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Sample Business Contracts

1998 Executive Equity Incentive Plan - Brocade Communications Systems Inc.

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                      BROCADE COMMUNICATIONS SYSTEMS, INC.

                      1998 EXECUTIVE EQUITY INCENTIVE PLAN

                           AS ADOPTED OCTOBER 9, 1998

     1.   PURPOSE. The purpose of this Plan is to provide incentives to 
attract, retain and motivate eligible persons whose present and potential 
contributions are important to the success of the Company, its Parent and 
Subsidiaries, by offering them an opportunity to participate in the Company's 
future performance through awards of Options and Restricted Stock. Capitalized 
terms not defined in the text are defined in Section 22 hereof.

     2.   SHARES SUBJECT TO THE PLAN.

          2.1  Number of Shares Available. Subject to Sections 2.2 and 17 
hereof, the total number of Shares reserved and available for grant and 
issuance pursuant to this Plan will be 300,000 Shares. Subject to Sections 2.2 
and 17 hereof, Shares will again be available for grant and issuance in 
connection with future Awards under this Plan to the extent such Shares: (a) 
cease to be subject to issuance upon exercise of an Option, other than due to 
exercise of such Option; or (b) are subject to an Award granted hereunder but 
the Shares subject to such Award are forfeited or repurchased by the Company at 
the original issue price; or (c) are subject to a Restricted Stock Award that 
otherwise terminates without Shares being issued. At all times the Company will 
reserve and keep available a sufficient number of Shares as will be required to 
satisfy the requirements of all Award granted under this Plan.

          2.2  Adjustment of Shares. In the event that the number of outstanding
shares of the Company's Common Stock is changed by a stock dividend, 
recapitalization, stock split, reverse stock split, subdivision, combination, 
reclassification or similar change in the capital structure of the Company 
without consideration, then (a) the number of Shares reserved for issuance 
under this Plan, (b) the Exercise Prices of and number of Shares subject to 
outstanding Options and (c) the Purchase Prices of and number of Shares subject 
to other outstanding Awards will be proportionately adjusted, subject to any 
required action by the Board or the shareholders of the Company and compliance 
with applicable securities laws, provided, however, that fractions of a Share 
will not be issued but will either be paid in cash at Fair Market Value of such 
fraction of a Share or will be rounded down to the nearest whole Share, as 
determined by the Committee.

     3.   ELIGIBILITY. Awards may be granted only to officers, directors and 
consultants of the Company. A person may be granted more than one Award under 
this Plan.

     4.   ADMINISTRATION.

          4.1  Committee Authority. This Plan will be administered by the 
Committee or the Board acting at the Committee. Subject to the general 
purposes, terms and conditions of this Plan, and to the direction of the Board, 
the Committee will have full power to implement and carry out this Plan. 
Without limitation, the Committee will have the authority to:

          (a)  construe and interpret this Plan, any Award Agreement and any 
               other agreement or document executed pursuant to this Plan;

          (b)  prescribe, amend and rescind rules and regulations relating to 
               this Plan;

          (c)  select persons to receive Awards;

          (d)  determine the form and terms of Awards;

          (e)  determine the number of Shares or other consideration subject to 
               Awards;

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          (f)  determine whether Awards will be granted singly, in combination 
               with, in tandem with, in replacement of, or as alternatives to, 
               other Awards under this Plan or awards under any other incentive 
               or compensation plan of the Company or any Parent or Subsidiary 
               of the Company;

          (g)  grant waivers of Plan or Award conditions;

          (h)  determine the vesting, exercisability and payment of Awards;

          (i)  correct any defect, supply any omission, or reconcile any 
               inconsistency in this Plan, any Award, any Award Agreement, any
               Exercise Agreement or any Restricted Stock Purchase Agreement;

          (j)  determine whether an Award has been earned; and

          (k)  make all other determinations necessary or advisable for the 
               administration of this Plan.

          4.2  Committee Discretion. Any determination made by the Committee 
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, and subject to Section 5.8 hereof, at any later time, and such
determination will be final and binding on the Company and on all persons having
an interest in any Award under this Plan. The Committee may delegate to one or
more officers of the Company the authority to grant an Award under this Plan.

