Employee Benefit Plans (including Share-based Compensation)

As of June 30, 2015, the Company has the following share-based compensation plans:

2013 Equity Incentive Plan

The 2013 Equity Incentive Plan (the “2013 Plan”) was approved by stockholders on November 20, 2013. The 2013 Plan replaces the 2005 Equity Incentive Plan (the "2005 Plan").

Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and other share-based or cash-based awards to employees and consultants. The 2013 Plan also authorizes the grant of awards of stock options, stock appreciation rights, restricted stock and restricted stock units to non-employee members of the Board of Directors and deferred compensation awards to officers, directors and certain management or highly compensated employees. The 2013 Plan authorizes the issuance of 9,000,000 shares of the Company’s common stock. In addition, up to 12,709,153 shares subject to stock options and awards available for issuance under the 2005 Plan may be transferred to the 2013 Stock Plan and would be added to the number of shares available for future grant under the 2013 Plan. The 2013 Plan includes provisions upon the granting of certain awards defined by the 2013 Plan as Full Value Awards in which the shares available for grant under the 2013 Plan are decremented 1.5 shares for each such award granted. Upon forfeiture or cancellation of unvested awards, the same ratio is applied in returning shares to the 2013 Plan for future issuance as was applied upon granting. As of June 30, 2015, total options and awards to acquire 5,308,134 shares were outstanding under the 2013 Plan and 5,449,673 shares are available for grant under the 2013 Plan. Options granted under this plan have a contractual term of seven years.

Enterasys 2013 Stock Plan

Pursuant to the acquisition of Enterasys on October 31, 2013, the Company assumed the Enterasys 2013 Stock Plan (the "Enterasys Plan"). As of June 30, 2015, total options and awards to acquire 3,405,182 shares were outstanding under the Enterasys Plan. Options granted under this plan have a contractual term of seven years. If a participant terminates employment prior to the vesting dates, the non-vested shares will be forfeited and retired in the Enterasys Plan. No future grants may be made from the Enterasys Plan.

2005 Equity Incentive Plan

The 2005 Plan was adopted by the Company’s Board of Directors on October 20, 2005, and approved by stockholders on December 2, 2005. The 2005 Plan replaced the Amended 1996 Stock Option Plan (the “1996 Plan”), the 2000 Non-statutory Stock Option Plan and the 2001 Non-statutory Stock Option Plan. The 2005 Plan includes provisions upon the granting of certain awards defined by the 2005 Plan as Full Value Awards in which the shares available for grant under the 2005 Plan are decremented 1.5 shares for each such award granted. Upon forfeiture or cancellation of unvested awards, the same ratio is applied in returning shares to the 2005 Plan for future issuance as was applied upon granting. Effective November 20, 2013, the 2005 Plan was replaced with the 2013 Plan, and, as of June 30, 2015, total options and awards to acquire 6,425,165 shares were outstanding under the 2005 Plan. No future grants may be made from the 2005 Plan, however, outstanding options and awards forfeited or canceled may be transferred to the 2013 Plan until December 2, 2015, at which time, no further shares may be transferred. To date there have been 3,948,781 shares transferred to the 2013 Plan.

Amended 1996 Stock Option Plan

The 1996 Plan was originally adopted in September 1996, and provided for the grant of options for common stock to eligible participants. Effective December 2, 2005, the 1996 Plan was terminated, and, as of June 30, 2015, options to acquire 134,313 shares remain outstanding under the 1996 Plan. No future grants may be made from the 1996 Plan.

As of June 30, 2015, the Company has the following shares available for issuance from the share-based compensation plans (in thousands):



	2005 Plan		2013 Plan		Total
Shares available at June 30, 2014	—		8,762		8,762
Granted	—		(7,060	)	(7,060	)
Canceled	1,537		2,211		3,748
Transferred	(1,537	)	1,537		—
Shares available at June 30, 2015	—		5,450		5,450

The following table summarizes stock option activity under all plans:



	Number of Shares (000’s)		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value ($ 000’s)
Options outstanding at June 30, 2013	9,145		$	3.66
Granted	6,347		$	5.15
Exercised	(1,792	)	$	3.59
Canceled	(1,968	)	$	5.01
Options outstanding at June 30, 2014	11,732		$	4.26
Granted	2,176		$	3.36
Exercised	(447	)	$	3.12
Canceled	(2,857	)	$	4.60
Options outstanding at June 30, 2015	10,604		$	4.03	3.79	$	410
Exercisable at June 30, 2015	6,905		$	3.95	2.29	$	227
Vested and expected to vest at June 30, 2015	10,159		$	4.02	3.67	$	389

Included in the options granted above for the year ended June 30, 2014 are 4.2 million options, assumed in connection with the acquisition of Enterasys on October 31, 2013, with an exercise price of $5.30.

