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Exhibit 10.26

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  Executive Performance Incentive
Bonus
Plan Document

Table of Contents

Plan Objectives   Page 1
Plan Administration
 
Page 1
Plan Period
 
Page 1
Eligibility
 
Page 1
Restricted Stock Awards
 
Page 2
Restricted Stock Vesting
 
Page 2
Cash Performance Incentive Bonus
 
Page 2
Performance Matrix—Company Performance
 
Page 3
Payment Example
 
Page 3
Cash PIB Payouts and Share Acceleration
 
Page 4
Other Important Plan Details
 
Page 4
Employment at Will
 
Page 5
Board of Directors/Compensation Committee Discretion
 
Page 5

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Plan Objectives

        The revised H2 2002—H1 2003 McDATA Executive Performance Incentive Bonus
("EPIB") Plan ("Plan") was developed to replace the existing Executive
Management bonus plan with a mixed equity and cash plan that conserves cash and
minimizes accounting expense but that also provides incentives to participants
to drive improved company performance.

        The revised Plan uses restricted stock with accelerated vesting
opportunities to reward participants for the collective achievement of strategic
corporate revenue and EPS goals. The Plan is designed to further drive
performance beyond "target" levels through the availability of substantial
additional cash bonus opportunities for stretch performance.

Plan Administration

        The Chief Executive Officer and his selected designees in Human
Resources will administer this Plan as approved by the Compensation Committee of
the Board of Directors ("Compensation Committee"). The Compensation Committee
must approve any material exceptions to this Plan, and retains the right to
amend or discontinue this Plan in whole or in part at any time with or without
notice to the Plan participants.

Plan Period

        The effective Plan period is from July 1, 2002 through June 30, 2003,
with performance measured and rewarded on a quarterly basis as well as
cumulatively for the second half of the 2002 fiscal year. In the event that the
Plan remains an effective compensation tool beyond Plan expiration, the
Non-Executive Chairman of the Board may ask the Board to approve a Plan
extension to provide for additional incentive opportunities.

        During the Plan period, eligible participants will receive a one-time up
front grant of restricted stock (subject to vesting and forfeiture) a portion of
which will be eligible for accelerated vesting opportunities each calendar
quarter based on the attainment of the Plan objectives as set forth by the
Compensation Committee. Participants who are not eligible for any sales or other
cash incentive program may also be eligible to receive cash payment when Plan
target objectives are achieved or exceeded.

Eligibility

        Plan participation is limited to members of Executive staff and some
non-Executive senior sales and management staff, as approved by the Compensation
Committee. Upon eligibility, participants will be notified of their eligibility
and the terms of their participation in the Plan. The CEO, at his discretion,
may recommend employees to the Compensation Committee for participation in the
Plan.

        To be eligible for quarterly rewards under the Plan, participants must
be in an active status defined as being a regular full-time employee on McDATA's
US or international payroll. Active status includes employees on an approved
leave of absence, subject to proration as described in this document.

        Eligibility begins on the date the participant meets the above
eligibility requirements and ends the date he or she does not. Employees who
enter an eligible status during the plan period will have their participation in
the Plan effective as of that day. They will then be eligible for a prorated
cash bonus payout in that quarter based on their actual days of eligible
participation beginning with their date of hire. If applicable, successors to
departing executives are eligible to participate in the Plan immediately, with
prorated incentive compensation based on hire date.

        Participants must be employed through the last day of a quarter to
receive accelerated vesting or cash awards based on that quarter's performance.

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        All participants in the EPIB Plan will be deemed to be ineligible for
the Company's Profit Sharing Plan. Any changes to Plan eligibility must be
approved by the Compensation Committee.

Restricted Stock Awards

        All participants in the Plan are eligible to receive restricted shares
of McDATA Class B common stock upon Plan eligibility. These shares are
additionally governed by the 2001 McDATA Equity Incentive Plan and are
classified as "stock awards" under that Plan. Share amounts are approximated by
converting cash incentive compensation levels derived from market survey data
into shares of restricted stock based on a short-term "expected value" of the
stock, which is set by the Compensation Committee. The resulting number of
shares is then compounded by fifteen percent annually over 1.5 years to offset
the eighteen month minimum delay between the first potential share acceleration
and actual vesting of shares for redemption. The final share grant is then
reviewed by the Plan Administrators with final approval required by the
Compensation Committee.

