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 April 26, 2008

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	77-0409517
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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

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

Yes þ No o

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

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

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

Yes o No þ

The number of shares outstanding of the registrant’s common stock as of May 28, 2008 was 370,351,671 shares.

BROCADE COMMUNICATIONS SYSTEMS, INC.

FORM 10-Q

QUARTER ENDED APRIL 26, 2008

INDEX

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the Three and Six Months Ended April 26, 2008 and April 28, 2007		4
Condensed Consolidated Balance Sheets as of April 26, 2008 and October 27, 2007		5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended April 26, 2008 and April 28, 2007		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3. Quantitative and Qualitative Disclosures About Market Risk		39
Item 4. Controls and Procedures		40
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		41
Item 1A. Risk Factors		41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		53
Item 4. Submission of Matters to a Vote of Security Holders		54
Item 6. Exhibits		55
SIGNATURES		56
EXHIBIT 10.1
EXHIBIT 10.2
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 litigation, including the federal securities class action preliminary settlement, 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 INCOME
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended						Six Months Ended
	April 26,			April 28,			April 26,			April 28,
	2008			2007			2008			2007
Net revenues
Product	$	295,584		$	300,438		$	593,529		$	507,654
Service		59,311			44,830			109,214			61,771
Total net revenues		354,895			345,268			702,743			569,425
Cost of revenues
Product		116,628			140,980			234,404			213,292
Service		32,814			33,440			66,309			43,918
Total cost of revenues		149,442			174,420			300,713			257,210
Gross margin
Product		178,956			159,458			359,125			294,362
Service		26,497			11,390			42,905			17,853
Total gross margin		205,453			170,848			402,030			312,215
Operating expenses:
Research and development		61,131			58,303			119,336			100,694
Sales and marketing		69,985			59,364			133,160			97,951
General and administrative		13,316			13,570			25,683			20,975
Legal fees associated with indemnification obligations, and other related costs		4,789			15,234			14,448			20,462
Provision for class action lawsuit		160,000			—			160,000			—
Acquisition and integration costs		—			7,564			—			14,997
Amortization of intangible assets		7,909			7,977			15,818			8,887
Facilities lease losses (benefits)		(477	)		—			(477	)		—
Total operating expenses		316,653			162,012			467,968			263,966
Income (loss) from operations		(111,200	)		8,836			(65,938	)		48,249
Interest and other income, net		7,306			10,788			18,791			18,244
Interest expense		(1,760	)		(2,054	)		(3,281	)		(2,058	)
Loss on investments, net		(4,725	)		—			(6,949	)		—
Income (loss) before provision for income taxes		(110,379	)		17,570			(57,377	)		64,435
Income tax provision (benefit)		(201,757	)		16,727			(168,600	)		30,273
Net income	$	91,378		$	843		$	111,223		$	34,162
Net income per share — basic	$	0.24		$	0.00		$	0.29		$	0.10
Net income per share — diluted	$	0.23		$	0.00		$	0.28		$	0.10
Shares used in per share calculation — basic		374,827			395,574			379,010			334,215
Shares used in per share calculation — diluted		393,471			411,989			398,375			348,563

See accompanying notes to condensed consolidated financial statements.

4

BROCADE COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)

	April 26,			October 27,
	2008			2007
Assets
Current assets:
Cash and cash equivalents	$	513,533		$	315,755
Short-term investments		195,566			325,846
Total cash, cash equivalents and short-term investments		709,099			641,601
Marketable equity securities		—			14,205
Accounts receivable, net of allowances of $6,444 and $6,505 at April 26, 2008 and October 27, 2007, respectively		167,879			175,755
Inventories		12,418			18,017
Deferred tax assets		77,940			22,781
Prepaid expenses and other current assets		65,305			39,841
Total current assets		1,032,641			912,200
Long-term investments		87,392			137,524
Property and equipment, net		210,872			204,052
Goodwill		295,132			384,376
Intangible assets, net		253,793			272,652
Deferred tax assets		185,802			167
Other assets		16,872			19,129
Total assets	$	2,082,504		$	1,930,100
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	91,898		$	108,810
Accrued employee compensation		78,885			76,017
Deferred revenue		102,990			94,533
Current liabilities associated with facilities lease losses		13,941			12,807
Liability associated with class action lawsuit		160,000			—
Other accrued liabilities		85,121			117,534
Total current liabilities		532,835			409,701
Convertible subordinated debt		168,579			167,498
Non-current liabilities associated with facilities lease losses		19,290			25,742
Non-current liabilities — deferred taxes		—			22,781
Non-current deferred revenue		37,875			36,344
Non-current income tax liability		41,544			—
Other non-current liabilities		1,349			1,376
Total liabilities		801,472			663,442
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.001 par value, 800,000 shares authorized:
Issued and outstanding: 372,083 and 387,406 shares at April 26, 2008 and October 27, 2007, respectively		372			387
Additional paid-in capital		1,363,339			1,462,782
Accumulated other comprehensive loss		(1,650	)		(1,180	)
Accumulated deficit		(81,029	)		(195,331	)
Total stockholders’ equity		1,281,032			1,266,658
Total liabilities and stockholders’ equity	$	2,082,504		$	1,930,100

See accompanying notes to condensed consolidated financial statements.

5

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

	Six Months Ended
	April 26,			April 28,
	2008			2007
Cash flows from operating activities:
Net income	$	111,223		$	34,161
Adjustments to reconcile net income to net cash provided by operating activities:
Release of valuation allowance		(185,176	)		—
Excess tax benefit from employee stock plans		1,084			(161	)
Depreciation and amortization		59,524			40,802
Loss on disposal of property and equipment		1,196			203
Net losses on investments and marketable equity securities		6,447			—
Provision for doubtful accounts receivable and sales allowances		3,309			1,662
Non-cash compensation expense		19,647			14,729
Non-cash facilities lease loss benefit		(477	)		—
Changes in assets and liabilities:
Accounts receivable		11,586			53,735
Inventories		5,599			(4,585	)
Prepaid expenses and other assets		(21,703	)		(8,997	)
Accounts payable		(16,792	)		(20,938	)
Accrued employee compensation		2,597			(22,272	)
Deferred revenue		9,988			12,274
Other accrued liabilities		35,063			(18,385	)
Liabilities associated with facilities lease losses		(4,841	)		(2,653	)
Liability associated with class action lawsuit		160,000			—
Net cash provided by operating activities		198,274			79,575
Cash flows from investing activities:
Purchases of short-term investments		(101,575	)		(290,890	)
Purchases of long-term investments		(37,731	)		(91,801	)
Proceeds from maturities and sale of short-term investments		298,446			377,833
Proceeds from maturities and sale of long-term investments		22,483			5,847
Proceeds from sale of marketable equity securities and equity investments		9,926			—
Purchases of property and equipment		(31,251	)		(27,587	)
Decrease in restricted cash		—			5,839
Cash acquired on merger with McDATA		—			147,407
Cash paid in connection with acquisitions, net of cash acquired		(43,554	)		(7,704	)
Net cash provided by investing activities		116,744			118,944
Cash flows from financing activities:
Payments on capital lease obligations		—			(706	)
Proceeds from issuance of common stock, net		14,699			75,700
Common share repurchase program		(130,181	)		(59,874	)
Redemption of outstanding convertible debt		—			(124,185	)
Excess tax benefit from employee stock plans		(1,084	)		161
Net cash used in financing activities		(116,566	)		(108,904	)
Effect of exchange rate fluctuations on cash and cash equivalents		(674	)		(145	)
Net increase in cash and cash equivalents		197,778			89,470
Cash and cash equivalents, beginning of period		315,755			274,368
Cash and cash equivalents, end of period	$	513,533		$	363,838

See accompanying notes to condensed consolidated financial statements.

6

BROCADE COMMUNICATIONS SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

     Brocade Communications Systems, Inc. (“Brocade” or the “Company”) has prepared the accompanying financial data as of April 26, 2008, and for the three and six months ended April 26, 2008 and April 28, 2007, 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 27, 2007 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 27, 2007.

     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 April 26, 2008, results of operations for the three and six months ended April 26, 2008 and April 28, 2007, and cash flows for the six months ended April 26, 2008 and April 28, 2007 have been made. The results of operations for the three and six months ended April 26, 2008 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 2008 and 2007 are 52-week fiscal years.

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 outstanding and potentially dilutive common shares outstanding during the period that have a dilutive effect on earnings per share. Potentially dilutive common shares result from the assumed exercise of outstanding stock options, assumed vesting of outstanding restricted stock units and assumed issuance of stock under the employee stock purchase plan using the treasury stock method, and the assumed conversion of outstanding convertible debt using the if-converted method.

Income Taxes

     The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”), effective at the beginning of fiscal year 2008. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Recognition of a tax position is determined when it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. Upon its adoption of FIN 48, the Company applied the provisions of FIN 48 to all income tax positions. The cumulative effect of applying the provisions of FIN 48 has been reported as an adjustment to the opening balance of retained earnings or other appropriate components of equity or net assets on the Company’s Condensed Consolidated Balance Sheet as of the beginning of fiscal year 2008.

7

Recent Accounting Pronouncements

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), expands disclosures about fair value measurements, and applies under other accounting pronouncements that require or permit fair value measurements. SFAS 157 does not require any new fair value measurements. However, the FASB anticipates that for some entities, the application of SFAS 157 will change current practice. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We have not yet adopted SFAS 157, but do not expect the adoption of SFAS 157 will have a material impact on our financial position, results of operations, and cash flows.

     In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS 159”). Under SFAS 159, a company may choose, at specified election dates, to measure eligible items at fair value and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We have not yet adopted SFAS 159, but are currently assessing the impact that SFAS 159 may have on our financial position, results of operations, and cash flows.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R requires the acquirer in a business combination to recognize assets and liabilities assumed at their fair values and to recognize acquisition-related costs separately from the acquisition. SFAS 141R is effective for business combinations with acquisition dates in fiscal years beginning on or after December 15, 2008. We have not yet adopted SFAS 141R, but are currently assessing the impact that SFAS 141R may have on our financial position, results of operations, and cash flows.

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

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

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

8

2. Balance Sheet Details

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

	April 26,			October 27,
	2008			2007
Inventories:
Raw materials	$	1,021		$	11,860
Finished goods		11,397			6,157
Total	$	12,418		$	18,017
Property and equipment, net:
Computer equipment and software	$	108,090		$	102,643
Engineering and other equipment		201,195			182,640
Furniture and fixtures		11,692			11,152
Leasehold improvements		57,155			56,052
Land and building		79,823			79,523
Subtotal		457,955			432,010
Less: Accumulated depreciation and amortization		(247,083	)		(227,958	)
Total	$	210,872		$	204,052

	April 26,		October 27,
	2008		2007
Other accrued liabilities:
Income taxes payable	$	8,310	$	46,739
Accrued warranty		5,850		5,923
Inventory purchase commitments		27,238		23,176
Accrued sales programs		12,617		11,245
Other		31,106		30,451
Total	$	85,121	$	117,534

3. 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
April 26, 2008
U.S. government and its agencies and municipal obligations	$	59,694	$	451	$	—		$	60,145
Corporate bonds and notes		218,383		983		(1,565	)		217,801
Marketable equity securities		5,012		—		—			5,012
Total	$	283,089	$	1,434	$	(1,565	)	$	282,958
Reported as:
Short-term investments and marketable equity securities								$	195,566
Long-term investments									87,392
Total								$	282,958
October 27, 2007
U.S. government and its agencies and municipal obligations	$	168,064	$	175	$	(17	)	$	168,222
Corporate bonds and notes		284,711		702		(524	)		284,889
Marketable equity securities		26,189		—		(1,725	)		24,464
Total	$	478,964	$	877	$	(2,266	)	$	477,575
Reported as:
Short-term investments and marketable equity securities								$	340,051
Long-term investments									137,524
Total								$	477,575

     For the three months ended April 26, 2008, losses of $4.3 million were realized on the sale of marketable equity securities and losses of $0.4 million were realized on the sale of short-term and long-term investments. For the three months ended April 28, 2007, gains of $0.6 million were realized on the sale of short-term investments. At April 26, 2008 and October 27, 2007, net unrealized holding losses of $0.1 million and $1.4 million, respectively, were included in accumulated other comprehensive income in the

9

accompanying Condensed Consolidated Balance Sheets. Marketable equity securities are held for purposes other than trading. There were no impairment charges on marketable equity securities during the six months ended April 26, 2008.

4. Goodwill and Intangible Assets

     During the second quarter of fiscal year 2008, the Company allocated goodwill to the reportable segments. The following table presents the goodwill activity during the six months ended April 26, 2008 (in thousands):

				Service,
	Data Center			Support,
	Infrastructure			Solutions			Other			Total
Balance at October 27, 2007	$	—		$	—		$	—		$	384,376
Tax adjustment(1)		—			—			—			(19,726	)
Balance at January 26, 2008		235,439			59,255			69,956			364,650
Acquisitions		—			20,873			—			20,873
Tax adjustment(2)		(56,767	)		(31,154	)		(2,470	)		(90,391	)
Total	$	178,672		$	48,974		$	67,486		$	295,132

(1)	The goodwill adjustment of $19.7 million was primarily a result of reversing deferred tax assets of acquired companies.
(2)	The goodwill adjustment of $90.4 million was primarily a result of recording deferred tax assets of acquired companies due to the valuation allowance release.

     The Company amortizes intangible assets over a useful life ranging from 6 months to 14 years.

     Intangible assets as of April 26, 2008 consisted of the following (in thousands):

	Gross				Net
	Carrying		Accumulated		Carrying
	Value		Amortization		Value
Tradename	$	14,873	$	5,000	$	9,873
Core/Developed technology		154,754		54,567		100,187
Customer relationships		179,412		36,260		143,152
Non-compete agreements		970		389		581
Backlog		80		80		—
Total intangible assets	$	350,089	$	96,296	$	253,793

     Intangible assets as of October 27, 2007 consisted of the following (in thousands):

	Gross				Net
	Carrying		Accumulated		Carrying
	Value		Amortization		Value
Tradename	$	11,373	$	3,089	$	8,284
Core/Developed technology		154,454		34,929		119,525
Customer relationships		167,011		22,317		144,694
Non-compete agreements		371		222		149
Backlog		80		80		—
Total intangible assets	$	333,289	$	60,637	$	272,652

     For the three and six months ended April 26, 2008, total amortization expense related to intangible assets of $8.5 million and $19.8 million, respectively, is included in cost of revenues, and $7.9 million and $15.8 million, respectively, is included in operating expenses in the Condensed Consolidated Statements of Income. For both the three and six months ended April 28, 2007, total amortization expense related to intangible assets of $11.3 million is included in cost of revenues in the Condensed Consolidated Statement of Income. For the three and six months ended April 28, 2007, total amortization expense related to intangible assets of $8.0 million and $8.9 million, respectively, is included in operating expenses in the Condensed Consolidated Statements of Income.

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     The following table presents the estimated future amortization of intangible assets (in thousands):

	Future
	Estimated
Fiscal Year	Amortization
2008 (1)	$	33,226
2009		66,356
2010		53,230
2011		43,257
2012		29,902
2013		17,542
2014		3,956
2015		1,449
2016		1,449
2017		1,449
2018		869
2019		499
2020		321
2021		207
2022		81
Total	$	253,793

(1) Reflects the remaining six months of fiscal year 2008.

5. Liabilities Associated with Facilities Lease Losses

     As of April 26, 2008, the Company had recorded $33.2 million in facilities lease loss reserve related to future lease commitments, net of expected sublease income. The Company reevaluates its estimates and assumptions on a quarterly basis and makes adjustments to the reserve balance if necessary.

     The following table summarizes the activity related to the facilities lease loss reserve, net of expected sublease income (in thousands), as of April 26, 2008:

	Lease Loss
	Reserve
Reserve balance at October 27, 2007	$	38,549
Cash payments on facilities leases		(4,831	)
Non-cash charges and other adjustments		(487	)
Reserve balance at April 26, 2008	$	33,231

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

6. Convertible Subordinated Debt

     As of April 26, 2008, convertible subordinated debt includes $172.5 million of outstanding 2.25% convertible subordinated notes (the “2.25% Notes”) due February 15, 2010 previously issued by McDATA Corporation (“McDATA”). In accordance with purchase accounting rules, the 2.25% Notes were adjusted to their aggregate fair value of $166.5 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 and became a co-obligor on the 2.25% Notes with McDATA. The 2.25% Notes were convertible into McDATA’s Class A common stock at a conversion rate of 93.3986 shares per $1,000 principal amount of notes (aggregate of approximately 16.1 million shares) at any time prior to February 15, 2010, subject to adjustments. Pursuant to the merger agreement, at the effective time of the merger each outstanding share of McDATA’s Class A common stock, $0.01 par value per share, was converted into the right to receive 0.75 shares of Brocade’s common stock, $0.001 par value per share, together with cash in lieu of fractional shares. As a result, an approximate aggregate of 12.1 million shares are subject to conversion at any time prior to February 15, 2010, subject to adjustments. For both the three and six months ended April 26, 2008, 12.1 million shares were dilutive and therefore included in the calculation of diluted net income per share.

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     As of April 26, 2008, the approximate aggregate fair value of the outstanding debt was $157.0 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 second fiscal 2008 quarter, which were both $91.0.

     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”).

7. Commitments and Contingencies

Operating and Capital Leases

     The Company leases certain facilities and certain equipment under various operating and capital lease agreements expiring through January 2017. In connection with its facilities lease agreements, the Company has signed unconditional, irrevocable letters of credit totaling $2.7 million as security for the leases. Future minimum lease payments under all non-cancelable operating leases as of April 26, 2008 total to $98.4 million, net of contractual sublease income of $6.5 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 (see Note 5, “Liabilities Associated with Facilities Lease Losses,” of the Notes to Condensed Consolidated Financial Statements).

