Exhibit 99.2

SUPERIOR COURT OF WASHINGTON

KING COUNTY

This Stipulation of Settlement, dated August 10, 2010 (the “Stipulation”), is made and entered into by and among the following Settling Parties (as defined in ¶1.18 infra), each by and through their respective counsel: Plaintiffs James Fein and Irvin Himmelberg (on behalf of themselves and derivatively on behalf of nominal defendant Isilon Systems Inc. (“Isilon” or the “Company”)) (collectively the “Plaintiffs”), Isilon, and defendants Barry J. Fidelman, Elliott H. Jurgensen, Jr., Gregory L. McAdoo, Matthew S. McIlwain, Sujal M. Patel, James G. Richardson, William D. Ruckelshaus, Stuart W. Fuhlendorf, and Steve Goldman (collectively, the “Individual Defendants”). The Stipulation is intended by the Settling Parties to fully, finally and forever resolve, discharge and settle the Released Claims (as defined in ¶1.14 infra), upon and subject to the terms and conditions hereof.

On March 17, 2008 and March 21, 2008, Plaintiff Fein and Plaintiff Himmelberg, respectively, brought shareholder derivative actions on behalf of Isilon against Isilon as nominal defendant and the Individual Defendants, alleging that the Individual Defendants breached their fiduciary duties to the Company and to its shareholders by knowingly making false and misleading statements and failing to disclose material facts about Isilon and its business. Specifically, Plaintiffs alleged that the Individual Defendants improperly recognized revenues at Isilon, resulting in a multi-million dollar restatement of the Company’s prior financial statements.

On May 16, 2008, these actions were consolidated under the caption In re Isilon Systems Inc. Derivative Litigation, Case No. CV 08-2-09536-SEA. Schiffrin Barroway Topaz & Kessler, LLP¹ was appointed Plaintiffs’ Lead Counsel and the Law Offices of Clifford A. Cantor, PC was appointed Liaison Counsel for Plaintiffs. On May 30, 2008, Plaintiffs filed their Consolidated Verified Shareholder Derivative Complaint.

In order to avoid inefficiencies and duplicative efforts and to better preserve the resources of the Court and the parties, on August 26, 2008, the parties stipulated and the Court entered an order staying the Action pending adjudication by the United States District Court for the Western District of Washington (the “Federal Court”) of the motion to dismiss in a related securities class action, captioned Fouad v. Isilon Systems, Inc., Master File No. 07-cv-1764 (MJP) (the “Securities Class Action”).

On December 29, 2008, the Federal Court issued an opinion on the motions to dismiss the Securities Class Action, granting in part and denying in part the motion to dismiss the Securities Class Action.

On February 3, 2009, Plaintiffs filed their Amended Consolidated Complaint. On June 17, 2009, certain parties’ counsel met in person to discuss a possible resolution to the Action.

On July 7, 2009, Plaintiffs’ Counsel sent a settlement demand letter to Isilon’s counsel, requesting that Isilon adopt and/or implement certain corporate governance enhancements. Specifically, Plaintiffs requested that the Company implement new or enhanced processes for its revenue recognition policies and control and disclosure practices and also adopt corporate governance changes designed to strengthen the Company’s internal controls and Board independence. Following Isilon’s receipt of the settlement demand letter, the parties continued discussing a potential settlement. The parties engaged in good faith, arm’s-length negotiations concerning the possible terms of a resolution to the Action. As a result of these discussions, the parties agreed to settle the Action on the terms and conditions set forth in this Stipulation.

Plaintiffs, through Plaintiffs’ Counsel (as defined in ¶1.11), conducted an extensive investigation during the development and prosecution of the Action. This investigation has included, inter alia, (i) inspecting, reviewing and analyzing the Company’s financial filings and other publicly-available documents, as well as non-public documents produced to Plaintiffs’ Counsel; (ii) researching corporate governance issues; (iii) participating in extensive discussions with Isilon’s counsel; and (iv) researching the applicable law with respect to the claims asserted in the Action and the potential defenses thereto.

