Extreme Networks
Annual Report 2017

Plain-text annual report

haUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K (Mark One)☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended June 30, 2017OR☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to .Commission file number 000-25711 Extreme Networks, Inc.(Exact name of Registrant as specified in its charter) Delaware 77-0430270(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.) 6480 Via del OroSan Jose, California 95119(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (408) 579-2800 Securities registered pursuant to Section 12(b) of the Act: NoneSecurities registered pursuant to Section 12(g) of the Act:Common stock, $0.001 par value Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past90 days. Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submitand post such files). Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growthcompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer☐ Accelerated Filer☒Non-Accelerated Filer☐ Smaller reporting company☐Emerging growth company☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒The aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $407.5 million as of December 31, 2016, the last business day of theRegistrant’s most recently completed second fiscal quarter, based upon the per share closing price of the Registrant’s common stock as reported on The NASDAQ Global Marketreported on such date. For purposes of this disclosure, shares of common stock held or controlled by executive officers and directors of the registrant and by persons who holdmore than 5% of the outstanding shares of common stock have been treated as shares held by affiliates. This calculation does not reflect a determination that certain persons areaffiliates of the Registrant for any other purpose.113,064,935 shares of the Registrant’s Common stock, $.001 par value, were outstanding as of September 6, 2017.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's definitive proxy statement for the 2017 Annual Meeting of Stockholders to be filed with the Commission pursuant to Regulation 14A not laterthan 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated herein by reference in Part III of this Annual Report on Form 10-K. EXTREME NETWORKS, INC.FORM 10-KINDEX PageForward Looking Statements PART I 2 Item 1. Business 2 Item 1A. Risk Factors 17 Item 1B. Unresolved Staff Comments 33 Item 2. Properties 33 Item 3. Legal Proceedings 33 Item 4. Mine Safety Disclosures 33 PART II 34 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 34 Item 6. Selected Financial Data 36 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 51 Item 8. Financial Statements and Supplementary Data 53 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 93 Item 9A. Controls and Procedures 93 Item 9B. Other Information 94 PART III 95 Item 10. Directors, Executive Officers and Corporate Governance 95 Item 11. Executive Compensation 95 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 95 Item 13. Certain Relationships and Related Transactions, and Director Independence 95 Item 14. Principal Accountant Fees and Services 95 PART IV 96 Item 15. Exhibits and Financial Statement Schedules 96 SIGNATURES 97 i FORWARD LOOKING STATEMENTSExcept for historical information contained herein, certain matters included in this annual report on Form 10-K are, or may be deemed to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The words"will," "may," "designed to," "believe," "should," "anticipate," "plan," "expect," "intend," "estimate" and similar expressions identify forward-lookingstatements, which speak only as of the date of this annual report. These forward-looking statements are contained principally under Item 1, "Business," andunder Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," but may also be in other sections of this annualreport on Form 10-K. Because these forward-looking statements are subject to risks and uncertainties, actual results could differ materially from theexpectations expressed in the forward-looking statements. Important factors that could cause actual results to differ materially from the expectations reflectedin the forward-looking statements include those described in Item 1A, "Risk Factors" and Item 7, "Management's Discussion and Analysis of FinancialCondition and Results of Operations." In addition, new risks emerge from time to time and it is not possible for management to predict all such risk factors orto assess the impact of such risk factors on our business. Given these risks and uncertainties, you should not place undue reliance on these forward-lookingstatements. We undertake no obligation to update or revise these forward-looking statements to reflect subsequent events or circumstances.PART IItem1. BusinessOverviewExtreme Networks, Inc., together with its subsidiaries (collectively referred to as “Extreme” and as “we”, “us” and “our”) is a leader in providingsoftware-driven networking solutions for enterprise customers. Providing a combined end-to-end solution from the data center to the access point, Extremedesigns and develops wired and wireless network infrastructure equipment and develops the software for network management, policy, analytics, security andaccess controls. We strive to help our customers and partners Connect Beyond the Network by building world-class software and network infrastructuresolutions that solve the wide range of problems faced by information technology (“IT”) departments. During fiscal year 2017, Extreme experienced a 13% year-over-year revenue growth. These results reflect continued execution toward our strategicobjectives, including results from the recently acquired wireless local area network (“WLAN”) business (“WLAN Business”) from Zebra TechnologiesCorporation (“Zebra”). Enterprise network administrators from the data center to the access layer need to respond to the rapid digital transformational trends of cloud,mobility, big data, social business and the ever-present need for network security. Accelerators such as Internet of Things (“IoT”), artificial intelligence(“AI”), bring your own device (“BYOD”), machine learning, cognitive computing, and robotics add complexity to challenge the capabilities of traditionalnetworks. Technology advances have a profound effect across the entire enterprise network by placing unprecedented demands on network administrators toenhance management capabilities, scalability, programmability, agility, and analytics of the enterprise networks they manage.A trend affecting the enterprise network equipment market is the continued adoption of the cloud-managed enterprise WLAN in the enterprise market.Hybrid cloud is a cloud computing environment which uses a mix of on-premises, private cloud and third-party, public cloud services with orchestrationbetween the two platforms. We introduced ExtremeCloud, our Cloud offering in 2016 and announced our enhanced cloud offering in 2017. ExtremeCloud isthe only offering in the market that seamlessly integrates the Cloud with on premise infrastructures.To facilitate the readers understanding, the following is a list of common terms in our industry used in the discussion of our business: •Access Point: A wireless access point, or more generally just access point (“AP”), is a networking hardware device that allows a Wi-Fi device toconnect to a wired network. (Industry term) •OpenFlow: OpenFlow (“OF”) is considered one of the first software-defined networking (“SDN”) standards. It originally defined thecommunication protocol in SDN environments that enables the SDN Controller to directly interact with the forwarding plane of network devicessuch as switches and routers, both physical and virtual (hypervisor-based), so it can better adapt to changing business requirements. (Source: SDxCentral) •OpenStack: OpenStack software controls large pools of compute, storage, and networking resources throughout a datacenter, managed through adashboard or via the OpenStack API. OpenStack works with popular enterprise and open source technologies making it ideal for heterogeneousinfrastructure. (Source: OpenStack.org)2 •CloudStack: CloudStack is an open source cloud computing software for creating, managing, and deploying infrastructure cloud services. It usesexisting hypervisors such as KVM, VMware ESXi and XenServer/XCP for virtualization. •Single Pane of Glass: Single pane of glass is a term used to describe a management display console that integrates all parts of a computerinfrastructure. •Fabric Attach: Avaya, Inc.’s (“Avaya”) Avaya Fabric Attach (“FA”) fundamentally introduces autonomic/automatic attachment to networkservices for end users IoT devices to a network infrastructure. Fabric Attach and Fabric Connect are key building blocks of the Avaya SDN Fx™architecture. •Fabric Connect: Fabric Connect is an extended implementation of the IEEE/IEFT standards for Shortest Path Bridging (“SPB”). It offers a full-service network virtualization technology that combines the best of Ethernet and the best of IP. •Campus (Network): A campus network, or campus area network, or corporate area network or (“CAN”) is a computer network made up of aninterconnection of local area networks (“LANs”) within a limited geographical area, such as a college campus, company campus, hospital, hotel,convention center or sports venue. •Data Center: A data center is a facility used to house computer systems and associated components, such as telecommunications and storagesystems. It generally includes redundant or backup power supplies, redundant data communications connections, environmental controls (e.g. airconditioning, fire suppression) and various security devices. •Data Center Fabric technologies: Also known as networking switch fabric, is the basic topology of how a network is laid out and connected toswitch traffic on a data or circuit-switched network. •Edge: An edge device is a device which provides an entry point into enterprise or service provider core networks. Examples include routers,routing switches, integrated access devices (“IADs”), multiplexers, and a variety of metropolitan area network (“MAN”) and wide area network(“WAN”) access devices. •Access: Network access is the closest point of entry to a network whether it is a wireless access point, Ethernet connection, or Wi-Fi device. •Aggregation: In computer networking, the term aggregation applies to various methods of combining (aggregating) multiple network connectionsin parallel in order to increase throughput beyond what a single connection could sustain, and to provide redundancy in case one of the linksshould fail. •Core: A core network, or network core, is the central part of a telecommunications network that provides various services to customers who areconnected by the access network. •Layer 3 Data Center Interconnect; A Data Center Interconnect (“DCI”) refers to the networking of two or more different data centers to achievebusiness or IT objectives. This interconnectivity between separate data centers enables them to work together, share resources and/or passworkloads between one another. A Layer 3 DCI refers to interconnection made through layer 3 of the commonly-referenced multilayeredcommunication model, Open Systems Interconnection (“OSI”). •Flipped Classroom: Flipped classroom is an instructional strategy and a type of blended learning that reverses the traditional learningenvironment by delivering instructional content, often online, outside of the classroom. Industry BackgroundThe networking industry appears to be invigorated by a wave of technological change: •Ethernet (wired and wireless) has solidified its role in both public and private networks through its scalability, adaptability and cost-effectiveness. At the same time, the enterprises and service providers expect the technology to follow a price-performance curve that mandatescontinued innovation by Ethernet vendors. •The mobile workforce continues to proliferate. Employees expect high-quality and secure access to corporate resources in a BYOD world across adiversity of endpoints such as laptops, tablets, smart phones and wearables, whether they are within the corporate firewall or on-the-go. WithExtremeManagement, IT departments focus their investment decisions on this mobile workforce, taking a unified view of wireless access, from thecampus core and the data center. Networking vendors offer end-to-end solutions that permit IT managers to meet employee expectations and tomaximize IT return on investment.3 •Verticals such as healthcare, education, manufacturing, government, hospitality, which includes sports and entertainment venues and retailare connecting with their customers and guests beyond the network. These enterprises are investing in guest and location technologies thatconnect with their customers via their mobile devices over their WLAN. This allows them to obtain rich analytics for contextual marketing, whichin turn, enables them to deliver a personalized brand experience. ExtremeGuest and ExtremeLocation have been built on cloud-based technologyfor simple implementation and fast release to market to better provide necessary insights into guest demographics and location-based analytics. •Growing usage of the cloud. Enterprises have migrated increasing numbers of applications and services to either private clouds or public cloudsoffered by third parties. In either case, the network infrastructure must adapt to this new dynamic environment. Intelligence and automation arekey if enterprises are to derive maximum benefit from their cloud deployments. Ethernet speeds, scaling from 10 Gigabits per second ("G") to 40Gand even 100G, provide the infrastructure for both private and public clouds. In addition, there is growing interest in SDN approaches that mayinclude technologies such as OpenFlow, OpenStack, and CloudStack for increased network agility. •Vendor consolidation is expected to continue. Consolidation of vendors within the enterprise network equipment market and between adjacentmarkets (storage, security, wireless & voice software and applications) continues to gain momentum. We identified this trend in 2013 with ouracquisition of Enterasys. Further, we believe customers are demanding more end-to-end, integrated networking solutions. To address this demand,we acquired the WLAN Business of Zebra in October 2016, and Avaya’s fabric-based secure networking solutions and network security solutionsbusiness (“Avaya Networking”) in July 2017.Our strategy, product portfolio and research and development are closely aligned with what we have identified as the following trends in ourindustry: ○The software segment of the worldwide enterprise network equipment market has continued to evolve and demands for improvements inNetwork Management will continue. ➣Extreme announced our Enterprise Management Console in the fourth quarter of fiscal 2016. This innovative software helps ITnetwork administrators to navigate the unprecedented demands caused by the surge of IoT devices and technology. ○SDN is providing more revenue and delivery models to the industry. ➣Extreme’s SDN offering is innovative and adaptable to a wide range of use cases. ○Enterprise adoption of the cloud and open-source options are disrupting traditional license and maintenance business models. ➣Extreme announced cloud offerings in April 2016 and began participation in the OpenSwitch program in May 2016. ○Growth of wireless devices continues to outpace hardwire switch growth. ➣Extreme announced our 802.11ac Wave 2 wireless offering in late 2015 and plans to continue to advance our wireless portfolio ofindoor and outdoor access points. The Extreme StrategyExtreme is focused on delivering end-to-end IP networking solutions for today’s enterprise environments. From wireless and wired accesstechnologies, through the campus, core and into the datacenter, Extreme is developing solutions to deliver outstanding business outcomes for ourcustomers. Leveraging a unified management approach, both on premise and in the cloud, we continue to accelerate adoption and delivery of newtechnologies in support of emerging trends in enterprise networking. We continue to execute on our growth objectives by maximizing customer, partner, andshareholder value.In fiscal 2014, we completed the acquisition of Enterasys Networks, on October 28, 2016, we completed the acquisition of the WLAN Business fromZebra, and on July 14, 2017, we completed the acquisition of Avaya Networking. These acquisitions support our growth strategy to lead the enterprisenetwork equipment market with end-to-end software-driven solutions for enterprise customers from the data center to the wireless edge. After the closing ofthe Avaya Networking transaction, Extreme immediately became a networking industry leader with more than 30,000 customers. As a network switchingleader in enterprise, datacenter and cloud, after closing of the Avaya Networking business, we combine and extend our world-class products and technologiesto provide customers with some of the most advanced, high performance and open solutions in the market as well as a superb overall customerexperience. The combination of Extreme and Avaya Networking is significant in that it brings together distinct strengths addressing the key areas of thenetwork, from unified wired and wireless edge, to the enterprise core, to the data center and cloud. 4 Provider of high quality, software-driven, secure networking solutions and the industry’s #1 customer support organization •Only multi-vendor network management with “single pane of glass” •Delivering new releases of next generation portfolio organically and through acquisitionKey elements of our strategy include: •Enable customers and partners to “Connect Beyond the Network”. We work with our customers to clearly understand their challenges and helpthem innovate with the latest networking technology. We help them move beyond just “keeping the lights on”, so they can think strategically andinnovate. By allowing customers to access critical decision making intelligence, we are able reduce their daily tactical work so they can spendtheir time on learning and understanding how to innovate their business with IT. •Enable a common fabric to simplify and automate the network. With the acquisition of Avaya Networking, Extreme now has access to fieldproven Campus and Data Center Fabric technologies. Fabric technologies virtualize the network infrastructure (decoupling network services fromphysical connectivity) which enables network services to be turned up faster, with lower likelihood of error. They make the underlying networkmuch easier to design, implement, manage and troubleshoot. •Software-driven networking services-led solutions. Our software-driven solutions provide visibility, control and strategic intelligence from theEdge to the Data Center, across networks and applications. Our solutions include wired switching, wireless switching, wireless access points andcontrollers. We offer a suite of products that are tightly integrated with access control, network and application analytics as well as networkmanagement. All can be managed, assessed and controlled from one single pane of glass. •Offer customers choice – cloud or on premise. We leverage cloud where it makes sense for our customers and provide on premise solutions wherecustomers need it. Our hybrid approach gives our customers options to adapt the technology to their business. At the same time, all of our solutionshave visibility, control and strategic information built in, all tightly integrated with one single pane of glass. Our customers can understand what’sgoing on across the network and applications in real time – who, when, and what is connected to the network, which is critical for BYOD and IoT. •Enable IoT without additional IT resources. In a recent IoT IT infrastructure survey conducted in December 2016, enterprise IT decision makersacross industry verticals indicated their preference to opt for their existing wireless connectivity infrastructure to support IoT devices. Thesepreferences will place unprecedented demand on network administrators to enhance management capabilities, scalability and programmability ofthe enterprise networks they manage without additional IT resources. •Provide a strong value proposition for our customers. Our cloud-managed wired and wireless networking solutions that provide additionalchoice and flexibility with on or off premise network, device and application management coupled with our award-winning services and supportprovide a strong value proposition to the following customers and applications: ○Enterprises and private cloud data centers use our products to deploy automated next-generation virtualized and high-density infrastructuresolutions. ○Enterprises and organizations in education, healthcare, manufacturing, hospitality, transportation and logistics and government agencies useour solutions for their mobile campus and backbone networks. ○Enterprises, universities, healthcare and hospitality organizations use our solutions to enable better visibility and control of their dataprocessing and analytics requirements. •Provide high-quality customer service and support. We seek to enhance customer satisfaction and build customer loyalty through high-qualityservice and support. This includes a wide range of standard support programs that provide the level of service our customers require, from standardbusiness hours to global 24-hour-a-day, 365-day-a-year real-time response support. •Extend switching and routing technology leadership. Our technological leadership is based on innovative switching, routing and wirelessproducts, the depth and focus of our market experience and our operating systems - the software that runs on all of our Ethernet Switches. Ourproducts reduce operating expenses for our customers and enable a more flexible and dynamic network environment that will help them meet theupcoming demands of IoT, mobile, and cloud, etc. Furthermore, our network operating systems, our primary merchant silicon vendor, and selectmanufacturing partners permit us to leverage our engineering investment. We have invested in engineering resources to create leading-edgetechnologies to increase the performance and functionality of our products, and as a direct result, the value of our solution to our current and futurecustomers. We look for maximum synergies from our engineering investment in our targeted verticals.5 •Expand Wi-Fi technology leadership. Wireless is today’s network access method of choice and every business must deal with scale, density andBYOD challenges. The increase in demand being seen today, fueled by more users with multiple devices, increases the expectation that everythingwill just work. The network edge landscape is changing as the explosion of mobile devices increases the demand for mobile, transparent andalways-on wired to wireless edge services. This new “unified access layer” requires distributed intelligent components to ensure that access controland resiliency of business services are available across the entire infrastructure and manageable from a single console. Our unified access layerportfolio provides intelligence for the wired/wireless edge •Continue to deliver unified management and a common fabric across the wired/wireless environment from the Data Center to the mobileEdge. Our rich set of integrated management capabilities provides centralized visibility and highly efficient anytime, anywhere control ofenterprise wired and wireless network resources. •Offer a superior quality of experience. Our network-powered application analytics provide actionable business insight by capturing andanalyzing context-based data about the network and applications to deliver meaningful intelligence about applications, users, locations anddevices. With an easy to comprehend dashboard, our applications help businesses to turn their network into a strategic business asset that helpsexecutives make faster and more effective decisions.Data can be mined to show how applications are being used enabling a better understanding of user behavior on the network, identifying the levelof user engagement and assuring business application delivery to optimize the user experience. Application adoption can be tracked to determinethe return on investment associated with new application deployment.Visibility into network and application performance enables our customers to pinpoint and resolve performance bottlenecks in the infrastructurewhether they are caused by the network, application or server. This saves both time and money for the business and ensures critical applications arerunning at the best possible performance. •Software-driven networking solutions for the enterprise. We are a software-driven networking solution company focused on the enterprise. Wefocus our R&D team and our sales teams to execute against a refined set of requirements for optimized return on investment, faster innovation, andclearer focus on mega trends and changes in the industry. As a software-driven networking company, we offer solutions for the entire enterprisenetwork, the data center, the campus, the core and the WLAN. •Expand market penetration by targeting high-growth market segments. Within the Campus, we focus on the mobile user, leveraging ourautomation capabilities and tracking WLAN growth. Our Data Center approach leverages our product portfolio to address the needs of privateCloud Data Center providers. Within the Campus we also target the high-growth physical security market, converging technologies such asInternet Protocol (“IP”) video across a common Ethernet infrastructure in conjunction with technology partners. •Leverage and expand multiple distribution channels. We distribute our products through select distributors, a large number of resellers andsystem-integrators worldwide, and several large strategic partners. We maintain a field sales force to support our channel partners and to selldirectly to certain strategic accounts. As an independent Ethernet switch vendor, we seek to provide products that, when combined with theofferings of our channel partners, create compelling solutions for end-user customers. •Maintain and extend our strategic relationships. We have established strategic relationships with a number of industry-leading vendors to bothprovide increased and enhanced routes to market, but also to collaboratively develop unique solutions.We seek to differentiate ourselves in the market by delivering a value proposition based on a software-driven approach to networkmanagement, control and analytics.Our key points of differentiation include: •Data Center to access edge wired and wireless solutions. The addition of the WLAN Business and the Avaya Networking assets will allowExtreme to offer a complete, unified portfolio of software-driven network access solutions. We offer the latest in wireless access points for bothoutdoor and indoor use plus a complete line of switches for the Campus, Core and Data Center. •Multi-vendor management from a “single pane-of-glass”. Extreme’s Management Center (“EMC”) is a single unified management system that isdesigned to provide visibility, security, and control across the entire network. This can make the network easier to manage and troubleshoot, oftenwith lower operating expenses. Extreme’s software can manage third-party vendors’ network devices, including Avaya Networking products,enabling our customers to potentially maximize device lifespan and protect investments.6 •Software-driven vertical solutions. Extreme’s software-driven solutions are designed to be easily adaptable to vertical solutions in industries suchas healthcare, education, manufacturing, retail, transportation and logistics, government and hospitality. Extreme solutions are also designed to bewell-suited for vertical-specific partners in these industries. •Application-aware Quality of Service (“QoS”) and analytics. Extreme has innovative analytic software that enables our customers to seeapplication usage across the network and apply policies that maximize network capabilities. This allows our customers to improve the userexperience. •Built-in identity and access control. Extreme Control, a network access control, and identity management solution is delivered with the wired andwireless hardware. This may reduce the need to add on expensive software or hardware that may require complex compatibility testing. •Easier policy assignment and SDN. ExtremeControl and ExtremeManagement software allow our customers to assign policy across the entirenetwork. The SDN component adds versatility for implementing policies that increase network utilization. •100% in-sourced tech support. ExtremeWorks delivers best in class customer support in the industry with 92% first call resolution through a100% in-sourced support model. Extreme sells products primarily through an ecosystem of channel partners which combine our Ethernet, wireless and management and softwareanalytics products with their vertical-specific offerings to create IT solutions for end user customers ProductsOur software-driven networking products offer resilient high-performance networking, granular visibility and control and strategic intelligence forbusiness innovation and operational simplicity. Fabric technologies enable “network-wide automation” that provides simple “plug-and-play” operation andmuch faster time-to-service. We build our products into vertical market solutions for converged campus networks that provide user and device mobility. DataCenter and Cloud administrators are able to virtualize their servers and storage over our high-performance Ethernet infrastructure. Extreme’s access controland analytics software provides visibility, control, strategic intelligence and security from the Data Center to the Edge - all through a single pane-of-glass.Our product categories include: •Edge/Access Ethernet switching systems. Our ExtremeSwitching Edge/Access Switch portfolio delivers Ethernet connectivity for the Edge of thenetwork. Within this portfolio are products offering Access connection speeds ranging from 100 Megabit to 10 Gigabit – including new multi-rate2.5 Gigabit and 5 Gigabit capabilities. These Switches provide various physical presentations (copper and fiber) along with options to delivertraditional Ethernet or convergence-friendly Power-over-Ethernet (“POE”), including high-power universal PoE consisting of 60W power tosupport new classes of Ethernet-powered devices. These Switching products, combined with our mature operating systems, deliver the features,performance, and reliability required by our customers to deploy, operate and manage converged networking infrastructures.This category was further enhanced in fiscal year 2017 with the introduction of a new family of entry-level Access Switches, the ExtremeSwitching200 Series which target small and medium enterprises looking for an economical wired Access solution. The category of products has also beenenhanced by the recent addition of the Avaya Networking assets, which brings three additional product lines – the ERS 3000, 4000, and 5000Series which address, respectively, entry-level, mainstream, and premium edge networking markets. These families have been refreshed in fiscal2017 to add the latest switching architectures enabling them to deliver more physical capabilities. The ERS 3000, 4000 and 5000 Series alsoprovide seamless access to a Fabric-based Core by delivering automation and hyper-segmentation, along with the ability to harden the perimeter ofthe network infrastructure. •Aggregation/Core Ethernet switching systems. Our ExtremeSwitching Aggregation/Core Switches are designed to address the demanding needsof Aggregation, Top-of-Rack and Campus Core environments. Delivering 10G, 25G, 40G, 50G and now also 100G connectivity with maximumthroughput and reliability, these switches provide flexible Ethernet connectivity over a range of interface types and speeds and are available inboth fixed and modular (or chassis-based) configurations. These Switching platforms, in conjunction with our advanced operating systems andcentralized management software, provide the density, performance, and reliability required to serve in a diverse range of environments, especiallywhere application demands and uptime expectations are mission-critical.7 This category was enhanced in fiscal year 2017 with the introduction of the ExtremeSwitching X870 Series, a high-density 100G switch designedfor high-performance enterprise and Cloud Data Centers. This is available in a compact 1RU form factor and supports multi-rate 10G, 25G, 40G,50G and 100G interface speeds. The X870 Series is ideal for either Spine/Leaf or high-density Top-of-Rack architectures. During fiscal year 2017,we also introduced ExtremeSwitching X690 Series, a are high-density, purpose-built 10Gb/100Gb switches ideal for top-of-rack and/or edge leafapplications within high-performance data centers. The X690 supports a range of interface speeds, including 1Gb, 10Gb, 25Gb, 40Gb 50Gb and100Gb, the X690 comes in a compact 1RU form factor.The addition of Avaya Networking assets included the recently released VSP 8600 Series – a next-generation, low-profile, high-density Ethernetswitch for the Core and Aggregation. This new switch complements the fixed and semi-modular VSP 8000 Series products that are currently in themarket, and together these products empower the creation of versatile always-on campus solutions that are Fabric-enabled and 100 Gigabit-ready.The technologies supported by these innovative platforms can also leverage automated network attachment to proactively reduce operationalburden and time-to-service. •Data Center switching systems: Our ExtremeSwitching Data Center switches provide the highest levels of reliability and throughput - specificallydesigned to address the exacting demands of high-performance enterprise and Cloud Data Centers. These switches are available in both fixed andmodular chassis configurations and include a set of advanced features such as redundant management and fabric modules, hot-swappable line cardson our chassis-based platforms, as well as multi-speed stacking of up to 100 Gigabits and flexible 10/25/40/50/100 Gigabit port options on ourfixed-form platforms, which makes these switches well-suited for a majority of enterprise Data Center environments. Both platform types alsoprovide redundant power supplies and fan trays to ensure high hardware availability. These switches also provide key feature extensions for Data Centers through technologies that include Virtual Extensible LAN (“VXLAN”),MPLS/VPLS, and Shortest Path Bridging (“SPB”) capabilities – the latter available on the recently-acquired Avaya Core Switches. In addition tothese capabilities, our Data Center Switches offer innovative traffic optimization enabling Virtual Machine (“VM”) mobility via Layer 3 DataCenter Interconnect. And our CoreFlow2 architecture delivers tens of millions of flows for deep visibility and control over users, services, andapplications to meet the analytic and policy demands of today’s business applications. •High-density Wi-Fi. Our ExtremeWireless and its family of Wireless Access Points is a centralized management and appliance that enables thedeployment of wired-like performance, at scale for high-density in every environment. Our Wireless Access Point products offer both indoor andoutdoor 802.11a/b/g/n/ac Access Points. Proven in the most demanding environments, ExtremeWireless delivers an exceptional experience forBYOD and mobile users wherever they may roam. During fiscal year 2017, we continued our growth in high-density venue deployments with manyadditional NFL stadiums.We are creating a single architecture from the Campus Core to the unified wired/wireless Edge thereby extending the Fabric Attach capability toExtremeWireless APs. This will enable ExtremeWireless integration into existing and new Fabric Connect deployments and will also enable rapid,zero-touch deployment of ExtremeWireless APs. •Highly scalable, distributed Wi-Fi networks. Our acquisition of the WLAN Business broadened our market penetration with a proven distributedwireless architecture that serves many top retailers, hospitality brands and transportation and logistics companies globally. ExtremeWireless WiNGhas an extensive portfolio of indoor and outdoor 802.11ac (Wave 1 and 2) APs, with both virtualized and appliance-based controllers, an industryunique Wireless over VDSL2 wall plate solution and AirDefense; a premier wireless security solution. •Centralized network visibility, control, and insights. Our Extreme Management Center empowers our customers to turn their network into astrategic business asset that drives crucial business objectives. It provides visibility, control and meaningful information across the wired andwireless network, from the edge to the private cloud, across multi-vendor environments. Our Extreme Management Center gives IT departmentsvisibility and automated control over users, devices, and applications. It enables them to manage, automate and report on the entire network andapplications. With Extreme Management Center, IT can correlate network and application performance with user and device activities totroubleshoot issues fast. Strategic information from the network allows enterprises make real-time decisions on policies, devices, applications, andpeople. This way, the implementation of new technologies such as BYOD and IoT can be automated and securely executed. Customers can deploy,configure, monitor and support the complete range of wired, wireless and switching infrastructure and set network-wide policy to enable enterprisesto reduce the overall cost of network administration and operations, protect corporate resources and provide a consistently high-quality userexperience that is managed through a single pane of glass, no need to switch screens or applications.8 ○Network access control for secure BYOD and IoT management. ExtremeControl is part of our Extreme Management Center and letsenterprises unify the security of their wired and wireless networks with in-depth visibility and control over users, devices, and applications.Granular policy controls enable enterprises to comply with policies and compliance obligations. They can use ExtremeControl to locate,authenticate and apply targeted policies to users and devices as users connect to the network for secure BYOD, guest access, and IoT.ExtremeControl is integrated with major enterprise platforms, including solutions for network security, enterprise mobility management,analytics, Cloud, and Data Center. In addition, it offers an open northbound API for customized integrations to key enterprise platforms.Key product features include: ▪Enables secure guest access and BYOD via a self-service portal with social media logins ▪Reduces security vulnerabilities with end-system posture assessment ▪Expands security integration with next-generation firewalls ▪Offers visibility across your network with advanced reporting and alerting ▪Offers an open API for customized integrations. ○Application analytics for strategic intelligence. ExtremeAnalytics, also part of our Extreme Management Center, is a network-powered application analytics and optimization solution thatcaptures network data, then aggregates, analyzes, correlates and reports on it to enable better decision making and improved businessperformance. Granular visibility into network and application performance, users, locations and devices empowers our customers to makedata-driven business decisions. Customers can save operational costs, solve issues faster and deliver a superior end user experience with real-time data in one easy-to-read dashboard. Our solution speeds up troubleshooting by separating the network from application performance soIT can quickly identify root-causes. ExtremeAnalytics makes our customers’ networks safer as it monitors shadow IT, identifies and reportsmalicious or unwanted applications, and monitors security compliance. Because of the value ExtremeAnalytics was able to provide, Extremewas selected as the Official Wi-Fi & Analytics Provider for the NFL, including Super Bowl XLVIII, XLIX, XLVI and XLI.Key product features include: ▪Enables troubleshooting and visualization of all wireless clients with our intuitive event analyzer ▪Allows customers to manage quality of experience by understanding network and application performance in one simple view ▪Provides contextual data about applications on the network without performance degradation ▪Includes transport layer independent application fingerprinting (a network security term to describe a collection of attributes from anetwork device). ▪Allows customers to identify problems proactivelyExtremeGuest is complemented with ExtremeLocation which is a cloud service that enables enterprises to incorporate location-basedservices, which when combined with guest analytics, can power contextual marketing campaigns for retailers and hotel chains. •Cloud-based network management: simple, flexible, and powerful. ExtremeCloud is an elastic, API driven wired and wireless cloud networkmanagement solution that offers advanced visibility and control over users and applications. Application analytics allow managed serviceproviders (“MSPs”) to deliver insights about how customer networks are being used and which policies they need to implement to optimize userexperience. ExtremeCloud empowers MSPs to explore new revenue streams without additional investment in Cloud infrastructure. ExtremeCloudkeeps operational cost low, adjusts to customer demand and protects their brand with white labeling. Elasticity and API foundation combined withzero-touch provisioning, multi-tenancy and delegation allows MSPs to optimize their operations and address the needs of geographicallydistributed customers from a single location. Extensive REST APIs enable end-to-end automation and empower MSPs to be more agile andresponsive to customer needs.9 Sales, Marketing and DistributionWe conduct our sales and marketing activities on a worldwide basis through a channel that utilizes distributors, resellers and our field salesorganization. As of June 30, 2017, our worldwide sales and marketing organization consisted of 598 employees, including vice presidents, directors,managers, sales representatives, and technical and administrative support personnel. We have domestic sales offices located in six states and internationalsales offices located in 30 countries. The new talent brought in through the acquisitions of the WLAN Business and Avaya Networking business addssignificant depth to our marketing efforts.We sell our products primarily through an ecosystem of channel partners who combine our Ethernet, wireless, management and analytics softwareproducts with their vertical specific offerings to create compelling information technology solutions for end-user customers. We utilize our field salesorganization to support our channel partners and to sell directly to certain end-user customers, including some large global accounts.The details of our sales and distribution channels are as follows: •Alliance, Original Equipment Manufacturers ("OEM") and Strategic Relationships. We have active Alliance, OEM & strategic relationshipswith Barco NV, Ericsson Enterprise AB, Silicon Graphics International, Inc. (acquired by HP), PC HK Ltd., Nokia Siemens Networks and AviatNetworks, Inc. as well as other global industry technology leaders in which our products are qualified to be included into an overall solution orreference architecture. These tested and validated solutions are then marketed and sold by the Alliance, OEM or strategic partners into theirspecific verticals, market segments and customers as turnkey offerings. •Distributors. We have established several key relationships with leading distributors in the electronics and computer networking industries. Eachof our distributors primarily resells our products to resellers. The distributors enhance our ability to sell and provide support to resellers who maybenefit from the broad service and product fulfillment capabilities offered by these distributors. Extreme maintained distribution agreements withour largest distributors, Westcon Group, Tech Data Corporation and Jenne Corporation on substantially the same material terms as we generallyenter into with each of our distributor partners. Distributors are generally given the right to return a portion of inventory to us for the purpose ofstock rotation, to claim rebates for competitive discounts and participate in various cooperative marketing programs to promote the sale of ourproducts and services. We defer recognition of revenue on all sales to distributors who maintain inventory of our products until the distributors sellthe product, as evidenced by monthly “sales-out” reports that the distributors provide to us, provided other revenue recognition criteria are met.(See “Revenue Recognition” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.) •Resellers. We rely on many resellers worldwide that sell directly to the end-user customer. Our resellers include regional networking systemresellers, resellers who focus on specific vertical markets, value added resellers, network integrators and wholesale resellers. We provide trainingand support to our resellers and our resellers generally provide the first level of contact to end-users of our products. Our relationships with resellersare on a non-exclusive basis. Our resellers are not given rights to return inventory and do not automatically participate in any cooperativemarketing programs. We generally recognize product revenue from our reseller and end-user customers at the time of delivery, provided otherrevenue recognition criteria are met. When significant obligations or contingencies remain after products are delivered, such as installation orcustomer acceptance, revenue and related costs are deferred until such obligations or contingencies are satisfied. (See “Revenue Recognition” inItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.) •Field Sales. Our field sales organization is trained to sell solutions, support and develop leads for our resellers and to establish and maintain keyaccounts and strategic end-user customers. To support these objectives, our field sales force: ○Assists end-user customers in finding solutions to complex network system and architecture problems. ○Differentiates the features and capabilities of our products from competitive offerings. ○Continually monitors and understands the evolving networking needs of enterprise and service provider customers. ○Promotes our products and ensures direct contact with current and potential customers. ○Assists our resellers to drive opportunities to closure business.Although we compete in many vertical markets, in fiscal year 2017, we have focused on the specific verticals of healthcare, education, manufacturing,government and hospitality, which includes sports and entertainment venues. Years of experience and a track record of success in the verticals we serveenables us to address the following industry-specific problems.10 Healthcare: •Patient services. In an increasingly competitive healthcare market, ensuring patient and visitor access from a variety of devices to the Internet canbe a competitive advantage. We have several medical facilities worldwide that can reference Extreme’s expertise in meeting the challenges ofpatient services which include: online services, guest Wi-Fi, IoT, wearables and sensors. •The majority of new medical devices are IP-based. Not only are most medical devices monitored through the network, they are regulated byvarious government agencies across the globe. Extreme has success in meeting this challenge with compliance through our complete wireless andwired product suite overseen by innovative management and analytics. •Clinical workflow has shifted to real-time mobility inside and outside the hospital. Medical professionals often access critical patient recordsthrough network connections. Extreme’s reliable and comprehensive technology, including the latest Wave 2 capability, is backed by practicalexperience in addressing the demanding needs of clinical workflow.Education: •New styles of teaching. Personalized learning, flipped classrooms and competency-based education depend on well-managed high-bandwidthdigital content delivery. Extreme has extensive knowledge in smart classroom and large campus environments; both of which are experiencing agrowing presence of IoT devices. Our easy-to-manage networks provide the bandwidth necessary to deliver digital content, including emergingstyles like virtual and mixed reality, to thousands of students with the speed and quality required. Extreme has demonstrated the ability to providehigh density, two-way Internet connectivity so that each student has a rich and uninterrupted educational experience. •Online and technology-based assessment is growing in importance. K-12 is implementing high stakes standardized testing and higher educationis moving to BYOD for online mid-term and final exams. ExtremeAnalytics helps ensure tests proceed by providing visibility into the networkflow from student device to local school server to remote testing server. •Protecting student privacy, safety and digital freedom. Extreme has built-in access and identity control to protect the safety and privacy ofstudents, faculty and administrators. This all in one offering helps ease the burden on education institutions that have limited IT resources.Manufacturing: •Operations to meet the fast-changing customer and market requirements. Flexible manufacturing and build-to-order processes place highdemands on the network for material and shop floor control. Extreme’s proven technology strives to meet these demands in some of the world’smost demanding manufacturing environments. •Speed, adaptability and innovation are the new currencies in the manufacturing realm. A fast and reliable network can help to accommodatespeed. Extreme’s full suite of wired and wireless product and management and analytics software enable agile manufacturing. •Visibility into plant and back office technology performance. Extreme’s management, control and analytics provide end-to-end networkvisibility from a single console without the need to swap user interfaces. This unique capability is well-suited for plant and back officeenvironments.Government: •Secure access. Government agencies are being challenged to provide their employees and the citizens they serve with secure, cost-effective, high-speed access to online information and resources. For today’s agencies, high quality video, collaboration, social media, VoIP and multimediaapplications have become mission-critical services. These applications have placed unprecedented bandwidth and control demands on existingnetworks. •Management of new technologies. The increasingly rapid deployment of wireless access, data center virtualization and the adoption of cloudcomputing have further complicated network management and control. For federal government agencies, the challenge is determining how todeliver secure, seamless, always-on access to these mission-critical services. •Controlling costs. Agencies need to deliver access from laptops, tablets, smartphones and other types of devices, at any time, from any place andfrom anywhere, while at the same time maximizing efficiencies and cost savings across all areas of the network infrastructure. Extreme provides arich set of networking solutions that strive to be cost-effective and secure and allow government agencies to meet not only today’s needs, but alsoto be prepared for future demands.11 Hospitality: •Developing a cohesive and enhanced mobile experience. Through real world experience in sports stadiums, where over 70,000 fans activelyaccess the Internet, Extreme has developed the expertise to handle the most demanding venue challenges. Our hospitality experience spans hotels,casinos, theaters, convention centers, vacation destinations and outdoor venues. •Emphasizing the user experience and mobile engagement. Extreme has the ability to monitor applications so that policy to maximize userexperience can be implemented in fixed and mobile environments with the same set of management tools from a single pane of glass. •Generating revenue opportunities for the business. Knowing the behaviors of customers and clients is a key to success and Extreme Analyticsprovides visibility to the usage patterns and traits of network users. Retail: •Transforming the brick and mortar retail experience. Extreme’s strength in the retail vertical is built upon years of experience and enhancedwith the acquisition of WLAN Business. Extreme is able to deliver Wi-Fi across distribution centers, driving efficiencies in logistics workflowwhile enabling in-store Wi-Fi to maximize associate resource planning and customer engagement. ExtremeAnalytics, Extreme’s location andmobile usage analytics tool, also provides brands with unique insights into in-store behaviors of their customers. This is fast becoming one ofExtreme’s competitive differentiators in the retail vertical.Furthermore, in fiscal 2017, we decided to focus on the following customer profiles where we believe we can add the most value: •Customer size: Those customers with annual revenue of $100 million to $2.5 billion. •Target deployment: Campus deployments with 250 to 5,000 employees or education campuses with 1,000 to 15,000 students. •Target data centers: Data centers with 1,000 servers or less. •Vertical markets: Healthcare, education, government, manufacturing, hospitality, which includes sports and entertainment venues, and retail. •Customer characteristics: Our customers tend to operate in transient environments, such as college campuses, hospitals and sports venues, whereBYOD and secure network access and identity control are critical. Their networks must be highly available with the ability to continue operationsin the event of a service interruption. Secure access is essential to ensuring the protection of mission-critical systems and confidential information.Often tasked to manage the network with a limited IT staff, our customers appreciate the excellent service and support we strive to provide.Customers with 10% of net revenue or greaterThe following table sets forth major customers accounting for 10% or more of our net revenue: Year Ended June 30,2017 June 30,2016 June 30,2015 Tech Data Corporation 18% 17% 15% Jenne Corporation 12% 14% * Westcon Group Inc. 11% 14% 15% *Less than 10% of revenueInternational salesInternational sales are an important portion of our business. In fiscal 2017, sales to customers outside of the United States accounted for 49% of ourconsolidated net revenues, compared to 55% in fiscal 2016 and 57% in fiscal 2015. These sales are conducted primarily through foreign-based distributorsand resellers managed by our worldwide sales organization. In addition, we have direct sales to end-user customers, including large global accounts. Theprimary markets for sales outside of the United States are countries in Europe and Asia, as well as Canada, Mexico, Central America and South America.12 We operate in one segment, the development and marketing of network infrastructure equipment. Information concerning revenue, results ofoperations and revenue by geographic area is set forth under Item 7, "Management's Discussion and Analysis of Financial Condition and Results ofOperations," and in Note 10 of our Notes to Consolidated Financial Statements in this Annual Report on Form 10-K, both of which are incorporated herein byreference. Information on risks attendant to our foreign operations is set forth below in Item 1A. “Risk Factors.”MarketingWe continue to develop and execute on a number of marketing programs to support the sale and distribution of our products by communicating thevalue of our solutions to our existing and potential customers, our distribution channels, our resellers and our technology alliance partners. Our marketingefforts include participation in industry tradeshows, conferences and seminars, publication of technical and educational articles in industry journals,communication across social media channels, frequent updates to our publicly available website, promotions, web-based training courses, advertising,analyst relations and public relations. We also submit our products for independent product testing and evaluation. Extreme participates in numerousindustry analyst ratings including ratings from Gartner Magic Quadrants, Gartner Critical Capabilities, Forrester Waves, IDC MarketScapes and InfoTechVendor Landscapes.BacklogOur products are often sold on the basis of standard purchase orders that are cancelable prior to shipment without significant penalties. In