are not assumed or substituted by a successor corporation and any terms that provide for more favorable acceleration of vesting pursuant to outstanding equity awards under agreements entered

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into prior to the date hereof). No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in a writing that specifically references this Section and is signed by duly authorized representatives of the parties hereto.

     13. Waiver of Breach. The waiver of a breach of any term or provision of this Agreement, which must be in writing, will not operate as or be construed to be a waiver of any other previous or subsequent breach of this Agreement.

     14. Headings. All captions and Section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.

     15. Tax Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.

     16. Governing Law. This Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions).

     17. Acknowledgment. Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.

     18. Counterparts. This Agreement may be executed in counterparts, and each counterpart will have the same force and effect as an original and will constitute an effective, binding agreement on the part of each of the undersigned.

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     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by a duly authorized officer, as of the day and year written below.

COMPANY:

BROCADE COMMUNICATIONS SYSTEMS, INC.

Signature:	/s/ Tyler Wall	Date: June 25, 2007
Print Name: Tyler Wall
Title: VP, General Counsel
EXECUTIVE:
/s/ Michael Klayko		Date: June 25, 2007
Michael Klayko

[SIGNATURE PAGE TO CHANGE OF CONTROL RETENTION AGREEMENT]

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EX-10.2

Exhibit 10.2

BROCADE COMMUNICATIONS SYSTEMS, INC.

FORM OF AMENDED AND RESTATED
CHANGE OF CONTROL RETENTION AGREEMENT

     This Amended and Restated Change of Control Retention Agreement (the “Agreement”) is entered into as of May 11, 2007 (the “Effective Date”) by and between Brocade Communications Systems, Inc. (the “Company”) and                      (“Executive”).

RECITALS

     A. It is expected that the Company from time to time will consider the possibility of a Change of Control. The Board of Directors of the Company (the “Board”) recognizes that such consideration can be a distraction to the Executive and can cause the Executive to consider alternative employment opportunities.

     B. The Board believes that it is in the best interests of the Company and its shareholders to provide the Executive with an incentive to continue his or her employment and to maximize the value of the Company upon a Change of Control for the benefit of its shareholders.

     C. In order to provide the Executive with enhanced financial security and sufficient encouragement to remain with the Company notwithstanding the possibility of a Change of Control, the Board believes that it is imperative to provide the Executive with certain severance benefits upon the Executive’s termination of employment.

     D. The Company and Executive wish to amend and restate that certain Change of Control Retention Agreement dated as of [___].

AGREEMENT

     In consideration of the mutual covenants herein contained and the continued employment of Executive by the Company, the parties agree as follows:

     1. At-Will Employment. Executive and the Company agree that Executive’s employment with the Company is and shall continue to be “at-will” employment. Executive and the Company acknowledge that this employment relationship may be terminated at any time, upon written notice to the other party, with or without good cause or for any or no cause, at the option either of the Company or Executive. However, as described in this Agreement, Executive may be entitled to severance benefits depending upon the circumstances of Executive’s termination of employment.

     2. Severance Benefits.

          (a) Termination of Employment. In the event Executive’s employment with the Company terminates for any reason during the Term or any duly authorized extension thereof (as set forth in Section 9 below), Executive will be entitled to any (i) unpaid Base Salary accrued up to the effective date of termination, (ii) unpaid, but earned and accrued annual incentive for any completed

fiscal year as of his termination of employment, (iii) benefits or compensation as provided under the terms of any employee benefit and compensation agreements or plans applicable to Executive, and (iv) unreimbursed business expenses required to be reimbursed to Executive.

          (b) Termination Without Cause not in Connection with a Change of Control. If Executive’s employment is terminated by the Company without Cause during the Term or any duly authorized extension thereof (as set forth in Section 9 below), and such termination does not occur in Connection with a Change of Control, then, subject to Sections 3, 5 and 6, Executive will receive: (i) six (6) months of Executive’s base salary, as in effect immediately prior to the date of termination, payable in a lump sum payment within thirty (30) days of the Release Effective Date, (ii) 50% of Executive’s target cash bonus under the Company’s Senior Leadership Plan for the fiscal year in which Executive’s termination occurs, payable in a lump sum payment within thirty (30) days of the Release Effective Date, and (iii) reimbursement for premiums paid for medical, dental and vision benefits (the “COBRA Benefits”) for Executive and Executive’s eligible dependents under the Company’s benefit plans for six (6) months following Executive’s termination of employment, payable when such premiums are due, or, at the Company’s sole discretion, in a one-time lump sum payment when such premiums are first due (provided Executive and Executive’s eligible dependents validly elect to continue coverage under applicable law).

          (c) Termination Without Cause or Resignation for Good Reason in Connection with a Change of Control. If Executive’s employment is terminated by the Company without Cause or by Executive for Good Reason, in either case during the Term or any duly authorized extension thereof (as set forth in Section 9 below), and the termination is in Connection with a Change of Control, then, subject to Sections 3, 5 and 6, Executive will receive: (i) twelve (12) months of Executive’s base salary, as in effect immediately prior to the date of termination, payable in a lump sum payment within thirty (30) days of the Release Effective Date, (ii) 100% of Executive’s target cash bonus under the Company’s Senior Leadership Plan for the fiscal year in which Executive’s termination occurs, payable in a lump sum payment within thirty (30) days of the Release Effective Date, (iii) reimbursement for premiums paid for COBRA Benefits for Executive and Executive’s eligible dependents under the Company’s benefit plans for twelve (12) months following Executive’s termination of employment, payable when such premiums are due, or, at the Company’s sole discretion, in a one-time lump sum payment when such premiums are first due (provided Executive and Executive’s eligible dependents validly elect to continue coverage under applicable law), and (iv) full accelerated vesting with respect to Executive’s then outstanding, unvested equity awards that were granted to Executive on or prior to the date hereof or during the Term (or any duly authorized extension thereof). For purposes of clarification, any subsequent determination by the Board or Compensation Committee of the Board to reduce the amount of acceleration following the term of this Agreement shall not affect any grants of equity awards made prior to the expiration of such term unless otherwise agreed to in writing by the Executive.

          (d) Voluntary Termination without Good Reason; Termination for Cause. If Executive’s employment with the Company terminates voluntarily by Executive without Good Reason or is terminated for Cause by the Company, then (i) all further vesting of Executive’s outstanding equity awards will terminate immediately, (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately, and (iii) Executive will be eligible for severance benefits only in accordance with the Company’s then established plans, programs, and practices.

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          (e) Termination due to Death or Disability. Notwithstanding anything to the contrary in this Agreement, if Executive’s employment terminates by reason of death or Disability, then (i) Executive’s outstanding equity awards will terminate in accordance with the terms and conditions of the applicable award agreement(s); (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately, and (iii) Executive will be entitled to receive benefits only in accordance with the Company’s then established plans, programs, and practices.

          (f) Sole Right to Severance. This Agreement is intended to represent Executive’s sole entitlement to severance payments and benefits in connection with the termination of Executive’s employment. To the extent Executive is entitled to receive severance or similar payments and/or benefits under any other Company plan, program, agreement, policy, practice, or the like, severance payments and benefits due to Executive under this Agreement will be so reduced, except where the Company (as authorized by the Compensation Committee or Board) and Executive expressly agree in writing that such additional benefits are intended to be in addition to (and not in lieu of) the severance benefits under this Agreement.

     3. Conditions to Receipt of Severance; No Duty to Mitigate.

          (a) Separation Agreement and Release of Claims. The receipt of any severance pursuant to Section 2 will be subject to Executive signing and not revoking a separation agreement and release of claims in the form provided to Executive by the Company. No severance will be paid or provided until the separation agreement and release agreement becomes effective (the “Release Effective Date”).

          (b) Nondisparagement. During the term of Executive’s employment and for 12 months thereafter, Executive will not knowingly disparage, criticize, or otherwise make any derogatory statements regarding the Company, its directors, or its officers. The foregoing restrictions will not apply to any statements that are made truthfully in response to a subpoena or other compulsory legal process.

          (c) Other Requirements. Executive agrees to continue to comply with the terms of the Company’s Employment, Confidential Information, Invention Assignment and Arbitration Agreement entered into by Executive (the “Confidential Information Agreement”).

          (d) No Duty to Mitigate. Executive will not be required to mitigate the amount of any payment contemplated by this Agreement, nor will any earnings that Executive may receive from any other source reduce any such payment.

     4. Definitions.

          (a) Cause. For purposes of this Agreement, “Cause” means (i) Executive’s willful and continued failure to perform the duties and responsibilities of his position that is not corrected within a thirty (30) day correction period that begins upon delivery to Executive of a written demand for performance from the Board that describes the basis for the Board’s belief that Executive has not substantially performed his duties; (ii) any act of personal dishonesty taken by Executive in connection with his responsibilities as an employee of the Company with the intention or reasonable expectation that such may result in substantial personal enrichment of Executive; (iii) Executive’s conviction of, or plea of nolo contendre to, a felony that the Board reasonably

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believes has had or will have a material detrimental effect on the Company’s reputation or business, or (iv) Executive materially breaching Executive’s Confidential Information Agreement, which breach is (if capable of cure) not cured within thirty (30) days after the Company delivers written notice to Executive of the breach.

          (b) Change of Control. “Change of Control” shall mean the occurrence of any of the following events:

               (i) the consummation by the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;

               (ii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

               (iii) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities; or

               (iv) a change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those directors whose election or nomination was not in connection with any transactions described in subsections (i), (ii), or (iii) or in connection with an actual or threatened proxy contest relating to the election of directors of the Company.

          (c) Disability. For purposes of this Agreement, Disability will have the same defined meaning as in the Company’s long-term disability plan.

          (d) Good Reason. For purposes of this Agreement, “Good Reason” means the occurrence of any of the following, without Executive’s consent: (i) a material reduction of Executive’s duties, title, authority or responsibilities in effect immediately prior to a Change of Control; (ii) a reduction in Executive’s base salary or target annual cash incentive compensation; (iii) the failure of the Company to obtain the assumption of the Agreement by the successor, or (iv) the Company requiring Executive to relocate his or her principal place of business or the Company relocating its headquarters, in either case to a facility or location outside of a thirty-five (35) mile radius from Executive’s current principal place of employment; provided, however, that Executive only will have Good Reason if the Executive gives written notice to the Chief Executive Officer of the Company of the event or circumstance constituting Good Reason specified in any of the preceding clauses within ninety (90) days of its initial occurrence and such event or circumstance is not cured within thirty (30) days after Executive gives such written notice to the Board.

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Executive’s actions approving any of the foregoing changes (that otherwise may be considered Good Reason) will be considered consent for the purposes of this Good Reason definition.

          (e) In Connection with a Change of Control. For purposes of this Agreement, a termination of Executive’s employment with the Company is “in Connection with a Change of Control” if Executive’s employment is terminated within thirty (30) days prior to, or twelve (12) months following, a Change of Control.

     5. Excise Taxes. In the event that the benefits provided for in this Agreement constitute “parachute payments” within the meaning of Section 280G of the Code and will be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then Executive’s severance benefits payable under the terms of this Agreement will be either

          (a) delivered in full, or

          (b) delivered as to such lesser extent which would result in no portion of such severance benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by Executive on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code.

     Unless the Company and Executive otherwise agree in writing, any determination required under this Section 5 will be made in writing by the Company’s independent public accountants or another nationally-recognized public accounting firm chosen by the Company (the “Accountants”), whose determination will be conclusive and binding upon Executive and the Company for all purposes. For purposes of making the calculations required by this Section 5, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and Executive will furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 5. The Company will bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 5.

     6. Section 409A.

          (a) Notwithstanding Sections 2 and 3 hereof, if Executive is a “specified employee” within the meaning of Section 409A of the Code and the final regulations and any other guidance promulgated thereunder (“Section 409A”) at the time of his termination, and the severance payable to Executive, if any, pursuant to this Agreement, when considered together with any other severance payments or separation benefits which are considered deferred compensation under Section 409A (together, the “deferred compensation separation benefits”) will not and could under no circumstances, regardless of when such termination occurs, be paid in full by March 15 of the year following Executive’s termination, then only that portion of the severance payments (and any other deferred compensation separation benefits) which does not exceed the Section 409A Limit (as defined above) may be made within the first six (6) months following Executive’s termination of employment in accordance with the payment schedule set forth in Sections 2 and 3 (or, with respect

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to other deferred compensation separation benefits, the payment schedule applicable to each such payment or benefit).

          (b) Section 409A Limit. “Section 409A Limit” shall mean the lesser of two (2) times: (i) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during the Company’s taxable year preceding the Company’s taxable year of Executive’s termination of employment; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the “Code”) for the year in which Executive’s employment is terminated.

          (c) Any portion of the severance payments or other deferred compensation separation benefits in excess of the Section 409A Limit shall accrue and, to the extent such portion of the severance payments or other deferred compensation separation benefits would otherwise have been payable within the first six (6) months following Executive’s termination of employment, they will become payable on the date that is six (6) months and one (1) day following the date of Executive’s termination of employment.

          (d) All subsequent severance payments or other deferred compensation separation benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit.

          (e) For these purposes, each severance payment is hereby designated as a separate payment and will not collectively be treated as a single payment.

          (f) This provision is intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Executive under Section 409A.

     7. Assignment. This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors, and legal representatives of Executive upon Executive’s death, and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, “successor” means any person, firm, corporation, or other business entity which at any time, whether by purchase, merger, or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance, or other disposition of Executive’s right to compensation or other benefits will be null and void.

     8. Notices. All notices, requests, demands, and other communications called for hereunder will be in writing and will be deemed given (a) on the date of delivery if delivered personally, (b) one day after being sent overnight by a well established commercial overnight service, or (c) four days after being mailed by registered or certified mail, return receipt requested,

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prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing:

If to the Company:

Attn: General Counsel
Brocade Communications Systems, Inc.
1745 Technology Drive
San Jose, CA 95110

If to Executive:

at the last residential address known by the Company.

     9. Term. The term of this Agreement (the “Term”) shall be five (5) years from the date hereof and may be extended upon mutual written consent of the Executive and the Company (as authorized by the Compensation Committee or Board); provided, however, the Term shall be automatically extended without any further action if the Company has entered into a definitive agreement regarding a Change of Control (a “Pending Transaction”) until (i) twelve (12) months following the consummation of such Pending Transaction or (ii) such definitive agreement has terminated pursuant to its terms without a Change of Control occurring. Notwithstanding the foregoing, the acceleration provision set forth in Section 2(c)(iv) hereof with respect to equity awards granted prior to the expiration of the Term (or any extension thereof) shall survive expiration of the Term (and any duly authorized extension thereof).

     10. Severability. If any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable, or void, this Agreement will continue in full force and effect without said provision.

     11. Arbitration. The Parties agree that any and all disputes arising out of the terms of this Agreement, their interpretation, and any of the matters herein released, will be subject to binding arbitration in Santa Clara County, California before the American Arbitration Association under its National Rules for the Resolution of Employment Disputes, supplemented by the California Rules of Civil Procedure. The Parties agree that the prevailing party in any arbitration will be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The Parties hereby agree to waive their right to have any dispute between them resolved in a court of law by a judge or jury. This paragraph will not prevent either party from seeking injunctive relief (or any other provisional remedy) from any court having jurisdiction over the Parties and the subject matter of their dispute relating to Executive’s obligations under this Agreement.

     12. Integration. This Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral, including any agreements that provide for severance benefits and any agreements that provide for vesting acceleration of Executive’s outstanding equity awards (except for any terms that provide for the accelerated vesting of Executive’s equity awards if they are not assumed or substituted by a successor corporation and any terms that provide for more favorable acceleration of vesting pursuant to outstanding equity awards under agreements entered

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into prior to the date hereof). No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in a writing that specifically references this Section and is signed by duly authorized representatives of the parties hereto.

     13. Waiver of Breach. The waiver of a breach of any term or provision of this Agreement, which must be in writing, will not operate as or be construed to be a waiver of any other previous or subsequent breach of this Agreement.

     14. Headings. All captions and Section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.

     15. Tax Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.

     16. Governing Law. This Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions).

     17. Acknowledgment. Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.

     18. Counterparts. This Agreement may be executed in counterparts, and each counterpart will have the same force and effect as an original and will constitute an effective, binding agreement on the part of each of the undersigned.

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     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by a duly authorized officer, as of the day and year written below.

COMPANY:

BROCADE COMMUNICATIONS SYSTEMS, INC.

Signature:	Date:
Print Name:
Title:
EXECUTIVE:
	Date:
[NAME]

[SIGNATURE PAGE TO CHANGE OF CONTROL RETENTION AGREEMENT]

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EX-10.3

Exhibit 10.3

BROCADE COMMUNICATIONS SYSTEMS, INC.
1999 STOCK PLAN
(as amended and restated on November 17, 2006)

     1. Purposes of the Plan. The purposes of this 1999 Stock Plan are:

• to attract and retain the best available personnel for positions of substantial responsibility,

• to provide additional incentive to Employees, Directors and Consultants, and

• to promote the success of the Company’s business.

     Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights and Restricted Stock Units may also be granted under the Plan.

     2. Definitions. As used herein, the following definitions shall apply:

          (a) “Administrator” means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan.

          (b) “Applicable Laws” means the requirements relating to the administration of equity-based award plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.

          (c) “Award” means, individually or collectively, a grant under the Plan of Options, Stock Purchase Rights or Restricted Stock Units and other stock or cash awards as the Administrator may determine.

          (d) “Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan, including an Option Agreement. The Award Agreement is subject to the terms and conditions of the Plan.

          (e) “Board” means the Board of Directors of the Company.

          (f) “Code” means the Internal Revenue Code of 1986, as amended.

          (g) “Committee” means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan.

          (h) “Common Stock” means the common stock of the Company.

          (i) “Company” means Brocade Communications Systems, Inc., a Delaware corporation.

          (j) “Consultant” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

          (k) “Director” means a member of the Board.

          (l) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.

          (m) “Employee” means any individual, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual (i) is on any bona fide leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

          (n) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          (o) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

               (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day on the date of such determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

               (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

               (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator.

          (p) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

          (q) “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

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          (r) “Notice of Grant” means a written or electronic notice evidencing certain terms and conditions of an individual Award grant. The Notice of Grant is part of the Award Agreement.

          (s) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

          (t) “Option” means a stock option granted pursuant to the Plan.

          (u) “Option Agreement” means an agreement between the Company and a Participant evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.

          (v) “Option Exchange Program” means a program whereby outstanding Options are surrendered in exchange for Options with a lower exercise price.

          (w) “Optioned Stock” means the Common Stock subject to an Award.

          (x) “Optionee” means the holder of an outstanding Option or Stock Purchase Right granted under the Plan.

          (y) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

          (z) “Participant” means the holder of an outstanding Award, including an Optionee.

          (aa) “Plan” means this 1999 Stock Plan.