The following table summarizes significant ranges of outstanding and exercisable options at June 30, 2015:



Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding (000’s)	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable (000’s)	Weighted- Average Exercise Price
		(In years)
$1.69 – $3.03	1,368	7.79	$	2.39	351	$	2.04
$3.17 – $3.17	376	2.98	$	2.96	294	$	2.97
$3.25 – $3.53	1,649	0.26	$	3.17	1,623	$	3.14
$3.54 – $3.87	1,128	3.20	$	3.41	812	$	0.38
$4.03 – $4.25	1,105	3.57	$	3.63	809	$	3.66
$4.26 – $5.26	1,200	2.24	$	4.21	1,065	$	4.21
$5.30 – $5.30	559	4.17	$	5.04	272	$	4.86
$5.36 – $6.44	2,489	4.62	$	5.30	1,397	$	5.30
$6.48 – $6.48	655	4.32	$	5.67	247	$	5.67
$6.96 – $6.96	75	5.17	$	6.15	34	$	6.15
$1.69 – $6.96	10,604	3.79	$	4.03	6,905	$	3.95

The total intrinsic value of options exercised in fiscal years 2015, 2014 and 2013 was $0.4 million, $4.1 million and $1.1 million, respectively. The fair value of options vested in fiscal years 2015, 2014 and 2013 was $1.4 million, $2.9 million and $1.5 million, respectively.

Stock Awards

Stock awards may be granted under the 2013 Plan on terms approved by the Board of Directors. Stock awards generally provide for the issuance of restricted stock which vests over a fixed period. During fiscal 2015, the Company began expensing restricted stock units with market and or performance based conditions to senior executive officers that had been granted during fiscal 2015. The Company recognizes compensation expense on the awards over the vesting period based on an intrinsic value as of the date of grant.

The following table summarizes stock award activity:



	Number of Shares (000’s)		Weighted- Average Grant- Date Fair Value
Non-vested stock outstanding at June 30, 2012	1,078		$	2.35
Granted	3,220		$	3.49
Vested	(939	)	$	3.38
Canceled	(673	)	$	3.44
Non-vested stock outstanding at June 30, 2013	2,686		$	3.09
Granted	5,193		$	5.50
Vested	(1,062	)	$	3.77
Canceled	(817	)	$	3.65
Non-vested stock outstanding at June 30, 2014	6,000		$	4.98
Granted	3,256		$	2.89
Vested	(2,542	)	$	5.05
Canceled	(2,117	)	$	3.96
Non-vested stock outstanding at June 30, 2015	4,597		$	3.82

Included in the restricted stock units granted above for the year ended June 30, 2014 are 2.7 million restricted stock units assumed in connection with the acquisition of Enterasys on October 31, 2013, with an acquisition-date fair value of $5.30.

2014 Employee Stock Purchase Plan

In August 27, 2014, the Board of Directors approved the adoption of Extreme Network’s 2014 Employee Stock Purchase Plan (the “2014 ESPP”). On November 12, 2014, the stockholders approved the 2014 ESPP with the maximum number of shares of common stock that may be issued under the plan of 12,000,000 shares. The 2014 ESPP replaces the 1999 ESPP. The 2014 ESPP allows eligible employees to acquire shares of the Company’s common stock through periodic payroll deductions of up to 15% of total compensation. No more than 1,000,000 shares may be issued on any purchase date. Each purchase period has a maximum duration of 6 months. The 2014 Plan will have offerings periods of 24 months, commonly referred to as "look back periods". The price at which the common stock may be purchased is 85% of the lesser of the fair market value of the Company’s common stock on the first day of the applicable offering period or on the last day of the respective purchase period. Through June 30, 2015, there have been no shares issued under the 2014 ESPP.

1999 Employee Stock Purchase Plan

In January 1999, the Board of Directors approved the adoption of Extreme Network’s 1999 Employee Stock Purchase Plan (the “1999 ESPP”). On December 2, 2005, the stockholders approved an amendment to the 1999 ESPP to increase the maximum number of shares of common stock that may be issued under the plan by 5,000,000 to a total of 12,000,000 shares. The 1999 ESPP was replaced by the 2014 ESPP. The 1999 ESPP allowed eligible employees to acquire shares of the Company’s common stock through periodic payroll deductions of up to 15% of total compensation. The price at which the common stock could be purchased was 85% of the lesser of the fair market value of the Company’s common stock on the first day of the applicable offering period or on the last day of the respective purchase period. Through June 30, 2015, 11,933,618 shares were purchased under the 1999 ESPP. All remaining shares available under the 1999 Plan have been retired.