Plaintiffs believe that the claims they have asserted in the Action on behalf of Isilon have merit. However, Plaintiffs’ Counsel recognizes and acknowledges the expense and length of continued proceedings necessary to prosecute the Action against the Individual Defendants through trial and through appeals. Plaintiffs’ Counsel has also taken into account the uncertain outcome and the risk of any litigation, especially in complex actions such as the Action, as well as the difficulties and delays inherent in such litigation. Plaintiffs’ Counsel is also mindful of the inherent problems of proof and possible defenses to the claims asserted in the Action or which may be asserted. Based on this evaluation, Plaintiffs and Plaintiffs’ Counsel have determined that the Settlement set forth in the Stipulation confers substantial benefits upon Isilon and its shareholders and is in the best interests of Isilon and its shareholders.

Isilon and the Individual Defendants have denied and continue to deny each and all of the claims and contentions alleged by the Plaintiffs in the Action. Isilon and the Individual Defendants have denied expressly and continue to deny all charges of wrongdoing or liability against them arising out of any of the conduct, statements, acts or omissions alleged, or that could have been alleged, in the Action. Isilon and the Individual Defendants also have denied and continue to deny, inter alia, the allegations that the Plaintiffs, Isilon or its shareholders have suffered damage, or that the Plaintiffs, Isilon or its shareholders were harmed by the conduct alleged in the Action. The Individual Defendants have further asserted that at all relevant times, they acted in good faith and in a manner they reasonably believed to be in the best interests of Isilon and its shareholders.

Isilon and the Individual Defendants have, nevertheless, also taken into account the burden and expense of further litigation, especially in complex cases such as this one. Isilon and

the Individual Defendants have, therefore, determined that it is desirable that the Action, and all of the parties’ disputes related thereto, be fully and finally settled in the manner and upon the terms and conditions set forth in this Stipulation. Isilon and the Individual Defendants are also entering into the Stipulation because they believe that the corporate governance enhancements set forth in the Stipulation confer substantial benefits upon Isilon and its shareholders and is in the best interests of Isilon and its shareholders.

NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and between the parties, through their undersigned counsel, in consideration of the benefits flowing to the parties from the Settlement, and subject to the approval of the Court, that all Released Claims shall be and hereby are compromised, settled, discontinued and dismissed with prejudice and without costs (except as defined herein) as to all Released Parties upon the terms, conditions and definitions herein.

As used in this Stipulation, the following terms shall have the meanings specified below:

1.1 “Action” means the derivative action captioned In re Isilon Systems, Inc. Derivative Litigation, Case No. 08-2-09536-SEA, pending in the Washington State Superior Court, King County.

1.2 “Board” means Isilon’s Board of Directors.

1.3 “Court” means Washington State Superior Court, King County.

1.4 “Effective Date” means the first date by which all of the events and conditions specified in ¶5.1 of the Stipulation have been met and have occurred.

1.5 “Final” means the time when the Judgment that has not been reversed, vacated, or modified in any way is no longer subject to appellate review, either because of

disposition on appellate review and conclusion of the appellate process or because of passage, without action, of time for seeking appellate review. More specifically, it is that situation when: (1) either no appeal has been filed and the time has passed for any notice of appeal to be timely filed in the Action; or (2) an appeal or request for other or additional review has been filed and the courts of appeal has/have either affirmed the Judgment or dismissed that appeal or review and the time for any reconsideration or further appellate review has passed; or (3) a higher court has granted further appellate review and that court has either affirmed the underlying Judgment or affirmed the court of appeals’ decision affirming the Judgment or dismissing the appeal, and no further review by any court is available.

1.6 “Individual Defendants” means Barry J. Fidelman, Elliott H. Jurgensen, Jr., Gregory L. McAdoo, Matthew S. McIlwain, Sujal M. Patel, James G. Richardson, William D. Ruckelshaus, Stuart W. Fuhlendorf (“Fuhlendorf”), and Steve Goldman (“Goldman”).

1.7 “Judgment” means the order and judgment to be rendered by the Court, substantially in the form attached hereto as Exhibit C.