addition,purchase orders are subject to changes in quantities of products and delivery schedules in order to reflect changes in customer requirements andmanufacturing capacity. Our business is characterized by seasonal variability in demand and short lead-time orders and delivery schedules. Actual shipmentsdepend on the then-current capacity of our contract manufacturers and the availability of materials and components from our vendors. Although we believethe orders included in the backlog are firm, all orders are subject to possible rescheduling by customers, cancellations by customers which we may elect toallow without penalty to customer, and further pricing adjustments on orders from distributors. Therefore, we do not believe our backlog, as of any particulardate is necessarily indicative of actual revenue for any future period.Our product backlog at June 30, 2017, net of anticipated back end rebates for distributor sales, was $25.5 million, compared to $26.8 million atJune 30, 2016.SeasonalityLike many of our competitors, we historically have experienced seasonal fluctuations in customer spending patterns, which generally adversely affectour first and third fiscal quarters. This pattern should not be relied upon or be considered indicative of our future performance, however, as it has varied in thepast.Customer Service and SupportOur customers seek high reliability and maximum uptime for their networks. To that extent, we provide the following service offerings: •Support services for end-users, resellers and distributors. We meet the service requirements of our customers and channel partners through ourTechnical Assistance Centers ("TACs"), located in Morrisville, North Carolina; Salem, New Hampshire; Holtsville, New York; Reading, UnitedKingdom; Penang, Malaysia; Brno, Czech Republic; Utrect, Netherlands and Chennai, India. Our TAC engineers and technicians assist indiagnosing and troubleshooting technical issues regarding customer networks. Development engineers work with the TACs to resolve productfunctionality issues specific to each customer. •Professional services. We provide consultative services to improve customer productivity in all phases of the network lifecycle – planning, design,implementation, operations and optimization management. Our network architects develop and execute customized software and service-lednetworking solutions for deployment plans to meet individualized network strategies. These activities may include the management andcoordination of the design and network configuration, resource planning, staging, logistics, migration and deployment. We also providecustomized training and operational best practices manuals to assist customers in the transition and sustenance of their networks.13 •Education. We offer classes covering a wide range of topics such as installation, configuration, operation, management and optimization –providing customers with the necessary knowledge and experience to successfully deploy and manage our products in various networkingenvironments. Classes may be scheduled and available at numerous locations worldwide. We deliver training using our staff, on-line trainingclasses and authorized training partners. In addition, we make much of our training materials accessible free-of-charge on our internet site forcustomers and partners to use in self-education. We believe this approach enhances the market’s ability to learn and understand the broad array ofadvantages of our products.Long-Lived AssetsSee Note 3 of our Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for more information regarding our long-livedassets.ManufacturingWe outsource the majority of our manufacturing and supply chain management operations as part of our strategy to maintain global manufacturingcapabilities and to reduce our costs. We conduct quality assurance, manufacturing engineering, document control and test development at engineeringfacilities at Morrisville, North Carolina; Salem, New Hampshire; Toronto, Canada and Chennai, India. This approach enables us to reduce fixed costs and toflexibly respond to changes in market demand. Our end-to-end supply chain, including our two engineering facilities at Morrisville and Chennai are all ISO9001 certified.We use Alpha Networks, Inc. (“Alpha Networks”) headquartered in Hsinchu, Taiwan to design and manufacture our Summit, A-Series, B-Series, C-Series, Stackable products, G-Series, D-Series, I-Series and 800-Series Standalone products and Black Diamond chassis products. Alpha Networks is a globalnetworking Original/Joint Design Manufacturer ("ODM/JDM") leader with core competencies in areas such as Ethernet, LAN/MAN, Wireless, Broadband andVoIP. Alpha Networks manufacturing processes and procedures are ISO 9001 certified.We use Benchmark Electronics, Inc. ("Benchmark") headquartered in Huntsville, Alabama and Flextronics International ("Flextronics") headquarteredin Singapore, to manufacture our S-Series and K-Series chassis products, 7100-Series Stackable products and SSA Standalone products. Benchmark andFlextronics have a significant investment in capital to ensure they have the latest in manufacturing and test technologies and both companies are ISO 9001certified.The ExtremeWireless Access Point products are supplied by Senao Electronics ("Senao"), headquartered in Taipei, Taiwan. With the addition ofWiNG Wireless, which was part of the WLAN Business from Zebra, we also use Wistron NeWeb Corporation (“WNC”) headquartered in Hsinchu, Taiwan;Universal Scientific Industrial (“USI”) headquartered in Shanghai, China and Accton Technology Corporation (“Accton”) headquartered in Hsinchu, Taiwanto design and manufacture WiNG Access Points. Senao, WNC, USI and Accton manufacturing processes and procedures are ISO 9001 certified.All of our manufacturers utilize automated testing equipment to perform product testing and burn-in with specified tests. Together we rely uponcomprehensive inspection testing and statistical process controls to assure the quality and reliability of our products.We use a collaborative sales and operations planning (“S&OP”) forecast of expected demand to determine our material requirements. Lead times formaterials and components vary significantly, and depend on factors such as the specific supplier, contract terms and demand for a component at a given time.We order most of our materials and components on an indirect basis through our ODM/JDM, OEMs and contract manufacturers’ (“CMs”). Purchasecommitments with all of our manufacturers are generally on a purchase order basis.Research and DevelopmentThe success of our products to date is due in large part to our focus on research and development. We believe that continued success in themarketplace will depend on our ability to develop new and enhanced products employing leading-edge technology. Accordingly, we plan to undertakedevelopment efforts with an emphasis on increasing the reliability, performance and features of our family of products, and designing innovative products toreduce the overall network operating costs of customers.14 Our product development activities focus on solving the needs of customers in the enterprise campus by providing an end-to-end, wired and wirelessnetwork solution from the access edge to the private clouds in targeted verticals. Current activities include the continuing development of our innovativeswitching technology aimed at extending the capabilities of our products. Our ongoing research activities cover a broad range of areas, including, inparticular, 40G and 100G Ethernet, routing, timing and resiliency protocols, open standards interfaces, software defined networks, network security, identitymanagement, data center fabrics, and wireless networking.We plan to continue to enhance the functionality of our modular operating systems which have been designed to provide high reliability andavailability. This allows us to leverage a common operating system across different hardware and network chipsets.As of June 30, 2017, our research and development organization consisted of 495 employees. Research and development efforts are conducted inseveral of our locations, including San Jose, California, Morrisville, North Carolina; Salem, New Hampshire; Toronto, Canada, and Bangalore and Chennai,India. Our research and development expenses in fiscal years 2017, 2016 and 2015 were $93.7 million, $78.7 million and $93.4 million, respectively.Intellectual PropertyWe rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual propertyrights. As of June 30, 2017, we had 493 issued patents in the United States and 352 patents outside of the United States. The expiration dates of our issuedpatents in the United States range from 2018 to 2032. Although we have patent applications pending, there can be no assurance that patents will be issuedfrom pending applications or that claims allowed on any future patents will be sufficiently broad to protect our technology. With respect to trademarks, wehave a number of pending and registered trademarks in the United States and outside the United States.We enter into confidentiality, inventions assignment or license agreements with our employees, consultants and other third parties with whom we dobusiness, and control access to, and distribution of, our software, documentation and other proprietary information. In addition, we provide our softwareproducts to end-user customers primarily under “shrink-wrap” or "click-through" license agreements. These agreements are not negotiated with or signed bythe licensee, and thus these agreements may not be enforceable in some jurisdictions. Despite our efforts to protect our proprietary rights, unauthorizedparties may attempt to copy or otherwise obtain and use our products or technology, particularly in foreign countries where the laws may not protect ourproprietary rights as fully as in the United States.CompetitionThe market for network switches, routers and software (including analytics) which is part of the broader market for networking equipment is extremelycompetitive and characterized by rapid technological progress, frequent new product introductions, changes in customer requirements and evolving industrystandards. We believe the principal competitive factors in this market are: •expertise and familiarity with network protocols, network switching/routing/wireless and network management; •expertise and familiarity with application analytics software; •expertise with network operations and management software; •product performance, features, functionality and reliability; •price/performance characteristics; •timeliness of new product introductions; •adoption of emerging industry standards; •customer service and support; •size and scope of distribution network; •brand name; •breadth of product offering; •access to customers; and •size of installed customer base.15 We believe we compete with our competitors with respect to many of the foregoing factors. However, the market for network switching solutions isdominated by a few large companies, particularly Cisco Systems, Inc., Dell, Hewlett-Packard Company, Huawei Technologies Co. Ltd., and Juniper NetworksInc. Most of these competitors have longer operating histories, greater name recognition, larger customer bases, broader product lines and substantiallygreater financial, technical, sales, marketing and other resources.With the acquisitions of assets from Zebra and Avaya, we believe Extreme is uniquely positioned to address the most pressing market needs from thecampus to the data center.In addition, in order to increase our competitive position in the market, on March 29, 2017, we entered into an Asset Purchase Agreement with LSICorporation and, solely for the purposes set forth in the Asset Purchase Agreement, Broadcom Corporation (“Broadcom”), to purchase the data centertechnology business of Brocade Communication Systems, Inc. and its subsidiaries (“Brocade Data”). This transaction is subject to certain conditions thatmay not occur, and if we do consummate the transaction, we may not realize the anticipated benefits and will assume certain contracts and relatedliabilities. (See “Risk Factors” in Item 1A below.)RestructuringFiscal year 2015During the fourth quarter of fiscal 2015, we implemented a plan to reduce costs through targeted restructuring activities intended to reduce operatingcosts and realign our organization in the current competitive environment. We initiated a plan to reduce our worldwide headcount by more than 225employees, primarily in sales and marketing as well as research and development, consolidate specific global administrative functions, and shift certainoperating costs to lower cost regions, among other actions. Fiscal year 2016During fiscal 2016, we continued to realign our operations by abandoning excess facilities, primarily in San Jose, California; Salem, New Hampshireand Morrisville, North Carolina in addition to other smaller leased locations. These excess facilities represented approximately 32% of the floor space in theaggregate at these locations and included general office and warehouse space.Fiscal year 2017During fiscal 2017, we continued to realign our operations by continuing to review our excess facilities, expected sublease income, and implementeda reduction force. The Company subleased its previous headquarters location at Rio Robles Drive in San Jose, California (“Rio Robles”) and moved into alarger location at 6480 Via del Oro in San Jose, California (“Via del Oro”) acquired as part of the WLAN Business acquisition. Additionally, due to theacquisition of Avaya Networking and the anticipated acquisition of Brocade Data, there is a need to accommodate the increase in headcount. To address thisneed, the Company decided to reoccupy a majority of the previously exited space in its Salem, New Hampshire location. In addition, the Companyannounced a reduction-in-force during the fiscal year affecting 90 employees. Environmental MattersWe are subject to various environmental and other regulations governing product safety, materials usage, packaging and other environmental impactsin the United States and in various countries where our products are manufactured and sold. We are also subject to regulatory developments, including recentSEC disclosure regulations relating to so-called "conflict minerals," relating to ethically responsible sourcing of the components and materials used in ourproducts. To date, compliance with federal, state, local, and foreign laws enacted for the protection of the environment has had no material effect on ourcapital expenditures, earnings, or competitive position.We are committed to energy efficiency in our product lines. Accordingly, we believe this is an area that affords us a competitive advantage for ourproducts in the marketplace. We maintain compliance with various regulations related to the environment, including the Waste Electrical and ElectronicEquipment and the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment regulations adopted by the EuropeanUnion. To date, our compliance efforts with various United States and foreign regulations related to the environment has not had a material effect on ouroperating results.16 EmployeesAs of June 30, 2017, we employed 1,628 people, including 598 in sales and marketing, 495 in research and development, 174 in operations, 261 incustomer support and services, and 100 in finance and administration. We have never had a work stoppage and no employees in the United States arerepresented under a collective bargaining agreement. We consider our employee relations to be good.We believe our future success depends on our continued ability to attract, integrate, retain, train and motivate highly qualified employees, and uponthe continued service of our senior management and key employees. None of our executive officers or key employees is bound by an employment agreementwhich mandates that the employee render services for any specific term. The market for qualified personnel is highly competitive.OrganizationWe were incorporated in California in May 1996, and reincorporated in Delaware in March 1999. Our corporate headquarters are located at 6480 Viadel Oro, San Jose, CA 95119 and our telephone number is (408) 579-2800. We electronically file our Securities Exchange Commission (“SEC”) disclosurereports with the SEC and they are available free of charge at both www.sec.gov and www.extremenetworks.com. The public may also read or copy anymaterials we file with the SEC at the SEC’s public reference room at Station Place, 100 F Street, N.E., Washington, DC 20549. The public may obtaininformation on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.Our corporate governance guidelines, the charters of our audit committee, our compensation committee, our nominating and corporate governancecommittee and our code of conduct policy (including code of ethics provisions that apply to our principal executive officer, principal financial officer,controller and senior financial officers) are available on our website at www.extremenetworks.com under “Corporate Governance.” These items are alsoavailable to any stockholder who requests them by calling (408) 579-2800. Item 1A. Risk FactorsThe following is a list of risks and uncertainties which may have a material and adverse effect on our business, operations, industry, financialcondition, results of operations or future financial performance. While we believe we have identified and discussed below the key risk factors affecting ourbusiness, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adverselyaffect our business, results of operations, industry, financial position and financial performance in the future.We may not realize anticipated benefits of past or future acquisitions, divestitures and strategic investments, and the integration of acquiredcompanies or technologies may negatively impact our business and financial results or dilute the ownership interests of our stockholders.As part of our business strategy, we review acquisition and strategic investment prospects that we believe would complement our current productofferings, augment our market coverage or enhance our technical capabilities, or otherwise offer growth opportunities. In the event of any future acquisitions,we could: •issue equity securities which would dilute current stockholders' percentage ownership; •incur substantial debt; •assume contingent liabilities; or •expend significant cash.These actions could have a material adverse effect on our operating results or the price of our common stock.For example, on October 28, 2016, we completed the acquisition of the WLAN Business from Zebra Technologies Corporation and amended ourcredit facility with our lenders to finance the acquisition. As of June 30, 2017, we have $93.7 million of indebtedness outstanding.On July 14, 2017, we completed the acquisition of Avaya’s Networking business under section 363 of the United States Code, 11 U.S.C. § 101-1532(the “Bankruptcy Code”) for a purchase price of $100.0 million subject to certain adjustments set forth in the purchase agreement.17 Further, on March 29, 2017, we entered into an Asset Purchase Agreement with LSI Corporation and, solely for the purposes set forth in the AssetPurchase Agreement, Broadcom Corporation, to purchase the data center technology business of Brocade Communication Systems, Inc. and its subsidiaries.This transaction is subject to certain conditions that may not occur, and if we do consummate the transaction, we may not realize the anticipated benefits andwill assume certain contracts and related liabilities.Moreover, even if we do obtain benefits in the form of increased sales and earnings, these benefits may be recognized much later than the time whenthe expenses associated with an acquisition are incurred. This is particularly relevant in cases where it would be necessary to integrate new types oftechnology into our existing portfolio and new types of products may be targeted for potential customers with which we do not have pre-existingrelationships.Our ability to realize the anticipated benefits of our acquisitions and investment activities, including the WLAN Business and Avaya Networking, alsoentail numerous risks, including, but not limited to: •difficulties in the assimilation and successful integration of acquired operations, technologies and/or products; •unanticipated costs, litigation or other contingent liabilities associated with the acquisition or investment transaction; •incurrence of acquisition- and integration-related costs, goodwill or in-process research and development impairment charges, or amortizationcosts for acquired intangible assets, that could negatively impact our operating results and financial condition; •the diversion of management's attention from other business concerns; •adverse effects on existing business relationships with suppliers and customers; •risks associated with entering markets in which we have no or limited prior experience; •the potential loss of key employees of acquired organizations and inability to attract or retain other key employees; and •substantial charges for the amortization of certain purchased intangible assets, deferred stock compensation or similar items.We may not be able to successfully integrate any businesses, products, technologies, or personnel that we might acquire in the future, and our failureto do so could have a material adverse effect on our business, operating results and financial condition.Our strategic transaction with Broadcom may not be consummated or may not deliver the anticipated benefits we expect.On March 29, 2017, we entered into an Asset Purchase Agreement with LSI Corporation and, solely for the purposes set forth in the Asset PurchaseAgreement, Broadcom Corporation, to purchase the data center technology business of Brocade Communication Systems, Inc. and its subsidiaries (the“Brocade Data”). This transaction is subject to certain conditions that may not occur, and if we do consummate the transaction, we may not realize theanticipated benefits and will assume certain contracts and related liabilities.We are devoting a significant proportion of our time and resources to consummating the Brocade Data transaction, however, there can be no assurancethat such activities will result in the consummation of this transaction. The closing of the Brocade Data transaction is subject to the consummation of the merger of Bobcat Merger Sub, Inc., a direct wholly ownedsubsidiary of LSI, with and into Brocade, upon the terms and subject to the conditions set forth in the Agreement and Plan of Merger, dated as of November 2,2016, by and among Broadcom Limited, Broadcom, Brocade and Bobcat Merger Sub, and the satisfaction of customary closing conditions, including, amongother matters, (i) the absence of any law or governmental order prohibiting or preventing the consummation of the transactions contemplated by the AssetPurchase Agreement, (ii) the receipt of certain needed governmental approvals and authorizations, (iii) the accuracy of the representations and warranties andcompliance with the covenants set forth in the Asset Purchase Agreement, each in all material respects, and (iv) the absence of any material adverse effect onthe business.In the event that any of these closing conditions are not satisfied, we may not be able to consummate the Brocade Data transaction. In addition, even ifwe are able to consummate the Brocade Data transaction, such transaction may not deliver the benefits we anticipate or enhance stockholder value.18 Our credit facilities impose financial and operating restrictions on us.Our debt instruments, including our Credit Facility, as amended, entered into in connection with the WLAN Business and Avaya Networking business,impose, and the terms of any future debt may impose, operating and other restrictions on us. These restrictions could affect, and in many respects limit orprohibit, among other items, our ability to: •incur additional indebtedness; •create liens; •make investments; •enter into transactions with affiliates; •sell assets; •guarantee indebtedness; •declare or pay dividends or other distributions to stockholders; •repurchase equity interests; •change the nature of our business; •enter into swap agreements; •issue or sell capital stock of certain of our subsidiaries; and •consolidate, merge, or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis.The agreements governing our Credit Facility, as amended, also require us to achieve and maintain compliance with specified financial ratios. Abreach of any of these restrictive covenants or the inability to comply with the required financial ratios could result in a default under our debt instruments. Ifany such default occurs, the lenders under our credit agreement may elect to declare all outstanding borrowings, together with accrued interest and other fees,to be immediately due and payable. The lenders under our credit agreement also have the right in these circumstances to terminate any commitments theyhave to provide further borrowings. If we are unable to repay outstanding borrowings when due, the lenders under our credit agreement will have the right toproceed against the collateral granted to them to secure the debt. If the debt under our credit agreement were to be accelerated, we cannot give assurance thatthis collateral would be sufficient to repay our debt.If we fail to meet our payment or other obligations under our Credit Facility, as amended, the lenders under such Credit Facility, as amended,could foreclose on, and acquire control of, substantially all of our assets.Our Credit Facility, as amended, is jointly and severally guaranteed by us and certain of our subsidiaries. Borrowings under our Credit Facility, asamended, are secured by liens on substantially all of our assets, including the capital stock of certain of our subsidiaries, and the assets of our subsidiaries thatare loan party guarantors. If we are unable to repay outstanding borrowings when due, the lenders under our credit agreement will have the right to proceedagainst this pledged capital stock and take control of substantially all of our assets.Our revenues may decline as a result of changes in public funding of educational institutions.A portion of our revenues comes from sales to both public and private K-12 educational institutions. Public schools receive funding from local taxrevenue, and from state and federal governments through a variety of programs, many of which seek to assist schools located in underprivileged or rural areas.The funding for a portion of our sales to educational institutions comes from a federal funding program known as the E-Rate program. E-Rate is a program ofthe Federal Communications Commission that subsidizes the purchase of approved telecommunications, Internet access, and internal connection costs foreligible public educational institutions. The E-Rate program, its eligibility criteria, the timing and specific amount of federal funding actually available andwhich Wi-Fi infrastructure and product sectors will benefit, are uncertain and subject to final federal program approval and funding appropriation continuesto be under review by the Federal Communications Commission, and we cannot assure that this program or its equivalent will continue, and as a result, ourbusiness may be harmed. Furthermore, if state or local funding of public education is significantly reduced because of legislative or policy changes or byreductions in tax revenues due to changing economic conditions, our sales to educational institutions may be negatively impacted by these changedconditions. Any reduction in spending on information technology systems by educational institutions would likely materially and adversely affect ourbusiness and results of operations. This is a specific example of the many factors which add additional uncertainty to our future revenue from our educationend-customers.19 To successfully manage our business or achieve our goals, we must attract, retain, train, motivate, develop and promote key employees, andfailure to do so can harm us.Our success depends to a significant degree upon the continued contributions of our key management, engineering, sales and marketing, service andoperations personnel, many of whom would be difficult to replace. We do not have employment contracts with these individuals that mandate that theyrender services for any specific term, nor do we carry life insurance on any of our key personnel. We have experienced and may in the future experiencesignificant turnover in our executive personnel. Changes in our management and key employees could affect our financial results, and a recent reduction inforce, may impede our ability to attract and retain highly skilled personnel. We believe our future success will also depend in large part upon our ability toattract and retain highly skilled managerial, engineering, sales and marketing, service, finance and operations personnel. The market for these personnel iscompetitive, and we have had difficulty in hiring employees, particularly engineers, in the time-frame we desire.A number of our employees are foreign nationals who rely on visas and entry permits in order to legally work in the United States and othercountries. In recent years, the United States has increased the level of scrutiny in granting H-1(B), L-1 and other business visas. In addition, the current U.S.administration has indicated that immigration reform is a priority. Compliance with United States immigration and labor laws could require us to incuradditional unexpected labor costs and expenses or could restrain our ability to retain skilled professionals. Any of these restrictions could have a materialadverse effect on our business, results of operations and financial conditions.We cannot assure you we will be profitable in the future, and our financial results may fluctuate significantly from period to period.We have reported losses in each of our three most recent fiscal years. In addition, in years when we reported profits, we were not profitable in eachquarter during those years. We anticipate continuing to incur significant sales and marketing, product development and general and administrative expenses.Any delay in generating or recognizing revenue could result in a loss for a quarter or full year. Even if we are profitable, our operating results may fall belowour expectations and those of our investors, which could cause the price of our stock to fall.We may experience challenges or delays in generating or recognizing revenue for a number of reasons and our revenue and operating results havevaried significantly in the past and may vary significantly in the future due to a number of factors, including, but not limited to, the following: •our dependence on obtaining orders during a quarter and shipping those orders in the same quarter to achieve our revenue objectives; •decreases in the prices of the products we sell; •the mix of products sold and the mix of distribution channels through which products are sold; •acceptance provisions in customer contracts; •our ability to deliver installation or inspection services by the end of the quarter; •changes in general and/or specific economic conditions in the networking industry; •seasonal fluctuations in demand for our products and services; •a disproportionate percentage of our sales occurring in the last month of the quarter; •our ability to ship products by the end of a quarter; •reduced visibility into the implementation cycles for our products and our customers’ spending plans; •our ability to forecast demand for our products, which in the case of lower-than-expected sales, may result in excess or obsolete inventory inaddition to non-cancelable purchase commitments for component parts; •our sales to the telecommunications service provider market, which represents a significant source of large product orders, being especially volatileand difficult to forecast; •product returns or the cancellation or rescheduling of orders; •announcements and new product introductions by our competitors; •our ability to develop and support relationships with enterprise customers, service providers and other potential large customers;20 •our ability to achieve and maintain targeted cost reductions; •fluctuations in warranty or other service expenses actually incurred; •our ability to obtain sufficient supplies of sole- or limited-source components for our products on a timely basis; •increases in the price of the components we purchase; and •changes in funding for customer technology purchases in our markets, such as policy changes in public funding of educational institutions in theUnited States in accordance with the Federal Communications Commission’s E-Rate program.Due to the foregoing and other factors, many of which are described herein, period-to-period comparisons of our operating results should not be reliedupon as an indicator of our future performance.The global economic environment has and may continue to negatively impact our business and operating results.The challenges and uncertainty currently affecting global economic conditions may negatively impact our business and operating results in thefollowing ways: •customers may delay or cancel plans to purchase our products and services; •customers may not be able to pay, or may delay payment of, the amounts they owe us, which may adversely affect our cash flow, the timing of ourrevenue recognition and the amount of our revenue; •increased pricing pressure may result from our competitors aggressively discounting their products; •accurate budgeting and planning will be difficult due to low visibility into future sales; •forecasting customer demand will be more difficult, increasing the risk of either excess and obsolete inventory if our forecast is too high orinsufficient inventory to meet customer demand if our forecast is too low; and •our component suppliers and contract manufacturers have been negatively affected by the economy, which may result in product delays andchanges in pricing and service levels.If global economic conditions do not show continued improvement, we believe we could experience material adverse impacts to our business andoperating results.We depend upon international sales for a significant portion of our revenue which imposes a number of risks on our business.International sales constitute a significant portion of our net revenue. Our ability to grow will depend in part on the expansion of international sales.Our international sales primarily depend on the success of our resellers and distributors. The failure of these resellers and distributors to sell our productsinternationally would limit our ability to sustain and grow our revenue. There are a number of risks arising from our international business, including: •longer accounts receivable collection cycles; •difficulties in managing operations across disparate geographic areas; •difficulties associated with enforcing agreements through foreign legal systems; •reduced or limited protection of intellectual property rights, particularly in jurisdictions that have less developed intellectual property regimes,such as China and India; •higher credit risks requiring cash in advance or letters of credit; •potential adverse tax consequences; •compliance with regulatory requirements of foreign countries, including compliance with rapidly evolving environmental regulations; •compliance with U.S. laws and regulations pertaining to the sale and distribution of products to customers in foreign countries, including exportcontrols and the Foreign Corrupt Practices Act; •the payment of operating expenses in local currencies, which exposes us to risks of currency fluctuations. •political and economic turbulence;21 •terrorism, war or other armed conflict; •compliance with U.S. and other applicable government regulations prohibiting certain end-uses and restrictions on trade with embargoed orsanctioned countries, such as Russia, and with denied parties; •potential import tariffs imposed by the United States and the possibility of reciprocal tariffs by foreign countries; •difficulty in conducting due diligence with respect to business partners in certain international markets; •increased complexity of accounting rules and financial reporting requirements; •fluctuations in local economies; and •natural disasters and epidemics.Any or all of these factors could have a material adverse impact on our business, financial condition, and results of operations.Substantially all of our international sales are United States dollar-denominated. The continued strength and future increases in the value of theUnited States dollar relative to foreign currencies could make our products less competitive in international markets. In the future, we may elect to invoicesome of our international customers in local currency, which would expose us to fluctuations in exchange rates between the United States dollar and theparticular local currency. If we do so, we may decide to engage in hedging transactions to minimize the risk of such fluctuations.We have entered into foreign exchange forward contracts to offset the impact of payment of operating expenses in local currencies to some of ouroperating foreign subsidiaries. However, if we are not successful in managing these foreign currency transactions, we could incur losses from these activities.Local laws and customs in many countries differ significantly from, or conflict with, those in the United States or in other countries in which weoperate. In many foreign countries, it is common for others to engage in business practices that are prohibited by our internal policies and procedures or U.S.regulations applicable to us. Although we have implemented policies, procedures and training designed to ensure compliance with these U.S. and foreignlaws and policies, there can be no complete assurance that any individual employee, contractor, channel partner, or agents will not violate our policies andprocedures. Violations of laws or key control policies by our employees, contractors, channel partners, or agents could result in termination of ourrelationship, financial reporting problems, fines, and/or penalties for us, or prohibition on the importation or exportation of our products, and could have amaterial adverse effect on our business, financial condition and results of operations.We expect the average selling price of our products to decrease, which is likely to reduce gross margin and/or revenue.The network equipment industry has traditionally experienced an erosion of average selling prices due to a number of factors, including competitivepricing pressures, promotional pricing and technological progress. We anticipate the average selling prices of our products will decrease in the future inresponse to competitive pricing pressures, excess inventories, increased sales discounts and new product introductions by us or our competitors. We mayexperience decreases in future operating results due to the erosion of our average selling prices. To maintain our gross margin, we must develop and introduceon a timely basis new products and product enhancements and continually reduce our product costs. Our failure to do so would likely cause our revenue andgross margin to decline.We purchase several key components for products from single or limited sources and could lose sales if these suppliers fail to meet our needs.We currently purchase several key components used in the manufacturing of our products from single or limited sources and are dependent uponsupply from these sources to meet our needs. Certain components such as tantalum capacitors, SRAM, DRAM, and printed circuit boards, have been in thepast, and may in the future be, in short supply. We have encountered, and are likely in the future to encounter, shortages and delays in obtaining these orother components, and this could have a material adverse effect on our ability to meet customer orders. Our principal sole-source components include: •ASICs - merchant silicon, Ethernet switching, custom and physical interface; •microprocessors; •programmable integrated circuits; •selected other integrated circuits;22 •custom power supplies; and •custom-tooled sheet metal.Our principal limited-source components include: •flash memory; •DRAMs and SRAMs; •printed circuit boards; •CAMs; •connectors; and •timing circuits (crystals & clocks).We use our forecast of expected demand to determine our material requirements. Lead times for materials and components we order vary significantly,and depend on factors such as the specific supplier, contract terms and demand for a component at a given time. If forecasts exceed orders, we may haveexcess and/or obsolete inventory, which could have a material adverse effect on our operating results and financial condition. If orders exceed forecasts, wemay have inadequate supplies of certain materials and components, which could have a material adverse effect on our ability to meet customer deliveryrequirements and to recognize revenue.Our top ten suppliers accounted for a significant portion of our purchases during the quarter. Given the significant concentration of our supply chain,particularly with certain sole or limited source providers, any significant interruption by any of the key suppliers or a termination of a relationship couldtemporarily disrupt our operations. Additionally, our operations are materially dependent upon the continued market acceptance and quality of thesemanufacturers’ products and their ability to continue to manufacture products that are competitive and that comply with laws relating to environmental andefficiency standards. Our inability to obtain products from one or more of these suppliers or a decline in market acceptance of these suppliers’ products couldhave a material adverse effect on our business, results of operations and financial condition. Other than pursuant to an agreement with a key componentsupplier which includes pricing based on a minimum volume commitment, generally we do not have agreements fixing long-term prices or minimum volumerequirements from suppliers. From time to time we have experienced shortages and allocations of certain components, resulting in delays in filling orders.Qualifying new suppliers to compensate for such shortages may be time-consuming and costly and may increase the likelihood of errors in design orproduction. In addition, during the development of our products, we have experienced delays in the prototyping of our chipsets, which in turn has led todelays in product introductions. Similar delays may occur in the future. Furthermore, the performance of the components from our suppliers as incorporated inour products may not meet the quality requirements of our customers.Intense competition in the market for networking equipment could prevent us from increasing revenue and attaining profitability.The market for network switching solutions is intensely competitive and dominated primarily by Brocade Communications Systems, Inc., CiscoSystems Inc., Dell, Hewlett-Packard Company, Huawei Technologies Co. Ltd. and Juniper Networks, Inc. Most of our competitors have longer operatinghistories, greater name recognition, larger customer bases, broader product lines and substantially greater financial, technical, sales, marketing and otherresources. As a result, these competitors are able to devote greater resources to the development, promotion, sale and support of their products. In addition,they have larger distribution channels, stronger brand names, access to more customers, a larger installed customer base and a greater ability to makeattractive offers to channel partners and customers than we do. Some of our customers may question whether we have the financial resources to complete theirprojects and future service commitments.For example, we have encountered, and expect to continue to encounter in the future, many potential customers who are confident in and committedto the product offerings of our principal competitors. Accordingly, these potential customers may not consider or evaluate our products. When such potentialcustomers have considered or evaluated our products, we have in the past lost, and expect in the future to lose, sales to some of these customers as largecompetitors have offered significant price discounts to secure these sales.23 The pricing policies of our competitors impact the overall demand for our products and services. Some of our competitors are capable of operating atsignificant losses for extended periods of time, increasing pricing pressure on our products and services. If we do not maintain competitive pricing, thedemand for our products and services, as well as our market share, may decline. From time to time, we may lower the prices of our products and services inresponse to competitive pressure. When this happens, if we are unable to reduce our component costs or improve operating efficiencies, our revenue and grossmargins will be adversely affected.We may not fully realize the anticipated positive impacts to future financial results from our restructuring efforts.We have undertaken restructuring efforts in the past to streamline operations and reduce operating expenses. Our ability to achieve the anticipatedcost savings and other benefits from our restructuring efforts within expected time frames is subject to many estimates and assumptions and may varymaterially based on factors such as market conditions and the effect of our restructuring efforts on our work force. These estimates and assumptions aresubject to significant economic, competitive and other uncertainties, some of which are beyond our control. We cannot assure that we will fully realize theanticipated positive impacts to future financial results from our current or future restructuring efforts. If our estimates and assumptions are incorrect or if otherunforeseen events occur, we may not achieve the cost savings expected from such restructurings, and our business and results of operations could beadversely affected.Industry consolidation may lead to stronger competition and may harm our operating results.There has been a trend toward industry consolidation in our markets for several years. We expect this trend to continue as companies attempt tostrengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations. For example, some ofour current and potential competitors for enterprise data center business have made acquisitions or announced new strategic alliances, designed to positionthem with the ability to provide end-to-end technology solutions for the enterprise data center. Companies that are strategic alliance partners in some areas ofour business may acquire or form alliances with our competitors, thereby reducing their business with us. We believe industry consolidation may result instronger competitors that are better able to compete as sole-source vendors for customers. This could lead to more variability in our operating results andcould have a material adverse effect on our business, operating results, and financial condition. Furthermore, particularly in the service provider market, rapidconsolidation will lead to fewer customers, with the effect that loss of a major customer could have a material impact on results not anticipated in a customermarketplace composed of more numerous participants.We intend to invest in engineering, sales, services, marketing and manufacturing on a long term basis, and delays or inability to attain theexpected benefits may result in unfavorable operating results.While we intend to focus on managing our costs and expenses, over the long term, we also intend to invest in personnel and other resources related toour engineering, sales, services, marketing and manufacturing functions as we focus on our foundational priorities, such as leadership in our core productsand solutions and architectures for business transformation. We are likely to recognize the costs associated with these investments earlier than some of theanticipated benefits and the return on these investments may be lower, or may develop more slowly, than we expect. If we do not achieve the benefitsanticipated from these investments, or if the achievement of these benefits is delayed, our operating results may be adversely affected.Our success is dependent on our ability to continually introduce new products and features that achieve broad market acceptance.The network equipment market is characterized by rapid technological progress, frequent new product introductions, changes in customerrequirements and evolving industry standards. If we do not regularly introduce new products in this dynamic environment, our product lines will becomeobsolete. These new products must be compatible and inter-operate with products and architectures offered by other vendors. We have and may in the futureexperience delays in product development and releases, and such delays have and could in the future adversely affect our ability to compete and ouroperating results.When we announce new products or product enhancements or end of sale existing products that have the potential to replace or shorten the life cycleof our existing products, customers may defer or cancel orders for our existing products. These actions could have a material adverse effect on our operatingresults by unexpectedly decreasing sales, increasing inventory levels of older products and exposing us to greater risk of product obsolescence.Even if we introduce new switching products, alternative technologies could achieve widespread market acceptance and displace the Ethernettechnology on which we have based our product architecture. For example, developments in routers and routing software could significantly reduce demandfor our products. As a result, we may not be able to achieve widespread market acceptance of our current or future products.24 If we do not successfully anticipate technological shifts, market needs and opportunities, and develop products, product enhancements andbusiness strategies that meet those technological shifts, needs and opportunities, or if those products are not made available or strategies are notexecuted in a timely manner or do not gain market acceptance, we may not be able to compete effectively and our ability to generate revenues willsuffer.The markets for our products are constantly evolving and characterized by rapid technological change, frequent product introductions, changes incustomer requirements, and continuous pricing pressures. We cannot guarantee that we will be able to anticipate future technological shifts, market needs andopportunities or be able to develop new products, product enhancements and business strategies to meet such technological shifts, needs or opportunities in atimely manner or at all. For example, the move from traditional network infrastructures towards SDN has been receiving considerable attention. In our view, itwill take several years to see the full impact of SDN, and we believe the successful products and solutions in this market will combine hardware and softwareelements together. If we fail to anticipate market requirements or opportunities or fail to develop and introduce new products, product enhancements orbusiness strategies to meet those requirements or opportunities in a timely manner, it could cause us to lose customers, and such failure could substantiallydecrease or delay market acceptance and sales of our present and future products and services, which would significantly harm our business, financialcondition, and results of operations. Even if we are able to anticipate, develop and commercially introduce new products and enhancements, we cannot assurethat new products or enhancements will achieve widespread market acceptance.The cloud networking market is still in its early stages and is rapidly evolving. If this market does not evolve as we anticipate or our target endcustomers do not adopt our cloud networking solutions, we may not be able to compete effectively, and our ability to generate revenue will suffer.The cloud networking market is still in its early stages. The market demand for cloud networking solutions has increased in recent years as endcustomers have deployed larger networks and have increased the use of virtualization and cloud computing. Our success may be impacted by our ability toprovide successful cloud networking solutions that address the needs of our channel partners and end customers more effectively and economically thanthose of other competitors or existing technologies. If the cloud networking solutions market does not develop in the way we anticipate, if our solutions donot offer significant benefits compared to competing legacy network switching products or if end customers do not recognize the benefits that our solutionsprovide, then our potential for growth in this cloud market could be adversely affected.Claims of infringement by others may increase and the resolution of such claims may adversely affect our operating results.Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patents, copyrights(including rights to “open source” software) and other intellectual property rights. Because of the existence of a large number of patents in the networkingfield, the secrecy of some pending patents and the issuance of new patents at a rapid pace, it is not possible to determine in advance if a product orcomponent might infringe the patent rights of others. Because of the potential for courts awarding substantial damages, the lack of predictability of suchawards and the high legal costs associated with the defense of such patent infringement matters that would be expended to prove lack of infringement, it isnot uncommon for companies in our industry to settle even potentially unmeritorious claims for very substantial amounts. Furthermore, the entities withwhom we have or could have disputes or discussions include entities with extensive patent portfolios and substantial financial assets. These entities areactively engaged in programs to generate substantial revenue from their patent portfolios and are seeking or may seek significant payments or royalties fromus and others in our industry.Litigation resulting from claims that we are infringing the proprietary rights of others has resulted and could in the future result in substantial costsand a diversion of resources, and could have a material adverse effect on our business, financial condition and results of operations. We previously receivednotices from entities alleging that we were infringing their patents and have been party to patent litigation in the past.Without regard to the merits of these or any other claims, an adverse court order or a settlement could require us, among other actions, to: •stop selling our products that incorporate the challenged intellectual property; •obtain a royalty bearing license to sell or use the relevant technology, and that license may not be available on reasonable terms or available at all; •pay damages;25 •redesign those products that use the disputed technology; or •face a ban on importation of our products into the United States.In addition, our products include so-called “open source” software. Open source software is typically licensed for use at no initial charge, but imposeson the user of the open source software certain requirements to license to others both the open source software as well as modifications to the open sourcesoftware under certain circumstances. Our use of open source software subjects us to certain additional risks for the following reasons: •open source license terms may be ambiguous and may result in unanticipated obligations regarding the licensing of our products and intellectualproperty; •open source software cannot be protected under trade secret law; •suppliers of open-source software do not provide the warranty, support and liability protections typically provided by vendors who offerproprietary software; and •it may be difficult for us to accurately determine the developers of the open source code and whether the acquired software infringes third-partyintellectual property rights.We believe even if we do not infringe the rights of others, we will incur significant expenses in the future due to defense of legal claims, disputes orlicensing negotiations, though the amounts cannot be determined. These expenses may be material or otherwise adversely affect our operating results.Our operating results may be negatively affected by defending or pursuing claims or lawsuits.We have in the past, currently are and will likely in the future pursue or be subject to claims or lawsuits in the normal course of our business. Inaddition to the risks related to the intellectual property lawsuits described above, we are currently parties to other litigation as described in Note [8] to ourNotes to Consolidated Financial Statements included elsewhere in this Annual Report. Regardless of the result, litigation can be expensive, lengthy anddisruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable resolution of a lawsuit inwhich we are a defendant could result in a court order against us or payments to other parties that would have an adverse effect on our business, results ofoperations or financial condition. Even if we are successful in prosecuting claims and lawsuits, we may not recover damages sufficient to cover our expensesincurred to manage, investigate and pursue the litigation. In addition, subject to certain limitations, we may be obligated to indemnify our current and formercustomers, suppliers, directors, officers and employees in certain lawsuits. We may not have adequate insurance coverage to cover all of our litigation costsand liabilities.If we fail to protect our intellectual property, our business could suffer.We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights.However, we cannot ensure that the actions we have taken will adequately protect our intellectual property rights or that other parties will not independentlydevelop similar or competing products that do not infringe on our patents. We generally enter into confidentiality, invention assignment or licenseagreements with our employees, consultants and other third parties with whom we do business, and control access to and distribution of our intellectualproperty and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwisemisappropriate or use our products or technology, which would adversely affect our business.When our products contain undetected errors, we may incur significant unexpected expenses and could lose sales.Network products frequently contain undetected errors when new products or new versions or updates of existing products are released to themarketplace. In the past, we have experienced such errors in connection with new products and product updates. We have experienced component problemsin prior years that caused us to incur higher than expected warranty, service costs and expenses, and other related operating expenses. In the future, we expectthat, from time to time, such errors or component failures will be found in new or existing products after the commencement of commercial shipments. Theseproblems may have a material adverse effect on our business by causing us to incur significant warranty, repair and replacement costs, diverting the attentionof our engineering personnel from new product development efforts, delaying the recognition of revenue and causing significant customer relationsproblems. Further, if products are not accepted by customers due to such defects, and such returns exceed the amount we accrued for defective returns basedon our historical experience, our operating results would be adversely affected.26 Our products must successfully inter-operate with products from other vendors. As a result, when problems occur in a network, it may be difficult toidentify the sources of these problems. The occurrence of system errors, whether or not caused by our products, could result in the delay or loss of marketacceptance of our products and any necessary revisions may cause us to incur significant expenses. The occurrence of any such problems would likely have amaterial adverse effect on our business, operating results and financial condition.Our dependence on a few manufacturers for our manufacturing requirements could harm our operating results.We primarily rely on our manufacturing partners: Alpha Networks, Inc. headquartered in Hsinchu, Taiwan; Senao Networks, Inc. headquartered inTaoyuan, Taiwan; Benchmark Electronics headquartered in Huntsville, Alabama; and select other partners to manufacture our products. We have experienceddelays in product shipments from our manufacturing partners in the past, which in turn delayed product shipments to our customers. These or similarproblems may arise in the future, such as delivery of products of inferior quality, delivery of insufficient quantity of products, or the interruption ordiscontinuance of operations of a manufacturer, any of which could have a material adverse effect on our business and operating results. In addition, anynatural disaster or business interruption to our manufacturing partners could significantly disrupt our business. While we maintain strong relationships withour manufacturing partners, our agreements with these manufacturers are generally of limited duration and pricing, quality and volume commitments arenegotiated on a recurring basis. The failure to maintain continuing agreements with our manufacturing partners could adversely affect our business. Weintend to introduce new products and product enhancements, which will require that we rapidly achieve volume production by coordinating our efforts withthose of our suppliers and contract manufacturers.As part of our cost-reduction efforts, we will need to realize lower per unit product costs from our manufacturing partners by means of volumeefficiencies and the utilization of manufacturing sites in lower-cost geographies. However, we cannot be certain when or if such price reductions will occur.The failure to obtain such price reductions would adversely affect our operating results.We must continue to develop and increase the productivity of our indirect distribution channels to increase net revenue and improve ouroperating results.Our distribution strategy focuses primarily on developing and increasing the productivity of our indirect distribution channels. If we fail to developand cultivate relationships with significant channel partners, or if these channel partners are not successful in their sales efforts, sales of our products maydecrease and our operating results could suffer. Many of our channel partners also sell products from other vendors that compete with our products. Ourchannel partners may not continue to market or sell our products effectively or to devote the resources necessary to provide us with effective sales, marketingand technical support. We may not be able to successfully manage our sales channels or enter into additional reseller and/or distribution agreements. Ourfailure to do any of these could limit our ability to grow or sustain revenue.Our operating results for any given period have and will continue to depend to a significant extent on large orders from a relatively small number ofchannel partners and other customers. However, we do not have binding purchase commitments from any of them. A substantial reduction or delay in sales ofour products to a significant reseller, distributor or other customer could harm our business, operating results and financial condition because our expenselevels are based on our expectations as to future revenue and to a large extent are fixed in the short term. Under specified conditions, some third-partydistributors are allowed to return products to us and unexpected returns could adversely affect our results.The sales cycle for our products is long and we may incur substantial non-recoverable expenses or devote significant resources to sales that donot occur when anticipated.The purchase of our products represent a significant strategic decision by a customer regarding its communications infrastructure. The decision bycustomers to purchase our products is often based on the results of a variety of internal procedures associated with the evaluation, testing, implementationand acceptance of new technologies. Accordingly, the product evaluation process frequently results in a lengthy sales cycle, typically ranging from threemonths to longer than a year, and as a result, our ability to sell products is subject to a number of significant risks, including risks that: •budgetary constraints and internal acceptance reviews by customers will result in the loss of potential sales; •there may be substantial variation in the length of the sales cycle from customer to customer, making decisions on the expenditure of resourcesdifficult to assess; •we may incur substantial sales and marketing expenses and expend significant management time in an attempt to initiate or increase the sale ofproducts to customers, but not succeed;27 •if a sales forecast from a specific customer for a particular quarter is not achieved in that quarter, we may be unable to compensate for the shortfall,which could harm our operating results; and •downward pricing pressures could occur during the lengthy sales cycle for our products.Failure to successfully expand our sales and support teams or educate them in regard to technologies and our product families may harm ouroperating results.The sale of our products and services requires a concerted effort that is frequently targeted at several levels within a prospective customer'sorganization. We may not be able to increase net revenue unless we expand our sales and support teams in order to address all of the customer requirementsnecessary to sell our products.We cannot assure that we will be able to successfully integrate employees into our company or to educate and train current and future employees inregard to rapidly evolving technologies and our product families. A failure to do so may hurt our revenue growth and operating results.Failure of our products to comply with evolving industry standards and complex government regulations may adversely impact our business.If we do not comply with existing or evolving industry standards and government regulations, we may not be able to sell our products where thesestandards or regulations apply. The network equipment industry in which we compete is characterized by rapid changes in technology and customers'requirements and evolving industry standards. As a result, our success depends on: •the timely adoption and market acceptance of industry standards, and timely resolution of conflicting U.S. and international industry standards;and •our ability to influence the development of emerging industry standards and to introduce new and enhanced products that are compatible withsuch standards.In the past, we have introduced new products that were not compatible with certain technological standards, and in the future, we may not be able toeffectively address the compatibility and interoperability issues that arise as a result of technological changes and evolving industry standards.Our products must also comply with various U.S. federal government regulations and standards defined by agencies such as the FederalCommunications Commission, standards established by governmental authorities in various foreign countries and recommendations of the InternationalTelecommunication Union. In some circumstances, we must obtain regulatory approvals or certificates of compliance before we can offer or distribute ourproducts in certain jurisdictions or to certain customers. Complying with new regulations or obtaining certifications can be costly and disruptive to ourbusiness.If we do not comply with existing or evolving industry standards or government regulations, we will not be able to sell our products where thesestandards or regulations apply, which may prevent us from sustaining our net revenue or achieving profitability.If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our ability to manage and grow ourbusiness may be harmed.Our ability to successfully implement our business plan and comply with regulations requires an effective planning and management process. Weneed to continue improving our existing, and implement new, operational and financial systems, procedures and controls. We need to ensure that anybusinesses acquired, including the WLAN Business and the Avaya Networking businesses, are appropriately integrated in our financial systems. Any delay inthe implementation of, or disruption in the integration of acquired businesses, or delay and disruption in the transition to, new or enhanced systems,procedures or controls, could harm our ability to record and report financial and management information on a timely and accurate basis, or to forecast futureresults.28 Changes in the effective tax rate including from the release of the valuation allowance recorded against our net U.S. deferred tax assets, oradverse outcomes resulting from examination of our income or other tax returns or change in ownership, could adversely affect our results.Our future effective tax rates may be volatile or adversely affected by changes in our business or U.S. or foreign tax laws, including: the partial or fullrelease of the valuation allowance recorded against our net U.S. deferred tax assets; expiration of or lapses in the research and development tax credit laws;transfer pricing adjustments; tax effects of stock-based compensation; or costs related to restructuring. The current U.S. administration and key members ofCongress have made public statements indicating that tax reform is a priority. Certain changes to U.S. tax laws, including limitations on the ability to deferU.S. taxation on earnings outside of the United States until those earnings are repatriated to the United States, could affect the tax treatment of our foreignearnings. In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. Although weregularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes, there isno assurance that such determinations by us are in fact adequate. Changes in our effective tax rates or amounts assessed upon examination of our tax returnsmay have a material, adverse impact on our cash flows and our financial condition.Our future effective tax rate in particular could be adversely affected by a change in ownership pursuant to U.S. Internal Revenue Code Section 382. Ifa change in ownership occurs, it may limit our ability to utilize our net operating losses to offset our U.S. taxable income. If U.S. taxable income is greaterthan the change in ownership limitation, we will pay a higher rate of tax with respect to the amount of taxable income that exceeds the limitation. This couldhave a material adverse impact on our results of operations. On April 26, 2012, we adopted an Amended and Restated Rights Agreement to help protect ourassets (the “Rights Agreement”). In general, this does not allow a stockholder to acquire more than 4.95% of our outstanding common stock without a waiverfrom our board of directors, who must take into account the relevant tax analysis relating to potential limitation of our net operating losses. Our RightsAgreement is effective through May 31, 2018, subject to ratification by a majority of the stockholders of the Company at the next annual shareholdersmeeting, expected to be held on November 9, 2017.Provisions in our charter documents and Delaware law and our adoption of a stockholder rights plan may delay or prevent an acquisition ofExtreme, which could decrease the value of our Common Stock.Our certificate of incorporation and bylaws and Delaware law contain provisions that could make it more difficult for a third party to acquire uswithout the consent of our Board of Directors. Delaware law also imposes some restrictions on mergers and other business combinations between us and anyholder of 15% or more of our outstanding common stock. In addition, our Board of Directors has the right to issue preferred stock without stockholderapproval, which could be used to dilute the stock ownership of a potential hostile acquirer. Although we believe these provisions of our certificate ofincorporation and bylaws and Delaware law will provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with ourBoard of Directors, these provisions apply even if the offer may be considered beneficial by some of our stockholders.Our Rights Agreement provides that if a single stockholder (or group) acquires more than 4.95% of our outstanding common stock without a waiverfrom our Board of Directors, each holder of one share of our common stock (other than the stockholder or group who acquired in excess of 4.95% of ourcommon stock) may purchase a fractional share of our preferred stock that would result in substantial dilution to the triggering stockholder or group.Accordingly, although this plan is designed to prevent any limitation on the utilization of our net operating losses by avoiding issues raised under Section382 of the U.S. Internal Revenue Code, the Rights Agreement could also serve as a deterrent to stockholders wishing to effect a change of control.Compliance with laws, rules and regulations relating to corporate governance and public disclosure may result in additional expenses.Federal securities laws, rules and regulations, as well as NASDAQ Stock Market rules and regulations, require companies to maintain extensivecorporate governance measures, impose comprehensive reporting and disclosure requirements, set strict independence and financial expertise standards foraudit and other committee members and impose civil and criminal penalties for companies and their Chief Executive Officers, Chief Financial Officers anddirectors for securities law violations. These laws, rules and regulations and the interpretation of these requirements are evolving, and we are makinginvestments to evaluate current practices and to continue to achieve compliance, which investments may have a material impact on the Company’s financialcondition.29 We are required to evaluate the effectiveness of our internal control over financial reporting on an annual basis and publicly disclose anymaterial weaknesses in our controls. Any adverse results from such evaluation could result in a loss of investor confidence in our financial reports andsignificant expense to remediate, and ultimately could have an adverse effect on our stock price.Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to assess the effectiveness of our internal control over financial reporting andto disclose if such controls were unable to provide assurance that a material error would be prevented or detected in a timely manner. We have an ongoingprogram to review the design of our internal controls framework in keeping with changes in business needs, implement necessary changes to our controlsdesign and test the system and process controls necessary to comply with these requirements. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, ifany, within our Company will have been detected.If we or our independent registered public accounting firm identifies material weaknesses in our internal controls, the disclosure of that fact, even ifquickly remedied, may cause investors to lose confidence in our financial statements and its stock price may decline. Remediation of a material weaknesscould require us to incur significant expenses and, if we fail to remedy any material weakness, our ability to report our financial results on a timely andaccurate basis may be adversely affected, our access to the capital markets may be restricted, our stock price may decline, and we may be subject to sanctionsor investigation by regulatory authorities, including the U.S. Securities and Exchange Commission or the NASDAQ Stock Market LLC. We may also berequired to restate our financial statements from prior periods. Execution of restatements create a significant strain on our internal resources and could causedelays in our filing of quarterly or annual financial results, increase our costs and cause management distraction. Restatements may also significantly affectour stock price in an adverse manner.Our headquarters and some significant supporting businesses are located in Northern California and other areas subject to natural disasters thatcould disrupt our operations and harm our business.Our corporate headquarters are located in Silicon Valley in Northern California. Historically, this region as well as our R&D centers in North Carolinaand New Hampshire have been vulnerable to natural disasters and other risks, such as earthquakes, fires, floods and tropical storms, which at times havedisrupted the local economy and posed physical risks to our property. We have contract manufacturers located in Taiwan where similar natural disasters andother risks may disrupt the local economy and pose physical risks to our property and the property of our contract manufacturer.In addition, the continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, maycause further disruptions to the economies of the United States and other countries. If such disruptions result in delays or cancellations of customer orders forour products, our business and operating results will suffer.We currently do not have redundant, multiple site capacity in the event of a natural disaster, terrorist act or other catastrophic event. In the event ofsuch an occurrence, our business would suffer.Our stock price has been volatile in the past and our stock price may significantly fluctuate in the future.In the past, our common stock price has fluctuated significantly. This could continue as we or our competitors announce new products, our results orthose of our customers or competition fluctuate, conditions in the networking or semiconductor industry change, or when investors, change their sentimenttoward stocks in the networking technology sector.In addition, fluctuations in our stock price and our price-to-earnings multiple may make our stock attractive to momentum, hedge or day-tradinginvestors who often shift funds into and out of stock rapidly, exacerbating price fluctuations in either direction, particularly when viewed on a quarterlybasis. These fluctuations may adversely affect the trading price or liquidity of our common stock. Some companies, including us, that have had volatilemarket prices for their securities have had securities class action lawsuits filed against them. If a suit were filed against us, regardless of its merits or outcome,it could result in substantial costs and divert management’s attention and resources. 30 We rely on the availability of third-party licenses.Some of our products are designed to include software or other intellectual property, including open source software, licensed from third parties. Itmay be necessary in the future to seek or renew licenses relating to various aspects of these products. There can be no assurance that the necessary licenseswould be available on acceptable terms, if at all. The inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms,could have a material adverse effect on our business, operating results, and financial condition. Moreover, the inclusion in our products of software or otherintellectual property licensed from third parties on a nonexclusive basis could limit our ability to protect our proprietary rights in our products. Further, thefailure to comply with the terms of any license, including free open source software, may result in our inability to continue to use such license. Our inabilityto maintain or re-license any third-party licenses required in our products or our inability to obtain third-party licenses necessary to develop new productsand product enhancements, could require us, if possible, to develop substitute technology or obtain substitute technology of lower quality or performancestandards or at a greater cost, any of which could delay or prevent product shipment and harm our business, financial condition, and results of operations.System security risks, data protection breaches, and cyber-attacks could compromise our proprietary information, disrupt our internaloperations and harm public perception of our products, which could adversely affect our business.In the ordinary course of business, we store sensitive data, including intellectual property, our proprietary business information and that of ourcustomers, suppliers and business partners on our networks. In addition, we store sensitive data through cloud-based services that may be hosted by thirdparties and in data center infrastructure maintained by third parties. The secure maintenance of this information is critical to our operations and businessstrategy. Increasingly, companies, including us, are subject to a wide variety of attacks on their networks on an ongoing basis. Despite our security measures,our information technology and infrastructure may be vulnerable to penetration or attacks by computer programmers and hackers, or breached due toemployee error, malfeasance or other disruptions. Any such breach could compromise our networks, creating system disruptions or slowdowns and exploitingsecurity vulnerabilities of our products, and the information stored on our networks could be accessed, publicly disclosed, lost or stolen, which could subjectus to liability to our customers, suppliers, business partners and others, and cause us reputational and financial harm. In addition, sophisticated hardware andoperating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including "bugs" andother problems that could unexpectedly interfere with the operation of our networks. This can be true even for “legacy” products that have been determinedto have reached an end of life engineering status but will continue to operate for a limited amount of time.If an actual or perceived breach of network security occurs in our network or in the network of a customer of our networking products, regardless ofwhether the breach is attributable to our products, the market perception of the effectiveness of our products could be harmed. In addition, the economic coststo us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software systems and security vulnerabilities could besignificant and may be difficult to anticipate or measure. Because the techniques used by computer programmers and hackers, many of whom are highlysophisticated and well-funded, to access or sabotage networks change frequently and generally are not recognized until after they are used, we may be unableto anticipate or immediately detect these techniques. This could impede our sales, manufacturing, distribution or other critical functions, which couldadversely affect our business.Market conditions and changes in the industry could lead to discontinuation of our products or businesses resulting in asset impairments.In response to changes in industry and market conditions, we may be required to strategically realign our resources and consider restructuring,disposing of, or otherwise exiting businesses. Any decision to limit investment in or dispose of or otherwise exit businesses may result in the recording ofspecial charges, such as inventory and technology-related write-offs, workforce reduction costs, charges relating to consolidation of excess facilities, orclaims from third parties who were resellers or users of discontinued products. Our estimates with respect to the useful life or ultimate recoverability of ourcarrying basis of assets, including purchased intangible assets, could change as a result of such assessments and decisions. Although in certain instances, oursupply agreements allow us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to firm orders being placed, ourloss contingencies may include liabilities for contracts that we cannot cancel with contract manufacturers and suppliers. Further, our estimates relating to theliabilities for excess facilities are affected by changes in real estate market conditions.31 If our products do not effectively inter-operate with our customers’ networks and result in cancellations and delays of installations, our businesscould be harmed.Our products are designed to interface with our customers’ existing networks, each of which have different specifications and utilize multiple protocolstandards and products from other vendors. Many of our customers’ networks contain multiple generations of products that have been added over time asthese networks have grown and evolved. Our products must inter-operate with many or all of the products within these networks as well as future products inorder to meet our customers’ requirements. If we find errors in the existing software or defects in the hardware used in our customers’ networks, we may needto modify our software networking solutions to fix or overcome these errors so that our products will inter-operate and scale with the existing software andhardware, which could be costly and could negatively affect our business, financial condition, and results of operations. In addition, if our products do notinter-operate with those of our customers’ networks, demand for our products could be adversely affected or orders for our products could be canceled. Thiscould hurt our operating results, damage our reputation, and seriously harm our business and prospects.We have liabilities for real estate leases in excess of what is necessary for our current business.We have real estate leases that we are currently trying to sublease or that we have had to write-off their cost. Until such time that we are able tosublease these properties, or the current leases expire, we may incur financial liabilities for real estate leases significantly in excess of what is necessary forour current business.The results of the United Kingdom's referendum on withdrawal from the European Union may have a negative effect on global economicconditions, financial markets and our business.In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. The terms of thewithdrawal are subject to a negotiation period that could last at least two years after the government of the United Kingdom formally initiated the withdrawalprocess in March 2017. Nevertheless, the referendum has created significant uncertainty about the future relationship between the United Kingdom and theEuropean Union, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to replaceor replicate in the event of a withdrawal. The referendum has also given rise to calls for the governments of other European Union member states to considerwithdrawal. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on globaleconomic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key marketparticipants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to capital, which could havea material adverse effect on our business, financial condition and results of operations and reduce the price of our securities.While the full effects of the referendum will not be known for some time, the referendum and beginnings of the British exit from the European Unioncould cause disruptions to, and create uncertainty surrounding, our business with customers in the United Kingdom. One of the most immediate effects of thereferendum to date includes the currency exchange rate fluctuations that have resulted in the strengthening of the U.S. Dollar against the U.K. Pound Sterling.The weaker U.K. Pound Sterling means that revenues earned in U.K. Pounds Sterling translate to lower reported U.S. Dollar revenues. The weaker U.K. PoundSterling also means that expenses incurred in U.K. Pounds Sterling translate to lower reported U.S. Dollar expenses. In addition, the continued strength andfuture increases in the value of the U.S. Dollar relative to the U.K. Pounds Sterling could make the sale of our products less competitive in the UnitedKingdom. Regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certainmetals used in the manufacturing of our products.As a public company, we are subject to requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, and the regulations adopted by the SEC as a result of the Dodd-Frank Act, that require us to perform certain reasonable country of origin inquiryand diligence exercises, and disclose and report on our diligence process and efforts to ascertain whether or not our products may contain “conflict minerals”mined from the Democratic Republic of the Congo or adjoining countries. These requirements could adversely affect the sourcing, availability and pricingof the materials used in the manufacture of components used in our products. In addition, we continue to incur additional costs to comply with thesedisclosure requirements, including costs related to conducting ongoing diligence procedures and, if applicable, potential changes to products, processes orsources of supply as a consequence of such activities. We may encounter challenges to satisfy customers who require that all of the components of ourproducts are certified as “conflict free.” If we cannot satisfy these customers, they may choose a competitor’s products. 32 Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesWe started leasing our current headquarters, which is located in San Jose, California, in October 2016. We also lease office space and executive suitesin various other geographic locations domestically and internationally for research and development, sales and service personnel and administration. Ouraggregate lease expense for fiscal year 2017 was $9.4 million.At June 30, 2017, the significant facilities that we leased were as follows: Location Use Size (in square feet) San Jose, California Principal administrative, research and development, sales and marketingfacilities 102,139 Salem, New Hampshire Research and development, sales and marketing and administrative offices 197,259 Morrisville, North Carolina Research and development, sales and administrative offices 54,530 Chennai, India Research and development facilities 43,839 Bangalore, India Research and development facilities 62,257 Shannon, Ireland Administrative offices 13,046 The above leases expire at various dates between fiscal year 2018 and fiscal year 2023.Item 3. Legal ProceedingsThe information set forth under the heading “Legal Proceedings” in Note 5, Commitments, Contingencies and Leases, in Notes to ConsolidatedFinancial Statements in Item 8 of Part II of this Annual Report on Form 10-K, is incorporated herein by reference.Item 4. Mine Safety DisclosuresNot Applicable 33 PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesCommon Stock Market Prices and DividendsOur common stock trades on the NASDAQ Global Market and commenced trading on NASDAQ on April 9, 1999 under the symbol “EXTR.” Thefollowing table sets forth the high and low sales prices as reported by NASDAQ. Such prices represent prices between dealers, do not include retail mark-ups,mark-downs or commissions and may not represent actual transactions. Stock Prices High Low Fiscal year ended June 30, 2017: First quarter $4.54 $3.37 Second quarter $5.10 $4.05 Third quarter $7.51 $5.15 Fourth quarter $10.70 $6.90 Fiscal year ended June 30, 2016: First quarter $3.56 $2.13 Second quarter $4.42 $3.34 Third quarter $3.99 $2.35 Fourth quarter $3.78 $3.08 As of September 6, 2017, there were 202 stockholders of record of our common stock. Because many of our shares of common stock are held bybrokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. Wehave never declared or paid cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future.Certain information regarding our equity compensation plan(s) as required by Part II is incorporated by reference from our definitive Proxy Statementto be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for our 2017 Annual Meeting of Stockholders notlater than 120 days after the end of the fiscal year covered by this report.34 STOCK PRICE PERFORMANCE GRAPHSet forth below is a stock price performance graph comparing the annual percentage change in the cumulative total return on our common stock withthe cumulative total returns of the CRSP Total Return Index for The NASDAQ Stock Market (U.S. companies) and the NASDAQ Computer ManufacturersSecurities for the period commencing July 1, 2012 and ending on June 30, 2017. The comparisons in the graph below are based on historical data and are notintended to forecast the possible future performance of our common stock.Comparison of Five-Year Cumulative Total ReturnsPerformance Graph for Extreme Networks, Inc. Prepared by CRSP (www.crsp.uchicago.edu), Center for Research in Security Prices, Booth School of Business, The University of Chicago. Used withpermission. All rights reserved. 35 Item 6. Selected Financial DataThe following table sets forth selected consolidated financial data for each of the fiscal years ended June 30, 2017, 2016, 2015, 2014 and 2013derived from the Company’s audited financial statements (in thousands, except per share amounts). These tables should be reviewed in conjunction with theConsolidated Financial Statements in Item 8 and related Notes, as well as Item 7, “Management’s Discussion and Analysis of Financial Condition andResults of Operations.” Historical results may not be indicative of future results. Year Ended June 30, 2017(1) 2016(2) 2015(3) 2014(4) 2013(5) Consolidated Statements of Operations Data: Net revenues $598,118 $528,389 $552,940 $519,554 $299,343 Operating (loss) income $(733) $(25,550) $(62,994) $(50,232) $10,852 Net (loss) income $(8,517) $(31,884) $(71,643) $(57,310) $9,673 Net (loss) income per share – basic $(0.08) $(0.31) $(0.72) $(0.60) $0.10 Net (loss) income per share – diluted $(0.08) $(0.31) $(0.72) $(0.60) $0.10 Shares used in per share calculation – basic 108,273 103,074 99,000 95,515 93,954 Shares used in per share calculation – diluted 108,273 103,074 99,000 95,515 95,044 As of June 30, 2017 2016 2015 2014 2013 Consolidated Balance Sheets Data: Cash and cash equivalents, short-term investments and marketable securities $130,450 $94,122 $76,225 $105,882 $205,613 Inventories $45,880 $40,989 $58,014 $57,109 $16,167 Total assets $483,346 $374,423 $428,660 $526,432 $311,424 Deferred revenue, net $104,341 $94,860 $99,782 $97,677 $41,454 Debt, net of issuance costs $92,702 $55,074 $66,400 $120,990 $— Other long-term liabilities $15,102 $13,328 $10,264 $8,595 $1,507 Common stock and capital in excess of par value $909,155 $884,706 $865,382 $845,364 $821,425 Accumulated deficit $(800,257) $(791,740) $(759,856) $(688,213) $(630,903) (1)Fiscal 2017 net loss and net loss per share includes acquisition and integrations costs of $13.1 million, amortization of intangibles of $8.7 million anda restructuring charge of $8.9 million.(2)Fiscal 2016 net loss and net loss per share includes acquisition and integrations costs of $1.1 million, amortization of intangibles of $17.0 million anda restructuring charge of $11.0 million.(3)Fiscal 2015 net loss and net loss per share includes acquisition and integration costs of $10.2 million, amortization of intangibles of $17.9 million anda restructuring charge of $9.8 million.(4)Fiscal 2014 net loss and net loss per share includes acquisition and integration costs of $25.7 million, amortization of intangibles of $16.7 million anda restructuring charge of $0.5 million.(5)Fiscal 2013 net income and net income per share includes a gain on sale of facilities of $11.5 million, a restructuring charge of $6.8 million and acharge for litigation settlement, net of $2.0 million.36 Quarterly Financial Data (Unaudited)Quarterly results for the years ended June 30, 2017 and 2016 are as follow (in thousands, except per share amounts): June 30, March 31, December 31, September 30, 2017(1) 2017(2) 2016(3) 2016(4) Net revenues $178,701 $148,664 $148,111 $122,642 Gross profit $101,739 $82,146 $75,354 $65,246 Net income (loss) $12,177 $(3,246) $(7,362) $(6,479)Net income (loss) per share – basic $0.11 $(0.05) $(0.08) $(0.06)Net income (loss) per share – diluted $0.11 $(0.05) $(0.08) $(0.06) June 30, March 31, December 31, September 30, 2016(5) 2016(6) 2015(7) 2015(8) Net revenues $139,617 $124,886 $139,305 $124,581 Gross profit $72,675 $62,720 $70,275 $65,118 Net loss $(2,340) $(10,784) $(7,234) $(11,526)Net loss per share – basic $(0.02) $(0.10) $(0.07) $(0.11)Net loss per share – diluted $(0.02) $(0.10) $(0.07) $(0.11) (1)Net income and net income per share include the effect of acquisition and integration costs of $3.2 million, amortization of intangibles of $1.2 millionand a reversal of restructuring charges of $0.7 million.(2)Net loss and net loss per share include the effect of acquisition and integration costs of $3.4 million, amortization of intangibles of $1.2 million and arestructuring charge of $7.7 million.(3)Net loss and net loss per share include the effect of acquisition and integration costs of $4.2 million, amortization of intangibles of $2.2 million and arestructuring charge of $1.9 million.(4)Net loss and net loss per share include the effect of acquisition and integration costs of $2.3 million, amortization of intangibles of $4.1 million.(5)Net loss and net loss per share include the effect of amortization of intangibles of $0.8 million and a restructuring charge of $0.1 million.(6)Net loss and net loss per share include the effect of amortization of intangibles of $4.1 million and a restructuring charge of $1.4 million.(7)Net loss and net loss per share include the effect of acquisition and integration costs of $0.8 million and amortization of intangibles of $4.3 millionand a restructuring charge of $3.0 million.(8)Net loss and net loss per share include the effect of acquisition and integration costs of $0.3 million and amortization of intangibles of $4.5 millionand a restructuring charge of $5.6 million.Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters maynot agree with the per share amounts for the year. 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsBusiness OverviewThe following discussion should be read with the Consolidated Financial Statements and the related notes in Item 8 of Part II of this Report.The following discussion is based upon our Consolidated Financial Statements included elsewhere in this Report, which have been prepared inaccordance with U.S. generally accepted accounting principles, or U.S. GAAP. In the course of operating our business, we routinely make decisions as to thetiming of the payment of invoices, the collection of receivables, the manufacturing and shipment of products, the fulfillment of orders, the purchase ofsupplies, and the building of inventory and service parts, among other matters. Each of these decisions has some impact on the financial results for any givenperiod. In making these decisions, we consider various factors including contractual obligations, customer satisfaction, competition, internal and externalfinancial targets and expectations, and financial planning objectives. For further information about our critical accounting policies and estimates, see“Critical Accounting Policies and Estimates” section included in this “Management's Discussion and Analysis of Financial Condition and Results ofOperations.”Extreme is a leading provider of network infrastructure equipment and offers related maintenance contracts for extended warranty and maintenance toour enterprise, data center and service provider customers. We were incorporated in California in May 1996, and reincorporated in Delaware in March1999. Our corporate headquarters are located in San Jose, California. Substantially all of our revenue is derived from the sale of our networking equipmentand related maintenance contracts.Extreme Networks, Inc., together with its subsidiaries (collectively referred to as “Extreme” and as “we”, “us” and “our”) is a leader in providingsoftware-driven networking solutions for enterprise customers. Providing a combined end-to-end solution from the data center to the access point, Extremedesigns, develops and manufactures wired and wireless network infrastructure equipment and develops the software for network management, policy,analytics, security and access controls. We strive to help our customers and partners Connect Beyond the Network by building world-class software andnetwork infrastructure solutions that solve the wide range of problems faced by IT departments.Enterprise network administrators from the data center to the access layer need to respond to the rapid digital transformational trends of cloud,mobility, big data, social business and the ever present need for network security. Accelerators such as Internet of Things (“IoT”), artificial intelligence(“AI”), bring your own device (“BYOD”), machine learning, cognitive computing, and robotics add complexity to challenge the capabilities of traditionalnetworks. Technology advances have a profound effect across the entire enterprise network placing unprecedented demands on network administrators toenhance management capabilities, scalability, programmability, agility, and analytics of the enterprise networks they manage.A trend effecting the Enterprise Network Equipment market is the continued adoption of the cloud-managed enterprise WLAN in the enterprisemarket. Hybrid cloud is a cloud computing environment which uses a mix of on-premises, private cloud and third-party, public cloud services withorchestration between the two platforms. We introduced our Cloud offering in 2016 and announced its enhanced cloud offering in 2017. ExtremeCloud isthe only offering in the market that seamlessly integrates the cloud with on-premise infrastructures. (See Part 1, Item 1. Business, for additional discussion ofthe Company’s business)AcquisitionOn October 28, 2016, we completed the acquisition of Zebra’s WLAN Business assets. Under the terms of the purchase agreement, we acquiredcustomers, employees, technology and other assets as well as assumed certain contracts and other liabilities of the WLAN Business, for net cash considerationto $49.5 million.We have accounted for the acquisition using the acquisition method of accounting. The purchase price allocation as of the acquisition date is setforth in Note 2 Business Combinations in our Notes to Consolidated Financial Statements and reflects fair values. The fair values were determined throughestablished and generally accepted valuation techniques, including work performed by third-party valuation specialists. All valuations were consideredfinalized as of June 30, 2017.During the fiscal year ended June 30, 2017, we recognized acquisition costs of $2.1 million and integration costs of $6.6 million, which is included in“Acquisition and integration costs” in the accompanying condensed consolidated statements of operations.38 On July 14, 2017, we completed the acquisition of Avaya Networking, Avaya’s fabric-based secure networking solutions and network securitysolutions business, that had been announced on March 7, 2017, and funds were remitted to Avaya pursuant to the purchase agreement. We acquiredcustomers, employees, technology and other assets, as well as assume contracts and other liabilities of the Avaya Networking business, for a purchase price of$100.0 million, subject to certain adjustments. Pursuant to certain ancillary agreements, Avaya will also provide us with access to certain technology relatedto Avaya Networking, as well as transition services for a period of time following the closing of the transaction. As a condition of our agreement, theCompany made deposits of $10.2 million in our fiscal third quarter to be applied to the purchase price upon closing. See Note 14. Subsequent Events foradditional information.The acquisition will be accounted for using the acquisition method of accounting whereby the acquired assets and liabilities of the Avaya Networkingwill be recorded at their respective fair values and added to those of ours including an amount for goodwill representing the difference between theacquisition consideration and the fair value of the identifiable net assets. Results of operations of Avaya Networking will be included in our operationsbeginning with the closing date as noted above.During fiscal year ended June 30, 2017, we recognized acquisition costs of $2.2 million, which is included in “Acquisition and integration costs” inthe accompanying consolidated statements of operations related to the Purchase Agreement.Future AcquisitionsOn March 29, 2017, we entered into an additional Asset Purchase Agreement (the “Purchase Agreement II”) with LSI Corporation, (“LSI”), and, solelyfor the purposes set forth in the Purchase Agreement II, Broadcom to purchase the Brocade Data business of Brocade. Upon the terms and subject to theconditions of the Purchase Agreement II, we will acquire customers, employees, technology and other assets of Brocade Data, as well as assume certaincontracts and other liabilities of Brocade Data, for an upfront cash closing payment equal to $35.0 million, plus a deferred payment equal to $20.0 million tobe paid $1 million per quarter for 20 quarters following the closing date of the transaction (the “Closing,” and such date, the “Closing Date”), plus quarterlyearn out payments equal to 50% of profits of Brocade Data for the five-year period commencing at the end of our first full fiscal quarter following the ClosingDate. Pursuant to certain ancillary agreements, LSI will also provide us with access to certain technology related to Brocade Data, as well as transitionservices for a period of time following the Closing. The acquisition will include the rights to have manufactured and sold Brocade’s current SLX basedsolutions product portfolio, which launched in March 2017. The Purchase Agreement II is contingent upon Broadcom acquiring Brocade. (See Item 1ARisk Factors for additional information).During the fiscal year ended June 30 2017, we recognized acquisition costs of $2.2 million, which is included in “Acquisition and integration costs”in the accompanying consolidated statements of operations related to the Purchase Agreement II.Results of OperationsFollowing is a summary of our results of operations during fiscal 2017: •Net revenue of $598.1 million, increased 13.2% from fiscal 2016 net revenue of $528.4 million. •Product revenue of $451.5 million, increased 14.2% from fiscal 2016 product revenue of $395.5 million. •Service revenue of $146.7 million, increased 10.3% from fiscal 2016 service revenue of $132.9 million. •Total gross margin of 54.3% of net revenue in fiscal 2017, compared to 51.2% in fiscal 2016. •Restructuring charge of $8.9 million, for excess facilities and contract termination. •Operating loss of $0.7 million, was a decrease in the operating loss of $24.8 million from fiscal 2016. •Net loss was $8.5 million in fiscal 2017, a decrease of $23.4 million from a net loss of $31.9 million in fiscal 2016. •Cash flow provided by operating activities of $59.3 million, compared to cash flow provided by operating activities of $30.4 million in fiscal2016, an increase of $28.9 million. Cash and cash equivalents were $130.5 million as of June 30, 2017, an increase of $36.4 million compared tofiscal.201639 Net RevenuesThe following table presents net product and service revenue for the fiscal years 2017, 2016 and 2015 (dollars in thousands): Year Ended Year Ended June 30,2017 June 30,2016 $Change %Change June 30,2016 June 30,2015 $Change %Change Net Revenues: Product $451,459 $395,464 $55,995 14.2% $395,464 $418,046 $(22,582) (5.4)%Percentage of net revenue 75.5% 74.8% 74.8% 75.6% Service 146,659 132,925 13,734 10.3% 132,925 $134,894 (1,969) (1.5)%Percentage of net revenue 24.5% 25.2% 25.2% 24.4% Total net revenues $598,118 $528,389 $69,729 13.2% $528,389 $552,940 $(24,551) (4.4)% Product revenue increased $56.0 million or 14.2% for the year ended June 30, 2017, compared to the corresponding period of fiscal 2016. Theincrease in product revenue was primarily a result of the acquisition of the WLAN Business during fiscal 2017 and to lower discounting from list price. Theincrease was partially offset by lower e-rate educational revenue.Product revenue decreased $22.6 million or 5.4% for the year ended June 30, 2016, compared to the corresponding period of fiscal 2015. The decreasein product revenue was primarily due to an increase in competitive pricing pressure on lower volumes of modular (chassis based) switching products resultingfrom market shifts towards fixed products which are generally lower cost and are capable of rapidly adapting to changes and needs of the marketplace. Thegrowth in the fixed products was not sufficient to offset the modular product decline and to a lesser extent, to the strengthening of the United States Dollar innearly all geographical regions.Service revenue increased $13.7 million or 10.3% for the year ended June 30, 2017, compared to the corresponding period of fiscal 2016. The increasein service revenue was primarily a result of the acquisition of the WLAN Business during fiscal 2017, the increased number of service contracts acquired andlower purchase accounting charges.Service revenue decreased $2.0 million or 1.5% for the year ended June 30, 2016 compared to the corresponding period of fiscal 2015 due to adecrease in service maintenance contracts and professional service and training revenues. Partially offsetting the decrease were lower purchase accountingcharges related to deferred service revenues, which decreased to $1.5 million for the year-ended June 30, 2016, from $3.1 million in the corresponding periodof fiscal 2015.We operate in three regions: Americas, which includes the United States, Canada, Mexico, Central America and South America; EMEA, whichincludes Europe, Russia, Middle East, and Africa; and APAC which includes Asia Pacific, South Asia, Japan and Australia. The following table presents thetotal net revenue geographically for the fiscal years 2017, 2016 and 2015 (dollars in thousands): Year Ended Year Ended Net Revenues June 30,2017 June 30,2016 $Change %Change June 30,2016 June 30,2015 $Change %Change Americas: United States $303,617 $237,933 $65,684 27.6% $237,933 $238,748 $(815) (0.3)%Other 24,530 44,455 (19,925) (44.8)% 44,455 31,931 12,524 39.2%Total Americas 328,147 282,388 45,759 16.2% 282,388 270,679 11,709 4.3%Percentage of net revenue 54.9% 53.4% 53.4% 49.0% EMEA 216,015 196,588 19,427 9.9% 196,588 223,368 (26,780) (12.0)%Percentage of net revenue 36.1% 37.2% 37.2% 40.4% APAC 53,956 49,413 4,543 9.2% 49,413 58,893 (9,480) (16.1)%Percentage of net revenue 9.0% 9.4% 9.4% 10.7% Total net revenues $598,118 $528,389 $69,729 13.2% $528,389 $552,940 $(24,551) (4.4)% We rely upon multiple channels of distribution, including distributors, direct resellers, OEMs, and direct sales. Revenue through our distributorchannel was 49% of total product revenue in fiscal years 2017 and 2016 and 47% of total product revenue in fiscal 2015.The level of sales to any one customer, including a distributor, may vary from period to period.40 Cost of Revenues and Gross ProfitThe following table presents the gross profit on product and service revenue and the gross profit percentage of net revenues for the fiscal years 2017,2016 and 2015 (dollars in thousands): Year Ended Year Ended June 30,2017 June 30,2016 $Change %Change June 30,2016 June 30,2015 $Change %Change Gross profit: Product $233,732 $186,725 $47,007 25.2% $186,725 $193,028 $(6,303) (3.3)%Percentage of product revenue 51.8% 47.2% 47.2% 46.2% Service 90,753 84,063 6,690 8.0% 84,063 86,709 (2,646) (3.1)%Percentage of service revenue 61.9% 63.2% 63.2% 64.3% Total gross profit $324,485 $270,788 $53,697 19.8% $270,788 $279,737 $(8,949) (3.2)%Percentage of net revenue 54.3% 51.2% 51.2% 50.6% Cost of product revenues includes costs of materials, amounts paid to third-party contract manufacturers, costs related to warranty obligations, chargesfor excess and obsolete inventory, amortization of developed technology intangibles, royalties under technology license agreements, and internal costsassociated with manufacturing overhead, including management, manufacturing engineering, quality assurance, development of test plans, and documentcontrol. We outsource substantially all of our manufacturing and supply chain management operations, and we conduct quality assurance, manufacturingengineering, document control and distribution at our facilities in San Jose, California, Salem, New Hampshire, China, and Taiwan.Product gross profit increased to $233.7 million for the year-ended June 30, 2017, from $186.7 million in the corresponding period of fiscal2016. Product gross profit for the year-ended June 30, 2017, was favorably impacted by an increase in product revenue of $65.7 million due primarily to theacquisition of the WLAN Business, lower amortization of developed technology intangibles of $8.3 million and more favorable manufacturing costs due tocost reduction efforts and lower warranty charges of $2.2 million. The increases in product gross profit were partially offset by integration costs of $5.0million primarily related to excess inventory charges related to the discontinuance of certain product lines due to the WLAN Business acquisition andincreased royalty charges of $2.6 million.Product gross profit decreased to $186.7 million for the year-ended June 30, 2016, from $193.0 million in the corresponding period of fiscal2015. Product gross profit for the year-ended June 30, 2016, was unfavorably impacted by a decrease in product revenue of $22.6 million, offset by loweramortization of developed technology intangibles of $2.3 million, lower royalty charges of $1.9 million and warranty charges of $0.8 million.Our cost of service revenue consists primarily of labor, overhead, repair and freight costs and the cost of service parts used in providing support undercustomer maintenance contracts.Service gross profit increased to $90.8 million for the year-ended June 30, 2017, from $84.1 million in the corresponding period of fiscal 2016,primarily due to an increase in service revenue of $6.7 million related to the acquisition of the WLAN Business and the increased number of service contractsacquired.Service gross profit decreased to $84.1 million for the year-ended June 30, 2016, from $86.7 million in the corresponding period of fiscal 2015,primarily due to a decrease in service revenue of $2.0 million and increased operating expenses, primarily professional fees of $0.6 million. 