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, current trends and our expectations regarding future experience. The Company’s accrued liability for estimated future warranty costs is included in other accrued liabilities on the accompanying Condensed Consolidated Balance Sheets. The beginning balance for the six months ended April 26, 2008 reflects $2.6 million in warranty expenses resulting from the McDATA acquisition. The following table summarizes the activity related to the Company’s accrued liability for estimated future warranty costs during the six months ended April 26, 2008 and April 28, 2007 (in thousands):

	Six Months Ended
	April 26,			April 28,
	2008			2007
Beginning balance	$	5,923		$	2,230
Liabilities accrued for warranties issued during the period		2,416			6,855
Warranty claims paid and uses during the period		(1,878	)		(1,794	)
Changes in liability for pre-existing warranties during the period		(611	)		(536	)
Ending balance	$	5,850		$	6,755

     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 April 26, 2008, there have been no known material events or circumstances that have resulted in a customer contract related indemnification liability to the Company.

Manufacturing and Purchase Commitments

     The Company has manufacturing agreements with Hon Hai Precision Industry Co., Ltd. (“Foxconn”), Sanmina-SCI Corporation (“Sanmina”) and Flextronics International Ltd. (“Flextronics”) 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 Flextronics depends on the specific product. As of April 26, 2008, the Company’s aggregate commitment to Foxconn, Sanmina and Flextronics for inventory components used in the manufacture of Brocade products was $134.9 million, net of a purchase commitments reserve of $27.2 million, which the Company expects to utilize during future normal ongoing operations. The Company’s purchase orders placed with Foxconn, Sanmina and Flextronics are cancelable, however if cancelled, the agreements require the Company to purchase all inventory components not returnable, usable by, or sold to, other

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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.

Income Taxes

     In May 2008, the Internal Revenue Service (“IRS”) completed its field examination of our federal income tax return and issued a Revenue Agent’s Report (“RAR”). The IRS is contesting our transfer pricing for the cost sharing and buy-in arrangements with our foreign subsidiaries. The IRS’ proposed adjustment would offset approximately $306.0 million of our net operating loss carryforwards. The IRS’ proposed adjustment resulted in a tax assessment of approximately $6.4 million, excluding penalties and interest. The IRS may make similar claims against our transfer pricing arrangements in future examinations. We are in the process of filing a protest with the Appeals Office of the IRS to challenge the IRS’ proposed adjustment and assessment. In addition, the IRS notified the Company that our federal income tax returns for the three years ended October 28, 2006 will also be audited. Due to the net operating loss and credit carryforwards, our U.S. federal, state, and local income tax returns remain open for examination. The Company is generally not subject to non-U.S. income tax examinations for years before 2000. We believe we have adequate reserves for all open tax years.

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 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, No. 01 Civ. 6613 was filed on April 19, 2002. The initial complaint generally alleges that various underwriters engaged in improper and undisclosed activities related to the allocation of shares in Brocade’s initial public offering and seeks unspecified damages for claims under the Exchange Act on behalf of a purported class of purchasers of common stock from May 24, 1999 to December 6, 2000. The lawsuit against Brocade is coordinated for pretrial proceedings with a number of other pending litigations challenging underwriter practices in over 300 cases as In Re Initial Public Offering Securities Litigation, 21 MC 92(SAS).

     Also part of these coordinated proceedings are actions against McDATA Corporation, certain of its officers and directors and the underwriters for McDATA’s initial public offering of securities, No. 01 Civ. 6627, and Inrange Technologies Corporation (which was first acquired by CNT and subsequently acquired by McDATA as part of the CNT acquisition), certain of its officers and directors and the underwriters for Inrange’s initial public offering of securities, No. 01 Civ. 10800. The complaints in these actions asserted claims under the Securities Act and Exchange Act. In October 2002, the individual defendants in the Brocade, McDATA and Inrange actions were dismissed without prejudice from the action, pursuant to a tolling agreement.

     On February 19, 2003, the Court issued an Opinion and Order dismissing all of the plaintiffs’ claims against Brocade and some but not all of the claims against McDATA and Inrange. In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including Brocade, McDATA and Inrange, was submitted to the Court for approval. In August 2005, the Court granted preliminary approval of the settlement. In December 2006, the appellate Court overturned the certification of classes in the six test cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceeding. Neither Brocade, McDATA, nor Inrange is a test case. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have filed amended master allegations and amended complaints and moved for class certification in the six test cases, which the defendants in those cases have opposed. It is uncertain whether there will be any revised or future settlement. If the litigation proceeds, the Company believes that it has meritorious defenses to plaintiffs’ claims and intends to defend the action vigorously.

     Beginning on or about May 19, 2005, several securities class action complaints were filed against Brocade and certain of its then current and former officers. These actions were filed in the United States District Court for the Northern District of California on behalf of purchasers of Brocade’s stock from February 21, 2001 to May 15, 2005. These lawsuits followed and relate to Brocade’s restatement of certain financial results due to stock-based compensation accounting issues. On January 12, 2006, the Court appointed a lead plaintiff and lead counsel. On April 14, 2006, the lead plaintiff filed a consolidated complaint on behalf of

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

     Beginning on or about May 24, 2005, several derivative actions were also filed against certain of Brocade’s current and former officers and directors. These actions were filed in the United States District Court for the Northern District of California and in the California Superior Court in Santa Clara County. The complaints allege, among other things, 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 monetary recovery (other than the award of attorneys’ fees). The derivative actions pending in the District Court for the Northern District of California were consolidated, and the Court created a Lead Counsel structure. The federal derivative plaintiffs filed a consolidated complaint in the District Court for the Northern District of California on October 7, 2005, and Brocade filed a motion to dismiss that action on October 27, 2005. On January 6, 2006, Brocade’s motion was granted, and the consolidated complaint in the District Court for the Northern District of California was dismissed with leave to amend. The parties to this action subsequently reached a preliminary settlement, and, on February 14, 2007, the Court entered an Order granting preliminary approval of the settlement. On April 27, 2007, the Court refused to grant final approval of the settlement at that time.

     On April 15, 2008, another related derivative action was filed in the United States District Court for the Northern District of California. The complaint alleges, among other things, that certain of Brocade’s officers and directors breached their fiduciary duties to Brocade and violated federal law by engaging in allegedly wrongful conduct including conduct complained of in the securities litigation and the other derivative litigation described above. Brocade is named solely as a nominal defendant against whom the plaintiff seeks no monetary recovery (other than the award of attorneys’ fees).

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

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

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     On October 23, 2007, a class action complaint was filed against Brocade and certain of its former officers and current and former directors. This action was filed in the California Superior Court in Santa Clara County on behalf of individuals who owned Brocade stock between February 21, 2001 and May 16, 2005. The complaint generally alleges that Brocade and the individual defendants breached the duty of disclosure by failing to disclose alleged wrongful conduct including conduct complained of in the securities litigation described above and seeks unspecified monetary damages and other relief against the defendants. On November 26, 2007, this action was removed from state court to the United States District Court for the Northern District of California. On November 28, 2007, Brocade filed a motion seeking to have this action deemed “related” to the consolidated federal securities class action described above. On December 3, 2007, Brocade filed a motion to dismiss the action in its entirety on the ground that it is preempted by the Securities Litigation Uniform Standards Act of 1998. On March 6, 2008, Brocade’s motion to dismiss was denied and the case was remanded to state court.

     No liabilities have been accrued in Brocade’s Condensed Consolidated Financial Statements associated with these matters as the amounts are not both probable and reasonably estimable, except as noted above with respect to the class action litigation.

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 officers, directors, and certain former officers and directors. Pursuant to such obligations, the Company has incurred substantial expenses related to legal fees and expenses advanced to certain former 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. The Company has also incurred substantial expenses related to legal fees and expenses advanced to certain current and former officers and directors who are defendants in the civil actions described above. The Company has incurred similar expenses on behalf of current and former employees, officers, and directors who are witnesses in the civil and criminal matters described above. The Company expenses such amounts as incurred.

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”).

     As of April 26, 2008, a loss of $0.1 million, net, which represented effective hedges of net investments, was 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 Income, was not significant.

9. Comprehensive Income

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

	Three Months Ended				Six Months Ended
	April 26,		April 28,		April 26,			April 28,
	2008		2007		2008			2007
Net income	$	91,378	$	843	$	111,223		$	34,162
Other comprehensive income:
Change in net unrealized gains (losses) on marketable equity securities, cash flow hedges and investments		2,606		13,066		1,261			13,023
Cumulative translation adjustments		79		930		(1,731	)		404
Total comprehensive income	$	94,063	$	14,839	$	110,753		$	47,589

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10. 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 27, 2007 (the “Plans”). At April 26, 2008, an aggregate of 120.6 million shares were authorized for future issuance under the Plans, which includes stock options, shares issued pursuant to the Employee Stock Purchase Plan (“ESPP”), and restricted stock units and other awards. A total of 75.4 million shares of common stock were available for grant under the Plans as of April 26, 2008. Awards that expire, or are cancelled without delivery of shares, generally become available for issuance under the Plans.

     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 historical 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						Six Months Ended
	April 26,			April 28,			April 26,			April 28,
Equity Awards	2008			2007			2008			2007
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free interest rate		1.5 — 3.5	%		4.5 — 4.9	%		1.5 — 4.1	%		4.5 — 5.3	%
Expected volatility		46.1	%		46.6	%		45.2	%		47.1	%
Expected term (in years)		4.0			4.0			4.0			3.7

Stock Options

     The Company recorded $4.5 million and $4.6 million of compensation expense related to stock options for the three months ended April 26, 2008 and April 28, 2007, respectively, in accordance with Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”). The Company recorded $9.7 million and $8.9 million of compensation expense related to stock options for the six months ended April 26, 2008 and April 28, 2007, respectively, in accordance with SFAS 123R. Compensation expense computed under the fair value method for stock options issued is being amortized under a graded vesting method over the options’ vesting period. A summary of stock option activity under the Plans for the six months ended April 26, 2008 and April 28, 2007 is presented as follows:

						Weighted-Average
						Remaining		Aggregate Intrinsic
	Shares			Weighted-Average		Contractual Term		Value
	(in thousands)			Exercise Price		(Years)		(in thousands)
Outstanding, October 27, 2007		43,197		$	8.20
Granted		2,212		$	7.15
Exercised		(621	)	$	5.33
Forfeited or expired		(663	)	$	12.02
Outstanding, January 26, 2008		44,125		$	8.17
Granted		143		$	7.35
Exercised		(1,264	)	$	5.44
Forfeited or expired		(2,132	)	$	11.64
Outstanding, April 26, 2008		40,872		$	8.07		4.52	$	42,846
Ending vested and expected to vest		38,099		$	8.15		4.45	$	40,294
Exercisable and vested, April 26, 2008		27,868		$	8.49		3.99	$	32,507

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						Weighted-Average
						Remaining		Aggregate Intrinsic
	Shares			Weighted-Average		Contractual Term		Value
	(in thousands)			Exercise Price		(Years)		(in thousands)
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		5.3	$	155,977
Ending vested and expected to vest		44,026		$	8.47		5.5	$	147,666
Exercisable and vested, April 28, 2007		27,981		$	9.53		4.7	$	90,951

     The weighted-average grant date fair value of employee stock options granted during the three months ended April 26, 2008 and April 28, 2007 was $7.35 and $9.08, respectively. The total intrinsic value of stock options exercised for the three months ended April 26, 2008 and April 28, 2007 was $2.6 million and $30.2 million, respectively.

     As of April 26, 2008, there was $17.7 million of unrecognized compensation expense related to stock options. This expense is expected to be recognized over a weighted-average period of 1.38 years.

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 $1.7 million and $1.3 million for the three months ended April 26, 2008 and April 28, 2007, respectively, and $2.9 million and $2.5 million for the six months ended April 26, 2008 and April 28, 2007, 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						Six Months Ended
	April 26,			April 28,			April 26,			April 28,
Employee Stock Purchase Plan	2008			2007			2008			2007
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free interest rate		1.5 — 3.3	%		5.1 — 5.2	%		1.5 — 5.0	%		5.1 — 5.2	%
Expected volatility		44.8	%		53.5	%		44.8	%		53.5	%
Contractual term (in years)		0.5			0.5			0.5			0.5

     As of April 26, 2008, there was $0.6 million of unrecognized compensation expense related to employee stock purchases. This expense is expected to be recognized over a weighted-average period of 0.08 years.

Restricted Stock Awards

     No restricted stock awards were issued for the six months ended April 26, 2008. For the six months ended April 28, 2007, Brocade issued 0.1 million restricted stock awards to certain eligible employees at a purchase price of $0.00 per share. 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 vests 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. Compensation expense computed under the fair value method for restricted stock awards issued is being amortized under a graded vesting method over the awards’ vesting

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period and was immaterial for the three months ended April 26, 2008 and $1.1 million for the three months ended April 28, 2007, and $0.1 million and $2.4 million, respectively, for the six months ended April 26, 2008 and April 28, 2007.

     The weighted-average fair value of the restricted stock awards granted during the six months ended April 26, 2008 and April 28, 2007 was zero and $8.98, respectively. The total fair value of restricted stock awards vested for the six months ended April 26, 2008 and April 28, 2007 was $13.7 million and zero, respectively.

     As of April 26, 2008, unrecognized expense related to restricted stock awards was immaterial. A summary of the nonvested restricted stock awards for the six months ended April 26, 2008 and April 28, 2007 is presented as follows:

	Shares			Weighted-Average
	(in thousands)			Grant Date Fair Value
Nonvested, October 27, 2007		2,130		$	3.75
Granted		—		$	—
Vested		(1,820	)	$	4.38
Forfeited		(6	)	$	0.01
Nonvested, January 26, 2008		304		$	0.12
Granted		—		$	—
Vested		—		$	—
Forfeited		(18	)	$	0.01
Nonvested, April 26, 2008		286		$	0.13
Expected to vest, April 26, 2008		258		$	0.13

	Shares			Weighted-Average
	(in thousands)			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 acquisition		1,058		$	3.08
Granted		—		$	—
Vested		(50	)	$	0.01
Forfeited		(174	)	$	0.99
Nonvested, April 28, 2007		2,809		$	3.27
Expected to vest, April 28, 2007		2,346		$	3.27

Restricted Stock Units

     For the six months ended April 26, 2008 and April 28, 2007, Brocade issued 1.8 million and 0.3 million restricted stock units, respectively. 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 related to these awards of $4.0 million and $0.2 million for the three months ended April 26, 2008 and April 28, 2007, respectively, and $7.1 million and $0.5 million for the six months ended April 26, 2008 and April 28, 2007, respectively, was determined using the fair market value of Brocade’s common stock on the date of the grant and is recognized under a graded vesting method over the 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 six months ended April 26, 2008 and April 28, 2007 is presented as follows:

	Shares			Weighted-Average
	(in thousands)			Grant Date Fair Value
Nonvested, October 27, 2007		2,719		$	8.29
Granted		1,029		$	7.00
Vested		—		$	—
Forfeited		(43	)	$	8.25
Nonvested, January 26, 2008		3,705		$	7.93
Granted		801		$	7.49
Vested		—		$	—
Forfeited		(165	)	$	7.99
Nonvested, April 26, 2008		4,341		$	7.85
Nonvested and expected to vest at April 26, 2008		3,565		$	7.85

	Shares			Weighted-Average
	(in thousands)			Grant Date 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
Nonvested and expected to vest at April 28, 2007		278		$	9.19

     The aggregate intrinsic value of restricted stock units outstanding at April 26, 2008 was $31.7 million.

     On July 30, 2007, the Compensation Committee approved a long-term, performance-based equity incentive plan under the Company’s 1999 Stock Plan for the Company’s executive officers and other selected Company employees. The long-term incentive plan provides for the issuance of performance-based restricted stock units, which represent a contingent right to receive one share of the Company’s common stock. The restricted stock units are subject to the Company’s performance compared to the NASDAQ-100 Index over an initial 27-month performance period. The plan participants must also remain a service provider to the Company during the performance period.

     Under the principal terms of the plan, executive officers and other plan participants would be entitled to receive restricted stock units representing up to an aggregate of 2.0% of the amount the Company’s market capitalization growth rate exceeds the growth rate of the NASDAQ-100 Index (the “Total Plan Pool”) for the performance period from August 1, 2007 to October 31, 2009, subject to certain adjustments.

     As of April 26, 2008, Brocade had $19.6 million of unrecognized compensation expense, net of estimated forfeitures, related to restricted stock unit grants that are equity classified and $5.0 million of unrecognized compensation expense related to the long-term incentive plan that is liability classified. These expenses are expected to be recognized over a weighted-average period of 1.84 years. As of April 26, 2008, $2.5 million in compensation expense related to the long-term incentive plan had been recognized to date and no shares are expected to be issued as of April 26, 2008.

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11. Segment Information

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

     During the first quarter of fiscal year 2008, the Company changed its internal reporting structure such that operations are managed and reported in four operating units, of which two are individually reportable segments: Data Center Infrastructure (“DCI”), and Service, Support, Solutions (“S3”); and two are combined into one reportable segment: Other. These segments are organized principally by product category. Prior to the six months ended April 26, 2008, the Company managed and reported its operations in two operating segments, each of which was a reportable segment: Product and Service.

     The types of products and services from which each reportable segment derives its revenues are as follows:

• DCI includes a majority of our storage area network products and software;

• S3 includes break/fix maintenance, extended warranty, installation, consulting, network management, related software maintenance and support revenue, and telecommunications services; and

• Other includes embedded blades, host bus adapter products, and files products.

     Prior period segment results have been conformed to the new measurements of segment financial reporting. In addition, 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. The majority of the Company’s assets as of April 26, 2008 were attributable to its United States operations.