     5.   OPTIONS.  The Committee may grant Nonqualified Stock Options
("NQSOS") to eligible persons and will determine the number of Shares subject
to the Option, the Exercise Price of the Option, the period during which the
Option may be exercised, and all other terms and conditions of the Option,
subject to the following:

          5.1  Form of Option Grant. Each Option granted under this Plan will 
be evidenced by an Award Agreement ("STOCK OPTION AGREEMENT"), which will  be
in such form and contain such provisions (which need not be the same for each
Participant) as the Committee may from time to time approve, and which will
comply with and be subject to the terms and conditions of this Plan.

          5.2  Date of Grant. The date of grant of an Option will be the date 
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.

          5.3  Exercise Period. Options may be exercisable immediately (subject 
to repurchase pursuant to Section 11 hereof) or may be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement governing such Option; provided, however, that no Option will
be exercisable after the expiration of ten (10) years from the date the Option
is granted. The Committee also may provide for Options to become exercisable at
one time or from time to time, periodically or otherwise, in such number of
Shares or percentage of Shares as the Committee determines.

          5.4  Exercise Price. The Exercise Price of an Option will be 
determined by the Committee when the Option is granted and may not be less than
eighty-five percent (85%) of the Fair Market Value of the Shares on the date of
grant. Payment for the shares purchased must be made in accordance with Section
7 hereof.

          5.5  Method of Exercise. Options may be exercised only by delivery to 
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws,
together with payment in full of the Exercise Price, and any applicable taxes,
for the number of Shares being purchased.



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<PAGE>   3
          5.6  Termination.  Subject to earlier termination pursuant to Sections
17 and 18 hereof and notwithstanding the exercise periods set forth in the 
Stock Option Agreement, exercise of an Option will always be subject to the 
following:
               
          (a)  If the Participant is Terminated for any reason except death, 
               Disability or for Cause, then the Participant may exercise such 
               Participant's Options only to the extent that such Options are 
               exercisable upon the Termination Date and such Options must be 
               exercised by the Participant, if at all, as to all or some of 
               the Vested Shares calculated as of the Termination Date, within 
               three (3) months after the Termination Date (or within such 
               shorter time period, not less than thirty (30) days, or within 
               such longer time period, not exceeding five (5) years, after the
               Termination Date as may be determined by the Committee, but in 
               any event, no later than the expiration date of the Options.

          (b)  If the Participant is Terminated because of Participant's death 
               or Disability (or the Participant dies within three (3) months 
               after a Termination other than for Cause), then Participant's 
               Options may be exercised only to the extent that such Options 
               are exercisable by Participant on the Termination Date and must 
               be exercised by Participant (or Participant's legal 
               representative or authorized assignee), if at all, as to all or 
               some of the Vested Shares calculated as of the Termination Date, 
               within twelve (12) months after the Termination Date (or within 
               such shorter time period, not less than six (6) months, or 
               within such longer time period, not exceeding five (5) years, 
               after the Termination Date as may be determined by the 
               Committee, but in any event no later than the expiration date of 
               the Options.

          (c)  If the Participant is terminated for Cause, then Participant's 
               Options shall expire on such Participant's Termination Date, or 
               at such later time and on such conditions as are determined by 
               the Committee.

          5.7  Limitations on Exercise.  The Committee may specify a reasonable 
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.

          5.8  Modification, Extension or Removal.  The Committee may modify, 
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4
hereof for Options granted on the date the action is taken to reduce the
Exercise Price.

     6.   RESTRICTED STOCK.  A Restricted Stock Award is an offer by the 
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the Purchase Price, the restrictions to which the
Shares will be subject, and all other terms and conditions of the Restricted
Stock Award, subject to the following:

          6.1  Form of Restricted Stock Award.  All purchases under a 
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award 
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form 
(which need not be the same for each Participant) as the Committee will 
from time to time approve, and will comply with and be subject to the terms and 
conditions of this Plan. The Restricted Stock Award will be accepted by the 
Participant's execution and delivery of the Restricted Stock Purchase Agreement 
and full payment for the Shares to the Company within thirty (30) days from the 
date the Restricted Stock Purchase Agreement is delivered to the person. If 
such person does not execute and deliver the Restricted Stock Purchase 
Agreement along with full payment for the Shares to the Company within such 
thirty (30) days, then the offer will terminate, unless otherwise determined by 
the Committee.