          (bb) “Restricted Stock” means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

          (cc) “Restricted Stock Purchase Agreement” means a written agreement between the Company and the Participant evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant.

          (dd) “Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 12. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.

          (ee) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

          (ff) “Section 16(b)” means Section 16(b) of the Exchange Act.

          (gg) “Service Provider” means an Employee, Director or Consultant.

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          (hh) “Share” means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.

          (ii) “Stock Purchase Right” means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

          (jj) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

     3. Stock Subject to the Plan. Subject to the provisions of Section 14 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 7,607,000 Shares [60,856,000 Shares as adjusted for three 2:1 stock splits effective on or prior to 12/21/00], plus an annual increase to be added on the first day of the Company’s fiscal year beginning in 2000 equal to the lesser of (i) 5,000,000 shares [40,000,000 shares as adjusted for three 2:1 stock splits effective on or prior to 12/21/00], (ii) 5% of the outstanding shares on such date or (iii) a lesser amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock.

     If an Award expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares (or for Awards other than Options, the forfeited or repurchased Shares), which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan upon exercise of an Award, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock or Shares acquired pursuant to Restricted Stock Units are repurchased by the Company at their original purchase price or are forfeited to the Company, such Shares shall become available for future grant under the Plan.

     4. Administration of the Plan.

          (a) Procedure.

               (i) Multiple Administrative Bodies. The Plan may be administered by different Committees with respect to different groups of Service Providers.

               (ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Awards granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more “outside directors” within the meaning of Section 162(m) of the Code.

               (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.

               (iv) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws.

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          (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion:

               (i) to determine the Fair Market Value;

               (ii) to select the Service Providers to whom Awards may be granted hereunder;

               (iii) to determine the number of shares of Common Stock to be covered by each Award granted hereunder;

               (iv) to approve forms of agreement for use under the Plan;

               (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

               (vi) to reduce the exercise price of any Award to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Award shall have declined since the date the Award was granted;

               (vii) to institute an Option Exchange Program;

               (viii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;

               (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;

               (x) to modify or amend each Award (subject to Section 16(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Awards longer than is otherwise provided for in the Plan;

               (xi) to allow Participants to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Award that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable;

               (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;

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               (xiii) to make all other determinations deemed necessary or advisable for administering the Plan.

          (c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations shall be final and binding on all Participants and any other holders of Awards.

     5. Eligibility. Nonstatutory Stock Options, Stock Purchase Rights and Restricted Stock Units may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.

     6. Limitations.

          (a) Each Option shall be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

          (b) Neither the Plan nor any Award shall confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company, nor shall they interfere in any way with the Participant’s right or the Company’s right to terminate such relationship at any time, with or without cause.

          (c) The following limitations shall apply to grants of Options:

               (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 1.5 million Shares.

               (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 1.5 million Shares which shall not count against the limit set forth in subsection (i) above.

               (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 14.

               (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 14), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option.

     7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 16 of the Plan.

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     8. Term of Option. The term of each Option shall be stated in the Award Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.

     9. Option Exercise Price and Consideration.

          (a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following:

               (i) In the case of an Incentive Stock Option

                    (A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.

                    (B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

               (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

               (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction.

          (b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised.

          (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of:

               (i) cash;

               (ii) check;

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               (iii) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Participant for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised;

               (iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan;

               (v) a reduction in the amount of any Company liability to the Participant, including any liability attributable to the Participant’s participation in any Company-sponsored deferred compensation program or arrangement;

               (vi) any combination of the foregoing methods of payment; or

               (vii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws.

     10. Exercise of Option.

          (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share.

     An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan.

     Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

          (b) Termination of Relationship as a Service Provider. If a Participant ceases to be a Service Provider, other than upon the Participant’s death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in

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the Award Agreement, the Option shall remain exercisable for three (3) months following the Participant’s termination. If, on the date of termination, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Participant does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

          (c) Disability of Participant. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option shall remain exercisable for twelve (12) months following the Participant’s termination. If, on the date of termination, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Participant does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

          (d) Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Award Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Participant’s estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Award Agreement, the Option shall remain exercisable for twelve (12) months following the Participant’s termination. If, at the time of death, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Participant’s estate or, if none, by the person(s) entitled to exercise the Option under the Participant’s will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

          (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Participant at the time that such offer is made.

     11. Stock Purchase Rights.

          (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.

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          (b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser’s service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator.

          (c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.

          (d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 14 of the Plan.

     12. Restricted Stock Units.

          (a) Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. Each Restricted Stock Unit grant will be evidenced by an Award Agreement that will specify such other terms and conditions as the Administrator, in its sole discretion, will determine, including all terms, conditions, and restrictions related to the grant, the number of Restricted Stock Units and the form of payout, which, subject to Section 12(d), may be left to the discretion of the Administrator.

          (b) Vesting Criteria and Other Terms. The Administrator will set vesting criteria (which may include performance objectives based upon the achievement of Company-wide, departmental or individual goals, Company performance relative to selected other companies, or any other basis determined by the Administrator) in its discretion, which, depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. After the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any restrictions for such Restricted Stock Units. Each Award of Restricted Stock Units will be evidenced by an Award Agreement that will specify the vesting criteria, and such other terms and conditions as the Administrator, in its sole discretion, will determine.

          (c) Earning Restricted Stock Units. Upon meeting the applicable vesting criteria (including without limitation, achievement of any applicable performance objectives), the Participant will be entitled to receive a payout as specified in the Award Agreement. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.

          (d) Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) set forth in the Award Agreement. The Restricted Stock Units will be paid in Shares.

          (e) Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company.

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     13. Non-Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award shall contain such additional terms and conditions as the Administrator deems appropriate.

     14. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

          (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Award, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Award, as well as the price per share of Common Stock covered by each such outstanding Award, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Award.

          (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Participant as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for a Participant to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Award shall lapse as to all such Shares or, with respect to Restricted Stock Units, all Shares shall vest, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.

          (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Award shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Award, the Participant shall fully vest in and have the right to exercise the Award as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable, all restrictions on Restricted Stock shall lapse, and all outstanding Restricted Stock Units shall fully vest. If an Award becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Participant in writing or electronically that the Award shall be fully vested and exercisable for a period of fifteen

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(15) days from the date of such notice, and the Award shall terminate upon the expiration of such period. For the purposes of this paragraph, the Award shall be considered assumed if, following the merger or sale of assets, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Award, for each Share of Optioned Stock subject to the Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets.

     15. Date of Grant. The date of grant of an Award shall be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Participant within a reasonable time after the date of such grant.

     16. Amendment and Termination of the Plan.

          (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.

          (b) Shareholder Approval. The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

          (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.

     17. Conditions Upon Issuance of Shares.

          (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.

          (b) Investment Representations. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

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     18. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

     19. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

     20. Shareholder Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws.

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Notice of Grant of Stock Options
and Option Agreement

Brocade Communications Systems, Inc.
ID: 77-0409517
1745 Technology Drive
San Jose, CA 95110

Name:	Option Number:
Address:	Plan:	1999
	ID:

Effective [DATE], you have been granted a(n) Non-Qualified Stock Option to buy [SHARES] shares of Brocade Communications Systems, Inc. (the Company) stock at $[PRICE] per share.

The total option price of the shares granted is $[PRICE].

Shares in each period will become fully vested on the date shown.

Shares Vest Type Full Vest Expiration

By your signature and the Company’s signature below, you and the Company agree that these options are granted under and governed by the terms and conditions of the Company’s Stock Option Plan as amended and the Option Agreement, all of which are attached and made a part of this document.

Brocade Communications Systems, Inc.	Date
[EMPLOYEE NAME]	Date

BROCADE COMMUNICATIONS SYSTEMS, INC.
1999 STOCK OPTION PLAN
STOCK OPTION AGREEMENT

Termination Period:

          This Option may be exercised for three months after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for one year after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above.

I.      AGREEMENT

          A.      Grant of Option.

          The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the “Optionee”) an option (the “Option”) to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail.

          If designated in the Notice of Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option (“NSO”).

          B.      Exercise of Option.

                    (a)      Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement.

                    (b)      Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the “Exercise Notice”), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to Elizabeth Moore, Stock Administrator, of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.

                    No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.

          C.      Method of Payment.

          Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

                    1.      cash; or

                    2.      check; or

                    3.      consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or

                    4.      surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares; or

                    5.      with the Administrator’s consent, delivery of Optionee’s promissory note (the “Note”) in the form attached hereto as Exhibit C, in the amount of the aggregate Exercise Price of the Exercised Shares together with the execution and delivery by the Optionee of the Security Agreement attached hereto as Exhibit B. The Note shall bear interest at the “applicable federal rate” prescribed under the Code and its regulations at time of purchase, and shall be secured by a pledge of the Shares purchased by the Note pursuant to the Security Agreement.

          D.      Non-Transferability of Option.

          This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

          E.      Term of Option.

          This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.

          F.      Tax Consequences.

          Some of the federal tax consequences relating to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

          G.      Exercising the Option.

                    1.      Nonstatutory Stock Option. The Optionee may incur regular federal income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

                    2.      Incentive Stock Option. If this Option qualifies as an ISO, the Optionee will have no regular federal income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the event that the Optionee ceases to be an Employee but remains a Service Provider, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the date three (3) months and one (1) day following such change of status.

                    3.      Disposition of Shares.

                              (a)      NSO. If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes.

                              (b)      ISO. If the Optionee holds ISO Shares for at least one year after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held.

                              (c)      Notice of Disqualifying Disposition of ISO Shares. If the Optionee sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Optionee.

          H.      Entire Agreement; Governing Law.

                    The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Delaware.

          I.      NO GUARANTEE OF CONTINUED SERVICE.

                    OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

          By your signature and the signature of the Company’s representative, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated on page one.

[FORM OF PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT]

BROCADE COMMUNICATIONS SYSTEMS, INC.
1999 STOCK PLAN (AS AMENDED AND RESTATED)
PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT

NOTICE OF GRANT

[GRANTEE NAME]
[GRANTEE ADDRESS]

     You (“Grantee”) have been granted an award of Restricted Stock Units under the Company’s Amended and Restated 1999 Stock Plan (the “Plan”). The date of this Restricted Stock Units Agreement (the “Agreement”) is the Grant Date defined below. Subject to the provisions of Appendices A and B (attached) and the Plan, the principal features of this award are as follows:

Grant Date:	[                    ] (the “Grant Date”)
Target Number of Restricted Stock Units:	[                    ] (the “Target Number of Restricted Stock Units”)
Performance Period:	Three year period beginning [PERFORMANCE PERIOD BEGIN DATE] through [PERFORMANCE PERIOD END DATE] (subject to Section 4(c) of Appendix A) (the “Performance Period”).
Performance Matrix:	The number of Restricted Stock Units in which you may vest in accordance with the Vesting Schedule will depend upon achievement of targets in Revenue Growth, Operating Income Growth, Free Cash Flow Growth, and Stock Price Performance for the Performance Period as set forth in Section 1 of Appendix A.
Vesting Schedule:	The Restricted Stock Units will vest on the final day of the Performance Period, unless vested earlier in accordance with the terms of this Award (the “Vesting Date”); provided, that Grantee remains a Service Provider to the Company through the Vesting Date (or as otherwise set forth in this Agreement).

     Your signature below indicates your agreement and understanding that this award is subject to all of the terms and conditions contained in Appendices A and B and the Plan. For example, important additional information on vesting and forfeiture of the Restricted Stock Units is contained in Sections 3 through 5 and Section 7 of Appendix A. PLEASE BE SURE TO READ ALL OF APPENDICES A AND B AND THE PLAN, WHICH CONTAIN THE SPECIFIC TERMS AND CONDITIONS OF THIS AWARD.

BROCADE COMMUNICATIONS SYSTEMS, INC.	GRANTEE
Signature	Signature
Print Name	Print Name
Title

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APPENDIX A

TERMS AND CONDITIONS OF PERFORMANCE-BASED RESTRICTED STOCK UNITS

     Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Plan.

     1. Grant.

          (a) The Company hereby grants to the Grantee under the Plan an award of the Target Number of Restricted Stock Units set forth on the Notice of Grant, subject to all of the terms and conditions in this Agreement and the Plan. For each Restricted Stock Unit that vests, the Grantee will be entitled to receive one (1) Share (subject to automatic adjustment for stock splits, combinations and other adjustments as contemplated in the Plan).

          (b) The number of Restricted Stock Units in which the Grantee may vest shall be measured based on the Company’s relative performance versus a Peer Group as defined on Appendix B for the Performance Period with respect to the following metrics measured at the beginning and end of the Performance Period (or most readily available dates closest in time prior to such beginning and end dates for the Peer Group companies):

Metrics	Weighting
Revenue Growth		25	%
Operating Income Growth		25	%
Free Cash Flow Growth		25	%
Stock Price Performance		25	%

          (c) Definitions.

               (i) “Revenue Growth” shall be the measure of revenue on a GAAP basis for each of the twelve month periods as of the beginning and end of the Performance Period (or most readily available dates closest in time prior to such beginning and end dates for the Peer Group companies)

               (ii) “Operating Income Growth” shall be the measure of income from operations on a GAAP basis, for each of the twelve month periods as of the beginning and end of the Performance Period (or most readily available dates closest in time prior to such beginning and end dates for the Peer Group companies).

               (iii) “Free Cash Flow Growth” shall be the measure of cash flows from operating activities less purchases of property and equipment on a GAAP basis, for each of the twelve month periods as of the beginning and end of the Performance Period (or most readily available dates closest in time prior to such beginning and end dates for the Peer Group companies).

               (iv) “Stock Price Performance” shall be the measure of the average daily price of one share of common stock (as adjusted for stock splits, combinations and the like) as reported on the applicable primary stock exchange on which such shares are listed for the ten (10) trading days prior to (and including) the beginning and end of the Performance Period.

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          (d) The number of the Restricted Stock Units in which the Grantee may vest will range from zero percent (0%) of the Target Number of Restricted Stock Units to two hundred percent (200%) of the Target Number of Restricted Stock Units and shall be determined as follows:

Threshold				Target				Maximum
Average Percentile				Average Percentile				Average Percentile
Performance				Performance				Performance
v.				v.				v.
Peer Group	Payout			Peer Group	Payout			Peer Group	Payout
35th		25	%	50th		100	%	75th (or higher)		200	%

NOTE: The actual amount of the payout shall be interpolated on a straight line basis between (i) the Threshold and Target, or (ii) the Target and Maximum, as the case may be. An Average Percentile Performance v. Peer Group of less than the 35^th percentile shall not be entitled to any payout under this Award. An Average Percentile Performance v. Peer Group of greater than the 75^th percentile shall be entitled to a payout of 200% of the Target Number of Restricted Stock Units.

     Example(s) for illustration purposes only:

Performance Metric	Example 1	Example 2
Revenue Growth	25th percentile	50th percentile
Operating Income Growth	50th percentile	80th percentile
Free Cash Flow Growth	35th percentile	75th percentile
Stock Price Performance	90th percentile	35th percentile
Overall Average Percentile Performance	50th percentile	60th percentile
Percent of Target Award Earned	100% of Target	140% of Target

          (e) When Shares are paid to the Grantee in payment for the Restricted Stock Units, par value ($.001 per share) will be deemed paid by the Grantee for each Restricted Stock Unit by services rendered by the Grantee, and will be subject to the appropriate tax withholdings.

     2. Company’s Obligation to Pay. Each Restricted Stock Unit has a value equal to the Fair Market Value of a Share on the date that the Restricted Stock Unit is granted. Unless and until the Restricted Stock Units have vested in the manner set forth in Sections 3 through 5, the Grantee will have no right to payment of such Restricted Stock Units. Prior to actual payment of Shares upon the vesting of any Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation. Payment of any vested Restricted Stock Units shall be made in whole Shares only and any fractional Shares will be forfeited at the time of payment.

     3. Vesting Schedule/Period of Restriction. Except as provided in Sections 4 and 5, and subject to Section 7, the Restricted Stock Units awarded by this Agreement shall vest in accordance with the vesting provisions set forth on the Notice of Grant and Section 1 of this Agreement. Restricted Stock Units shall not vest in accordance with any of the provisions of this Agreement unless the Grantee shall have been continuously employed by the Company or by its Parent or other successor or a Subsidiary from the Grant Date until the Vesting Date occurs.

4. Modifications to Vesting Schedule.

          (a) Vesting upon Leave of Absence. In the event that the Grantee takes an authorized leave of absence (“LOA”), the Restricted Stock Units awarded by this Agreement that are

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eligible to be earned shall either: (i) not be affected, or (ii) shall be deferred for a period of time equal to the duration of such LOA, based on the Company’s LOA policy in effect at such time as determined by the Company in its sole discretion.

          (b) Death or Disability of Grantee. In the event that the Grantee’s relationship with the Company or its Parent or other successor or a Subsidiary as a Service Provider is terminated prior to full vesting of the Restricted Stock Units due to his or her death or Disability, the unvested portion of the Restricted Stock Units subject to this Restricted Stock Unit award shall be forfeited on the date of the Grantee’s death or Disability.

          (c) Change in Control.

               (i) In the event of a Change in Control during the Performance Period, the Performance Period shall be deemed to end immediately prior to the Change in Control for purposes of calculating the performance of the Company against the Peer Group. The Vesting Date shall remain based on the original term of the Performance Period as set forth in the Notice of Grant (unless vested earlier in accordance with the terms of this Award and provided that Grantee remains a Service Provider to the Company (or its successor(s)) through the Vesting Date or as otherwise set forth in this Agreement).

[NOTE: Include the following if change of control arrangements are applicable to the grant:]

               [(ii) Notwithstanding Section 4(c)(i), if Grantee’s employment with the Company (or any Parent or Subsidiary of the Company) is terminated by the Company (or the Parent or Subsidiary of the Company) without Cause or by Grantee for Good Reason in Connection with a Change of Control, then the greater of: (a) [AMOUNT OF ACCELERATION]% of the original number of Target Number of Restricted Stock Units set forth in the Notice of Grant, or (b) the number of Restricted Stock Units which would vest in accordance with Section 4(c)(i), shall immediately vest as of the date of Grantee’s termination of employment with the Company (or any Parent or Subsidiary of the Company).

               (iii) Any additional vesting of Restricted Stock Units pursuant to Section 4(c)(i)(a) and payment to Grantee of such underlying Shares shall be contingent on the following: (i) receipt by the Company of a signed release of claims in form and substance satisfactory to the Company (or its successor(s)) and expiration of any applicable revocation period with respect to such release; (ii) Grantee agrees not to knowingly disparage, criticize or otherwise make any derogatory statements regarding the Company, its directors or officers (other than statements made truthfully in response to a subpoena or other compulsory legal process); and (iii) Grantee agrees to continue to comply with the terms of the Company’s Employment, Confidential Information and Invention Assignment Agreement entered into by Grantee.

               (iv) Definitions.