1.8 “Notice” means the Notice of Proposed Settlement of the Action and of the Settlement Hearing, substantially in the form attached hereto as Exhibit B.

1.9 “Person” means an individual, corporation, limited liability corporation, professional corporation, partnership, limited partnership, limited liability partnership, association, joint stock company, estate, legal representative, trust, unincorporated association, government or any political subdivision or agency thereof, and any business or legal entity and its respective spouses, heirs, predecessors, successors, representatives, or assignees.

1.10 “Plaintiffs” means James Fein and Irvin Himmelberg.

1.11 “Plaintiffs’ Counsel” means Barroway Topaz Kessler Meltzer & Check, LLP and Law Offices of Clifford A. Cantor, P.C.

1.12 “Preliminary Approval Order” means the Preliminary Approval Order substantially in the form of Exhibit A hereto, requesting preliminary approval of the Settlement set forth in this Stipulation of Settlement.

1.13 “Related Persons” means each of the Individual Defendants’ present or former spouses, heirs, executors, estates, or administrators, any entity in which a defendant and/or member(s) of his or her family has an interest, each of the Individual Defendants’ present and former attorneys, legal representatives, and assigns in connection with the Action, and all of Isilon’s past and present directors, officers, agents, advisors, employees, affiliates, predecessors, successors, parents, subsidiaries, divisions, and related or affiliated entities.

1.14 “Released Claims” means any and all claims or causes of action, known or unknown, that have been or could have been asserted by Plaintiffs (or any of them, including Isilon) or by any Isilon stockholders, derivatively on behalf of Isilon, against Isilon, the Individual Defendants (or any of them) and their legal representatives, heirs, successors in interest or assigns, or any of the foregoing, arising out of or relating to the facts, transactions, events, occurrences, acts, disclosures, statements, omissions or failures to act which were alleged or could have been alleged in the Action. However, the Released Claims do not include the Reserved Claims, as described in paragraph 7.1 herein. The Reserved Claims shall not be dismissed, waived or prejudiced by the Judgment to be rendered by this Court, or by the releases of claims to be accomplished by the Settlement or by anything else in or arising from the Settlement.

1.15 “Released Persons” means each and all of the Individual Defendants and all Related Persons.

1.16 “Settlement” means the settlement and compromise of the Action as provided for herein.

1.17 “Settlement Hearing” means the hearing or hearings at which the Court will review the adequacy, fairness and reasonableness of the Settlement.

1.18 “Settling Parties” means, collectively, each of the Individual Defendants, Isilon and Plaintiffs, on behalf of themselves and derivatively on behalf of Isilon.

1.19 “Stipulation” means this Stipulation of Settlement.

2.1 After extensive settlement negotiations, Isilon and Plaintiffs have reached an agreement regarding various corporate governance issues, including measures that relate to and address many of the underlying issues in the Action. Isilon acknowledges that the litigation filed by Plaintiffs was a material factor in effecting the corporate governance measures set forth below, and that such measures confer substantial benefits to Isilon and its shareholders. These corporate governance measures shall be implemented within 120 days after the Effective Date and remain in effect for no less than three (3) years.

Isilon shall designate a Company officer who shall be responsible for (i) reviewing and monitoring the Company’s existing revenue recognition accounting policies and procedures and (ii) ensuring compliance with applicable laws and regulations, such as Generally Accepted Accounting Principles (“GAAP”), and (iii) providing effective monitoring mechanisms to ensure that such laws and regulations are followed. This officer will work in coordination with the Company’s General Counsel.

Isilon will continue to maintain its formal revenue recognition training program for new persons hired into sales, sales operation, and finance/accounting positions. Such training sessions will continue to be led by a combination of the VP Finance, General Counsel, and Controller.

The training shall continue to include (i) accounting principles and rules applicable to revenue recognition; (ii) how to recognize and account for any unique or non-standard terms and conditions applicable to revenue recognition; and, (iii) legal implications of revenue recognition. The substantive materials presented at the training will be approved in advance by the Chairman of the Audit Committee.

If the Company is required to restate its financial statements in the future, the Compensation Committee shall consider and recommend to the board whether any executive officer of the Company should be required to return some or all of any compensation that officer received that was predicated upon the achievement of financial results that were subsequently the subject of a restatement.