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<PAGE>   4
          6.2  Purchase Price. The Purchase Price of Shares sold pursuant to a 
Restricted Stock Award will be determined by the Committee and will be at least 
eighty-five percent (85%) of the Fair Market Value of the Shares on the date 
the Restricted Stock Award is granted or at the time the purchase is 
consummated. Payment of the Purchase Price must be made in accordance with 
Section 7 hereof.

          6.3  Restrictions. Restricted Stock Awards may be subject to the 
restrictions set forth in Section 11 hereof.

     7.   PAYMENT FOR SHARE PURCHASES.

          7.1  Payment. Payment for Shares purchased pursuant to this Plan may 
be made in cash (by check) or, where expressly approved for the Participant by 
the Committee and where permitted by law:

               (a)  by cancellation of indebtedness of the Company to the 
                    Participant;

               (b)  by surrender of shares that: (i) either (A) have been owned
                    by Participant for more than six (6) months and have been
                    paid for within the meaning of SEC Rule 144 (and, if such
                    shares were purchased from the Company by use of a
                    promissory note, such note has been fully paid with respect
                    to such shares) or (B) were obtained by Participant in the
                    public market and (ii) are clear of all liens, claims,
                    encumbrances or security interests.

               (c)  by tender of a full recourse promissory note having such
                    terms as may be approved by the Committee and bearing
                    interest at a rate sufficient to avoid imputation of income
                    under Sections 483 and 1274 of the Code; provided, however,
                    that Participants who are not employees or directors of the
                    Company will not be entitled to purchase Shares with a
                    promissory note unless the note is adequately secured by
                    collateral other than the Shares.

               (d)  by waiver of compensation due or accrued to the Participant
                    for services rendered;

               (e)  with respect only to purchases upon exercise of an Option,
                    and provided that a public market for the Company's stock
                    exists:

                    (1)  through a "same day sale" commitment from the
                         Participant and a broker-dealer that is a member of the
                         National Association of Securities Dealers (an "NASD
                         DEALER") whereby the Participant irrevocably elects to
                         exercise the Option and to sell a portion of the Shares
                         so purchased to pay for the Exercise Price, and whereby
                         the NASD Dealer irrevocably commits upon receipt of
                         such Shares to forward the Exercise Price directly to
                         the Company; or

                    (2)  through a "margin" commitment from the Participant and
                         an NASD Dealer whereby the Participant irrevocably
                         elects to exercise the Option and to pledge the Shares
                         so purchased to the NASD Dealer in a margin account as
                         security for a loan from the NASD Dealer in the amount
                         of the Exercise Price, and whereby the NASD Dealer
                         irrevocably commits upon receipt of such Shares to
                         forward the Exercise Price directly to the Company; or

               (f)  by any combination of the foregoing.

          7.2  Loan Guarantees. The Committee may help the Participant pay for 
Shares purchased under this Plan by authorizing a guarantee by the Company of a 
third-party loan to the Participant.



                                      -4-
<PAGE>   5
     8.   WITHHOLDING TAXES.

          8.1  Withholding Generally. Whenever Shares are to be issued in 
satisfaction of Awards granted under this Plan, the Company may require the 
Participant to remit to the Company an amount sufficient to satisfy federal, 
state and local withholding tax requirements prior to the delivery of any 
certificate or certificates for such Shares. Whenever, under this Plan, 
payments in satisfaction of Awards are to be made in cash, such payment will be 
net of an amount sufficient to satisfy federal, state, and local withholding 
tax requirements.