41 Operating ExpensesThe following table presents operating expenses and operating income (dollars in thousands): Year Ended Year Ended June 30,2017 June 30,2016 $Change %Change June 30,2016 June 30,2015 $Change %Change Research and development $93,724 $78,721 $15,003 19.1% $78,721 $93,447 $(14,726) (15.8)%Sales and marketing 162,927 150,806 12,121 8.0% 150,806 169,299 (18,493) (10.9)%General and administrative 37,864 37,675 189 0.5% 37,675 42,092 (4,417) (10.5)%Acquisition and integration costs 13,105 1,145 11,960 1,044.5% 1,145 10,205 (9,060) (88.8)%Restructuring and related charges, net of reversals 8,896 10,990 (2,094) (19.1)% 10,990 9,819 1,171 11.9%Amortization of intangibles 8,702 17,001 (8,299) (48.8)% 17,001 17,869 (868) (4.9)%Total operating expenses $325,218 $296,338 $28,880 9.7% $296,338 $342,731 $(46,393) (13.5)% The following table highlights our operating expenses and operating loss as a percentage of net revenues: Year Ended June 30,2017 June 30,2016 June 30,2015 Research and development 15.7% 14.9% 16.9%Sales and marketing 27.2% 28.5% 30.6%General and administrative 6.3% 7.1% 7.6%Acquisition and integration costs 2.2% 0.2% 1.8%Restructuring charge, net of reversals 1.5% 2.1% 1.8%Amortization of intangibles 1.5% 3.2% 3.2%Total operating expenses 54.4% 56.1% 62.0%Operating loss (0.1)% (4.8)% (11.4)% Research and Development ExpensesResearch and development expenses consist primarily of salaries and related personnel expenses, consultant fees and prototype expenses related to thedesign, development, and testing of our products.Research and development expenses increased by $15.0 million or 19.1% for fiscal 2017 as compared to fiscal 2016. The increase in spending wasprimarily a result of the acquisition of the WLAN Business during fiscal 2017, and consists of $11.7 million of personnel costs, which includescompensation, benefits and non-cash stock based compensation, $1.3 million of technology and facility costs, $1.2 million of consulting and contractprojects and $0.8 million of supplies and equipment costs.Research and development expenses decreased by $14.7 million or 15.8% for fiscal 2016 as compared to fiscal 2015. The decrease in spending wasrelated to $11.6 million of personnel costs, which includes compensation, benefits and non-cash stock based compensation, $1.6 million in reduced suppliesand equipment costs, $1.2 million in depreciation and $0.3 million of other costs.Sales and Marketing ExpensesSales and marketing expenses consist of salaries, commissions and related expenses for personnel engaged in marketing and sales functions, as well astrade shows and promotional expenses.Sales and marketing expenses increased by $12.1 million or 8.0% for the year-ended June 30, 2017, as compared to the corresponding period of fiscal2016. The increase in sales and marketing expenses during fiscal 2017 was primarily a result of the acquisition of the WLAN Business during fiscal 2017,and consists of higher personnel costs including benefits and non-cash stock compensation of $9.2 million, $1.8 million in travel costs and $1.1 million inadditional professional fees.42 Sales and marketing expenses decreased by $18.5 million or 10.9% for the year-ended June 30, 2016 as compared to the corresponding period of fiscal2015. The decrease in sales and marketing expenses during fiscal 2016 was primarily due to lower personnel costs including benefits and non-cash stockcompensation of $11.5 million, $3.1 million in reduced travel costs, $2.4 million in reduced occupancy expense and $1.9 million in reduced salesconferences and related costs. In addition, sales and marketing professional fees decreased by $0.8 million during the period.General and Administrative ExpensesGeneral and administrative expense consists primarily of personnel costs, legal and professional service costs, share-based compensation, travel andfacilities and information technology costs.General and administrative expenses increased by $0.2 million or 0.5% for the year-ended June 30, 2017, as compared to the corresponding period offiscal 2016. The increase in general and administrative expenses was primarily due to increases of $1.1 million in professional fees, $0.6 million in recruitingfees, and $0.2 million of taxes and franchise fees. The increase was partial offset by $0.9 million in lower personnel costs related to our reduced headcountand $0.6 million in our provision for bad debts.General and administrative expenses decreased by $4.4 million or 10.5% for the year-ended June 30, 2016 as compared to the corresponding period offiscal 2015. The decrease in general and administrative expenses was primarily due to $3.6 million in lower personnel costs related to our reducedheadcount, as well as reduced professional fees of $1.9 million and other expenses of $0.4 million.Acquisition and Integration CostsAs a result of our acquisitions of the WLAN Business in fiscal 2017 and Enterasys in fiscal 2014, we incurred $13.1 million, $1.1 million and $10.2million of acquisition and integration costs in fiscal years 2017, 2016 and 2015, respectively. For fiscal 2017, we incurred $2.1 million of acquisition and $6.6 million of integration costs related to the WLAN Business acquisition. We alsoincurred acquisition costs of $2.2 million and $2.2 million related to our acquisition of Avaya Networking on July 14, 2017, and anticipated acquisition ofBrocade Data, respectively.For fiscal 2016 and 2015, the entire $1.1 million and $10.2 million, respectively, of expense was related to integration costs of the Enterasysacquisition. The lower fiscal 2016 integration expenses were due to winding down of integration activities associated with the acquisition, which includedlower severance and termination costs, information systems applications costs and consulting fees. Restructuring and Related Charges, Net of ReversalsAs of June 30, 2017, restructuring liabilities were $4.1 million and consisted primarily of obligations for estimated future obligations for non-cancelable lease payments for excess facilities, and for severance payments and benefits. The restructuring liability is recorded in "Other accrued liabilities"and “Other long-term liabilities” on the consolidated balance sheets. During fiscal years 2017, 2016 and 2015, we recorded restructuring charges and relatedcharges, net of reversals, of $8.9 million, $11.0 million and $9.8 million, respectively. Fiscal year 2017Pursuant to the WLAN Business acquisition from Zebra, we assumed a facility lease located at 6480 Via del Oro in San Jose, California (“Via del Oro”)and transferred our headquarters from Rio Robles Drive in San Jose, California (“Rio Robles”) to Via del Oro. We consolidated our existing workforce fromour previous headquarters with employees assumed from Zebra to the Via del Oro site and exited the Rio Robles site on January 31, 2017. Due to our movefrom the Rio Robles facility and abandonment of all leasehold improvements, we accelerated the amortization of the remaining leasehold improvements forthis site over the shortened service period such that the leasehold improvements were fully amortized on the cease-use date. We recorded acceleratedamortization expense for the year ended June 30, 2017 of $2.6 million and it is reflected in "Restructuring and related charges, net of reversals" in thecondensed consolidated statements of operations. We entered into a sublease agreement related to our Rio Robles facility during the third quarter of fiscal 2017 for the remaining duration of the lease.The sublease resulted in adjustments to the prior estimates for the amount of sublease payments, timing of sublease activities and real estate commissionsassociated with the sublease. The net adjustments, including modifications to our future obligations for non-cancellable lease payments and related futuresubleasing income resulted in additional charges of $2.0 million during fiscal 2017. The excess facilities payments will continue through fiscal year 2023.43 In anticipation of the acquisition of Avaya Networking on July 14, 2017 and our anticipated acquisition of the Brocade Data business, we reoccupiedthe majority of the previously exited space at our Salem, New Hampshire location during our fiscal fourth quarter to accommodate the growth in headcountand lab facility requirements. This action resulted in a reversal of prior restructuring expense accruals of $1.3 millionWe also implemented a reduction-in-force which affected 90 employees. We recorded severance and benefits charges of $5.6 million during the yearended June 30, 2017. Cash payments of $3.8 million have been made with the balance of cash payments expected to be paid by the end of the second quarterof fiscal 2018.Fiscal year 2016During fiscal 2016, we incurred $11.0 million of restructuring charges. Excess facilities charges included accrued lease costs pertaining to theestimated future obligations for non-cancelable lease payments for excess facilities and contract termination charges of $5.4 million, acceleration ofdepreciation of leasehold improvements of $4.5 million, professional fees of $1.0 million and other expenses of $0.1 million.Significant restructuring charges incurred during 2016, by location, included $1.8 million of charges for excess facilities pertaining to the estimatedfuture obligations for non-cancelable lease payments at Rio Robles. This represented 39% of the San Jose leased space. We amended our facility lease at ourNorth Carolina location and exited excess space while recording $4.1 million of charges, which included $3.1 million in accelerated depreciation ofleasehold improvements. This action represented 36% of the North Carolina location lease space. We recorded $4.4 million of charges for excess facilities atour Salem location, which included $1.3 million in accelerated depreciation of leasehold improvements. This action represented 27% of the Salem leasespace. Fiscal year 2015During the fourth quarter of fiscal 2015, we implemented a plan to reduce costs through targeted restructuring activities intended to reduce operatingcosts and realign our organization in the current competitive environment. We initiated a plan to reduce our worldwide headcount by more than 225employees, primarily in sales and marketing as well as research and development, consolidate specific global administrative functions, and shift certainoperating costs to lower cost regions, among other actions. We have expensed all costs associated with this initiative. The restructuring liability related tothis initiative was fully paid as of June 30, 2016.Amortization of IntangiblesDuring fiscal 2017, 2016 and 2015, we recorded $8.7 million, $17.0 million and $17.9 million, respectively, of amortization expenses in operatingexpenses primarily for certain intangibles related to the acquisition of Enterasys and the WLAN Business. The lower amortization expense in fiscal 2017 isdue to the Enterasys intangible assets becoming fully amortized during fiscal 2017.Interest IncomeInterest income was $0.7 million, $0.1 million and $0.5 million in fiscal years 2017, 2016 and 2015, respectively, representing an increase of $0.6million in fiscal 2017 from fiscal 2016, and a decrease of $0.4 million in fiscal 2016 from fiscal 2015. The increase in fiscal 2017 was due to higher cashbalances and interest earned on notes receivable. The decrease in interest income in fiscal 2016 and 2015 was due to a decrease in the investment balances tofund debt reduction.Interest ExpenseWe had $4.1 million, $3.1 million and $3.2 million of interest expense for fiscal 2017, 2016 and 2015, respectively. Interest expense in fiscal years2017, 2016 and 2015 was primarily related to our Credit Facility. The increase in interest expense for fiscal 2017 is related to our increased borrowings tofinance the WLAN Business acquisition in October 2016.Other Income (Loss), netWe incurred other loss of less than $0.1 million in fiscal 2017, other income of $1.0 million in fiscal 2016, and other loss of $1.2 million in fiscal2015. Other income (loss) in the respective periods was primarily due to the revaluation of certain assets and liabilities denominated in foreign currenciesinto U.S. Dollars.44 Provision for Income TaxesWe are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective tax rate differs from the U.S. federal statutoryrate of 35% primarily due to the impact of state taxes, foreign operations which are generally taxed at lower statutory rates and the full valuation of ourdeferred tax assets in the U.S. and certain foreign jurisdictions. For the fiscal years ended June 30, 2017, 2016 and 2015, we recorded income tax provisionsof $4.3 million, $4.3 million and $4.8 million, respectively. The effective tax rates for fiscal years ended June 30, 2017, 2016 and 2015, were 103.9%, 15.7%and 7.2%, respectively.For the fiscal years ended June 30, 2017, 2016 and 2015, the majority of our tax provision related to taxes on our foreign operations as well as statetaxes due to the full valuation allowance on our U.S. and certain foreign deferred tax assets.For a full reconciliation of our effective tax rate to the U.S. federal statutory rate of 35% and for further explanation of our provision for income taxes,see Note 9 to the consolidated financial statements.Critical Accounting Policies and EstimatesOur significant accounting policies are more fully described in Note 3 of Notes to Consolidated Financial Statements included in Item 8 of thisAnnual Report on Form 10-K. The preparation of consolidated financial statements in accordance with generally accepted accounting principles requiresmanagement to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assetsand liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the period reported. By theirnature, these estimates, assumptions and judgments are subject to an inherent degree of uncertainty. We base our estimates, assumptions and judgments onhistorical experience, market trends and other factors that are believed to be reasonable under the circumstances. Estimates, assumptions and judgments arereviewed on an ongoing basis and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to benecessary. Actual results may differ from these estimates under different assumptions or conditions. We believe the critical accounting policies stated below,among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.Revenue RecognitionWe derive the majority of our revenue from sales of our networking equipment, with the remaining revenue generated from service fees relating tomaintenance contracts, professional services, and training for our products. We recognize revenue when persuasive evidence of an arrangement exists,delivery has occurred, the price of the product is fixed or determinable, and the collection of the sales proceeds is reasonably assured. In instances where anyof the criteria for revenue recognition are not met, we defer revenue until all criteria have been met.Product revenue from our value-added resellers, non-stocking distributors and end-user customers is recognized at the time of shipment, provided thatall of the foregoing revenue recognition requirements have been satisfied. We generally do not grant return privileges, except for defective products duringthe warranty period, nor do we grant pricing credits. Accordingly, we recognize revenue upon transfer of title and risk of loss to the customer, which isgenerally upon shipment. We maintain estimated accruals and allowances for sales incentives and other programs that we may make available to our partners,based on historical experience or applicable contractual terms. Sales taxes collected from customers are excluded from revenues. Shipping costs are includedin cost of product revenues.We also sell our products to distributors that stock inventory and sell to resellers. We defer recognition of revenue on all sales to our stockingdistributors until the distributors have sold the products, as evidenced by sales data that the distributors provide to us. We grant stocking distributors certainprice protection rights and the right to return a portion of unsold inventory for the purpose of stock rotation. The distributor-related deferred revenue andreceivables are adjusted at the time of the stock rotation return or price reduction. We also provide stocking distributors with credits for changes in sellingprices based on competitive conditions, and provide funding for our distributors and their resellers to perform marketing development activities. We maintainestimated accruals and allowances for these exposures based upon our contractual obligations. Our marketing development channel programs do not meet thecriteria for recognizing the costs as marketing expenses and therefore these costs are accrued as a reduction to revenue in the same period that the products aresold.Revenue from maintenance contracts is deferred and recognized ratably over the contractual service period, which is typically from one to two years.Professional service revenue is recognized upon delivery or completion of performance.45 Our networking products are tangible products that contain software and non-software components that function together to deliver the tangibleproduct's essential functionality. Our sales arrangements may contain multiple deliverables comprised of our tangible products, standalone software licenses,and maintenance offerings depending on the distribution sales channel through which the products are sold and the requirements of our customers. Werecognize revenue for our multiple deliverable arrangements in accordance with the accounting standard for multiple deliverable revenue arrangements,which provides guidance on whether multiple deliverables exist, how deliverables in an arrangement should be separated, and how consideration should beallocated. The industry-specific software revenue recognition guidance does not apply to the sales of our tangible products. Software revenue guidance isapplied to sales of our standalone software products, including software upgrades and software that is not essential to the functionality of the hardware withwhich it is sold.Pursuant to the guidance of the accounting standard for multiple-deliverable revenue arrangements, we allocate the total arrangement consideration toeach separable element of an arrangement based on the relative selling price of each element. We determine the standalone selling price for each elementbased on a selling price hierarchy. Under the selling price hierarchy, the selling price for each deliverable is based on our vendor-specific objective evidence("VSOE") of selling price, which is determined by a substantial majority of our historical standalone sales transactions for a product or service falling within areasonable range. If VSOE is not available due to a lack of standalone sales transactions or lack of pricing within a narrow range, then third party evidence(“TPE”), as determined by the standalone pricing of competitive vendor products in similar markets, is used. TPE typically is difficult to establish due to theproprietary differences of competitive products and difficulty in obtaining reliable competitive standalone pricing information. When neither VSOE nor TPEis available, we determine the best estimate of standalone selling price (“ESP”) for a product or service by considering several factors including, but notlimited to, the 12-month historical median sales price, sales channels, geography, gross margin consistency, competitive product pricing, and product lifecycle. In consideration of all relevant pricing factors, we apply management judgment to determine the best estimate of selling price through consultationwith and formal approval by our management for all products and services for which neither VSOE nor TPE is available. Generally, the standalone sellingprice of services is determined using VSOE and the standalone selling price of all other deliverables is determined by using ESP. We regularly review VSOE,TPE and ESP for all of our products and services and maintain internal controls over the establishment and updates of these estimates.Pursuant to the software revenue recognition accounting standard, we continue to recognize revenue for software using the residual method for oursales of standalone software products and other software that is not essential to the functionality of the hardware with which it is sold. After allocation of therelative selling price to each element of the multiple deliverable arrangement, we recognize revenue in accordance with our policies for product, software,and maintenance revenue recognition.We provide an allowance for sales returns based on our historical returns, analysis of credit memo data and our return policies. The allowance for salesreturns was $0.5 million and $1.6 million as of June 30, 2017 and 2016, respectively, for estimated future returns that were recorded as a reduction of ouraccounts receivable. If the historical data that we use to calculate the estimated sales returns and allowances does not properly reflect future levels of productreturns, these estimates will be revised, thus resulting in an impact on future net revenue. We estimate and adjust this allowance at each balance sheet date.GoodwillWe assess goodwill for impairment annually during the fourth quarter of the fiscal year (which begins on April 1) or more frequently when an eventoccurs or circumstances change between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying value. Wehave determined that we have one reporting unit. To test goodwill for impairment, we have opted to bypass the qualitative assessment to determine whether itis more likely than not that the fair value of a reporting unit is less than its carrying value and proceed directly to the two-step goodwill impairment test.Under the two-step goodwill impairment test, we in the first step, compare the estimated fair value of a reporting unit to its carrying value. If the fair value ofthe reporting unit exceeds the carrying value, no impairment loss is recognized. However, if the carrying value of the reporting unit exceeds its fair value, thegoodwill of the unit may be impaired. The amount, if any, of the impairment is then measured in the second step in which we determine the implied value ofgoodwill based on the allocation of the estimated fair value determined in the initial step to all assets and liabilities of the reporting unit.We completed our annual goodwill impairment test in the fourth quarter of fiscal 2017 and determined there was no impairment as the fair value of thereporting unit exceeded its carrying value.46 Business CombinationsWe apply the acquisition method of accounting for business combinations. Under this method of accounting, all assets acquired and liabilitiesassumed are recorded at their respective fair values at the date of the completion of the transaction. Determining the fair value of assets acquired andliabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respectto future cash inflows and outflows, discount rates, intangibles and other asset lives, among other items. Fair value is defined as the price that would bereceived to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Marketparticipants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurementsfor an asset assume the highest and best use of that asset by market participants. As a result, we may have been required to value the acquired assets at fairvalue measures that do not reflect its intended use of those assets. Use of different estimates and judgments could yield different results. Any excess of thepurchase price over the fair value of the net assets acquired is recognized as goodwill. Although we believe the assumptions and estimates we have made arereasonable and appropriate, they are based in part on historical experience and information that may be obtained from the management of the acquiredcompany and are inherently uncertain. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions,estimates or actual results. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments tothe assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determinationof the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements ofoperations.Share-based PaymentsWe use the Black-Scholes option-pricing model to determine the fair value of option grants other than option grants, with market or performanceconditions, options assumed as part of the Enterasys acquisition, and share purchase options under our Employee Stock Purchase Plan (“ESPP”) on the dateof grant with the weighted average assumptions. We use the Monte-Carlo simulation model to determine the fair value and the derived service period ofoption grants, with market, performance or service conditions or combinations of those conditions, on the date of grant. The expected term of optionsgranted is derived from historical data on employee exercise and post-vesting employment termination behavior. The expected term of purchase optionsunder our ESPP represents the contractual life of the ESPP purchase period. The risk-free rate is based upon the estimated life of each option and ESPP awardis based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on the historical volatility of our stock. We do notcurrently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. Accordingly, our expected dividend yield iszero. In fiscal 2016, our estimated forfeiture rates based on historical forfeiture experiences were 19% for executives and 13% for non-executiveemployees. Beginning in fiscal 2017, we no longer estimate forfeitures at the time of grant but rather record actual forfeitures at the time of separation. Weuse the straight-line method for expense attribution, and we only recognize expense for those shares expected to vest.Restructuring ChargesWe recognize a liability for exit and disposal activities when the liability is incurred. A liability for post-employment benefits, including severance, isrecorded upon attainment of certain criteria including when payment is probable, the amount is reasonably estimable, and the obligation relates to rights thathave vested or accumulated. Facilities consolidation charges are calculated using estimates and are based upon the remaining future lease commitments forvacated facilities from the date of facility consolidation, net of estimated future sublease income. The estimated costs of vacating these leased facilities arebased on market information and trend analysis.We continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives. Although we believe that these estimatesaccurately reflect the costs of our restructuring plans, actual results may differ, thereby requiring us to record additional provisions or reverse a portion ofsuch provision.47 New Accounting PronouncementsSee Note 4 of the accompanying consolidated financial statements for a full description of new accounting pronouncements, including the respectiveexpected dates of adoption and effects on results of operations and financial condition.Liquidity and Capital ResourcesThe following summarizes information regarding our cash, investments, and working capital (in thousands): June 30,2017 June 30,2016 Cash and cash equivalent $130,450 $94,122 Total cash and investments $130,450 $94,122 Working capital $69,145 $17,442 As of June 30, 2017, our principal sources of liquidity consisted of cash and cash equivalents of $130.5 million, accounts receivable, net of $120.8million and availability of borrowings from the Revolving Facility of $39.1 million. We anticipate that our principal uses of cash for fiscal 2018 will includethe acquisition of Avaya’s fabric-based secure networking solutions and network security solutions business and our anticipated acquisition of Brocade’sdata center technology business, repayments of debt and related interest, purchase of finished goods inventory from our contract manufacturers, payroll,restructuring expenses and other operating expenses related to the development, marketing of our products and purchases of property and equipment. Webelieve that our $130.5 million of cash and cash equivalents at June 30, 2017, cash flows from operations along with the availability of additionalborrowings from our Credit Facility, as amended, will be sufficient to fund our principal uses of cash for at least the next 12 months.During the second quarter of fiscal 2017, we entered into an Amended and Restated Credit Agreement (the “Credit Facility”) with Silicon ValleyBank, as administrative agent and collateral agent, and the financial institutions that are a party thereto as lenders (“Lenders”). The Credit Facility providedfor a five-year $90.5 million term loan (“Term Loan”) and a five-year $50.0 million revolving loan facility (“Revolver”), which included a $5.0 million swingline loan sub facility and a $10.0 million letter of credit sub facility. The Credit Facility among other things, amended and restated our previous creditfacility. The borrowings under the Credit Facility during fiscal 2017 were used to acquire the WLAN Business as more fully described in Note 2. BusinessCombinations, in the Notes to Consolidated Financial Statements.On July 14, 2017, the Company entered into the Second Amendment to the Amended and Restated Credit Agreement (“Second Amendment”), whichamends the Amended and Restated Credit Agreement, dated as of October 28, 2016 (the “Credit Facility, as amended”), by and among the Company, asborrower, Silicon Valley Bank, as administrative agent and collateral agent, and Lenders. Among other things, the Second Amendment (i) increased theamount of the available borrowing under the Credit Facility from $140.5 million to $243.7 million, composed of (a) the Term Loan facilities in a principalamount of up to $183.7 million and (b) the Revolver in a principal amount of up to $60.0 million, (ii) extends the maturity date under the existing TermLoan and the termination date under the existing Revolver until July 2022, (iii) provides for an uncommitted additional incremental loan facility in aprincipal amount of up to $50.0 million (“Incremental Facility”), and (iv) joins certain additional banks, financial institutions and institutional lenders asLenders pursuant to the terms of the Credit Facility, as amended. On July 14, 2017, the Company borrowed an additional $80.0 million under the Term Loanwhich was used to fund the purchase of the Avaya Networking business (see Note 14. Subsequent Events, in the Notes to Consolidated Financial Statements).Key Components of Cash Flows and LiquidityA summary of the sources and uses of cash and cash equivalents is as follows (in thousands): Year Ended June 30,2017 June 30,2016 June 30,2015 Net cash provided by operating activities $59,283 $30,366 $37,423 Net cash (used in) provided by investing activities (71,752) (5,327) 21,598 Net cash provided by (used in) financing activities 48,708 (6,738) (52,470)Foreign currency effect on cash 89 (404) (3,516)Net increase in cash and cash equivalents $36,328 $17,897 $3,035 48 Cash and cash equivalents were $130.5 million at June 30, 2017, representing an increase of $36.4 million from $94.1 million at June 30, 2016. Cashand cash equivalents increased primarily due to cash provided by operations of $59.3 million, and cash provided by financing activities of $48.7 million,offset by cash used in investing activities of $71.8 million.Cash and cash equivalents were $94.1 million at June 30, 2016, representing an increase of $17.9 million from $76.2 million at June 30, 2015. Cashand cash equivalents increased primarily due to cash provided by operations of $30.4 million, offset by cash used in investing activities of $5.3 million andcash used in financing activities of $6.7 million.Net Cash Provided by Operating ActivitiesCash provided by operating activities during fiscal 2017 was $59.3 million, compared to cash provided by operating activities of $30.4 million infiscal 2016, an increase of $28.9 million. Factors contributing to cash provided by operating activities for the year ended June 30, 2017 were decreases ininventory and prepaid expenses, and increases to accrued compensation and benefits, deferred revenues and other liabilities in addition to non-cash expensessuch as amortization of intangibles, stock-based compensation, and depreciation. These amounts were partially offset by an increase in accounts receivablesand our current year’s net loss of $8.5 million.Cash provided by operating activities during fiscal 2016 was $30.4 million, compared to $37.4 million in fiscal 2015, a decrease of $7.0 million. Thenet loss of $31.9 million was primarily offset by non-cash expenses such as amortization of intangibles, stock-based compensation, and depreciation. Othercontributing factors to cash provided by operating activities for the year ended June 30, 2016 were decreases in accounts receivables and inventory as asource of cash offset by declines in the balance of our deferred revenues and accounts payable which decreased cash.Net Cash (Used in) Provided by Investing ActivitiesCash used in investing activities during fiscal 2017 was $71.8 million, was mainly due to our acquisition of the WLAN Business of $51.1 million,deposits for future acquisitions of $10.2 million and capital expenditures of $10.4 million.Cash used in investing activities during fiscal 2016 totaled $5.3 million, was mainly due to capital expenditures.Net cash Provided by (Used in) Financing ActivitiesCash provided by financing activities during fiscal 2017 was $48.7 million due primarily to $48.2 million in borrowings of debt pursuant to ourWLAN Business acquisition, $11.8 million in proceeds from the sale of our common stock, primarily through the exercise of stock options and our EmployeeStock Purchase Plan, partially offset by repayments of debit of $10.0 million. Cash flow used in financing activities during fiscal 2016 was $6.7 million mainly due to $26.4 million in repayments of debt, offset by borrowings of$15.0 million on the Revolving Facility for working capital requirements and proceeds from the sale of common stock of $4.6 million primarily through ourEmployee Stock Purchase Plan.Contractual ObligationsThe following summarizes our contractual obligations at June 30, 2017, and the effect such obligations are expected to have on our liquidity and cashflow in future periods (in thousands): Total Less than1 Year 1-3 years 3-5 years More than5 years Contractual Obligations: Debt obligations $93,712 $12,444 $38,463 $42,805 $— Interest on debt obligations 11,600 3,967 5,868 1,765 — Non-cancellable inventory purchase commitments 83,234 83,234 — — — Non-cancellable purchase commitments 21,474 4,974 10,500 6,000 — Non-cancellable operating lease obligations 54,794 12,949 20,870 14,813 6,162 Other liabilities 880 196 391 293 — Total contractual cash obligations $265,694 $117,764 $76,092 $65,676 $6,162 Non-cancelable inventory purchase commitments represent the purchase of long lead-time component inventory that our contract manufacturersprocure in accordance with our forecast. Inventory purchase commitments were $83.2 million as of June 30, 2017, an increase of $19.5 million from $63.7million as of June 30, 2016.49 Non-cancelable operating lease obligations represent base rents and operating expense obligations to landlords for facilities we occupy at variouslocations.Other liabilities include our commitments towards debt related fees and specific arrangements other than inventory.The amounts in the table above exclude immaterial income tax liabilities related to uncertain tax positions as we are unable to reasonably estimate thetiming of the settlement.We did not have any material commitments for capital expenditures as of June 30, 2017.Off-Balance Sheet ArrangementsWe did not have any off-balance sheet arrangements as of June 30, 2017.Capital Resources and Financial ConditionAs of June 30, 2017, we had $130.5 million in cash and cash equivalents. We believe that our current cash, cash equivalents, cash available fromfuture operations along with the availability of borrowings from our Credit Facility, as amended, will enable us to meet our working capital requirements forat least the next 12 months. 50 Item 7A. Quantitative and Qualitative Disclosures About Market RiskInterest Rate SensitivityThe primary objective of our investment activities is to preserve principal while at the same time maximize the income we receive from ourinvestments without significantly increasing risk. Some of the securities we have invested in may be subject to market risk. This means that a change inprevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interestrate at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. To reduce/addressthis risk, we maintain our portfolio of cash equivalents in money market funds.The valuation of our investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact its valuation include changesto credit ratings of the securities, discount rates and ongoing strength and quality of market credit and liquidity.If the current market conditions deteriorate further, or the anticipated recovery in market values does not occur, we may be required to recordimpairment charges in future quarters.The following table presents the amounts of our cash equivalents by range of expected maturity and weighted-average interest rates as of June 30,2017. This table includes money market funds which generally are not considered subject to market risk. We did not have any short-term investments ormarketable securities as of June 30, 2017 (dollars in thousands): Maturing in Threemonths orless Threemonths toone year Greater thanone year Total Fair Value June 30, 2017 Included in cash equivalents $4,291 $— $— $4,291 $4,291 Weighted average interest rate 0.7% —% —% The following table presents hypothetical changes in the fair value of financial instruments held at June 30, 2017 that are sensitive to changes ininterest rates (in thousands): Unrealized gain given a decrease in interestrate of X bps Fair value as of Unrealized loss given an increase in interestrate of X bps (100 bps) (50 bps) June 30, 2017 100 bps 50 bps $— $— $4,291 $— $— DebtAt certain points in time we are exposed to the impact of interest rate fluctuations, primarily in the form of variable rate borrowings from our CreditFacilities, as amended, that we entered into on October 31, 2013. Our debt and Credit Facilities, as amended, are fully described in the Note 3 of our Notes tothe Consolidated Financial Statements. At June 30, 2017 we had $93.7 million of debt outstanding, all of which was from our Credit Facilities, asamended. Through the end of our fiscal year, the average daily outstanding amount was $85.0 million with a high of $100.5 million and a low of $55.5million. 51 The following table presents hypothetical changes in interest expense for the year ended June 30, 2017, on the outstanding Credit Facility, asamended, borrowings as of June 30, 2017, that are sensitive to changes in interest rates (in thousands): Change in interest expense given a decrease ininterest rate of X bps* Average outstandingdebt as of Change in interest expense given an increase ininterest rate of X bps (100 bps) (50 bps) June 30, 2017 100 bps 50 bps $(213) $(106) $85,044 $213 $106 *Underlying interest rate was 1 % during fiscal 2017. The table above assumed the underlying interest rate did not decrease below 0%Exchange Rate SensitivityA majority of our sales and our expenses are denominated in United States Dollars. While we conduct sales transactions and incur certain operatingexpenses in foreign currencies and expect to continue to do so, we do not anticipate that foreign exchange gains or losses will be significant, in part becauseof our foreign exchange risk management process discussed below.Foreign Exchange Forward ContractsWe record all derivatives on the balance sheet at fair value. Changes in the fair value of derivatives are recognized in earnings as Other income (loss),net. From time to time, we enter into foreign exchange forward contracts to mitigate the effect of gains and losses generated by the foreign currency forecasttransactions related to certain operating expenses and re-measurement of certain assets and liabilities denominated in foreign currencies. These derivatives donot qualify as hedges. Changes in the fair value of these foreign exchange forward contracts are offset largely by re-measurement of the underlying assets andliabilities. At June 30, 2017, we had foreign currency forward contracts with a notional value of $6.7 million outstanding. As June 30, 2016, we did not haveany foreign currency forward contracts.Foreign currency transaction gains and losses from operations were losses of $0.7 million and $1.0 million in fiscal years 2017 and 2015, respectivelyand gains of $1.3 million in fiscal 2016. 52 Item 8. Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF EXTREME NETWORKS, INC. PageReport of Independent Registered Public Accounting Firm 54 Consolidated Balance Sheets 55 Consolidated Statements of Operations 56 Consolidated Statements of Comprehensive Loss 57 Consolidated Statements of Stockholders' Equity 58 Consolidated Statements of Cash Flows 59 Notes to Consolidated Financial Statements 60 53 Report of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersExtreme Networks, Inc.: We have audited the accompanying consolidated balance sheets of Extreme Networks, Inc. and subsidiaries (the Company) as of June 30, 2017 and 2016,and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year periodended June 30, 2017. We also have audited the Company’s internal control over financial reporting as of June 30, 2017, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). TheCompany’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and forits assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overFinancial Reporting under Item 9A. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’sinternal control over financial reporting based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effectiveinternal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on atest basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtainingan understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessaryin the circumstances. We believe that our audits provide a reasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Extreme Networks, Inc.and subsidiaries as of June 30, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30,2017, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Extreme Networks, Inc. maintained, in all material respects,effective internal control over financial reporting as of June 30, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO). /s/ KPMG LLPRaleigh, North CarolinaSeptember 13, 2017 54 EXTREME NETWORKS, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts) June 30,2017 June 30,2016 ASSETS Current assets: Cash and cash equivalents $130,450 $94,122 Accounts receivable, net of allowances of $1,732 at June 30, 2017 and $3,257 at June 30, 2016 120,770 81,419 Inventories 45,880 40,989 Prepaid expenses and other current assets 27,867 12,438 Total current assets 324,967 228,968 Property and equipment, net 30,240 29,580 Intangible assets, net 25,337 19,762 Goodwill 80,216 70,877 Other assets 22,586 25,236 Total assets $483,346 $374,423 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $12,280 $17,628 Accounts payable 31,587 30,711 Accrued compensation and benefits 42,662 27,145 Accrued warranty 10,007 9,600 Deferred revenue, net 79,048 72,934 Deferred distributors revenue, net of cost of sales to distributors 43,525 26,817 Other accrued liabilities 36,713 26,691 Total current liabilities 255,822 211,526 Deferred revenue, less current portion 25,293 21,926 Long-term debt, less current portion 80,422 37,446 Deferred income taxes 6,576 4,693 Other long-term liabilities 8,526 8,635 Commitments and contingencies (Note 9) Stockholders’ equity: Convertible preferred stock, $.001 par value, issuable in series, 2,000,000 shares authorized; none issued — — Common stock, $.001 par value, 750,000,000 shares authorized; 110,924,508 shares issued and outstanding at June 30, 2017 and 104,942,665 shares issued and outstanding at June 30, 2016 111 105 Additional paid-in-capital 909,155 884,706 Accumulated other comprehensive loss (2,302) (2,874)Accumulated deficit (800,257) (791,740)Total stockholders’ equity 106,707 90,197 Total liabilities and stockholders’ equity $483,346 $374,423 See accompanying notes to consolidated financial statements. 55 EXTREME NETWORKS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts) Year Ended June 30,2017 June 30,2016 June 30,2015 Net revenues: Product $451,459 $395,464 $418,046 Service 146,659 132,925 134,894 Total net revenues 598,118 528,389 552,940 Cost of revenues: Product 217,727 208,739 225,018 Service 55,906 48,862 48,185 Total cost of revenues 273,633 257,601 273,203 Gross profit: Product 233,732 186,725 193,028 Service 90,753 84,063 86,709 Total gross profit 324,485 270,788 279,737 Operating expenses: Research and development 93,724 78,721 93,447 Sales and marketing 162,927 150,806 169,299 General and administrative 37,864 37,675 42,092 Acquisition and integration costs 13,105 1,145 10,205 Restructuring and related charges, net of reversals 8,896 10,990 9,819 Amortization of intangibles 8,702 17,001 17,869 Total operating expenses 325,218 296,338 342,731 Operating loss (733) (25,550) (62,994)Interest income 689 113 541 Interest expense (4,086) (3,098) (3,177)Other income (loss) (47) 987 (1,206)Loss before income taxes (4,177) (27,548) (66,836)Provision for income taxes 4,340 4,336 4,807 Net loss $(8,517) $(31,884) $(71,643)Basic and diluted net loss per share: Net loss per share - basic $(0.08) $(0.31) $(0.72)Net loss per share - diluted $(0.08) $(0.31) $(0.72)Shares used in per share calculation - basic 108,273 103,074 99,000 Shares used in per share calculation - diluted 108,273 103,074 99,000 See accompanying notes to consolidated financial statements. 56 EXTREME NETWORKS, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands) Year Ended June 30,2017 June 30,2016 June 30,2015 Net loss: $(8,517) $(31,884) $(71,643)Other comprehensive gain (loss), net of tax: Available for sale securities: Change in unrealized losses on available for sale securities, net of taxes — — (26)Net change in foreign currency translation adjustments 572 (1,583) (826)Other comprehensive gain (loss), net of tax: 572 (1,583) (852)Total comprehensive loss $(7,945) $(33,467) $(72,495) See accompanying notes to consolidated financial statements. 57 EXTREME NETWORKS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(In thousands) Common Stock Shares Amount Additional Paid-In-Capital Accumulated OtherComprehensive Loss AccumulatedDeficit Total Stockholders'Equity Balance at June 30, 2014 96,980 $97 $845,267 $(439) $(688,213) $156,712 Net loss — — — — (71,643) (71,643)Other comprehensive loss, net of tax: — — — (852) — (852)Exercise of options to purchase common stock 447 — 1,392 — — 1,392 Issuance of employees stock purchase plan 1,138 2 3,578 — — 3,580 Issuance of restricted stock, net of tax 1,719 1 (2,756) — — (2,755)Share-based payments — — 17,801 — — 17,801 Balance at June 30, 2015 100,284 $100 $865,282 $(1,291) $(759,856) $104,235 Net loss — — — — (31,884) (31,884)Other comprehensive loss, net of tax: — — — (1,583) — (1,583)Exercise of options to purchase common stock 382 — 1,012 — — 1,012 Issuance of employees stock purchase plan 2,000 2 3,848 — — 3,850 Issuance of restricted stock, net of tax 2,277 3 (228) — — (225)Share-based payments — — 14,792 — — 14,792 Balance at June 30, 2016 104,943 $105 $884,706 $(2,874) $(791,740) $90,197 Net loss — — — — (8,517) (8,517)Other comprehensive loss, net of tax: — — — 572 — 572 Exercise of options to purchase common stock 2,348 2 9,327 — — 9,329 Issuance of employees stock purchase plan 2,218 2 4,493 — — 4,495 Issuance of restricted stock, net of tax 1,416 2 (2,004) — — (2,002)Share-based payments — — 12,633 — — 12,633 Balance at June 30, 2017 110,925 $111 $909,155 $(2,302) $(800,257) $106,707 See accompanying notes to consolidated financial statements. 58 EXTREME NETWORKS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended June 30,2017 June 30,2016 June 30,2015 Cash flows from operating activities: Net loss $(8,517) $(31,884) $(71,643)Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 10,618 10,802 12,832 Amortization of intangible assets 15,722 32,370 35,951 Provision for doubtful accounts and allowance for returns 335 1,140 4,246 Stock-based compensation 12,633 14,792 17,801 Non-cash restructuring and related charges 1,031 4,463 — Other non-cash charges 3,334 1,020 2,323 Changes in operating assets and liabilities, net Accounts receivable (25,050) 10,178 27,681 Inventories 8,587 17,025 (904)Prepaid expenses and other assets 8,018 100 (2,240)Accounts payable 2,064 (9,562) 2,827 Accrued compensation and benefits 13,058 1,949 (1,482)Deferred revenue (4,677) (4,922) 2,104 Deferred distributor revenue, net of cost of sales 16,708 (14,058) 8,883 Other current and long term liabilities 5,419 (3,047) (956)Net cash provided by operating activities 59,283 30,366 37,423 Cash flows from investing activities: Capital expenditures (10,425) (5,327) (7,205)Acquisition (51,088) — — Deposits related to future acquisition (10,239) — — Purchases of non-marketable equity investment — — (3,000)Proceeds from maturities of investments and marketable securities — — 23,321 Proceeds from sales of investments and marketable securities — — 9,051 Purchases of intangible assets — — (569)Net cash (used in) provided by investing activities (71,752) (5,327) 21,598 Cash flows from financing activities: Borrowings under Revolving Facility — 15,000 24,000 Borrowings under Term Loan 48,250 — — Repayment of debt (10,038) (26,375) (78,688)Loan fees on borrowings (1,326) — — Proceeds from issuance of common stock 11,822 4,637 2,218 Net cash provided by (used in) financing activities 48,708 (6,738) (52,470)Foreign currency effect on cash 89 (404) (3,516)Net increase in cash and cash equivalents 36,328 17,897 3,035 Cash and cash equivalents at beginning of period 94,122 76,225 73,190 Cash and cash equivalents at end of period $130,450 $94,122 $76,225 Supplemental disclosure of cash flow information: Cash paid for interest $3,013 $2,613 $2,361 Cash paid for taxes, net $2,514 $2,355 $1,582 Non-cash investing activities: Unpaid capital expenditures $1,122 $741 $316 See accompanying notes to the consolidated financial statements. 59 EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business and Basis of PresentationExtreme Networks, Inc., together with its subsidiaries (collectively referred to as “Extreme” or “the Company”) is a leader in providing software-drivennetworking solutions for enterprise customers. The Company conducts its sales and marketing activities on a worldwide basis through distributors, resellersand the Company’s field sales organization. Extreme was incorporated in California in 1996 and reincorporated in Delaware in 1999.Fiscal YearThe Company uses a fiscal calendar year ending on June 30. All references herein to “fiscal 2017” or “2017”; “fiscal 2016” or “2016”; “fiscal 2015”or “2015” represent the fiscal years ending 2017, 2016 and 2015, respectively.Principles of ConsolidationThe consolidated financial statements include the accounts of Extreme Networks and its wholly-owned subsidiaries. All inter-company accounts andtransactions have been eliminated.The Company predominantly uses the United States Dollar as its functional currency. The functional currency for certain of its foreign subsidiaries isthe local currency. For those subsidiaries that operate in a local currency functional environment, all assets and liabilities are translated to United StatesDollars at current month end rates of exchange; and revenue and expenses are translated using the monthly average rate.Accounting EstimatesThe preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates areused for, but are not limited to, the accounting for the allowances for doubtful accounts and sales returns, determining the fair value of acquired assets andassumed liabilities, estimated selling prices, inventory valuation and purchase commitments, depreciation and amortization, impairment of long-lived assetsincluding goodwill, warranty accruals, restructuring liabilities, measurement of share-based compensation costs and income taxes. Actual results could differmaterially from these estimates. 