        Approved restricted stock shares are granted in their entirety following
approval, and are divided over the remaining number of Plan quarters for
acceleration purposes.

        For example, if 1,000 shares are approved by the Compensation Committee
for a participant joining the Plan on January 1, 2003, the entire 1,000 shares
will be granted upon approval (subject to vesting and forfeiture). For vesting
purposes, 500 shares (1,000 divided by the two remaining quarters in the
approved Plan duration) are eligible for vesting acceleration in each of the
remaining two quarters.

Restricted Stock Vesting

        Shares granted under this Plan are subject to four-year cliff vesting,
so that no shares vest prior to four years unless they are accelerated under the
terms of the Plan.

        On a quarterly basis, upon successful achievement of quarterly
objectives, some or all of a participant's quarterly eligible shares may be
accelerated to vest over eighteen months from the end of the quarter in which
the goals were met. The percentage of shares accelerated is based upon quarterly
corporate revenue and pro-forma EPS Performance Metrics established on a
quarterly basis by the Compensation Committee. Any eligible shares that do not
receive accelerated vesting in a quarter will vest at the end of the original
four-year vesting period.

        Using the example above, suppose that the achievement level in Q3 '02
warrants vesting of 75% quarterly eligible shares. Of the 1,000 shares granted,
500 are eligible for acceleration in Q3 '02. Of the 500 shares eligible, 75%, or
375 shares will vest at the end of the eighteen month period following the end
of the quarter. The remaining 125 shares will vest four years from their initial
grant date.

Cash Performance Incentive Bonus

        Although restricted stock will replace cash as a primary incentive in
the Plan, for cash-eligible participants, a multiple of the cash performance
incentive bonus (PIB) set forth in the Executive PIB Plan approved in
January 2002, and replaced by this Plan, may be payable under the Plan when
targets are met or exceeded. An additional ultra-stretch cash award is payable
if stretch revenue and pro-forma EPS targets are met for both Q3 and Q4 2002.

        For new participants or for those who have changed positions since the
development of the January 2002 Executive Incentive Plan, cash award eligibilty
will be determined using the same market survey approach that was used to
develop the original plan, with final approval required by the Compensation
Committee.

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        Cash awards under this program are not payable to participants who are
compensated under a sales or other existing cash compensation plan. These
participants are eligible only for the restricted stock element of the Plan.

Performance Matrix—Company Performance

        Acceleration of eligible shares and potential cash awards under the Plan
are based on the achievement of Revenue and Pro-Forma Earnings Per Share (EPS)
targets established on a quarterly basis by the Compensation Committee within
the first month of the quarter. Participants will be provided with their
quarterly cash PIB and share acceleration eligibility

        The following table determines payment and share acceleration levels for
Q3 2002:

Q3 2002 Bonus Funding Table

 
   
  PRO FORMA EARNINGS SCHEDULE

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  Ultra-Stretch

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  Threshold

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  Target

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  Stretch

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REVENUE

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  Meet Q3 &
Q4 Stretch

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  ($0.02)

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  $0.00

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  $0.01

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Ultra-Stretch   Meet Q3 &
Q4 Stretch               Additional Annual
100% Cash PIB
STRETCH—
23%*
 
$95M
 
75% of shares
accelerate
 
100% shares
accelerate + 50% of
qrtly cash PIB
 
100% shares
accelerate + 100% of
qrtly cash PIB
 
 
TARGET—
16%*
 
$90M
 
60% of shares
accelerate
 
100% shares
accelerate + 25% of
qrtly cash PIB
 
100% shares
accelerate + 50% of
qrtly cash PIB
 
 
THRESHOLD—
7-9%*
 
$85M
 
50% of shares
accelerate
 
75% of shares
accelerate
 
90% of shares
accelerate
 
 

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Note: Payouts refer to QUARTERLY Shares and Cash Bonus amounts. Ultra-stretch is
additional payment following Q3 and Q4 based on cumulative results.

        Each quarter, following the release of the previous quarter's financial
results, the Compensation Committee will reset Threshold, Target, and Stretch
ranges for both revenue and earnings per share for the next quarter.