     Summarized financial information by reportable segment for the three and six months ended April 26, 2008 and April 28, 2007, based on the internal management system, is as follows (in thousands):

	Three Months Ended				Six Months Ended
	April 26,		April 28,		April 26,		April 28,
	2008		2007		2008		2007
Net revenues
DCI	$	262,148	$	274,576	$	527,317	$	459,417
S3		59,311		44,830		109,214		61,771
Other		33,436		25,862		66,212		48,237
Total net revenues		354,895		345,268		702,743		569,425
Cost of revenues
DCI		104,380		130,222		210,978		194,298
S3		32,814		33,440		66,309		43,918
Other		12,248		10,758		23,426		18,994
Total cost of revenues		149,442		174,420		300,713		257,210
Gross margin
DCI		157,768		144,354		316,339		265,119
S3		26,497		11,390		42,905		17,853
Other		21,188		15,104		42,786		29,243
Total gross margin	$	205,453	$	170,848	$	402,030	$	312,215

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12. 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						Six Months Ended
	April 26,			April 28,			April 26,			April 28,
	2008			2007			2008			2007
Basic net income per share
Net income	$	91,378		$	843		$	111,223		$	34,162
Weighted-average shares of common stock outstanding		375,115			398,738			379,300			336,957
Less: Weighted-average shares of common stock subject to repurchase		(288	)		(3,164	)		(290	)		(2,742	)
Weighted-average shares used in computing basic net income per share		374,827			395,574			379,010			334,215
Basic net income per share	$	0.24		$	0.00		$	0.29		$	0.10
Diluted net income per share
Net income	$	91,378		$	843		$	111,223		$	34,162
Interest on convertible subordinated debt, net of income tax effect		1,058			—			1,627			—
Net income, as adjusted		92,436			843			112,850			34,162
Weighted-average shares used in computing basic net income per share		374,827			395,574			379,010			334,215
Dilutive potential common shares		18,644			16,415			19,365			14,348
Weighted-average shares used in computing diluted net income per share		393,471			411,989			398,375			348,563
Diluted net income per share	$	0.23		$	0.00		$	0.28		$	0.10

     For the three months ended April 26, 2008 and April 28, 2007, potential common shares in the form of stock options to purchase 15.7 million and 12.4 million weighted-average shares of common stock, respectively, were antidilutive and, therefore, not included in the computation of diluted earnings per share. For the six months ended April 26, 2008 and April 28, 2007, potential common shares in the form of stock options to purchase 15.7 million and 3.1 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 and six months ended April 26, 2008, 12.1 million shares were dilutive and therefore included in the calculation of diluted net income per share. For both the three months and six months ended April 28, 2007, potential common shares resulting from the potential conversion, on a weighted-average basis, of the Company’s convertible subordinated debt of 6.5 million common shares 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 during the three months ended April 28, 2007 in relation to the convertible subordinated debt because of their anti-dilutive impact.

13. Income Taxes

     In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). FIN 48 prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Recognition of a tax position is determined when it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority.

     We adopted FIN 48 effective at the beginning of fiscal year 2008. As a result, the cumulative effect of applying FIN 48 was a $3.1 million increase to retained earnings at the beginning of fiscal year 2008. Historically, we have classified unrecognized tax benefits as current income taxes payable. Under FIN 48, we now classify unrecognized tax benefits as long-term income taxes payable except to the extent we anticipate cash payment within the next year. The amount of unrecognized tax benefits at the beginning of fiscal year 2008 was $90.4 million, including interest and penalties of $2.6 million, and was reported in long-term income taxes payable and as a reduction in deferred tax assets. Of this amount, $56.9 million is related to unrecognized tax benefits that, if recognized, would affect our effective tax rate.

     Upon adoption of FIN 48, the Company adopted an accounting policy to classify interest and penalties related to unrecognized tax benefits as a component of income tax expense. The amount of interest and penalties accrued as of the beginning of fiscal year

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2008 was $2.6 million. For the three and six months ended April 26, 2008, the Company expensed an additional amount of $0.3 million and $0.5 million, respectively, for interest and penalties related to income tax liabilities through income tax expense.

     As of April 26, 2008, the Company believes that sufficient positive evidence exists from historical operations and projections of future years to conclude that it is more likely than not to realize its deferred tax assets. The Company continues to apply a valuation allowance on the deferred tax assets relating to capital loss carryforwards, investments and foreign operating loss carryforwards due to limited carryforward periods and the character of such tax attributes. The release of the valuation allowance resulted in a tax benefit of $185.2 million and a reduction of goodwill of $90.4 million during the three months ended April 26, 2008.

     For the three and six months ended April 26, 2008, the Company recorded income tax benefit of $201.8 million and $168.6 million, respectively. For the three and six months ended April 28, 2007, the Company recorded income tax expense of $16.7 million and $30.3 million, respectively. The change is primarily attributable to the release of the valuation allowance.

14. Subsequent Events

     On May 23, 2008, we purchased property located in San Jose, California, which consists of three unimproved building parcels that are entitled for approximately 562,000 square feet of space in three buildings. The total purchase price for the property was $50.9 million. In connection with the purchase, we also engaged a third party as development manager to manage the development and construction of improvements on the property. Our obligation for development and construction of three buildings and a parking garage on the purchased property is approximately $173.0 million (in addition to the purchase price), payable in various installments over approximately the next 27 months. In connection with the purchase, we also obtained a four-year option, exercisable at our sole discretion, to purchase a fourth unimproved approximate 4 acre parcel for a fixed price of approximately $26.0 million. We plan to develop the land over the next eighteen months and finance the purchase and the development through operating cash flows.

     On May 30, 2008, Brocade reached an agreement in principle with the lead plaintiffs to settle the federal securities class action that would result in a payment by Brocade of $160.0 million to the plaintiff class in exchange for the dismissal with prejudice of all claims against all defendants in the litigation. The settlement is subject to final documentation and approval by the Federal District Court. Based on the preliminary settlement, Brocade recorded an estimated settlement expense of $160.0 million in connection with the federal securities class action in the three months ended April 26, 2008.

     In addition, in estimating the Company’s tax provision for the three and six months ended April 26, 2008, Brocade has made an assumption regarding the timing of the future payment of this settlement. In doing so, the Company has estimated that it will be deductible in the Fiscal 2008 tax year. The actual timing of the deductibility of this settlement will be driven or influenced by several factors which may be beyond the Company’s control including, but not limited to, the time it takes to document the agreement, the length of notice period required by the Federal District Court, when the settlement is approved by the Federal District Court, and when payment is made to the plaintiff class. If the timing of the deduction occurs outside of the Fiscal 2008 tax year, our tax provision for Fiscal 2008 and the remaining periods therein may be impacted.

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

     You should read the following discussion and analysis in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report filed on Form 10-K with the Securities and Exchange Commission on December 21, 2007.

Organization and Operations of Brocade

     Brocade Communications Systems, Inc. (“Brocade” or the “Company”) is the leading supplier of data center networking solutions that help enterprises connect and manage their information. The Company offers a comprehensive line of data center networking hardware and software products and services that enable businesses to make their data centers more efficient, reliable and adaptable.

     Brocade products and services are designed to help information technology (“IT”) organizations manage their data and data center infrastructure assets in an efficient, cost-effective manner. In the first fiscal quarter of 2008, Brocade reorganized the Company into four operating units. The objective of this new organization is to allow the Company to more effectively focus on growth opportunities, while being well-positioned to more rapidly scale and accommodate new business opportunities, including potential future acquisitions. The four operating units are as follows:

• The Data Center Infrastructure (“DCI”) operating unit encompasses the Brocade family of Storage Area Network (“SAN”) business which includes infrastructure products and solutions including directors, switches, routers, fabric-based software applications, distance/extension products, as well as management applications and utilities to centralize data management.

• The Files (“Files”) operating unit includes the Brocade family of File Area Network (“FAN”) solutions which includes both software and hardware offerings for more effectively managing file data and storage resources.

• The Server Edge and Storage (“SES”) operating unit includes our new host bus adapters (“HBAs”) and Intelligent Server Adapter initiatives as well as our SAN switch modules for bladed servers and embedded switches for blade servers.

• The Support, Services and Solution (“S3”) operating unit includes services that assist customers with consulting and support in designing, implementing, deploying and managing data center enterprise solutions as well as post-contract customer support.

     Together, Brocade’s products, services and solutions simplify IT infrastructure, increase resource utilization, ensure availability of mission critical applications and serve as a platform for corporate data back up and disaster recovery.

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

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Overview

     Our goal is to be the preeminent provider of storage area network equipment and the leading provider of data center networking solutions that help enterprises connect and manage their information. We entered fiscal year 2008 with what we believe is a strong combination of products, services and solutions. We have introduced new technologies and product lines such as the introduction of our DCX Backbone, new 8 Gigabit fabric switches and HBAs, as well as the new Brocade File Management Engine (“FME”) product.

     When considering the IT spending environment, we remain cautious about spending at a macroeconomic level. While we remain more optimistic about spending at the enterprise level on large projects in the deployment phase, we are concerned about the potential for reduced IT budgets. However, our core markets remain very competitive and we believe that our new product introductions and our installed base put us in a strong competitive position.

     Historically, the third fiscal quarter of 2008 is our weakest seasonal quarter with revenues flat to slightly down from the second fiscal quarter of 2008. While at the end of the first fiscal quarter of 2008 we believed that with our new DCX product introduction we would have a product cycle advantage in the market that somewhat dampens this normal seasonality, we now believe this upside has been offset by the macroeconomic uncertainty. We are therefore expecting the net result will be a typical normal seasonal pattern of flat to slightly down.

     In the second fiscal quarter of 2008, the pricing environment remained stable and sequential like-for-like average selling price declines were in the low single digits. We expect that quarterly average selling price declines will remain in the low single digits but up slightly from recent prior quarters as enterprise customers try to stretch their available budget dollars.

     In the DCI market segment, we are seeing growth within the director market due to the introduction of our DCX backbone product, which we believe is growing faster than we originally expected, especially when compared to the release of our 48K director in 2005. However, we believe that the upside from this growth may be offset by macroeconomic uncertainty in the third fiscal quarter of 2008. We believe that our new 8 Gigabit switch products will make a revenue contribution in the second half of fiscal year 2008. We believe that our segment mix in the third fiscal quarter of 2008 will include a higher mix of switches versus directors than in the second fiscal quarter of 2008, which will put slight downward pressure in gross margins in the third fiscal quarter of 2008.

     We continue to make progress in the development of our HBA business and expect to see initial product revenues from our internally developed 8 Gigabit products in the second half of fiscal year 2008. We expect to begin to see revenue contribution from our HBA products in fiscal year 2009.

     We recently introduced a new product in our File Management Engine product during the second fiscal quarter of 2008. We expect to see revenue contribution from this product ramp throughout the second half of fiscal year 2008, however, we do not anticipate it will be a material component of our overall revenues.

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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						Six Months Ended
	April 26,			April 28,			April 26,			April 28,
	2008			2007			2008			2007
Net revenues
DCI		73.9	%		79.5	%		75.0	%		80.7	%
S3		16.7			13.0			15.5			10.8
Other		9.4			7.5			9.5			8.5
Total net revenues		100.0			100.0			100.0			100.0
Cost of revenues
DCI		39.8			47.4			40.0			42.3
S3		55.3			74.6			60.7			71.1
Other		36.6			41.6			35.4			39.4
Total cost of revenues		42.1			50.5			42.8			45.2
Gross margin
DCI		60.2			52.6			60.0			57.7
S3		44.7			25.4			39.3			28.9
Other		63.4			58.4			64.6			60.6
Total gross margin		57.9			49.5			57.2			54.8
Operating expenses:
Research and development		17.2			16.9			17.0			17.7
Sales and marketing		19.7			17.2			18.9			17.2
General and administrative		3.8			3.9			3.7			3.7
Legal fees associated with indemnification obligations, and other related costs		1.3			4.4			2.1			3.6
Provision for class action lawsuit		45.1			—			22.8			—
Acquisition and integration costs		—			2.2			—			2.6
Amortization of intangible assets		2.2			2.3			2.3			1.6
Facilities lease losses (benefits)		(0.1	)		—			(0.1	)		—
Total operating expenses		89.2			46.9			66.7			46.4
Income (loss) from operations		(31.3	)		2.6			(9.5	)		8.5
Interest and other income, net		2.1			3.1			2.7			3.2
Interest expense		(0.5	)		(0.6	)		(0.4	)		(0.4	)
Loss on sale of investments		(1.3	)		—			(1.0	)		—
Income (loss) before provision for income taxes		(31.0	)		5.1			(8.2	)		11.3
Income tax provision (benefit)		(56.7	)		4.8			(24.0	)		5.3
Net income		25.7	%		0.2	%		15.8	%		6.0	%

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     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 896 ports, connect our customers’ servers and storage devices creating a SAN.

     Our total net revenues for the three months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

	Three Months Ended
	April 26,		% of Net			April 28,		% of Net			Increase/			%
	2008		Revenue			2007		Revenue			(Decrease)			Change
DCI	$	262,148		73.9	%	$	274,576		79.5	%	$	(12,428	)		(4.5	)%
S3		59,311		16.7	%		44,830		13.0	%		14,481			32.3	%
Other		33,436		9.4	%		25,862		7.5	%		7,574			29.3	%
Total net revenues	$	354,895		100.0	%	$	345,268		100.0	%	$	9,627			2.8	%

     The increase in total net revenues for the three months ended April 26, 2008 as compared with total net revenues for the three months ended April 28, 2007 reflects growth in sales of S3 offerings and other products, offset by a decrease in DCI product revenues. The increase in S3 revenues is a result of the continued expansion of our installed base. Other revenues increased due to a 40.5 percent increase in the number of ports shipped as a result of our continued growth in the embedded switch market, partially offset by a 3.5 percent decrease in the average selling price per port. DCI revenues for the period reflects a 13.2 percent increase in the number of ports shipped, offset by an 11.7 percent decline in average selling price per port and a $10.8 million reduction in third-party revenue for the three months ended April 26, 2008.

     For the three months ended April 26, 2008 and April 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 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.

     Our total net revenues for the six months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

	Six Months Ended
	April 26,		% of Net			April 28,		% of Net			Increase/		%
	2008		Revenue			2007		Revenue			(Decrease)		Change
DCI	$	527,317		75.0	%	$	459,417		80.7	%	$	67,900		14.8	%
S3		109,214		15.5	%		61,771		10.8	%		47,443		76.8	%
Other		66,212		9.5	%		48,237		8.5	%		17,975		37.3	%
Total net revenues	$	702,743		100.0	%	$	569,425		100.0	%	$	133,318		23.4	%

     The increase in total net revenues for the six months ended April 26, 2008 as compared with total net revenues for the six months ended April 28, 2007 reflects growth in sales of DCI products, S3 offerings and other products. The increase in DCI revenues for the period reflected a 28.3 percent increase in the number of ports shipped, due to our acquisition of McDATA in January 2007 and mix shift from lower port density switch products to higher port density director products, partially offset by an 8.1 percent decline in average selling price per port. The increase in S3 revenues is a result of the McDATA acquisition as well as the continued expansion of our installed base. Other revenues increased due to a 42.4 percent increase in the number of ports shipped as a result of our continued growth in the embedded switch market, partially offset by a 3.6 percent decline in average selling price per port.

     For the six months ended April 26, 2008 and April 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 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. Historically,

26

     Brocade’s first and fourth fiscal quarters are seasonally stronger quarters from a revenue perspective than its second and third fiscal quarters.

     Our total net revenues by geographical area for the three months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

	Three Months Ended
	April 26,		% of Net			April 28,		% of Net			Increase/			%
	2008		Revenue			2007		Revenue			(Decrease)			Change
Domestic	$	220,869		62.2	%	$	225,162		65.2	%	$	(4,293	)		(1.9	)%
International		134,026		37.8	%		120,106		34.8	%		13,920			11.6	%
Total net revenues	$	354,895		100.0	%	$	345,268		100.0	%	$	9,627			2.8	%

     Our total net revenues by geographical area for the six months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

	Six Months Ended
	April 26,		% of Net			April 28,		% of Net			Increase/		%
	2008		Revenue			2007		Revenue			(Decrease)		Change
Domestic	$	437,896		62.3	%	$	358,346		62.9	%	$	79,550		22.2	%
International		264,847		37.7	%		211,079		37.1	%		53,768		25.5	%
Total net revenues	$	702,743		100.0	%	$	569,425		100.0	%	$	133,318		23.4	%

     Historically, domestic revenues have accounted for between 59 percent and 75 percent of total net revenues. International revenues primarily consist of sales to customers in Western Europe and the greater Asia Pacific region. For the three and six months ended April 26, 2008 as compared to the three and six months ended April 28, 2007, international revenues increased as a percentage of total net revenues primarily as a result of increased direct product shipments to international regions. Revenues are attributed to geographic areas based on where our products are shipped. However, certain OEM customers take possession of our products domestically and then distribute these products to their international customers. Because we account for all of those OEM revenues as domestic revenues, we cannot be certain of the extent to which our domestic and international revenue mix is impacted by the practices of our OEM customers, but we believe that international revenue is a larger percent of our total 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 April 26, 2008, three customers each represented ten percent or more of our total revenues for a combined total of 65 percent of our total revenues. For the three months ended April 28, 2007, the same three customers each represented ten percent or more of our total revenues for a combined total of 67 percent of our 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.

     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 April 26, 2008, three customers each accounted for 21 percent, 18 percent and 12 percent of total accounts receivable. As of October 27, 2007, three customers each accounted for 21 percent, 17 percent and 13 percent of total accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable balances. The Company has established reserves for credit losses, sales allowances, and other allowances. While the Company has not experienced material credit losses in any of the periods presented, there can be no assurance that the Company will not experience material credit losses in the future.

