14. Stock-Based Compensation

Equity Compensation Plan Information

The following table summarizes information with respect to shares of the Company's common stock that may be issued under the Company's existing equity compensation plans as of October 29, 2011 (in thousands, except per share amounts):


Plan Category	A Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights			B Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		C Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excludes Securities Reflected in Column A)
Equity compensation plans approved by stockholders (1)		38,244	(3)	$	5.14		26,468	(4)
Equity compensation plans not approved by stockholders (2)		12,521	(5)	$	4.21		—

Total		50,765		$	4.91		26,468

(1)	Primarily consist of the 2009 ESPP, the 2009 and 1999 Director Plans and the 2009 and 1999 Stock Plans.

(2)	Consist solely of the 1999 NSO Plan described in Note 12, "Employee Compensation Plans," of the Notes to Consolidated Financial Statements and Foundry's 2000 NSO Plan, which was assumed in connection with our acquisition of Foundry.

(3)	Amount excludes purchase rights accrued under the 2009 ESPP. As of October 29, 2011, the 2009 ESPP had a stockholder-approved reserve of 35.0 million shares, of which 18.7 million shares were available for future issuance.

(4)	Amount consists of shares available for future issuance under the 2009 ESPP, the 2009 Director Plan and the 2009 Stock Plan.

(5)	Substantially all shares were granted prior to the fiscal year ended October 25, 2003. Information relating to equity compensation plans is set forth in Note 12, "Employee Compensation Plans," of the Notes to Consolidated Financial Statements.

Stock-based compensation expense, net of estimated forfeitures, was included in the following line items on the Consolidated Statements of Operations as follows (in thousands):


	Fiscal Year Ended October 29, 2011		Fiscal Year Ended October 30, 2010		Fiscal Year Ended October 31, 2009
Cost of revenues (1)	$	15,607	$	13,552	$	25,654
Research and development		18,959		27,795		40,365
Sales and marketing (1)		36,068		45,232		48,820
General and administrative		12,442		15,046		22,380

Total stock-based compensation	$	83,076	$	101,625	$	137,219

(1)

Fiscal years 2011 and 2010 reflect the classification of system engineer costs within sales and marketing expenses as opposed to cost of revenues in prior periods. Fiscal year 2009 has not been updated for the new cost classification implemented in 2010. See Note 1, "Basis of Presentation," of the Notes to Consolidated Financial Statements.

The following table presents stock-based compensation expense, net of estimated forfeitures, by grant type (in thousands):


	Fiscal Year Ended October 29, 2011		Fiscal Year Ended October 30, 2010		Fiscal Year Ended October 31, 2009 (1)
Stock options, including variable options	$	3,483	$	12,383	$	24,460
Restricted stock awards and restricted stock units ("RSUs")		55,750		55,580		87,543
Employee stock purchase plan ("ESPP")		23,843		33,662		25,216

Total stock-based compensation	$	83,076	$	101,625	$	137,219

(1)	ESPP expense for the year ended October 31, 2009 includes $2.5 million of expenses relating to Foundry's ESPP plan.

The following table presents unrecognized compensation expense, net of estimated forfeitures, of the Company's equity compensation plans as of October 29, 2011, which is expected to be recognized over the following weighted-average periods, (in thousands, except for weighted-average period):


	Unrecognized Compensation Expense		Weighted- Average Period (in years)
Stock options	$	2,023		0.87
RSUs	$	101,555		2.03
ESPP	$	10,047		0.87

Stock Options

When the measurement date is certain, the fair value of each option granted during the respective period is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the following table. 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. 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 expected volatility is based on an equal weighted-average of implied volatilities from traded options of the Company's common stock and historical volatility of the Company's common stock. The expected term is based on historical exercise behavior.


	Fiscal Year Ended
Stock Options	October 29, 2011			October 30, 2010			October 31, 2009
Expected dividend yield		0.0	%		0.0	%		0.0	%
Risk-free interest rate		0.1 - 1.6	%		0.3 - 2.0	%		0.4 - 1.9	%
Expected volatility		50.3 - 61.9	%		49.3 - 53.3	%		54.8 - 65.3	%
Expected term (in years)		4.0			4.0			4.0

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 equity compensation plans for the years ended October 29, 2011, October 30, 2010 and October 31, 2009 is presented as follows:


	Shares (in thousands)			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at October 25, 2008		35,036		$	8.05		4.17	$	701
Assumed under the Foundry acquisition		92,160		$	3.24
Granted		5,118		$	4.29
Exercised		(36,022	)	$	3.03
Forfeited or expired		(6,645	)	$	6.16

Outstanding at October 31, 2009		89,647		$	5.04		3.17	$	380,991
Granted		1,920		$	6.76
Exercised		(14,210	)	$	2.95
Forfeited or expired		(5,691	)	$	13.68

Outstanding at October 30, 2010		71,666		$	4.82		2.58	$	146,199
Granted		243		$	5.47
Exercised		(16,814	)	$	3.48
Forfeited or expired		(4,330	)	$	9.03

Outstanding at October 29, 2011		50,765		$	4.91		1.98	$	35,494

Vested and expected to vest at October 29, 2011		50,123		$	4.92		1.96	$	35,168

Exercisable and vested at:
October 29, 2011		47,824		$	4.91		1.84	$	33,938

The weighted-average grant date fair value of stock options granted during the years ended October 29, 2011, October 30, 2010 and October 31, 2009 was $2.23, $2.89 and $2.10, respectively. The total intrinsic value of stock options exercised for the years ended October 29, 2011, October 30, 2010 and October 31, 2009 was $46.0 million, $51.7 million and $128.9 million, respectively.