Payment Example:

        Assume that a non-sales participant joining the Plan upon inception had
an annual cash PIB target of $40,000, equal to $10,000 per quarter. Also assume
that the executive received a grant of 8,000 shares of restricted stock, or
2,000 shares eligible for accelerated vesting each quarter. The following

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table illustrates the participant's potential share acceleration and cash
payment eligibility for Q3 (note that the Q3 and Q4 combined stretch payment is
also illustrated):

FOR ILLUSTRATIVE PURPOSES ONLY—INDIVIDUAL ELIGIBILITY VARIES

Old Plan Annual PIB Eligibility ($)   $ 40,000                 Old Plan Qrtly
PIB Eligibility ($)   $ 10,000                 Total Restricted Share Grant    
8,000                 Qrtly Shares Eligible for Acceleration     2,000          
     

 
   
   
  Q3 2002

PRO FORMA EARNINGS PER SHARE

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  Ultra-Stretch

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  Threshold

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  Target

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  Stretch

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  Meet Q3 & Q4 Stretch

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REVENUE

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  ($0.02)

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  $0.00

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  $0.01

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ULTRA-
STRETCH   Meet Q3 &
Q4 Stretch               Additional
$40,000
STRETCH
 
$95M
 
1,500 shares
accelerate
 
2,000 shares
+ $5,000
 
2,000 shares
+ $10,000
 
 
TARGET
 
$90M
 
1,200 shares
accelerate
 
2,000 shares
+ $2,500
 
2,000 shares
+ $5,000
 
 
THRESHOLD
 
$85M
 
1,000 shares
accelerate
 
1,500 shares
accelerate
 
1,800 shares
accelerate
 
 

        In this example, the participant could accelerate vesting for up to
2,000 shares during the quarter and receive up to $10,000 cash if both Stretch
revenue and EPS targets are met. As illustrated in the upper right hand corner
of the matrix, an additional ultra-stretch payment of $40,000 can be earned by
this participant if revenue and EPS stretch goals are met for both Q3 and Q4,
2002.

Cash PIB Payouts and Share Acceleration

        If applicable, the payout of cash awards will occur on a quarterly basis
as soon as possible after quarterly financials are released and bonus objective
achievement is reported. Any shares eligible for accelerated vesting will begin
the eighteen month vesting period as of the first day of the following quarter.

        Plan participants terminating employment with the company on or before
the last day of the quarter for reasons other than death or permanent disability
will not be eligible for a cash PIB payout or share acceleration under this
Plan.

        All cash PIB amounts are stated in gross terms and will be paid net of
applicable taxes and other deductions as required by law. Cash PIB payments
under this Plan are considered eligible earnings for the McDATA Employee Stock
Purchase Plan and the McDATA Retirement Savings Plan, but not for purposes of
the Company's life, disability, or other benefit plans.

Other Important Plan Details

        Share acceleration and cash awards payable to participants on any type
of approved leave of absence will be prorated based on the number of days worked
during the quarter.

        In the event of the death of an eligible participant during the bonus
quarter, applicable bonus payments will made to the participant's designated
beneficiary or to the estate in the absence of a designated beneficiary on the
regular bonus delivery date based on their actual completion of service during
the quarter and the Company's share acceleration and cash payment levels as of
the end of the quarter.

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        Change of Control: Except for shares previously eligible for vesting
acceleration which, due to corporate performance, remained under their original
four-year vesting schedule, in the event of a change of control, as defined in
the Restricted Stock Agreement all shares granted under this Plan shall vest
immediately.

Employment at Will

        The above information does not constitute a guarantee of work, job
status or employment for any period of time. The employment of all Plan
participants may be terminated at will at any time by either party, with or
without prior notice. This Plan does not create a contract of employment, either
expressed or implied, between the participant and the Company.

Board of Directors/Compensation Committee Discretion

        This Plan has been approved by the Compensation Committee who may, upon
the recommendation of the Non-Executive Chairman or independently, alter, extend
or revoke the Plan or any other Plan provisions without prior notice to
participants. The Plan may be terminated at any time. Participants will be
notified in a timely manner of any material changes to the Plan.

        The Compensation Committee may approve the addition or removal of a
participant from the Plan, as well as changes to a participant's eligibility
under the Plan, including an altered payment or share acceleration arrangement
either retrospectively or in advance.

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QuickLinks

Exhibit 10.26

Table of Contents

Plan Objectives

Plan Administration

Plan Period

Eligibility

Restricted Stock Awards

Restricted Stock Vesting

Cash Performance Incentive Bonus

Performance Matrix—Company Performance

Payment Example

Cash PIB Payouts and Share Acceleration

Other Important Plan Details

Employment at Will

Board of Directors/Compensation Committee Discretion