          8.2  Stock Withholding. When, under applicable tax laws, a 
Participant incurs tax liability in connection with the exercise or vesting of 
any Award that is subject to tax withholding and the Participant is obligated 
to pay the company the amount required to be withheld, the Committee may in its 
sole discretion allow the Participant to satisfy the minimum withholding tax 
obligation by electing to have the Company withhold from the Shares to be 
issued that number of Shares having a Fair Market Value equal to the minimum 
amount required to be withheld, 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 will be made in accordance with the 
requirements established by the Committee for such elections and be in writing 
in a form acceptable to the Committee.

     9.   PRIVILEGES OF STOCK OWNERSHIP.

          9.1  Voting and Dividends. No Participant will have any of the rights 
of a shareholder with respect to any Shares until the Shares are issued to the 
Participant. After Shares are issued to the Participant, the Participant will 
be a shareholder and have all the rights of a shareholder with respect to such 
Shares, including the right to vote and receive all dividends or other 
distributions made or paid with respect to such Shares; provided, that if such 
Shares are Restricted Stock, then any new, additional or different securities 
the Participant may become entitled to receive with respect to such Shares by 
virtue of a stock dividend, stock split or any other change in the corporate or 
capital structure of the Company will be subject to the same restrictions as 
the Restricted Stock; provided, further, that the Participant will have no 
right to retain such stock dividends or stock distributions with respect to 
Unvested Shares that are repurchased pursuant to Section 11 hereof. The Company 
will comply with Section 260.140.1 of Title 10 of the California Code of 
Regulations with respect to the voting rights of Common Stock.

          9.2  Financial Statements. The company will provide financial 
statements to each Participant prior to such Participant's purchase of Shares 
under this Plan, and to each Participant annually during the period such 
Participant has Awards outstanding, or as otherwise required under Section 
260.140.46 of Title 10 of the California Code of Regulations. Notwithstanding 
the foregoing, the Company will not be required to provide such financial 
statements to Participants when issuance is limited to key employees whose 
services in connection with the Company assure them access to equivalent 
information.

     10.  TRANSFERABILITY. Awards granted under this Plan, and any interest 
therein, will not be transferable or assignable by participant, and may not be 
made subject to execution, attachment or similar process, otherwise than by 
will or by the laws of descent and distribution. During the lifetime of the 
Participant an Award will be exercisable only by the Participant or 
Participant's legal representative and any elections with respect to an Award, 
may be made only by the Participant or Participant's legal representative.

     11.  RESTRICTIONS OF SHARES.

          11.1 Right of First Refusal. At the discretion of the Committee, the 
Company may reserve to itself and/or its assignee(s) in the Award Agreement a 
right of first refusal to purchase all Shares that a Participant (or a 
subsequent transferee) may propose to transfer to a third party, provided, that 
such right of first refusal terminates upon the company's initial public 
offering of Common Stock pursuant to an effective registration statement filed 
under the Securities Act.

          11.2 Right of Repurchase. At the discretion of the Committee, the 
Company may reserve to itself and/or its assignee(s) in the Award Agreement a 
right to repurchase Unvested Shares held by a Participant for


                                      -5-
<PAGE>   6

cash and/or cancellation of purchase money indebtedness following such 
Participant's Termination at any time within the later of ninety (90) days 
after the Participant's Termination Date and the date the Participant purchases 
Shares under the Plan at the Participant's Exercise Price or Purchase Price, as 
the case may be.

     12.  CERTIFICATES. All certificates for Shares or other securities 
delivered under this Plan will be subject to such stock transfer orders, 
legends and other restrictions as the Committee may deem necessary or 
advisable, including restrictions under any applicable, federal, state or 
foreign securities law, or any rules, regulations and other requirements of the 
SEC or any stock exchange or automated quotation system upon which the Shares 
may be listed or quoted.