2. Business Combinations On October 28, 2016, the Company completed the acquisition of the wireless local area network (“WLAN”) business (“WLAN Business”) from ZebraTechnologies Corporation (“Zebra”). Under the terms of the purchase agreement, the Company acquired customers, employees, technology and other assetsas well as assumed certain contracts and other liabilities of the WLAN Business, for an initial purchase price of $51.1 million. Subsequent to year end, Zebraagreed to pay $1.6 million as a final settlement regarding all outstanding working capital claims of the Company, thereby reducing the net cashconsideration to $49.5 million. The $1.6 million is included in “Prepaid expenses and other current assets” in the consolidated balance sheet as of June 30,2017.The acquisition has been accounted for using the acquisition method of accounting. The purchase price allocation as of the Acquisition Date is setforth in the table below and reflects fair values. The fair values were determined through established and generally accepted valuation techniques, includingwork performed by third-party valuation specialists. All valuations were considered finalized as of June 30, 2017.60EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table below summarizes the final allocation as of June 30, 2017, of the tangible and identifiable intangible assets acquired andliabilities assumed: Preliminary Allocation as ofOctober 26, 2016 Adjustments Final Allocation as ofJune 30, 2017 Receivables, net$17,818 $(3,182)(a)$14,636 Inventory 12,408 1,185 (b) 13,593 Other current assets 808 — 808 Property and equipment 1,780 1,379 (c) 3,159 Identifiable intangible assets 20,500 (200)(d) 20,300 In-process research and development 1,600 (200)(d) 1,400 Other assets 7,634 — 7,634 Goodwill 9,836 (497) 9,339 Deferred revenue (13,533) (626)(e) (14,159)Other liabilities (7,763) 562 (f) (7,201)Total purchase price allocation$51,088 $(1,579) $49,509 The purchase price has been allocated based on the fair value of assets acquired and liabilities assumed as of the acquisition date. The fair value ofworking capital related items, such as other current assets and accrued liabilities, approximated their book values at the date of acquisition. Inventories werevalued at fair value using the net realizable value approach. The fair value of property and equipment was determined using a cost approach. The fair valueof the acquired deferred revenue was estimated using the cost build-up approach. The cost build-up approach determines fair value using estimates of thecosts required to provide the contracted deliverables plus an assumed profit. The total costs including the assumed profit were adjusted to present valueusing a discount rate considered appropriate. The resulting fair value approximates the amount that the Company would be required to pay a third party toassume the obligation. Valuations of the intangible assets were valued using income approaches based on projections provided by management, which weconsider to be Level 3 inputs.The changes during the period in the table above is as follows: a) obtainment of information on accounts receivable and related reserves of mattersthat existed as of the acquisition date; b) additional receipts of products that existed as of the acquisition date; c) additional fixed assets acquired in India asof the acquisition date; d) revised net realizable value based on finalization of valuation; e) additional maintenance contracts identified and transferred fromZebra to the Company that existed as of the acquisition date; f) additional employee benefits assumed that existed as of the acquisition date.The following table presents details of the identifiable intangible assets acquired as part of the acquisition (in thousands): Intangible Assets Estimated Useful Life(in years) Amount Developed technology 6 $14,400 Customer relationships 4 3,300 Trademarks 5 2,600 Total identifiable intangible assets $20,300 The amortization for the developed technology is recorded in “Cost of revenues” for product and the amortization for the remaining intangibles isrecorded in “Amortization of intangibles” on the condensed consolidated statement of operations. The goodwill recognized is attributable primarily toexpected synergies and the assembled workforce of the WLAN Business. The Company anticipates both the goodwill and intangible assets to be fullydeductible for tax purposes. The Company also has an indefinite lived asset of $1.4 million which represents the fair value of in-process research and development activities. Oncethe related research and development efforts are completed, the Company will determine whether the asset will continue to be an indefinite lived asset orbecome a finite lived asset and apply the appropriate accounting accordingly.The results of operations of the WLAN Business are included in the consolidated results of operations beginning October 28, 2016. The WLANBusiness revenue for fiscal 2017 was $86.0 million and has been incorporated into the revenue of the Company. The associated expenses of the WLANBusiness have been incorporated with the results of operations of the Company as a product line and, therefore, stand-alone operating results are notavailable. The Company incurred $2.1 million of acquisition and $6.6 million61EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) of integration-related expenses during the year ended June 30, 2017 included in "Acquisition and integration costs" on the consolidated statements ofoperations. The costs, which the Company expensed as incurred, consist primarily of professional fees to financial and legal advisors and InformationTechnology consultants and companies.Pro forma financial informationThe following unaudited pro forma results of operations are presented as though the acquisition of the WLAN Business had occurred as of thebeginning of the earliest period presented after giving effect to purchase accounting adjustments relating to inventories, deferred revenue, depreciation andamortization on acquired property and equipment and intangibles, acquisition costs, interest income and expense and related tax effects.The pro forma results of operations are not necessarily indicative of the combined results that would have occurred had the acquisition beenconsummated as of the earliest period presented, nor are they necessarily indicative of future operating results. The unaudited pro forma results do notinclude the impact of synergies, nor any potential impacts on current or future market conditions which could alter the unaudited pro forma results.The unaudited pro forma financial information for the year ended June 30, 2017, combines the results of Extreme for the year ended June 30, 2017,which include the results of the WLAN Business subsequent to the acquisition date, and the historical results of the WLAN Business for the four monthsended October 28, 2016.The unaudited pro forma financial information for the year ended June 30, 2016, combines the historical results of Extreme for that period, with thehistorical results of the WLAN Business for the year ended June 30, 2016.The following table summarizes the unaudited pro forma financial information (in thousands, except per share amounts): Year Ended June 30,2017 June 30,2016 Net revenues $641,390 $628,079 Net income (loss) $7,380 $(62,281)Net earnings (loss) per share - basic $0.07 $(0.60)Net earnings (loss) per share - diluted $0.07 $(0.60)Shares used in per share calculation - basic 108,273 103,074 Shares used in per share calculation - diluted 111,472 103,074 3. Summary of Significant Accounting PoliciesRevenue RecognitionThe Company's revenue is primarily derived from sales of networking products, which are tangible products containing software and non-softwarecomponents that function together to deliver the tangible product's essential functionality. In addition to tangible products, the Company's salesarrangements may include other deliverables such as standalone software licenses, or service offerings. For multiple deliverable arrangements, the Companyrecognizes revenue in accordance with the accounting standard for multiple deliverable revenue arrangements, which provides guidance on whether multipledeliverables exist, how deliverables in an arrangement should be separated, and how consideration should be allocated. Software revenue recognitionguidance is applied to the sales of the Company's standalone software products, including software upgrades and software that is not essential to thefunctionality of the hardware with which it is sold.62EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Pursuant to the guidance of the accounting standard for multiple deliverable revenue arrangements, when the Company's sales arrangements containmultiple elements, such as products, software licenses, maintenance agreements, or professional services, the Company determines the standalone sellingprice for each element based on a selling price hierarchy. The application of the multiple deliverable revenue accounting standard does not change the unitsof accounting for the Company's multiple element arrangements. Under the selling price hierarchy, the selling price for each deliverable is based on theCompany's vendor-specific objective evidence (“VSOE”), which is determined by a substantial majority of the Company's historical standalone salestransactions for a product or service falling within a narrow range. If VSOE is not available due to a lack of standalone sales transactions or lack of pricingwithin a narrow range, then third party evidence (“TPE”), as determined by the standalone pricing of competitive vendor products in similar markets, is used,if available. TPE typically is difficult to establish due to the proprietary differences of competitive products and difficulty in obtaining reliable competitivestandalone pricing information. When neither VSOE nor TPE is available, the Company determines its best estimate of standalone selling price (“ESP”) for aproduct or service and does so by considering several factors including, but not limited to, the 12-month historical median sales price, sales channel,geography, gross margin objective, competitive product pricing, and product life cycle. In consideration of all relevant pricing factors, the Company appliesmanagement judgment to determine the Company's best estimate of selling price through consultation with and formal approval by the Company'smanagement for all products and services for which neither VSOE nor TPE is available. Generally, the standalone selling price of services is determined usingVSOE and the standalone selling price of other deliverables is determined by using ESP. The Company regularly reviews VSOE, TPE and ESP for all of itsproducts and services and maintains internal controls over the establishment and updates of these estimates. After allocation of the relative selling price toeach element of the arrangement, the Company recognizes revenue in accordance with the Company's policies for product, software, and service revenuerecognitionPursuant to the software revenue recognition accounting standard, the Company recognizes revenue for standalone software products (includingoptional software upgrades and other software that is not essential to the functionality of the hardware with which it is sold) using the residual method, asVSOE has been established for undelivered elements (typically post contract support). The Company derives the majority of its revenue from sales of its networking equipment, with the remaining revenue generated from service feesrelating to maintenance contracts, professional services, and training for its products. The Company generally recognizes product revenue from its value-added resellers, non-stocking distributors and end-user customers at the time of shipment, provided that persuasive evidence of an arrangement exists,delivery has occurred, the price of the product is fixed or determinable, and collection of the sales proceeds is reasonably assured. In instances where thecriteria for revenue recognition are not met, revenue is deferred until all criteria have been met. Sales taxes collected from customers are excluded fromrevenues.The Company sells its products and maintenance contracts to partners in two distribution channels, or tiers. The first tier consists of a limited numberof independent distributors that stock its products and sell primarily to resellers. The Company defers recognition of revenue on all sales to its stockingdistributors until the distributors sell the product, as evidenced by “sales-out” reports that the distributors provide. The Company grants these distributorsthe right to return a portion of unsold inventory for the purpose of stock rotation and certain price protection rights. The distributor-related deferred revenueand receivables are adjusted at the time of the stock rotation return or price reduction. The Company also provides distributors with credits for changes inselling prices based on competitive conditions, and allows distributors to participate in cooperative marketing programs (See Deferred Distributors Revenue,Net of Cost of Sales to Distributors, below in this footnote for additional information). The Company maintains estimated accruals and allowances for theseexposures based upon the Company's historical experience. In connection with cooperative advertising programs, if the Company does not meet the criteriafor recognizing the expense as marketing expense the costs are recorded as a reduction to revenue in the same period that the related revenue is recorded.The second tier of the distribution channel consists of a non-stocking distributors and value-added resellers that sell directly to end-users. For productsales to non-stocking distributors and value-added resellers, the Company does not grant return privileges, except for defective products during the warrantyperiod, nor does the Company grant pricing credits. Accordingly, the Company recognizes revenue upon transfer of title and risk of loss or damage, generallyupon shipment. In connection with cooperative advertising programs and certain price protection rights that may occur under contractual arrangements withits resellers, if the Company does not meet the criteria for recognizing the expense as marketing expense, the costs are recorded as a reduction to revenue inthe same period that the related revenue is recorded. 63EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Allowance for Product ReturnsThe Company provides an allowance for product returns based on its historical returns, analysis of credit memo data and its return policies. Theallowance includes the estimates for product allowances from end customers as well as stock rotations and other returns from the Company’s stockingdistributors for which it has billed the customer for the product but has yet to recognize revenue. The allowance for product returns is a reduction of accountsreceivable. If the historical data that the Company uses to calculate the estimated product returns and allowances does not properly reflect future levels ofproduct returns, these estimates will be revised, thus resulting in an impact on future net revenue. The allowance for product returns estimate is also impactedby the timing of the actual product return from the customer. The Company estimates and adjusts this allowance at each balance sheet date.The following table is a summary of our allowance for product returns (in thousands). Description Balance atbeginning ofperiod Additions Deductions Balance atend of period Year Ended June 30, 2017: Allowance for product returns $1,609 $3,658 $(4,725) $542 Year Ended June 30, 2016: Allowance for product returns $1,080 $3,478 $(2,949) $1,609 Year Ended June 30, 2015: Allowance for product returns $2,700 $3,306 $(4,926) $1,080 Allowance for Doubtful AccountsThe Company maintains an allowance for doubtful accounts which reflects its best estimate of potentially uncollectible trade receivables. Theallowance is based on both specific and general reserves. The Company continually monitors and evaluates the collectability of its trade receivables basedon a combination of factors. It records specific allowances for bad debts in general and administrative expense when it becomes aware of a specific customer’sinability to meet its financial obligation to the Company, such as in the case of bankruptcy filings or deterioration of financial position. Estimates are usedin determining the allowances for all other customers based on factors such as current trends in the length of time the receivables are past due and historicalcollection experience. The Company mitigates some collection risk by requiring most of its customers in the Asia-Pacific region, excluding Japan andAustralia, to pay cash in advance or secure letters of credit when placing an order with the Company.The following table is a summary of the allowance for doubtful accounts (in thousands). Description Balance atbeginning ofperiod Charges tobad debtexpenses Deductions (1) Balance atend of period Year Ended June 30, 2017: Allowance for doubtful accounts $1,648 $323 $(781) $1,190 Year Ended June 30, 2016: Allowance for doubtful accounts $1,316 $834 $(502) $1,648 Year Ended June 30, 2015: Allowance for doubtful accounts $918 $940 $(542) $1,316 (1)Uncollectible accounts written off, net of recoveries64EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Business CombinationsThe Company applies the acquisition method of accounting for business combinations. Under this method of accounting, all assets acquired andliabilities assumed are recorded at their respective fair values at the date of the completion of the transaction. Determining the fair value of assets acquiredand liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions withrespect to future cash inflows and outflows, discount rates, intangibles and other asset lives, among other items. Fair value is defined as the price that wouldbe received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Marketparticipants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurementsfor an asset assume the highest and best use of that asset by market participants. As a result, the Company may have been required to value the acquired assetsat fair value measures that do not reflect its intended use of those assets. Use of different estimates and judgments could yield different results.Any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill. Although the Company believes theassumptions and estimates it has made are reasonable and appropriate, they are based in part on historical experience and information that may be obtainedfrom the management of the acquired company and are inherently uncertain. Unanticipated events and circumstances may occur that may affect the accuracyor validity of such assumptions, estimates or actual results. As a result, during the measurement period, which may be up to one year from the acquisitiondate, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion ofthe measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments arerecorded to the Company's consolidated statements of operations.ConcentrationsThe Company may be subject to concentration of credit risk as a result of certain financial instruments consisting of accounts receivable and short-term investments. The Company does not invest an amount exceeding 10% of its combined cash or cash equivalents in the securities of any one obligor ormaker, except for obligations of the United States government, obligations of United States government agencies and money market accounts.The Company performs ongoing credit evaluations of its customers and generally does not require collateral in exchange for credit.The following table sets forth major customers accounting for 10% or more of our net revenue: Year Ended June 30,2017 June 30,2016 June 30,2015 Tech Data Corporation 15% 17% 15% Jenne Corporation 15% 14% * Westcon Group Inc. 11% 14% 15% *Less than 10% of net revenueThe following table sets forth major customers accounting for 10% or more of our accounts receivable balance: Year Ended June 30,2017 June 30,2016 June 30,2015 Tech Data Corporation 18% 11% * Jenne Corporation 12% * * Westcon Group Inc. 11% 19% 27% *Less than 10% of accounts receivable65EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Cash and Cash EquivalentsThe following is a summary of Cash and cash equivalents (in thousands): June 30,2017 June 30,2016 Cash $126,159 $89,847 Cash equivalents (consisting of available-sale-securities) 4,291 4,275 Total cash and cash equivalents $130,450 $94,122 Available-for-Sale SecuritiesThe following is a summary of available-for-sale securities (in thousands): Unrealized Unrealized Amortized Holding Holding Cost Fair Value Gains Losses June 30,2017 Money market funds $4,291 $4,291 $— $— $4,291 $4,291 $— $— Classified as: Cash equivalents $4,291 $4,291 $— $— $4,291 $4,291 $— $— June 30,2016 Money market funds $4,275 $4,275 $— $— $4,275 $4,275 $— $— Classified as: Cash equivalents $4,275 $4,275 $— $— $4,275 $4,275 $— $— The Company did not have any available-for sale investments in debt securities at June 30, 2017 or 2016. The Company considers highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Investmentswith maturities of greater than three months, but less than one year at the balance sheet date are classified as Short-term Investments. Investments withmaturities of greater than one year at balance sheet date are classified as Marketable Securities. The Company diversifies its investments by limiting itsholdings with any individual issuer except for direct obligations of the United States government, securities issued by agencies of the United Statesgovernment and money market funds.66EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Investments include available-for-sale investment-grade debt securities that the Company carries at fair value. The Company accumulates unrealizedgains and losses on the Company's available-for-sale debt securities, net of tax, in accumulated other comprehensive income in the stockholders' equitysection of its balance sheets. Such an unrealized gain or loss does not reduce net income for the applicable accounting period. If the fair value of an available-for-sale debt instrument is less than its amortized cost basis, an other-than-temporary impairment is triggered in circumstances where (1) the Company intendsto sell the instrument, (2) it is more likely than not that the Company will be required to sell the instrument before recovery of its amortized cost basis, or(3) the Company does not expect to recover the entire amortized cost basis of the instrument (that is, a credit loss exists). If the Company intends to sell or itis more likely than not that the Company will be required to sell the available-for-sale debt instrument before recovery of its amortized cost basis, theCompany recognizes an other-than-temporary impairment in earnings equal to the entire difference between the debt instruments' amortized cost basis and itsfair value. For available-for-sale debt instruments that are considered other-than-temporarily impaired due to the existence of a credit loss, if the Companydoes not intend to sell and it is not more likely than not that the Company will be required to sell the instrument before recovery of its remaining amortizedcost basis (amortized cost basis less any current-period credit loss), the Company separates the amount of the impairment into the amount that is credit relatedand the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the debt instrument's amortizedcost basis and the present value of its expected future cash flows. The remaining difference between the debt instrument's fair value and the present value offuture expected cash flows is due to factors that are not credit related and is recognized in other comprehensive income.The Company determines the basis of the cost of a security sold or the amount reclassified out of accumulated other comprehensive income intoearnings using the specific identification method. Realized gains or losses recognized on the sale of investments were not significant for fiscal 2015. As ofJune 30, 2017 and 2016, the Company did not hold any investment securities.Fair Value of Financial InstrumentsA three-tier fair value hierarchy is utilized to prioritize the inputs used in measuring fair value. The hierarchy gives the highest priority to quotedprices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels are defined as follows: •Level 1 Inputs - unadjusted quoted prices in active markets for identical assets or liabilities; •Level 2 Inputs - quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directlyor indirectly through market corroboration, for substantially the full term of the financial instrument; and •Level 3 Inputs - unobservable inputs reflecting the Company's own assumptions in measuring the asset or liability at fair value.The Company did not hold any financial liabilities that required measurement at fair value on a recurring basis. The following table presents theCompany’s fair value hierarchy for its financial assets measured at fair value on a recurring basis (in thousands): June 30, 2017 Level 1 Level 2 Level 3 Total Assets Investments: Money market funds $4,291 $— $— $4,291 Investment in non-marketable equity — — 3,000 3,000 Total $4,291 $— $3,000 $7,291 June 30, 2016 Level 1 Level 2 Level 3 Total Assets Investments: Money market funds $4,275 $— $— $4,275 Investment in non-marketable equity — — 3,000 3,000 Total $4,275 $— $3,000 $7,275 67EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Level 2 investments: The Company includes U.S. government and sovereign obligations, most government agency securities, investment-gradecorporate bonds, and state, municipal and provincial obligations for which quoted prices are available as Level 2. There were no transfers of assets orliabilities between Level 1 and Level 2 during the fiscal years 2017 or 2016The fair value of the derivative instruments under our foreign currency contracts is estimated based on valuations provided by alternative pricingsources supported by observable inputs which is considered Level 2. Due to the short duration until maturity of the derivative instruments, the fair valueapproximates the carrying amount of the Company’s contacts of $27 thousand.The fair value of the borrowings under the Credit Facility is estimated based on valuations provided by alternative pricing sources supported byobservable inputs which are considered Level 2. The carrying amount and estimated fair value of the Company’s total long-term indebtedness, includingcurrent portion was $93.7 million and $55.5 million as of June 30, 2017 and 2016, respectively.Level 3 investments: Certain of the Company's assets, including intangible assets and goodwill are measured at fair value on a non-recurring basis ifimpairment is indicated. The Company reflects a non-marketable equity investment as Level 3 in the fair value hierarchy as it is based on unobservableinputs that market participants would use in pricing this asset due to the absence of recent comparable market transactions and inherent lack ofliquidity. During fiscal 2015, the Company purchased a $3.0 million equity interest in a company that operates in the enterprise software platform industry. The Company did not entered into any other transactions with the entity during fiscal 2017. Subsequent to the year end, this entity was sold to a thirdparty. The Company will recognized a gain on the investment of approximately $3.7 million in the first quarter of fiscal year 2018. There were no transfers ofassets or liabilities between Level 2 and Level 3 during the fiscal years 2017 or 2016. There were no impairments recorded for the fiscal years 2017 or 2016.Inventory ValuationThe Company's inventory balance as of June 30, 2017 and 2016 was $45.9 million and $41.0 million, respectively. The Company values its inventoryat lower of cost or market. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. The Company has establishedinventory allowances when conditions exist that suggest that inventory may be in excess of anticipated demand based upon assumptions about futuredemand or is obsolete. At the point of the loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts andcircumstances do not result in the restoration or increase in that newly established cost basis. Any written down or obsolete inventory subsequently sold hasnot had a material impact on gross margin for any of the periods disclosed.The following is a summary of our inventory by category (in thousands). June 30,2017 June 30,2016 Finished goods $45,090 $38,751 Raw materials 790 2,238 Total Inventory $45,880 $40,989 Long-Lived AssetsLong-lived assets include (a) property and equipment, (b) goodwill and intangible assets, and (c) other assets. Property and equipment and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or assetgroups may not be recoverable. If such facts and circumstances exist, the Company assesses the recoverability of these assets by comparing the projectedundiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts.Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets.68EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Goodwill and indefinite-lived intangible assets are generated as a result of business combinations. The Company’s indefinite-lived intangible assetsare comprised of acquired in-process research and development (“IPR&D”), which is treated as indefinite until the completion or abandonment of theassociated research and development effort. During the development period, the Company conducts an IPR&D impairment test annually and wheneverevents or changes in facts and circumstances indicate that it is more likely than not that the IPR&D is impaired. Events which might indicate impairmentinclude, but are not limited to, adverse cost factors, deteriorating financial performance, strategic decisions made in response to economic, market, andcompetitive conditions, the impact of the economic environment on us and our customer base, and/or other relevant events such as changes in management,key personnel, litigations, or customers. Management did not identify any triggering events for any periods presented. The Company evaluates goodwill for impairment on an annual basis (on the first day of its fourth fiscal quarter) or whenever events occur or facts andcircumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. An impairment loss is recognized tothe extent that the carrying amount of goodwill exceeds the asset’s implied fair value. Based on the results of the goodwill impairment analyses, theCompany determined that no impairment charge needed to be recorded for any periods presented.Other assets consist primarily of service parts and long term deposits. The Company reduces the carrying value of service parts to net realizable valuebased on expected quantities needed to satisfy contractual service requirements of customers.(a) Property and Equipment, NetProperty and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using thestraight-line method over the estimated useful lives of the assets. Estimated useful lives of one to four years are used for computer equipment andsoftware. Estimated useful lives of three to seven years are used for office equipment, furniture and fixtures. Depreciation and amortization of leaseholdimprovements is computed using the lesser of the useful life or lease terms (ranging from two to ten years). Property and equipment consist of the following(in thousands): June 30,2017 June 30,2016 Computer equipment $34,716 $34,657 Purchased software 11,785 5,574 Office equipment, furniture and fixtures 10,852 10,385 Leasehold improvements 23,046 19,342 Total property and equipment 80,399 69,958 Less: accumulated depreciation and amortization (50,159) (40,378)Property and equipment, net $30,240 $29,580 We recognized depreciation expense of $10.6 million, $10.8 million, and $12.8 million related to property and equipment during the yearsended June 30, 2017, 2016, and 2015, respectively.(b) Goodwill and IntangiblesAs part of the acquisition of WLAN Business, the Company acquired $9.3 million in goodwill which has been allocated to the Company's onlyreportable segment, the development and marketing of network infrastructure equipment.The following table reflects the changes in the carrying amount of goodwill (in thousands): June 30,2017 Balance as of June 30, 2016 $70,877 Additions due to acquisition 9,339 Balance at end of period $80,216 69EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following tables summarize the components of gross and net intangible asset balances (in thousands, except years): Weighted Average Remaining Amortization Gross Carrying Accumulated Net Carrying Period Amount Amortization Amount June 30, 2017 Developed technology 5.3 years $55,400 $42,689 $12,711 Customer relationships 3.3 years 40,300 37,567 2,733 Maintenance contracts 1.3 years 17,000 12,467 4,533 Trademarks 4.3 years 5,100 2,846 2,254 License agreements 6.4 years 2,445 1,120 1,325 Other intangibles 2.7 years 1,382 1,001 381 Total intangibles, net with finite lives 121,627 97,690 23,937 In-process research and development, with indefinite life 1,400 — 1,400 Total intangibles, net $123,027 $97,690 $25,337 Weighted Average Remaining Amortization Gross Carrying Accumulated Net Carrying Period Amount Amortization Amount June 30, 2016 Developed technology 0.2 years $48,000 $43,028 $4,972 Customer relationships 0.3 years 37,000 32,889 4,111 Maintenance contracts 2.3 years 17,000 9,067 7,933 Trademarks 0.3 years 2,500 2,222 278 License agreements 9.7 years 3,413 1,473 1,940 Other intangibles 3.7 years 1,428 900 528 Total intangibles, net $109,341 $89,579 $19,762 The following table summarizes the amortization expense of intangibles for the periods presented (in thousands): Year Ended June 30,2017 June 30,2016 June 30,2015 Amortization in "Cost of revenues: Product" $7,020 $15,369 $18,082 Amortization of intangibles 8,702 17,001 17,869 Total amortization $15,722 $32,370 $35,951 The amortization expense that is recognized in "Cost of revenues: Product" is comprised of amortization for developed technology, licenseagreements and other intangibles. The estimated future amortization expense to be recorded for each of the respective future fiscal years is as follows (in thousands): For the fiscal year ending: 2018 $7,620 2019 5,292 2020 4,061 2021 3,266 2022 2,594 Thereafter, 1,104 Total $23,937 70EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (c) Other AssetsOther assets primarily consist of service parts and long term deposits. The Company holds service parts to support customers who have purchasedservice contracts with a hardware replacement element, as well as to support our warranty program. The Company held service parts of $10.1 million and$16.0 million as of June 30, 2017 and 2016, respectively.Deferred Revenue, NetDeferred revenue, net represents amounts for (i) deferred maintenance revenue and (ii) deferred product revenue net of the related cost of revenue andother (professional services and training) when the revenue recognition criteria have not been met. The following table summarizes deferred revenue (inthousands): June 30,2017 June 30,2016 Deferred maintenance $97,310 $83,419 Deferred product and other revenue 7,031 11,441 Total deferred revenue, net 104,341 94,860 Less: current portion 79,048 72,934 Non-current deferred revenue, net $25,293 $21,926 The Company offers for sale to its customers, renewable support arrangements, including extended warranty contracts that range generally from one tofive years. Deferred support revenue is included within deferred revenue, net within the maintenance revenue category above. The change in the Company’sdeferred maintenance revenue balance in relation to these arrangements was as follows (in thousands): Year Ended June 30,2017 June 30,2016 Balance beginning of period $83,419 $87,441 Deferred maintenance assumed due to acquisition 14,159 — New maintenance arrangements 125,542 110,192 Recognition of maintenance revenue (125,810) (114,214)Balance end of period 97,310 83,419 Less: current portion 72,017 61,493 Non-current deferred revenue $25,293 $21,926 Deferred Distributors Revenue, Net of Cost of Sales to DistributorsAt the time of shipment to distributors, the Company records a trade receivable at the contractual discount to list selling price since there is a legallyenforceable obligation from the distributor to pay on a current basis for product delivered. The Company relieves inventory for the carrying value of goodsshipped since legal title has passed to the distributor, and the Company records deferred revenue and deferred cost of sales in “Deferred distributors revenue,net of cost of sales to distributors” in the liability section of its consolidated balance sheets. Deferred distributors revenue, net of cost of sales to distributorseffectively represents the gross margin on the sale to the distributor; however, the amount of gross margin the Company recognizes in future periods willfrequently be less than the originally recorded deferred distributors revenue, net of cost of sales to distributors as a result of price concessions negotiated attime of sell-through to end customers. The Company sells each item in its product catalog to all of its distributors worldwide at contractually discountedprices. However, distributors resell the Company’s products to end customers at a very broad range of individually negotiated price points based oncustomer, product, quantity, geography, and other competitive conditions which results in the Company remitting back to the distributors a portion of theiroriginal purchase price after the resale transaction is completed. Thus, a portion of the deferred revenue balance represents a portion of distributors’ originalpurchase price that will be remitted back to the distributors in the future. The wide range and variability of negotiated price credits granted to distributorsdoes not allow the Company to accurately estimate the portion of the balance in the deferred revenue that will be remitted to the distributors. Therefore, theCompany does not reduce deferred revenue by anticipated future price credits; instead, price credits are recorded against revenue when incurred, which isgenerally at the time the distributor sells the product.71EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table summarizes deferred distributors revenue, net of cost of sales to distributors (in thousands): June 30,2017 June 30,2016 Deferred distributors revenue $55,335 $35,138 Deferred cost of sales to distributors (11,810) (8,321)Deferred distributors revenue, net of cost of sales to distributors $43,525 $26,817 DebtThe Company's debt is comprised of the following (in thousands): June 30,2017 June 30,2016 Current portion of long-term debt: Term Loan $12,444 $17,875 Less: unamortized debt issuance costs (164) (247)Current portion of long-term debt $12,280 $17,628 Long-term debt, less current portion: Term Loan $71,268 $27,625 Revolving Facility 10,000 10,000 Less: unamortized debt issuance costs (846) (179)Total long-term debt, less current portion 80,422 37,446 Total debt $92,702 $55,074 The Company's debt repayment schedule by period is as follows, excluding unamortized debt issuance costs (in thousands): For the fiscal year ending: 2018 $12,444 2019 16,969 2020 21,494 2021 26,019 2022 16,786 Total $93,712During the second quarter of fiscal 2017, the Company entered into an Amended and Restated Credit Agreement (the “Credit Facility”) with SiliconValley Bank, as administrative agent and collateral agent, and the financial institutions that are a party thereto as lenders (“Lenders”). The Credit Facilityprovided for a five-year $90.5 million term loan (“Term Loan”) and a five-year $50.0 million revolving loan facility (“Revolver”), which included a $5.0million swing line loan sub facility and a $10.0 million letter of credit sub facility. The Credit Facility among other things, amended and restated theCompany’s previous credit facility. The borrowings under the Credit Facility during fiscal 2017 were used to acquire the WLAN Business as more fullydescribed in Note 2. The Credit Facility was amended on March 2, 2017, by Amendment One to such agreement, in anticipation of the acquisition of specified assets andliabilities of Avaya, Inc. (“Avaya”) as more fully described in the Form 8-K filed on that date. 72EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) On July 14, 2017, the Company entered into the Second Amendment to the Amended and Restated Credit Agreement (“Second Amendment”), whichamended the Amended and Restated Credit Agreement, dated as of October 28, 2016 (the “Credit Facility, as amended”), by and among the Company, asborrower, Silicon Valley Bank, as administrative agent and collateral agent, and Lenders. Among other things, the Second Amendment (i) increased theamount of the available borrowing under the Credit Facility from $140.5 million to $243.7 million, composed of (a) the Term Loan in a principal amount ofup to $183.7 million and (b) the Revolver in a principal amount of up to $60.0 million, (ii) extends the maturity date under the existing Term Loan and thetermination date under the existing Revolver, (iii) provides for an uncommitted additional incremental loan facility in the principal amount of up to $50.0million (“Incremental Facility”), and (iv) joins certain additional banks, financial institutions and institutional lenders as Lenders pursuant to the terms of theCredit Facility, as amended. On July 14, 2017, the Company borrowed an additional $80.0 million under the Term Loan which was used to fund thepurchase of the Avaya Networking business (see Note 14).Borrowings under the Term Loan bear interest, at our option, at a rate equal to either the LIBOR rate (subject to a 0.0% LIBOR floor), plus anapplicable margin (currently 3.25% per annum) or the adjusted base rate, plus an applicable margin (currently 1.25% per annum). Borrowings under theRevolver bear interest, at the Company’s option, at a rate equal to either the LIBOR rate, plus an applicable margin (currently 3.25% per annum) or theadjusted base rate, plus an applicable margin (currently 1.25% per annum based). The Revolver has a commitment fee payable on the undrawn amountranging from 0.375% to 0.50% per annum.If not repaid earlier, the borrowings on the Revolver shall be repaid on the termination date. The Credit Facility, as amended is secured bysubstantially all of the Company’s assets and is jointly and severally guaranteed by the Company and certain of its subsidiaries.The Credit Facility contains financial covenants that require the Company to maintain a minimum Consolidated Fixed Charge Coverage Ratio and aConsolidated Quick Ratio and a maximum Consolidated Leverage Ratio as well as several other financial and non-financial covenants and restrictions thatlimit the Company’s ability to incur additional indebtedness, create liens upon any of its property, merge, consolidate or sell all or substantially all of itsassets, etc. These covenants, are subject to certain exceptions.The Credit Facility also includes customary events of default, including failure to pay principal, interest or fees when due, failure to comply withcovenants, if any representation or warranty made by the Company is false or misleading in any material respect, certain insolvency or receivership eventsaffecting the Company and its subsidiaries, the occurrence of certain material judgments, the occurrence of certain ERISA events, the invalidity of the loandocuments or a change in control of the Company. The amounts outstanding under the Credit Facility may be accelerated upon certain events of default.Financing costs incurred in connection with obtaining long-term financing are deferred and amortized over the term of the related indebtedness orcredit agreement. During the year ended June 30, 2017, in conjunction with the amending of the Credit Facility, as noted above, the Company incurred $1.3million of deferred financing costs. Amortization of deferred financing costs is included in "Interest expense" in the consolidated statements of operations, totaled $0.5 million, $0.5million and $0.4 million in fiscal years 2017, 2016 and 2015, respectively.The Company had $39.1 million of availability under the Revolver as of June 30, 2017. The Company had $0.9 million of outstanding letters ofcredit as of June 30, 2017 and 2016.Guarantees and Product WarrantiesNetworking products may contain undetected hardware or software errors when new products or new versions or updates of existing products arereleased to the marketplace. In the past, we had experienced such errors in connection with products and product updates. The Company’s standard hardwarewarranty period is typically 12 months from the date of shipment to end-users and 90 days for software. For certain access products, the Company offers alimited lifetime hardware warranty commencing on the date of shipment from the Company and ending five (5) years following the Company’sannouncement of the end of sale of such product. Upon shipment of products to its customers, the Company estimates expenses for the cost to repair orreplace products that may be returned under warranty and accrue a liability in cost of product revenue for this amount. The determination of the Company’swarranty requirements is based on actual historical experience with the product or product family, estimates of repair and replacement costs and any productwarranty problems that are identified after shipment. The Company estimates and adjusts these accruals at each balance sheet date in accordance withchanges in these factors.73EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Upon issuance of a standard product warranty, the Company discloses and recognizes a liability for the obligations it assumes under the productwarranty. The following table summarizes the activity related to the Company’s product warranty liability during the following periods (in thousands): Year Ended June 30,2017 June 30,2016 Balance beginning of period $9,600 $8,676 Warranties assumed due to acquisition 2,034 — New warranties issued 6,015 8,176 Warranty expenditures (7,642) (7,252)Balance end of period $10,007 $9,600 In the normal course of business to facilitate sales of its products, the Company indemnifies its resellers and end-user customers with respect to certainmatters. The Company has agreed to hold the customer harmless against losses arising from a breach of intellectual property infringement or other claimsmade against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. It is notpossible to estimate the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims andthe unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have nothad a material impact on its operating results or financial position.AdvertisingCooperative advertising expenses are recorded as marketing expenses to the extent that an advertising benefit separate from the revenue transactioncan be identified and the cash paid does not exceed the fair value of that advertising benefit received. Cooperative advertising obligations with customers areaccrued and the costs expensed at the time the related revenue is recognized. If the Company does not meet the criteria for recognizing such cooperativeadvertising obligations as marketing expense, the costs are recorded as a reduction of revenue. All other advertising costs are expensed asincurred. Advertising expenses were $0.4 million, $0.3 million and $0.5 million in fiscal years 2017, 2016 and 2015, respectively.Income TaxesWe account for income taxes utilizing the liability method. Deferred income taxes are recorded to reflect consequences on future years of differencesbetween financial reporting and the tax basis of assets and liabilities measured using the enacted statutory tax rates and tax laws applicable to the periods inwhich differences are expected to affect taxable earnings. A valuation allowance is recognized to the extent that it is more likely than not that the taxbenefits will not be realized.The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first stepis to evaluate the tax position by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustainedon audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is morethan 50% likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the extent that theCompany anticipates payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision forincome taxes. For additional discussion, see Note 9. Income Taxes. 4. Recently Issued Accounting PronouncementsIn May 2014, the FASB issued ASU No. 2014-09 (Topic 606)—Revenue from Contracts with Customers (“ASU 2014-09”) which provides a new five-step model for revenue recognition. This ASU affects all contracts that the Company enters into with customers to transfer goods and services or for thetransfer of nonfinancial assets. This ASU will supersede the revenue recognition requirements in Topic 605, and most industry specific guidance. This ASUalso supersedes the cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts and provides newcost guidance under Sub Topic 340-40.74EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The standard's core principle is that revenue is recognized when control of promised goods or services is transferred to customers in an amount thatreflects the consideration to which the Company expects to be entitled in exchange for those goods or services. As a result, the Company will use additionaljudgments and estimates under the new revenue standard. These may include identifying performance obligations in the contract, estimating the amount ofvariable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of the new revenue standard from December 15, 2016 to December15, 2017, with early adoption permitted as of annual reporting periods beginning after December 15, 2016. Accordingly, the ASU will be effective for theCompany beginning fiscal year 2018. In addition, in March 2016, the FASB issued ASU No. 2016-08 (Topic 606) Revenue from Contracts with Customers:Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), which clarifies the principal-versus-agent guidance in Topic606 and requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agentcapacity and to recognize revenue in a gross or net manner based on its principal/agent designation. In April 2016, the FASB also issued ASU No. 2016-10(Topic 606) Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing (“ASU 2016-10”), which amends the revenueguidance on identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB also issued ASU No. 2016-12(Topic 606) Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), which amends the revenueguidance to clarify measurement and presentation as well as to include some practical expedients and policy elections. There are two transition methodsavailable under the new standard, either cumulative effect or retrospective. There are optional practical expedients which may be applied under bothmethods. ASU 2016-08, ASU 2016-10, and ASU 2016-12 must be adopted concurrently with the adoption of ASU 2014-09.We will be utilizing the full retrospective method of adoption for Topic 606 applied to those contracts for which all (or substantially all) of therevenue was not previously recognized in accordance with revenue guidance that is in effect before that date. This method will require the restatement ofeach prior reporting period presented. The most significant impact of the standard to the Company relates to our accounting for distributor and resellerrevenues from a primarily “sell-through” model, where revenue is not recognized until inventory is sold from our distribution channel to their customer, to“sell-in” as revenue will be recognized upon transfer of control to our customers, including distributors. We continue to evaluate certain product returnestimates for determining the transaction price and the standalone selling price of certain performance obligations, such as standalone software wherehistorically we have recognized revenue on the residual method, and certain return estimates. Adoption of the new standard will result in a reduction inaccounts receivable for the estimated returns and rebates payable upon sell-through and a decrease in deferred distributor revenue as a result of recognizingrevenue upon transfer of control. The table below presents the estimated impact to our Consolidated Statements of Operations line items for the fiscal periods ended (in thousands): June 30, 2017 June 30, 2016 *Net Revenue $8,000 – $14,000 $(6,500) – $(12,500)Gross profit $5,500 – $11,500 $(3,500) – $(9,500)Operating income (loss) $6,000 – $12,000 $(2,500) – $(8,500) *Excludes the financial impact of pre-fiscal 2016 amounts which will be reflected in the retained earnings.We do not anticipate the new standard to modify our current business practices nor do we expect to have an impact on our debt covenants. As weimplement the new standard, we will develop internal controls to ensure that we adequately evaluate our portfolio of contracts under the five-step model andaccurately restate our prior-period operating results under ASU 2014-09. This guidance will become effective for the Company beginning with its fiscal year2018.In March 2016, the FASB issued ASU No. 2016-06 (Topic 815), Derivatives and Hedging– Contingent Put and Call Options in Debt Instruments(“ASU 2016-06”), which will reduce diversity of practice in identifying embedded derivatives in debt instruments. ASU 2016-06 clarifies that the nature ofan exercise contingency is not subject to the “clearly and closely” criteria for purposes of assessing whether the call or put option must be separated from thedebt instrument and accounted for separately as a derivative. The adoption of this guidance will not have a material effect on our financial statements. Thisguidance will be effective for the Company beginning with its fiscal year 2018.75EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2017-09, Compensation—StockCompensation (Topic 718) - Scope of Modification Accounting (“ASU 2017-09”) which amends the scope of modification accounting for share-basedpayment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would berequired to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vestingconditions, and classification of the awards are the same immediately before and after the modification. The guidance is effective prospectively for fiscalyears beginning after December 15, 2017, and interim periods within that reporting period. Early adoption is permitted, including adoption in any interimperiod. We do not expect the adoption of this guidance to have a material effect on our financial statements. This guidance will be effective for the Companybeginning with its fiscal year 2019.In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which providesguidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The Company is currently assessing the impactthat adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures. This guidance will become effectivefor the Company beginning with its fiscal year 2019.In February 2016, the FASB issued ASU No. 2016-02 (Topic 842), Leases (“ASU 2016-02”) which requires the identification of arrangements thatshould be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve month term, these arrangements must now be recognizedas assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whetheroperating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. Thebalance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rateat the date of adoption. In addition, ASU 2016-02 requires the use of the modified retrospective method, which will require adjustment to all comparativeperiods presented in the consolidated financial statements. The Company is currently assessing the impact that adopting this new accounting standard willhave on its consolidated financial statements and footnote disclosures. This guidance will become effective for the Company beginning with its fiscal year2020.Recently Adopted Accounting PronouncementsIn April 2015, the FASB issued ASU No. 2015-03 - Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which requires that debtissuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,consistent with debt discounts. ASU 2015-03 requires retrospective adoption and will be effect for annual and interim periods in fiscal years beginning afterDecember 15, 2015. Adoption of this standard did not have a material impact on our financial statements and footnote disclosures.In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09 (Topic 718),Compensation – Stock Compensation (“ASU 2016-09”) which identifies areas for simplification involving several aspects of accounting for share-basedpayment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stockcompensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This guidance did nothave a material impact on the results of operations or cash flows. 