                    (A) Cause. For purposes of this Agreement, “Cause” means (i) Grantee’s willful and continued failure to perform the duties and responsibilities of his position that is not corrected within a thirty (30) day correction period that begins upon delivery to Grantee of a written demand for performance from the Board that describes the basis for the Board’s belief that Grantee has not substantially performed his duties; (ii) any act of personal dishonesty taken by Grantee in connection with his or her responsibilities as an employee of the Company with the intention or reasonable expectation that such may result in substantial personal enrichment of

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Grantee; (iii) Grantee’s conviction of, or plea of nolo contendre to, a felony that the Board reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business, or (iv) Grantee materially breaching Grantee’s Confidential Information Agreement, which breach is (if capable of cure) not cured within thirty (30) days after the Company delivers written notice to Grantee of the breach.

                    (B) Change of Control. For purposes of this Agreement, “Change of Control” shall mean the occurrence of any of the following events:

                         (1) the consummation by the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;

                         (2) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

                         (3) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities; or

                         (4) a change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those directors whose election or nomination was not in connection with any transactions described in subsections (i), (ii), or (iii) or in connection with an actual or threatened proxy contest relating to the election of directors of the Company.

                    (C) Good Reason. For purposes of this Agreement, “Good Reason” means the occurrence of any of the following, without Grantee’s consent: (i) a material reduction of Grantee’s duties, title, authority or responsibilities in effect immediately prior to a Change of Control; (ii) a reduction in Grantee’s base salary or target annual cash incentive compensation; (iii) the failure of the Company to obtain the assumption of the Agreement by the successor, or (iv) the Company requiring Grantee to relocate his or her principal place of business or the Company relocating its headquarters, in either case to a facility or location outside of a thirty-five (35) mile radius from Grantee’s current principal place of employment; provided, however, that Grantee only will have Good Reason if the Executive gives written notice to the Chief Executive Officer of the Company of the event or circumstances constituting Good Reason specified in any of the preceding clauses within ninety (90) days of its initial occurrence and such event or circumstance is not cured within thirty (30) days after Grantee gives such written notice to the Board. Grantee’s actions approving any of the foregoing changes (that otherwise may be considered Good Reason) will be considered consent for the purposes of this Good Reason definition.

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                    (D) In Connection with a Change of Control. For purposes of this Agreement, a termination of Grantee’s employment with the Company is “in Connection with a Change of Control” if Grantee’s employment is terminated at any time from thirty (30) days prior to a Change of Control through the remainder of the original Performance Period following a Change of Control.]

     5. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units at any time, subject to the terms of the Plan. Such acceleration may result in tax or other consequences to the Grantee. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator. If the Administrator, in its discretion, accelerates the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units, the payment of such accelerated Restricted Stock Units nevertheless shall be made at the same time or times as if such Restricted Stock Units had vested in accordance with the vesting schedule set forth on the Notice of Grant and Section 1 of this Agreement or as otherwise provided herein (whether or not the Grantee remains employed by the Company or by one of its Subsidiaries as of such date(s)). The Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

     6. Payment after Vesting. Any Restricted Stock Units that vest in accordance with Sections 3 through 4 of this Agreement will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) as soon as practicable following the Vesting Date, subject to Section 9, but no later than March 15^th of the calendar year following the Vesting Date.

     7. Forfeiture. The balance of the Restricted Stock Units that have not vested pursuant to Sections 3 through 5 at the time of the termination of the Grantee’s relationship with the Company as a Service Provider for any or no reason will be forfeited.

     8. [Reserved.]

     9. Withholding of Taxes.

          (a) General. Regardless of any action the Company and/or the Grantee’s employer (the “Employer”) take with respect to any or all income tax (including U.S. federal, state, local and/or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholdings (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Grantee is and remains the Grantee’s responsibility and that the Company and/or the Employer (i) make no guarantees or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the award, including the grant of the Restricted Stock Units, the vesting of the Restricted Stock Units, the delivery of Shares, the subsequent sale of any Shares received at vesting and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant or any aspect of the award to reduce or eliminate the Grantee’s liability for Tax-Related Items.

          (b) Payment of Tax-Related Items. The Grantee authorizes the Company and/or the Employer, at its discretion, to satisfy the obligations with regard to all Tax-Related Items by withholding a portion of the Shares issued as payment for vested Restricted Stock Units that have an aggregate market value sufficient to pay all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance

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of the Shares, unless the Company, in its sole discretion, either requires or otherwise permits the Grantee to make alternate arrangements satisfactory to the Company for such withholdings in advance of the arising of any withholding obligations. The number of Shares withheld pursuant to the prior sentence will be rounded up to the nearest whole Share, with no refund for any value of the Shares withheld in excess of the tax obligation as a result of such rounding.

          If the obligation of Tax-Related Items is satisfied by reducing the number of Shares delivered as described herein, the Grantee is deemed to have been issued the full number of Shares subject to the award of Restricted Stock Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the award.

          If the foregoing method of withholding is prohibited or insufficient to satisfy all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares or if the Company, in its discretion, determines not to apply the foregoing method of withholding, then the Grantee hereby authorizes the Company and/or the Employer to satisfy such obligations by one or a combination of the following: (i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer, to the maximum extent permitted by law; or (ii) selling the applicable number of Shares or arranging for the sale of the applicable number of Shares (in either case on the Grantee’s behalf and at the Grantee’s discretion pursuant to this authorization) issued in settlement of vested Restricted Stock Units and retaining the requisite proceeds from such sale.

          Finally, the Grantee shall pay to the Company and/or the Employer any amount of Tax-Related Items that the Company and/or the Employer may be required to withhold as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to deliver to the Grantee any Shares pursuant to the award if the Grantee fails to comply with the Grantee’s obligations in connection with the Tax-Related Items, as described in this Section 9.

     10. Rights as Stockholder. Neither the Grantee nor any person claiming under or through the Grantee will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Grantee (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, the Grantee will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

     11. No Effect on Employment. Subject to any employment contract with the Grantee, the terms of such employment will be determined from time to time by the Company, or the Subsidiary employing the Grantee, as the case may be, and the Company, or the Subsidiary employing the Grantee, as the case may be, will have the right, which is hereby expressly reserved, to terminate or change the terms of the employment of the Grantee at any time for any reason whatsoever, with or without good cause. The transactions contemplated hereunder and the vesting schedule set forth on the first page of this Agreement do not constitute an express or implied promise of continued employment for any period of time. A leave of absence or an interruption in service (including an interruption during military service) authorized or acknowledged by the Company or the Subsidiary employing the Grantee, as the case may be, shall not be deemed a termination of the Grantee’s relationship with the Company as a Service Provider for the purposes of this Agreement.

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     12. Address for Notices. Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company, in care of Stock Administrator, at 1745 Technology Drive, San Jose, California 95110, USA or at such other address as the Company may hereafter designate in writing, with a copy to the Company, C/O General Counsel, 1745 Technology Drive, San Jose, California 95110, USA.

     13. Grant is Not Transferable. Except to the limited extent provided in this Agreement or the Plan, this grant of Restricted Stock Units and the rights and privileges conferred hereby will not be sold, pledged, assigned, hypothecated, transferred or disposed of any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process, until the Grantee has been issued Shares in payment of the Restricted Stock Units. Upon any attempt to sell, pledge, assign, hypothecate, transfer or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.

     14. Restrictions on Sale of Securities. The Shares issued as payment for vested Restricted Stock Units under this Agreement will be registered under U.S. federal securities laws and will be freely tradable upon receipt. However, a Grantee’s subsequent sale of the Shares may be subject to any market blackout-period that may be imposed by the Company and must comply with the Company’s insider trading policies, and any other U.S. securities laws or other Applicable Laws.

     15. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

     16. Additional Conditions to Issuance of Certificates for Shares. The Company shall not be required to issue any certificate or certificates for Shares hereunder prior to fulfillment of all the following conditions: (a) the admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (b) the completion of any registration or other qualification of such Shares under any U.S. state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; (c) the obtaining of any approval or other clearance from any U.S. state or federal governmental agency, which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and (d) the lapse of such reasonable period of time following the Vesting Date of the Restricted Stock Units as the Administrator may establish from time to time for reasons of administrative convenience.

     17. Plan Governs. This Agreement is subject to all the terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern.

     18. Administrator Authority. The Administrator will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon the Grantee, the Company and all other interested persons. No member of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

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     19. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

     20. Agreement Severable. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

     21. Modifications to the Agreement. This Agreement, including Appendix A, together with the Plan, constitutes the entire understanding of the parties on the subjects covered, subject to any applicable pre-existing agreement or agreement entered into after the date hereof relating to full or partial acceleration of vesting in the event of a change of control of the Company (or similar event). The Grantee expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein or expressly contemplated above. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Agreement, the Company reserves the right to revise this Agreement as it deems necessary or advisable, in its sole discretion and without the consent of the Grantee, to comply with Section 409A of the Code or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code prior to the actual payment of Shares pursuant to this award of Restricted Stock Units. Notwithstanding the foregoing, if required by Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), no Restricted Stock Units will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) earlier than six (6) months and one (1) day following the date of the Termination of the Grantee’s relationship with the Company as a Service Provider, subject to Section 9.

     22. Amendment, Suspension or Termination of the Plan. By accepting this Restricted Stock Units award, the Grantee expressly warrants that he or she has received a right to receive stock under the Plan, and has received, read and understood a description of the Plan. The Grantee understands that the Plan is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, except as otherwise provided in the Plan and/or the Agreement.

     23. Labor Law and Nature of Grant. In accepting the award of Restricted Stock Units, the Grantee acknowledges that:

          (a) the Plan is established voluntarily by the Company;

          (b) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units even if Restricted Stock Units have been awarded repeatedly in the past;

          (c) all decisions with respect to future awards, if any, will be at the sole discretion of the Company;

          (d) the Grantee’s participation in the Plan is voluntary;

          (e) the award is an extraordinary item that is outside the scope of the Grantee’s employment or service contract, if any;

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          (f) the award is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

          (g) in the event that the Grantee is not an employee of the Company, the award will not be interpreted to form an employment or service contract or relationship with the Company; and, furthermore, the award will not be interpreted to form an employment or service contract or relationship with the Employer or any Parent or other successor or a Subsidiary of the Company;

          (h) the future value of the underlying Shares is unknown and cannot be predicted with certainty;

          (i) the Company is not providing any tax, legal, or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan or the acquisition or sale of Shares; and

          (j) the Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

     24. Data Privacy. The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in the Notice of Grant and this Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

          The Grantee understands that the Company and the Employer may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, vested, unvested or outstanding in the Grantee’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”).

          The Grantee understands that Data will be transferred to E*Trade or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee understands the recipients of Data may be located in the Grantee’s country, in the United States or elsewhere, and that the recipients’ country may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that the Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting the Grantee’s local human resources representative. The Grantee authorizes the Company, E*Trade and any other potential recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Grantee’s local human resources representative. The Grantee

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understands, however, that refusing or withdrawing consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.

     25. Notice of Governing Law. This award of Restricted Stock Units shall be governed by, and construed in accordance with, the laws of the State of California, without regard to principles of conflict of laws. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the award of Restricted Stock Units, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted on in the courts of Santa Clara County, California or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed.

     26. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Restricted Stock Units awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means, or to request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

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APPENDIX B

PEER GROUP

[NOTE: THE LIST OF PEER GROUP COMPANIES SHALL BE DETERMINED BY THE COMPENSATION COMMITTEE IN CONNECTION WITH PERFORMANCE RSU GRANTS.]

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[FORM OF TIME-BASED RESTRICTED STOCK UNIT AGREEMENT]

BROCADE COMMUNICATIONS SYSTEMS, INC.
1999 STOCK PLAN (AS AMENDED AND RESTATED)
RESTRICTED STOCK UNIT AGREEMENT

NOTICE OF GRANT

[GRANTEE NAME]
[GRANTEE ADDRESS]

     You (“Grantee”) have been granted an award of Restricted Stock Units under the Company’s Amended and Restated 1999 Stock Plan (the “Plan”). The date of this Restricted Stock Units Agreement (the “Agreement”) is the Grant Date defined below. Subject to the provisions of Appendix A and the Plan, which are attached hereto and incorporated herein in their entirety, the principal features of this award are as follows:

Grant Date:	[GRANT DATE] (the “Grant Date”)
Number of Restricted Stock Units:	[NUMBER OF RSUs] (the “Number of Restricted Stock Units”)
Vesting Schedule:	The Restricted Stock Units will vest in accordance with the following Vesting Schedule; provided, Grantee remains a Service Provider to the Company through the applicable vesting dates (the “Vesting Schedule”):
	[INSERT VESTING SCHEDULE]

     Your signature below indicates your agreement and understanding that this award is subject to all of the terms and conditions contained in Appendix A and the Plan. For example, important additional information on vesting and forfeiture of the Restricted Stock Units is contained in Sections 3 through 5 and Section 7 of Appendix A. PLEASE BE SURE TO READ ALL OF APPENDIX A AND THE PLAN, WHICH CONTAIN THE SPECIFIC TERMS AND CONDITIONS OF THIS AWARD.

BROCADE COMMUNICATIONS SYSTEMS, INC.	GRANTEE
Signature	Signature
Print Name	Print Name
Title

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APPENDIX A

TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS

     Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Plan.

          1. Grant.

               (a) The Company hereby grants to the Grantee under the Plan an award of the Number of Restricted Stock Units set forth on the Notice of Grant, subject to all of the terms and conditions in this Agreement and the Plan. For each Restricted Stock Unit that vests, the Grantee will be entitled to receive one (1) Share (subject to automatic adjustment for stock splits, combinations and other adjustments contemplated in the Plan).

               (b) When Shares are paid to the Grantee in payment for the Restricted Stock Units, par value ($.001 per share) will be deemed paid by the Grantee for each Restricted Stock Unit by services rendered by the Grantee, and will be subject to the appropriate tax withholdings.

     2. Company’s Obligation to Pay. Each Restricted Stock Unit has a value equal to the Fair Market Value of a Share on the date that the Restricted Stock Unit is granted. Unless and until the Restricted Stock Units have vested in the manner set forth in Sections 3 through 5, the Grantee will have no right to payment of such Restricted Stock Units. Prior to actual payment of Shares upon the vesting of any Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation. Payment of any vested Restricted Stock Units shall be made in whole Shares only and any fractional Shares will be forfeited at the time of payment.

     3. Vesting Schedule/Period of Restriction. Except as provided in Sections 4 and 5, and subject to Section 7, the Restricted Stock Units awarded by this Agreement shall vest in accordance with the vesting provisions set forth on the Notice of Grant. Restricted Stock Units shall not vest in accordance with any of the provisions of this Agreement unless the Grantee shall have been continuously employed by the Company or by its Parent or other successor or a Subsidiary from the Grant Date through the dates the Restricted Stock Units are otherwise scheduled to vest.

4. Modifications to Vesting Schedule.

          (a) Vesting upon Leave of Absence. In the event that the Grantee takes an authorized leave of absence (“LOA”), the Restricted Stock Units awarded by this Agreement that are eligible to be earned shall either: (i) not be affected, or (ii) shall be deferred for a period of time equal to the duration of such LOA, based on the Company’s LOA policy in effect at such time as determined by the Company in its sole discretion.

          (b) Death or Disability of Grantee. In the event that the Grantee’s relationship with the Company or its Parent or other successor or a Subsidiary as a Service Provider is terminated prior to full vesting of the Restricted Stock Units due to his or her death or Disability, the unvested portion of the Restricted Stock Units subject to this Restricted Stock Unit award shall be forfeited on the date of the Grantee’s death or Disability.

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[NOTE: Include the following if change of control arrangements are applicable to the grant:]

          [(c) Change in Control.

               (i) If Grantee’s employment with the Company (or any Parent or Subsidiary of the Company) is terminated by the Company (or the Parent or Subsidiary of the Company) without Cause or by Grantee for Good Reason in Connection with a Change of Control, then [AMOUNT OF ACCELERATION]% of the Number of Restricted Stock Units set forth in the Notice of Grant then unvested shall immediately vest as of the date of Grantee’s termination of employment with the Company (or any Parent or Subsidiary of the Company).

               (ii) Any additional vesting of Restricted Stock Units pursuant to Section 4(c)(i) and payment to Grantee of such underlying Shares shall be contingent on the following: (i) receipt by the Company of a signed release of claims in form and substance satisfactory to the Company (or its successor(s)) and expiration of any applicable revocation period with respect to such release; (ii) Grantee agrees not to knowingly disparage, criticize or otherwise make any derogatory statements regarding the Company, its directors or officers (other than statements made truthfully in response to a subpoena or other compulsory legal process); and (iii) Grantee agrees to continue to comply with the terms of the Company’s Employment, Confidential Information and Invention Assignment Agreement entered into by Grantee.

               (iii) Definitions.

                    (A) Cause. For purposes of this Agreement, “Cause” means (i) Grantee’s willful and continued failure to perform the duties and responsibilities of his position that is not corrected within a thirty (30) day correction period that begins upon delivery to Grantee of a written demand for performance from the Board that describes the basis for the Board’s belief that Grantee has not substantially performed his duties; (ii) any act of personal dishonesty taken by Grantee in connection with his or her responsibilities as an employee of the Company with the intention or reasonable expectation that such may result in substantial personal enrichment of Grantee; (iii) Grantee’s conviction of, or plea of nolo contendre to, a felony that the Board reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business, or (iv) Grantee materially breaching Grantee’s Confidential Information Agreement, which breach is (if capable of cure) not cured within thirty (30) days after the Company delivers written notice to Grantee of the breach.

                    (B) Change of Control. For purposes of this Agreement, “Change of Control” shall mean the occurrence of any of the following events:

                         (1) the consummation by the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;

                         (2) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

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                         (3) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities; or

                         (4) a change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those directors whose election or nomination was not in connection with any transactions described in subsections (i), (ii), or (iii) or in connection with an actual or threatened proxy contest relating to the election of directors of the Company.

                    (C) Good Reason. For purposes of this Agreement, “Good Reason” means the occurrence of any of the following, without Grantee’s consent: (i) a material reduction of Grantee’s duties, title, authority or responsibilities in effect immediately prior to a Change of Control; (ii) a reduction in Grantee’s base salary or target annual cash incentive compensation; (iii) the failure of the Company to obtain the assumption of the Agreement by the successor, or (iv) the Company requiring Grantee to relocate his or her principal place of business or the Company relocating its headquarters, in either case to a facility or location outside of a thirty-five (35) mile radius from Grantee’s current principal place of employment; provided, however, that Grantee only will have Good Reason if the Executive gives written notice to the Chief Executive Officer of the Company of the event or circumstances constituting Good Reason specified in any of the preceding clauses within ninety (90) days of its initial occurrence and such event or circumstance is not cured within thirty (30) days after Grantee gives such written notice to the Board. Grantee’s actions approving any of the foregoing changes (that otherwise may be considered Good Reason) will be considered consent for the purposes of this Good Reason definition.

