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Exhibit 10.26    
  

	

 

	 	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

  

 
 

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. 

1

 

        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. 

2

 

        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

	 
	 	 
	 	 
	 	 
	 	 
	 	Ultra-Stretch

	 
	 	 
	 	Threshold
	 	Target
	 	Stretch

	REVENUE
	 	Meet Q3 &

Q4 Stretch

	 	($0.02)
	 	$0.00
	 	$0.01

	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	
 	

 

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 

3

 

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

	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	Ultra-Stretch

	 
	 	 
	 	 
	 	Threshold
	 	Target
	 	Stretch

	 
	 	 
	 	 
	 	Meet Q3 & Q4 Stretch

	REVENUE
	 	($0.02)
	 	$0.00
	 	$0.01

	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. 

4

 

        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. 

5

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 DiscretionQuickLinks
 -- Click here to rapidly navigate through this document

 
 

Exhibit 10.27    
  

	

 

	 	Chairman of the Board of

Directors Performance Incentive

Bonus Plan

 
 

Table of Contents    
  

	Plan Objectives	 	Page 1
	

Plan Administration	
 	

Page 1
	

Plan Period	
 	

Page 1
	

Eligibility	
 	

Page 1
	

Cash Performance Incentive Bonus	
 	

Page 1
	

Performance Goals	
 	

Page 1
	

Cash PIB Payouts	
 	

Page 2
	

Other Important Plan Details	
 	

Page 2
	

Employment at Will	
 	

Page 2
	

Board of Directors/Compensation Committee Discretion	
 	

Page 2

  

 
 

Plan Objectives    
  

        The McDATA Chairman of the Board of Directors Performance Incentive Bonus Plan ("Plan") was developed to provide compensation to the Chairman of the Board for the
successful completion of annual goals established by the Board of Directors. 

 
 

Plan Administration    
  

        The Board of Directors and its 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 Chairman of the Board. 

 
 

Plan Period    
  

        The effective Plan period is from January 1, 2002 through December 31, 2003, with performance measured and rewarded on an annual basis. Unless
otherwise revoked by the Board of Directors, the Plan will renew on an annual basis, subject the the establishment of new goals for each year. 

 
 

Eligibility    
  

        Plan participation is limited to McDATA Corporation's Chairman of the Board of Directors (the "Chairman"). 

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

        Eligibility
begins on the date the Chairman meets the above eligibility requirements and ends the date he or she does not. A Chairman who enters an eligible status during the plan period
will have participation in the Plan effective as of that day and will then be eligible for a prorated cash bonus payout in that quarter based on their actual days of eligible participation beginning
with the date of hire. 

        The
Chairman must be employed through the last day of a year to receive payment under the Plan based on that year's performance. 

        The
Chairman 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. 

 
 

Cash Performance Incentive Bonus    
  

        A cash performance incentive bonus (PIB), approved in January 2002 by the Board, may be payable under the Plan when annual targets established by the
Compensation Committee at the beginning of each year, are met or exceeded. 

 
 

Performance Goals    
  

        At the beginning of each year, performance goals including financial metrics or other objectives will be established by the Compensation Committee, and attached
to this document as Appendix A. The Chairman will be provided with these goals, subject to any applicable weighting or other provisions established by the Compensation Committee, and will also
be provided with potential annual PIB earnings. 

1

 

 
 

Cash PIB Payouts    
  

        If applicable, the payout of cash awards will occur annually as soon as administratively feasible after the first Board of Directors meeting following the end of
the year. 

        A
Chairman terminating employment with the company on or before the last day of the year for reasons other than death or permanent disability will not be eligible for a cash PIB payout
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    
  

        Cash awards payable to the Chairman 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 a Chairman during the year, applicable bonus payments will made to the Chairman's designated beneficiary or to the estate in the absence of a designated
beneficiary on the regular bonus delivery date based on the actual completion of service during the year and the level of achievement of current annual objectives. 

 
 

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 the Chairman 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 Chairman and the Company. 

 
 

Board of Directors/Compensation Committee Discretion    
  

        This Plan has been approved by the Compensation Committee who may, with approval of the Board of Directors, alter, extend or revoke the Plan or any other Plan
provisions without prior notice to the Chairman. The Plan may be terminated at any time. The Chairman will be notified in a timely manner of any material changes to the Plan. 

        The
Compensation Committee may approve changes to the Chairman's eligibility under the Plan, including an altered payment either retrospectively or in advance. 

2

QuickLinks

Exhibit 10.27

Table of Contents

Plan Objectives

Plan Administration

Plan Period

Eligibility

Cash Performance Incentive Bonus

Performance Goals

Cash PIB Payouts

Other Important Plan Details

Employment at Will

Board of Directors/Compensation Committee Discretion

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