27

     Gross margin for the three months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

	Three Months Ended
	April 26,		% of Net			April 28,		% of Net			Increase/		% Points
	2008		Revenue			2007		Revenue			(Decrease)		Change
DCI	$	157,768		60.2	%	$	144,354		52.6	%	$	13,414		7.6	%
S3		26,497		44.7	%		11,390		25.4	%		15,107		19.3	%
Other		21,188		63.4	%		15,104		58.4	%		6,084		5.0	%
Total gross margin	$	205,453		57.9	%	$	170,848		49.5	%	$	34,605		8.4	%

     Gross margin for the three months ended April 26, 2008 was 57.9 percent, an increase of 8.4 percentage points from 49.5 percent for the three months ended April 28, 2007. For the three months ended April 26, 2008, DCI product costs relative to net revenues decreased by 7.6 percent as compared to the three months ended April 28, 2007. This is primarily the result of a 6.8 percent decrease in product costs due to a mix shift from switch products for the three months ended April 28, 2007 toward higher margin products for the three months ended April 26, 2008, and a reduction in intangibles amortization included in DCI as a percent of revenue by 0.8 percent. During the three months ended April 26, 2008, DCI product costs aside from amortization and product costs 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. S3 operations costs decreased by 19.3 percent relative to net revenues primarily due to increased revenue of $14.5 million over flat operating costs for the three months ended April 26, 2008 relative to the three months ended April 28, 2007. Other product costs decreased by 5.0 percent relative to net revenues primarily due to a decrease in product costs from favorable sales product mix, partially offset by a 4.5 percent increase in payroll related expenses related to increased headcount for the three months ended April 26, 2008 relative to the three months ended April 28, 2007.

     Gross margin for the six months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

	Six Months Ended
	April 26,		% of Net			April 28,		% of Net			Increase/		% Points
	2008		Revenue			2007		Revenue			(Decrease)		Change
DCI	$	316,339		60.0	%	$	265,119		57.7	%	$	51,220		2.3	%
S3		42,905		39.3	%		17,853		28.9	%		25,052		10.4	%
Other		42,786		64.6	%		29,243		60.6	%		13,543		4.0	%
Total gross margin	$	402,030		57.2	%	$	312,215		54.8	%	$	89,815		2.4	%

     Gross margin for the six months ended April 26, 2008 was 57.2 percent, an increase of 2.4 percentage points from 54.8 percent for the six months ended April 28, 2007. For the six months ended April 26, 2008, DCI product costs relative to net revenues decreased by 2.3 percent as compared to the six months ended April 28, 2007. This is primarily the result of a 4.4 percent decrease in product costs due to a mix shift from switch products for the six months ended April 28, 2007 toward higher margin products for the six months ended April 26, 2008, offset by an increase in intangibles amortization by $8.5 million, as well as the increase in manufacturing costs due to increased headcount resulting from the McDATA acquisition. S3 operations costs decreased by 10.4 percent relative to net revenues primarily due to a 76.8% increase in revenue offset by increases in headcount and outside services, as the organization was expanded as a result of the McDATA acquisition. Other product costs decreased by 4.0 percent relative to net revenues primarily due to a favorable sales product mix partially offset by a slight increase in manufacturing costs.

     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 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 in average selling price per port with reductions in product and manufacturing operations costs, or if as a result of future reductions in average selling price per port our revenues do not grow, our gross margins would be negatively affected.

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     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.

     R&D expenses for the three months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

April 26,		% of Net			April 28,		% of Net			Increase/		%
2008		Revenue			2007		Revenue			(Decrease)		Change
$	61,131		17.2	%	$	58,303		16.9	%	$	2,828		4.9	%

     R&D expenses increased for the three months ended April 26, 2008 as compared to the three months ended April 28, 2007. This increase is primarily due to a $2.1 million increase in nonrecurring engineering charges and a $2.8 million increase due to headcount shift from sustaining development to new development projects, offset by a $2.6 million decrease in bonuses paid to transitional employees as a result of the McDATA and Silverback acquisitions. R&D expenses increased 0.3 percentage points as a percent of total net revenues in the three months ended April 26, 2008 compared with the three months ended April 28, 2007.

     R&D expenses for the six months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

April 26,		% of Net			April 28,		% of Net			Increase/		%
2008		Revenue			2007		Revenue			(Decrease)		Change
$	119,336		17.0	%	$	100,694		17.7	%	$	18,642		18.5	%

     R&D expenses increased in absolute dollars for the six months ended April 26, 2008 as compared to the six months ended April 28, 2007. This increase is primarily due to a $5.5 million increase in salaries and headcount related costs as a result of the McDATA and Silverback acquisitions, $3.0 million in additional outside service related expenses related to product development including our recent introduction in our 8 Gigabit switch family, $2.4 million in prototypes and nonrecurring engineering charges, a $3.5 million increase in expenses related to IT and facilities, a $3.9 million increase in expenses related to legal, HR and finance, and a $1.7 million increase due to headcount shift from sustaining development to new development projects, partially offset by a $4.1 million decrease in acquisition and engineering related bonuses. R&D expenses decreased 0.7 percentage points as a percent of total net revenues in the six months ended April 26, 2008 compared with the six months ended April 28, 2007.

     We currently anticipate that R&D expenses, as a percent of revenue and in absolute dollars, for the three months ending July 26, 2008 will be relatively consistent with the three months ended April 26, 2008.

     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 April 26, 2008 and April 28, 2007 were as follows (in thousands):

April 26,		% of Net			April 28,		% of Net			Increase/		%
2008		Revenue			2007		Revenue			(Decrease)		Change
$	69,985		19.7	%	$	59,364		17.2	%	$	10,621		17.9	%

     Sales and marketing expenses increased for the three months ended April 26, 2008 as compared to the three months ended April 28, 2007. This increase is primarily due to a $2.5 million increase related to our sales conference, a $3.8 million increase in advertising expense related to 8 Gigabit product launch, a $1.2 million increase in marketing programs, and a $1.2 million increase related to stock-based compensation expense. Sales and marketing expenses increased 2.5 percentage points as a percent of total net revenues in the three months ended April 26, 2008 compared with the three months ended April 28, 2007.

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     Sales and marketing expenses for the six months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

April 26,		% of Net			April 28,		% of Net			Increase/		%
2008		Revenue			2007		Revenue			(Decrease)		Change
$	133,160		18.9	%	$	97,951		17.2	%	$	35,209		35.9	%

     Sales and marketing expenses increased for the six months ended April 26, 2008 as compared to the six months ended April 28, 2007. This increase is primarily due to the McDATA acquisition and included a $6.9 million increase related to our sales conference, a $4.5 million increase in advertising expense related to 8 Gigabit product launch, a $5.7 million increase in sales commissions expenses, $6.9 million increase in salaries and wages primarily due to the McDATA acquisition, and a $2.6 million increase in expenses related to IT and facilities. Sales and marketing expenses increased 1.7 percentage points as a percent of total net revenues in the six months ended April 26, 2008 compared with the six months ended April 28, 2007.

     We currently anticipate that sales and marketing expenses, as a percent of revenue and in absolute dollar terms, for the three months ending July 26, 2008 will be relatively consistent with the three months ended April 26, 2008.

     General and administrative expenses. General and administrative (“G&A”) expenses consist primarily of salaries and related expenses for corporate executives, finance, human resources, 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 April 26, 2008 and April 28, 2007 were as follows (in thousands):

April 26,		% of Net			April 28,		% of Net			Increase/			%
2008		Revenue			2007		Revenue			(Decrease)			Change
$	13,316		3.8	%	$	13,570		3.9	%	$	(254	)		(1.9	)%

     G&A expenses were relatively unchanged for the three months ended April 26, 2008 as compared to the three months ended April 28, 2007. G&A expenses as a percent of total net revenues was relatively unchanged in the three months ended April 26, 2008 as compared to the three months ended April 28, 2007.

     General and administrative expenses for the six months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

April 26,		% of Net			April 28,		% of Net			Increase/		%
2008		Revenue			2007		Revenue			(Decrease)		Change
$	25,683		3.7	%	$	20,975		3.7	%	$	4,708		22.4	%

     G&A expenses increased for the six months ended April 26, 2008 as compared to the six months ended April 28, 2007. The increase in G&A is primarily due to the McDATA acquisition which resulted in a $6.0 million increase in salaries and headcount related expenses and a $5.8 million increase in outside services, as well as a $3.8 million increase in software amortization expense, partially offset by an increase in legal, HR, IT and facilities expenses which are allocated to other functional groups. G&A expenses as a percent of total net revenues was relatively unchanged in the six months ended April 26, 2008 as compared to the six months ended April 28, 2007.

     We currently anticipate that G&A expenses, as a percent of revenue and in absolute dollars, for the three months ending July 26, 2008 will be consistent with the three months ended April 26, 2008.

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     Legal fees associated with indemnification obligations, and other related costs. These expenses consist of professional legal and accounting service fees for various matters, including applicable indemnification obligations and defense of the Company in legal proceedings. 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 directors, officers and/or employees of the Company who have been either convicted in criminal proceedings and/or are subject to ongoing SEC and civil actions in connection with Brocade’s historical stock option grant practices.

     Legal fees associated with indemnification obligations and other related costs for the three and six months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

	April 26,		% of Net			April 28,		% of Net			Increase/			%
	2008		Revenue			2007		Revenue			(Decrease)			Change
Three months ended	$	4,789		1.3	%	$	15,234		4.4	%	$	(10,445	)		(68.6	)%
Six months ended	$	14,448		2.1	%	$	20,462		3.6	%	$	(6,014	)		(29.4	)%

     For the three and six months ended April 26, 2008, legal fees decreased by $10.4 million and $6.0 million, respectively, as compared to the three and six months ended April 28, 2007. This decrease is primarily due to a decrease in legal indemnification expenses.

     Provision for class action lawsuit. These expenses consist of our estimate to resolve our class action lawsuit.

     Provision for class action lawsuit for the three and six months ended April 26, 2008 and April 28, 2007 was as follows (in thousands):

	April 26,		% of Net			April 28,		% of Net			Increase/		%
	2008		Revenue			2007		Revenue			(Decrease)		Change
Three months ended	$	160,000		45.1	%	$	—		—	%	$	160,000		100	%
Six months ended	$	160,000		22.8	%	$	—		—	%	$	160,000		100	%

     For the three and six months ended April 26, 2008, provision for class action lawsuit increased by $160.0 million as compared to the three and six months ended April 28, 2007. This increase is based on the preliminary settlement reached between Brocade and the lead plaintiffs for the federal securities class action on May 30, 2008.

     Acquisition and integration costs. Acquisition and integration costs for the three and six months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

	April 26,		% of Net			April 28,		% of Net			Increase/			%
	2008		Revenue			2007		Revenue			(Decrease)			Change
Three months ended	$	—		—	%	$	7,564		2.2	%	$	(7,564	)		(100.0	)%
Six months ended	$	—		—	%	$	14,997		2.6	%	$	(14,997	)		(100.0	)%

     For the three and six months ended April 28, 2007, we recorded acquisition and integration costs primarily for costs incurred for consulting services, other professional fees and bonuses paid to transitional employees in connection with our acquisition of McDATA.

     Amortization of intangible assets. Amortization of intangible assets for the three and six months ended April 26, 2008 and April 28, 2007 was as follows (in thousands):

	April 26,		% of Net			April 28,		% of Net			Increase/			%
	2008		Revenue			2007		Revenue			(Decrease)			Change
Three months ended	$	7,909		2.2	%	$	7,977		2.3	%	$	(68	)		(0.9	)%
Six months ended	$	15,818		2.3	%	$	8,887		1.6	%	$	6,931			78.0	%

     During the three and six months ended April 26, 2008, we recorded amortization of intangible assets related to the acquisitions of McDATA, Silverback and NuView. Amortization of intangible assets was relatively unchanged for the three months ended April 26, 2008 as compared to the three months ended April 28, 2007. The increase in amortization of intangible assets for the six months ended April 26, 2008 as compared to the six months ended April 28, 2007 is primarily due to the McDATA acquisition which was

31

completed at 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 4, “Goodwill and Intangible Assets,” of the Notes to Condensed Consolidated Financial Statements).

     Facilities lease losses (benefits). Facilities lease losses (benefits) for the three and six months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

	April 26,			% of Net			April 28,		% of Net			Increase/		%
	2008			Revenue			2007		Revenue			(Decrease)		Change
Three months ended	$	(477	)		(0.1	)%	$	—		—	%	$	477		100.0	%
Six months ended	$	(477	)		(0.1	)%	$	—		—	%	$	477		100.0	%

     During the three and six months ended April 26, 2008, we recorded a benefit of $0.5 million related to estimated facilities lease losses, net of expected sublease income. This benefit represents a change in estimate associated with the reoccupation of expected sublease space by Brocade. We 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 or benefits were recorded during the three and six months ended April 28, 2007.

     Interest and other income, net. Interest and other income, net, for the three and six months ended April 26, 2008 and April 28, 2007 were as follows (in thousands):

	April 26,		% of Net			April 28,		% of Net			Increase/			%
	2008		Revenue			2007		Revenue			(Decrease)			Change
Three months ended	$	7,306		2.1	%	$	10,788		3.1	%	$	(3,482	)		(32.3	)%
Six months ended	$	18,791		2.7	%	$	18,244		3.2	%	$	547			3.0	%

     For the three months ended April 26, 2008 as compared to the three months ended April 28, 2007, the decrease in interest and other income was primarily related to decreased average rates of return due to investment mix and a decrease in interest rates. For the six months ended April 26, 2008 as compared to the six months ended April 28, 2007, the increase in interest and other income was primarily related to increased average cash, cash equivalents, marketable equity securities and long-term investment balances as a result of the McDATA acquisition.

     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 Condensed Consolidated Financial Statements).

     Interest expense for the three months ended April 26, 2008 and April 28, 2007 was as follows (in thousands):

April 26,			% of Net			April 28,			% of Net			Increase/			%
2008			Revenue			2007			Revenue			(Decrease)			Change
$	(1,760	)		(0.5	%)	$	(2,054	)		(0.6	)%	$	(294	)		(14.3	)%

     Interest expense was relatively unchanged for the three months ended April 26, 2008 as compared to the three months ended April 28, 2007.

     Interest expense for the six months ended April 26, 2008 and April 28, 2007 was as follows (in thousands):

April 26,			% of Net			April 28,			% of Net			Increase/		%
2008			Revenue			2007			Revenue			(Decrease)		Change
$	(3,281	)		(0.4	%)	$	(2,058	)		(0.4	)%	$	1,223		59.4	%

     The increase in interest expense for the six months ended April 26, 2008 as compared to the six months ended April 28, 2007 was primarily the result of the debt assumed from the McDATA acquisition which was completed at the beginning of our second fiscal quarter of 2007.

     As of April 26, 2008 and April 28, 2007, the carrying value of the outstanding balance of our convertible subordinated debt assumed from the McDATA acquisition was $168.6 million and $162.0 million, respectively.

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     (Loss) on investments, net. (Loss) on investments, net, for the three months ended April 26, 2008 and April 28, 2007 was as follows (in thousands):

April 26,			% of Net			April 28,		% of Net			Increase/		%
2008			Revenue			2007		Revenue			(Decrease)		Change
$	(4,725	)		(1.3	)%	$	—		—	%	$	4,725		100.0	%

     The increase in loss on investments for the three months ended April 26, 2008 as compared to the three months ended April 28, 2007 was $4.7 million. The increase was due to a loss of $4.2 million on the sale of our equity investment in a publicly traded company and losses of $0.5 million on the disposition of portfolio investments at amounts below the carrying value.

     (Loss) on investments, net, for the six months ended April 26, 2008 and April 28, 2007 was as follows (in thousands):

April 26,			% of Net			April 28,		% of Net			Increase/		%
2008			Revenue			2007		Revenue			(Decrease)		Change
$	(6,949	)		(1.0	)%	$	—		—	%	$	6,949		100.0	%

     The increase in loss on investments for the six months ended April 26, 2008 as compared to the six months ended April 28, 2007 was $6.9 million. The increase was due to a loss of $6.0 million on the sale of our equity investment in a publicly traded company and losses of $0.9 million on the disposition of portfolio investments at amounts below the carrying value. The carrying value of our equity investments in non-publicly traded companies at April 26, 2008 and April 28, 2007 was $5.0 million and $0.8 million, respectively.

     Provision for (benefit from) income taxes. Provision for (benefit from) income taxes for the three and six months ended April 26, 2008 and April 28, 2007 was as follows (in thousands):

	April 26,			% of Net			April 28,		% of Net			Increase/			%
	2008			Revenue			2007		Revenue			(Decrease)			Change
Three months ended	$	(201,757	)		(56.7	)%	$	16,727		4.8	%	$	(218,484	)		(1,306.2	)%
Six months ended	$	(168,600	)		(24.0	)%	$	30,273		5.3	%	$	(198,873	)		(656.9	)%

     For the three and six months ended April 26, 2008, our income tax provision (benefit) 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. In the three months ended April 26, 2008, the Company released the valuation allowance of its deferred tax assets. SFAS 109 requires that deferred tax assets be reduced by a valuation allowance if the weight of available evidence indicates that it is more likely than not that some portion or all of the deferred tax assets will not be realized in future periods. The realization of deferred tax assets is based on several factors, including the Company’s past earnings and the scheduling of deferred tax liabilities and projected income from operating activities. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. During the three months ended April 26, 2008, the Company determined that there was sufficient positive evidence to support the release of the valuation allowance. The impact of the release of the valuation allowance for the three and six months ended April 26, 2008 was $185.2 million.

     To the extent utilization of net operating losses, credit carryforwards, or acquired deductible temporary differences are attributable to the operations of McDATA prior to the acquisition, the resulting tax benefit was recorded to goodwill. 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.