                    (D) In Connection with a Change of Control. For purposes of this Agreement, a termination of Grantee’s employment with the Company is “in Connection with a Change of Control” if Grantee’s employment is terminated at any time from thirty (30) days prior to a Change of Control through the last vesting date under the Vesting Schedule following a Change of Control.]

     5. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units at any time, subject to the terms of the Plan. Such acceleration may result in tax or other consequences to the Grantee. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator. If the Administrator, in its discretion, accelerates the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units, the payment of such accelerated Restricted Stock Units nevertheless shall be made at the same time or times as if such Restricted Stock Units had vested in accordance with the vesting schedule set forth on the Notice of Grant and Section 1 of this Agreement or as otherwise provided herein (whether or not the Grantee remains employed by the Company or by one of its Subsidiaries as of such date(s)). The Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

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     6. Payment after Vesting. Any Restricted Stock Units that vest in accordance with Sections 3 through 4 of this Agreement will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) as soon as practicable following the applicable vesting date, subject to Section 9, but no later than March 15^th of the calendar year following the applicable vesting date.

     7. Forfeiture. The balance of the Restricted Stock Units that have not vested pursuant to Sections 3 through 5 at the time of the termination of the Grantee’s relationship with the Company as a Service Provider for any or no reason will be forfeited.

     8. [Reserved.]

     9. Withholding of Taxes.

          (a) General. Regardless of any action the Company and/or the Grantee’s employer (the “Employer”) take with respect to any or all income tax (including U.S. federal, state, local and/or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholdings (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Grantee is and remains the Grantee’s responsibility and that the Company and/or the Employer (i) make no guarantees or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the award, including the grant of the Restricted Stock Units, the vesting of the Restricted Stock Units, the delivery of Shares, the subsequent sale of any Shares received at vesting and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant or any aspect of the award to reduce or eliminate the Grantee’s liability for Tax-Related Items.

          (b) Payment of Tax-Related Items. The Grantee authorizes the Company and/or the Employer, at its discretion, to satisfy the obligations with regard to all Tax-Related Items by withholding a portion of the Shares issued as payment for vested Restricted Stock Units that have an aggregate market value sufficient to pay all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares, unless the Company, in its sole discretion, either requires or otherwise permits the Grantee to make alternate arrangements satisfactory to the Company for such withholdings in advance of the arising of any withholding obligations. The number of Shares withheld pursuant to the prior sentence will be rounded up to the nearest whole Share, with no refund for any value of the Shares withheld in excess of the tax obligation as a result of such rounding.

          If the obligation of Tax-Related Items is satisfied by reducing the number of Shares delivered as described herein, the Grantee is deemed to have been issued the full number of Shares subject to the award of Restricted Stock Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the award.

          If the foregoing method of withholding is prohibited or insufficient to satisfy all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares or if the Company, in its discretion, determines not to apply the foregoing method of withholding, then the Grantee hereby authorizes the Company and/or the Employer to satisfy such obligations by one or a combination of the following: (i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer, to the maximum extent permitted by law; or (ii) selling the applicable number of Shares or arranging for the sale of the applicable number of Shares (in either

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case on the Grantee’s behalf and at the Grantee’s discretion pursuant to this authorization) issued in settlement of vested Restricted Stock Units and retaining the requisite proceeds from such sale.

          Finally, the Grantee shall pay to the Company and/or the Employer any amount of Tax-Related Items that the Company and/or the Employer may be required to withhold as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to deliver to the Grantee any Shares pursuant to the award if the Grantee fails to comply with the Grantee’s obligations in connection with the Tax-Related Items, as described in this Section 9.

     10. Rights as Stockholder. Neither the Grantee nor any person claiming under or through the Grantee will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Grantee (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, the Grantee will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

     11. No Effect on Employment. Subject to any employment contract with the Grantee, the terms of such employment will be determined from time to time by the Company, or the Subsidiary employing the Grantee, as the case may be, and the Company, or the Subsidiary employing the Grantee, as the case may be, will have the right, which is hereby expressly reserved, to terminate or change the terms of the employment of the Grantee at any time for any reason whatsoever, with or without good cause. The transactions contemplated hereunder and the vesting schedule set forth on the first page of this Agreement do not constitute an express or implied promise of continued employment for any period of time. A leave of absence or an interruption in service (including an interruption during military service) authorized or acknowledged by the Company or the Subsidiary employing the Grantee, as the case may be, shall not be deemed a termination of the Grantee’s relationship with the Company or its Subsidiary as a Service Provider for the purposes of this Agreement.

     12. Address for Notices. Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company, in care of Stock Administrator, at 1745 Technology Drive, San Jose, California, 95110, USA, or at such other address as the Company may hereafter designate in writing, with a copy to the Company, C/O General Counsel, 1745 Technology Drive, San Jose, California, 95110, USA.

     13. Grant is Not Transferable. Except to the limited extent provided in this Agreement or the Plan, this grant of Restricted Stock Units and the rights and privileges conferred hereby will not be sold, pledged, assigned, hypothecated, transferred or disposed of any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process, until the Grantee has been issued Shares in payment of the Restricted Stock Units. Upon any attempt to sell, pledge, assign, hypothecate, transfer or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.

     14. Restrictions on Sale of Securities. The Shares issued as payment for vested Restricted Stock Units under this Agreement will be registered under U.S. federal securities laws and

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will be freely tradable upon receipt. However, a Grantee’s subsequent sale of the Shares may be subject to any market blackout-period that may be imposed by the Company and must comply with the Company’s insider trading policies, and any other U.S. securities laws or other Applicable Laws.

     15. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

     16. Additional Conditions to Issuance of Certificates for Shares. The Company shall not be required to issue any certificate or certificates for Shares hereunder prior to fulfillment of all the following conditions: (a) the admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (b) the completion of any registration or other qualification of such Shares under any U.S. state or federal or non-U.S. law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; (c) the obtaining of any approval or other clearance from any U.S. state or federal or non-U.S. governmental agency, which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and (d) the lapse of such reasonable period of time following the Vesting Date of the Restricted Stock Units as the Administrator may establish from time to time for reasons of administrative convenience.

     17. Plan Governs. This Agreement is subject to all the terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern.

     18. Administrator Authority. The Administrator will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon the Grantee, the Company and all other interested persons. No member of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

     19. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

     20. Agreement Severable. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

     21. Modifications to the Agreement. This Agreement, including Appendix A, together with the Plan, constitutes the entire understanding of the parties on the subjects covered, subject to any applicable pre-existing agreement or agreement entered into after the date hereof relating to full or partial acceleration of vesting in the event of a change of control of the Company (or similar event). The Grantee expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein or expressly contemplated above. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Agreement, the Company reserves the right to revise this Agreement

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as it deems necessary or advisable, in its sole discretion and without the consent of the Grantee, to comply with Section 409A of the Code or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code prior to the actual payment of Shares pursuant to this award of Restricted Stock Units. Notwithstanding the foregoing, if required by Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), no Restricted Stock Units will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) earlier than six (6) months and one (1) day following the date of the Termination of the Grantee’s relationship with the Company as a Service Provider, subject to Section 9.

     22. Amendment, Suspension or Termination of the Plan. By accepting this Restricted Stock Units award, the Grantee expressly warrants that he or she has received a right to receive stock under the Plan, and has received, read and understood a description of the Plan. The Grantee understands that the Plan is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, except as otherwise provided in the Plan and/or the Agreement.

     23. Labor Law and Nature of Grant. In accepting the award of Restricted Stock Units, the Grantee acknowledges that:

          (a) the Plan is established voluntarily by the Company;

          (b) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units even if Restricted Stock Units have been awarded repeatedly in the past;

          (c) all decisions with respect to future awards, if any, will be at the sole discretion of the Company;

          (d) the Grantee’s participation in the Plan is voluntary;

          (e) the award is an extraordinary item that is outside the scope of the Grantee’s employment or service contract, if any;

          (f) the award is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

          (g) in the event that the Grantee is not an employee of the Company, the award will not be interpreted to form an employment or service contract or relationship with the Company; and, furthermore, the award will not be interpreted to form an employment or service contract or relationship with the Employer or any Parent or other successor or a Subsidiary of the Company;

          (h) the future value of the underlying Shares is unknown and cannot be predicted with certainty;

          (i) the Company is not providing any tax, legal, or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan or the acquisition or sale of Shares; and

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          (j) the Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

     24. Data Privacy. The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in the Notice of Grant and this Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

          The Grantee understands that the Company and the Employer may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, vested, unvested or outstanding in the Grantee’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”).

          The Grantee understands that Data will be transferred to E*Trade or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee understands the recipients of Data may be located in the Grantee’s country, in the United States or elsewhere, and that the recipients’ country may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that the Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting the Grantee’s local human resources representative. The Grantee authorizes the Company, E*Trade and any other potential recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Grantee’s local human resources representative. The Grantee understands, however, that refusing or withdrawing consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.

     25. Notice of Governing Law. This award of Restricted Stock Units shall be governed by, and construed in accordance with, the laws of the State of California, without regard to principles of conflict of laws. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the award of Restricted Stock Units, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted on in the courts of Santa Clara County, California or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed.

     26. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Restricted Stock Units awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means, or to request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

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[FORM OF TIME-BASED RESTRICTED STOCK UNIT AGREEMENT]

BROCADE COMMUNICATIONS SYSTEMS, INC.
1999 STOCK PLAN (AS AMENDED AND RESTATED)
RESTRICTED STOCK UNIT AGREEMENT
FOR NON-U.S. EMPLOYEES

NOTICE OF GRANT

[GRANTEE NAME]
[GRANTEE ADDRESS]

     You (“Grantee”) have been granted an award of Restricted Stock Units under the Company’s Amended and Restated 1999 Stock Plan (the “Plan”). The date of this Restricted Stock Units Agreement (the “Agreement”) is the Grant Date defined below. Subject to the provisions of Appendix A (attached), any appendix to the Agreement for the Grantee’s country of residence (“Appendix B”) and the Plan, all of which are attached hereto and incorporated herein in their entirety, the principal features of this award are as follows:

Grant Date:	[GRANT DATE] (the “Grant Date”)
Number of Restricted Stock Units:	[NUMBER OF RSUs] (the “Number of Restricted Stock Units”)
Vesting Schedule:	The Restricted Stock Units will vest in accordance with the following Vesting Schedule; provided, Grantee remains a Service Provider to the Company through the applicable vesting dates (the “Vesting Schedule”):
	[INSERT VESTING SCHEDULE]

     Your signature below indicates your agreement and understanding that this award is subject to all of the terms and conditions contained in Appendix A, Appendix B and the Plan. For example, important additional information on vesting and forfeiture of the Restricted Stock Units is contained in Sections 3 through 5 and Section 7 of Appendix A. PLEASE BE SURE TO READ ALL OF APPENDIX A, APPENDIX B AND THE PLAN, WHICH CONTAIN THE SPECIFIC TERMS AND CONDITIONS OF THIS AWARD.

BROCADE COMMUNICATIONS SYSTEMS, INC.	GRANTEE
Signature	Signature
Print Name	Print Name
Title

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APPENDIX A
TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS
FOR NON-U.S. EMPLOYEES

     Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Plan.

          1. Grant.

               (a) The Company hereby grants to the Grantee under the Plan an award of the Number of Restricted Stock Units set forth on the Notice of Grant, subject to all of the terms and conditions in this Agreement, Appendix B and the Plan. For each Restricted Stock Unit that vests, the Grantee will be entitled to receive one (1) Share (subject to automatic adjustment for stock splits, combinations and other adjustments contemplated in the Plan).

               (b) When Shares are paid to the Grantee in payment for the Restricted Stock Units, par value ($.001 per share) will be deemed paid by the Grantee for each Restricted Stock Unit by services rendered by the Grantee, and will be subject to the appropriate tax withholdings.

     2. Company’s Obligation to Pay. Each Restricted Stock Unit has a value equal to the Fair Market Value of a Share on the date that the Restricted Stock Unit is granted. Unless and until the Restricted Stock Units have vested in the manner set forth in Sections 3 through 5, the Grantee will have no right to payment of such Restricted Stock Units. Prior to actual payment of Shares upon the vesting of any Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation. Payment of any vested Restricted Stock Units shall be made in whole Shares only and any fractional Shares will be forfeited at the time of payment.

     3. Vesting Schedule/Period of Restriction. Except as provided in Sections 4 and 5, and subject to Section 7, the Restricted Stock Units awarded by this Agreement shall vest in accordance with the vesting provisions set forth on the Notice of Grant. Restricted Stock Units shall not vest in accordance with any of the provisions of this Agreement unless the Grantee shall have been continuously employed by the Company or by its Parent or other successor or a Subsidiary from the Grant Date through the dates the Restricted Stock Units are otherwise scheduled to vest.

     4. Modifications to Vesting Schedule.

          (a) Vesting upon Leave of Absence. In the event that the Grantee takes an authorized leave of absence (“LOA”), the Restricted Stock Units awarded by this Agreement that are eligible to be earned shall either: (i) not be affected, or (ii) shall be deferred for a period of time equal to the duration of such LOA, based on the Company’s LOA policy in effect at such time as determined by the Company in its sole discretion.

          (b) Death or Disability of Grantee. In the event that the Grantee’s relationship with the Company or its Parent or other successor or a Subsidiary as a Service Provider is terminated prior to full vesting of the Restricted Stock Units due to his or her death or Disability, the unvested portion of the Restricted Stock Units subject to this Restricted Stock Unit award shall be forfeited on the date of the Grantee’s death or Disability.

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     5. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units at any time, subject to the terms of the Plan. Such acceleration may result in tax or other consequences to the Grantee. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator. If the Administrator, in its discretion, accelerates the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units, the payment of such accelerated Restricted Stock Units nevertheless shall be made at the same time or times as if such Restricted Stock Units had vested in accordance with the vesting schedule set forth on the Notice of Grant and Section 1 of this Agreement or as otherwise provided herein (whether or not the Grantee remains employed by the Company or by one of its Subsidiaries as of such date(s)). The Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

     6. Payment after Vesting. Any Restricted Stock Units that vest in accordance with Sections 3 through 4 of this Agreement will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) as soon as practicable following the applicable vesting date, subject to Section 9, but no later than March 15^th of the calendar year following the applicable vesting date.

     7. Forfeiture. The balance of the Restricted Stock Units that have not vested pursuant to Sections 3 through 5 at the time of the termination of the Grantee’s relationship with the Company as a Service Provider for any or no reason will be forfeited.

     8. [Reserved.]

     9. Withholding of Taxes.

          (a) General. Regardless of any action the Company and/or the Grantee’s employer (the “Employer”) take with respect to any or all income tax (including U.S. federal, state, local and/or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholdings (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Grantee is and remains the Grantee’s responsibility and that the Company and/or the Employer (i) make no guarantees or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the award, including the grant of the Restricted Stock Units, the vesting of the Restricted Stock Units, the delivery of Shares, the subsequent sale of any Shares received at vesting and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant or any aspect of the award to reduce or eliminate the Grantee’s liability for Tax-Related Items.

          (b) Payment of Tax-Related Items. The Grantee authorizes the Company and/or the Employer, at its discretion, to satisfy the obligations with regard to all Tax-Related Items by withholding a portion of the Shares issued as payment for vested Restricted Stock Units that have an aggregate market value sufficient to pay all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares, unless the Company, in its sole discretion, either requires or otherwise permits the Grantee to make alternate arrangements satisfactory to the Company for such withholdings in advance of the arising of any withholding obligations. The number of Shares withheld pursuant to the prior sentence will be no greater than the minimum statutory rate of withholding and will be rounded up to the nearest whole Share, with no refund for any value of the Shares withheld in excess of the tax obligation as a result of such rounding.

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          If the obligation of Tax-Related Items is satisfied by reducing the number of Shares delivered as described herein, the Grantee is deemed to have been issued the full number of Shares subject to the award of Restricted Stock Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the award.

          If the foregoing method of withholding is prohibited or insufficient to satisfy all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares or if the Company, in its discretion, determines not to apply the foregoing method of withholding, then the Grantee hereby authorizes the Company and/or the Employer to satisfy such obligations by one or a combination of the following: (a) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer, to the maximum extent permitted by law; or (b) selling the applicable number of Shares or arranging for the sale of the applicable number of Shares (in either case on the Grantee’s behalf and at the Grantee’s discretion pursuant to this authorization) issued in settlement of vested Restricted Stock Units and retaining the requisite proceeds from such sale.

          Finally, the Grantee shall pay to the Company and/or the Employer any amount of Tax-Related Items that the Company and/or the Employer may be required to withhold as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to deliver to the Grantee any Shares pursuant to the award if the Grantee fails to comply with the Grantee’s obligations in connection with the Tax-Related Items, as described in this Section 9.

     10. Rights as Stockholder. Neither the Grantee nor any person claiming under or through the Grantee will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Grantee (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, the Grantee will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

     11. No Effect on Employment. Subject to any employment contract with the Grantee, the terms of such employment will be determined from time to time by the Company, or the Subsidiary employing the Grantee, as the case may be, and the Company, or the Subsidiary employing the Grantee, as the case may be, will have the right, which is hereby expressly reserved, to terminate or change the terms of the employment of the Grantee at any time for any reason whatsoever, with or without good cause. The transactions contemplated hereunder and the vesting schedule set forth on the first page of this Agreement do not constitute an express or implied promise of continued employment for any period of time. A leave of absence or an interruption in service (including an interruption during military service) authorized or acknowledged by the Company or the Subsidiary employing the Grantee, as the case may be, shall not be deemed a termination of the Grantee’s relationship with the Company or its Subsidiary as a Service Provider for the purposes of this Agreement.

     12. Address for Notices. Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company, in care of Stock Administrator, at 1745 Technology Drive, San Jose, California, 95110, USA, or at such other address as the Company may hereafter

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designate in writing, with a copy to the Company, C/O General Counsel, 1745 Technology Drive, San Jose, California, 95110, USA.

     13. Grant is Not Transferable. Except to the limited extent provided in this Agreement or the Plan, this grant of Restricted Stock Units and the rights and privileges conferred hereby will not be sold, pledged, assigned, hypothecated, transferred or disposed of any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process, until the Grantee has been issued Shares in payment of the Restricted Stock Units. Upon any attempt to sell, pledge, assign, hypothecate, transfer or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.

     14. Restrictions on Sale of Securities. The Shares issued as payment for vested Restricted Stock Units under this Agreement will be registered under U.S. federal securities laws and will be freely tradable upon receipt. However, a Grantee’s subsequent sale of the Shares may be subject to any market blackout-period that may be imposed by the Company and must comply with the Company’s insider trading policies, and any other U.S. securities laws or other Applicable Laws.