Share Based Compensation

Share-based compensation expense recognized in the financial statements by line item caption is as follows (dollars in thousands):



	Year Ended
	June 30, 2015		June 30, 2014		June 30, 2013
Cost of product revenue	$	1,067	$	836	$	428
Cost of service revenue	1,068		895		292
Research and development	5,365		4,111		2,461
Sales and marketing	5,170		6,430		1,032
General and administrative	5,131		3,650		3,140
Total share-based compensation expense	$	17,801	$	15,922	$	7,353

During the year ended June 30, 2015, in conjunction with executive transition activity, the Company recognized $0.4 million of expense related to accelerated vesting of stock grants.

The amount of stock based compensation expense capitalized in inventory has been immaterial for each of the periods presented. As of June 30, 2015, there was $5.6 million of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of approximately 2.2 years. As of June 30, 2015, there were $11.4 million in unrecognized compensation costs related to non-vested stock awards. This cost is expected to be recognized over a weighted-average period of approximately 1.8 years

The weighted-average grant-date per share fair value of options granted in fiscal years 2015, 2014 and 2013, was $1.75, $2.36 and $1.74, respectively. The weighted-average estimated per share fair value of shares purchased under the 1999 ESPP in fiscal years 2015, 2014 and 2013, was $0.90, $1.64 and $0.88, respectively.

The average fair-value and the average derived service period on the grant-date for the performance-based option awards with market conditions, granted in fiscal 2015, was $1.21 and 1.9 years respectively. The average fair-value and the average derived service period on the grant-date for the performance-based option awards with market conditions, granted in fiscal 2013, was $1.53 and 2.5 years respectively.

The Company uses the straight-line method for expense attribution, and the Company estimates forfeitures and only recognizes expense for those shares expected to vest. The Company’s estimated forfeiture rate in fiscal 2015 based on the Company’s historical forfeiture experience is 12% for non-executives and 14% for executives.

The fair value of each stock option grant under the Company's 2013 Plan and 2005 Plan is estimated on the date of grant using the Black-Scholes-Merton option valuation model with the weighted average assumptions noted in the following table. The Company uses the Monte-Carlo simulation model to determine the fair value and the derived service period of grants, with performance and or market conditions, on the date of the grant. The expected term of options granted is derived from historical data on employee exercise and post-vesting employment termination behavior. The risk-free rate is based upon the estimated life of the option and is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on a blended rate of the implied volatilities from traded options on the Company’s stock and historical volatility on the Company’s stock.

The fair value of each share purchase option under the Company's 2014 ESPP and 1999 ESPP is estimated on the date of grant using the Black-Scholes-Merton option valuation model with the weighted average assumptions noted in the following table. The expected term of the 2014 ESPP and the 1999 ESPP represents the term of the offering period of each option. The risk-free rate is based upon the estimated life and is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on a blended rate of the implied volatilities from traded options and historical volatility on the Company’s stock.



	Stock Option Plans						Employee Stock Purchase Plans
	Year Ended						Year Ended
	June 30, 2015		June 30, 2014		June 30, 2013		June 30, 2015		June 30, 2014		June 30, 2013
Expected life	4.23 years		4.40 years		4.58 years		0.66 years		0.25 years		0.25 years
Risk-free interest rate	1.17	%	1.24	%	0.74	%	0.10	%	0.08	%	0.07	%
Volatility	50	%	56	%	64	%	59	%	58	%	49	%
Dividend yield	0	%	0	%	0	%	0	%	0	%	0	%

401(k) Plan

The Company provides a tax-qualified employee savings and retirement plan, commonly known as a 401(k) plan (the “Plan”), which covers the Company’s eligible employees. Pursuant to the Plan, employees may elect to reduce their current compensation up to the IRS annual contribution limit of $18,000 for calendar year 2015. Employees age 50 or over may elect to contribute an additional $6,000. The amount contributed to the Plan is on a pre-tax basis.

The Company provides for discretionary matching contributions as determined by the Board of Directors for each calendar year. All matching contributions vest immediately. In addition, the Plan provides for discretionary contributions as determined by the Board of Directors each year. During the year ended June 30, 2014, eligible employees from Enterasys were also added to the Plan as of the acquisition date. The program is to match $0.50 for every Dollar contributed by the employee up to the first 2.5% of pay. The Company’s matching contributions to the Plan totaled $1.1 million, $0.8 million and $0.5 million, for fiscal years 2015, 2014 and 2013, respectively. No discretionary contributions were made in fiscal years 2015, 2014 or 2013.