5. Commitments and Contingencies LeasesThe Company currently leases its current headquarters, research and development facilities and office spaces for its various United States andinternational operations. Certain leases contain rent escalation clauses and renewal options. As part of the Company’s existing leased facilities, the Companyhas received lease incentives which take the form of a fixed allowance towards lease improvements on the respective facility. The Company used theallowance to make leasehold improvements which are being depreciated over the useful life of the assets or the lease term, whichever is shorter. The offsettinglease incentives liability is being amortized on a straight-line basis over the term of the lease as an offset to rent expense.76EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Future annual minimum lease payments under all non-cancelable operating leases having initial or remaining lease terms in excess of one year atJune 30, 2017, were as follows (in thousands): For the fiscal year ending: Future LeasePayments 2018 $12,949 2019 11,883 2020 8,988 2021 7,680 2022 7,132 Thereafter 6,162 Total minimum payments $54,794 Rent expense was $9.4 million, $8.5 million and $11.1 million in fiscal years 2017, 2016 and 2015, respectively.Purchase CommitmentsThe Company currently has arrangements with contract manufacturers and suppliers for the manufacture of its products. The arrangements allow themto procure long lead-time component inventory based upon a rolling production forecast provided by the Company. The Company is obligated to thepurchase of long lead-time component inventory that its contract manufacturer procures in accordance with the forecast, unless the Company gives notice oforder cancellation outside of applicable component lead-times. As of June 30, 2017, the Company had non-cancelable commitments to purchase $83.2million of such inventory, which will be received and consumed during the first half of fiscal 2018Legal ProceedingsThe Company may from time to time be party to litigation arising in the course of its business, including, without limitation, allegations relating tocommercial transactions, business relationships or intellectual property rights. Such claims, even if not meritorious, could result in the expenditure ofsignificant financial and managerial resources. Litigation in general, and intellectual property and securities litigation in particular, can be expensive anddisruptive to normal business operations. Moreover, the results of legal proceedings are difficult to predict.In accordance with applicable accounting guidance, the Company records accruals for certain of its outstanding legal proceedings, investigations orclaims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. The Company evaluates, at least on a quarterlybasis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would causea loss contingency to become both probable and reasonably estimable. When a loss contingency is not both probable and reasonably estimable, theCompany does not record a loss accrual. However, if the loss (or an additional loss in excess of any prior accrual) is at least a reasonable possibility andmaterial, then the Company would disclose an estimate of the possible loss or range of loss, if such estimate can be made, or disclose that an estimate cannotbe made. The assessment whether a loss is probable or a reasonable possibility, and whether the loss or a range of loss is estimable, involves a series ofcomplex judgments about future events. Even if a loss is reasonably possible, the Company may not be able to estimate a range of possible loss, particularlywhere (i) the damages sought are substantial or indeterminate, (ii) the proceedings are in the early stages, or (iii) the matters involve novel or unsettled legaltheories or a large number of parties. In such cases, there is considerable uncertainty regarding the ultimate resolution of such matters, including the amountof any possible loss, fine or penalty. Accordingly, for current proceedings, except as noted below, the Company presently is unable to estimate anyreasonably possible loss or range of possible loss. However, an adverse resolution of one or more of such matters could have a material adverse effect on theCompany's results of operations in a particular quarter or fiscal year.Brazilian Tax Assessment MattersCertain Brazilian tax authorities have made tax assessments against our Brazilian subsidiary, Enterasys Networks do Brasil Ltda. (“Enterasys Brasil”),based on an alleged underpayment of taxes. The tax authorities also are seeking interest and penalties with respect to such claims (collectively, the “ICMSTax Assessments”). The State of Sao Paolo, Brazil denied Enterasys Brasil the use of certain tax credits granted by the State of Espirito Santo, Brazil underthe terms of the FUNDAP program for the tax years of 2002 through 2009. The value of the ICMS tax credits disallowed by the Sao Paolo TaxAdministration is BRL 3.4 million (US $1.0 million), excluding interest and penalties.77EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) On January 10, 2014, Enterasys Brasil filed a lawsuit to overturn or reduce the ICMS Tax Assessments. As part of this lawsuit, Enterasys Brasilrequested a stay of execution, so that no tax foreclosure could be filed and no guarantee would be required until the court issued its final ruling. On or aboutOctober 6, 2014, the court granted a preliminary injunction staying any execution on the assessment, but requiring that Enterasys Brasil deposit the assessedamount with the court. Enterasys Brasil appealed this ruling and, on or about January 28, 2015, the appellate court ruled that no cash deposit (or guarantee)was required. The lawsuit remains ongoing. With accrued interest and penalties totaling BRL 18.4 million (US $5.6 million), the disputed assessment is 21.9million BRL (US $6.7 million) as of June 30, 2017. If the Sao Paolo Tax Administration were to prevail in the lawsuit, the court also could order EnterasysBrasil to pay attorneys’ fees ranging from BRL 1.2 million (US $0.4 million) to BRL 1.8 million (US $0.5 million); if Enterasys Brasil elected to payvoluntarily the full assessment amount (including accrued interest and penalties), attorneys’ fees would be BRL 4.4 million (US $1.3 million). All currencyconversions in this Legal Proceedings section are as of June 30, 2017.On or about June 18, 2014, the State of San Paolo notified Enterasys Brasil that it intended to audit its records for tax years 2012 and 2013. Inaddition, Enterasys Brasil received a similar notice in December 2015 with respect to an audit by the State of San Paolo of tax years 2011-2014. The auditscovered the same or very similar issues as the ICMS Tax Assessments for tax years 2002-2009; however, Enterasys Brasil had changed its ICMS procedureseffective May 2009. This audit was recently completed, and in March 2017, Enterasys Brasil paid BRL 0.2 million (US $0.1 million) in expenses related tothe audit. Based on the currently available information, the Company believes the ultimate outcome of the above assessments will not have a material adverseeffect on the Company's financial position or overall results of operations. The Company believes that the ICMS Tax Assessments against Enterasys Brasilare without merit, and Enterasys Brasil is defending the claims vigorously. However, due to the complexities and uncertainty surrounding the judicialprocess in Brazil and the nature of the claims asserted, the Company is unable to determine the likelihood of an unfavorable outcome against EnterasysBrasil, which recorded an accrual of BRL 9.4 million (US $2.9 million) as of the date the Company acquired Enterasys Networks, as such matter relates to theperiod before the acquisition. The Company made a demand on April 11, 2014 for a defense from, and indemnification by, the former equity holder of Enterasys Networks, Inc.(“Seller”) in connection with the ICMS Tax Assessments. Seller agreed to assume the defense of the ICMS Tax Assessments on May 20, 2014. In addition,through the settlement of and indemnification-related lawsuit with the Seller on June 18, 2015, Seller agreed to continue to defend the Company with respectto the ICMS Tax Assessments and to indemnify the Company for losses related thereto subject to certain conditions. In addition, the Seller agreed toindemnify the Company in connection with tax assessments up to a specified cap related to the 2012 and 2013 tax years subject to certain conditions. Theseconditions include the offsetting of foreign income tax benefits realized by the Company in connection with the acquisition of Enterasys. Based uponcurrent projections of the foreign income tax benefits to be realized, the Company does not anticipate that any amounts under the indemnification will bedue from the Seller in connection with either the ICMS Tax Assessments or the expenses related to the audit.In re Extreme Networks, Inc. Securities LitigationOn October 23 and 29, 2015, putative class action complaints alleging violations of securities laws were filed in the U.S. District Court for theNorthern District of California against the Company and three of its former officers (Charles W. Berger, Kenneth B. Arola, and John T. Kurtzweil). Subsequently, the cases were consolidated (In re Extreme Networks, Inc. Securities Litigation, No. 3:15-CY-04883-BLF). Plaintiffs allege that defendantsviolated the securities laws by disseminating materially false and misleading statements and concealing material adverse facts regarding the Company’sfinancial condition, business operations and growth prospects. Plaintiffs seek unspecified damages on behalf of a purported class of investors who purchasedthe Company's common stock from September 12, 2013 through April 9, 2015. On June 28, 2016, the Court appointed a lead plaintiff. On September 26,2016, the lead plaintiff filed a consolidated complaint. On November 10, 2016, defendants filed a motion to dismiss, which the Court granted with leave toamend on April 27, 2017. On June 2, 2017, the lead plaintiff filed an amended complaint, which, on July 10, 2017, defendants again moved todismiss. Defendants’ motion to dismiss currently is scheduled to be heard on December 14, 2017. The Company believes plaintiffs’ claims are without meritand intends to defend them vigorously.On February 18, 2016, a shareholder derivative case was filed in the Superior Court of California, Santa Clara County (Shaffer v. Kispert et al., No. 16CV 291726). The complaint names current and former officers and directors as defendants, and seeks recovery on behalf of the Company based onsubstantially the same allegations as the securities class action litigation described above. The parties have agreed to stay the case pending further activitiesin the securities class action litigation, and the court signed a stipulation and order to that effect.78EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Plectrum LLC v. Extreme Networks, Inc. Patent Infringement SuitOn February 2, 2017, Plectrum LLC (“Plectrum”) sued the Company in the U.S. District Court for the Eastern District of Texas (Plectrum LLC v.Extreme Networks, Inc., No. 4:17-CV-0079). The complaint asserted infringement of U.S. Patent Nos. 5,978,951, 6,205,149, and 6,751,677 based on theCompany’s manufacture, use, sale, and/or offer for sale of its S-Series and Summit Series Switch products. Plectrum sought an injunction and unspecifieddamages. On June 24, 2017, the Court dismissed the case with prejudice after the parties advised that they had resolved the matter.XR Communications, LLC d/b/a Vivato Technologies v. Extreme Networks, Inc. Patent Infringement Suit On April 19, 2017, XR Communications, LLC (“XR”) (d/b/a Vivato Technologies) sued the Company in the Central District of California (XRCommunications, LLC, dba Vivato Technologies v. Extreme Networks, Inc., No. 2:17-cv-2953-AG). The operative Second Amended Complaint assertsinfringement of U.S. Patent Nos. 7,062,296, 7,729,728, and 6,611,231 based on the Company’s manufacture, use, sale, offer for sale, and/or importation intothe United States of certain access points and routers supporting multi-user, multiple-input, multiple-output technology. XR seeks unspecified damages, on-going royalties, pre- and post-judgment interest, and attorneys’ fees (but no injunction). On July 24, 2017, the Company filed its answer. The Companybelieves the claims are without merit and intends to defend them vigorously.Indemnification ObligationsSubject to certain limitations, the Company may be obligated to indemnify its current and former directors, officers and employees. These obligationsarise under the terms of its certificate of incorporation, its bylaws, applicable contracts, and applicable law. The obligation to indemnify, where applicable,generally means that the Company is required to pay or reimburse, and in certain circumstances the Company has paid or reimbursed, the individuals'reasonable legal expenses and possibly damages and other liabilities incurred in connection with certain legal matters. For example, the Company currentlyis paying or reimbursing legal expenses being incurred by certain current and former officers and directors in connection with the shareholder litigationdescribed above. The Company also procures Directors and Officers insurance to help cover its defense and/or indemnification costs, although its ability torecover such costs through insurance is uncertain. While it is not possible to estimate the maximum potential amount that could be owed under theseindemnification agreements due to the Company’s limited history with prior indemnification claims, indemnification (including defense) costs could, in thefuture, have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows. As of June 30, 2017, theCompany had no outstanding indemnification claims. 6. Stockholders’ EquityPreferred StockIn April 2001, in connection with the entering into of the Company's Rights Agreement, the Company authorized the issuance of preferred stock. Thepreferred stock may be issued from time to time in one or more series. The Board of Directors is authorized to provide for the rights, preferences and privilegesof the shares of each series and any qualifications, limitations or restrictions on these shares. As of June 30, 2017, no shares of preferred stock wereoutstanding.Stockholders’ Rights AgreementOn April 26, 2012, the Company entered into an Amended and Restated Rights Agreement between the Company and Computershare ShareholderServices LLC as the rights agent (the “Restated Rights Plan”). The Restated Rights Plan governs the terms of each right (“Right”) that has been issued withrespect to each share of Common Stock of Extreme Networks. Each Right initially represents the right to purchase one one-thousandth of a share of ourPreferred Stock. The Restated Rights Plan replaces in its entirety the Rights Agreement, dated as of April 27, 2001, as subsequently amended, between us andMellon Investor Services LLC (the “Prior Rights Plan”).79EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The Board adopted the Restated Rights Plan to preserve the value of our deferred tax assets, including our net operating loss carry forwards, withrespect to our ability to fully use its tax benefits to offset future income which may be limited if we experience an “ownership change” for purposes of Section382 of the Internal Revenue Code of 1986 as a result of ordinary buying and selling of our common stock. Following its review of the terms of the plan, theBoard decided it was necessary and in the best interests of us and our stockholders to enter into the Restated Rights Plan. The Restated Rights Planincorporates the Prior Rights Plan and the amendments thereto into a single agreement and extended the term of the Prior Rights Plan to April 30, 2013. Eachyear since 2013 our Board and shareholders have approved an amendment providing for a one year extension of the term of the Restated Rights Plan. OurBoard of Directors unanimously approved an amendment to the Restated Rights Plan on May 9, 2017 to extend the Restated Rights Plan through May 31,2018, subject to ratification by a majority of the stockholders of the Company at the next annual shareholders meeting, expected to be held on November 9,2017.Shares Reserved for Issuance The following are shares reserved for issuance (in thousands): June 30,2017 June 30,2016 2014 Employee Stock Purchase Plan 7,785 10,001 Employee stock options and awards outstanding 9,726 10,609 2013 Employee Plan shares available for grant 7,629 5,401 Total shares reserved for issuance 25,140 26,011 The following table summarizes the transfer of shares between the respective plans for the periods presented (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 Granted — (5,141) (5,141)Canceled 5,803 — 5,803 Transferred (5,092) 5,092 — Retired (711) — (711)Shares available at June 30, 2016 — 5,401 5,401 Additional shares authorized — 8,300 8,300 Granted — (7,865) (7,865)Canceled — 1,793 1,793 Shares available at June 30, 2017 — 7,629 7,629 80EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 PlanThe 2013 Equity Incentive Plan (the “2013 Plan”) was approved by stockholders on November 20, 2013. The 2013 Plan replaced the 2005 EquityIncentive Plan (the "2005 Plan"). Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stockunits, performance shares, performance units, and other share-based or cash-based awards to employees and consultants. The 2013 Plan also authorizes thegrant of awards of stock options, stock appreciation rights, restricted stock and restricted stock units to non-employee members of the Board of Directors anddeferred compensation awards to officers, directors and certain management or highly compensated employees. The 2013 Plan authorizes the issuance of9,000,000 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 the2005 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 2013Plan 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 the2013 Plan are decremented 1.5 shares for each such award granted. Upon forfeiture or cancellation of unvested awards, the same ratio is applied in returningshares 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 wereauthorized 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 outstandingunder 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 PlanPursuant to the acquisition of Enterasys on October 31, 2013, the Company assumed the Enterasys 2013 Stock Plan (the "Enterasys Plan"). As ofJune 30, 2017, total options and awards to acquire 1,282,691 shares were outstanding under the Enterasys Plan. Options granted under this plan have acontractual term of seven years. If a participant terminates employment prior to the vesting dates, the non-vested shares will be forfeited and retired in theEnterasys Plan. No future grants may be made from the Enterasys Plan.2005 Equity Incentive PlanThe 2005 Plan was adopted by the Company’s Board of Directors on October 20, 2005, and approved by stockholders on December 2, 2005. The2005 Plan replaced the Amended 1996 Stock Option Plan (the “1996 Plan”), the 2000 Non-statutory Stock Option Plan and the 2001 Non-statutory StockOption Plan. The 2005 Plan includes provisions upon the granting of certain awards defined by the 2005 Plan as Full Value Awards in which the sharesavailable for grant under the 2005 Plan are decremented 1.5 shares for each such award granted. Upon forfeiture or cancellation of unvested awards, the sameratio is applied in returning shares to the 2005 Plan for future issuance as was applied upon granting. Effective November 20, 2013, the 2005 Plan wasreplaced 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 futuregrants may be made from the 2005 Plan, however, outstanding options and awards forfeited or canceled were allowed to be transferred to the 2013 Plan untilDecember 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 PlanThe 1996 Plan was originally adopted in September 1996, and provided for the grant of options for common stock to eligible participants. EffectiveDecember 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 futuregrants may be made from the 1996 Plan. 81EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table summarizes stock option activity under all plans (shares and intrinsic value in thousands): Number ofShares Weighted-AverageExercisePrice PerShare Weighted-AverageRemainingContractualTerm(years) AggregateIntrinsicValue 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, inthousands): 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 2016and 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 stockoptions. 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 AwardsStock awards may be granted under the 2013 Plan on terms approved by the Compensation Committee of the Board of Directors. Stock awardsgenerally provide for the issuance of restricted stock units (“RSU’s”), including performance or market-based restricted stock units (“PSU”) which vest over afixed period of time or based upon the satisfaction of certain performance criteria. The Company recognizes compensation expense on the awards over thevesting period based on the award’s intrinsic value as of the date of grant.82EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) During fiscal years 2017, 2016 and 2015, the Company began expensing PSU’s with market or performance based conditions to senior executiveofficers that had been granted during fiscal years 2017, 2016 and 2015. The Company uses a Monte-Carlo simulation model to determine the fair value andthe derived service period of PSU’s, with market or performance conditions or combinations of those conditions with a service condition, on the date ofgrant. The following table summarizes stock award activity (shares and market value in thousands): Number ofShares Weighted-Average GrantDate Fair Value Aggregate FairMarket 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 $9.1million, $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 obligationfor 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 appropriatetaxing 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 thevesting 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 ofcommon 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 berecognized over a weighted-average period of 1.9 years Performance Grant ActivityThe following table summarizes PSU’s with market or performance based conditions granted and the number of awards that have satisfied the relevantmarket or performance criteria in each period (in thousands): Fiscal year2017 Fiscal year2016 Fiscal year2015 Performance awards granted 2,106 695 615 Performance awards earned 839 582 — 2014 Employee Stock Purchase PlanIn August 27, 2014, the Board of Directors approved the adoption of Extreme Network’s 2014 Employee Stock Purchase Plan (the “2014 ESPP”). OnNovember 12, 2014, the stockholders approved the 2014 ESPP with the maximum number of shares of common stock that may be issued under the plan of12,000,000 shares. The 2014 ESPP replaced the 1999 Employee Stock Purchase Plan. The 2014 ESPP allows eligible employees to acquire shares of theCompany’s common stock through periodic payroll deductions of up to 15% of total compensation, subject to the terms of the specific offering periodsoutstanding. 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 lesserof 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 purchaseperiod. 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.83EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Effective with the offering period beginning on February 1, 2016, the Company amended the 2014 ESPP to increase the maximum shares issuable foreach 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 the2014 ESPP so that all future offering periods are limited to six months and to make certain other changes to the 2014 ESPP including adding newcontribution limits for each offering period. Existing open offering periods prior to the effective date of the changes were unaffected by the amendments tothe 2014 ESPP.1999 Employee Stock Purchase PlanIn January 1999, the Board of Directors approved the adoption of Extreme Network’s 1999 Employee Stock Purchase Plan (the “1999 ESPP”). OnDecember 2, 2005, the stockholders approved an amendment to the 1999 ESPP to increase the maximum number of shares of common stock that may beissued 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 eligibleemployees to acquire shares of the Company’s common stock through periodic payroll deductions of up to 15% of total compensation. The price at whichthe 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 applicableoffering 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. Allremaining shares available under the 1999 ESPP have been retired.Share Based Compensation ExpenseShare-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 ratherrecognizes expense for those shares expected to vest and recognizes forfeitures when they occur. The Company’s estimated forfeiture rate in fiscal 2016based 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 fromhistorical data on employee exercise and post-vesting employment termination behavior. The risk-free rate is based upon the estimated life of the option andis 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 tradedoptions 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 optiongrants, 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 optionvaluation model with the weighted average assumptions noted in the following table. The expected term of the 2014 ESPP. The risk-free rate is based uponthe 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 theCompany’s stock.84EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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) PlanThe Company provides a tax-qualified employee savings and retirement plan, commonly known as a 401(k) plan (the “Plan”), which covers theCompany’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-taxbasis.The Company provides for discretionary matching contributions as determined by the Board of Directors for each calendar year. All matchingcontributions vest immediately. In addition, the Plan provides for discretionary contributions as determined by the Board of Directors each year. Theprogram 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 matchingcontributions to the Plan totaled $1.4 million, $1.2 million and $1.1 million, for fiscal years 2017, 2016 and 2015, respectively. No discretionarycontributions were made in fiscal years 2017, 2016 or 2015. 8. Common Stock Repurchases and RetirementCommon Stock RepurchasesOn September 28, 2012, the Company's Board of Directors approved a share repurchase program for a maximum of $75 million which were to bepurchased over a three year period. On October 1, 2015 the repurchase program ended. No shares were repurchased during the years ended June 30, 2016 or2015. 9. Income TaxesIncome before income taxes is as follows (in thousands): Year Ended June 30, June 30, June 30, 2017 2016 2015 Domestic $(10,953) $(31,700) $(72,176)Foreign 6,776 4,152 5,340 Total $(4,177) $(27,548) $(66,836) 85EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The provision for income taxes for fiscal years 2017, 2016 and 2015 consisted of the following (in thousands): Year Ended June 30, June 30, June 30, 2017 2016 2015 Current: Federal $(155) $727 $476 State 168 75 13 Foreign 2,332 1,793 2,447 Total current 2,345 2,595 2,936 Deferred: Federal 3,063 1,659 1,507 State 99 108 103 Foreign (1,167) (26) 261 Total deferred 1,995 1,741 1,871 Provision for income taxes $4,340 $4,336 $4,807 The difference between the provision for income taxes and the amount computed by applying the federal statutory income tax rate (35 percent) toincome before taxes is explained below (in thousands): Year Ended June 30, June 30, June 30, 2017 2016 2015 Tax at federal statutory rate $(1,461) $(9,642) $(23,392)State income tax, net of federal benefit 168 75 13 Change in valuation allowance 5,616 7,898 24,408 Research and development credits (1,355) (1,364) (303)Foreign earnings taxed at other than U.S. rates (492) 1,678 (1,113)Stock based compensation (573) 3,564 2,298 Goodwill amortization 1,795 1,672 1,690 Nondeductible officer compensation 470 77 — Nondeductible meals and entertainment 391 289 341 AMT credit monetization (155) — — Other (64) 89 865 Provision for income taxes $4,340 $4,336 $4,807 86EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Significant components of the Company’s deferred tax assets are as follows (in thousands): June 30, 2017 2016 2015 Deferred tax assets: Net operating loss carry-forwards $109,170 $108,563 $114,151 Tax credit carry-forwards 34,444 32,730 30,824 Depreciation 1,312 — — Intangible amortization 32,919 28,480 17,978 Deferred revenue (net) 10,612 7,955 7,811 Warrant amortization — — 1,355 Inventory write-downs 11,111 6,207 6,048 Other allowances and accruals 13,002 10,568 8,645 Stock based compensation 3,545 4,048 6,783 Other 4,270 4,275 5,902 Total deferred tax assets 220,385 202,826 199,497 Valuation allowance (219,403) (201,405) (197,576)Total net deferred tax assets 982 1,421 1,921 Deferred tax liabilities: Depreciation — (343) (707)Goodwill amortization (6,254) (4,459) (2,787)Foreign exchange gain — — — Deferred tax liability on foreign withholdings (321) (235) (194)Total deferred tax liabilities (6,575) (5,037) (3,688)Net deferred tax assets (liabilities) $(5,593) $(3,616) $(1,767)Recorded as: Net current deferred tax assets $— $— $760 Net non-current deferred tax assets 982 1,077 452 Net non-current deferred tax liabilities (6,575) (4,693) (2,979)Net deferred tax assets (liabilities) $(5,593) $(3,616) $(1,767) The Company's global valuation allowance increased by $18.0 million in the fiscal year ended June 30, 2017 and $3.8 million in the fiscal year endedJune 30, 2016. The Company has provided a full valuation allowance against all of its U.S. federal and state deferred tax assets, as well as valuationallowances against non-U.S. deferred tax assets in Australia, Brazil, Japan and Singapore. The valuation allowance is determined by assessing both negativeand positive available evidence to assess whether it is more likely than not that the deferred tax assets will be recoverable. The Company's inconsistentearnings in recent periods, including a cumulative loss over the last three years, coupled with its difficulty in forecasting future revenue trends as well as thecyclical nature of the Company's business provides sufficient negative evidence to require a full valuation allowance against its U.S. federal and state netdeferred tax assets. The valuation allowance is evaluated periodically and can be reversed partially or in full if business results and the economicenvironment have sufficiently improved to support realization of the Company's deferred tax assets.As of June 30, 2017, the Company had net operating loss carry-forwards for U.S. federal and state tax purposes of $291.3 million and $93.7 million,respectively. As of June 30, 2017, the Company also had foreign net operating loss carry-forwards in Ireland, Australia, Brazil and Japan of $46.7 million,$9.8 million, $7.3 million and $0.3 million, respectively. As of June 30, 2017, the Company also had federal and state tax credit carry-forwards of $23.8million and $16.4 million, respectively. These credit carry-forwards consist of research and development tax credits as well as foreign tax credits with a smallportion representing Alternative Minimum Tax Credits. The U.S. federal net operating loss carry-forwards of $291.3 million will begin to expire in the fiscalyear ending June 30, 2021 and state net operating losses of $93.7 million began to partially expire in the fiscal year ending June 30, 2017. The foreign netoperating losses can generally be carried forward indefinitely. Federal research and development tax credits of $15.5 million will expire beginning in fiscal2019, if not utilized and foreign tax credits of $8.1 million will expire beginning in fiscal 2021. North Carolina state research and development tax credits of$0.9 million will expire beginning in the fiscal year ending June 30, 2023, if not utilized. California state research and development tax credits of $15.5million do not expire and can be carried forward indefinitely.87EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) As of January 2016, the Company performed an Internal Revenue Code section 382 analysis with respect to its net operating loss and credit carry-forwards to determine whether a potential ownership change had occurred that would place a limitation on the annual utilization of tax attributes. It wasdetermined that no ownership change had occurred during the fiscal year ended June 30, 2016, however, it is possible a subsequent ownership change couldlimit the utilization of the Company's tax attributes.As of June 30, 2017, the Company intends to indefinitely reinvest the earnings of approximately $11.5 million of certain foreign corporations. Theunrecognized deferred tax liability associated with these earnings is approximately $0.2 million.The Company conducts business globally and as a result, most of its subsidiaries file income tax returns in various domestic and foreignjurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world. Its major tax jurisdictionsare the U.S., Ireland, Brazil, India, California, New Hampshire and North Carolina. As of June 30, 2017, the Company is not currently under examination byany federal, state or foreign tax authority with respect to income taxes.In general, the Company's U.S. federal income tax returns are subject to examination by tax authorities for fiscal years 2001 forward due to netoperating losses and the Company's state income tax returns are subject to examination for fiscal years 2000 forward due to net operating losses.During the fiscal year ended June 30, 2014, the Company acquired the stock of Enterasys Networks, Inc. and as such they became a wholly ownedsubsidiary of Extreme Networks. With respect to this acquisition, the Company made an election under Internal Revenue Code section 338(h)(10) to treat theacquisition as an asset purchase from a tax perspective. Under this election the tax basis of all assets is effectively reset to that of fair market value andtherefore the transaction did not result in the recording of an opening net deferred tax position as the Company's tax basis in the acquired assets equaled itsbook basis. The resulting intangible assets and goodwill are being amortized for tax purposes over 15 years.During the fiscal year ended June 30, 2017, the Company acquired certain networking assets from Zebra Technologies. For tax purposes, the resultingintangible assets and goodwill from this acquisition are also being amortized over 15 years.As of June 30, 2017, the Company had $18.9 million of unrecognized tax benefits. If fully recognized in the future, there would be no impact to theeffective tax rate, and $18.9 million would result in adjustments to deferred tax assets and corresponding adjustments to the valuation allowance. TheCompany does not reasonably expect the amount of unrealized tax benefits to decrease during the next twelve months. The increase for fiscal year 2017relates substantially to previously unrecorded foreign net operating losses.A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows (in thousands): Balance at June 30, 2014 $11,600 Decrease related to prior year tax positions (225)Increase related to prior year tax positions 288 Increase related to current year tax positions 254 Lapse of statute of limitations (158)Settlements with tax authorities (400)Balance at June 30, 2015 11,359 Increase related to prior year tax positions 174 Lapse of statute of limitations 120 Balance at June 30, 2016 11,653 Increase related to prior year tax positions 7,180 Increase related to current year tax positions 233 Lapse of statute of limitations (153)Balance at June 30, 2017 $18,913 Estimated interest and penalties related to the underpayment of income taxes are classified as a component of tax expense in the consolidatedstatement of operations and totaled less than $0.1 million for each of the fiscal years 2017, 2016 and 2015. 88EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 10. Disclosure about Segments of an Enterprise and Geographic AreasWe conduct business globally and are primarily managed on a geographic theater basis. Our chief operating decision maker ("CODM"), who is ourCEO, reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly bythe CODM with respect to the allocation of resources and performance.The Company operates in one segment, the development and marketing of network infrastructure equipment. Revenue is attributed to a geographicalarea based on the location of the customers. The Company operates in three geographic theaters: Americas, which includes the United States, Canada,Mexico, Central America and South America; EMEA, which includes Europe, Russia, Middle East and Africa; and APAC which includes Asia Pacific, China,South Asia and Japan.The Company attributes revenues to geographic regions based on the customer's ship-to location. Information regarding geographic areas is as follows(in thousands): Year Ended Net Revenues: June 30,2017 June 30,2016 June 30,2015 Americas: United States $303,617 $237,933 $238,748 Other 24,530 44,455 31,931 Total Americas 328,147 282,388 270,679 EMEA: Germany 81,001 65,799 67,316 Other 135,014 130,789 156,052 Total EMEA 216,015 196,588 223,368 APAC: 53,956 49,413 58,893 Total net revenues $598,118 $528,389 $552,940 The Company's long-lived assets are attributed to the geographic regions as follows (in thousands): Long Lived Assets: June 30,2017 June 30,2016 June 30,2015 Americas $64,890 $57,851 $87,071 EMEA 8,998 14,234 29,610 APAC 4,275 2,493 3,108 Total long lived assets $78,163 $74,578 $119,789 11. Net Loss Per ShareBasic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period, lessshares subject to repurchase, and excludes any dilutive effects of options, warrants and unvested restricted stock. Dilutive earnings per share is calculated bydividing net income by the weighted average number of common shares used in the basic earnings per share calculation plus the dilutive effect of sharessubject to options, warrants and unvested restricted stock. The following table presents the calculation of basic and diluted net loss per share (in thousands,except per share data): Year Ended June 30,2017 June 30,2016 June 30,2015 Net loss $(8,517) $(31,884) $(71,643)Weighted-average shares used in per share calculation - basic and diluted 108,273 103,074 99,000 Net loss per share - basic and diluted $(0.08) $(0.31) $(0.72)89EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Potentially dilutive common shares from employee incentive plans are determined by applying the treasury stock method to the assumed exercise ofoutstanding stock options, the assumed vesting of outstanding restricted stock units, and the assumed issuance of common stock under the ESPP. Weightedstock options outstanding with an exercise price higher than the Company's average stock price for the periods presented are excluded from the calculation ofdiluted net loss per share since the effect of including them would have been anti-dilutive due to the net loss position of the Company during the periodspresented.The following securities were excluded from the computation of outstanding diluted earnings per common share because they would have been anti-dilutive (in thousands): Year Ended June 30,2017 June 30,2016 June 30,2015 Options to purchase common stock — 6,937 7,542 Restricted stock units 220 353 133 Employee Stock Purchase Plan shares — — 185 Total shares excluded 220 7,290 7,675 12. Foreign Exchange Forward ContractsThe Company uses derivative financial instruments to manage exposures to foreign currency. The Company’s objective for holding derivatives is touse the most effective methods to minimize the impact of these exposures. The Company does not enter into derivatives for speculative or tradingpurposes. The Company records all derivatives on the balance sheet as “Other accrued liabilities” at fair value. Changes in the fair value of derivatives arerecognized in earnings as “Other income (loss)”. The Company enters into foreign exchange forward contracts to mitigate the effect of gains and lossesgenerated by foreign currency transactions related to certain operating expenses and re-measurement of certain assets and liabilities denominated in foreigncurrencies. Cash flows from such hedges are classified as operating activities.At June 30, 2017, forward foreign currency contracts had a notional principal amount of $6.7 million. These contracts have maturities of less than 60days. Changes in the fair value of these foreign exchange forward contracts are offset largely by remeasurement of the underlying assets and liabilities. AtJune 30, 2016, the Company did not have any forward foreign currency contracts outstanding. Foreign currency transaction gains and losses from operations were losses of $0.7 million and $1.0 million in fiscal 2017 and 2015, respectively andgains of $1.3 million in fiscal 2016. 13. Restructuring ChargesAs of June 30, 2017, restructuring liabilities were $4.1 million and consisted of obligations pertaining to the estimated future obligations for non-cancelable lease payments and severance and benefits obligations. The restructuring liability of $4.1 million is recorded in "Other accrued liabilities" and“Other long-term liabilities” in the consolidated balance sheets. During fiscal years 2017, 2016 and 2015, the Company recorded restructuring charges, netof reversals, of $8.9 million, $11.0 million and $9.8 million, respectively. The charges are reflected in "Restructuring and related charges, net of reversals" inthe consolidated statements of operations. Fiscal year 2017Pursuant with the WLAN Business acquisition from Zebra, the Company assumed a facility lease located at 6480 Via del Oro in San Jose, California(“Via del Oro”) and transferred the Company’s headquarters from Rio Robles Drive in San Jose, California (“Rio Robles”) to Via del Oro. The Companyconsolidated its existing workforce with employees assumed from Zebra at the Via del Oro site and exited the Rio Robles site on January 31, 2017. Due tothe Company’s move from the Rio Robles facility and abandonment of all leasehold improvements, it accelerated the amortization of the remainingleasehold improvements balance for this site over the shortened service period such that the leasehold improvements were fully amortized on the cease-usedate. The Company recorded accelerated amortization expense for the year ended June 30, 2017 of $2.6 million and it is reflected in "Restructuring andrelated charges, net of reversals" in the condensed consolidated statements of operations. 90EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The Company entered into a sublease agreement for its Rio Robles facility during the third quarter of fiscal 2017. The sublease is for the remainingduration of the Company’s lease. The sublease resulted in adjustments to the prior estimates for the amount of sublease payments, timing of subleaseactivities and real estate commissions associated with the sublease. The net adjustments, including modifications to its future obligations for non-cancellablelease payments and related future subleasing income resulted in additional charges of $2.0 million during fiscal 2017. The excess facilities payments willcontinue through fiscal year 2023.In anticipation of the acquisition of Avaya Networking (see Note 14), the Company reoccupied the majority of its exited space at its Salem NewHampshire location during its fiscal fourth quarter to accommodate the growth in headcount and lab facility requirements. This action resulted in a reversalof prior accruals of $1.3 million.In conjunction with the consolidation actions noted above, the Company announced a reduction-in-force affecting 90 employees. The Companyrecorded $5.6 million in severance and benefits charges, net during the year ended June 30, 2017. Cash payments of $3.8 million were made during the yearand the balance of cash payments are expected to be paid by the end of the second quarter of fiscal 2018.Fiscal year 2016During fiscal 2016, the Company continued its initiative to realign its operations by abandoning excess facilities, primarily in San Jose, California;Salem, New Hampshire; Morrisville, North Carolina and other smaller leased locations. The abandoned facilities represented approximately 32% of the floorspace in the aggregate at these locations and included general office and warehouse space.In conjunction with the exiting of facilities noted above, we incurred $11.0 million of restructuring charges. Excess facilities charges included accruedlease costs pertaining to the estimated future obligations for non-cancelable lease payments for excess facilities and contract termination charges of $5.4million, acceleration of depreciation of leasehold improvements of $4.5 million, professional fees of $1.0 million and other of $0.1 million.Significant restructuring charges incurred during 2016, by location, included $1.8 million of charges for excess facilities pertaining to the estimatedfuture obligations for non-cancelable lease payments at Rio Robles. This represented 39% of the San Jose leased space. The Company amended its facilitylease at its North Carolina location and exited excess space while recording $4.1 million of charges, which included $3.1 million in accelerated depreciationof leasehold improvements. This action represented 36% of the North Carolina location lease space. The Company recorded $4.4 million of charges forexcess facilities at its Salem location, which included $1.3 million in accelerated depreciation of leasehold improvements. This action represented 27% ofthe Salem lease space. Fiscal year 2015During the fourth quarter of fiscal 2015, the Company reduced costs through targeted restructuring activities intended to reduce operating costs andrealign our organization in the current competitive environment. We initiated a plan to reduce worldwide headcount by more than 225 employees, primarilyin sales and marketing, as well as research and development, consolidate specific global administrative functions, and shift certain operating costs to lowercost regions, among other actions. The Company recorded $9.7 million of charges associated with this initiative. The restructuring liability related to thisinitiative was fully paid as of June 30, 2016. 91EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Restructuring liabilities consist of (in thousands): ExcessFacilities SeveranceBenefits Other Total Balance as of June 30, 2014 $322 $— $— $322 Period charges — 9,694 125 9,819 Period payments (322) (3,957) (8) (4,287)Balance as of June 30, 2015 — 5,737 117 5,854 Period charges 10,811 668 237 11,716 Period reversals (18) (618) (90) (726)Non cash adjustments (4,463) — — (4,463)Period payments (1,686) (5,787) (264) (7,737)Balance as of June 30, 2016 4,644 — — 4,644 Period charges 1,951 5,728 2,663 10,342 Period reversals (1,337) (109) — (1,446)Non cash adjustments — — (2,578) (2,578)Period payments (3,074) (3,766) — (6,840)Balance as of June 30, 2017 $2,184 $1,853 $85 $4,122 Less: current portion included in Other accrued liabilities 2,394 Restructuring accrual included in Other long-term liabilities $1,728 14. Subsequent EventAvaya AcquisitionOn July 14, 2017, (the “Closing”) the Company completed its acquisition of Avaya’s fabric-based secure networking solutions and network securitysolutions business (“Avaya Networking”), that had been announced on March 7, 2017. Upon the terms and subject to the conditions of the asset purchaseagreement, the Company will acquire customers, employees, technology and other assets of Avaya Networking, as well as assume certain contracts and otherliabilities of Avaya Networking, for a purchase price of $100.0 million, subject to adjustments set forth in the Purchase Agreement related to net workingcapital, deferred revenue, certain assumed lease obligations and certain assumed pension obligations for transferring employees of AvayaNetworking. Pursuant to certain ancillary agreements, Avaya will also provide the Company with access to specified technology related to AvayaNetworking, as well as transition services for a period of time following the Closing of the transaction. As a condition of the agreement, the Company hadmade deposits of $10.2 million in the third quarter of fiscal 2017, which were applied to the purchase price upon Closing. The deposit is included in“Prepaid and other current assets” in the consolidated balance sheet as of June 30, 2017.The acquisition will be accounted for using the acquisition method of accounting whereby the acquired assets and liabilities of Avaya Networkingwill be recorded at their respective fair values and added to those of the Company including an amount for goodwill representing the difference between theacquisition consideration and the fair value of the identifiable net assets. Results of operations of Avaya Networking will be included in the operations of theCompany beginning with the Closing. As of the date of the filing of this Form 10-K, the initial purchase price allocation has not been prepared as there hasnot been sufficient time to complete the related activitiesDuring the fiscal year ended June 30, 2017, the Company recognized transaction costs of $2.2 million which is included in “Acquisition andintegration costs” in the accompanying condensed consolidated statements of operations.92EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Borrowing FacilityIn connection with the Closing noted above, the Company entered into the Second Amendment to the Amended and Restated Credit Agreement(“Second Amendment”), which amended the Amended and Restated Credit Agreement, dated as of October 28, 2016 (the “Credit Facility, as amended”), byand among the Company, as borrower, Silicon Valley Bank, as administrative agent and collateral agent, and Lenders. Among other things, the SecondAmendment (i) increased the amount of the available borrowing under the Credit Facility from $140.5 million to $243.7 million, composed of (a) the TermLoan in a principal amount of up to $183.7 million and (b) the Revolver in a principal amount of up to $60.0 million, (ii) extends the maturity date under theexisting Term Loan and the termination date under the existing Revolver until July 2022, (iii) provides for an uncommitted additional incremental loanfacility in a principal amount of up to $50.0 million (“Incremental Facility”), and (iv) joins certain additional banks, financial institutions and institutionallenders as Lenders pursuant to the terms of the Credit Facility, as amended. On July 14, 2017, the Company borrowed an additional $80.0 million under theTerm Loan which was used to fund the purchase of the Avaya Networking business.Borrowings under the Amended Term Loan bear interest, at our option, at a rate equal to either the LIBOR rate (subject to a 0.0% LIBOR floor), plusan applicable margin (currently 3.25% per annum) or the adjusted base rate, plus an applicable margin (currently 1.25% per annum). Borrowings under theRevolving Loan bear interest, at the Company’s option, at a rate equal to either the LIBOR rate, plus an applicable margin (currently 3.25% per annum) or theadjusted base rate, plus an applicable margin (currently 1.25% per annum based). The Revolving Loan has a commitment fee payable on the undrawnamount ranging from 0.375% to 0.50% per annum. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresDisclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reportsfiled under the Securities Exchange Act of 1934 as amended, such as this Report, is recorded, processed, summarized and reported within the time periodsspecified in the SEC's rules and forms and to reasonably assure that such information is accumulated and communicated to our management, including theChief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluatedthe effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report. Based on thisevaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2017.Management’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over our financial reporting. There are inherent limitationsin the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly,even effective internal controls can provide only reasonable assurances with respect to financial statement preparation. Further because of changes inconditions, the effectiveness of internal control may vary over time.We assessed the effectiveness of our internal control over financial reporting as of June 30, 2017. In making this assessment, we used the criteria setforth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework (2013).Based on our assessment using those criteria, we concluded that, as of June 30, 2017, our internal control over financial reporting is effective.Our independent registered public accounting firm, KPMG LLP, has audited the financial statements included in this Annual Report on Form 10-Kand has issued its report on our internal control over financial reporting as of June 30, 2017.93EXTREME NETWORKS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting during the quarter ended June 30, 2017, that have materially affected, or arereasonably likely to materially affect, our internal control over financial reporting.Inherent Limitations on Effectiveness of ControlsOur management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting willprevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurancethat the control system’s objectives will be met. Our controls and procedures are designed to provide reasonable assurance that our control system’s objectivewill be met and our CEO and CFO have concluded that our disclosure controls and procedures are effective at the reasonable assurance level. The design of acontrol system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, becauseof the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will notoccur or that all control issues and instances of fraud, if any, within Extreme Networks have been detected. These inherent limitations include the realitiesthat judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by theindividual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is basedin part on certain assumptions about the likelihood of future events. Projections of any evaluation of the effectiveness of controls in future periods are subjectto risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies orprocedures. Notwithstanding these limitations, our disclosure controls and procedures are designed to provide reasonable assurance of achieving theirobjectives. Our CEO and CFO have concluded that our disclosure controls and procedures are, in fact, effective at the “reasonable assurance” level.Item 9B. Other InformationNone. 94 PART IIICertain information required by Part III is incorporated by reference from our definitive Proxy Statement to be filed with the Securities and ExchangeCommission in connection with the solicitation of proxies for our 2017 Annual Meeting of Stockholders (the “Proxy Statement”) not later than 120 daysafter the end of the fiscal year covered by this report, and certain information therein is incorporated in this report by reference. Item 10. Directors, Executive Officers and Corporate GovernanceThe information required by this section for our directors is incorporated by reference from the information in the section entitled “Proposal 1 –Election of Directors” in the Proxy Statement. The information required by this section for our executive officers is incorporated by reference from theinformation in the section entitled “Executive Compensation and Other Matters” in the Proxy Statement.Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the ExchangeAct. This disclosure is contained in the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement and isincorporated herein by reference.Information with respect to Item 406 of Regulation S-K is incorporated by reference to the information contained in the section captioned “Code ofEthics and Corporate Governance Materials” in the Proxy Statement. Item 11. Executive CompensationThe information required by this section is incorporated by reference from the information in the sections entitled “Directors’ Compensation”,“Executive Compensation and Other Matters” and “Report of the Compensation Committee” in the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this section is incorporated by reference from the information in the section entitled “Security Ownership of CertainBeneficial Owners and Management” in the Proxy Statement.The information required by this section regarding securities authorized for issuance under equity compensation plans is incorporated by referencefrom the information in the section entitled “Equity Compensation Plan Information” in the Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this section is incorporated by reference from the information in the section titled “Certain Relationships and RelatedTransactions” in the Proxy Statement. Item 14. Principal Accounting Fees and ServicesThe information required by this section is incorporated by reference from the information in the section titled “Principal Accountant Fees andServices” in the Proxy Statement. 95 PART IVItem 15. Exhibits and Financial Statement Schedules•The following documents are filed as a part of this Form 10-K: (1)Financial Statements:Reference is made to the Index to Consolidated Financial Statements of Extreme Networks, Inc. under Item 8 in Part II of this Form 10-K.All required schedules are omitted because either they are not applicable or the required information is shown in the financial statements or notesthereto. •Exhibits:Incorporated herein by reference is a list of the Exhibits contained in the Exhibit Index.96 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized, on September 13, 2017. EXTREME NETWORKS, INC.(Registrant) By:/s/ B. DREW DAVIES B. Drew Davies Executive Vice President, Chief Financial Officer,(Principal Accounting Officer) September 13, 2017 POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints B. Drew Davies, his true andlawful attorneys-in-fact, with full power of substitution, for him in any and all capacities, to sign any amendments to this report on Form 10-K and to file thesame, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming allthat each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the date indicated: /s/ JOHN C. SHOEMAKER /s/ EDWARD B. MEYERCORD IIIJohn C. Shoemaker Edward B. Meyercord IIIChairman of the Board President and Chief Executive Officer, DirectorSeptember 13, 2017 (Principal Executive Officer) September 13, 2017 /s/ B. DREW DAVIES /s/ CHARLES CARINALLIB. Drew Davies Charles CarinalliExecutive Vice President, Chief Financial Officer Director(Principal Accounting Officer) September 13, 2017September 13, 2017 /s/ KATHLEEN M. HOLMGREN /s/ EDWARD H. KENNEDYKathleen M. Holmgren Edward H. KennedyDirector DirectorSeptember 13, 2017 September 13, 2017 /s/ RAJ KHANNA Raj Khanna Director September 13, 2017 97 EXHIBIT INDEXThe exhibits listed below are required by Item 601 of Regulation S-K. Each management contract or compensatory plan or arrangement required to befiled as an exhibit to this Form 10-K has been identified. ExhibitNumber Incorporated by Reference ProvidedHerewithDescription of Document Form FilingDate Number 2.1 Stock Purchase Agreement, dated September 12, 2013 between Enterprise NetworkHoldings, Inc. and Extreme Networks, Inc. 8-K 9/13/2013 2.1 2.2† Asset Purchase Agreement, dated as of September 13, 2016, by and between ExtremeNetworks, Inc. and Zebra Technologies Corporation. 8-K 9/15/2016 2.1 2.3 Amendment No. 1 dated October 28, 2016 to the Asset Purchase Agreement, dated as ofSeptember 13, 2016, by and between Extreme Networks, Inc. and Zebra TechnologiesCorporation. 