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

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

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

     The IRS and other tax authorities regularly examine our income tax returns. In May 2008, the IRS completed its field examination of our federal income tax return and issued an RAR. The IRS is contesting our transfer pricing for the cost sharing and buy-in arrangements with our foreign subsidiaries. The IRS’ proposed adjustment would offset approximately $306.0 million of our net operating loss carryforwards. The IRS’ proposed adjustment resulted in a tax assessment of approximately $6.4 million, excluding penalties and interest. The IRS may make similar claims against our transfer pricing arrangements in future examinations. We are in the process of filing a protest with the Appeals Office of the IRS to challenge the IRS’ proposed adjustment and assessment. In addition, the IRS notified the Company that our federal income tax returns for the three years ended October 28, 2006 will also be audited. Due to the net operating loss and credit carryforwards, our U.S. federal, state, and local income tax returns remain open for examination. The Company is generally not subject to non-U.S. income tax examinations for years before 2000. We believe we have adequate reserves for all open tax years.

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

     Stock compensation expense. Stock compensation expense for the three and six months ended April 26, 2008 and April 28, 2007 was as follows (in thousands):

	April 26,		% of Net			April 28,		% of Net			Increase/		%
	2008		Revenue			2007		Revenue			(Decrease)		Change
Three months ended	$	11,176		3.1	%	$	8,005		2.3	%	$	3,171		39.6	%
Six months ended	$	19,648		2.8	%	$	14,729		2.6	%	$	4,919		33.4	%

     Stock compensation expense was included in the following statements of income line items for the three and six months ended April 26, 2008 and April 28, 2007 as follows (in thousands):

	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	April 26, 2008		April 28, 2007		April 26, 2008		April 28, 2007
Cost of goods sold	$	2,371	$	2,595	$	4,863	$	4,372
Research and development		2,528		2,371		5,152		4,809
Sales and marketing		3,146		1,954		5,131		3,661
General and administrative		3,131		1,085		4,502		1,887
Total stock compensation	$	11,176	$	8,005	$	19,648	$	14,729

     Included in the amounts presented above is stock compensation arising from certain stock option grants that are remeasured at the end of each reporting period until the options are exercised, cancelled or expire unexercised. Stock-based compensation expense for these options was $0.6 million for the three months ended April 26, 2008. Stock-based compensation benefit for these options was $1.1 million for the six months ended April 26, 2008. Stock-based compensation expense for these options was $0.1 million for both the three and six months ended April 28, 2007. The stock compensation expense associated with remeasuring awards at their intrinsic value each reporting period may vary significantly as a result of future changes in the market value of our common stock until those options are either exercised or expire unexercised. The change in stock-based compensation for these awards during the three and six months ended April 26, 2008 as compared to the three and six months ended April 28, 2007 is due to the change in market values of our common stock during the reported periods as well as exercise behaviors of the holders of these options.

34

Liquidity and Capital Resources

	April 26,			October 27,			Increase/
	2008			2007			(Decrease)
	(in thousands)
Cash and cash equivalents	$	513,533		$	315,755		$	197,778
Short-term investments		195,566			325,846			(130,280	)
Marketable equity securities		—			14,205			(14,205	)
Long-term investments		87,392			137,524			(50,132	)
Total	$	796,491		$	793,330		$	3,161
Percentage of total assets		38	%		41	%

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

     For the six months ended April 26, 2008, we generated $198.3 million in cash from operating activities, which was higher than net income for the six months ended April 26, 2008, as a result of net income adjusted for non-cash items related to depreciation and amortization as well as liability associated with class action lawsuit, non-cash compensation expense, other accrued liabilities primarily related to the adoption of FIN 48, and a relatively high level of collections during the period, partially offset by the release of the valuation allowance related to our deferred tax assets. Days sales outstanding in receivables for the six months ended April 26, 2008 was 43 days, compared with 40 days for the six months ended April 28, 2007.

     Net cash provided by investing activities for the six months ended April 26, 2008 totaled $116.7 million and was primarily the result of $298.4 million in proceeds resulting from maturities and sales of short-term investments, offset by $139.3 million in purchases of short-term and long-term investments, $31.3 million in purchases of property and equipment and $43.6 million in cash paid in connection with an acquisition.

     Net cash used in financing activities for the six months ended April 26, 2008 totaled $116.6 million and was primarily the result of common share repurchases of $130.2 million, slightly offset by proceeds from the issuance of common stock from ESPP and stock option exercises, net, of $14.7 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 Flextronics 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 Flextronics depends on the specific product. As of April 26, 2008, our aggregate commitment for inventory components used in the manufacture of Brocade products was $134.9 million, net of a purchase commitments reserve of $27.2 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 Flextronics 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.

     On May 23, 2008, we purchased property located in San Jose, California, which consists of three unimproved building parcels that are entitled for approximately 562,000 square feet of space in three buildings. The total purchase price for the property was $50.9 million. In connection with the purchase, we also engaged a third party as development manager to manage the development and construction of improvements on the property. Our obligation for development and construction of three buildings and a parking garage on the purchased property is approximately $173.0 million (in addition to the purchase price), payable in various installments over approximately the next 27 months. In connection with the purchase, we also obtained a four-year option, exercisable at our sole

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discretion, to purchase a fourth unimproved approximate 4 acre parcel for a fixed price of approximately $26.0 million. We plan to develop the land over the next eighteen months and finance the purchase and the development through operating cash flows.

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

     The following table summarizes our contractual obligations (including interest expense) and commitments as of April 26, 2008 (in thousands):

				Less than						More than
	Total			1 Year		1—3 Years		3—5 Years		5 Years
Contractual Obligations:
Convertible debt(1)	$	180,263	(1)	$	4,685	$	175,578	$	—	$	—
Non-cancelable operating leases(2)		104,851	(2)		25,080		37,040		16,639		26,092
Capital leases		574			564		10		—		—
Purchase commitments, gross(3)		134,919	(3)		134,919		—		—		—
Company campus capital expenditures (4)		221,400	(4)		141,174		80,226		—		—
Total contractual obligations	$	642,007		$	306,422	$	292,854	$	16,639	$	26,092
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
Unrecognized tax benefits and related accrued interest (5)	$	90,409	(5)	$	n/a	$	n/a	$	n/a	$	n/a
Liability associated with class action lawsuit(6)	$	160,000	(6)	$	160,000	$	n/a	$	n/a	$	n/a

(1)	Amount does not include any fair value adjustments or discount.
(2)	Amount excludes contractual sublease income of $6.5 million, which consists of $2.9 million to be received in less than 1 year and $3.6 million to be received in 1 to 3 years.
(3)	Amount reflects total gross purchase commitments under our manufacturing agreements with third party contract manufacturers. Of this amount, we have accrued $27.2 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.
(4)	Amount reflects $221.4 million in capital expenditures in connection with the development of a corporate campus.
(5)	As a result of the adoption of FIN 48, we reclassified unrecognized tax benefits to long-term income taxes payable. As of April 26, 2008, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $90.4 million, none of which is expected to be paid within one year. We are unable to make a reasonably reliable estimate when cash settlement with a taxing authority will occur.
(6)	Amount reflects $160.0 million in preliminary settlement reached between Brocade and the lead plaintiffs for the federal securities class action on May 30, 2008.

     Share Repurchase Program. On January 29, 2007, the Company announced the authorization of $200 million for share repurchases, which is in addition to the $52.7 million remaining under the previously announced $100 million share repurchase program approved by our Board of Directors on August 2004. In addition, the Company announced on November 29, 2007 that an additional $500 million had been authorized for repurchase of the Company’s common stock. 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 a 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 April 26, 2008, we repurchased 6.9 million shares for an aggregate purchase price of $50.2 million. As such, approximately $452.3 million remains available for future repurchases under this program.

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Critical Accounting Policies and Estimates

     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 ongoing basis, our estimates and judgments, including those related to sales allowances, bad debts, excess inventory and purchase commitments, investments, warranty obligations, stock-based compensation, restructuring costs, facilities 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.

     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.

     The following reflects significant changes in our critical accounting policies and estimates during the six months ended April 26, 2008 as compared to the critical accounting policies disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended October 27, 2007.

     Accounting for uncertain tax benefits. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. We adopted FIN 48 effective at the beginning of fiscal year 2008. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Recognition of a tax position is determined when it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority. Although FIN 48 provides further clarification on the accounting for uncertainty in income taxes recognized in the financial statements, the new threshold and measurement attribute prescribed by the FASB will continue to require significant judgment by management. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations.

Recent Accounting Pronouncements

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, expands disclosures about fair value measurements, and applies under other accounting pronouncements that require or permit fair value measurements. SFAS 157 does not require any new fair value measurements. However, the FASB anticipates that for some entities, the application of SFAS 157 will change current practice. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We have not yet adopted SFAS 157, but do not expect the adoption of SFAS 157 will have a material impact on our financial position, results of operations, and cash flows.

     In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” Under SFAS 159, a company may choose, at specified election dates, to measure eligible items at fair value and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We have not yet adopted SFAS 159, but are currently assessing the impact that SFAS 159 may have on our financial position, results of operations, and cash flows.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations.” SFAS 141R requires the acquirer in a business combination to recognize assets and liabilities assumed at their fair values and to recognize acquisition-related costs separately from the acquisition. SFAS 141R is effective for business combinations with acquisition dates in fiscal years beginning on or after December 15, 2008. We have not yet adopted SFAS 141R, but are currently assessing the impact that SFAS 141R may have on our financial position, results of operations, and cash flows.

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

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

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

Off-Balance Sheet Arrangements

     As part of our ongoing business, we do not participate in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of April 26, 2008, we are not involved in any material unconsolidated SPEs.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

     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 April 26, 2008, we held $34.6 million in 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 April 26, 2008 that are sensitive to changes in interest rates (in thousands):

	Valuation of Securities						Fair Value		Valuation of Securities
	Given an Interest Rate						As of		Given an Interest Rate
	Decrease of X Basis Points						April 26,		Increase of X Basis Points
Issuer	(150 BPS)		(100 BPS)		(50 BPS)		2008		50 BPS		100 BPS		150 BPS
U.S. government agencies and municipal obligations	$	60,596	$	60,447	$	60,298	$	60,145	$	60,005	$	59,859	$	59,715
Corporate bonds and notes	$	220,239	$	219,427	$	218,623	$	217,801	$	217,147	$	216,475	$	215,807
Total	$	280,835	$	279,874	$	278,921	$	277,946	$	277,152	$	276,334	$	275,522

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

     The following table (in thousands) presents our cash equivalents, short-term investments, and long-term investments subject to interest rate risk and their related weighted-average interest rates as of April 26, 2008. Carrying value approximates fair value.

			Weighted
			Average
	Amount		Interest Rate
Cash and cash equivalents	$	513,533		1.35	%
Short-term investments		195,566		5.84	%
Long-term investments		87,392		5.22	%
Total	$	796,491		2.88	%

     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 April 26, 2008, the approximate aggregate fair value of the outstanding debt was $157.0 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 second fiscal 2008 quarter, which were both $91.0.

     Our common stock is quoted on the NASDAQ Global Select Market under the symbol “BRCD.” On April 25, 2008, the last reported sale price of our common stock on the NASDAQ Global Select Market was $7.30 per share.

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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, required to be disclosed in our 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.

     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 control over financial reporting during the second quarter of fiscal year 2008 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.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     The information set forth above in Note 7 (see “Legal Proceedings” of Note 7) of the Notes to Condensed Consolidated Financial Statements in Part 1, Item 1 is incorporated herein by reference.

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 data center networking solutions 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 likely become more pronounced as the data center networking markets become more competitive and as demand for new and improved technologies increases.

     Brocade has introduced a significant number of new products in recent history, including products across its family of Data Center Infrastructure solutions, which accounts for a substantial portion of Brocade’s revenues. For example, in the fourth quarter of fiscal year 2007 Brocade announced its new Data Center Fabric architecture and plans to provide a wide range of new solutions, technologies and partnerships over the following six months, including new product offerings based on 8 Gigabit per second, or Gbit, technology solutions. Other recent product introductions in the Data Center Infrastructure market include the Brocade DCX™ Backbone, the first in a new class of high-performance data center networking products designed to address the demanding requirements of the evolving data center, and the Brocade 5000, Brocade’s first midrange switch that supports native interoperability for seamless connectivity with McDATA’s classic products.

     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;

• timely develop and introduce the new products and services;

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

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

• maintain high levels of product quality and reliability.

     Various factors impacting market acceptance are outside of Brocade’s control, including the availability and price of competing products and alternative technologies; the cost of certain product subcomponents, which could reduce Brocade’s gross margins; product qualification requirements by Brocade’s OEM partners, which can cause delays in the market acceptance; 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 on a timely basis, its business and results of operations will likely be harmed.

Brocade’s revenues may be affected by changes in domestic and international information technology spending and overall demand for data center solutions.

     A significant portion of Brocade’s revenue is based on Data Center Infrastructure products, including switches, directors and embedded blades. In the past, unfavorable or uncertain economic conditions and reduced global information technology spending rates, including spending on Data Center Infrastructure, have adversely affected Brocade’s operating results. For example, in the latter half of fiscal 2007 and early 2008 the Data Center Infrastructure market experienced cautious enterprise spending in North

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America. Brocade is unable to predict changes in general economic conditions and when information technology spending rates will be affected. In addition, recent concerns about the economy, particularly in North America and parts of EMEA, may also adversely affect information technology spending and therefore increase the uncertainty related to demand for data center solutions. 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 center networking 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 growth as enterprise-class customers have adopted storage area network technology, demand for data center products in the enterprise-class sector could be adversely affected if the overall economy weakens or experiences greater uncertainty, or if larger businesses decide to defer or cancel new equipment purchases. If information technology spending levels are restricted and new products improve Brocade’s customers’ ability to utilize their existing Data Center Infrastructure, the demand for data center solutions may decline. If this occurs, Brocade’s business and financial results will likely be harmed.

Brocade is currently expanding its product and service offerings in new and adjacent markets and Brocade’s operating results will likely 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 Management market with additions and enhancements to its family of file data management solutions which includes Brocade StorageX, Brocade File Lifecycle Manager (“FLM”) and the recently-introduced Brocade File Migration Engine 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. Brocade cannot, however, be certain that it has accurately identified and estimated these market opportunities. Moreover, Brocade’s new strategic offerings may not achieve market acceptance or Brocade may not realize the full benefits from the substantial investments it has made and plans to continue to make. 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. As Brocade seeks to diversify its product and service offerings into market segments such as HBAs and File Management solutions, 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 likely deteriorate. These new offerings may also involve costs and revenue structures that are different from those experienced in Brocade’s historical business, which could negatively 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 alternative routes to market and distribution channels.

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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 data center networking markets continue to be very competitive as new products, services and technologies are introduced by existing competitors and as new competitors enter these markets. 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 develop and introduce 8Gbit or other products that are intended to compete with Brocade’s new 8 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 and new data center architecture. While new technologies such as 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”), represent future opportunities for further establishing or expanding Brocade’s market presence, they also could be disruptive to Brocade’s business if Brocade is not able to develop products that compete effectively.

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

     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 depends on a limited number of OEM partners for a substantial portion 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 a substantial portion of its revenue. As a result, these large OEM partners have a significant influence on Brocade’s quarterly and annual financial results. For fiscal years 2007, 2006 and 2005, the same three customers each represented ten percent or more of Brocade’s total revenues for a combined total of 68%, 73% and 71%, respectively. Brocade’s agreements with its OEM partners are typically cancelable, non-exclusive, have no minimum purchase requirements and have no specific timing requirements for purchases. Brocade’s OEM partners could also elect to reduce, or rebalance, the amount they purchase from Brocade and increase the amount purchased from Brocade’s competitors. Brocade anticipates that its revenues and operating results will continue to depend on sales to a relatively small number of OEM partners. The loss of any one significant OEM partner, or a decrease in the level of sales to any one

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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 negatively 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.

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 the recently introduced 8 Gbit technology, Brocade faces numerous risks relating to product transitions, including the inability to accurately forecast demand, address new or higher product cost structures and manage different sales and support requirements due to the type or complexity of the new products. In addition, any customer uncertainty regarding the timeline for rolling out new products or Brocade’s plans for future support of existing products, may negatively impact customer purchase decisions.

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 as a result of our expanded product and service offerings and acquisitions of other companies or businesses. In November 2007, we announced that we reorganized our management structure to provide more dedicated focus on the Company’s growth opportunities, as well as allow the Company to more easily accommodate and assimilate future acquisitions and new business initiatives. The new structure is organized around four distinct business units, each with its own general manager. 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, employees, resources, intercompany communications and coordination, and may lead to increased costs. 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, or control increased costs of our efforts to manage expansion could seriously harm our business and financial results.

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

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

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

     In addition, although the purchase orders placed with Brocade’s contract 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.

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

     The average selling price for Brocade’s products has declined in the past, and Brocade expects it to continue to decline in the future as a result of changes in product mix, competitive pricing pressure, increased sales discounts, new product introductions by Brocade or Brocade’s competitors, the entrance of new competitors 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 expectations.

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

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

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 additional legal expenses as well as result in an unfavorable resolution which would likely 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 filed on behalf of a class of Brocade’s stockholders, against Brocade and certain of its current and former officers and directors, claiming violations of securities laws and others purportedly filed on behalf of Brocade against certain of Brocade’s current and former officers and directors, and Brocade may become the subject of additional private actions. The expense of defending and resolving such litigation is 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. Brocade also has certain indemnification obligations to certain officers, directors and employees that are also named in these actions for, among other things, the advancement of certain legal expenses.