3.1 After negotiation of the material terms of the Settlement including the corporate governance measures set forth above, the Settling Parties engaged in an arm’s-length negotiation regarding the attorneys’ fees and expenses to be paid to Plaintiffs’ Counsel for the

substantial benefits conferred upon Isilon as a result of the Action. The Settling Parties acknowledge that Plaintiffs’ Counsel may, subject to Court approval, recover fees in the amount of $500,000.00 in return for the substantial benefits that have been conferred on Isilon as a result of the Action, and Isilon and the Individual Defendants agree not to contest a fee request by Plaintiffs’ Counsel that does not exceed the foregoing amount (the “Fee and Expense Award”).

3.2 Within seven (7) business days after the Court’s approval of the Settlement and entry of a Judgment, Isilon will pay the Fee and Expense Award to Barroway Topaz Kessler Meltzer & Check, LLP. Each Plaintiffs’ Counsel receiving an allocation of the Fee and Expense Award agrees to make a refund or repayment of the principal amount and any accrued interest thereon it received if and when, as a result of any further order of the Court, appeal, further proceedings on remand, or successful collateral attack, the Settlement does not become Final. Any order or proceeding relating to an award of attorneys’ fees and expenses, or any appeal from or review of any order relating thereto, or any reversal or modification thereof, shall have no effect on the Settlement (including without limitations any payment to Mr. Goldman and/or to Mr. Fuhlendorf referenced in this Settlement) and shall not operate to, or be grounds to, terminate or cancel the Settlement or to affect or delay the finality of the Judgment.

3.3 Except as expressly provided herein, Plaintiffs and Plaintiffs’ Counsel shall bear their own fees, costs and expenses, and no Party shall assert any claim for expenses, costs and fees against Plaintiffs or Plaintiffs’ Counsel.

4.1 Promptly after execution of the Stipulation, the Settling Parties shall submit the Stipulation and its Exhibits to the Court and apply for entry of the Preliminary Approval Order.

4.2 Within ten (10) days of the issuance of the Preliminary Approval Order, Isilon shall provide notice of the Settlement to its shareholders by publishing a notice on Form 8-K. The Form 8-K and the Stipulation will be posted on the investor relations page of Isilon’s corporate website. Isilon shall also cause notice of settlement to run, on one occasion of its choosing, in the Investor’s Business Daily publication. Isilon shall be responsible for the cost and dissemination of the Notice to its shareholders after approval of the form by the Court.

4.3 The Settling Parties will request that, after Notice is disseminated, the Court hold the Settlement Hearing and approve the Settlement as set forth herein and enter the Judgment: (a) approving the terms of the Settlement as fair, reasonable and adequate, including attorneys’ fees and expenses in the amount negotiated by the Settling Parties; and (b) dismissing with prejudice all Released Claims against any and all of the Released Persons.

5.1 The Effective Date of this Stipulation shall be conditioned on the occurrence of all of the following events:

5.2 If any of the conditions specified in ¶5.1 are not met, then the Stipulation shall be canceled and terminated subject to ¶5.3 unless counsel for the Settling Parties mutually agree in writing to proceed with the Stipulation.

5.3 In the event that the Stipulation of Settlement is not approved by the Court, or the Settlement is terminated for any reason: (a) the Settlement will be without prejudice, and none of its terms will be effective or enforceable; (b) the Settling Parties will revert to their litigation positions immediately prior to the execution of the Stipulation; and (c) the fact and terms of this settlement will not be admissible in any trial of this Action.

6.1 Upon the entry of the Judgment, Plaintiffs, derivatively on behalf of Isilon, and Isilon shall have, and by operation of the Judgment shall be deemed to have, fully, finally, and forever released, relinquished and discharged all Released Claims against the Released Persons. Nothing herein shall in any way impair or restrict the rights of any Settling Party to enforce the terms of the Stipulation.