10-Q 2/2/2017 2.1 2.4 Asset Purchase Agreement, dated March 7, 2017, by and between Extreme Networks, Inc.and Avaya, Inc. 8-K 3/7/2017 2.1 2.5 Amendment No. 1, dated April 3, 2017, to the Asset Purchase Agreement, dated March 7,2017, by and between Extreme Networks, Inc. and Avaya, Inc. 10-Q 5/4/2017 2.2 2.6† Asset Purchase Agreement, dated as of March 29, 2017, by and among LSI Corporation,Extreme Networks, Inc. and, solely for the purposes set forth therein, BroadcomCorporation. 8-K 3/30/2017 2.1 3.1 Amended and Restated Certificate of Incorporation of Extreme Networks, Inc. 8-K 12/17/2010 3.2 3.2 Amended and Restated Bylaws of Extreme Networks, Inc. 8-K 3/31/2011 3.1 3.3 Certificate of Designation, Preferences and Rights of the Terms of the Series A PreferredStock. 10-K 9/26/2001 3.7 4.1 Amended and Restated Rights Agreement dated April 26, 2012 between ExtremeNetworks, Inc. and Computershare Shareowner Services LLC. 8-K 4/30/2012 4.1 4.2 Amendment No. 2 to the Amended and Restated Rights Agreement effective April 30,2014. 8-K 5/20/2014 4.1 4.3 Amendment No. 3 to the Amended and Restated Rights Agreement effective May 14,2015. 8-K 5/19/2015 4.1 4.4 Amendment No. 4 to the Amended and Restated Rights Agreement effective May 5,2016. 8-K 5/9/2016 4.1 4.5 Amendment No. 5 to the Amended and Restated Rights Agreement effective May 31,2017. 8-K 6/5/2017 4.1 10.1 Form of Indemnification Agreement for directors and officers. 8-K 10/24/2011 99.1 10.2* 2000 Nonstatutory Stock Option Plan. 10-K 9/24/2000 10.7 10.3* 2001 Nonstatutory Stock Option Plan. Schedule TO 10/31/2001 (d)(9) 10.4 Lease Agreement by and between RDU Center III LLC and Extreme Networks, Inc. datedOctober 15, 2012. 8-K 10/19/2012 10.1 10.5 First Amendment to Lease Agreement by and between RDU Center III LLC and ExtremeNetworks, Inc. dated December 31, 2012. 8-K 1/7/2013 10.1 10.6 Office Space Lease Agreement by and between W3 Ridge Rio Robles Property LLC andExtreme Networks, Inc., dated December 31, 2012. 8-K 1/7/2013 10.2 10.7 Credit Agreement, dated as of October 31, 2013, among Extreme Networks Inc., asborrower, Silicon Valley Bank, as administrative agent and collateral agent, Bank ofAmerica, N.A. and PNC Bank, National Association as co-syndication agents and thelenders party thereto. 8-K 11/1/2013 10.1 10.8* Enterasys Networks, Inc. 2013 Stock Plan. S-8 11/22/2013 99.1 98 10.9* Offer Letter executed May 2, 2014, between Extreme Networks, Inc. and Ken Arola. 8-K 5/8/2014 10.1 10.10 Second Amendment to the Credit Agreement dated November 18, 2014, among ExtremeNetworks, Inc., a Delaware Corporation, the Lenders party thereto and Silicon ValleyBank, as the Issuing Lender and Swingline Lender and Administrative Agent. 8-K 11/20/2014 10.1 10.11* Extreme Networks, Inc. 2014 Employee Stock Purchase Plan as amended and restatedJune 2016. 10-K 9/6/2016 10.11 10.12* Extreme Networks, Inc. 2014 Employee Stock Purchase Plan as amended and restatedNovember 2015. 10-K 9/6/2016 10.12 10.13* Extreme Networks, Inc. 2013 Equity Incentive Plan. 10-K/A 10/07/2015 10.18 10.14* Form of market based restricted stock units award agreement under Extreme Networks,Inc. 2013 Equity Incentive Plan. 10-Q 1/30/2015 99.1 10.15* Form of restricted stock unit award agreement under Extreme Networks, Inc. 2013 EquityIncentive Plan. 10-K 9/6/2016 10.15 10.16* Form of performance based restricted stock unit award agreement under ExtremeNetworks, Inc. 2013 Equity Incentive Plan. 10-K 9/6/2016 10.16 10.17* Form of option award agreement under Extreme Networks, Inc. 2013 Equity IncentivePlan. 10-K 9/6/2016 10.17 10.18* Form of restricted stock unit award agreement under Extreme Networks, Inc. 2013 EquityIncentive Plan. 10-Q 11/2/2016 10.1 10.19* Form of performance based restricted stock unit award agreement under ExtremeNetworks, Inc. 2013 Equity Incentive Plan. 10-Q 11/2/2016 10.2 10.20* Form of option award agreement under Extreme Networks, Inc. 2013 Equity IncentivePlan. 10-Q 11/2/2016 10.3 10.21* Form of performance stock unit under Extreme Networks, Inc. 2013 Equity IncentivePlan. X10.22* Offer Letter, executed April 30, 2015, between Extreme Networks, Inc. and Edward B.Meyercord. 8-K 5/4/2015 10.1 10.23 Third Amendment to the Credit Agreement and First Amendment to Guarantee andCollateral Agreement dated June 26, 2015, among Extreme Networks, Inc., a DelawareCorporation, the Lenders party thereto and Silicon Valley Bank, as the Issuing Lenderand Swingline Lender and Administrative Agent. 8-K 6/30/2015 10.1 10.24 Second Amendment to Lease Agreement by and between TDC Blue II, LLC and ExtremeNetworks, Inc. dated December 17, 2015. 10-Q 2/2/2016 10.1 10.25* Promotion Letter between Robert Gault and Extreme Networks, Inc. dated June 2, 2015. 10-Q 4/29/2016 10.2 10.26* Supplemental Letter between Robert Gault and Extreme Networks, Inc. dated August 4,2015. 10-Q 4/29/2016 10.3 10.27* Offer Letter, executed May 15, 2016, between Extreme Networks, Inc. and Drew Davies. 8-K 5/19/2016 10.1 10.28* Separation Agreement and Release of Claims, executed May 18, 2016, between ExtremeNetworks, Inc. and Kenneth Arola. 8-K 5/19/2016 10.2 10.29* Extreme Networks, Inc. Executive Change in Control Severance Plan Amended andRestated May 4, 2016. 10-K 9/6/2016 10.25 10.30* Agreement to Participate in the Extreme Networks, Inc. Executive Change in ControlSeverance Plan as Amended and Restated May 4, 2016. 10-K 9/6/2016 10.26 10.31* Extreme Networks, Inc. Executive Change in Control Severance Plan Amended andRestated November 1, 2016. 10-Q 11/2/2016 10.5 10.32* Amended and Restated Offer Letter, executed August 31, 2016, between ExtremeNetworks, Inc. and Edward B. Meyercord. 10-K 9/6/2016 10.27 99 10.33* Summary of FY18 Executive Officer Compensation Arrangements. X10.34* Extreme Networks, Inc. 2005 Equity Incentive Plan. 8-K 10/23/2009 99.3 10.35* Form of Option Agreement Under the Extreme Networks, Inc. 2005 Equity IncentivePlan. 10-K 9/6/2016 10.30 10.36 Debt Commitment Letter, dated as of September 13, 2016, by and between ExtremeNetworks, Inc. and Silicon Valley Bank. 8-K 9/15/2016 10.1 10.37 Amended and Restated Credit Agreement, dated as of October 28, 2016, by and amongthe Company, as borrower, the several banks and other financial institutions or entitiesparty thereto as lenders, and Silicon Valley Bank, as administrative agent and collateralagent. 10-Q 11/2/2016 10.4 10.38 First Amendment to the Amended and Restated Credit Agreement, dated as of March 2,2017, by and among the Company, as borrower, the several banks and other financialinstitutions or entities party thereto as lenders, and Silicon Valley Bank, asadministrative agent and collateral agent. 10-Q 5/4/2017 10.1 10.39 Second Amendment to the Amended and Restated Credit Agreement, dated as of July 14,2017, by and among the Company, as borrower, the several banks and other financialinstitutions or entities party thereto as lenders, and Silicon Valley Bank, asadministrative agent and collateral agent. 8-K 7/18/2017 10.1 10.40 Sublease Agreement, dated February 3, 2017, by and between the Company as sub-landlord and Yangtze Memory Technologies, Inc. as sub-tenant. 10-Q 5/4/2017 10.2 10.41 Lease for property at 6480 Via Del Oro, San Jose, California, dated August 24, 1998between Sobrato Land Holding, a California limited partnership ("SLH") and SymbolTechnologies, Inc., a Delaware corporation ("Symbol"), as amended by a FirstAmendment to Lease and Second Amendment to Lease both dated August 13, 1999between SLH and Symbol, a Joinder signed by Motorola, Inc., a Delaware corporation("Motorola") dated effective as of January 9, 2007, a Third Amendment to Lease datedApril 8, 2008 between SLH, as the landlord, and Symbol and Motorola as the tenant, anda Fourth Amendment to Lease dated November 22, 2011 between Landlord, as thelandlord, and Symbol and Motorola, as the tenant and assigned to Extreme Networks Inc.on October 28, 2016. X10.42* Form of 2017 restricted stock unit award agreement under Extreme Networks, Inc. 2013Equity Incentive Plan. X21.1 Subsidiaries of Registrant. X23.1 Consent of KPMG LLP, Independent Registered Public Accounting Firm. X24.1 Power of Attorney (see the signature page of this Form 10-K). X31.1 Section 302 Certification of Chief Executive Officer. X31.2 Section 302 Certification of Chief Financial Officer. X32.1** Section 906 Certification of Chief Executive Officer. X32.2** Section 906 Certification of Chief Financial Officer. X *Indicates management or board of directors contract or compensatory plan or arrangement.**Pursuant to Rule 406T of Regulation S-T, these interactive data files are furnished and not filed or a part of a registration statement or prospectus forpurposes of sections 11 or 12 of the Securities Act of 1933, as amended; are deemed not filed for purposes of section 18 of the Securities Exchange Actof 1934, as amended; and otherwise are not subject to liability under these sections. 100Exhibit 10.21EXTREME NETWORKS, INC.NOTICE OF GRANT OF PERFORMANCE STOCK UNITS(For U.S. Participants) Extreme Networks, Inc. (the “Company”) has granted to the Participant an award (the “Award”) of certain units pursuant to the Extreme Networks, Inc. 2013Equity Incentive Plan (the “Plan”), each of which represents the right to receive on the applicable Settlement Date one (1) share of Stock on the terms andconditions set forth herein and in the Performance Stock Units Agreement attached hereto (the “Award Agreement”) and the Plan, which are incorporatedherein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Grant Notice and the AwardAgreement. Participant: %%FIRST_NAME%-%%%LAST_NAME%-%Employee ID:%%EMPLOYEE_IDENTIFIER%-%Date of Grant: %%OPTION_DATE%-%Target Number of Units: %%TOTAL_SHARES_GRANTED%-%, subject to adjustment as provided by the Award Agreement.Target Number of StockPrice Units: One half of the Target Number of Units shall be “Stock Price Units” and shall be earned and vest based on the price of theStock, as set forth below.Target Number of TSRUnits: One half of the Target Number of Units shall be “TSR Units” and shall be earned and vest based on the Company’s relativetotal stockholder return, as set forth below.Performance Period: Subject to Section 8.1 of the Award Agreement, the period beginning May 4, 2017 and ending May 4, 2020.Earned Units: Stock Price Units: The number of Stock Price Units that become Earned Units, if any, shall be determined as follows:● 1/3rd of the Target Number of Stock Price Units shall become Earned Units if the Company’s Ending Average StockPrice is at least $8.96 but less than $11.63;● 2/3rds of the Target Number of Stock Price Units shall become Earned Units if the Company’s Ending AverageStock Price is at least $11.63 but less than $13.15;● 100% of the Target Number of Stock Price Units shall become Earned Units if the Company’s Ending AverageStock Price is at least $13.15 but less than $16.56; and● 1 and 1/3rds times the Target Number of Stock Price Units shall become Earned Units if the Company’s EndingAverage Stock Price equals or exceeds $16.56.For the purposes of this Award Agreement, the Company’s “Ending Average Stock Price” shall mean the average adjustedclosing stock price of the Stock for the 90 calendar days ending as of the last day of the Performance Period.TSR Units: The number of TSR Units that become Earned Units, if any, shall equal the product of the Target Number of TSR Units andthe “Performance Multiplier”, calculated in accordance with Appendix A.Vested Units: Except as provided in the Award Agreement or a Superseding Agreement and provided that the Participant’s Service hasnot terminated prior to the Certification Date (as defined in the Award Agreement), the Earned Units for the PerformancePeriod (if any) shall become Vested Units on the Certification Date. Except as provided in the Award Agreement, any Unitsthat do not become Vested Units on the Certification Date shall be forfeited and cancelled for no consideration.Settlement Date: Except as otherwise provided by the Award Agreement, for each Vested Unit, the day of, or as soon as practicablefollowing, the Certification Date, but in any event no later than March 15, 2021.Superseding Agreement:  By the Company’s authorized signature below and the Participant’s by electronic acceptance in a form authorized by the Company, the Company and theParticipant agree that the Award is governed by this Grant Notice and by the provisions of the Award Agreement and the Plan, both of which are made a partof this document, and by the Superseding Agreement, if any. The Participant acknowledges that copies of the Plan, the Award Agreement and the prospectusfor the Plan are available on the Company’s internal web site and may be viewed and printed by the Participant for attachment to the Participant’s copy ofthis Grant Notice. The Participant represents that the Participant has read and is familiar with the provisions of the Award Agreement and the Plan, andhereby accepts the Award subject to all of their terms and conditions. EXTREME NETWORKS, INC. 6480 Via Del Oro San Jose, California 95119 ATTACHMENTS: 2013 Equity Incentive Plan, as amended to the Date of Grant; Performance Stock Units Agreement and Plan Prospectus 2 EXTREME NETWORKS, INC.PERFORMANCE STOCK UNITS AGREEMENT(For U.S. Participants) Extreme Networks, Inc. has granted to the Participant named in the Notice of Grant of Performance Stock Units (the “GrantNotice”) to which this Performance Stock Units Agreement (the “Agreement”) is attached an Award consisting of Performance StockUnits (each a “Unit”) subject to the terms and conditions set forth in the Grant Notice and this Agreement. The Award has beengranted pursuant to and shall in all respects be subject to the terms and conditions of the Extreme Networks, Inc. 2013 Equity IncentivePlan (the “Plan”), as amended to the Date of Grant, the provisions of which are incorporated herein by reference. By signing theGrant Notice, the Participant: (a) acknowledges receipt of and represents that the Participant has read and is familiar with the GrantNotice, this Agreement, the Plan and a prospectus for the Plan prepared in connection with the registration with the Securities andExchange Commission of the shares issuable pursuant to the Award (the “Plan Prospectus”), (b) accepts the Award subject to all ofthe terms and conditions of the Grant Notice, this Agreement and the Plan and (c) agrees to accept as binding, conclusive and final alldecisions or interpretations of the Committee upon any questions arising under the Grant Notice, this Agreement or the Plan.1.Definitions and Construction.1.1Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings assigned tosuch terms in the Grant Notice or the Plan.(a)“Average Closing Index Value” means the average of the daily closing index values of theBenchmark Index for all trading days falling within an applicable 90 calendar day period described in Section 1.1(e).(b)“Average Per Share Closing Price” means the average of the daily closing prices per shareof Stock as reported on the securities exchange constituting the primary market for the Stock for all trading days falling within anapplicable 90 calendar day period described in Section 1.1(d).(c)“Benchmark Index” means the S&P Small Cap 600 Capped Information Technology(sector) index.(d)“Benchmark Index Total Return” means the percentage point increase or decrease in (i) theAverage Closing Index Value for the 90 calendar days ending on the last day of the Performance Period over (ii) the Average ClosingIndex Value for the 90 calendar days ending on the last day immediately preceding the first day of the Performance Period.(e)“Company Total Stockholder Return” means the percentage point increase or decrease in (i)the Average Per Share Closing Price for the 90 calendar days ending on the last day of the Performance Period over (ii) the AveragePer Share Closing Price for the 90 calendar days ending on the last day immediately preceding the first day of the Performance Period.1.2Construction. Captions and titles contained herein are for convenience only and shall not affect themeaning or interpretation of any provision of this Agreement. Except when otherwise indicated by the context, the singular shallinclude the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the contextclearly requires otherwise.2.The Award.2.1Grant of Units. The Company hereby grants to the Participant the Award set forth in the GrantNotice, which, depending on the extent to which a performance goal is attained during the Performance Period, may result in theParticipant earning as little as zero (0) Units or as many as the Maximum Number of Units. Subject to the terms of this Agreement andthe Plan, each Unit, to the extent it is earned and becomes a Vested Unit, represents a right to receive on the applicable Settlement Dateone (1) share of Stock. Unless and until a Unit has been determined to be an Earned Unit and has vested and become a Vested Unit asset forth in the Grant Notice and this Agreement, the Participant will have no right to settlement of such Unit. Prior to settlement of anyearned and vested Units, such Units will represent an unfunded and unsecured obligation of the Company.2.2No Monetary Payment Required. The Participant is not required to make any monetary payment(other than applicable tax withholding, if any) as a condition to receiving the Units or shares of Stock issued upon settlement of theUnits, the consideration for which shall be past services actually rendered or future services to be rendered to a Participating Companyor for its benefit. Notwithstanding the foregoing, if required by applicable law, the Participant shall furnish consideration in the form ofcash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares ofStock issued upon settlement of the Units.3.Committee Certification of Vested Units.3.1Certification of Ending Average Stock Price. As soon as practicable following completion of thePerformance Period, but no later than thirty (30) days following such completion except as provided in Section 8.1, the Committeeshall determine and certify in writing the Ending Average Stock Price and the Performance Multiplier attained for the PerformancePeriod and the resulting number of Units which have become Earned Units (the date of such certification being the “CertificationDate”).3.2Adjustment for Leave of Absence or Part-Time Work. Unless otherwise required by law orCompany policy, if the Participant takes one or more unpaid leaves of absence in excess of thirty (30) days in the aggregate during thePerformance Period, the number of Units which would otherwise become Earned Units for the Performance Period shall be proratedon the basis of the number of days of the Participant’s Service during the Performance Period during which the Participant was not onan unpaid leave of absence. Unless otherwise required by law or Company policy, if the Participant commences working on a part-2 time basis during the Performance Period, the Committee may, in its discretion, reduce on a pro rata basis (reflecting the portion of thePerformance Period worked by the Participant on a full-time equivalent basis) the number of Units which would otherwise becomeEarned Units for the Performance Period, or provide that the number of Units which would otherwise become Earned Units for thePerformance Period shall be reduced as provided by the terms of an agreement between the Participant and the Company pertaining tothe Participant’s part-time schedule.4.Vesting of Units.4.1Normal Vesting. Except as otherwise provided by this Agreement, Earned Units shall vest andbecome Vested Units as provided in the Grant Notice.4.2Effect of Termination of Service upon Vesting. Except as provided by Section 4.4 or a SupersedingAgreement, if any, if the Participant’s Service terminates for any reason, all Units subject to the Award which have not become VestedUnits as of the time of such termination of Service shall be subject to the Company Reacquisition Right (as defined by Section 5.1).4.3Vesting Upon a Change in Control. In the event of a Change in Control, the vesting of Earned Unitsshall be determined in accordance with Section 8.1.4.4Vesting Upon Termination Upon a Change in Control. In the event of the Participant’s“Termination Upon a Change in Control” (as defined by the the Extreme Networks, Inc. Executive Change in Control Severance Plan,as amended or its successor (the “Change in Control Plan”), the vesting of Earned Units subject to a Time-Vesting Unit Award shallbe determined in accordance with Section 8.2.5.Company Reacquisition Right.5.1Grant of Company Reacquisition Right. Except to the extent otherwise provided by Section 4.4 or aSuperseding Agreement, if any, in the event that the Participant’s Service terminates for any reason or no reason, with or withoutcause, the Participant shall forfeit and the Company shall automatically reacquire all Units which are not, as of the time of suchtermination, Vested Units (“Unvested Units”), and the Participant shall not be entitled to any payment therefor (the “CompanyReacquisition Right”).5.2Ownership Change Event, Non-Cash Dividends, Distributions and Adjustments. Upon theoccurrence of an Ownership Change Event, a dividend or distribution to the stockholders of the Company paid in shares of Stock orother property, or any other adjustment upon a change in the capital structure of the Company as described in Section 9, any and allnew, substituted or additional securities or other property (other than regular, periodic cash dividends paid on Stock pursuant to theCompany’s dividend policy) to which the Participant is entitled by reason of the Participant’s ownership of Unvested Units shall beimmediately subject to the Company Reacquisition Right and included in the terms “Units” and “Unvested Units” for all purposes ofthe Company Reacquisition Right with the same force and effect as the Unvested Units immediately prior to the Ownership ChangeEvent, dividend, distribution or adjustment, as the case may be. For purposes of determining the number of Vested Units following anOwnership Change Event, dividend, distribution or adjustment,3 credited Service shall include all Service with any corporation which is a Participating Company at the time the Service is rendered,whether or not such corporation is a Participating Company both before and after any such event.6.Settlement of the Award.6.1Issuance of Shares of Stock. Subject to the provisions of Section 6.3, the Company shall issue to theParticipant on the Settlement Date with respect to each Vested Unit to be settled on such date one (1) share of Stock. The SettlementDate with respect to a Unit shall be the date on which such Unit becomes a Vested Unit as provided by the Grant Notice (an“Original Settlement Date”); provided, however, that if the Original Settlement Date would occur on a date on which a sale by theParticipant of the shares to be issued in settlement of the Vested Units would violate the Trading Compliance Policy of the Company,the Settlement Date for such Vested Units shall be deferred until the next day on which the sale of such shares would not violate theTrading Compliance Policy, but in any event on or before the 15th day of the third calendar month following calendar year of theOriginal Settlement Date. Shares of Stock issued in settlement of Units shall not be subject to any restriction on transfer other than anysuch restriction as may be required pursuant to Section 6.3, Section 7 or the Company’s Trading Compliance Policy.6.2Beneficial Ownership of Shares; Certificate Registration. The Participant hereby authorizes theCompany, in its sole discretion, to deposit any or all shares acquired by the Participant pursuant to the settlement of the Award with theCompany’s transfer agent, including any successor transfer agent, to be held in book entry form, or to deposit such shares for thebenefit of the Participant with any broker with which the Participant has an account relationship of which the Company hasnotice. Except as provided by the foregoing, a certificate for the shares acquired by the Participant shall be registered in the name ofthe Participant, or, if applicable, in the names of the heirs of the Participant.6.3Restrictions on Grant of the Award and Issuance of Shares. The grant of the Award and issuanceof shares of Stock upon settlement of the Award shall be subject to compliance with all applicable requirements of federal, state orforeign law with respect to such securities. No shares of Stock may be issued hereunder if the issuance of such shares would constitutea violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stockexchange or market system upon which the Stock may then be listed. The inability of the Company to obtain from any regulatorybody having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance of anyshares subject to the Award shall relieve the Company of any liability in respect of the failure to issue such shares as to which suchrequisite authority shall not have been obtained. As a condition to the settlement of the Award, the Company may require theParticipant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law orregulation and to make any representation or warranty with respect thereto as may be requested by the Company.6.4Fractional Shares. The Company shall not be required to issue fractional shares upon the settlementof the Award.4 7.Tax Withholding.7.1In General. At the time the Grant Notice is executed, or at any time thereafter as requested by aParticipating Company, the Participant hereby authorizes withholding from payroll and any other amounts payable to the Participant,and otherwise agrees to make adequate provision for, any sums required to satisfy the federal, state, local and foreign tax (includingany social insurance) withholding obligations of the Participating Company, if any, which arise in connection with the Award, thevesting of Units or the issuance of shares of Stock in settlement thereof. The Company shall have no obligation to deliver shares ofStock until the tax withholding obligations of the Participating Company have been satisfied by the Participant.7.2Assignment of Sale Proceeds. Subject to compliance with applicable law and the Company’s TradingCompliance Policy, if permitted by the Company, the Participant may satisfy the Participating Company’s tax withholding obligationsin accordance with procedures established by the Company providing for delivery by the Participant to the Company or a brokerapproved by the Company of properly executed instructions, in a form approved by the Company, providing for the assignment to theCompany of the proceeds of a sale with respect to some or all of the shares being acquired upon settlement of Units.7.3Withholding in Shares. The Company shall have the right, but not the obligation, to require theParticipant to satisfy all or any portion of a Participating Company’s tax withholding obligations by deducting from the shares of Stockotherwise deliverable to the Participant in settlement of the Award a number of whole shares having a fair market value, as determinedby the Company as of the date on which the tax withholding obligations arise, not in excess of the amount of such tax withholdingobligations determined by the applicable minimum statutory withholding rates.8.Effect of Change in Control.In the event of a Change in Control, this Section 8 shall determine the treatment of the Units whichhave not otherwise become Vested Units. 8.1 Effect of Change in Control on Award. In the event of a Change in Control that occurs followingthe end of the Performance Period, the number of Earned Units shall, if not previously certified by the Committee inaccordance with Section 3.1 and settled in accordance with Section 6, be determined and certified by the Committee inaccordance with Section 3.1 and settled in accordance with Section 6 prior to the effective time of the Change inControl. In the event of a Change in Control that occurs prior to the end of the Performance Period, the PerformancePeriod shall be deemed to end on the day immediately preceding the Change in Control (the “Adjusted PerformancePeriod”), and the number of Earned Units and the vesting thereof shall be determined for the Adjusted PerformancePeriod in accordance with the following: (a) Earned Units. The Committee shall determine and certify in writing no later than the dayimmediately preceding the Change in Control the number of Earned Units for the Adjusted Performance Period, providedthat:5 (i) for the Stock Price Units, the Ending Average Stock Price shall be deemed to bethe price per share of Stock to be paid to the holder thereof in accordance with the definitive agreementgoverning the transaction constituting the Change in Control (or, in the absence of such agreement, the closingprice per share of Stock on the last trading day of the Adjusted Performance Period as reported on thesecurities exchange constituting the primary market for the Stock) (the “Transaction Price”); and(ii) for the TSR Units, (A) the Company Total Stockholder Return shall bedetermined as provided by Section 1.1, except that the Average Share Closing Price for the 90 calendar daysending on the last day of the Adjusted Performance Period shall be replaced with the Transaction Price and (B)the Benchmark Index Total Return shall be determined as provided by Section 1.1, except that the AverageClosing Index Value shall be determined for the 90 calendar days ending on the last market trading day of theAdjusted Performance Period. Immediately following the Committee’s determination pursuant to this Section 8.1(a), all Units subject to the Award whichare not Earned Units (the “Unearned Units”) shall terminate and the Award, to the extent of the Unearned Units, shallcease to be outstanding. (b) Vested Units. As of the last day of the Adjusted Performance Period and provided thatthe Participant’s Service has not terminated prior to such date, except as otherwise provided by a SupersedingAgreement, a portion of the Earned Units determined in accordance with Section 8.1(a) shall become Vested Units (the“Accelerated Units”), with such portion determined by multiplying the total number of Earned Units by a fraction, thenumerator of which equals the number of days contained in the Adjusted Performance Period and the denominator ofwhich equals the number of days contained in the original Performance Period determined without regard to this Section.The Accelerated Units shall be settled in accordance Section 6 immediately prior to the effective time of the Change inControl. (c) Unvested Units. Except as otherwise provided by Section 8.2, with respect to eachAdjusted Performance Period, that portion of the Earned Units determined in accordance with Section 8.1(a) in excess ofthe number of Accelerated Units (such excess portion, a “Time-Vesting Unit Award”) shall become Vested Units inequal monthly installments determined from the effective date of the Change in Control (each of which shall be a“Vesting Date” for this purpose) over the remainder of the original Performance Period determined without regard to thisSection, provided that the Participant’s Service has not terminated prior to the applicable Vesting Date. The Units subjectto the Time-Vesting Unit Award which become Vested Units shall be settled on the applicable Settlement Date inaccordance with Section 6, provided that payment for each Vested Unit shall be made in the amount and in the form ofthe consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a shareof Stock on the effective date of the Change in Control was entitled (and if holders were offered a choice ofconsideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Stock). For thepurposes of this Section 8.1(c), the Settlement Date shall occur upon or as soon as practicable following the applicableVesting Date, but in any event no later than the 15th day of the third calendar month following the end of the calendaryear in which the Vesting Date occurs.6 8.2 Involuntary Termination Following Change in Control. This Section 8.2 shall apply only if theParticipant is a participant in the Change in Control Plan. In the event that the Participant’s Service terminates due to“Termination Upon a Change in Control” (as such term or similar term is defined by the Change in Control Plan), then thevesting of each Time-Vesting Unit Award determined in accordance with Section 8.1(c) shall be accelerated, and theUnits subject to such Time-Vesting Unit Award shall become Vested Units to the extent provided by the Change inControl Plan and the Participant’s Participation Agreement in such plan effective as of the date of the Participant’stermination of Service. Consistent with Section 8.1(a) and notwithstanding any provision of the Change in Control Planor such Participation Agreement to the contrary, the provisions of the Change in Control Plan shall not apply to theUnearned Units, with respect to which the Award will have ceased to be outstanding as of the Change in Control. TheVested Units determined in accordance with this Section 8.2 shall be settled in accordance with Section 6, treating thedate of the Participant’s termination of Service as the Vesting Date, provided that payment for each Vested Unit shall bemade in the amount and in the form of the consideration (whether stock, cash, other securities or property or acombination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled(and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of theoutstanding shares of Stock). For the purposes of this Section 8.2, the Settlement Date shall occur upon or as soon aspracticable following the Vesting Date, but in any event no later than the 15th day of the third calendar month followingthe end of the calendar year in which the Vesting Date occurs.9.Adjustments for Changes in Capital Structure.Subject to any required action by the stockholders of the Company and the requirements of Section 409A of theCode to the extent applicable, in the event of any change in the Stock effected without receipt of consideration by the Company,whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split,reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure ofthe Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock(other than regular, periodic cash dividends paid on Stock pursuant to the Company’s dividend policy) that has a material effect on theFair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number of Units subject to theAward and/or the number and kind of shares or other property to be issued in settlement of the Award, in order to prevent dilution orenlargement of the Participant’s rights under the Award. For purposes of the foregoing, conversion of any convertible securities of theCompany shall not be treated as “effected without receipt of consideration by the Company.” Any and all new, substituted oradditional securities or other property (other than regular, periodic cash dividends paid on Stock pursuant to the Company’s dividendpolicy) to which the Participant is entitled by reason of ownership of Units acquired pursuant to this Award will be immediately subjectto the provisions of this Award on the same basis as all Units originally acquired hereunder. Any fractional Unit or share resultingfrom an adjustment pursuant to this Section shall be rounded down to the nearest whole number. Such adjustments shall be determinedby the Committee, and its determination shall be final, binding and conclusive.7 10.Rights as a Stockholder, Director, Employee or Consultant.The Participant shall have no rights as a stockholder with respect to any shares which may be issued in settlementof this Award until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of aduly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which therecord date is prior to the date the shares are issued, except as provided in Section 9. If the Participant is an Employee, the Participantunderstands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a ParticipatingCompany and the Participant, the Participant’s employment is “at will” and is for no specified term. Nothing in this Agreement shallconfer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any right of theParticipating Company Group to terminate the Participant’s Service at any time.11.Legends.The Company may at any time place legends referencing any applicable federal, state or foreign securities lawrestrictions on all certificates representing shares of stock issued pursuant to this Agreement. The Participant shall, at the request of theCompany, promptly present to the Company any and all certificates representing shares acquired pursuant to this Award in thepossession of the Participant in order to carry out the provisions of this Section.12.Compliance with Section 409A.It is intended that any election, payment or benefit which is made or provided pursuant to or in connection withthis Award that may result in Section 409A Deferred Compensation shall comply in all respects with the applicable requirements ofSection 409A (including applicable regulations or other administrative guidance thereunder, as determined by the Committee in goodfaith) to avoid the unfavorable tax consequences provided therein for non‑compliance. In connection with effecting such compliancewith Section 409A, the following shall apply:12.1Separation from Service; Required Delay in Payment to Specified Employee. Notwithstandinganything set forth herein to the contrary, no amount payable pursuant to this Agreement on account of the Participant’s termination ofService which constitutes a “deferral of compensation” within the meaning of the Treasury Regulations issued pursuant to Section409A of the Code (the “Section 409A Regulations”) shall be paid unless and until the Participant has incurred a “separation fromservice” within the meaning of the Section 409A Regulations. Furthermore, to the extent that the Participant is a “specified employee”within the meaning of the Section 409A Regulations as of the date of the Participant’s separation from service, no amount thatconstitutes a deferral of compensation which is payable on account of the Participant’s separation from service shall be paid to theParticipant before the date (the “Delayed Payment Date”) which is first day of the seventh month after the date of the Participant’sseparation from service or, if earlier, the date of the Participant’s death following such separation from service. All such amounts thatwould, but for this Section, become payable prior to the Delayed Payment Date will be accumulated and paid on the Delayed PaymentDate.8 12.2Other Changes in Time of Payment. Neither the Participant nor the Company shall take any actionto accelerate or delay the payment of any benefits under this Agreement in any manner which would not be in compliance with theSection 409A Regulations.12.3Amendments to Comply with Section 409A; Indemnification. Notwithstanding any otherprovision of this Agreement to the contrary, the Company is authorized to amend this Agreement, to void or amend any election madeby the Participant under this Agreement and/or to delay the payment of any monies and/or provision of any benefits in such manner asmay be determined by the Company, in its discretion, to be necessary or appropriate to comply with the Section 409A Regulationswithout prior notice to or consent of the Participant. The Participant hereby releases and holds harmless the Company, its directors,officers and stockholders from any and all claims that may arise from or relate to any tax liability, penalties, interest, costs, fees or otherliability incurred by the Participant in connection with the Award, including as a result of the application of Section 409A.12.4Advice of Independent Tax Advisor. The Company has not obtained a tax ruling or otherconfirmation from the Internal Revenue Service with regard to the application of Section 409A to the Award, and the Company doesnot represent or warrant that this Agreement will avoid adverse tax consequences to the Participant, including as a result of theapplication of Section 409A to the Award. The Participant hereby acknowledges that he or she has been advised to seek the advice ofhis or her own independent tax advisor prior to entering into this Agreement and is not relying upon any representations of theCompany or any of its agents as to the effect of or the advisability of entering into this Agreement.13.Miscellaneous Provisions.13.1Administration. All questions of interpretation concerning the Grant Notice, this Award Agreement,the Plan or any other form of agreement or other document employed by the Company in the administration of the Plan or the Awardshall be determined by the Committee. All such determinations by the Committee shall be final, binding and conclusive upon allpersons having an interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinationstaken or made by the Committee in the exercise of its discretion pursuant to the Plan or the Award or other agreement thereunder (otherthan determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all personshaving an interest in the Award. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right,obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparentauthority with respect to such matter, right, obligation, or election.13.2Termination or Amendment. The Committee may terminate or amend the Plan or this Agreementat any time; provided, however, that except as provided in Section 8 in connection with a Change in Control, no such termination oramendment may have a materially adverse effect on the Participant’s rights under this Agreement without the consent of the Participantunless such termination or amendment is necessary to comply with applicable law or government regulation, including, but not limitedto, Section 409A. No amendment or addition to this Agreement shall be effective unless in writing.9 13.3Nontransferability of the Award. Prior to the issuance of shares of Stock on the applicableSettlement Date, neither this Award nor any Units subject to this Award shall be subject in any manner to anticipation, alienation, sale,exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary,except transfer by will or by the laws of descent and distribution. All rights with respect to the Award shall be exercisable during theParticipant’s lifetime only by the Participant or the Participant’s guardian or legal representative.13.4Further Instruments. The parties hereto agree to execute such further instruments and to take suchfurther action as may reasonably be necessary to carry out the intent of this Agreement.13.5Binding Effect. This Agreement shall inure to the benefit of the successors and assigns of theCompany and, subject to the restrictions on transfer set forth herein, be binding upon the Participant and the Participant’s heirs,executors, administrators, successors and assigns.13.6Delivery of Documents and Notices. Any document relating to participation in the Plan or anynotice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that thisAgreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery at the e-mailaddress, if any, provided for the Participant by a Participating Company, or upon deposit in the U.S. Post Office or foreign postalservice, by registered or certified mail, or with a nationally recognized overnight courier service, with postage and fees prepaid,addressed to the other party at the address of such party set forth in the Grant Notice or at such other address as such party maydesignate in writing from time to time to the other party.(a)Description of Electronic Delivery. The Plan documents, which may include but do notnecessarily include: the Plan, the Grant Notice, this Agreement, the Plan Prospectus, and any reports of the Company providedgenerally to the Company’s stockholders, may be delivered to the Participant electronically. In addition, if permitted by the Company,the Participant may deliver electronically the Grant Notice to the Company or to such third party involved in administering the Plan asthe Company may designate from time to time. Such means of electronic delivery may include but do not necessarily include thedelivery of a link to a Company intranet or the Internet site of a third party involved in administering the Plan, the delivery of thedocument via e-mail or such other means of electronic delivery specified by the Company.(b)Consent to Electronic Delivery. The Participant acknowledges that the Participant has readSection 13.6(a) of this Agreement and consents to the electronic delivery of the Plan documents and, if permitted by the Company, thedelivery of the Grant Notice, as described in Section 13.6(a). The Participant acknowledges that he or she may receive from theCompany a paper copy of any documents delivered electronically at no cost to the Participant by contacting the Company by telephoneor in writing. The Participant further acknowledges that the Participant will be provided with a paper copy of any documents if theattempted electronic delivery of such documents fails. Similarly, the Participant understands that the Participant must provide theCompany or any designated third party administrator with a10 paper copy of any documents if the attempted electronic delivery of such documents fails. The Participant may revoke his or herconsent to the electronic delivery of documents described in Section 13.6(a) or may change the electronic mail address to which suchdocuments are to be delivered (if Participant has provided an electronic mail address) at any time by notifying the Company of suchrevoked consent or revised e-mail address by telephone, postal service or electronic mail. Finally, the Participant understands that he orshe is not required to consent to electronic delivery of documents described in Section 13.6(a).13.7Integrated Agreement. The Grant Notice, this Agreement and the Plan, together with the Change inControl Plan and the Superseding Agreement, if any, shall constitute the entire understanding and agreement of the Participant and theParticipating Company Group with respect to the subject matter contained herein or therein and supersede any prior agreements,understandings, restrictions, representations, or warranties among the Participant and the Participating Company Group with respect tosuch subject matter. To the extent contemplated herein or therein, the provisions of the Grant Notice, this Agreement and the Planshall survive any settlement of the Award and shall remain in full force and effect.13.8Applicable Law. This Agreement shall be governed by the laws of the State of California as suchlaws are applied to agreements between California residents entered into and to be performed entirely within the State of California.13.9Counterparts. The Grant Notice may be executed in counterparts, each of which shall be deemed anoriginal, but all of which together shall constitute one and the same instrument. 11 APPENDIX A TSR UNITSILLUSTRATION OF PERFORMANCE MULTIPLIER AND RESULTING NUMBER OF EARNED UNITS Percentage Point Difference of Company Total Stockholder Return Over/Underthe Benchmark Index Total ReturnPerformance Differential (Percentage PointDifference of Company Total Stockholder Return Over/Underthe Sum of theBenchmark Index Total Return and 25Percentage Points)Performance Multiplier*Earned Units (Per 1,000 Target TSR Units)40%15.0130.0%1,30035%10.0130.0%1,30030%5.0115.0%1,15029%4.0112.0%1,12028%3.0109.0%1,09027%2.0106.0%1,06026%1.0103.0%1,03025.5%0.5101.5%1,01525.1%0.1100.3%1,00325%0100.0%1,00024.9%-0.199.6%99624.5%-0.598.0%98024%-1.096.0%96023%-2.092.0%92022%-3.088.0%88021%-4.084.0%84020%-5.080.0%80015%-10.060.0%60010%-15.040.0%4005%-20.020.0%2000%-25.00.0%0-5%-30.00.0%0 *Notwithstanding the applicable performance multiplier as set forth above, for purposes of the calculation of Earned Units, in the eventthat the Company Total Stockholder Return is negative, the maximum number of TSR Units that shall become Earned Units shall notexceed the Target Number of TSR Units as set forth in the Award Agreement. **Linear interpolation will be used to determine the Performance Multiplier for percentage point differences achieved between thevalues listed in the Percentage Point Difference of Company Total Stockholder Return Over/Under the Benchmark Index Total Returncolumn, provided that the Performance Multiplier for a percentage point difference less than 0% shall be zero and in no event shall thePerformance Multiplier be in excess of 130%.12 ILLUSTRATIONS OF CALCULATION OF EARNED UNITSPER 1,000 TARGET TSR UNITS Company Total Stockholder Return Exceeds Target of Benchmark Index Total Return + 25% Assumptions: Extreme Networks, Inc.: Average Per Share Closing Price (beginning) $10.00 Average Per Share Closing Price (ending) $15.00 S&P Small Cap 600 IT Index: Average Closing Index Value (beginning) 500.00 Average Closing Index Value (ending) 600.00 Computations: Company Total Stockholder Return((15.00 / 10.00) - 1) x 10050.0%Benchmark Index Total Return((600 / 500) - 1) x 10020.0%Performance Multiplier100 + (3 x (50.0 – 20.0 – 25.0))115.0%Earned Units1,000 x 115.0%1,150 Company Total Stockholder Return Is Less Than Target of Benchmark Index Total Return + 25% Assumptions: Extreme Networks, Inc.: Average Per Share Closing Price (beginning) $10.00 Average Per Share Closing Price (ending) $13.00 S&P Small Cap 600 IT Index: Average Closing Index Value (beginning) 500.00 Average Closing Index Value (ending) 600.00 Computations: Company Total Stockholder Return((13 / 10.00) - 1) x 10030.0%Benchmark Index Total Return((600 / 500) - 1) x 10020.0%Performance Multiplier100 + (4 x (30.0 – 20.0 – 25.0)40.0%Earned Units1,000 x 40.0%400 13Exhibit 10.33Compensation Arrangements for FY 18 of Executive Officers of Extreme Networks, Inc. Note: The following summary of compensation arrangements does not include all previously-reported compensation arrangements or awards grantedunder previously-disclosed incentive plans. Disclosures with respect to compensation for Named Executive Officers for the 2017 fiscal year will be includedin the Company's definitive proxy statement for the Company's 2017 Annual Meeting of Stockholders, and disclosures with respect to compensation forNamed Executive Officers for the 2018 fiscal year will be included in the Company's definitive proxy statement for the Company's 2018 Annual Meeting ofStockholders.Compensation for Edward Meyercord (Chief Executive Officer) Mr. Meyercord’s current annual base salary is $625,000. In addition, Mr. Meyercord will be eligible to participate in the Company's FY18 ExtremeIncentive Plan (as described below) with a bonus target of 130% as a percentage of base salary. On August 23, 2017, Mr. Meyercord was granted 219,828performance-based restricted stock unit awards and 142,552 service-based restricted stock unit awards under the Company's equity incentive plan as part ofhis fiscal year 2018 compensation.Compensation for Benjamin Drew Davies (Chief Financial Officer) Mr. Davies' current annual base salary is $400,000. In addition, Mr. Davies will be eligible to participate in the Company's FY18 Extreme Incentive Plan(as described below) with a bonus target of 65% as a percentage of base salary. On August 23, 2017, Mr. Davies was granted 48,491 performance-basedrestricted stock unit awards and 48,491 service-based restricted stock unit awards under the Company's equity incentive plan as part of his fiscal year 2018compensation.Compensation for Robert Gault Mr. Gault’s current annual base salary is $410,000. In addition, Mr. Gault will be eligible to participate in the Company's FY18 Extreme Incentive Plan(as described below) with a bonus target of 100% as a percentage of base salary. On August 23, 2017, Mr. Gault was granted 48,491 performance-basedrestricted stock unit awards and 48,491 service-based restricted stock unit awards under the Company's equity incentive plan as part of his fiscal year 2018compensation.Extreme Incentive Plan FY18 On August 23, 2017, the Compensation Committee of the Board of Directors approved the Extreme Incentive Plan for fiscal 2018. The plan provides thecompany’s executive officers with the opportunity to earn cash bonuses based upon the achievement of pre-established performance goals. Total bonusopportunities will be based on achievement of semi-annual targets. Performance goals under the plan will be: revenue (25%) and operating income (25%) andnon-GAAP operating income (50%). Actual payout opportunities for each semi-annual bonus payment will range from a threshold of 50% of target to amaximum of 150% of target. If the company fails to achieve the threshold level for any performance measure, no payout is awarded for that measure. Forpurposes of determining achievement of award opportunities, the Extreme Incentive Plan uses adjusted, non-GAAP measures. Exhibit 10.41 10600 North De Anza Blvd. 408.446.0700Suite 200 Facsimile: 408.446.0583Cupertino, CA 95014-2075 www.sobrato.com Lease betweenSobrato Land Holdings and Symbol Technologies, Inc. Parties 1Premises 1Premises and Project Defined 1Adjustment based on Final Square Footage 1Use 1Permitted Uses 1Uses Prohibited 1Advertisements and Signs 1Covenants, Conditions and Restrictions 2Term and Rental 2Base Monthly Rent 2Rental Adjustment 2Late Charges 2Security Deposit 2Construction 3Building Shell Construction 3Tenant Improvement Plans 3Final Pricing 4Change Orders 4Building Shell Costs 4Tenant Improvement Costs 5Construction 5Tenant Delays 5Insurance 5Punch List & Warranty 5Other Work by Tenant 6Landlord’s Failure to Complete Construction 6Expansion of the Building 6Acceptance of Possession and Covenants to Surrender 6Delivery and Acceptance 6Condition Upon Surrender 7Failure to Surrender 7Alterations and Additions 7Tenant’s Alterations 7Free From Liens 8Compliance With Governmental Regulations 8  Maintenance of Premises 8Landlord’s Obligations 8Tenant’s Obligations 8Landlord and Tenant’s Obligations Regarding Reimbursable Operating Costs/Audits 8Reimbursable Operating Costs 9Tenant’s Allocable Share 9Waiver of Liability 9Hazard Insurance 10Tenant’s Use 10Landlord’s Insurance 10Tenant’s Insurance 10Waiver 10Taxes 10Utilities 11Toxic Waste and Environmental Damage 11Tenant’s Responsibility 11Tenant’s Indemnity Regarding Hazardous Materials 11Actual Release by Tenant 12Environmental Monitoring 12Tenant’s Default 12Remedies 13Right to Re-enter 13Abandonment 13Non-Waiver 13Performance by Landlord 14Habitual Default 14Landlord’s Liability 14Limitation on Landlord’s Liability 14Limitation on Tenant’s Recourse 14Indemnification of Landlord 14Destruction of Premises 15Landlord’s Obligation to Restore 15Limitations on Landlord’s Restoration Obligation 15Condemnation 15Assignment or Sublease 15Consent by Landlord 15Assignment or Subletting Consideration 16No Release 16Reorganization of Tenant 16Permitted Transfers 17Effect of Default 17Effects of Conveyance 17Successors and Assigns 17Option to Extend the Lease Term 17Grant and Exercise of Option 17Determination of Fair Market Rental 18Resolution of a Disagreement over the Fair Market Rental 18Personal to Tenant 18General Provisions 19Attorney’s Fees 19Authority of Parties 19 Page ii Brokers 19Choice of Law 19Dispute Resolution 19Entire Agreement 20Entry by Landlord 20Estoppel Certificates 20Exhibits 20Interest 20Modifications Required by Lender 20No Presumption Against Drafter 20Notices 21Property Management 21Rent 21Representations 21Rights and Remedies 21Severability 21Submission of Lease 21Subordination 21Survival of Indemnities 22Time 22Waiver of Right to Jury Trial 22EXHIBIT A - Premises, Building & Project 24EXHIBIT B-2 - Shell Plans and Specifications 25EXHIBIT C - Building Shell Definition 26EXHIBIT D - Tenant Improvement Plans and Specifications 28EXHIBIT E - Tenant’s Antenna 29 Page iii1. PARTIES: THIS LEASE, is entered into on this _____ day of August,1998, (“Effective Date”) between SOBRATO LAND HOLDINGS, aCalifornia Limited Partnership, whose address is 10600 North De AnzaBoulevard, Suite 200, Cupertino, CA 95014 and SYMBOLTECHNOLOGIES, INC., a Delaware Corporation, whose address is OneSymbol Plaza, Holtsville, NY 11742-1300, hereinafter called respectivelyLandlord and Tenant.2.PREMISES:A. Premises and Project Defined: Landlord hereby leases to Tenant,and Tenant hires from Landlord those certain Premises with theappurtenances, situated in the City of San Jose, County of Santa Clara,State of California, consisting of a two story building to be constructed byLandlord consisting of 100,000 rentable square feet (“Building”)(potentially expandable by Tenant as provided in Section 5.N below to130,000 sf) including parking for approximately 350 cars (potentiallyexpandable to 455 cars) in the location shown on Exhibit “A”. ThePremises are located within that certain Project which will