     15. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

     16. Additional Conditions to Issuance of Certificates for Shares. The Company shall not be required to issue any certificate or certificates for Shares hereunder prior to fulfillment of all the following conditions: (a) the admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (b) the completion of any registration or other qualification of such Shares under any U.S. state or federal or non-U.S. law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; (c) the obtaining of any approval or other clearance from any U.S. state or federal or non-U.S. governmental agency, which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and (d) the lapse of such reasonable period of time following the Vesting Date of the Restricted Stock Units as the Administrator may establish from time to time for reasons of administrative convenience.

     17. Plan Governs. This Agreement and the Appendix B are subject to all the terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement or the Appendix B and one or more provisions of the Plan, the provisions of the Plan will govern.

     18. Administrator Authority. The Administrator will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon the Grantee, the Company and all other interested persons. No member of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

     19. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

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     20. Agreement Severable. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

     21. Modifications to the Agreement. This Agreement, including Appendix A and B, together with the Plan, constitutes the entire understanding of the parties on the subjects covered, subject to any applicable pre-existing agreement or agreement entered into after the date hereof relating to full or partial acceleration of vesting in the event of a change of control of the Company (or similar event). The Grantee expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein or expressly contemplated above. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Agreement, the Company reserves the right to revise this Agreement as it deems necessary or advisable, in its sole discretion and without the consent of the Grantee, to comply with Section 409A of the Code or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code prior to the actual payment of Shares pursuant to this award of Restricted Stock Units. Notwithstanding the foregoing, if required by Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), no Restricted Stock Units will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) earlier than six (6) months and one (1) day following the date of the Termination of the Grantee’s relationship with the Company as a Service Provider, subject to Section 9.

     22. Amendment, Suspension or Termination of the Plan. By accepting this Restricted Stock Units award, the Grantee expressly warrants that he or she has received a right to receive stock under the Plan, and has received, read and understood a description of the Plan. The Grantee understands that the Plan is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, except as otherwise provided in the Plan and/or the Agreement.

     23. Labor Law and Nature of Grant. In accepting the award of Restricted Stock Units, the Grantee acknowledges that:

          (a) the Plan is established voluntarily by the Company;

          (b) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units even if Restricted Stock Units have been awarded repeatedly in the past;

          (c) all decisions with respect to future awards, if any, will be at the sole discretion of the Company;

          (d) the Grantee’s participation in the Plan is voluntary;

          (e) the award is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or the Employer, and that is outside the scope of the Grantee’s employment or service contract, if any;

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          (f) the award is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or the Employer;

          (g) in the event that the Grantee is not an employee of the Company, the award will not be interpreted to form an employment or service contract or relationship with the Company; and, furthermore, the award will not be interpreted to form an employment or service contract or relationship with the Employer or any Parent or other successor or a Subsidiary of the Company;

          (h) the future value of the underlying Shares is unknown and cannot be predicted with certainty;

          (i) in consideration of the award of Restricted Stock Units, no claim or entitlement to compensation or damages shall arise from termination of the award or from any diminution in value of the award or Shares received upon vesting of the award resulting from termination of the Grantee’s employment or service by the Company or the Employer (for any reason whatsoever and whether or not in breach of local labor laws) and the Grantee irrevocably releases the Company and/or the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing this Agreement, the Grantee shall be deemed irrevocably to have waived the Grantee’s entitlement to pursue such claim;

          (j) the Company is not providing any tax, legal, or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan or the acquisition or sale of Shares; and

          (k) the Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

     24. Data Privacy. The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in the Notice of Grant and this Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

          The Grantee understands that the Company and the Employer may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, vested, unvested or outstanding in the Grantee’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”).

          The Grantee understands that Data will be transferred to E*Trade or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee

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understands the recipients of Data may be located in the Grantee’s country, in the United States or elsewhere, and that the recipients’ country may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that the Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting the Grantee’s local human resources representative. The Grantee authorizes the Company, E*Trade and any other potential recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Grantee’s local human resources representative. The Grantee understands, however, that refusing or withdrawing consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.

     25. Notice of Governing Law. This award of Restricted Stock Units shall be governed by, and construed in accordance with, the laws of the State of California, without regard to principles of conflict of laws. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the award of Restricted Stock Units, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted on in the courts of Santa Clara County, California or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed.

     26. Language. If the Grantee has received this Agreement or any other document related to the Plan translated into a language other than English and if the translated version is different than the English version, the English version will control, unless otherwise prescribed by local law.

     27. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Restricted Stock Units awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means, or to request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

     28. Appendix B. Notwithstanding any provision in this Agreement or any other Plan documents to the contrary, the award of Restricted Stock Units shall be subject to any special terms and conditions as set forth in the Appendix B to this Agreement for the Grantee’s country of residence, if any. The Appendix B, if any, constitutes part of this Agreement.

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APPENDIX B
TO TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS
SPECIAL PROVISIONS FOR GRANTEES OUTSIDE THE UNITED STATES

     This Appendix B, which is part of the Agreement, includes additional terms and conditions of the award of Restricted Stock Units that will apply to Grantees in the countries listed below. Please note that the exchange control information provided below is current as of April 2007. However, exchange controls are subject to change and the Grantee should consult his or her personal advisor(s) with respect to the applicable exchange controls (if any) which may apply to the vesting of the Restricted Stock Units, acquisition and/or sale of the Shares. Capitalized terms used but not defined herein shall have the same meanings assigned to them in the Plan, the Agreement and the Notice of Grant.

Australia

     No special provisions.

Austria

Consumer Protection Act Notice

     The Grantee acknowledges that he or she may be entitled to revoke the Agreement on the basis of the Austrian Consumer Protection Act according the following rules:

(i)	If the Grantee receives the award of Restricted Stock Units under the Plan outside the business premises of the Company, the Grantee may be entitled to revoke his or her acceptance of the Agreement. The revocation must be made within one week after the Grantee has signed the Notice of Grant.
(ii)	The revocation must be in written form to be valid. It is sufficient if the Grantee returns the Agreement to the Company or the Company’s representative with language that can be understood as his or her refusal to conclude or honor the Agreement. It is sufficient if the revocation is sent within the period discussed above.

Belgium

Tax Compliance

     The Grantee is required to report any taxable income attributable to the award of Restricted Stock Units on his or her annual tax return. In addition, the Grantee is required to report any bank accounts opened and maintained outside Belgium on his or her annual tax return.

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Brazil

Intent to Comply with Law

     By accepting this award of Restricted Stock Units, the Grantee acknowledges that he or she agrees to comply with applicable Brazilian laws and pay any and all applicable taxes associated with the vesting of the Restricted Stock Units and the sale of Shares.

Exchange Control Reporting

     A Grantee resident or domiciled in Brazil will be required to submit annually a declaration of assets and rights held outside of Brazil to the Central Bank of Brazil if the aggregate value of such assets and rights is equal to or greater than US$100,000. Assets and rights that must be reported include Shares of Company stock.

Canada

Consent to Receive Information in English for Quebec Grantees

     The parties acknowledge that it is their express wish that the Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.

     Les parties reconnaissent avoir exigé la rédaction en anglais de cette convention, ainsi que de tous documents exécutés, avis donnés et procédures judiciaries intentées, directement ou indirectement, relativement à ou suite à la présente convention.

Securities Law Information

     The Grantee is permitted to sell Shares acquired in settlement of the Restricted Stock Units through the designated broker appointed under the Plan provided the resale of Shares acquired in settlement of the Restricted Stock Units takes place outside of Canada through facilities of a stock exchange on which the Shares are listed. The Shares are currently listed on the Nasdaq Global Select market in the United States.

China

Exchange Control Information

     Exchange control approval/reporting requirements may apply when the Grantee sells Shares and repatriates the proceeds to China. As a result, the Grantee should consult with his/her personal advisor as to the process for repatriating the proceeds to China.

Germany

No special provisions.

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Hong Kong

Restricted Stock Units Payable Only in Shares

     Restricted Stock Units awarded to Grantees in Hong Kong shall be paid in Shares only. In no event shall any of such Restricted Stock Units be paid in cash, notwithstanding any discretion contained in the Plan or any provisions in the Agreement to the contrary.

Securities Law Notice

     This offer of Restricted Stock Units and the Shares subject to the Restricted Stock Units is not a public offer of securities and is available only for employees of the Company or any parent or Subsidiary participating in the Plan. The contents of this Appendix B, the Agreement and the Plan have not been reviewed by any regulatory authority in Hong Kong. The Grantee is advised to exercise caution in relation to this offer of Restricted Stock Units. If the Grantee has any doubt as to the contents of this Appendix B, the Agreement or the Plan, the Grantee should obtain independent professional advice.

Israel

Data Privacy Consent

     Grantee’s right to protect his or her personal data in connection with the Plan might be restricted under certain circumstances. Specifically, the Company or the Company’s Israeli Subsidiary may be required to disclose to the Israeli tax authorities information on grants, vesting and sales under the Plan.

Italy

Plan Document Acknowledgement

     By accepting the award of Restricted Stock Units, the Grantee acknowledges that he or she has received a copy of the Plan, has review the Plan and the Agreement in their entirety and fully understands and accepts all provisions of the Plan and the Agreement.

     The Grantee further acknowledges that he or she has read and specifically and expressly approves the following clauses in the Agreement: Paragraph 9: Withholding of Taxes; Paragraph 13: Grant is Not Transferable; Paragraph 23: Labor Law and Nature of Grant; Paragraph 25: Notice of Governing Law; and the Data Privacy Consent below.

Data Privacy Consent

     Notwithstanding Paragraph 24 or any other provision of the Agreement, Grantee agrees that the following shall apply with regard to data privacy in Italy:

     Grantee hereby explicitly and unambiguously consents to the collection, use, processing and transfer, in electronic or other form, of personal data as described in this section of Appendix B by and among, as applicable, the Employer and the Company and any

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of its Subsidiaries for the exclusive purpose of implementing, administering and managing Grantee’s participation in the Plan.

     Grantee understands that the Employer, the Company and any of its Subsidiaries may hold certain personal information about Grantee, including, Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of the award of Restricted Stock Units or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Grantee’s favor, for the exclusive purpose of managing and administering the Plan (“Data”).

     Grantee also understands that providing the Company with Grantee’s Data is necessary for the performance of the Plan and that Grantee’s denial to provide such Data would make it impossible for the Company to perform its contractual obligations and may affect Grantee’s ability to participate in the Plan. The Controller of personal data processing is Brocade Communications Systems, Inc., with registered offices at 1745 Technology Drive, San Jose, California, 95110, United States of America, and, pursuant to Legislative Decree no. 196/2003, its representative in Italy is [insert name of Brocade’s Italian subsidiary] with registered offices at [insert address], Italy. Grantee understands that Grantee’s Data will not be publicized, but it may be transferred to E*Trade or other third parties, banks, other financial institutions or brokers involved in the management and administration of the Plan. Grantee further understands that the Company and/or its Subsidiaries will transfer Data amongst themselves as necessary for the purpose of implementation, administration and management of Grantee’s participation in the Plan, and that the Company and/or its Subsidiaries may each further transfer Data to third parties assisting the Company in the implementation, administration and management of the Plan, including any requisite transfer to E*Trade            or another            third party with whom Grantee may elect to deposit any Shares acquired under the Plan. Such recipients may receive, possess, use, retain and transfer the Data in electronic or other form, for the purposes of implementing, administering and managing Grantee’s participation in the Plan. Grantee understands that these recipients may be located in the European Economic Area, or elsewhere, such as the U.S. or Asia. Should the Company exercise its discretion in suspending all necessary legal obligations connected with the management and administration of the Plan, it will delete Grantee’s Data as soon as it has accomplished all the necessary legal obligations connected with the management and administration of the Plan.

     Grantee understands that Data processing related to the purposes specified above shall take place under automated or non-automated conditions, anonymously when possible, that comply with the purposes for which Data are collected and with confidentiality and security provisions as set forth by applicable laws and regulations, with specific reference to Legislative Decree no. 196/2003.

     The processing activity, including communication, the transfer of Grantee’s Data abroad, including outside of the European Union, as herein specified and pursuant to applicable laws and regulations, does not require Grantee’s consent thereto as the processing is necessary to performance of contractual obligations related to implementation, administration and management of the Plan. Grantee understands that, pursuant to Section 7

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of the Legislative Decree no. 196/2003, Grantee has the right to, including but not limited to, access, delete, update, ask for rectification of Grantee’s Data and estop, for legitimate reason, the Data processing. Furthermore, Grantee is aware that Grantee’s Data will not be used for direct marketing purposes. In addition, the Data provided can be reviewed and questions or complaints can be addressed by contacting Grantee’s local human resources department.

Japan

     No special provisions.

Korea

Exchange Control Information

     If Grantee realizes US$500,000 or more from the sale of Shares acquired in settlement of the Restricted Stock Units, Grantee will be required to repatriate the sale proceeds back to Korea within 18 months of sale.

Mexico

     Policy Statement. La invitación que la Compañía hace en relación con el Plan es unilateral y discrecional, por lo tanto, la Compañía se reserva el derecho absoluto para modificar o terminar el mismo en cualquier momento, sin ninguna responsabilidad para el Opcionante. Esta invitación y, en el caso del Opcionante, la adquisición de acciones, de ninguna manera establecen relación laboral alguna entre el Opcionante y la Compañía. Tampoco establece derecho alguno entre el Opcionante y su empleador.

     English Translation. The invitation the Company is making under the Plan is unilateral and discretionary and, therefore, the Company reserves the absolute right to amend it and discontinue it at any time without any liability to the Grantee. This invitation and, in the Grantee’s case, the acquisition of Shares does not, in any way, establish a labor relationship between the Grantee and the Company and it does not establish any rights between the Grantee and the Employer.

Netherlands

Notification For Dutch Grantees

     The Grantee has been granted Restricted Stock Units under the Plan, pursuant to which the Grantee may acquire shares of the Company’s Shares. Grantees that are residents of the Netherlands should be aware of the Dutch insider trading rules, which may impact the sale of Shares issued upon vesting of the Restricted Stock Units. In particular, the Grantee may be prohibited from effecting certain Share transactions if he or she has insider information regarding the Company.

     Below is a discussion of the applicable restrictions. The Grantee is advised to read the discussion carefully to determine whether the insider rules could apply to him or her. If it is uncertain whether the insider rules apply, we recommend that the Grantee consults with his or

5

her legal advisor. Please note that the Company cannot be held liable if a Grantee violates the Dutch insider rules. The Grantee is responsible for ensuring his or her compliance with these rules.

     By entering into the Agreement and participating in the Plan, the Grantee acknowledges having read and understood the Notification and acknowledges that it is his or her responsibility to comply with the Dutch insider trading rules, as discussed herein.

Prohibition Against Insider Trading

     Dutch securities laws prohibit insider trading. Under Article 46 of the Act on the Supervision of the Securities Trade 1995, anyone who has “inside information” related to the Company is prohibited from effectuating a transaction in securities in or from the Netherlands. “Inside information” is knowledge of a detail concerning the issuer to which the securities relate that is not public and which, if published, would reasonably be expected to affect the stock price, regardless of the development of the price. The insider could be any employee of the Company or its Dutch Subsidiary who has inside information as described above.

     Given the broad scope of the definition of inside information, certain employees of the Company working at its Dutch Subsidiary may have inside information and thus, would be prohibited from effectuating a transaction in securities in the Netherlands at a time when he or she had such inside information.

Singapore

Securities Law Notification

     The grant of the award of Restricted Stock Units under the Plan is being made on a private basis and is, therefore, exempt from registration in Singapore.

Director Notification

     If the Grantee is a director, associate director or shadow director of a Singapore Subsidiary or affiliate of the Company, the Grantee is subject to certain notification requirements under the Singapore Companies Act. Among these requirements is an obligation to notify the Singapore Subsidiary or affiliate in writing when the Grantee receives an interest (e.g., Restricted Stock Units, Shares) in the Company or any related companies. Please contact the Company to obtain a copy of the notification form. In addition, the Grantee must notify the Singapore Subsidiary or affiliate when the Grantee sells Shares of the Company or any related company (including when the Grantee sells Shares acquired pursuant to this award). These notifications must be made within two days of acquiring or disposing of any interest in the Company or any related company. In addition, a notification must be made of the Grantee’s interests in the Company or any related company within two days of becoming a director.

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Spain

Labor Law Acknowledgement

     In accepting the Restricted Stock Unit award, the Grantee acknowledges that he or she consents to participation in the Plan and has received a copy of the Plan and the Agreement. The Grantee understands that the Company has unilaterally, gratuitously and discretionally decided to grant Restricted Stock Units under the Plan to individuals who may be employees of the Company or its Subsidiaries or affiliates throughout the world. The decision is a limited decision that is entered into upon the express assumption and condition that the grant will not bind the Company or any of its Subsidiaries or affiliates. Consequently, the Grantee understands that the Restricted Stock Units are granted on the assumption and condition that the Restricted Stock Units or the Shares acquired pursuant to the award shall not become a part of any employment contract (either with the Company or any of its Subsidiaries) and shall not be considered a mandatory benefit, salary for any purposes (including severance compensation) or any other right whatsoever. In addition, the Grantee understands that this award would not be made to the Grantee but for the assumptions and conditions referred to above; thus, the Grantee acknowledges and freely accepts that should any or all of the assumptions be mistaken or should any of the conditions not be met for any reason, then any grant of Restricted Stock Units shall be null and void.

Exchange Control Requirements

     To participate in the Plan, the Grantee must comply with exchange control regulations in Spain. The acquisition of Shares under the Plan must be declared for statistical purposes to the Spanish Dirección General de Política Comercial e Inversiones Exteriores (the “DGPCIE”), the Bureau for Commercial Policy and Foreign Investments, which is a department of the Ministry of the Economy. The Grantee must make the declaration himself or herself by filing a form with the DGPCIE. When receiving foreign currency payments derived from the ownership of Shares (i.e., dividends or sale proceeds), the Grantee must inform the financial institution receiving the payment of the basis upon which such payment is made. The Grantee will need to provide the institution with the following information: (i) the Grantee’s name, address, and fiscal identification number; (ii) the name and corporate domicile of the Company; (iii) the amount of the payment; (iv) the currency used; (v) the country of origin; (vi) the reasons for the payment; and (vii) further information that may be required. If the Grantee acquires Shares under the Plan and wishes to import the ownership title of such Shares (i.e., share certificates) into Spain, the Grantee must declare the importation of such securities to the DGPCIE.

Securities Law Notice

     The grant of Restricted Stock Units and the Shares issued pursuant to the award are considered a private placement outside of the scope of Spanish laws on public offerings and issuances.

Switzerland

     No special provisions.

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Taiwan

     No special provisions.

UAE

     No special provisions.

* * * * *

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[FORM OF PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT –
MARKET CAPITALIZATION GROWTH]

BROCADE COMMUNICATIONS SYSTEMS, INC.

PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT

NOTICE OF GRANT

[GRANTEE NAME]
[GRANTEE ADDRESS]

     You (“Grantee”) have been granted an award of Restricted Stock Units under the Company’s Amended and Restated 1999 Stock Plan (the “Plan”). The date of this Restricted Stock Unit Agreement (the “Agreement”) is the Grant Date defined below. Subject to the provisions of Appendix A, any appendix to the Agreement for Grantee’s country of residence (for non-US employees) and the Plan, all of which are attached hereto and incorporated herein in their entirety, the principal features of this Award are as follows:

Grant Date:	[                    ] (the “Grant Date”)
Maximum Number of Restricted Stock Units:	[                    ] (the “Maximum Number of Restricted Stock Units”)
Pool Percentage:	[                    ]
Grantee Percentage of Restricted Stock Unit Pool:	[                    ]%
Performance Period:	[PERFORMANCE PERIOD BEGIN DATE] through [PERFORMANCE PERIOD END DATE] (subject to Section 4(c) of Appendix A) (the “Performance Period”).
Performance Matrix:	The number of Restricted Stock Units in which you may vest in accordance with the Vesting Schedule will depend upon the Company’s Market Capitalization Growth Rate as compared to the QQQQ Growth Rate for the Performance Period and will be determined in accordance with Section 1 of Appendix A.
	For this purpose, “Market Capitalization Growth Rate” means the percentage growth in the Market Capitalization of the Company during the Performance Period determined by comparing the Market Capitalization of the Company as of the day immediately preceding the commencement of the Performance Period with the Market Capitalization of the Company as of the last day of the Performance Period.
	For this purpose, “QQQQ Growth Rate” means, as to the Performance Period, the total return (change in share price plus reinvestment of any dividends) of a share of Nasdaq-100 Index Tracking Stock issued by

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	the PowerShares QQQ Trust, Series 1 (or any successor fund), denominated as a percentage. For purposes of the preceding sentence, the “change in share price” will be determined by comparing the 10-day trading average of Nasdaq-100 Index Tracking Stock as of the day immediately preceding the commencement of the Performance Period with the 10-day trading average of Nasdaq-100 Index Tracking Stock as of the last day of the Performance Period. For this purpose, the “10-day trading average of Nasdaq-100 Index Tracking Stock” will mean the average closing sales price of one share of Nasdaq-100 Index Tracking Stock for the 10 most recent trading days ending on, and including, the relevant date, as reported on the established stock exchange or national market system on which Nasdaq-100 Index Tracking Stock is listed.
	For additional definitions of terms used in this Agreement, please see Section 1(c) of Appendix A.
Vesting Schedule:	The Grantee will vest on the date the Administrator determines the number of Restricted Stock Units earned in accordance with the Performance Matrix and Section 1 of Appendix A (the “Vesting Date”), provided that such determination will be made within 30 days after the end of the Performance Period. Except as otherwise provided in Appendix A, the Grantee will not vest in the Restricted Stock Units unless he or she remains a Service Provider through the Vesting Date.

     Your signature below indicates your agreement and understanding that this award is subject to all of the terms and conditions contained in Appendix A, Appendix B, if any, and the Plan. For example, important additional information on vesting and forfeiture of the Restricted Stock Units is contained in Sections 3 through 5 and Section 7 of Appendix A. PLEASE BE SURE TO READ ALL OF APPENDIX A, APPENDIX B, IF ANY, AND THE PLAN, WHICH CONTAIN THE SPECIFIC TERMS AND CONDITIONS OF THIS AWARD.

BROCADE COMMUNICATIONS SYSTEMS, INC.	GRANTEE
Signature	Signature
Print Name	Print Name
Title

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APPENDIX A

TERMS AND CONDITIONS OF PERFORMANCE-BASED RESTRICTED STOCK UNITS

     Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Plan.

     1. Grant.

          (a) The Company hereby grants to the Grantee under the Plan an award of Restricted Stock Units, subject to all of the terms and conditions in this Agreement, Appendix B, if any, and the Plan. For each Restricted Stock Unit that vests, the Grantee will be entitled to receive one (1) Share (subject to automatic adjustment for stock splits, combinations and the like pursuant to Section 14 of the Plan).

          (b) The number of Restricted Stock Units in which the Grantee may vest will depend upon the Company’s Market Capitalization Growth Rate as compared to the QQQQ Growth Rate for the Performance Period and will be determined following the end of the Performance Period as follows:

               (i) The QQQQ Growth Rate for the Performance Period will be compared to the Company’s Market Capitalization Growth Rate for the Performance Period;

               (ii) If the QQQQ Growth Rate for the Performance Period equals or exceeds the Company’s Market Capitalization Growth Rate for the Performance Period, this Restricted Stock Unit award will immediately terminate and the Restricted Stock Units granted hereunder will be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company;

               (iii) To the extent the Company’s Market Capitalization Growth Rate for the Performance Period exceeds the QQQQ Growth Rate for the Performance Period (the “Excess Growth Rate”), the Company’s Market Capitalization as of the day immediately preceding the commencement of the Performance Period will be multiplied by the Excess Growth Rate. For the avoidance of doubt, if both rates are negative, the Company’s Market Capitalization Growth Rate will exceed the QQQQ Growth Rate for purposes of the previous sentence to the extent that the Company’s Market Capitalization Growth Rate is a larger number than the QQQQ Growth Rate, and the Excess Growth Rate will be the difference between the two rates. For example, if the Company’s Market Capitalization Growth Rate is -10% and the QQQQ Growth Rate is -20%, the Company’s Market Capitalization Growth Rate is higher than the QQQQ Growth Rate, and the Excess Growth Rate is 10%. The resulting dollar value (rounded down to the nearest whole dollar) will be referred to herein as the “Market Capitalization Gain”;

               (iv) The Market Capitalization Gain will be multiplied by the Pool Percentage set forth on the Notice of Grant. The resulting dollar value (rounded down to the nearest whole dollar) will be referred to herein as the “Restricted Stock Unit Pool”;

               (v) The Restricted Stock Unit Pool will be multiplied by the Grantee Percentage of Restricted Stock Unit Pool set forth on the Notice of Grant and rounded down to the nearest whole dollar; and

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               (vi) The dollar value determined in accordance with Section 1(b)(v) above will be divided by the 10-Day Trading Average of the Company’s Common Stock as of the last day of the Performance Period (rounded down to the nearest whole number), resulting in a preliminary number of Restricted Stock Units.

               The number of Restricted Stock Units in which the Grantee may vest in accordance with the Vesting Schedule set forth on the Notice of Grant will be the lesser of (A) the preliminary number of Restricted Stock Units determined in accordance with Section 1(b)(vi) above or (B) the Maximum Number of Restricted Stock Units; provided, however, that the Administrator, in its sole discretion, may, within 30 days after the end of the Performance Period, eliminate or reduce the number of Restricted Stock Units determined in accordance with this Section 1. For the avoidance of doubt, once the number of Restricted Stock Units have been determined in accordance with the preceding sentence, the Grantee will vest in such number of Restricted Stock Units in accordance with the Vesting Schedule and the Administrator may not further eliminate or reduce such number of Restricted Stock Units. In any event, the Administrator shall not be entitled to eliminate or reduce the number of Restricted Stock Units determined in accordance with this Section 1 following a Change of Control.

     Example for illustration purposes only:

A	Market Capitalization as of the day immediately preceding the commencement of the Performance Period	$4,118,055,000
B	Pool Percentage	2%
C	Grantee Percentage of Restricted Stock Unit Pool	5%
D	Market Capitalization Growth Rate for the Performance Period	20%
E	QQQQ Growth Rate for the Performance Period	10%
F	Excess Growth Rate (D – E)	10%
G	Market Capitalization Gain determined by multiplying the Market Capitalization as of the day immediately preceding the commencement of the Performance Period by the Excess Growth Rate (A x F)	$ 411,805,500
H	Restricted Stock Unit Pool determined by multiplying the Market Capitalization Gain by the Pool Percentage (B x G)	$ 8,236,110
I	Dollar value of the Grantee’s award determined by multiplying the Restricted Stock Unit Pool by the Grantee’s Percentage of Restricted Stock Unit Pool (C x H)	$ 411,805
J	10-Day Trading Average of the Company’s Common Stock as of the last day of the Performance Period	$ 11.72
K	Number of Restricted Stock Units in which the Grantee may vest, subject to the Administrator’s discretion to eliminate or reduce this number (I ÷ J)	35,136

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          (c) Definitions.

               (i) “Market Capitalization” will mean, as of any date, the value equal to the 10-Day Trading Average of the Company’s Common Stock multiplied by the number of Shares outstanding as of market close on such date. Market Capitalization will be appropriately adjusted by the Administrator for the effects of any stock acquisitions, other than acquisitions of private companies with a purchase price equal to or less than $100 million, made during the Performance Period by subtracting (A) the Company’s purchase price for the acquired company as of the date of the initial, public announcement by the Company of the entry into a definitive agreement by and between the acquired company and the Company (the “Press Release”), from (B) the Market Capitalization of the Company as of the end of the Performance Period. For purposes of the preceding sentence, the “Company’s purchase price” will mean the estimated value of the total consideration to be paid by the Company to the acquired company’s stockholders (in their capacity as stockholders), as set forth in the Company’s Press Release, less any cash consideration. If the Company’s Press Release does not set forth the estimated value of the consideration to be paid by the Company to the acquired company’s stockholders, the “Company’s purchase price” will mean the value, as of the date of the Press Release, equal to the product of (i) the actual number of shares of the Company’s Common Stock issued in exchange for the shares of the acquired company’s stock multiplied by (ii) the Fair Market Value of the Company’s Common Stock as of the market close on the last market trading day immediately prior to the date of the Press Release.

               (ii) “10-Day Trading Average of the Company’s Common Stock” will mean the average closing sales price of one share of the Company’s Common Stock for the 10 most recent trading days ending on, and including, the relevant date, as reported on the established stock exchange or national market system on which the Company’s Common Stock is listed (or, in the absence of an established market, as determined in good faith by the Administrator).

          (d) When Shares are paid to the Grantee in payment for the Restricted Stock Units, par value will be deemed paid by the Grantee for each Restricted Stock Unit by past services rendered by the Grantee, and will be subject to the appropriate tax withholdings.

     2. Company’s Obligation to Pay. Each Restricted Stock Unit has a value equal to the Fair Market Value of a Share on the date that the Restricted Stock Unit is granted. Unless and until the Restricted Stock Units have vested in the manner set forth in Sections 3 through 5, the Grantee will have no right to payment of such Restricted Stock Units. Prior to actual payment of any vested Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation. Payment of any vested Restricted Stock Units shall be made in whole Shares only and any fractional shares will be forfeited at the time of payment.

     3. Vesting Schedule/Period of Restriction. Except as provided in Sections 4 and 5, and subject to Section 7, the Restricted Stock Units awarded by this Agreement shall vest in accordance with the vesting provisions set forth on the Notice of Grant and Section 1 of this Agreement. Except as otherwise provided herein, Restricted Stock Units shall not vest in accordance with any of the provisions of this Agreement unless the Grantee remains a Service Provider through the Vesting Date.

     4. Modifications to Vesting Schedule.

          (a) Vesting upon Leave of Absence. In the event that the Grantee takes an authorized leave of absence (“LOA”), the Restricted Stock Units awarded by this Agreement that are eligible to be earned shall either: (i) not be affected, or (ii) be deferred for a period of time equal to the duration of such LOA, based on the Company’s LOA policy in effect at such time as determined by the Company in its sole discretion.

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          (b) Death or Disability of Grantee. In the event that the Grantee’s relationship with the Company as a Service Provider is terminated during the Performance Period due to his or her death or Disability, the vesting of the Restricted Stock Units subject to this Restricted Stock Unit award shall be forfeited on the date of the Grantee’s death or Disability.

          (c) Change of Control. In the event of a Change of Control (as defined below) during the Performance Period, the Performance Period shall be deemed to end immediately prior to the date of the Press Release for purposes of determining the Company’s Market Capitalization Growth Rate and the QQQQ Growth Rate and the number of Restricted Stock Units in which the Grantee will be entitled to vest will be determined by the Administrator (as in existence prior to the Change in Control) in accordance with the Performance Matrix and Section 1 of this Appendix A. The Grantee shall vest in the number of Restricted Stock Units determined based on the preceding sentence immediately prior to and contingent upon the Change of Control (the “New Vesting Date”) (unless vested earlier in accordance with the terms of this Award, Section 14(c) of the Plan or any employment or change of control agreement by and between the Company and the Grantee and provided that the Grantee remains a Service Provider through the New Vesting Date or as otherwise set forth in this Agreement). In accordance with Section 1 of this Appendix A, the Administrator shall not be entitled to eliminate or reduce the number of Restricted Stock Units determined in accordance with Section 1 of Appendix A following a Change of Control.

          (d) Definition of Change of Control. For purposes of this Agreement, “Change of Control” shall mean the occurrence of any of the following events:

               (1) the consummation by the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;

               (2) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

               (3) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities; or

               (4) a change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those directors whose election or nomination was not in connection with any transactions described in subsections (i), (ii), or (iii) or in connection with an actual or threatened proxy contest relating to the election of directors of the Company.

     5. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units at any time, subject to the terms of the Plan. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator. If the Administrator, in its

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discretion, accelerates the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units, the payment of such accelerated Restricted Stock Units nevertheless shall be made at the same time or times as if such Restricted Stock Units had vested in accordance with the Vesting Schedule set forth on the Notice of Grant or as otherwise provided herein (whether or not the Grantee remains employed by the Company or by one of its Subsidiaries as of such date(s)), unless an earlier payment date, in the judgment of the Administrator, would not cause the Grantee to incur an additional tax under Section 409A of the U.S. Internal Revenue Code of 1986, as amended, and any proposed, temporary or final Treasury Regulations and Internal Revenue Service guidance thereunder (“Section 409A”).

     6. Payment after Vesting. Any Restricted Stock Units that vest in accordance with Sections 3 through 5 of this Agreement will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) as soon as practicable following the Vesting Date, subject to Section 10, but no later than March 15^th of the calendar year following the Vesting Date. Notwithstanding the foregoing, if the Grantee is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) and any proposed, temporary or final Treasury Regulations and Internal Revenue Service guidance thereunder, any Restricted Stock Units that vest on account of the termination of the Grantee’s relationship with the Company as a Service Provider will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) no earlier than six (6) months and one (1) day following the date of the termination of the Grantee’s relationship with the Company (or any Parent or Subsidiary of the Company) as a Service Provider, subject to Section 10.

     7. Forfeiture of Unvested Restricted Stock Units. The balance of the Restricted Stock Units that have not vested pursuant to Sections 3 through 5 at the time of the termination of the Grantee’s relationship with the Company (or any Parent or Subsidiary of the Company) as a Service Provider for any or no reason will be forfeited.

     8. Conditions Requiring Forfeiture of Shares. Notwithstanding any provision in this Agreement to the contrary, the Company may demand that the Grantee forfeit and transfer to, and the Grantee hereby agrees that, within thirty (30) days of such demand, the Grantee will (i) forfeit and transfer to, the Company that number of Shares equal to the number of Shares issued as payment for vested Restricted Stock Units under this Agreement, or (ii) tender to the Company a cash payment in immediately available funds in an amount equal to the number of Shares issued as payment for the vested Restricted Stock Units under this Agreement multiplied by the Fair Market Value of a Share on the Vesting Date, in the event the Board, in its reasonable discretion, determines within four (4) years following the Performance Period but in any event prior to a Change of Control that the Grantee committed financial-based fraud with respect to the Company’s financial statements filed with the Securities and Exchange Commission requiring the restatement of such financial statements and such fraud positively impacted the Market Capitalization Growth Rate during the Performance Period. Except for any applicable offset of amounts reimbursed, nothing herein, including any determination by the Board contemplated by this Section 8, shall limit or otherwise waive any Company right of recovery or obligation of reimbursement by applicable executive officers under Section 304 of the Sarbanes Oxley Act of 2002.

     9. [Reserved.]

     10. Withholding of Taxes.

          (a) General. Regardless of any action the Company and/or the Grantee’s employer (the “Employer”) take with respect to any or all income tax (including U.S. federal, state,

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local and/or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholdings (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Grantee is and remains the Grantee’s responsibility and that the Company and/or the Employer (i) make no guarantees or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the award, including the grant of the Restricted Stock Units, the vesting of the Restricted Stock Units, the delivery of Shares, the subsequent sale of any Shares received at vesting and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant or any aspect of the award to reduce or eliminate the Grantee’s liability for Tax-Related Items.

          (b) Payment of Tax-Related Items. The Grantee authorizes the Company and/or the Employer, at its discretion, to satisfy the obligations with regard to all Tax-Related Items by withholding a portion of the Shares issued as payment for vested Restricted Stock Units that have an aggregate market value sufficient to pay all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares, unless the Company, in its sole discretion, either requires or otherwise permits the Grantee to make alternate arrangements satisfactory to the Company for such withholdings in advance of the arising of any withholding obligations. The number of Shares withheld pursuant to the prior sentence will be rounded up to the nearest whole Share, with no refund for any value of the Shares withheld in excess of the tax obligation as a result of such rounding.

          If the obligation of Tax-Related Items is satisfied by reducing the number of Shares delivered as described herein, the Grantee is deemed to have been issued the full number of Shares subject to the award of Restricted Stock Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the award.

          If the foregoing method of withholding is prohibited or insufficient to satisfy all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares or if the Company, in its discretion, determines not to apply the foregoing method of withholding, then the Grantee hereby authorizes the Company and/or the Employer to satisfy such obligations by one or a combination of the following: (i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer, to the maximum extent permitted by law; or (ii) selling the applicable number of Shares or arranging for the sale of the applicable number of Shares (in either case on the Grantee’s behalf and at the Grantee’s discretion pursuant to this authorization) issued in settlement of vested Restricted Stock Units and retaining the requisite proceeds from such sale.

          Finally, the Grantee shall pay to the Company and/or the Employer any amount of Tax-Related Items that the Company and/or the Employer may be required to withhold as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to deliver to the Grantee any Shares pursuant to the award if the Grantee fails to comply with the Grantee’s obligations in connection with the Tax-Related Items, as described in this Section 10.

     11. Rights as Stockholder. Neither the Grantee nor any person claiming under or through the Grantee will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Grantee (including through electronic delivery to a

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brokerage account). After such issuance, recordation and delivery, the Grantee will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

     12. No Effect on Employment. Subject to any employment contract with the Grantee, the terms of such employment will be determined from time to time by the Company, or the Subsidiary employing the Grantee, as the case may be, and the Company, or the Subsidiary employing the Grantee, as the case may be, will have the right, which is hereby expressly reserved, to terminate or change the terms of the employment of the Grantee at any time for any reason whatsoever, with or without good cause. The transactions contemplated hereunder and the Vesting Schedule set forth on the Notice of Grant do not constitute an express or implied promise of continued employment for any period of time. A leave of absence or an interruption in service (including an interruption during military service) authorized or acknowledged by the Company or the Subsidiary employing the Grantee, as the case may be, shall not be deemed a termination of the Grantee’s relationship with the Company as a Service Provider for the purposes of this Agreement.