     On May 30, 2008, Brocade reached an agreement in principle with the lead plaintiffs to settle the federal securities class action that would result in a payment by Brocade of $160.0 million to the plaintiff class in exchange for the dismissal with prejudice of all claims against all defendants in the litigation. Based on the preliminary settlement, Brocade recorded an estimated settlement expense of $160.0 million in connection with the federal securities class action in the three months ended April 26, 2008. The settlement is subject to final documentation and approval by the Federal District Court. In addition, in estimating the Company’s tax provision for the three and six months ended April 26, 2008, Brocade has made an assumption regarding the timing of the future payment of this settlement. In doing so, the Company has estimated that it will be deductible in the Fiscal 2008 tax year. The actual timing of the deductibility of this settlement will be driven or influenced by several factors which may be beyond the Company’s control including, but not limited to, the time it takes to document the agreement, the length of notice period required by the Federal District Court, when the settlement is approved by the Federal District Court, and when payment is made to the plaintiff class. If the timing of the deduction occurs outside of the Fiscal 2008 tax year, our tax provision for Fiscal 2008 and the remaining periods therein may be impacted.

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

     Although the Company reached a settlement in May 2007 with the SEC regarding the previously-disclosed SEC investigation of the Company’s historical stock option granting practices, the SEC, DOJ and various other third parties 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, among other things, the advancement of legal expenses incurred in connection with such actions, which have required, and may continue to require, a significant amount of expense to Brocade. Whether Brocade may be entitled to recoup all or a portion of the expenses advanced by Brocade on behalf of such former officers or recover for any losses resulting from certain actions of such former officers is complex and may be affected by, among other things, various state laws, the interpretation of indemnification agreements and the collectability of any such amounts.

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

     Brocade’s success depends to a significant degree upon the continued contributions of key management, engineering, sales and other personnel, many of whom would be difficult to replace. Brocade believes its future success will also depend, in large part, upon Brocade’s ability to attract and retain highly skilled managerial, engineering, sales and other personnel, and on the ability of management to operate effectively, both individually and as a group, in geographically disparate locations. There 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,

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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 lawsuits relating to its historical stock option granting practices and related media coverage, as well as Brocade’s fluctuating stock price. Brocade’s ability to retain qualified personnel may also be affected by future acquisitions, which may cause uncertainty and loss of key personnel. The loss of the services of any of Brocade’s key employees, the inability to attract or retain qualified personnel in the future, or delays in hiring required personnel, particularly engineers and sales personnel, could delay the development and introduction of, 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 may not realize the anticipated benefits of past or future acquisitions and strategic investments and integration of acquired companies or technologies may negatively impact Brocade’s business.

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

• difficulties in successfully integrating the acquired businesses;

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

• unanticipated costs, litigation and other contingent liabilities;

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

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

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

• potential loss of key employees;

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

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

• assumption of debt and contingent liabilities;

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

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

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

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

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

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

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

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

Brocade’s business is subject to cyclical fluctuations and uneven sales patterns, which 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 releases new products.

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

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

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

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

• seasonal fluctuations;

• long and complex sales cycles;

• 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;

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

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

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

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

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

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

• pending or threatened litigation;

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

• new legislation and regulatory developments; and

• other risk factors detailed in this section.

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

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

     Networking products frequently contain undetected software or hardware errors, or bugs, when first introduced or as new versions are released. Brocade’s products are becoming increasingly complex and, particularly as Brocade continues to expand Brocade’s product portfolio to include software-centric products, including software licensed from third parties, errors may be found from time to time in Brocade’s products. In addition, through its acquisitions, Brocade has assumed, and may in the future assume, products previously developed by an acquired company that may not have been through the same product development, testing and quality control processes typically used for products developed internally by Brocade 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 is subject to environmental regulations that could have a material adverse effect on Brocade’s business.

     Brocade is subject to various environmental and other regulations governing product safety, materials usage, packaging and other environmental impacts in the various countries where Brocade’s products are sold. For example, many of Brocade’s products are subject to laws and regulations that restrict the use of lead, mercury, hexavalent chromium, cadmium and other substances, and require producers of electrical and electronic equipment to assume responsibility for collecting, treating, recycling and disposing of Brocade’s products when they have reached the end of their useful life. For example, in Europe, substance restrictions apply to products sold, and certain of Brocade’s OEM partners require compliance with these or more stringent requirements. In addition, recycling, labeling, financing and related requirements apply to products Brocade sells in Europe. China has also enacted similar legislation with similar requirements for Brocade’s products or its OEM partners. Despite Brocade’s efforts to ensure that Brocade’s products comply with new and emerging requirements, Brocade cannot provide absolute assurance that its products will, in all cases, comply with such requirements. If Brocade’s products do not comply with the substance restrictions under local environmental laws,

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Brocade could become subject to fines, civil or criminal sanctions and contract damage claims. In addition, Brocade could be prohibited from shipping non-compliant products into one or more jurisdictions and required to recall and replace any non-compliant products already shipped, which would disrupt Brocade’s ability to ship products and result in reduced revenue, increased obsolete or excess inventories and harm to Brocade’s business and customer relationships. Brocade’s suppliers may also fail to provide it with compliant materials, parts and components despite Brocade’s requirement to them to provide compliant materials, parts and components, which could impact Brocade’s ability to timely produce compliant products and, accordingly could disrupt Brocade’s business.

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

     A portion of Brocade’s outstanding stock options and restricted stock units are subject to variable accounting. Under variable accounting, Brocade is required to remeasure the value of certain options and other equity awards, and the corresponding compensation expense, at the end of each reporting period until the option is exercised, cancelled or expires unexercised, or the restricted stock unit vests or is cancelled. 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 2006 and the first quarter of 2007 was $6.17, $8.43 and $8.30 per share, respectively. Accordingly, Brocade recorded compensation expense (benefit) in the fourth quarter of fiscal year 2006 and the first quarter of fiscal year 2007 of approximately $2.0 million and $(0.1) 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.

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, including establishing a new limited manufacturing facility in Eastern Europe in 2008. 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;

• 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, may suddenly increase international tensions. In addition, concerns about other international crises, such as potential pandemics, may have an adverse effect on the world economy and could adversely affect Brocade’s business operations or the operations of Brocade’s OEM partners, contract manufacturer and suppliers.

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     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 may be unable to successfully hedge against any such fluctuations.

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

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

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 and Raytheon Company, and Brocade may be involved in similar disputes in the future, to protect Brocade’s intellectual property or as a result of an alleged infringement of the intellectual property of others. Brocade may also inherit intellectual property-related disputes from acquisitions of other companies, products or technologies made by Brocade. 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, expensive to resolve and 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.

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

     Brocade is subject to changing rules and regulations of federal and state government as well as the stock exchange on which Brocade’s common stock is listed. These entities, including the Public Company Accounting Oversight Board, the SEC, the 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 is also subject to various rules and regulations of certain foreign jurisdictions, including applicable tax regulations. Brocade’s efforts to comply with these requirements have resulted in, and are likely to continue to result in, increased expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

     Brocade is subject to periodic audits or other reviews by such governmental agencies. For example, in November 2005, Brocade was notified by the IRS that Brocade’s domestic federal income tax return for the year ended October 25, 2003 was subject to audit. In addition, the IRS notified Brocade that they expect to commence examination of the income tax returns for the three tax years ended 2004 through 2006. In May 2006, the Franchise Tax Board notified Brocade that its California income tax returns for the years ended October 25, 2003 and October 30, 2004 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.

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

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

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

• authorizing the issuance of preferred stock without stockholder approval;

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

• prohibiting cumulative voting in the election of directors;

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

• prohibiting stockholder actions by written consent; and

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

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

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

     The following table summarizes share repurchase activity for the three months ended April 26, 2008 (in thousands, except per share amounts):

							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 (2)		Program (2)
January 27, 2008 — February 23, 2008		—	$	6.95		2,189	$	487,243
February 24, 2008 — March 22, 2008		—	$	7.52		2,006	$	472,157
March 23, 2008 — April 26, 2008		—	$	7.35		2,709	$	452,251
Total		—	$	7.27		6,904	$	452,251

(1)

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

(2)

On January 29, 2007, the Company announced the authorization of $200 million for share repurchases, which is in addition to the $52.7 million remaining under the previously announced $100 million share repurchase program approved by our Board of Directors in August 2004. In addition, the Company announced on November 29, 2007 that an additional $500 million had been authorized for repurchase of the Company’s common stock. 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 a 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 4. Submission of Matters to a Vote of Security Holders

     Our Annual Meeting of Stockholders was held on April 10, 2008 in San Jose, California. Of the 376,495,796 shares outstanding as of the record date, 329,233,738 shares (approximately 87.4%) were present or represented by proxy at the meeting. The results of the voting on the matters submitted to the stockholders are as follows:

     1. To elect three Class III Directors to serve until the 2011 Annual Meeting of Stockholders or until their successors are duly elected and qualified.

Name	Votes For		Votes Withheld
John W. Gerdelman		304,373,706		24,860,032
Glenn C. Jones		320,719,855		8,513,883
Michael Klayko		319,464,796		9,768,942

     In addition, David L. House, L. William Krause, Michael J. Rose, Renato A. DiPentima, and L. Sanjay Vaswani continued to serve as directors of the Company after the meeting.

     2. To amend the 1999 Director Option Plan.

Votes For	Votes Against	Votes Abstaining	Broker Non-Vote
232,157,139	32,409,537	230,951	64,436,111

     3. To ratify the appointment of KPMG LLP as independent auditors of Brocade for the fiscal year ending October 25, 2008.

Votes For	Votes Against	Votes Abstaining	Broker Non-Vote
327,708,386	1,175,232	350,120	—

     In addition to the election of John W. Gerdelman, Glenn C. Jones and Michael Klayko as Class III Directors at the Annual Meeting of Stockholders on April 10, 2008, the amendment to the 1999 Director Option Plan and the ratification of the appointment of KPMG LLP as independent auditors were approved by Brocade’s stockholders.

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Item 6. Exhibits

EXHIBIT INDEX

Exhibit
Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 from Brocade’s Form 10-Q filed on September 5, 2007)
3.2	Amended and Restated Bylaws of the Registrant amended as of February 22, 2008 (incorporated by reference to Exhibit 3.1 from Brocade’s Form 8-K filed on February 22, 2008)
3.3	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Brocade Communications Systems, Inc. (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement on Form 8-A filed on February 11, 2002)
3.4	Certificate of Elimination of Series A Participating Preferred Stock of Brocade (incorporated by reference to Exhibit 3.1 from Brocade’s Form 8-K filed on February 16, 2007)
4.1	Form of 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*	1999 Director Plan as amended and restated April 10, 2008 and related forms of agreements, as amended
10.2*	1999 Stock Plan as amended and restated November 27, 2006 and related forms of agreements, as amended
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.

* Filed herewith.

SIGNATURE

     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: May 30, 2008	By:	/s/ Richard Deranleau
		Richard Deranleau
		Chief Financial Officer

EXHIBIT INDEX

Exhibit
Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 from Brocade’s Form 10-Q filed on September 5, 2007)
3.2	Amended and Restated Bylaws of the Registrant amended as of February 22, 2008 (incorporated by reference to Exhibit 3.1 from Brocade’s Form 8-K filed on February 22, 2008)
3.3	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Brocade Communications Systems, Inc. (incorporated by reference to Exhibit 4.1 from Brocade’s Registration Statement on Form 8-A filed on February 11, 2002)
3.4	Certificate of Elimination of Series A Participating Preferred Stock of Brocade (incorporated by reference to Exhibit 3.1 from Brocade’s Form 8-K filed on February 16, 2007)
4.1	Form of 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*	1999 Director Plan as amended and restated April 10, 2008 and related forms of agreements, as amended
10.2*	1999 Stock Plan as amended and restated November 27, 2006 and related forms of agreements, as amended
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.

* Filed herewith.

EX-10.1

Exhibit 10.1

BROCADE COMMUNICATIONS SYSTEMS, INC.

1999 DIRECTOR PLAN

(Amended and restated as of April 10, 2008)

     1. Purposes of the Plan. The purposes of this 1999 Director Plan, amended and restated as of April 10, 2008, are to attract and retain the best available personnel for service as Outside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board.

          The Plan permits the grant of options and restricted stock units. All options granted hereunder shall be nonstatutory stock options.

          As part of the amendment to the Plan, it is intended that the subsequent annual grants will be made on the date of the Company’s Annual Meeting instead of the anniversary of the date each director joined the Board. In order to transition from an anniversary date grant cycle to an Annual Meeting grant cycle, the size of the Subsequent Options (as defined below) will be reduced on a pro-rata basis as we approach the 2009 Annual Meeting as described in more detail below in Section 8(c). A similar adjustment is made when a new director receives his first Subsequent Option and Subsequent RSU (as defined below) as described in Section 9(a).

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

          (a) “Annual Meeting” means the Company’s annual meeting of stockholders.

          (b) “Applicable Laws” means the requirements relating to the administration of equity-based awards 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 or Restricted Stock Units.

          (d) “Board” means the Board of Directors of the Company, or a duly authorized committee of the Board of Directors of the Company.

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

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

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

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

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

          (j) “Employee” means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor the payment of

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a Director’s fee by the Company will be sufficient in and of itself to constitute “employment” by the Company.

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

          (l) “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 Global Market, the Nasdaq Global Select Market or the Nasdaq Capital Market, its Fair Market Value shall be the closing sales price for such stock (or, if no closing sales price was reported on that date, as applicable, on the last trading date such closing sales price was reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable;

               (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination (or, if no bids and asks were reported on that date, as applicable, on the last trading date such bids and asks were reported); or

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

          (m) “Inside Director” means a Director who is an Employee.

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

          (o) “Outside Director” means a Director who is not an Employee.

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

          (q) “Participant” means the holder of an outstanding Award.

          (r) “Plan” means this 1999 Director Plan, as amended and restated. The Plan was previously referred to as the 1999 Director Option Plan.

          (s) “Restricted Stock Unit” or “RSU” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, and granted to a Participant pursuant to Section 6 of the Plan. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.

          (t) “Share” means a share of the Common Stock, as adjusted in accordance with Section 15 of the Plan.

          (u) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of 1986.

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     3. Stock Subject to the Plan.

          (a) Subject to the provisions of Section 15 of the Plan, the maximum aggregate number of Shares which may be granted as Restricted Stock Units or optioned and sold pursuant to an Option under the Plan is 1,600,000 Shares (the “Pool”). The Shares may be authorized, but unissued, or reacquired Common Stock.

          (b) If an outstanding Award expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan.

          (c) An Award of Restricted Stock Units will be counted against the Pool as two and a half (2 ¹/2) Shares for every one (1) Share subject to such Award. To the extent that an Award counted as two and a half (2 ¹/2) Shares against the Pool at the time of grant pursuant to the preceding sentence is recycled back into the Plan (e.g., upon Award termination), the Plan will be credited with two and a half (2 ¹/2) Shares that will thereafter be available for future issuance under the Plan.

     4. Options.

          (a) Administration of Option Grants.

               (i) All grants of Options to Outside Directors under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions; provided, however, that the Board may, in its sole discretion, provide that certain Outside Directors are not eligible to receive grants of Options for specified periods of time.

               (ii) No person shall have any discretion to determine the number of Shares to be covered by Options.

               (iii) In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a pro rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder.

          (b) Prohibition Against Repricing. Subject to the provisions of Section 15 of the Plan, the terms of any Option may not be amended to reduce the exercise price of outstanding Options or cancel outstanding Options in exchange for cash, other Awards or Options with an exercise price that is less than the exercise price of the original Option without stockholder approval.

     5. Exercise of Options.

          (a) Procedure for Exercise of an Option; Rights as Stockholder.

               (i) Any Option granted hereunder shall be exercisable at such times as are set forth in Section 7(a) or 8(a), as applicable, hereof; provided, however, that no Options shall be

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exercisable until stockholder approval of the Plan in accordance with Section 21 hereof has been obtained.

               (ii) An Option may not be exercised for a fraction of a Share.

               (iii) An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 13 of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Participant as soon as practicable after exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 15 of the Plan.

               (iv) Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be 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 Continuous Status as a Director. Subject to Section 15 hereof, in the event an Participant’s status as a Director terminates (other than upon the Participant’s death or Disability), the Participant may exercise his or her Option, but only within three (3) months following the date of such termination, and only to the extent that the Participant was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Participant was not entitled to exercise an Option on the date of such termination, and to the extent that the Participant does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate.

          (c) Disability of Participant. In the event Participant’s status as a Director terminates as a result of Disability, the Participant may exercise his or her Option, but only within twelve (12) months following the date of such termination, and only to the extent that the Participant was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Participant was not entitled to exercise an Option on the date of termination, or if he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate.

          (d) Death of Participant. In the event of an Participant’s death, the Participant’s estate or a person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option, but only within twelve (12) months following the date of death, and only to the extent that the Participant was entitled to exercise it on the date of death (but in no event later than the expiration of its ten (10) year term). To the extent that the Participant was not entitled to exercise an Option on the date of death, and to the extent that the Participant’s estate or a person who acquired the right to exercise such Option does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate.

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     6. Restricted Stock Units.

          (a) Procedures for Grants.

               (i) All grants of Restricted Stock Units to Outside Directors under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions; provided, however, that the Board may, in its sole discretion, provide that certain Outside Directors are not eligible to receive grants of Restricted Stock Units for specified periods of time.

               (ii) No person shall have any discretion to determine the number of Shares to be covered by Restricted Stock Units.

          (b) Form and Timing of Payment. Restricted Stock Units shall be settled in Shares, on a one unit for one Share basis. When Shares are paid to the Participant in payment for the Restricted Stock Units, par value ($.001 per share) will be deemed paid by the Participant for each Restricted Stock Unit by services rendered by the Participant. Payment of earned Restricted Stock Units shall be made as soon as practicable after the date(s) determined by the Board but no later than March 15th of the calendar year following the applicable vesting date.

          (c) Cancellation. On the date of Participant’s termination as a Director, all unvested Restricted Stock Units shall be forfeited to the Company.

          (d) Additional RSU Terms.