     13.  ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a 
Participant's Shares, the Committee may require the Participant to deposit all 
certificates representing Shares, together with stock powers or other 
instruments of transfer approved by the Committee, appropriately endorsed in 
blank, with the Company or an agent designated by the Company to hold in escrow 
until such restrictions have lapsed or terminated, and the Committee may cause 
a legend or legends referencing such restrictions to be placed on the 
certificates. Any Participant who is permitted to execute a promissory note as 
partial or full consideration for the purchase of Shares under this Plan will 
be required to pledge and deposit with the Company all or part of the Shares so 
purchased as collateral to secure the payment of Participant's obligations to 
the Company under the promissory note; provided, however, that the Committee 
may require or accept other or additional forms of collateral to secure the 
payment of such obligation and, in any event, the Company will have full 
recourse against the Participant under the promissory note notwithstanding any 
pledge of the Participant's Shares or other collateral. In connection with any 
pledge of the Shares, Participant will be required to execute and deliver a 
written pledge agreement in such form as the Committee will from time to time 
approve. The Shares purchased with the promissory note may be released from the 
pledge on a pro rata basis as the promissory note is paid.

     14.  EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from 
time to time, authorize the Company, with the consent of the respective 
Participants, to issue new Awards in exchange for the surrender and 
cancellation of any or all outstanding Awards. The Committee may at any time 
buy from a Participant an Award previously granted with payment in cash, shares 
of Common Stock of the Company (including Restricted Stock) or other 
consideration, based on such terms and conditions as the Committee and the 
Participant may agree.

     15.  SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be 
effective unless such Award is in compliance with all applicable federal and 
state securities laws, rules and regulations of any governmental body, and the 
requirements of any stock exchange or automated quotation system upon which the 
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (b) compliance with any exemption, completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Shares with the SEC or to effect compliance with the exemption, registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company will have no liability
for any inability or failure to do so.

     16.  NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted 
under this Plan will confer or be deemed to confer on any Participant any right 
to continue in the employ of, or to continue any other relationship with, the 
Company or any Parent or Subsidiary of the Company or limit in any way the 
right of the Company or any Parent or Subsidiary of the Company to terminate 
Participant's employment or other relationship at any time, with or without 
Cause.




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<PAGE>   7
     17.  CORPORATE TRANSACTIONS.

          17.1 Assumption or Replacement of Awards by Successor or Acquiring 
Corporation. In the event of (a) a dissolution or liquidation of the Company, 
(b) a merger or consolidation in which the Company is not the surviving 
corporation (other than a merger or consolidation with a wholly-owned 
subsidiary, a reincorporation of the Company in a different jurisdiction, or 
other transaction in which there is no substantial change in the shareholders 
of the Company or their relative stock holdings and the Awards granted under 
this Plan are assumed, converted or replaced by the successor or acquiring 
corporation, which assumption, conversion or replacement will be binding on all 
Participants), (c) a merger in which the Company is the surviving corporation 
but after which the shareholders of the Company immediately prior to such 
merger (other than any shareholder which merges with the Company in such 
merger, or which owns or controls another corporation which merges, with the 
Company in such merger) cease to own their shares or other equity interests in 
the Company, or (d) the sale of all or substantially all of the assets of the 
Company, any or all outstanding Awards may be assumed, converted or replaced by 
the successor or acquiring corporation (if any), which assumption, conversion 
or replacement will be binding on all Participants. In the alternative, the 
successor or acquiring corporation may substitute equivalent Awards or provide 
substantially similar consideration to Participants as was provided to 
shareholders (after taking into account the existing provisions of the Awards). 
The successor or acquiring corporation may also issue, in place of outstanding 
Shares of the Company held by the Participant, substantially similar shares or 
other property subject to repurchase restrictions and other provisions no less 
favorable to the Participant than those which applied to such outstanding 
Shares immediately prior to such transaction described in this Section 17.1. In 
the event such successor or acquiring corporation (if any) refuses to assume or 
substitute Awards, as provided above, pursuant to a transaction described in 
this Section 17.1, then notwithstanding any other provision in this Plan to the 
contrary, such Awards will expire on such transaction at such time and on such 
conditions as the Board will determine.

          17.2 Other Treatment of Awards. Subject to any greater rights granted 
to Participants under the foregoing provisions of this Section 17, in the event 
of the occurrence of any transaction described in Section 17.1 hereof, any 
outstanding Awards will be treated as provided in the applicable agreement or 
plan of merger, consolidation, dissolution, liquidation or sale of assets.