6.2 Upon the entry of the Judgment, Isilon and the Individual Defendants shall have, and by operation of the Judgment shall be deemed to have fully, finally, and forever released, relinquished and discharged Plaintiffs and their counsel (other than Isilon and its insurers) of all claims or causes of action, known or unknown, arising out of or relating to the institution, prosecution or settlement of the Action.

6.3 Upon the entry of the Judgment, there shall be deemed an absolute and unconditional mutual release of all Released Claims by and against Isilon and the Individual Defendants (or any of them), on the one hand, and Plaintiffs (or any of them, including Isilon), or any Isilon stockholders, derivatively on behalf of Isilon, on the other hand; provided, however, that neither the Individual Defendants nor Isilon (nor any of them) shall release their respective rights (pursuant to any indemnification agreements, Isilon’s Bylaws, Delaware law, or as an insured or beneficiary under any and all insurance policies issued to Isilon and/or relating to service as an officer or director of Isilon) concerning legal fees and costs incurred in the Action that, as of the Effective Date of the Settlement as defined in the Stipulation in this Action, (i) have been invoiced but are unpaid or (ii) have not yet been invoiced.

6.4 As of the March 5, 2010 entry of the Court’s Order and Final Judgment Approving Settlement (“Effective Date of the Settlement”) in the Securities Class Action, the Individual Defendants, on the one hand, and Isilon, on the other hand, will absolutely and unconditionally mutually release each other from any and all claims or causes of action, known or unknown, arising out of or relating to Isilon’s advancement of legal fees and costs to the Individual Defendants in connection with the Securities Class Action pursuant to Isilon’s and/or the Individual Defendants’ indemnification agreements, Isilon’s Bylaws or Delaware law; provided, however, that neither the Individual Defendants, nor Isilon (nor any of them) shall release their respective rights (pursuant to any indemnification agreements, Isilon’s Bylaws, Delaware law, or as an insured or beneficiary under any and all insurance policies issued to Isilon and/or relating to service as an on-officer or director of Isilon) concerning legal fees and costs incurred in the Securities Class Action that, as of the Effective Date of the Settlement as defined in the Stipulation in the Securities Class Action, (i) have been invoiced but are unpaid or (ii) have not yet been invoiced.

6.5 Notwithstanding any other provision, the Individual Defendants and Isilon (and each of them) are not releasing their respective rights (pursuant to any indemnification agreements, Isilon’s Bylaws, Delaware law, or as an insured or beneficiary under any and all insurance policies) relating to any or all of (1) In the Matter of Isilon Systems, Inc., MSF-3304, (2) S.E.C. v. Fuhlendorf, Civil Action No. 2:09-cv-1292 (W.D. Wa.), or (3) any other investigation, claim or matter that will give rise to rights under any indemnification agreements, Isilon’s Bylaws, or Delaware law, or as an insured or beneficiary under any and all insurance policies issued to Isilon and/or relating to service as an officer or director of Isilon.

7.1 Payment to Goldman. Within not more than 7 days after the Court’s approval of the Settlement and entry of a Judgment of Dismissal with Prejudice of the Action, Isilon shall pay defendant Steve Goldman a severance of $175,000.02 and COBRA reimbursements of $7,435.07, as called for under Mr. Goldman’s employment agreement dated July 17, 2003, subject to Mr. Goldman’s obligation to repay such payments if an appeal is taken and the severance and COBRA reimbursement payments are later modified or disapproved, in whole or in part. Goldman’s repayment obligation is without waiver of or prejudice to, the Reserved Claims described below.

7.2 Payment to Fuhlendorf. Fuhlendorf has asserted he has claims or potential claims against Isilon not filed in this Action arising out of his employment and termination of same, as well as arising from post–employment activities. Isilon, while denying those claims, has agreed to a separate settlement with Fuhlendorf that includes a payment to Fuhlendorf of $127,000 at the time the Settlement of the Action is completed and approved, and a separate mutual release of claims (excluding certain ongoing rights and responsibilities, e.g., rights and obligations under and/or related to the indemnification agreement between Isilon and Fuhlendorf). Plaintiffs (including Isilon) and all Isilon shareholders, derivatively on behalf of Isilon, agree not to contest this payment.