               (i) Company’s Obligation to Pay. Unless and until the Restricted Stock Units have vested in the manner set forth above, the Participant 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.

               (ii) Rights as Stockholder. Neither the Participant nor any person claiming under or through the Participant 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 Participant (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, the Participant 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.

     7. First Awards.

          (a) First Option Grant. Each Outside Director shall be automatically granted an Option to purchase 50,000 shares (the “First Option”) on the date on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option. The terms of a First Option granted hereunder shall be as follows:

               (i) the term of the First Option shall be ten (10) years.

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               (ii) the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 5 and 15 hereof.

               (iii) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the First Option.

               (iv) subject to Sections 10 and 15 hereof, the First Option shall become exercisable as to one-third of the Shares subject to the First Option each anniversary following its date of grant, so as to become 100% vested on the third anniversary of the date of grant, provided that the Participant continues to serve as a Director on such dates.

          (b) First RSU Grant.

               (i) Grant. Each Outside Director shall be automatically granted 15,000 Restricted Stock Units (“First RSU”) on the date on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option.

               (iii) Vesting. Subject to Sections 10 and 15, the First RSU shall vest and become payable as to one-third of the Shares subject to the First RSU on the one (1) year anniversary of the date of grant, and as to one-third of the Shares subject to the First RSU at each anniversary thereafter, so that the First RSU shall be fully vested and become payable in full three (3) years after its date of grant, provided that the Participant continues to serve as a Director on such dates.

     8. Subsequent Awards.

          (a) Subsequent Option Grant On or After 2009 Annual Meeting. Commencing at the 2009 Annual Meeting and subject to proration under Section 9(a) below, each Outside Director shall be automatically granted an Option to purchase 20,000 shares (“Subsequent Option”) annually on the date of the Annual Meeting, provided that such Outside Director had served as an Outside Director prior to such Annual Meeting and that he or she continues to be an Outside Director at and immediately following such Annual Meeting. The terms of a Subsequent Option granted hereunder shall be as follows:

               (i) the term of the Subsequent Option shall be ten (10) years.

               (ii) the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 5 and 15 hereof.

               (iii) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Subsequent Option.

               (iv) subject to Sections 10 and 15 hereof, the Subsequent Option will become exercisable as to 100% of the Shares subject to the Subsequent Option on the one (1) year anniversary of the date of grant, provided that the Participant continues to serve as a Director on such date.

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          (b) Subsequent RSU Grant.

               (i) Grant. Commencing at the 2008 Annual Meeting and subject to proration under Section 9(a), each Outside Director shall be automatically granted 10,000 Restricted Stock Units (the “Subsequent RSU”) annually on the date of the Annual Meeting, provided that such Outside Director had served as an Outside Director prior to such Annual Meeting and that he or she continues to be an Outside Director at and immediately following such Annual Meeting.

               (ii) Vesting. Subject to Sections 10 and 15, the Subsequent RSU shall vest and become payable as to 100% of the Shares subject to the Subsequent RSU on the one (1) year anniversary of the date of grant, provided that the Participant continues to serve as a Director on such date.

          (c) Subsequent Option Grants Prior to 2009 Annual Meeting (Transition Year). Each Outside Director who was appointed or elected to the Board prior to the 2008 Annual Meeting and that continues to be an Outside Director through their respective anniversary date of appointment or election to the Board will be entitled to receive a Subsequent Option in an amount based on the anniversary date of such Outside Director’s becoming a Director as follows:

               (i) Anniversary date occurs during the Company’s 2^nd fiscal quarter 2008 (following the 2008 Annual Meeting): an option to purchase 20,000 Shares.

               (ii) Anniversary date occurs during the Company’s 3^rd fiscal quarter 2008: an option to purchase 15,000 Shares.

               (iii) Anniversary date occurs during the Company’s 4^th fiscal quarter 2008: an option to purchase 10,000 Shares.

               (iv) Anniversary date occurs during the Company’s 1^st fiscal quarter 2009: an option to purchase 5,000 Shares.

               (v) An Outside Director with an anniversary date that occurs during the Company’s 2^nd fiscal quarter 2009 but prior to the 2009 Annual Meeting will not be entitled to receive a Subsequent Option on such anniversary date, but will receive a full Subsequent Option and Subsequent RSU at the 2009 Annual Meeting pursuant to Sections 8(a) and 8(b), respectively.

               The terms of a Subsequent Option granted pursuant to this Section 8(c) shall otherwise be subject to the terms described in Section 8(a)(i)-(iv). Outside Directors who receive grants pursuant to this Section 8(c) will also be entitled to receive full grants of the Subsequent Option and the Subsequent RSU Grant at the 2009 Annual Meeting pursuant to Section 8(a) and 8(b), respectively. Subsequent Options pursuant to this Section 8(c) shall be granted on such Outside Director’s applicable anniversary date. There shall not be any grants pursuant to this Section 8(c) after the 2009 Annual Meeting.

     9. Subsequent Award Pro Ration Policy.

          (a) New Directors Appointed Before an Annual Meeting. At the first (and only the first) Annual Meeting after an Outside Director first becomes an Outside Director (commencing at the 2009 Annual Meeting), such Outside Director will receive at such Annual Meeting, a proportionate amount of the Subsequent Option and Subsequent RSU (in lieu of the full Subsequent Option and Subsequent RSU) based on the date of such Outside Director’s appointment as follows:

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               (i) Appointment on the date of the Annual Meeting, or after the date of the Annual Meeting but prior to the end of the Company’s 2^nd fiscal quarter of the fiscal year prior to the fiscal year during which the Annual Meeting occurs: 100% of both the Subsequent Option and Subsequent RSU.

               (ii) Appointment in the Company’s 3^rd fiscal quarter of the fiscal year prior to the fiscal year during which the Annual Meeting occurs: 75% of both the Subsequent Option and Subsequent RSU.

               (iii) Appointment in the Company’s 4^th fiscal quarter of the fiscal year prior to the fiscal year during which the Annual Meeting occurs: 50% of both the Subsequent Option and Subsequent RSU.

               (iv) Appointment in the Company’s 1^st fiscal quarter of the fiscal year during which the Annual Meeting occurs: 25% of both the Subsequent Option and Subsequent RSU.

               (v) Appointment in the Company’s 2^nd fiscal quarter of the fiscal year during which the Annual Meeting occurs and before the Annual Meeting date for such fiscal year: 0% of both the Subsequent Option and Subsequent RSU.

     10. Certain Acceleration of Vesting Based on Timing of Annual Meeting.

          (a) Subsequent Awards. In the event that the Company’s next annual meeting of stockholders following the award of a Subsequent Option or Subsequent RSU is held prior to the one year anniversary of the date of grant of such Subsequent Option or Subsequent RSU, and an Outside Director is not standing for re-election upon the expiration of his or her term at such annual meeting but continues to serve until such annual meeting, then the applicable Subsequent Option and Subsequent RSU shall vest on the date of such annual meeting.

          (b) First Awards. In the event that the Company’s annual meeting of stockholders is held prior to a partial vesting anniversary date for a First Option or First RSU that was originally granted on the date of an annual meeting, and an Outside Director is not standing for re-election upon the expiration of his or her term at an annual meeting but continues to serve until such annual meeting, then the applicable portion of the First Option and First RSU scheduled to vest in such year shall vest on the date of such annual meeting.

     11. Eligibility. Awards may be granted only to Outside Directors. All Options shall be automatically granted in accordance with the terms set forth in Section 4 hereof. All Restricted Stock Units will be granted in accordance with the terms set forth in Section 6 hereof.

     The Plan shall not confer upon any Participant any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate the Director’s relationship with the Company at any time.

     12. Term of Plan. This Plan is an amendment and restatement of the 1999 Director Option Plan effective as of its approval by the stockholders of the Company at the Company’s 2008 Annual Meeting as described in Section 21 of the Plan. It shall continue in effect until the tenth anniversary of the Plan’s initial effectiveness unless sooner terminated under Section 16 of the Plan.

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     13. Form of Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall consist of (i) cash, (ii) check, (iii) other Shares which 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, or (v) any combination of the foregoing methods of payment.

     14. Non-Transferability of Awards. Awards 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. Upon any attempt to sell, pledge, assign, hypothecate, transfer or otherwise dispose of an Award, the Award immediately will become null and void.

     15. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

          (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Award, the number of Shares 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 covered by each such outstanding Award shall be proportionately adjusted for any increase or decrease in the number of issued Shares 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 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”; provided, further, that the number of Shares subject to subsequently granted First Options, Subsequent Options, First RSUs, and Subsequent RSUs shall not be proportionately adjusted. 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 subject to an Award.

          (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised or a Restricted Stock Unit has not vested, it shall terminate immediately prior to the consummation of such proposed action.

          (c) Merger or Asset Sale.

               (i) 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, outstanding Awards may be assumed or equivalent Awards may be substituted by the successor corporation or a Parent or Subsidiary thereof (the “Successor Corporation”). If an Award is assumed or substituted for, the Award or equivalent award shall continue to be exercisable or vest as provided in Section 7 or 8, as applicable, hereof for so long as the Participant serves as a Director or a director of the Successor Corporation. Following such assumption or substitution, if the Participant’s status as a Director or director of the Successor Corporation, as applicable, is terminated other than upon a voluntary resignation by the Participant, the Award or award shall become fully exercisable, including as to Shares for which it would not otherwise be exercisable. Thereafter, the Award or award shall remain exercisable in accordance with Sections 5 (b) through (d) above.

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               (ii) If the Successor Corporation does not assume an outstanding Option or substitute for it an equivalent option, the Option shall become fully vested and exercisable, including as to Shares for which it would not otherwise be exercisable. In such event the Board shall notify the Participant that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and upon the expiration of such period the Option shall terminate. If the Successor Corporation does not assume an outstanding grant of Restricted Stock Units or substitute for it an equivalent award, the grant of Restricted Stock Units shall vest immediately prior to the consummation of the applicable transaction.

               (iii) For the purposes of this Section 15(c), an 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). If such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Board may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, or upon the payout of a Restricted Stock Unit, for each Share 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.

     16. Amendment and Termination of the Plan.

          (a) Amendment and Termination. The Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Participant under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required.

          (b) Effect of Amendment or Termination. Any such amendment or termination of the Plan shall not affect Awards already granted and such Awards shall remain in full force and effect as if this Plan had not been amended or terminated.

     17. Conditions Upon Issuance of Shares.

          (a) Shares shall not be issued under any Award unless the issuance and delivery of such Shares pursuant thereto, and in the case of an Option, the exercise of such Option, shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

          (b) 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 by any of the aforementioned relevant provisions of law.

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          (c) 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.

     18. 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.

     19. Award Agreement. Awards shall be evidenced by written award agreements in such form as the Board shall approve.

     20. Stockholder Approval. The Plan shall be subject to approval by the stockholders of the Company at the Company’s 2008 Annual Meeting. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws.

     21. No Guarantee of Continued Service. The Plan shall not confer upon any Participant any rights with respect to continuation of service as a Director or other service provider to the Company or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director of the Company may have to terminate the Director’s relationship with the Company at any time.

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BROCADE COMMUNICATIONS SYSTEMS, INC.

DIRECTOR OPTION AGREEMENT

     Brocade Communications Systems, Inc., (the “Company”), has granted to [       ] (the “Optionee”), an option to purchase a total of [       ] shares of the Company’s Common Stock (the “Optioned Stock”), at the price determined as provided herein, and in all respects subject to the terms, definitions and provisions of the Company’s 1999 Director Plan, as amended (the “Plan”), adopted by the Company which is incorporated herein by reference. The terms defined in the Plan shall have the same defined meanings herein.

     1. Nature of the Option. This Option is a nonstatutory option and is not intended to qualify for any special tax benefits to the Optionee.

     2. Exercise Price. The exercise price is $___for each share of Common Stock.

     3. Exercise of Option. This Option shall be exercisable during its term in accordance with the provisions of Section 5 of the Plan as follows:

          (a) Right to Exercise.

               (i) This Option shall become exercisable in installments cumulatively with respect to [       ] percent (%) of the Optioned Stock one year after the date of grant, and as to an additional [       ] percent (%) of the Optioned Stock on each anniversary of the date of grant, so that one hundred percent (100%) of the Optioned Stock shall be exercisable [       ] years after the date of grant; provided, however, that in no event shall any Option be exercisable prior to the date the stockholders of the Company approve the Plan.

               (ii) This Option may not be exercised for a fraction of a share.

               (iii) In the event of Optionee’s death, disability or other termination of service as a Director, the exercisability of the Option is governed by Section 5 of the Plan.

          (b) Method of Exercise. This Option shall be exercisable by written notice which shall state the election to exercise the Option and the number of Shares in respect of which the Option is being exercised. Such written notice, in the form attached hereto as Exhibit A, shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the exercise price.

     4. Method of Payment. Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of the Optionee:

          (a) cash;

          (b) check; or

          (c) surrender of other shares which (x) 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

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surrender, and (y) 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; or

     (iv) delivery of a properly executed exercise notice together with such other documentation as the Company and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price.

     5. Restrictions on Exercise. This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulations, or if such issuance would not comply with the requirements of any stock exchange upon which the Shares may then be listed. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation.

     6. 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 this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

     7. Term of Option. This Option may not be exercised more than ten (10) years from the date of grant of this Option, and may be exercised during such period only in accordance with the Plan and the terms of this Option.

     8. Taxation Upon Exercise of Option. Optionee understands that, upon exercise of this Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then Fair Market Value of the Shares purchased over the exercise price paid for such Shares. Since the Optionee is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain limited circumstances the measurement and timing of such income (and the commencement of any capital gain holding period) may be deferred, and the Optionee is advised to contact a tax advisor concerning the application of Section 83 in general and the availability a Section 83(b) election in particular in connection with the exercise of the Option. Upon a resale of such Shares by the Optionee, any difference between the sale price and the Fair Market Value of the Shares on the date of exercise of the Option, to the extent not included in income as described above, will be treated as capital gain or loss.

DATE OF GRANT:

BROCADE COMMUNICATIONS SYSTEMS, INC.,

a Delaware corporation

By:

     Optionee acknowledges receipt of a copy of the Plan, a copy of which is attached hereto, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan.

Dated:

Optionee

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EXHIBIT A

DIRECTOR OPTION EXERCISE NOTICE

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

Attention: Corporate Secretary

1.	Exercise of Option. The undersigned (“Optionee”) hereby elects to exercise Optionee’s option to purchase ___shares of the Common Stock (the “Shares”) of Brocade Communications Systems, Inc. (the “Company”) under and pursuant to the Company’s 1999 Director Plan, as amended, and the Director Option Agreement dated ___(the “Agreement”).
2.	Representations of Optionee. Optionee acknowledges that Optionee has received, read and understood the Agreement.
3.	Federal Restrictions on Transfer. Optionee understands that the Shares must be held indefinitely unless they are registered under the Securities Act of 1933, as amended (the “1933 Act”), or unless an exemption from such registration is available, and that the certificate(s) representing the Shares may bear a legend to that effect. Optionee understands that the Company is under no obligation to register the Shares and that an exemption may not be available or may not permit Optionee to transfer Shares in the amounts or at the times proposed by Optionee.
4.	Tax Consequences. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee’s purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultant(s) Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice.
5.	Delivery of Payment. Optionee herewith delivers to the Company the aggregate purchase price for the Shares that Optionee has elected to purchase and has made provision for the payment of any federal or state withholding taxes required to be paid or withheld by the Company.
6.	Entire Agreement. The Agreement is incorporated herein by reference. This Exercise Notice and the Agreement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof. This Exercise Notice and the Agreement are governed by Delaware law except for that body of law pertaining to conflict of laws.

Submitted by:	Accepted by:
OPTIONEE:	BROCADE COMMUNICATIONS SYSTEMS, INC.
	By:
	Its:
		Address:	1745 Technology Drive
			San Jose CA 95110
Dated:	Dated:

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EX-10.2

Exhibit 10.2

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.

          (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.

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          (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.

          (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.

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          (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.

          (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;

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               (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;

               (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.

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     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.

     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

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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;

               (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;

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               (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 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

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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.

          (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.

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          (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.

     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

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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 (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

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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.

     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. Notwithstanding the foregoing, Optionee may, in a manner and in accordance with terms specified by the Administrator, transfer NSOs to Optionee’s spouse, former spouse or dependent pursuant to a court-approved domestic relations order which relates to the provision of child support, alimony payments or marital property rights. 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.

BROCADE COMMUNICATIONS SYSTEMS, INC.
1999 STOCK PLAN (AS AMENDED AND RESTATED)
RESTRICTED STOCK UNIT AGREEMENT

NOTICE OF GRANT

%%FIRST_NAME%-% %%MIDDLE_NAME%-% %%LAST_NAME%-%

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:	%%AWARD_DATE,’Month DD,YYYY’%-% (the “Grant Date”)
Number of Restricted Stock Units:	%%TOTAL_SHARES_GRANTED,’999,999,999’%-% (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”):

# Shares	Vest Date
%%SHARES_PERIOD1,’999,999,999’%-%	%%VEST_DATE_PERIOD1,’MM/DD/YYYY’%-%

Your acceptance online 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

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.

     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 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 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. Notwithstanding the foregoing, Grantee may, in a manner and in accordance with terms specified by the Administrator, transfer these Restricted Stock Units to Grantee’s spouse, former spouse or dependent pursuant to a court-approved domestic relations order which relates to the provision of child support, alimony payments or marital property rights.

     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 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 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

          (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.