     13. Address for Notices. Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company, in care of Stock Administrator, at 1745 Technology Drive, San Jose, CA 95110, or at such other address as the Company may hereafter designate in writing, with a copy to the Company, C/O General Counsel, 1745 Technology Drive, San Jose, CA 95110.

     14. Grant is Not Transferable. Except to the limited extent provided in this Agreement or the Plan, this grant of Restricted Stock Units and the rights and privileges conferred hereby will not be sold, pledged, assigned, hypothecated, transferred or disposed of any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process, until the Grantee has been issued Shares in payment of the Restricted Stock Units. Upon any attempt to sell, pledge, assign, hypothecate, transfer or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.

     15. Restrictions on Sale of Securities. The Shares issued as payment for vested Restricted Stock Units under this Agreement will be registered under U.S. federal securities laws and will be freely tradable upon receipt. However, a Grantee’s subsequent sale of the Shares may be subject to any market blackout-period that may be imposed by the Company and must comply with the Company’s insider trading policies, and any other applicable securities laws.

     16. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

     17. Additional Conditions to Issuance of Certificates for Shares. The Company shall not be required to issue any certificate or certificates for Shares hereunder prior to fulfillment of all the following conditions: (a) the admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (b) the completion of any registration or other qualification of such Shares under any U.S. state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; (c) the obtaining of any approval or other clearance from any U.S. state or federal governmental agency, which the Administrator shall, in its

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absolute discretion, determine to be necessary or advisable; and (d) the lapse of such reasonable period of time following the Vesting Date of the Restricted Stock Units as the Administrator may establish from time to time for reasons of administrative convenience.

     18 Plan Governs. This Agreement and Appendix B, if any, are subject to all the terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement or Appendix B, if any, and one or more provisions of the Plan, the provisions of the Plan will govern.

     19. Administrator Authority. The Administrator will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon the Grantee, the Company and all other interested persons. No member of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

     20. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

     21. Agreement Severable. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

     22. Modifications to the Agreement. This Agreement, together with the Plan and Appendix B, if any, constitutes the entire understanding of the parties on the subjects covered, subject to any applicable pre-existing agreement or agreement entered into after the date hereof relating to full or partial acceleration of vesting in the event of a change of control of the Company (or similar event). The Grantee expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein or expressly contemplated above. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Agreement, the Company reserves the right to revise this Agreement as it deems necessary or advisable, in its sole discretion and without the consent of the Grantee, to comply with Section 409A of the Code or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code prior to the actual payment of Shares pursuant to this award of Restricted Stock Units.

     23. Amendment, Suspension or Termination of the Plan. By accepting this Restricted Stock Units award, the Grantee expressly warrants that he or she has received a right to receive stock under the Plan, and has received, read and understood a description of the Plan. The Grantee understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.

     24. Labor Law and Nature of Grant. In accepting the award of Restricted Stock Units, the Grantee acknowledges that:

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          (a) the Plan is established voluntarily by the Company;

          (b) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units even if Restricted Stock Units have been awarded repeatedly in the past;

          (c) all decisions with respect to future awards, if any, will be at the sole discretion of the Company;

          (d) the Grantee’s participation in the Plan is voluntary;

          (e) the award is an extraordinary item that is outside the scope of the Grantee’s employment or service contract, if any;

          (f) the award is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

          (g) in the event that the Grantee is not an employee of the Company, the award will not be interpreted to form an employment or service contract or relationship with the Company; and, furthermore, the award will not be interpreted to form an employment or service contract or relationship with the Employer or any Parent or other successor or a Subsidiary of the Company;

          (h) the future value of the underlying Shares is unknown and cannot be predicted with certainty;

          (i) the Company is not providing any tax, legal, or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan or the acquisition or sale of Shares; and

          (j) the Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

     25. Data Privacy. The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in the Notice of Grant and this Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

          The Grantee understands that the Company and the Employer may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, vested, unvested or outstanding in the Grantee’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”).

          The Grantee understands that Data will be transferred to E*Trade or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee

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understands the recipients of Data may be located in the Grantee’s country, in the United States or elsewhere, and that the recipients’ country may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that the Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting the Grantee’s local human resources representative. The Grantee authorizes the Company, E*Trade and any other potential recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Grantee’s local human resources representative. The Grantee understands, however, that refusing or withdrawing consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.

     26. Notice of Governing Law. This award of Restricted Stock Units shall be governed by, and construed in accordance with, the laws of the State of California, without regard to principles of conflict of laws.

     27. Language. If the Grantee has received this Agreement, Appendix B, if any, or any other document related to the Plan translated into a language other than English and if the translated version is different than the English version, the English version will control, unless otherwise prescribed by local law.

     28. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Restricted Stock Units awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means, or to request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

     29. Appendix B. Notwithstanding any provision in this Agreement or any other Plan documents to the contrary, the award of Restricted Stock Units shall be subject to any special terms and conditions as set forth in the Appendix B, if any, to this Agreement for the Grantee’s country of residence outside the United States, if any. The Appendix B, if any, constitutes part of this Agreement.

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APPENDIX B

APPENDIX B

TO TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS

SPECIAL PROVISIONS FOR GRANTEES OUTSIDE THE UNITED STATES

     This Appendix B, which is part of the Agreement, includes additional terms and conditions of the award of Restricted Stock Units that will apply to Grantees in the countries listed below. Please note that the exchange control information provided below is current as of April 2007. However, exchange controls are subject to change and the Grantee should consult his or her personal advisor(s) with respect to the applicable exchange controls (if any) which may apply to the vesting of the Restricted Stock Units, acquisition and/or sale of the Shares. Capitalized terms used but not defined herein shall have the same meanings assigned to them in the Plan, the Agreement and the Notice of Grant.

Australia

     No special provisions.

Austria

Consumer Protection Act Notice

     The Grantee acknowledges that he or she may be entitled to revoke the Agreement on the basis of the Austrian Consumer Protection Act according the following rules:

(i)	If the Grantee receives the award of Restricted Stock Units under the Plan outside the business premises of the Company, the Grantee may be entitled to revoke his or her acceptance of the Agreement. The revocation must be made within one week after the Grantee has signed the Notice of Grant.
(ii)	The revocation must be in written form to be valid. It is sufficient if the Grantee returns the Agreement to the Company or the Company’s representative with language that can be understood as his or her refusal to conclude or honor the Agreement. It is sufficient if the revocation is sent within the period discussed above.

Belgium

Tax Compliance

     The Grantee is required to report any taxable income attributable to the award of Restricted Stock Units on his or her annual tax return. In addition, the Grantee is required to report any bank accounts opened and maintained outside Belgium on his or her annual tax return.

RSU Agreement — Appendix B 1 Dated August 14, 2007

APPENDIX B

Brazil

Intent to Comply with Law

     By accepting this award of Restricted Stock Units, the Grantee acknowledges that he or she agrees to comply with applicable Brazilian laws and pay any and all applicable taxes associated with the vesting of the Restricted Stock Units and the sale of Shares.

Exchange Control Reporting

     A Grantee resident or domiciled in Brazil will be required to submit annually a declaration of assets and rights held outside of Brazil to the Central Bank of Brazil if the aggregate value of such assets and rights is equal to or greater than US$100,000. Assets and rights that must be reported include Shares of Company stock.

Canada

Consent to Receive Information in English for Quebec Grantees

     The parties acknowledge that it is their express wish that the Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.

     Les parties reconnaissent avoir exigé la rédaction en anglais de cette convention, ainsi que de tous documents exécutés, avis donnés et procédures judiciaries intentées, directement ou indirectement, relativement à ou suite à la présente convention.

Securities Law Information

     The Grantee is permitted to sell Shares acquired in settlement of the Restricted Stock Units through the designated broker appointed under the Plan provided the resale of Shares acquired in settlement of the Restricted Stock Units takes place outside of Canada through facilities of a stock exchange on which the Shares are listed. The Shares are currently listed on the Nasdaq Global Select market in the United States.

China

Exchange Control Information

     Exchange control approval/reporting requirements may apply when the Grantee sells Shares and repatriates the proceeds to China. As a result, the Grantee should consult with his/her personal advisor as to the process for repatriating the proceeds to China.

Germany

No special provisions.

RSU Agreement — Appendix B 2 Dated August 14, 2007

APPENDIX B

Hong Kong

Restricted Stock Units Payable Only in Shares

     Restricted Stock Units awarded to Grantees in Hong Kong shall be paid in Shares only. In no event shall any of such Restricted Stock Units be paid in cash, notwithstanding any discretion contained in the Plan or any provisions in the Agreement to the contrary.

Securities Law Notice

     This offer of Restricted Stock Units and the Shares subject to the Restricted Stock Units is not a public offer of securities and is available only for employees of the Company or any parent or Subsidiary participating in the Plan. The contents of this Appendix B, the Agreement and the Plan have not been reviewed by any regulatory authority in Hong Kong. The Grantee is advised to exercise caution in relation to this offer of Restricted Stock Units. If the Grantee has any doubt as to the contents of this Appendix B, the Agreement or the Plan, the Grantee should obtain independent professional advice.

India

Fringe Benefit Tax

     By accepting the grant of Restricted Stock Units, the Grantee consents and agrees to satisfy any liability for fringe benefit tax that may be payable by the Company and/or the Employer in connection with the Restricted Stock Units. Further, by accepting the grant of Restricted Stock Units, the Grantee agrees that the Company and/or the Employer may collect the fringe benefit tax from the Grantee by any of the means set forth in Section 9 of the Agreement, withholding from wages or other cash compensation payable to him or her by the Company or the Employer. The Grantee further agrees to execute any other consents or elections required to accomplish the above, promptly upon request of the Company.

Exchange Control Information

     Proceeds from the sale of Shares must be repatriated to India within a reasonable period of time (i.e., two weeks). The Grantee should obtain a foreign inward remittance certificate from the bank for his or her records to document compliance with this requirement and submit a copy of the foreign inward remittance certificate to his or her Employer.

Israel

Data Privacy Consent

     Grantee’s right to protect his or her personal data in connection with the Plan might be restricted under certain circumstances. Specifically, the Company or the Company’s Israeli Subsidiary may be required to disclose to the Israeli tax authorities information on grants, vesting and sales under the Plan.

RSU Agreement — Appendix B 3 Dated August 14, 2007

APPENDIX B

Italy

Plan Document Acknowledgement

     By accepting the award of Restricted Stock Units, the Grantee acknowledges that he or she has received a copy of the Plan, has review the Plan and the Agreement in their entirety and fully understands and accepts all provisions of the Plan and the Agreement.

     The Grantee further acknowledges that he or she has read and specifically and expressly approves the following clauses in the Agreement: Paragraph 9: Withholding of Taxes; Paragraph 13: Grant is Not Transferable; Paragraph 23: Labor Law and Nature of Grant; Paragraph 25: Notice of Governing Law; and the Data Privacy Consent below.

Data Privacy Consent

     Notwithstanding Paragraph 24 or any other provision of the Agreement, Grantee agrees that the following shall apply with regard to data privacy in Italy:

     Grantee hereby explicitly and unambiguously consents to the collection, use, processing and transfer, in electronic or other form, of personal data as described in this section of Appendix B by and among, as applicable, the Employer and the Company and any of its Subsidiaries for the exclusive purpose of implementing, administering and managing Grantee’s participation in the Plan.

     Grantee understands that the Employer, the Company and any of its Subsidiaries may hold certain personal information about Grantee, including, Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of the award of Restricted Stock Units or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Grantee’s favor, for the exclusive purpose of managing and administering the Plan (“Data”).

     Grantee also understands that providing the Company with Grantee’s Data is necessary for the performance of the Plan and that Grantee’s denial to provide such Data would make it impossible for the Company to perform its contractual obligations and may affect Grantee’s ability to participate in the Plan. The Controller of personal data processing is Brocade Communications Systems, Inc., with registered offices at 1745 Technology Drive, San Jose, California, 95110, United States of America, and, pursuant to Legislative Decree no. 196/2003, its representative in Italy is Brocade Communications Italy Srlwith registered offices at Largo Rio de Janeiro, 1, 20133 Milano, Italy. Grantee understands that Grantee’s Data will not be publicized, but it may be transferred to E*Trade or other third parties, banks, other financial institutions or brokers involved in the management and administration of the Plan. Grantee further understands that the Company and/or its Subsidiaries will transfer Data amongst themselves as necessary for the purpose of implementation, administration and management of Grantee’s participation in the Plan, and that the Company and/or its Subsidiaries may each further transfer Data to third parties assisting the Company in the implementation, administration and management of the Plan, including any requisite transfer

RSU Agreement — Appendix B 4 Dated August 14, 2007

APPENDIX B

to E*Trade or another third party with whom Grantee may elect to deposit any Shares acquired under the Plan. Such recipients may receive, possess, use, retain and transfer the Data in electronic or other form, for the purposes of implementing, administering and managing Grantee’s participation in the Plan. Grantee understands that these recipients may be located in the European Economic Area, or elsewhere, such as the U.S. or Asia. Should the Company exercise its discretion in suspending all necessary legal obligations connected with the management and administration of the Plan, it will delete Grantee’s Data as soon as it has accomplished all the necessary legal obligations connected with the management and administration of the Plan.

     Grantee understands that Data processing related to the purposes specified above shall take place under automated or non-automated conditions, anonymously when possible, that comply with the purposes for which Data are collected and with confidentiality and security provisions as set forth by applicable laws and regulations, with specific reference to Legislative Decree no. 196/2003.

     The processing activity, including communication, the transfer of Grantee’s Data abroad, including outside of the European Union, as herein specified and pursuant to applicable laws and regulations, does not require Grantee’s consent thereto as the processing is necessary to performance of contractual obligations related to implementation, administration and management of the Plan. Grantee understands that, pursuant to Section 7 of the Legislative Decree no. 196/2003, Grantee has the right to, including but not limited to, access, delete, update, ask for rectification of Grantee’s Data and estop, for legitimate reason, the Data processing. Furthermore, Grantee is aware that Grantee’s Data will not be used for direct marketing purposes. In addition, the Data provided can be reviewed and questions or complaints can be addressed by contacting Grantee’s local human resources department.

Japan

     No special provisions.

Korea

Exchange Control Information

     If Grantee realizes US$500,000 or more from the sale of Shares acquired in settlement of the Restricted Stock Units, Grantee will be required to repatriate the sale proceeds back to Korea within 18 months of sale.

Mexico

     Policy Statement. La invitación que la Compañía hace en relación con el Plan es unilateral y discrecional, por lo tanto, la Compañía se reserva el derecho absoluto para modificar o terminar el mismo en cualquier momento, sin ninguna responsabilidad para el Opcionante. Esta invitación y, en el caso del Opcionante, la adquisición de acciones, de ninguna manera establecen relación laboral alguna entre el Opcionante y la Compañía. Tampoco establece derecho alguno entre el Opcionante y su empleador.

RSU Agreement — Appendix B 5 Dated August 14, 2007

APPENDIX B

     English Translation. The invitation the Company is making under the Plan is unilateral and discretionary and, therefore, the Company reserves the absolute right to amend it and discontinue it at any time without any liability to the Grantee. This invitation and, in the Grantee’s case, the acquisition of Shares does not, in any way, establish a labor relationship between the Grantee and the Company and it does not establish any rights between the Grantee and the Employer.

Netherlands

Notification For Dutch Grantees

     The Grantee has been granted Restricted Stock Units under the Plan, pursuant to which the Grantee may acquire shares of the Company’s Shares. Grantees that are residents of the Netherlands should be aware of the Dutch insider trading rules, which may impact the sale of Shares issued upon vesting of the Restricted Stock Units. In particular, the Grantee may be prohibited from effecting certain Share transactions if he or she has insider information regarding the Company.

     Below is a discussion of the applicable restrictions. The Grantee is advised to read the discussion carefully to determine whether the insider rules could apply to him or her. If it is uncertain whether the insider rules apply, we recommend that the Grantee consults with his or her legal advisor. Please note that the Company cannot be held liable if a Grantee violates the Dutch insider rules. The Grantee is responsible for ensuring his or her compliance with these rules.

     By entering into the Agreement and participating in the Plan, the Grantee acknowledges having read and understood the Notification and acknowledges that it is his or her responsibility to comply with the Dutch insider trading rules, as discussed herein.

Prohibition Against Insider Trading

     Dutch securities laws prohibit insider trading. Under Article 46 of the Act on the Supervision of the Securities Trade 1995, anyone who has “inside information” related to the Company is prohibited from effectuating a transaction in securities in or from the Netherlands. “Inside information” is knowledge of a detail concerning the issuer to which the securities relate that is not public and which, if published, would reasonably be expected to affect the stock price, regardless of the development of the price. The insider could be any employee of the Company or its Dutch Subsidiary who has inside information as described above.

     Given the broad scope of the definition of inside information, certain employees of the Company working at its Dutch Subsidiary may have inside information and thus, would be prohibited from effectuating a transaction in securities in the Netherlands at a time when he or she had such inside information.

RSU Agreement — Appendix B 6 Dated August 14, 2007

APPENDIX B

Singapore

Securities Law Notification

     The grant of the award of Restricted Stock Units under the Plan is being made on a private basis and is, therefore, exempt from registration in Singapore.

Director Notification

     If the Grantee is a director, associate director or shadow director of a Singapore Subsidiary or affiliate of the Company, the Grantee is subject to certain notification requirements under the Singapore Companies Act. Among these requirements is an obligation to notify the Singapore Subsidiary or affiliate in writing when the Grantee receives an interest (e.g., Restricted Stock Units, Shares) in the Company or any related companies. Please contact the Company to obtain a copy of the notification form. In addition, the Grantee must notify the Singapore Subsidiary or affiliate when the Grantee sells Shares of the Company or any related company (including when the Grantee sells Shares acquired pursuant to this award). These notifications must be made within two days of acquiring or disposing of any interest in the Company or any related company. In addition, a notification must be made of the Grantee’s interests in the Company or any related company within two days of becoming a director.

Spain

Labor Law Acknowledgement

     In accepting the Restricted Stock Unit award, the Grantee acknowledges that he or she consents to participation in the Plan and has received a copy of the Plan and the Agreement. The Grantee understands that the Company has unilaterally, gratuitously and discretionally decided to grant Restricted Stock Units under the Plan to individuals who may be employees of the Company or its Subsidiaries or affiliates throughout the world. The decision is a limited decision that is entered into upon the express assumption and condition that the grant will not bind the Company or any of its Subsidiaries or affiliates. Consequently, the Grantee understands that the Restricted Stock Units are granted on the assumption and condition that the Restricted Stock Units or the Shares acquired pursuant to the award shall not become a part of any employment contract (either with the Company or any of its Subsidiaries) and shall not be considered a mandatory benefit, salary for any purposes (including severance compensation) or any other right whatsoever. In addition, the Grantee understands that this award would not be made to the Grantee but for the assumptions and conditions referred to above; thus, the Grantee acknowledges and freely accepts that should any or all of the assumptions be mistaken or should any of the conditions not be met for any reason, then any grant of Restricted Stock Units shall be null and void.