          17.3 Assumption of Awards by the Company. The Company, from time to 
time, also may substitute or assume outstanding awards granted by another 
company, whether in connection with an acquisition of such other company or 
otherwise, by either (a) granting an Award under this Plan in substitution of 
such other company's award or (b) assuming such award as if it had been granted 
under this Plan if the terms of such assumed award could be applied to an Award 
granted under this Plan. Such substitution or assumption will be permissible if 
the holder of the substituted or assumed award would have been eligible to be 
granted an Award under this Plan if the other company had applied the rules of 
this Plan to such grant. In the event the Company assumes an award granted by 
another company, the terms and conditions of such award will remain unchanged 
(except that the exercise price and the number and nature of shares issuable 
upon exercise of any such option will be adjusted appropriately pursuant to 
Section 424(a) of the Code). In the event the Company elects to grant a new 
Option rather than assuming an existing option, such new Option may be granted 
with a similarly adjusted Exercise Price.

     18.  ADOPTION OF PLAN. This Plan will become effective on the date that it 
is adopted by the Board (the "EFFECTIVE DATE"). No shareholder approval will be 
required for this Plan to become effective.

     19.  TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided 
herein, this Plan will terminate ten (10) years from the Effective Date or, if 
earlier, the date of shareholder approval. This Plan and all agreements 
hereunder shall be governed by and construed in accordance with the laws of the 
State of California excluding that body of law pertaining to conflict of laws.

     20.  AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.8 hereof, the 
Board may at any time terminate or amend this Plan in any respect, including 
without limitation amendment of any form of Award Agreement or instrument to be 
executed pursuant to this Plan.



                                      -7-

<PAGE>   8
     21.  NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the 
Board nor any provision of this Plan will be construed as creating any 
limitations on the power of the Board to adopt such additional compensation 
arrangements as it may deem desirable, including, without limitation, the 
granting of stock options and other equity awards otherwise than under this 
Plan, and such arrangements may be either generally applicable or applicable 
only in specific cases.

     22.  DEFINITIONS. As used in this Plan, the following terms will have the 
following meanings:

          "AWARD" means any award under this Plan, including any Option or 
Restricted Stock Award.

          "AWARD AGREEMENT" means, with respect to each Award, the signed 
written agreement between the Company and the Participant setting forth the 
terms and conditions of the Award.

          "BOARD" means the Board of Directors of the Company.

          "CAUSE" means Termination because of (i) any willful material 
violation by the Participant of any law or regulation applicable to the 
business of the Company or a Parent or Subsidiary of the Company, the 
Participant's conviction for, or guilty plea to, a felony or a crime involving 
moral turpitude, any willful perpetration by the Participant of a common law 
fraud, (ii) the Participant's commission of an act of personal dishonesty which 
involves personal profit in connection with the Company or any other entity 
having a business relationship with the Company, (iii) any material breach by 
the Participant of any provision of any agreement or understanding between the 
Company or any Parent or Subsidiary of the Company and the Participant 
regarding the terms of the Participant's service as an employee, director or 
consultant to the Company or a Parent or Subsidiary of the Company, including, 
without limitation, the willful and continued failure or refusal of the 
Participant to perform the material duties required of such Participant as an 
employee, director or consultant of the Company or a Parent or Subsidiary of 
the Company, other than as a result of having a Disability, or a breach of any 
applicable invention assignment and confidentiality agreement or similar 
agreement between the Company and the Participant, (iv) Participant's disregard 
of the policies of the Company or any Parent or Subsidiary of the Company so as 
to cause loss, damage or injury to the property, reputation or employees of the 
Company or a Parent or Subsidiary of the Company, or (v) any other misconduct 
by the Participant which is materially injurious to the financial condition or 
business reputation of, or is otherwise materially injurious to, the Company or 
a Parent or Subsidiary of the Company.

          "CODE" means the Internal Revenue Code of 1986, as amended.

          "COMMITTEE" means the committee appointed by the Board to administer 
this Plan, or if no committee is appointed, the Board.

          "DISABILITY" means a disability, whether temporary or permanent, 
partial or total, as determined by the Committee.

