7. Employee Benefit Plans (including Share-based Compensation)

As of June 30, 2017, 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 replaced 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. During the fiscal year ended June 30, 2017, an additional 8,300,000 shares were authorized and made available for grant under the 2013 Plan. As of June 30, 2017, total options and awards to acquire 7,994,086 shares were outstanding under the 2013 Plan and 7,628,980 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, 2017, total options and awards to acquire 1,282,691 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, 2017, total options and awards to acquire 449,062 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 were allowed to be transferred to the 2013 Plan until December 2, 2015, at which time, no further shares may be transferred. There were a total of 6,628,643 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, 2016, no options to acquire shares remain outstanding under the 1996 Plan. No future grants may be made from the 1996 Plan.

The following table summarizes stock option activity under all plans (shares and intrinsic value in thousands):

	Number of Shares			Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Options outstanding at June 30, 2016		6,385		$	4.10		3.70	$	1,416
Granted		—			—
Exercised		(2,348	)		3.98
Cancelled		(975	)		4.48
Options outstanding at June 30, 2017		3,062		$	4.06		4.19	$	15,868
Vested and expected to vest at June 30, 2017		3,062		$	4.06		4.19	$	15,868
Exercisable at June 30, 2017		2,299		$	4.43		3.38	$	11,017

The following table summarizes significant ranges of outstanding and exercisable options at June 30, 2017, (shares outstanding and exercisable, in thousands):

Options Outstanding							Options Exercisable
			Weighted-		Weighted-				Weighted-
	Number		Average		Average		Number		Average
Range of	Outstanding		Remaining		Exercise		Exercisable		Exercise
Exercise Prices	(000’s)		Contractual Life		Price		(000’s)		Price
			(In years)
$1.69 – $2.05		99		1.32	$	2.02		99	$	2.02
$2.51 – $2.51		947		6.74	$	2.51		332	$	2.51
$2.94 – $3.54		345		2.35	$	3.34		295	$	3.32
$3.55 – $3.87		113		3.00	$	3.69		102	$	3.70
$4.18 – $4.18		26		3.08	$	4.18		26	$	4.18
$4.25 – $4.25		31		0.30	$	4.25		32	$	4.25
$5.21 – $5.21		43		4.13	$	5.21		31	$	5.21
$5.30 – $5.30		1,271		3.33	$	5.30		1,242	$	5.30
$5.67 – $5.67		172		3.61	$	5.67		127	$	5.67
$6.15 – $6.15		15		3.20	$	6.15		13	$	6.15
$1.69 – $6.15		3,062		4.19	$	4.06		2,299	$	4.43

The total intrinsic value of options exercised in fiscal years 2017, 2016 and 2015 was $5.7 million, $0.2 million and $0.4 million, respectively.

There were no stock options granted in fiscal 2017. The weighted-average grant-date per share fair value of stock options granted in fiscal years 2016 and 2015, was $1.59 and $1.75, respectively. As of June 30, 2017, there was $0.4 million of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of 1.3 years.

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

Stock Awards

Stock awards may be granted under the 2013 Plan on terms approved by the Compensation Committee of the Board of Directors. Stock awards generally provide for the issuance of restricted stock units (“RSU’s”), including performance or market-based restricted stock units (“PSU”) which vest over a fixed period of time or based upon the satisfaction of certain performance criteria. The Company recognizes compensation expense on the awards over the vesting period based on the award’s intrinsic value as of the date of grant.

During fiscal years 2017, 2016 and 2015, the Company began expensing PSU’s with market or performance based conditions to senior executive officers that had been granted during fiscal years 2017, 2016 and 2015. The Company uses a Monte-Carlo simulation model to determine the fair value and the derived service period of PSU’s, with market or performance conditions or combinations of those conditions with a service condition, on the date of grant.

The following table summarizes stock award activity (shares and market value in thousands):

	Number of Shares			Weighted- Average Grant Date Fair Value		Aggregate Fair Market Value
Non-vested stock awards outstanding at June 30, 2016		4,224		$	3.36
Granted		5,045			5.26
Vested		(1,721	)		3.80
Cancelled		(884	)		3.47
Non-vested stock awards outstanding at June 30, 2017		6,664		$	4.66	$	61,440

The aggregate fair value, as of the respective vesting dates of RSUs vested during the fiscal years ended June 30, 2017, 2016 and 2015 was $9.1 million, $8.6 million and $8.9 million, respectively.