Exchange Control Requirements

     To participate in the Plan, the Grantee must comply with exchange control regulations in Spain. The acquisition of Shares under the Plan must be declared for statistical purposes to the Spanish Dirección General de Política Comercial e Inversiones Exteriores (the “DGPCIE”), the Bureau for Commercial Policy and Foreign Investments, which is a department of the Ministry

RSU Agreement — Appendix B 7 Dated August 14, 2007

APPENDIX B

of the Economy. The Grantee must make the declaration himself or herself by filing a form with the DGPCIE. When receiving foreign currency payments derived from the ownership of Shares (i.e., dividends or sale proceeds), the Grantee must inform the financial institution receiving the payment of the basis upon which such payment is made. The Grantee will need to provide the institution with the following information: (i) the Grantee’s name, address, and fiscal identification number; (ii) the name and corporate domicile of the Company; (iii) the amount of the payment; (iv) the currency used; (v) the country of origin; (vi) the reasons for the payment; and (vii) further information that may be required. If the Grantee acquires Shares under the Plan and wishes to import the ownership title of such Shares (i.e., share certificates) into Spain, the Grantee must declare the importation of such securities to the DGPCIE.

Securities Law Notice

     The grant of Restricted Stock Units and the Shares issued pursuant to the award are considered a private placement outside of the scope of Spanish laws on public offerings and issuances.

Switzerland

     No special provisions.

Taiwan

     No special provisions.

UAE

     No special provisions.

* * * * *

RSU Agreement — Appendix B 8 Dated August 14, 2007

EX-10.4

Exhibit 10.4

BROCADE SENIOR LEADERSHIP PLAN

Revised: July 30, 2007

PURPOSE

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

PERFORMANCE PERIOD AND PAYOUT PERIOD

Performance against Company and individual objectives is measured annually (according to the Company’s fiscal year) (Plan Period), but will be reviewed semi-annually. Payout of earned cash bonuses, if any, occurs on an annual basis.

ELIGIBILITY

Regular full-time and part-time Vice President (VP) level employees are eligible to participate in the Senior Leadership Plan Program. To the extent a VP is eligible to and participates in the Company’s Sales Incentive Plan, then that VP shall not be eligible to participate in this Senior Leadership Plan.

Participants must be regular (full-time or part-time) employees at the end of the fiscal year to be eligible to receive a Senior Leadership Plan Payout.

PARTICIPANT PERFORMANCE

As each Plan Period begins, participants must complete a CEO or VP Performance Contract. Performance contracts should be tied to company and departmental goals as outlined by the board of directors (i.e., company priorities and initiatives). All goals must be tied to overall company objectives and have defined measurements.

Before Performance Contracts for Executive VPs are final, they are to be reviewed and approved by Finance, Human Resources, and the Chief Executive Officer (CEO). Performance Contracts for Functional VPs are reviewed and approved by the applicable Executive VP. The CEO’s Performance Contract shall be reviewed by the Chair of the Board of Directors and the Chair of the Compensation Committee.

At the end of each Plan Period, actual performance against the plan’s financial metric goals is determined by Finance and provided to the plan participants. Performance against goals is then assessed by the Participant and then reviewed and assessed by the VP’s manager, in order to determine each participant’s bonus payout for the period. The Compensation Committee reviews and approves all Section 16 Officers’ performance and bonus payouts annually. The CEO reviews and approves all other VP cash bonus payouts. The Compensation Committee shall review and approve the CEO’s bonus payouts.

COMPANY PERFORMANCE & SENIOR LEADERSHIP PLAN FUNDING

Each Plan Period, Brocade will set an Operating Margin target for the Company to achieve during the Plan Period (Target OM).

At the end of each Plan Period, Brocade will fund the Senior Leadership Plan based on the actual performance achieved by Brocade during the Plan Period (Actual OM) relative to the Target OM (Actual Funding).

The Actual OM will be communicated following the end of each Plan Period.

PARTICIPANT INCENTIVE TARGET

A Participant’s Incentive Target is determined by the Participant’s pay grade at the end of the 12-month Plan Period, unless otherwise indicated in writing by Brocade.

Participant Pay Grade	Annual Incentive Target
CEO	100%
Section 16 Officers	60%
Other CEO Direct Reports and Select VPs	50%
Other VPs	40%

SENIOR LEADERSHIP PLAN PAYOUTS

On an annual basis, the Compensation Committee reviews and approves Section 16 Officers’ performance and cash bonus payouts. The CEO reviews and approves all other VP cash bonuses. Program payouts are made within eight (8) weeks following the conclusion of the 12-month Plan Period. Payouts will be pro-rated for Participants who are hired or transferred into the Senior Leadership Plan during any Plan Period.

Except as otherwise agreed upon by the Company and the Participant, for each Participant, the cash bonus payout is calculated based on the following formula (less applicable taxes and deductions):

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

		Non-GAAP
Participant	Revenue	Operating Income	Individual Goals	Total
CEO	37.5%	37.5%	25%	100%
VPs	50%	40%	10%	100%

Bonuses will be calculated using the salary and Annual Incentive Target as of the last day of the Plan Period, except as set forth above or otherwise indicated in writing by Brocade.

Departmental budgets are communicated at the beginning of each fiscal year and may be updated quarterly throughout the year by the CEO and CFO. Adherence to the individual’s departmental budget is a gate for the individual to qualify for the Senior Leadership Plan bonus. Failure to adhere to the agreed upon budget disqualifies the individual from a bonus payout.

ADMINISTRATIVE PROCEDURES

Compensation Committee Approval

The Compensation Committee reserves the right to decrease or eliminate bonus otherwise indicated.

New Hires and Promotions

Participants new to the company or who are promoted into the Senior Leadership Plan must complete a VP Performance Contract within 60 days of beginning in the new position.

Grade/Salary Factor

Payout will be based on the Participant’s salary and pay grade on the last day of the Plan Period. Bonuses will be pro-rated if Participant received a cash bonus on another bonus program.

Terminations: Anyone who is not on the payroll as of the end of the fiscal year is not eligible to receive a cash bonus payout.

Leaves of Absences, Disability or Death: In the event of the Participant death, disability time off, or leave of absence, Payouts will be made on a pro-rated basis, based on the number of days the Participant was actively working at Brocade. If the Participant is on a legally protected leave of absence (e.g. Family Medical Leave or Military Leave), the Participant’s eligibility for participation in Plan may be extended beyond the time above, in accordance with the laws governing the legally protected leave. In the event of death, any cash bonus payments will be paid to the Participant’s primary beneficiary as designated in the Participant’s Brocade life insurance plan documentation, if any.

Performance Improvement Plan/Disciplinary Situations (Development Needed): If a Participant, at anytime prior to the cash bonus payout 12-month Plan Period, is subject to a performance improvement plan, discipline or demotion, Brocade may, in its sole discretion, reduce or eliminate the Cash Payment that the Participant would otherwise have been eligible to receive. If, at the time prior to the Payout for a 12-month Plan Period, it is determined that a Participant may be subject to corrective action, discipline or demotion, then Brocade may withhold the entire Cash Bonus Payout, or a portion thereof, until after a final decision on such corrective action has been made. If a Participant is given a performance rating of Development Needed, the Participant will not be eligible to receive a Payout. Only the VP of Human Resources or CEO may approve exceptions to this policy.

Other Provisions: Participation in the Senior Leadership Plan does not constitute an agreement (express or implied) between the Participant and Brocade that the Participant will be employed by Brocade for any specific period of time, nor is there any agreement for continuing or long-term employment. Terms and conditions regarding the Senior Leadership Plan and any participation therein, including but not limited to Senior Leadership Plan eligibility, Senior Leadership Plan funding, and performance and payout criteria and determinations, are subject to change by Brocade at any time in its sole discretion. Brocade and its Board of Directors retain the absolute right to interpret, revise, modify or terminate the Senior Leadership Plan at any time in its sole discretion.

ADDENDUM TO BROCADE SENIOR LEADERSHIP PLAN
(DATED OCTOBER 21, 2005)

Notwithstanding any terms to the contrary in the Brocade Senior Leadership Plan, the following terms shall apply to the Bonus Payout under the Senior Leadership Plan for fiscal 2006 and 2007:

	2006	2007
Executive Officers and Certain Other Officers
Cash Bonus Premium1	Up to 1.0x of 2006 Bonus Target	Up to 0.5x of 2007 BonusTarget3
Restricted Stock2	1.5x of 2005 Base Salary	N/A
Other Officers
Cash Bonus Premium1	Up to 0.35x of 2006 Bonus Target	Up to 0.35x of 2007 Bonus Target3

1	In addition to normal bonus and subject to achievement of revenue and operating margin/profit targets determined by the Board of Directors and other Company and departmental financial, strategic and operational metrics.
2	The number of shares of restricted stock to be issued is multiplied by such employee’s 2005 base salary, divided by then fair market value on the date of grant. The grants will be subject to 2-year cliff vesting. These grants will be in lieu of any 2006 focal option grants for such employees.
3	The Cash Bonus Premium for 2007 pursuant to this Addendum shall be calculated based on (i) the officer’s base salary as of the last day of the Plan Period and (ii) the Annual Incentive Target deemed to be in effect as of the beginning of the 2007 Plan Period (without any subsequent adjustments during the period, unless otherwise indicated in writing by Brocade).

EX-10.5

Exhibit 10.5

Sales Team Resource SOW

This Statement of Work (“SOW”) #6 adopts and incorporates by reference the terms and conditions of Goods Agreement #ROC-P-68 (“Base Agreement”) between IBM (“Buyer”) and Brocade Information Systems with offices located at 1745 Technology Drive, San Jose, California 95110 and Brocade Communications Switzerland, SarL, with an office located at 29 Route de l’Aeroport, Case Postale 105, CH-1215, Geneva 15, Switzerland (individually and collectively “Supplier”). This SOW is effective beginning on April 2, 2007. Transactions performed under this SOW will be conducted in accordance with and be subject to the terms and conditions of this SOW, the Base Agreement, and any applicable Work Authorizations (“WAs”). This SOW is not a WA.

1.0 Scope Of Work

In an effort to provide IBM with more direct technical and sales support resources dedicated to the effort of selling IBM branded Brocade storage networking technology products, this Agreement is being put in force to allow Brocade resources to be placed within IBM to assist in such sales. The Brocade employee resources will be integrated within the existing IBM storage and SAN sales structures and geographic organizations and such resources will drive incremental IBM revenue opportunities utilizing IBM branded Brocade products (the Services, as defined in the Base Agreement). This initial effort will be directed specifically at the placement of SAN Director products, but is also intended to address the complete IBM Brocade product portfolio.

At the discretion and agreement of IBM and Brocade management, these identified resources may be used to support unique transactions or to assist in an IBM direct or business partner sales opportunity. These resources will have access to the full scope of both IBM and Brocade support in order to ensure the success of their actions, and will take direction from agreed to management from both companies.

2.0 Description Of Deliverables And Services

In the initial trial phase of this agreement, Brocade will identify and provide a maximum of twelve (12) Storage Area Network (SAN) sales professionals to assist in driving incremental IBM sales revenue. The ‘skill-split target’ of this resource will be approximately [**] percent ([**]%) sales and [**] percent ([**]%) technical, with geographic placement mapped as ably as possible and practical to the areas of most anticipated need and demand. Further, approximately [**] ([**]) of these resources will be placed within the IBM Americas Group (‘AG’) Sales Geography, with a definitive focus on the United States; and the remaining approximately [**] ([**]) resources will be placed in IBM’s Europe, Middle East and Africa (‘EMEA’) Sales Geography. Brocade will make the resources’ names and assigned locations available to IBM in advance of placement of said resource.

Brocade resources identified and placed as a result of this Agreement in IBM’s AG region will take direction from [**] of Brocade, [**] of IBM, and other IBM storage sales management as defined by assigned territory. Similarly, Brocade resources placed in IBM’s EMEA region will take direction from [**] of Brocade, [**] of NE-EMEA and [**] of SE-EMEA, along with other IBM storage sales management as defined by assigned territory.

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

3.0 Term/Termination:

a.       Term:     IBM and Brocade agree to enter into this agreement for a minimum term of six months, to begin on the date of first resource being provided to IBM. Each company agrees to a mutual review of the success of the program, with the rights to jointly negotiate proposal alternatives acceptable to each party by written amendment to this Agreement. Both parties must agree to renew this Agreement for ongoing six-month extensions by providing the other party thirty (30) day notice of its intent to renew and acceptance of such extension period by the other party.

b. Termination:

i.     This Agreement will terminate at the end of the initial six (6) month period unless the parties agree to renew the agreement for additional six (6) month periods.

ii.     This Agreement shall automatically terminate if (i) either party applies to court for its winding-up or a liquidator, receiver, administrative receiver, administrator, examiner or similar officer is appointed over all or a substantial part of its assets; or (ii) either party commits a material breach of this Agreement, which if capable of being remedied, shall not have been remedied within 30 days of notice being served on it by the other party.

c. Brocade Personnel: Brocade shall have the right, in its sole discretion, to terminate the services of any of its personnel contemplated hereunder for any reason at any time, in which event Brocade shall identify a replacement resource in its sole discretion. IBM shall not be entitled to terminate the employment of any Brocade personnel contemplated hereunder.

4.0 Costs and Payments

a. In consideration for Brocade subservices, IBM and Brocade agree to the following:

• The annual full burden compensation (includes all individual compensation inclusive of salary, bonus, commissions, benefits, 401(k) match, company car (if available), business expenses, education/seminars, per diems (if available), etc.) for each individual will be calculated at $[**] USD per sales professional, and $[**] USD per technical professional. For the initial six (6) month trial period only, Brocade and IBM agree to a blended flat rate of $[**] per Brocade resource. If this Agreement is renewed, the individual rates above for a sales professional and technical professional shall apply as stated above.

• The blended flat rate of $[**] cost for these initial test phase individuals will be split evenly between IBM and Brocade.

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

• A maximum of [**] ([**]) full-time Brocade sales employees, with the agreed to set of both technical and sales skills, will be placed as Brocade resources supporting the IBM storage sales organization beginning April 2. This number may be amended downward by either company due to reasons such as, but not limited to, the availability of resources.

• Brocade will at all times remain the responsible payroll provider for such resources. IBM will reimburse Brocade [**]% of the compensation paid for each employee in accordance with this Agreement. And for the avoidance of doubt, such resources will remain Brocade employees.

b. IBM Payment for Brocade Resources: IBM and Brocade will establish part numbers whereby IBM will purchase such part numbers from Brocade for each Brocade Director sold during the term of this Agreement. Brocade will attribute all IBM payments for such part number to IBM’s costs of such Brocade Resources. The parties will reconcile such payments against the amounts owed to Brocade for such resources on a quarterly basis, as defined below.

c. Reconciliation:

• A quarterly reconciliation will take place to determine the actual number of IBM badged Brocade director products sold, against an agreed to target number of placements beforehand. Additionally, this reconciliation will include an analysis of the overall anticipated positive impact on gross revenues derived from their efforts.

• Prior to the six-month trial period, IBM and Brocade agree to a formal checkpoint of overall progress by June 30, 2007.

• Program adjustments to accelerate growth and success, as deemed appropriate and acceptable by IBM and Brocade, may be made at the checkpoint, or other jointly agreed to times.

• Upon subsequent reviews of the success of the proposal, a decision will be made whether to extend, alter, or cancel this Agreement.

d.

Reporting:

IBM will provide Brocade with a monthly written report listing the number of Directors sold during the trial period. Such report will include the current month sales and sales for the program to date. If a discrepancy exists between Brocade and IBM’s reported sales, IBM and Brocade will meet to reconcile any reports for the full number and scope of IBM branded Brocade directors sold in any given month. The parties agree that such reconciliation will occur within 15 days after the end of each such reporting period.

5.0 Communications
All communications between the parties will be carried out through the following designated coordinators. All notices required in writing under this Agreement will be made to the appropriate

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

contact listed below at the following addresses and will be effective upon actual receipt. Notices may be transmitted electronically, by registered or certified mail, or courier. All notices, with the exception of legal notices, may also be provided by facsimile.

Business Coordinators
FOR SUPPLIER		FOR BUYER
Name	Mike Harrison	Name Robert Mahoney
Title	Business Line Executive, IBM	Title Business Line Executive
Address	1745 Technology Drive San Jose, CA 95110	Address 80 State Street, Albany, NY 12207
Phone	303-746-0780	Phone 1-518-487-6208
Fax		Fax
E-mail	mike.harrison@brocade.com	E-mail rmahoney@us.ibm.com

Copy to: Brocade General Counsel

ACCEPTED AND AGREED TO:		ACCEPTED AND AGREED TO:
IBM		Brocade Communications
By: /s/ Malcolm McDonald	5/6/07	By: /s/ Jill Cameron	4-27-07
Buyer Signature	Date	Supplier Signature	Date
Malcolm McDonald		Jill Cameron
Printed Name		Printed Name
Team Lead — WW Procurement		Dir. WW Sales Operations
Title & Organization		Title & Organization
Buyer Address:		Supplier Address:
IBM		Brocade Communication Systems, Inc.
30309 Cornwallis Road		1745 Technology Drive
RTP, NC 27709		San Jose, CA 95110 USA
USA
		ACCEPTED AND AGREED TO:
		Brocade Communications Switzerland, SarL
		By: /s/ Ulrich Plechschhmidt	27 April 2007
		Supplier Signature	Date
		Ulrich Plechschmidt
		Printed Name
		Vice President EMEA
		Title & Organization
		29 Route de’Aeroport
		Casa Postale 105
		CH-1215 Geneva 15
		Switzerland

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Michael Klayko, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended July 28, 2007 of Brocade Communications Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 5, 2007

/s/  Michael Klayko

Michael Klayko 

Chief Executive Officer
(Principal Executive Officer) 

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Richard Deranleau, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended July 28, 2007 of Brocade Communications Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 4, 2007

/s/  Richard Deranleau

Richard Deranleau 

Chief Financial Officer
(Principal Accounting Officer) 

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     I, Michael Klayko, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Brocade Communications Systems, Inc. on Form 10-Q for the fiscal quarter ended July 28, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Brocade Communications Systems, Inc.

By:	/s/  Michael Klayko
	Michael Klayko
	Chief Executive Officer

     I, Richard Deranleau, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Brocade Communications Systems, Inc. on Form 10-Q for the fiscal quarter ended July 28, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Brocade Communications Systems, Inc.

By:	/s/  Richard Deranleau
	Richard Deranleau
	Chief Financial Officer