7.3 The Settling Parties (a) acknowledge that it is their intent to consummate this Stipulation; and (b) agree to cooperate to the extent reasonably necessary to effectuate and implement all terms and conditions of the Stipulation and to exercise their best efforts to accomplish the foregoing terms and conditions of the Stipulation.

7.4 The Settling Parties intend this Settlement to be a final and complete resolution of all disputes between them with respect to the Action. The Settlement compromises claims that are contested and shall not be deemed an admission by any of the Settling Parties as to the merits of any claim, allegation or defense. The Settling Parties further agree that the claims are being settled voluntarily after consultation with competent legal counsel.

7.5 Neither the Stipulation nor the Settlement, nor any act performed or document executed pursuant to or in furtherance of the Stipulation or the Settlement: (a) is, or may be deemed to be, or may be offered, attempted to be offered or used in any way by the Settling Parties or any other Person as a presumption, a concession or an admission of, or evidence of, jurisdiction over, fault, wrongdoing or liability of any of the Settling Parties or of the validity of any Released Claims; or (b) is intended by the Settling Parties to be offered or received as evidence or used by any other Person in any other actions or proceedings, whether civil, criminal or administrative.

7.6 The Released Persons may file the Stipulation and/or the Judgment in any action that may be brought against them in order to support a defense or counterclaim based on principles of res judicata, collateral estoppel, full faith and credit, release, good faith settlement, judgment bar or reduction or any other theory of claim preclusion or issue preclusion or similar defense or counterclaim.

7.7 The Exhibits to this Stipulation are material and integral parts hereof and are fully incorporated herein by this reference.

7.8 The Stipulation may be amended or modified only by a written instrument signed by or on behalf of all Parties or their respective successors-in-interest.

7.9 This Stipulation and the Exhibits attached hereto constitute the entire agreement among the Settling Parties and no representations, warranties or inducements have been made to any Settling Party concerning the Stipulation or any of its Exhibits other than the representations, warranties and covenants contained and memorialized in such documents. By way of example and not limitation, the Settlement, when Final, shall replace and supersede the Settling Parties’ earlier Memorandum of Understanding, filed with the Court on June 8, 2010. Except as otherwise provided herein and subject to applicable indemnities and policies of insurance, each of the Settling Parties shall bear their own costs.

7.10 Plaintiffs’ Counsel, derivatively on behalf of Isilon, are expressly authorized by Plaintiffs to take all appropriate action required or permitted to be taken pursuant to the Stipulation to effectuate its terms and also are expressly authorized by Plaintiffs to enter into any modifications or amendments to the Stipulation that they deem appropriate on behalf of Plaintiffs.

7.11 Each counsel or other Person executing the Stipulation or its Exhibits on behalf of any Settling Party hereby warrants that such Person has the full authority to do so on behalf of that Settling Party. Moreover, each Settling Party hereby warrants that such Person has the full authority to enter into this Stipulation.

7.12 The Stipulation may be executed in one or more counterparts. All executed counterparts and each of them shall be deemed to be one and the same instrument. A complete set of counterparts, either originally executed or copies thereof, shall be filed with the Court.

7.13 The Stipulation shall be binding upon, and inure to the benefit of, the successors and assigns of the Settling Parties and the Released Persons.

7.14 The Court shall retain jurisdiction with respect to implementation and enforcement of the terms of the Stipulation, and the Settling Parties submit to the jurisdiction of the Court solely for purposes of implementing and enforcing the settlement embodied in the Stipulation.

7.15 This Stipulation and the Exhibits attached hereto shall be considered to have been negotiated, executed and delivered, and to be wholly performed, in the State of Washington, and the rights and obligations of the parties to the Stipulation shall be construed and enforced in accordance with, and governed by, the internal, substantive laws of the State of Washington without giving effect to that State’s choice-of-law principles.

7.16 Neither the Settlement nor any of its terms shall constitute an admission or finding of wrongful conduct, acts or omissions.

IN WITNESS WHEREOF, the Settling Parties have caused the Stipulation to be executed by their duly authorized attorneys and dated Aug. 10, 2010.