From May 1999 through July 2003, the Company granted 98.8 million options subject to variable accounting as the measurement date of the options granted was not certain. As of October 29, 2011, 0.2 million options with a weighted-average exercise price of $7.55 and a weighted-average contractual life of 1.01 years remain outstanding and continue to be accounted for under variable accounting.

Employee Stock Purchase Plan

Under Brocade's employee stock purchase plans, including the 2009 ESPP and the 1999 Employee Stock Purchase Plan (together, the "Brocade ESPP"), eligible employees can participate and purchase shares semi-annually at the lower of 85% of the fair market value of the Company's common stock on (i) the first trading day of the offering period, or (ii) the last day of each six-month purchase period. The Brocade ESPP permits eligible employees to purchase common stock through payroll deductions for up to 15% of qualified compensation. The Company accounts for the Brocade ESPP as a compensatory plan and recorded compensation expense of $23.8 million, $33.7 million and $22.7 million for the years ended October 29, 2011, October 30, 2010 and October 31, 2009, respectively. Compensation expense computed under the fair value method for ESPP shares issued is being amortized under a graded vesting method over the twenty-four month offering period. In addition, the Company accounts for changes in percentage contribution elected by employees, as well as decreases in the Company's common stock price on the last day of each six-month purchase period as compared to the common stock price on the first trading day of the offering period, by applying modification accounting which results in an increase in compensation expense during the period of modification.

The fair value of the option component of Brocade ESPP shares was estimated using the Black-Scholes option pricing model using the following weighted-average assumptions:


	Fiscal Year Ended
Employee Stock Purchase Plan	October 29, 2011			October 30, 2010			October 31, 2009
Expected dividend yield		0.0	%		0.0	%		0.0	%
Risk-free interest rate		0.6	%		0.6	%		0.8	%
Expected volatility		65.5	%		67.8	%		76.4	%
Expected term (in years)		1.1			1.5			1.2

In addition, as part of its acquisition of Foundry, the Company became the administrator of Foundry's 1999 Employee Stock Purchase Plan ("Foundry ESPP"), which expired on May 31, 2009. As a result of Brocade's assumption of rights under the Foundry ESPP, Foundry employees who became Brocade employees were granted the right to purchase shares of the Company's common stock at the lower of 85% of the fair market value of the Company's common stock, as adjusted in accordance with the Foundry Merger Agreement at (i) the beginning of a rolling two-year offering period or (ii) the end of each semi-annual offering period, subject to a plan limit on the number of shares that may be purchased in an offering period. During the year ended October 31, 2009, the Company issued 4.9 million shares under the Foundry ESPP. The Company accounts for the Foundry ESPP as a compensatory plan and recorded compensation expense of $2.5 million for the year ended October 31, 2009.

Restricted Stock Awards

No restricted stock awards were issued for the years ended October 29, 2011, October 30, 2010 and October 31, 2009. When and if granted, restricted stock awards are not transferable until fully vested, and all unvested shares upon termination are subject to repurchase. The fair value of each award is based on the Company's closing stock price on the date of grant.

A summary of the nonvested restricted stock awards for the year ended October 31, 2009 is presented as follows:


	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Nonvested at October 25, 2008		14		$	0.01
Granted		—		$	—
Vested		(14	)	$	0.01
Forfeited		—		$	—

Nonvested at October 31, 2009		—		$	—

Expected to vest at October 31, 2009		—		$	—

Restricted Stock Units

For the years ended October 29, 2011, October 30, 2010 and October 31, 2009, Brocade issued 12.8 million, 10.8 million and 13.3 million restricted stock units, respectively. Typically, vesting of restricted stock units occurs over one to four years and is subject to the employee's continuing service to Brocade.

A summary of the changes in restricted stock units outstanding under Brocade's equity compensation plans during the years ended October 29, 2011, October 30, 2010 and October 31, 2009 is presented as follows:


	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Nonvested at October 25, 2008		8,306		$	7.87
Assumed under the Foundry acquisition		26,050		$	3.54
Granted		13,334		$	6.90
Vested		(11,315	)	$	7.20
Forfeited		(3,682	)	$	6.92

Nonvested at October 31, 2009		32,693		$	4.37
Granted		10,801		$	5.84
Vested		(12,753	)	$	5.26
Forfeited		(2,570	)	$	6.74

Nonvested at October 30, 2010		28,171		$	4.32
Granted		12,754		$	5.68
Vested		(13,434	)	$	5.82
Forfeited		(4,010	)	$	6.37

Nonvested at October 29, 2011		23,481		$	3.85

Vested and expected to vest at October 29, 2011		19,631		$	3.85

The aggregate intrinsic value of restricted stock units outstanding at October 29, 2011, October 30, 2010 and October 31, 2009 was $105.9 million, $178.9 million and $288.1 million, respectively.