For the fiscal years ended June 30, 2017, 2016 and 2015, the Company withheld an aggregate of 361,369 shares, 118,129 shares and 826,943 shares, respectively, upon the vesting of RSUs, based upon the closing share price on the vesting date as settlement of the employees’ minimum statutory obligation for the applicable income and other employment taxes.

For fiscal years 2017, 2016 and 2015, the Company remitted cash of $2.0 million, $0.2 million and $2.8 million, respectively, to the appropriate taxing authorities on behalf of the employees. The payment of the taxes by the Company reduced the number of shares that would have been issued on the vesting date and was recorded as a reduction of additional paid-in capital in the consolidated balance sheet and as a reduction of “Proceeds for issuance of common stock” in the financing activity within the consolidated statements of cash flows.

As of June 30, 2017, there were $25.1 million in unrecognized compensation costs related to non-vested stock awards. This cost is expected to be recognized over a weighted-average period of 1.9 years

Performance Grant Activity

The following table summarizes PSU’s with market or performance based conditions granted and the number of awards that have satisfied the relevant market or performance criteria in each period (in thousands):

	Fiscal year 2017		Fiscal year 2016		Fiscal year 2015
Performance awards granted		2,106		695		615
Performance awards earned		839		582		—

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 replaced the 1999 Employee Stock Purchase Plan. 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, subject to the terms of the specific offering periods outstanding. Each purchase period has a maximum duration of six (6) months. 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. The 2014 ESPP currently has offerings periods of either 6 months or 24 months, commonly referred to as "look back periods". As of June 30, 2017, there have been 4,215,122 shares issued under the 2014 ESPP.

Effective with the offering period beginning on February 1, 2016, the Company amended the 2014 ESPP to increase the maximum shares issuable for each purchase period from 1,000,000 shares to 1,500,000 shares. Effective with the offering period beginning on August 1, 2016, the Company amended the 2014 ESPP so that all future offering periods are limited to six months and to make certain other changes to the 2014 ESPP including adding new contribution limits for each offering period. Existing open offering periods prior to the effective date of the changes were unaffected by the amendments to 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 ESPP have been retired.

Share Based Compensation Expense

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

	Year Ended
	June 30, 2017		June 30, 2016		June 30, 2015
Cost of product revenue	$	333	$	882	$	1,067
Cost of service revenue		589		1,041		1,068
Research and development		3,312		4,559		5,365
Sales and marketing		4,253		4,633		5,170
General and administrative		4,146		3,677		5,131
Total share-based compensation expense	$	12,633	$	14,792	$	17,801

The amount of stock based compensation expense capitalized in inventory has been immaterial for each of the periods presented.

The Company uses the straight-line method for expense attribution. Beginning in fiscal 2017, the Company no longer estimates forfeitures, but rather recognizes expense for those shares expected to vest and recognizes forfeitures when they occur. The Company’s estimated forfeiture rate in fiscal 2016 based on the Company’s historical forfeiture experience was 13% for non-executives and 19% 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 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.

Under the 2013 Plan the Company uses a Monte-Carlo simulation model to determine the fair value and the derived service period of stock option grants, with market, performance or service conditions or combinations of those conditions, on the date of grant.

The fair value of each share purchase option under the Company's 2014 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. 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 the historical volatility on the Company’s stock.

The weighted-average estimated per share fair value of shares purchased under the 2014 ESPP and 1999 ESPP in fiscal years 2017, 2016 and 2015, was $1.24, $0.92 and $0.90, respectively.

	Stock Option Plan						Employee Stock Purchase Plan
	Year Ended						Year Ended
	June 30, 2016			June 30, 2015			June 30, 2017			June 30, 2016			June 30, 2015
Expected life	4.00 years			4.23 years			0.49 years			1.21years			0.66 years
Risk-free interest rate		1.78	%		1.17	%		0.40	%		0.33	%		0.10	%
Volatility		52	%		50	%		38	%		58	%		59	%
Dividend yield		—	%		—	%		—	%		—	%		—	%

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 2017. 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. The program during fiscal 2017 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 $1.4 million, $1.2 million and $1.1 million, for fiscal years 2017, 2016 and 2015, respectively. No discretionary contributions were made in fiscal years 2017, 2016 or 2015.