BROCADE COMMUNICATIONS SYSTEMS, INC.
1999 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT

[Name of Purchaser]:

     You have been granted the right to purchase Common Stock of Brocade Communications Systems, Inc. (the “Company”), subject to your ongoing status as a Service Provider (as described in the Plan) and the forfeiture provision and other terms and conditions set forth in the attached Restricted Stock Purchase Agreement, as follows:

Grant Number
Date of Grant
Purchase Price Per Share	$0.001 per share (par value)
Fair Market Value on Grant Date	$
Total Number of Shares Subject
to This Stock Purchase Right
Expiration Date:

     YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By your signature and the signature of the Company’s representative below, you and the Company agree that this Stock Purchase Right is granted under and governed by the terms and conditions of the 1999 Stock Plan and the Restricted Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a part of this document. You further agree to execute the attached Restricted Stock Purchase Agreement as a condition to purchasing any shares under this Stock Purchase Right. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice of Grant.

Purchaser:	Brocade Communications Systems, Inc.
Signature	Signature
Print Name	Print Name
	Title

EXHIBIT A-1

1999 STOCK PLAN

RESTRICTED STOCK PURCHASE AGREEMENT

     Unless otherwise defined herein, the defined terms in this Restricted Stock Purchase Agreement shall have the same meanings as defined in the 1999 Stock Plan (the “Plan”).

     WHEREAS the Purchaser named in the Notice of Grant (the “Purchaser”) is a Service Provider, and the Purchaser’s continued participation is considered by the Company to be important for the Company’s continued growth; and

     WHEREAS in order to give the Purchaser an opportunity to acquire an equity interest in the Company as an incentive for the Purchaser to participate in the affairs of the Company, the Administrator has granted to the Purchaser a Stock Purchase Right subject to the terms and conditions of the Plan and the Notice of Grant, which are incorporated herein by reference, and pursuant to this Restricted Stock Purchase Agreement (the “Agreement”).

     NOW THEREFORE, the parties agree as follows:

     1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and the Purchaser hereby agrees to purchase shares of the Company’s Common Stock (the “Shares”), at the per Share purchase price and as otherwise described in the Notice of Grant.

     2. Payment of Purchase Price. The purchase price for the Shares may be paid by delivery to the Company at the time of execution of this Agreement of cash, a check, or some combination thereof.

     3. Forfeiture. Except as provided and subject to the provisions of Section 13 of the Plan, and only in the event the Purchaser ceases to be a Service Provider for any or no reason (including death or disability) before the Restriction Period lapses with respect to all of the Shares (see Section 4), all of the Shares which constitute Unreleased Shares shall be automatically forfeited by the Purchaser (without any further consideration or notice from the Company), effective upon the date of such termination (as determined by the Company). Upon forfeiture of the Unreleased Shares, the Company shall become the legal and beneficial owner of the Shares which constitute Unreleased Shares and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Unreleased Shares.

     4. Vesting of Shares and Expiration of Restriction Period.

          (a) Except as provided by and subject to the provisions of Section 13 of the Plan, upon the [___] anniversary of the Date of Grant, the Restriction Period shall lapse with respect to one hundred percent (100%) of the Shares. On such anniversary or such earlier period under Section 13 of the Plan, all of the Shares shall be vested as to the Purchaser and no longer subject to forfeiture to the Company.

          (b) Any of the Shares subject to the Restriction Period that have not yet vested are referred to herein as “Unreleased Shares.”

          (c) The Shares with respect to which the Restriction Period has expired shall be delivered to the Purchaser upon the expiration of the Restriction Period. (See Section 7.)

     5. [Intentionally Omitted].

     6. Restriction on Transfer. Except for the escrow described in Section 7 or the transfer of the Shares to the Company contemplated by this Agreement, none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until the Restriction Period expires with respect to such Shares in accordance with the provisions of this Agreement, other than by will or the laws of descent and distribution, or as specified in the following sentence. Purchaser may, in a manner and in accordance with terms specified by the Administrator, transfer Shares or beneficial interest in Shares to Purchaser’s spouse, former spouse or dependent pursuant to a court-approved domestic relations order which relates to the provision of child support, alimony payments or marital property rights.

     7. Escrow of Shares.

          (a) To ensure the availability for delivery of the Unreleased Shares upon forfeiture, the Purchaser shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the “Escrow Holder”) the share certificates representing the Unreleased Shares, together with the stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The Unreleased Shares and stock assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached hereto as Exhibit A-3, until such time as the Company’s Restriction Period expires. As a further condition to the Company’s obligations under this Agreement, the Company may require the spouse of Purchaser, if any, to execute and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.

          (b) The Escrow Holder shall not be liable for any act it may do or omit to do with respect to holding the Unreleased Shares in escrow while acting in good faith and in the exercise of its judgment.

          (c) Upon forfeiture of the Unreleased Shares pursuant to this Agreement, the Escrow Holder, upon receipt of written notice of such exercise from the proposed transferee, shall take all steps necessary to accomplish such transfer.

          (d) Upon forfeiture of the Unreleased Shares, the Escrow Holder shall promptly cause the certificate representing the Shares which constitute the Unreleased Shares to be delivered to the Company. If the Restriction Period lapses with respect to a portion or all of the Shares, upon request the Escrow Holder shall promptly cause a new certificate to be issued for the Shares no longer subject to forfeiture and delivered to the Purchaser free of any legend or restriction, subject to Applicable Laws.

-2-

          (e) Subject to the terms hereof, the Purchaser shall have all the rights of a shareholder with respect to the Shares while they are held in escrow, including without limitation, the right to vote the Shares and to receive any cash dividends declared thereon. If, from time to time during the term of the Restriction Period, there is any (i) stock dividend, stock split or other change in the Shares, or (ii) merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser is entitled by reason of the Purchaser’s ownership of the Shares shall be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as “Shares” for purposes of this Agreement and subject to the Restriction Period (to the extent the Shares would have otherwise been subject to the Restriction Period).

     8. Legends. The share certificate evidencing the Shares, if any, issued hereunder shall be endorsed with the following legend (in addition to any legend required under applicable federal, state or other securities laws):

          THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE COMPANY.

     9. Adjustment for Stock Split. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares that may be made by the Company after the date of this Agreement.

     10. Withholding of Taxes; Tax Consequences.

          (a) Notwithstanding any contrary provision of this Agreement, no certificate representing the Shares, whether or not such Shares represent Unreleased Shares, may be released from the escrow established pursuant to Section 7, unless and until satisfactory arrangements (as determined by the Administrator) will have been made by the Purchaser with respect to the payment of income, employment and other taxes which the Company determines must be withheld with respect to such Shares. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit the Purchaser to satisfy such tax withholding obligation, in whole or in part by one or more of the following: (a) paying cash, (b) electing to have the Company withhold otherwise deliverable Shares having a Fair Market Value equal to the minimum amount required to be withheld, (c) delivering to the Company already vested and owned Shares having a Fair Market Value equal to the amount required to be withheld, or (d) selling a sufficient number of such Shares otherwise deliverable to Purchaser through such means as the Company may determine in its sole discretion (whether through a broker or otherwise) equal to the minimum amount required to be withheld. Notwithstanding the foregoing, if the Purchaser fails to make other arrangements satisfactory to the Company for the payment of any required tax withholding obligations hereunder at the time any Shares are scheduled to vest pursuant to Section 4 (or otherwise give rise to tax withholding obligations by the employer and employee with respect to such Shares), Purchaser hereby authorizes and directs the Company to withhold and cancel on each

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vesting date (or other applicable date) that number of Shares, rounded up to the nearest whole share, equal to the amount of the employer and employee tax withholdings and other applicable payroll taxes with respect to such tax withholding event based, divided by the closing price of the Company’s common stock on the vesting (or other applicable) date. With respect to the Shares withheld and cancelled by the Company for tax withholding purposes, such Shares shall be returned to the Company, the Company shall be deemed to be the legal and beneficial owner of such Shares, and the Company shall have the right to retain and transfer such Shares to its own name for cancellation.

          (b) The Purchaser has reviewed with the Purchaser’s own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Purchaser understands that the Purchaser (and not the Company) shall be responsible for the Purchaser’s own tax liability that may arise as a result of the transactions contemplated by this Agreement. The Purchaser understands that Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), taxes as ordinary income the difference between the purchase price for the Shares and the Fair Market Value of the Shares as of the date any restrictions on the Shares lapse. In this context, “restriction” includes the forfeiture provision pursuant to Section 3 of the Agreement. The Purchaser understands that the Purchaser may elect to be taxed at the time the Shares are purchased rather than when and as the Restriction Period lapses by filing an election under Section 83(b) of the Code with the IRS within 30 days from the date of purchase. The form for making this election is attached as Exhibit A-5 hereto.

          THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER ASKS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER’S BEHALF.

     11. General Provisions.

          (a) This Agreement shall be governed by the internal substantive laws, but not the choice of law rules of California. This Agreement, subject to the terms and conditions of the Plan and the Notice of Grant, represents the entire agreement between the parties with respect to the purchase of the Shares by the Purchaser. 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 Agreement, the terms and conditions of this Agreement shall prevail. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement.

          (b) Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or deposited in the U.S. mail, First Class with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing.

               Any notice to the Escrow Holder shall be sent to the Company’s address with a copy to the other party hereto.

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          (c) The rights of the Company under this Agreement shall be transferable to any one or more persons or entities, and all covenants, obligations and agreements hereunder shall inure to the benefit of, and be enforceable by the Company’s successors and assigns. The rights and obligations of the Purchaser under this Agreement may only be assigned with the prior written consent of the Company.

          (d) Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, nor prevent that party from thereafter enforcing any other provision of this Agreement. The rights granted both parties hereunder are cumulative and shall not constitute a waiver of either party’s right to assert any other legal remedy available to it.

          (e) The Purchaser agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement.

          (f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARTENT OR SUBSIDIARY EMPLOYING OR RETAINING PURCHASER) AND NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER AND OTHER THAN AS SET FORTH IN SECTION 13 OF THE PLAN. PURCHASER 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 PURCHASER’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PURCHASER) TO TERMINATE PURCHASER’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

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     By Purchaser’s signature below, Purchaser represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. Purchaser has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Purchaser agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Agreement. Purchaser further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant.

DATED:

PURCHASER:	BROCADE COMMUNICATIONS SYSTEMS, INC.
Signature	Signature
Print Name	Print Name
	Title

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EXHIBIT A-2

ASSIGNMENT SEPARATE FROM CERTIFICATE

     FOR VALUE RECEIVED I,                                       , hereby sell, assign and transfer unto                                                               (                    ) shares of the Common Stock of Brocade Communications Systems, Inc. (the “Company”) standing in my name of the books of said corporation represented by Certificate No.       herewith and do hereby irrevocably constitute and appoint                                          to transfer the said stock on the books of the within named corporation with full power of substitution in the premises.

     This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement (the “Agreement”) between the Company and the undersigned dated                     , ___.

Dated:                     , _____

Signature:

     INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to facilitate the forfeiture and transfer of any Unreleased Shares as set forth in the Agreement without requiring additional signatures on the part of the Purchaser.

EXHIBIT A-3

JOINT ESCROW INSTRUCTIONS

________, __

[Escrow Agent Name]
[Escrow Agent Address]

Dear                     :

     As Escrow Agent for both Brocade Communications Systems, Inc., a Delaware corporation (the “Company”), and the undersigned purchaser of stock of the Company (the “Purchaser”), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement (“Agreement”) between the Company and the undersigned, in accordance with the following instructions:

     1. In the event of the forfeiture of any Shares as set forth in the Agreement, Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice.

     2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock forfeited in accordance with the terms of the Agreement.

     3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser’s attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a shareholder of the Company while the stock is held by you.

     4. Upon written request of the Purchaser, but no more than once per calendar year, to the extent the Restriction Period has lapsed with respect to any Shares, you shall deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Restriction Period. Within 90 days after Purchaser ceases to be a Service Provider, you shall deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not forfeited by Purchaser pursuant to the terms of this Agreement.

     5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder.

     6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.

     7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.

     8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.

     9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder.

     10. You shall not be liable for the outlawing of any rights under the statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you.

     11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor.

     12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent.

     13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.

     14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties

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concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.

     15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten days’ advance written notice to each of the other parties hereto.

COMPANY:	Brocade Communications Systems, Inc.
	1745 Technology Drive
	San Jose CA 95110
PURCHASER:	At the address set forth following his or her signature
ESCROW AGENT:	[Escrow Agent Name]
	[Escrow Agent Address]

     16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement.

     17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns.

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     18. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the internal substantive laws, but not the choice of law rules, of California.

Very truly yours,

BROCADE COMMUNICATIONS SYSTEMS,

INC.

Signature

Print Name

Title

PURCHASER:

Signature

Print Name

Address:

ESCROW AGENT:

[Escrow Agent Name]

Signature:

Print Name:

Title:

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EXHIBIT A-4

CONSENT OF SPOUSE

     I,                                         , spouse of                                          , have read and approve the foregoing Restricted Stock Purchase Agreement (the “Agreement”). In consideration of the Company’s grant to my spouse of the right to purchase shares of Brocade Communications Systems, Inc., as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said Agreement or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement.

Dated:                          , _____

 
                                                                                                                             
Signature of Spouse

EXHIBIT A-5

ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986

The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer’s gross income for the current taxable year the amount of any compensation taxable to taxpayer in connection with his or her receipt of the property described below:

1.	The name, address, taxpayer identification number and taxable year of the undersigned are as follows:
	NAME:	TAXPAYER:	SPOUSE:
	ADDRESS:
	IDENTIFICATION NO.:	TAXPAYER:	SPOUSE:
	TAXABLE YEAR:
2.	The property with respect to which the election is made is described as follows: shares (the “Shares”) of the Common Stock of Brocade Communications Systems, Inc. (the “Company”).
3.	The date on which the property was transferred is:                  ,           .
4.	The property is subject to the following restrictions:
	The Shares may be repurchased by the Company, or its assignee, upon certain events. This right lapses with regard to a portion of the Shares based on the continued performance of services by the taxpayer over time.
5.	The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is:
	$______________.
6.	The amount (if any) paid for such property is:
	$______________.

The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned’s receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property.

The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner.

Dated:	,
		Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:	,
		Spouse of Taxpayer

[FORM OF PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT —
LTI/OUTPERFORM PLAN (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

          (c) Definitions.

               (i) “Market Capitalization” will mean, as of any date, the value equal to

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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. Notwithstanding the foregoing, Grantee may, in a manner and in accordance with terms specified by the Administrator, transfer these Restricted Stock Units to Grantee’s spouse, former spouse or dependent pursuant to a court-approved domestic relations order which relates to the provision of child support, alimony payments or marital property rights.

     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

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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.

     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,

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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

          (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”).

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          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.

     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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[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	Payout	Average	Payout	Average	Payout
Percentile		Percentile		Percentile
Performance		Performance		Performance
v.		v.		v.
Peer Group		Peer Group		Peer Group
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. Notwithstanding the foregoing, Grantee may, in a manner and in accordance with terms specified by the Administrator, transfer these Restricted Stock Units to Grantee’s spouse, former spouse or dependent pursuant to a court-approved domestic relations order which relates to the provision of child support, alimony payments or marital property rights.

     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

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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 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;

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          (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.

     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

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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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APPENDIX B

PEER GROUP

[NOTE: THE LIST OF PEER GROUP COMPANIES SHALL BE DETERMINED BY THE COMPENSATION COMMITTEE IN CONNECTION WITH PERFORMANCE RSU GRANTS.]

[NOTE: USE THE FOLLOWING PEER GROUP FOR THE NOVEMBER 2006 PERFORMANCE RSU GRANTS (AS APPROVED BY THE COMPENSATION COMMITTEE):]

Adaptec
Avid Technology
Checkpoint Systems
Ciena
Citrix Systems
Conexant Systems
Electronics for Imaging
Emulex
Extreme Networks
Foundry Networks
McDATA Corporation
Network Appliance
Palm
Plantronics
QLogic
Quantum
SMART Modular Technologies
Verifone Holdings

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BROCADE COMMUNICATIONS SYSTEMS, INC.

1999 STOCK PLAN
EXERCISE NOTICE

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

Attention: Secretary

     1. Exercise of Option. Effective as of today,                                         ,           , the undersigned (“Purchaser”) hereby elects to purchase                                          shares (the “Shares”) of the Common Stock of Brocade Communications Systems, Inc. (the “Company”) under and pursuant to the Brocade Communications Systems, Inc. 1999 Stock Plan (the “Plan”) and the Stock Option Agreement dated,                                          (the “Option Agreement”). The purchase price for the Shares shall be $                                        , as required by the Option Agreement.

     2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price for the Shares.

     3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.

     4. Rights as Shareholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, 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 Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in [Section 13] of the Plan.

     5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.

     6. Entire Agreement; Governing Law. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the 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 Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser’s interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Delaware.

Submitted by:	Accepted by:
PURCHASER:	BROCADE COMMUNICATIONS SYSTEMS, INC.
Signature	Signature
Print Name	Print Name & Title
Address:	Address:
	Brocade Communications Systems, Inc.
	1745 Technology Drive
	San Jose CA 95110
	Date Received

CONSENT OF SPOUSE

     The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Option Agreement. In consideration of the Company’s granting his or her spouse the right to purchase Shares as set forth in the Plan and this Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned’s spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Option Agreement.

Spouse of Optionee

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 April 26, 2008 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: June 2, 2008

/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 April 26, 2008 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: May 30, 2008

/s/ Richard Deranleau

Richard Deranleau

Chief Financial Officer

(Principal Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     I, Michael Klayko, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Brocade Communications Systems, Inc. for the fiscal quarter ended April 26, 2008 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Brocade Communications Systems, Inc.

Date: June 2, 2008

By:	/s/ Michael Klayko
	Michael Klayko
	Chief Executive Officer

     I, Richard Deranleau, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Brocade Communications Systems, Inc. for the fiscal quarter ended April 26, 2008 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Brocade Communications Systems, Inc.

Date: May 30, 2008

By:	/s/ Richard Deranleau
	Richard Deranleau
	Chief Financial Officer