          "EXERCISE PRICE" means the price at which a holder of an Option may 
purchase the Shares issuable upon exercise of the Option.

          "FAIR MARKET VALUE" means, as of any date, the value of a share of 
the Company's Common Stock determined as follows:

               (a)  if such Common Stock is then quoted on the Nasdaq National
                    Market, its closing price on the Nasdaq National Market on
                    the date of determination as reported in The Wall Street
                    Journal;

               (b)  if such Common Stock is publicly traded and is then listed
                    on a national securities exchange, its closing price on the
                    date of determination on the principal national 



                                      -8-
<PAGE>   9
          securities exchange on which the Common Stock is listed or admitted to
          trading as reported in The Wall Street Journal;

     (c)  if such Common Stock is publicly traded but is not quoted on the
          Nasdaq National Market nor listed or admitted to trading on a national
          securities exchange, the average of the closing bid and asked prices
          on the date of determination as reported by The Wall Street Journal
          (or, if not so reported, as otherwise reported by any newspaper or
          other source as the Board may determine); or

     (d)  if none of the foregoing is applicable, by the Committee in good 
          faith.

     "OPTION" means an award of an option to purchase Shares pursuant to 
Section 5 hereof.

     "PARENT" means any corporation (other than the company) in an unbroken 
chain of corporations ending with the Company if each of such corporations 
other than the company owns stock possessing fifty percent (50%) or more of the 
total combined voting power of all classes of stock in one of the other 
corporations in such chain.

     "PARTICIPANT" means a person who receives an Award under this Plan.

     "PLAN" means this Brocade Communications Systems, Inc. 1998 Executive 
Officers' Equity Incentive Plan, as amended from time to time.

     "PURCHASE PRICE" means the price at which a Participant may purchase 
Restricted Stock.

     "RESTRICTED STOCK" means Shares purchased pursuant to a Restricted Stock 
Award.

     "RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6 
hereof.

     "SEC" means the Securities and Exchange Commission.

     "SECURITIES ACT" means the Securities Act of 1933, as amended.

     "SHARES" means shares of the Company's common Stock reserved for issuance 
under this Plan, as adjusted pursuant to Sections 2 and 17 hereof, and any 
successor security.

     "SUBSIDIARY" means any corporation (other than the Company) in an unbroken 
chain of corporations beginning with the Company if each of the corporations 
other than the last corporation in the unbroken chain owns stock possessing 
fifty percent (50%) or more of the total combined voting power of all classes 
of stock in one of the other corporations in such chain.

     "TERMINATION" or "TERMINATED" means, for purposes of this Plan with 
respect to a Participant, that the Participant has for any reason ceased to 
provide substantial services as (i) an employee, officer, director, consultant 
or independent contractor to the Company or a Parent or Subsidiary or affiliate 
of the Company, or (ii) as a consultant, independent contractor or advisor to 
the Board of Directors of the Company. A Participant will not be deemed to have 
ceased to provide services in the case of (i) sick leave, (ii) military leave, 
or (iii) any other leave of absence approved by the Committee, provided that 
such leave is for a period of not more than ninety (90) days unless 
reinstatement (or, in the case of an employee with an ISO, reemployment) upon 
the expiration of such leave is guaranteed by contract or statute, or unless 
provided otherwise pursuant to formal policy adopted from time to time by the 
Company and issued and promulgated in writing. In the case of any Participant 
on (i) sick leave, (ii) military leave or (iii) an approved leave of absence, 
the Committee may make such provisions respecting suspension of vesting of the 
Award while on leave from the Company or a Parent or Subsidiary of the Company 
as it may deem appropriate, except that in no event may an Option be exercised 
after the expiration of the term set forth in the Stock Option Agreement. The 
Committee will have sole discretion to determine whether a Participant has 
ceased to provide services and the effective date on which the Participant 
ceased to provide services (the "TERMINATION DATE").


                                      -9-
<PAGE>   10
     "UNVESTED SHARES" means "Unvested Shares" as defined in the Award 
Agreement.

     "VESTED SHARES" means "Vested Shares" as defined in the Award Agreement.



                                      -10-