consist of severaladditional buildings to be constructed by Landlord of similar design andquality to that constructed for Tenant on the ±23 acre site at the northwestcorner of San Ignacio Avenue and Via Del Oro as outlined on Exhibit Atogether with all improvements located therein including but not limited tobuildings, parking areas and structures, landscaping, loading docks,sidewalks, service areas and other facilities. Unless expressly providedotherwise, the term Premises as used herein shall include the TenantImprovements (defined in Section 5.B) constructed by Tenant pursuant toSection 5.B. Tenant acknowledges Landlord’s right to and hereby consentsto construction of additional buildings within the Project andacknowledges Landlord may modify the building sizes and locations of theadditional buildings from that shown in Exhibit “A”.B. Adjustment based on Final Square Footage: Upon SubstantialCompletion of the Building Shell, the Building shall be measured (fromoutside wall to outside wall including all areas covered by a structuralroof), and if the actual square footage differs from the amount stated above,the Base Monthly Rent hereunder shall be adjusted to the product bymultiplying One and 35/100 Dollars ($1.35) by the actual rentable squarefeet of the Building and the Work Allowance shall be adjusted to theproduct obtained by multiplying Thirty Two and No/100 dollars ($32.00)by the actual rentable square feet of the Building.3.USE:A. Permitted Uses: Tenant shall use the Premises only for the followingpurposes and shall not change the use of the Premises without the priorwritten consent of Landlord: Office, research and development, marketing,light manufacturing, ancillary storage and other incidental uses. Tenantshall use only the number of parking spaces allocated to Tenant. All trucksand delivery vehicles shall (i) be parked at the rear of the Building, (ii)loaded and unloaded in a manner which does not interfere with thebusinesses of other occupants of the Project, and (iii) permitted to remainon the Project only so long as is reasonably necessary to complete theloading and unloading. Landlord makes no representation or warranty thatany specific use of the Premises desired by Tenant is permitted pursuant toany Laws.B. Uses Prohibited: Tenant shall not commit or suffer to be committedon the Premises any waste, nuisance, or other act or thing which maydisturb the quiet enjoyment of any other tenant in or around the Premises,nor allow any sale by auction or any other use of the Premises for anunlawful purpose. Tenant shall not (i) damage or overload the electrical,mechanical or plumbing systems of the Premises, (ii) attach, hang orsuspend anything from the ceiling, walls or columns of the building or setany load on the floor in are designed, or (iii) generate dust, fumes or wasteproducts which create a fire or health hazard or damage the Premises or inthe soils surrounding the Building. No materials, supplies, equipment,finished products or semi-finished products, raw materials or articles of anynature, or any waste materials, refuse, scrap or debris, shall be stored uponor permitted to remain on any portion of the Premises outside of theBuilding and no unsightly operations or activities shall be permittedoutside of the Building. Landlord agrees to incorporated this Section 2.Binto the leases for all tenants within the Project.C. Advertisements and Signs: Tenant will not place or permit to beplaced, in, upon or about the Premises any signs not approved by the cityor other governing authority. Tenant will not place or permit to be placedupon the Premises any signs, advertisements or notices without the writtenconsent of Landlord as to type, size, design, lettering, coloring andlocation, which consent will not be unreasonably withheld. Any signplaced on the Premises shall be removed by Tenant, at its sole cost, prior tothe Expiration Date or promptly following the earlier termination of thelease, and Tenant shall repair, at its sole cost, any damage or injury to thePremises caused thereby, and if not so removed, then Landlord may havesame so removed at Tenant’s expense. Page 1D. Covenants, Conditions and Restrictions: This Lease is subject tothe effect of (i) any covenants, conditions, restrictions, easements,mortgages or deeds of trust, ground leases, rights of way of record and anyother matters or documents of record; and (ii) any zoning laws of the city,county and state where the Building is situated (collectively referred toherein as “Restrictions”) and Tenant will conform to and will not violatethe terms of any such Restrictions.4.TERM AND RENTAL:A. Base Monthly Rent: The term (“Lease Term”) shall be for onehundred twenty (120) months, commencing ninety (90) days following thedate the Building Shell is deemed substantially watertight allowing Tenantto begin construction of its Tenant Improvements (the “CommencementDate”) estimated to occur on May 1, 1999, and ending one hundred twenty(120) months thereafter, (“Expiration Date”). Notwithstanding the fact thatthe Lease Term begins on the Commencement Date, this Lease and all ofthe obligations of Landlord and Tenant shall be binding and in full forceand effect from and after the Effective Date. In addition to all other sumspayable by Tenant under this Lease, Tenant shall pay as base monthly rent(“Base Monthly Rent”) for the Premises, subject to increase pursuant toSections 4.B and 7.B in the amount of One Hundred Thirty Five Thousandand No/100 Dollars ($135,000.00). Base Monthly Rent shall be due inadvance on or before the first day of each calendar month during the LeaseTerm. All sums payable by Tenant under this Lease shall be paid toLandlord in lawful money of the United States of America, without offset ordeduction and without prior notice or demand, at the address specified inSection 1 of this Lease or at such place or places as may be designated inwriting by Landlord during the Lease Term. Base Monthly Rent for anyperiod less than a calendar month shall be a pro rata portion of the monthlyinstallment. Concurrently with Tenant’s execution of this Lease, Tenantshall pay to Landlord the sum of One Hundred Thirty Five Thousand andNo/100 Dollars ($135,000.00) as prepaid rent for the first month of theLease.B. Rental Adjustment: Beginning twelve (12) months after theCommencement Date, and every twelve (12) months thereafter, the then-payable Base Monthly Rent shall be increased by the amount of FiveThousand and No/100 Dollars ($5,000.00).C. Late Charges: Tenant hereby acknowledges that late payment byTenant to Landlord of Base Monthly Rent and other sums due hereunderwill cause Landlord to incur costs not contemplated by this Lease, theexact amount of which is extremely difficult to ascertain. Such costsinclude but are not limited to: administrative, processing, accounting, andlate charges which may be imposed on Landlord by the terms of anycontract, revolving credit, mortgage, or trust deed covering the Premises.Accordingly, if any installment of Base Monthly Rent or other sum duefrom Tenant shall not be received by Landlord or its designee within ten(10) days after the rent is due, Tenant shall pay to Landlord a late chargeequal to five (5%) percent of such overdue amount, which late charge shallbe due and payable on the same date that the overdue amount was due. Theparties agree that such late charge represents a fair and reasonable estimateof the costs Landlord will incur by reason of late payment by Tenant,excluding interest and attorneys fees and costs. If any rent or other sum duefrom Tenant remains delinquent for a period in excess of thirty (30) daysthen, in addition to such late charge, Tenant shall pay to Landlord intereston any rent that is not paid when due at the Agreed Interest Rate specifiedin Section 19.J following the date such amount became due until paid.Acceptance by Landlord of such late charge shall not constitute a waiver ofTenant’s default with respect to such overdue amount nor prevent Landlordfrom exercising any of the other rights and remedies granted hereunder. Inthe event that a late charge is payable hereunder, whether or not collected,for three (3) consecutive installments of Base Monthly Rent, then the BaseMonthly Rent shall automatically become due and payable quarterly inadvance, rather than monthly, notwithstanding any provision of this Leaseto the contrary.D. Security Deposit: Concurrently with Tenant’s execution of thisLease, Tenant has deposited with Landlord the sum of One Hundred ThirtyFive Thousand and No/100 Dollars ($135,000.00) (“Security “Deposit”).Landlord shall not be deemed a trustee of the Security Deposit, may use theSecurity Deposit in business, and shall not be required to segregate it fromits general accounts. Tenant shall not be entitled to interest on the SecurityDeposit. If Tenant defaults with respect to any provisions of the Lease,including but not limited to the provisions relating to payment of BaseMonthly Rent or other charges, Landlord may, to the extent reasonablynecessary to remedy Tenant’s default, use any or all of the Security Deposittowards payment of the following: (i) Base Monthly Rent or other chargesin default; (ii) any other amount which Landlord may spend or becomeobligated to spend by reason of Tenant’s default including, but not limitedto. Page 2Tenant’s failure to restore or clean the Premises following vacation thereof;and (iii) any other loss or damage which Landlord may suffer by reason ofTenant’s default. If any portion of the Security Deposit is so used orapplied, Tenant shall, within ten (10) days after receipt of written demandfrom Landlord, deposit cash with Landlord in an amount sufficient torestore the Security Deposit to its full original amount, and shall pay toLandlord such other sums as necessary to reimburse Landlord for any sumspaid by Landlord. If Tenant shall default more than three (3) times in anytwelve (12) month period, irrespective of whether or not such default iscured, then the Security Deposit shall, within ten (10) days after receipt ofwritten demand by Landlord, be increased by Tenant to an amount equal tothree (3) times the Base Monthly Rent. Tenant waives the provisions ofCalifornia Civil Code Section 1950.7, and all other provisions of law nowin force or that become in force after the date of execution of this Lease,that provide that Landlord may claim from a security deposit only thosesums reasonably necessary to remedy defaults in the payment of Rent, torepair damage caused by Tenant, or to clean the Premises. Landlord andTenant agree that Landlord may, in addition, claim those sums reasonablynecessary to compensate Landlord for any other foreseeable orunforeseeable loss or damage caused by the act or omission of Tenant orTenant’s agents, employees, contractors and invitees (“Tenant’s Agents”).Tenant may not assign or encumber the Security Deposit without theconsent of Landlord. Any attempt to do so shall be void and shall not bebinding on Landlord. If Tenant performs every provision of this Lease to beperformed by Tenant, the Security Deposit shall be returned to Tenantwithin thirty (30) days after the Expiration Date and surrender of thePremises to Landlord, less any amount deducted in accordance with thisSection, together with Landlord’s written notice itemizing the amounts andpurposes for such deduction. In the event of termination of Landlord’sinterest in this Lease, Landlord may deliver or credit the Security Depositto Landlord’s successor in interest in the Premises and thereupon berelieved of further responsibility with respect to the Security Deposit.Landlord agrees that in lieu of a cash security deposit, Tenant maydeposit a letter of credit in a form reasonably acceptable to Landlord.Landlord shall be entitled to draw against the letter of credit at any timeprovided only that Landlord certifies to the issuer of the letter of credit thatTenant is in default under the Lease. Tenant shall keep the letter of credit ineffect during the entire Lease Term, as the same may be extended, plus aperiod of four (4) weeks after expiration of the Lease Term. At least thirty(30) days prior to expiration of any letter of credit, the term thereof shall berenewed orextended for a period of at least three hundred sixty (360) days. Tenant’sfailure to so renew or extend the letter of credit shall be a material default ofthis Lease by Tenant. In the event Landlord draws against the letter ofcredit, Tenant shall replenish the existing letter of credit or cause a newletter of credit to be issued such that the aggregate amount of letters ofcredit available to Landlord at all times during the Lease Term is theamount of the security deposit originally required.5.CONSTRUCTION:A. Building Shell Construction: Landlord shall cause the shell of theBuilding (“Building Shell”) to be constructed by independent contractorsto be employed by and under the supervision of Landlord’s affiliatedconstruction company, Sobrato Construction Corporation (“GeneralContractor”), in accordance with the preliminary plans and specificationsprepared by Arctec (“Architect”) and approved by Landlord and Tenant,attached hereto as Exhibit “B-1”. Based upon the preliminary plans,Landlord shall develop final Building Shell plans and guidelinespecifications by September 1, 1998 which shall be generally consistentwith the preliminary plans and shall be attached upon completion asExhibit “B-2” (“Shell Plans and Specifications”). Landlord shall pay for allcosts and expenses associated with the construction of the Building Shell.The Building Shell shall include those items set forth in the attachedExhibit “C” (“Building Shell Definition”).B. Tenant Improvement Plans: Tenant, at Tenant’s sole cost andexpense, shall hire an architect to prepare plans and outline specificationsto be attached as Exhibit “D” (“Tenant Improvement Plans andSpecifications”) with respect to the construction of improvements to theinterior premises (“Tenant Improvements”). Such plans shall be completedfor all aspects of the work by October 1, 1998 with all detail necessary forsubmittal to the city and for construction and shall include any informationrequired by the relevant agencies regarding Tenant’s use of HazardousMaterials if applicable. The Tenant Improvements shall consist of all itemsnot included within the scope of the Building Shell Definition. The TenantImprovement Plans shall provide for a minimum buildout in all areas of thePremises consisting of: (i) fire sprinklers, (ii) floorcoverings, (iii) t-barsuspended ceiling (iv) distribution of the HVAC system, (v) 2 x 4 drop-inflorescent lighting, and (vi) any other work required by the City of San Josenecessary to obtain a Certificate of Occupancy, which work shall becompleted within ninety (90) days following the Commencement Date.Landlord agrees to the installation of an antenna on the Page 3roof of the Building similar to the type and size described in Exhibit E tothe Lease. The Tenant Improvement Plans and Specifications shall beprepared in sufficient detail to allow a general contractor to be selected byTenant and reasonably approved by Landlord (“Tenant’s Contractor”) toconstruct the Tenant Improvements. Tenant shall cause Tenant’s Contractorto construct the Tenant Improvements in accordance with all TenantImprovement Plans and Specifications. As an inducement to Tenant toenter into this Lease, Landlord has agreed to provide Tenant a workallowance to be utilized by Tenant for the construction of TenantImprovements (“Base Work Allowance”) in the amount of Three MillionTwo Hundred Thousand and No/100 Dollars ($3,200,000.00). The BaseWork Allowance shall be paid by Landlord to Tenant as payments becomedue to Tenant’s Contractor pursuant to Section 5.F below. The TenantImprovements shall not be removed or altered by Tenant without the priorwritten consent of Landlord as provided in Section 7. Tenant shall have theright to depreciate and claim and collect any investment tax credits in theTenant Improvements during the Lease Term. Upon expiration of the LeaseTerm or any earlier termination of the Lease, the Tenant Improvementsshall become the property of Landlord and shall remain upon and besurrendered with the Premises, and title thereto shall automatically vest inLandlord without any payment therefore.C. Pricing:i. Building Shell. Within ten (10) days after the Shell Plans andSpecifications are completed, General Contractor shall submit to Tenantcompetitive bids from at least three (3) subcontractors for each aspect of thework in excess of Twenty Five Thousand and No/100 Dollars ($25,000.00)related to the Building Shell. General Contractor must utilize the low bid ineach case unless Tenant approves General Contractor’s use of anothersubcontractor, and the cost of the Building Shell shall be based uponconstruction expenses equal to the sum of (i) the bid amounts as approvedby Tenant, (ii) a five percent (5%) contingency, and (iii) the generalcontractor fee specified in Section 5.H below. Upon Tenant’s writtenapproval of the contract bids, which approval shall not be unreasonablywithheld or delayed, Landlord and Tenant shall be deemed to have giventheir respective approvals of the final Shell Plans and Specifications onwhich the cost estimate was made, and General Contractor shall proceedwith the construction of the Building Shell in accordance with the terms ofSection 5.G below. If Tenant does not specifically approve or disapprovethe bids within seven (7) days of Tenant’s receipt, Tenant shall be deemedto have approved the bids.ii. Tenant Improvements. Within ten (10) days after completion ofthe Tenant Improvements Plans and Specifications, Tenant shall causeTenant’s Contractor to submit to Tenant competitive bids from at leastthree (3) subcontractors for each aspect of the work in excess of TwentyFive Thousand and No/100 Dollars ($25,000.00) related to the Tenantimprovements. Tenant’s Contractor must utilize the low bid in each caseunless Tenant approves Tenant’s Contractor’s use of another subcontractor,and the cost of the Tenant Improvements shall be based upon constructionexpenses equal to (i) the bid amounts as approved by Tenant, (ii) a fivepercent (5%) contingency, and (iii) the general contractor fee (“TenantImprovement Budget”). Upon Tenant’s written approval of the TenantImprovement Budget, which approval shall not be unreasonably withheldor delayed, Tenant shall be deemed to have given their respectiveapprovals of the final Tenant Improvement Plans and Specifications onwhich the cost estimate was made, and Tenant’s Contractor shall proceedwith the construction of the Tenant Improvements in accordance with theterms of Section 5.G below. If Tenant does not specifically approve ordisapprove the bids within seven (7) days of Tenant’s receipt, Tenant shallbe deemed to have approved the bids.D. Change Orders: Tenant shall have the right to order changes in themanner and type of construction of the Tenant Improvements. Upon requestand prior to Tenant’s submitting any binding change order, Tenant shallcause Tenant’s Contractor shall promptly provide Tenant with writtenstatements of the cost to implement and the time delay and increasedconstruction costs associated with any proposed change order, whichstatements shall be binding on Tenant’s Contractor. If no time delay orincreased construction cost amount is noted on the written statement, theparties agree that there shall be no adjustment to the construction cost orthe Commencement Date associated with such change order. If ordered byTenant, Tenant shall cause Tenant’s Contractor to implement such changeorder and the cost of constructing the Tenant Improvements shall beincreased or decreased in accordance with the cost statement previouslydelivered by Tenant’s Contractor to Tenant for any such change order. Inno event, however, shall Tenant have the right to eliminate the minimumbuildout requirements specified in Section 5.B above.E. Building Shell Costs: Landlord shall pay all costs associated withthe Building Shell including all shell related permit fees, constructiontaxes and connection charges or fees. Page 4F. Tenant Improvement Costs: Tenant shall pay all costs associatedwith the Tenant Improvements less the Work Allowance provided herein.The cost of Tenant Improvements shall consist of only the following to theextent actually paid by Tenant’s Contractor in connection with theconstruction of Tenant Improvements: construction costs, all permit fees,construction taxes or other costs imposed by governmental authoritiesrelated to the Tenant Improvements, and the Tenant’s Contractor’soverhead and profit. During the course of construction of TenantImprovements, Tenant shall cause Tenant’s Contractor to deliver to Tenantnot more than once each calendar month a written request for payment(“Progress Invoice”) which shall include and be accompanied by Tenant’sContractor’s certified statements setting forth the amount requested,certifying the percentage of completion of each item for whichreimbursement is requested. Upon acceptance by Tenant, Tenant shall paythe amount due pursuant to the Progress Invoice to Tenant’s Contractor,within fifteen (15) days after Tenant’s receipt of the above items. One (1)business day following payment by Tenant, Landlord shall reimburseTenant by wire transfer an amount equal to the product of (i) the ProgressInvoice, and (ii) a fraction, the numerator of which is the amount of theWork Allowance and the denominator of which is the Tenant ImprovementBudget, until such time as Landlord has expended the full amount of theWork Allowance. All costs for Tenant Improvements shall be fullydocumented to and verified by Tenant.G. Construction: Landlord shall use its reasonable efforts to obtain abuilding permit from the City of San Jose as soon as possible after Tenant’sapproval of the Shell Plans and Specifications and “SubstantiallyComplete” construction by April 1, 1999. The Building Shell shall bedeemed substantially complete (“Substantially Complete” or “SubstantialCompletion”) when the Building Shell has been substantially completed inaccordance with the Shell Plans and Specifications, as evidenced by thecompletion of a final inspection or the issuance of a certificate ofoccupancy or its equivalent by the appropriate governmental authority forthe Building Shell, and the issuance of a certificate by the Architectcertifying that the Building Shell has been completed in accordance withthe plans. Installation of (i) Tenant’s data and phone cabling, (ii) Tenant’sfurniture, or (iii) the exterior landscaping shall not be required in order todeem the Premises Substantially Complete. Any prevention, delay orstoppage due to strikes, lockouts, inclement weather, labor disputes,inability to obtain labor, materials, fuel or reasonable substitutes therefor,governmental restrictions, regulations, controls, actionor inaction, civil commotion, fire or other act of God, and another causesbeyond the reasonable control of Landlord (except financial inability) shallextend the dates contained in this Section 5.G by a period equal to theperiod of any said prevention, delay or stoppage. If Landlord cannot obtainbuilding permits or Substantially Complete construction by the dates setforth herein, this Lease shall not be void or voidable nor shall Landlord beliable for any loss or damage resulting therefrom.H. This paragraph intentionally left blankI. Tenant Delays: A “Tenant Delay” shall mean any delay inSubstantial Completion of the Building as a result of any of the following:(i) Tenant’s failure to complete or approve the Tenant Improvement Plansby the dates set forth in Section 5.B, (ii) Tenant’s failure to approve thebids for construction by the dates set forth in Section 5.C.ii, (iii) changes tothe plans requested by Tenant which delay the progress of the work, (iv)Tenant’s request for materials components, or finishes which are notavailable in a commercially reasonable time given the anticipatedCommencement Date, (v) Tenant’s failure to pay, when due, any amountsrequested to be paid by Tenant pursuant hereto, (vi) Tenant’s request formore than one (1) rebidding of the cost of all or a portion of the work, and(vii) any errors or omissions in the Tenant Improvement Plans provided byTenant’s architect. Notwithstanding anything to the contrary set forth inthis Lease, and regardless of the actual date the Premises are SubstantiallyComplete, the Commencement Date shall be deemed to be the date theCommencement Date would have occurred if no Tenant Delay hadoccurred as reasonable determined by Landlord. In addition, if a TenantDelay results in an increase in the cost of the labor or materials, Tenantshall pay the cost of such increases.J. Insurance: General Contractor and Tenant’s Contractor shall procure(as a cost of the Building Shell) a “Broad Form” liability insurance policyin the amount of Three Million Dollars ($3,000,000.00). Landlord shallalso procure (as a cost of the Building Shell) builder’s risk insurance for thefull replacement cost of the Building Shell and Tenant Improvements whilethe Building and Tenant Improvements are under construction, up until thedate that the fire insurance policy described in Section 9 is in full force andeffect.K. Punch List & Warranty: After the Building Shell are SubstantiallyComplete, Landlord shall cause the General Contractor to immediatelycorrect any construction defect or other “punch list” item which Tenantbrings to General Contractor’s attention. All Page 5such work shall be performed so as to reasonably minimize the interruptionto Tenant and its activities on the Premises. General Contractor shallprovide a standard contractor’s warranty with respect to the Building Shellfor one (1) year from the Commencement Date. Such warranty shall excluderoutine maintenance, damage caused by Tenant’s negligence or misuse,and acts of God.L. Other Work by Tenant: All work not described in the Shell Plansand Specifications or Tenant Improvement Plans and Specifications, suchas furniture, telephone equipment, telephone wiring and office equipmentwork, shall be furnished and installed by Tenant. Prior to SubstantialCompletion, Tenant shall be obligated to (i) provide active phone lines toany elevators, and (ii) contract with a firm to monitor the fire system. Whenthe construction of the Building Shell has proceeded to the point where thework of installing the Tenant Improvements in the Premises can becommenced, General Contractor shall notify Tenant and shall permitTenant and Tenant’s Contractor access to the Premises before theCommencement Date for the purpose of installing the TenantImprovements and Tenant’s trade fixtures and equipment. Any suchinstallation work by Tenant or Tenant’s Contractor shall be undertakenupon the following conditions: (i) if the entry into the Premises by Tenantor Tenant’s Contractor interferes with or delays General Contractor’s work,Tenant shall cause the party responsible for such interference or delay toleave the Premises; and (ii) Tenant’s Contractor shall use union labor priorto the completion of the Building Shell and its entry on the Premises shallnot interfere with General Contractor’s work.M. Landlord’s Failure to Complete Construction: Landlord shall useall reasonable efforts to prepare all plans and applications necessary to (i)submit for a site development permit with fourteen (14) days following theEffective Date and (ii) submit for a building permit within forty five (45)days following the Effective Date. Notwithstanding the foregoing, (i) if theBuilding Shell is not watertight on or before that date which is ninety (90)days following the date on which Landlord obtains a building permit fromthe City of San Jose allowing Landlord to begin construction of theBuilding Shell, Tenant shall be entitled to rental abatement following theCommencement Date in the amount of Four Thousand Five Hundred andNo/100 Dollars ($4,500.00) for each day beyond said ninety (90) dayperiod in which the Building Shell is not Substantially Complete. Theabove dates shall be extended one day for every day of delay in completioncaused by Tenant Delays. The delay in the commencement of rent providedherein shall be thesole and exclusive remedy of Tenant with respect by the failure byLandlord to complete the Building Shell.N. Expansion of the Building: Provided there remains vacant landuncommitted to a third party within the Project at the time of exercise,Tenant shall have the right at any time during the Lease Term, at Tenant’sexpense, to expand the Building by approximately 30,000 square feet inthe location shown on Exhibit “A” (the “Building Addition”). Such workshall be governed by the provisions of Section 7 except that Landlord andTenant agree that the Building Addition shall remain at the expiration orsooner termination of the Lease. In the event Tenant elects to exercise theforgoing option, the Base Monthly Rent shall increase on the date ofexercise by Tenant by one twelfth (1/12) of the product of (i) thirteenpercent (13%) and (ii) the fair market value of 67,000 square feet of landdetermined by agreement of the parties or by appraisal pursuant to theprovisions of Sections 18.B and 18.C of this Lease. By way of example, ifthe fair market value of land is determined to be $15.00 psf, the rent wouldincrease by 1/12 X (.13 X ($15 X 67,000)), or $10,887.50 per month.6. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER:A. Delivery and Acceptance: On the Commencement Date, Landlordshall deliver and Tenant shall accept possession of the Premises and enterinto occupancy of the Premises on the Commencement Date. Tenantacknowledges that it has had an opportunity to conduct, and hasconducted, such inspections of the Premises as it deems necessary toevaluate its condition. Except as otherwise specifically provided herein,Tenant agrees to accept possession of the Premises in its then existingcondition, subject to all Restrictions and without representation orwarranty by Landlord except as provided in Section 5.K above. Tenant’staking possession of any part of the Premises shall be deemed to be anacceptance of any work of improvement done by Landlord in such part ascomplete and in accordance with the terms of this Lease except for “PunchList” type items of which Tenant has given Landlord written notice prior tothe time Tenant takes possession. At the time Landlord delivers possessionof the Premises to Tenant, Landlord and Tenant shall together execute anacceptance agreement. Landlord shall have no obligation to deliverpossession, nor shall Tenant be entitled to take occupancy, of the Premisesuntil such acceptance agreement has been executed. Within thirty (30) daysafter the Commencement Date, Tenant agrees to be in occupancy of at leastfifty percent (50%) of the rentable square footage of the Premises. Page 6B. Condition Upon Surrender: Tenant further agrees on the ExpirationDate or on the sooner termination of this Lease, to surrender the Premises toLandlord in good condition and repair, normal wear and tear excepted. Inthis regard, “normal wear and tear” shall be construed to mean wear and tearcaused to the Premises by the natural aging process which occurs in spite ofprudent application of the best standards for maintenance, repairreplacement, and janitorial practices, and does not include items ofneglected or deferred maintenance. In any event, Tenant shall cause thefollowing to be done prior to the Expiration Date or sooner termination ofthis Lease: (i) all interior walls shall be painted or cleaned so that theyappear to be in good condition, (ii) all tiled floors shall be cleaned andwaxed, (iii) all carpets shall be cleaned and shampooed, (iv) all broken,marred, stained or nonconforming acoustical ceiling tiles shall be replaced,(v) all cabling placed above the ceiling by Tenant or Tenant’s contractorsshall be removed, (vi) all windows shall be washed; (vii) the HVAC systemshall be serviced by a reputable and licensed service firm and left in “goodoperating condition and repair” as so certified by such firm, (viii) theplumbing and electrical systems and lighting shall be placed in good orderand repair (including replacement of any burned out, discolored or brokenlight bulbs, ballasts, or lenses. On or before the Expiration Date or soonertermination of this Lease, Tenant shall remove all its personal property andtrade fixtures from the Premises. All property and fixtures not so removedshall be deemed as abandoned by Tenant. Except for those AlterationsLandlord has previously agreed may remain in the Premises pursuant toSection 7 below, Tenant shall ascertain from Landlord within ninety (90)days before the Expiration Date whether Landlord desires to have thePremises or any parts thereof restored to their condition as of theCommencement Date, or to cause Tenant to surrender all Alterations (asdefined in Section 7) in place to Landlord. If Landlord shall so require,Tenant shall, at Tenant’s sole cost and expense, remove such Alterations asLandlord requires and shall repair and restore said Premises or such partsthereof before the Expiration Date. Such repair and restoration shall includecausing the Premises to be brought into compliance with all applicablebuilding codes and laws in effect at the time of the removal to extent suchcompliance is necessitated by the repair and restoration work.C. Failure to Surrender: If the Premises are not surrendered at theExpiration Date or sooner termination of this Lease in the conditionrequired by this Section 6, Tenant shall be deemed in a holdover tenancypursuant to this Section 6.C and Tenant shallindemnify, defend, and hold Landlord harmless against loss or liabilityresulting from delay by Tenant in so surrendering the Premises including,without limitation, any claims made by any succeeding tenant founded onsuch delay and costs incurred by Landlord in returning the Premises to therequired condition, plus interest at the Agreed Interest Rate. Any holdingover after the termination or Expiration Date with Landlord’s expresswritten consent, shall be construed as month-to-month tenancy, terminableon thirty (30) days written notice from either party, and Tenant shall pay asBase Monthly Rent to Landlord a rate equal to one hundred twenty fivepercent (125%) of the Base Monthly Rent due in the month preceding thetermination or Expiration Date, plus all other amounts payable by Tenantunder this Lease. Any holding over shall otherwise be on the terms andconditions herein specified, except those provisions relating to the LeaseTerm and any options to extend or renew, which provisions shall be of nofurther force and effect following the expiration of the applicable exerciseperiod. If Tenant remains in possession of the Premises after expiration orearlier termination of this Lease without Landlord’s consent, Tenant’scontinued possession shall be on the basis of a tenancy at sufferance andTenant shall pay as rent during the holdover period an amount equal to onehundred fifty (150%) of the Base Monthly Rent due in the monthpreceding the termination or Expiration Date, plus all other amountspayable by Tenant under this Lease. This provision shall survive thetermination or expiration of the Lease.7.ALTERATIONS AND ADDITIONS:A. Tenant’s Alterations: Tenant shall not make, or suffer to be made,any alteration or addition to the Premises (“Alterations”), or any partthereof, without obtaining Landlord’s prior written consent and deliveringto Landlord the proposed architectural and structural plans for all suchAlterations at least fifteen (15) days prior to the start of construction. IfLandlord’s consent is required, Tenant shall deliver to Landlord theproposed architectural and structural plans for the Alteration and Landlordshall have a period of ten (10) business days thereafter to grant its consent.Landlord shall indicate to Tenant at the time of Tenant’s request, whetheror not Landlord will require Tenant to remove such Alteration at theExpiration Date. If such Alterations affect the structure of the Building,Tenant additionally agrees to reimburse Landlord its reasonable out-of-pocket costs incurred in reviewing Tenant’s plans. After obtainingLandlord’s consent, Tenant shall not proceed to make such Alterationsuntil Tenant has obtained all required governmental approvals and permits,and provides Page 7Landlord reasonable security, in form reasonably approved by Landlord, toprotect Landlord against mechanics’ lien claims. Tenant agrees to provideLandlord (i) written notice of the anticipated and actual start-date of thework, (ii) a complete set of half-size (15“ X 21”) vellum as-built drawings,and (iii) a certificate of occupancy for the work upon completion of theAlterations. All Alterations shall be constructed in compliance with allapplicable building codes and laws including, without limitation, theAmericans with Disabilities Act of 1990. Any Alterations, except movablefurniture and trade fixtures, shall become at once a part of the realty andbelong to Landlord but shall nevertheless be subject to removal by Tenantas provided in Section 6 above. Alterations which are not deemed as tradefixtures include heating, lighting, electrical systems, air conditioning,walls, carpeting, or any other installation which has become an integral partof the Premises. All Alterations shall be maintained, replaced or repaired byTenant at its sole cost and expense.B. Free From Liens: Tenant shall keep the Premises free from all liensarising out of work performed, materials furnished, or obligations incurredby Tenant or claimed to have been performed for Tenant. In the eventTenant fails to discharge any such lien within ten (10) days after receivingnotice of the filing, Landlord shall be entitled to discharge the lien atTenant’s expense and all resulting costs incurred by Landlord, includingattorney’s fees shall be due from Tenant as additional rent.C. Compliance With Governmental Regulations: The termGovernmental Regulations shall include all federal, state, county, city orgovernmental agency laws, statutes, ordinances, standards, rules,requirements, or orders now in force or hereafter enacted, promulgated, orissued. The term also includes government measures regulating orenforcing public access, traffic mitigation, occupational, health, or safetystandards for employers, employees, landlords, or tenants. Landlord shallbe responsible, at Landlord’s expense, to ensure that all constructionperformed prior to the Commencement Date by Landlord pursuant toSection 5 is in compliance with applicable Governmental Regulations.Tenant shall be responsible, at Tenant’s expense, to ensure that allconstruction performed prior to the Commencement Date by Tenant’sContractor pursuant to Section 5 is in compliance with applicableGovernmental Regulations. Thereafter, Tenant, at Tenant’s sole expenseshall make all repairs, replacements, alterations, or improvements needed tocomply with all Governmental Regulations. The judgment of any court ofcompetent jurisdiction or theadmission of Tenant in any action or proceeding against Tenant (whetherLandlord be a party thereto or not) that Tenant has violated any such law,regulation or other requirement in its use of the Premises shall beconclusive of that fact as between Landlord and Tenant. Notwithstandingthe foregoing, if any improvement or alteration to the Premises is requiredas a result of any future laws or regulations affecting the Premises notrelated to Tenant’s specific use of the Premises, and provided further saidimprovement or alteration is not required because of Alterations made byTenant, the cost of such improvements shall be allocated between Landlordand Tenant such that Tenant shall pay to Landlord upon completion ofsuch improvement, the portion of the cost thereof equal to the remainingnumber of years in the lease term divided by the anticipated useful life ofsuch improvement.8.MAINTENANCE OF PREMISES:A. Landlord’s Obligations: Landlord at its sole cost and expense, shallmaintain in good condition, order, and repair, and replace as and whennecessary, the foundation, exterior load bearing walls and roof structure ofthe Building Shell.B. Tenant’s Obligations: Tenant shall clean, maintain, repair andreplace when necessary the Premises and every part thereof through regularinspections and servicing, including but not limited to: (i) all plumbingand sewage facilities, (ii) all heating ventilating and air conditioningfacilities and equipment, (iii) all fixtures, interior walls floors, carpets andceilings, (iv) all windows, door entrances, plate glass and glazing systemsincluding caulking, and skylights, (v) all electrical facilities andequipment, (vi) all automatic fire extinguisher equipment, (vii) all elevatorequipment, and (viii) the roof membrane system. All wall surfaces and floortile are to be maintained in an as good a condition as when Tenant tookpossession free of holes, gouges, or defacements, normal wear and tearexcepted. With respect to items (ii), (viii) and (ix) above, Tenant shallprovide Landlord a copy of a service contract between Tenant and alicensed service contractor providing for periodic maintenance of all suchsystems or equipment in conformance with the manufacturer’srecommendations. Tenant shall provide Landlord a copy of suchpreventive maintenance contracts and paid invoices for the recommendedwork if requested by Landlord.C. Landlord and Tenant’s Obligations Regarding ReimbursableOperating Costs/Audits: Notwithstanding the provisions of Sections 8, 9,10 and 11 of this Lease, in the event Landlord pays any Page 8maintenance, or repair costs, taxes, insurance costs or utility costs inconnection with the Premises or in connection with the Project which arenot otherwise Landlord’s obligation hereunder, Tenant agrees to reimburseLandlord Tenant’s Allocable Share (as defined in Section 8.E below) of theexpenses resulting from Landlord’s payment of Reimbursable OperatingCosts (as defined in Section 8.D below). Tenant agrees to pay its AllocableShare of the Reimbursable Operating Costs as additional rental withinthirty (30) days of Tenant’s receipt of a written invoice from Landlord.Tenant shall have the right to an annual audit, at Tenant’s expense, inLandlord’s offices the books, records, and supporting documents ofLandlord to the extent necessary to determine the accuracy of suchReimbursable Operating Costs.D. Reimbursable Operating Costs: For purposes of calculatingTenant’s Allocable Share of Building and Project Costs, the term“Reimbursable Operating Costs” is defined as all costs and expenses of thenature hereinafter described which are incurred by Landlord in connectionwith ownership and operation of the Building or the Project in which thePremises are located, together with such additional facilities as may bedetermined by Landlord to be reasonably desirable or necessary to theownership and operation of the Building and/or Project. All costs andexpenses shall be determined in accordance with generally acceptedaccounting principles which shall be consistently applied (with accrualsappropriate to Landlord’s business), including but not limited to thefollowing: (i) common area utilities, including water, power, telephone,heating, lighting, air conditioning, ventilating, and Building utilities to theextent not separately metered; (ii) common area maintenance and serviceagreements for the Building and/or Project and the equipment therein,including without limitation, common area janitorial services, alarm andsecurity services, and maintenance of the sidewalks, landscaping,waterscape, parking areas, and driveways; (iii) insurance premiums andcosts, including without limitation, the premiums and cost of fire, casualtyand liability coverage and rental abatement and earthquake (ifcommercially available) insurance applicable to the Building or Project;(iv) repairs, replacements and general maintenance (excluding repairs andgeneral maintenance paid by proceeds of insurance or by Tenant or otherthird parties, and repairs or alterations attributable solely to tenants of theBuilding or Project other than Tenant); and (v) all real estate taxes andassessment installments or other impositions or charges which may belevied on the Building or Project, upon the occupancy of the Building orProject and including any substitute or additional charges which may beimposed during, or applicable to the Lease Termincluding real estate tax increases due to a sale, transfer or other change ofownership of the Building or Project, as such taxes are levied or appear onthe City and County tax bills and assessment rolls. Landlord shall have noobligation to provide guard services or other security measures for thebenefit of the Project unless requested to do so by the majority of thetenants in the Project. Tenant assumes all responsibility for the protectionof Tenant and Tenant’s Agents from acts of third parties; provided,however, that nothing contained herein shall prevent Landlord, at its soleoption, from providing security measures for the Project. This is a “Net”Lease, meaning that Base Monthly Rent is paid to Landlord absolutely netof all costs and expenses. The provision for payment of ReimbursableOperating Costs by means of periodic payment of Tenant’s Allocable Shareof Building and/or Project Costs is intended to pass on to Tenant andreimburse Landlord for all costs of operating and managing the Buildingand/or Project.E. Tenant’s Allocable Share: For purposes of prorating ReimbursableOperating Costs which Tenant shall pay, Tenant’s Allocable Share ofReimbursable Operating Costs shall be computed by multiplying the totalReimbursable Operating Costs by a fraction, the numerator of which is therentable square footage of the Premises and the denominator of which iseither the total rentable square footage of the Building if the service isallocable only to the Building, or the total square footage of the Project ifthe service is allocable to the entire Project. Tenant’s obligation to share inReimbursable Operating Costs shall be adjusted to reflect the LeaseCommencement and Expiration dates and is subject to recalculation in theevent of expansion of the Building or Project.F. Waiver of Liability: Failure by Landlord to perform any definedservices, or any cessation thereof, when such failure is caused by accident,breakage, repairs, strikes, lockout or other labor disturbances or labordisputes of any character or by any other cause, similar or dissimilar, shallnot render Landlord liable to Tenant in any respect, including damages toeither person or property, nor be construed as an eviction of Tenant, norcause an abatement of rent, nor relieve Tenant from fulfillment of anycovenant or agreement hereof. Should any equipment or machinery utilizedin supplying the services listed herein break down or for any cause cease tofunction properly, upon receipt of written notice from Tenant of anydeficiency or failure of any services, Landlord shall use reasonablediligence to repair the same as soon as reasonably possible, but Tenantshall have no right to terminate this Lease and shall have no claim forrebate of rent or damages on account of any interruptions in serviceoccasioned Page 9thereby or resulting therefrom. Tenant waives the provisions of CaliforniaCivil Code Sections 1941 and 1942 concerning the Landlord’s obligationof tenantability and Tenant’s right to make repairs and deduct the cost ofsuch repairs from the rent. Unless such failure is due to Landlord’snegligence, Landlord shall not be liable for a loss of or injury to person orproperty, however occurring, through or in connection with or incidental tofurnishing, or its failure to furnish, any of the foregoing.9.HAZARD INSURANCE:A. Tenant’s Use: Tenant shall not use or permit the Premises, or anypart thereof, to be used for any purpose other than that for which thePremises are hereby leased; and no use of the Premises shall be made orpermitted, nor acts done, which will cause an increase in premiums or acancellation of any insurance policy covering the Premises or any partthereof, nor shall Tenant sell or permit to be sold, kept, or used in or aboutthe Premises, any article prohibited by the standard form of fire insurancepolicies. Tenant shall, at its sole cost, comply with all requirements of anyinsurance company or organization necessary for the maintenance ofreasonable fire and public liability insurance covering the Premises andappurtenances.B. Landlord’s Insurance: Landlord agrees to purchase and keep inforce fire, extended coverage and earthquake insurance in an amount equalto the replacement cost of the Building (not including any TenantImprovements or Alterations paid for by Tenant from sources other than theWork Allowance) as determined by Landlord’s insurance company’sappraisers. The earthquake and/or flood insurance shall contain reasonabledeductibles which, in the case of earthquake and flood insurance may be upto 15% of the replacement value of the property. Additionally Landlordmay maintain a policy of (i) commercial general liability insuranceinsuring Landlord (and such others designated by Landlord) againstliability for personal injury, bodily injury, death and damage to propertyoccurring or resulting from an occurrence in, on or about the Premises orProject in an amount as Landlord determines is reasonably necessary for itsprotection, and (ii) rental lost insurance covering a twelve (12) monthperiod. Tenant agrees to pay Landlord as additional rent, on demand, thefull cost of said insurance as evidenced by insurance billings to Landlord,and in the event of damage covered by said insurance, the amount of anydeductible under such policy. Payment shall be due to Landlord within ten(10) days after written invoice to Tenant. It is understood and agreed thatTenant’s obligation under this Section will be prorated to reflect the LeaseCommencement and Expiration Dates. Tenant may elect to provide the fire,extended coverage and earthquake insurance for the Building if Landlordis unable to obtain such coverage on as least a favorable basis as could beobtained by Tenant.C. Tenant’s Insurance: Tenant agrees, at its sole cost, to insure itspersonal property, Tenant Improvements (for which it has paid from sourcesother than the Work Allowance), and Alterations for their full replacementvalue (without depreciation) and to obtain worker’s compensation andpublic liability and property damage insurance for occurrences within thePremises with a combined single limit of not less than Five Million Dollars($5,000,000.00). Tenant’s liability insurance shall be primary insuranceand shall provide coverage on an “occurrence” rather than on a “claimsmade” basis. Tenant shall name Landlord and Landlord’s lender as anadditional insured and shall deliver a certificate of insurance and renewalcertificates to Landlord. All such policies shall provide for thirty (30) days’prior written notice to Landlord of any cancellation, termination, orreduction in coverage. Notwithstanding the above, Landlord retains theright to have Tenant provide other forms of insurance which may bereasonably required to cover future risks.D. Waiver: Landlord and Tenant hereby waive all rights each mayhave against the other on account of any loss or damage sustained byLandlord or Tenant, as the case may be, or to the Premises or its contents,which may arise from any risk covered by their respective insurancepolicies (or which would have been covered had such insurance policiesbeen maintained in accordance with this Lease) as set forth above. Theparties shall use their reasonable efforts to obtain from their respectiveinsurance companies a waiver of any right of subrogation which saidinsurance company may have against Landlord or Tenant, as the case maybe.10. TAXES: Tenant shall be liable for and shall pay as additional rental,prior to delinquency, the following: (i) all taxes and assessments leviedagainst Tenant’s personal property and trade or business fixtures; (ii) allreal estate taxes and assessment installments or other impositions orcharges which may be levied on the Premises or upon the occupancy of thePremises, including any substitute or additional charges which may beimposed applicable to the Lease Term; and (iii) real estate tax increases dueto an increase in assessed value resulting from a sale, transfer or otherchange of ownership of the Premises as it appears on the City and Countytax bills during the Lease Term. Tenant’s obligation under this Sectionshall be prorated to reflect the Lease Commencement and Expiration Dates.If, at Page 10any time during the Lease Term a tax, excise on rents, business license taxor any other tax, however described, is levied or assessed against Landlordas a substitute or addition, in whole or in part, for taxes assessed or imposedon land or Buildings, Tenant shall pay and discharge its pro rata share ofsuch tax or excise on rents or other tax before it becomes delinquent;except that this provision is not intended to cover net income taxes,inheritance, gift or estate tax imposed upon Landlord. In the event that atax is placed, levied, or assessed against Landlord and the taxing authoritytakes the position that Tenant cannot pay and discharge its pro rata share ofsuch tax on behalf of Landlord, then at Landlord’s sole election, Landlordmay increase the Base Monthly Rent by the exact amount of such tax andTenant shall pay such increase. If by virtue of any application orproceeding brought by or on behalf of Landlord, there results a reduction inthe assessed value of the Premises during the Lease Term, Tenant agrees toreimburse Landlord for its pro rata share of all costs incurred by Landlord inconnection with such application or proceeding.11. UTILITIES: Tenant shall pay directly to the providing utility allwater, gas, electric, telephone, and other utilities supplied to the Premises.Landlord shall not be liable for loss of or injury to person or property,however occurring, through or in connection with or incidental tofurnishing or the utility company’s failure to furnish utilities to thePremises, and Tenant shall not be entitled to abatement or reduction of anyportion of Base Monthly Rent or any other amount payable under thisLease.12. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:A. Tenant’s Responsibility: Without the prior written consent ofLandlord, Tenant shall not bring, use, or permit upon the Premises, orgenerate, create, release, emit, or dispose (nor permit any of the same) fromthe Premises any chemicals, toxic or hazardous gaseous, liquid or solidmaterials or waste, including without limitation, material or substancehaving characteristics of ignitability, corrosivity, reactivity, or toxicity orsubstances or materials which are listed on any of the EnvironmentalProtection Agency’s lists of hazardous wastes or which are identified inDivision 22 Title 26 of the California Code of Regulations as the same maybe amended from time to time or any wastes, materials or substances whichare or may become regulated by or under the authority of any applicablelocal, state or federal laws, judgments, ordinances, orders, rules, regulations,codes or other governmental restrictions, guidelines or requirements.(“Hazardous Materials”). In order to obtain consent, Tenant shalldeliver to Landlord its written proposal describing the toxic material to bebrought onto the Premises, measures to be taken for storage and disposalthereof, safety measures to be employed to prevent pollution of the air,ground, surface and ground water. Landlord’s approval may be withheld inits reasonable judgment. In the event Landlord consents to Tenant’s use ofHazardous Materials on the Premises, Tenant represents and warrants that itshall comply with all Governmental Regulations applicable to HazardousMaterials including doing the following: (i) adhere to all reporting andinspection requirements imposed by Federal, State, County or Municipallaws, ordinances or regulations and will provide Landlord a copy of anysuch reports or agency inspections; (ii) obtain and provide Landlord copiesof all necessary permits required for the use and handling HazardousMaterials on the Premises; (iii) enforce Hazardous Materials handling anddisposal practices consistent with industry standards; (iv) surrender thePremises free from any Hazardous Materials arising from Tenant’s bringing,using, permitting, generating, creating, releasing, emitting or disposing ofHazardous Materials; and (v) properly close the facility with regard toHazardous Materials including the removal or decontamination of anyprocess piping, mechanical ducting, storage tanks, containers, or trencheswhich have come into contact with Hazardous Materials and obtain aclosure certificate from the local administering agency prior to theExpiration Date.B. Tenant’s Indemnity Regarding Hazardous Materials: Tenantshall, at its sole cost and expense, comply with all laws pertaining to, andshall with counsel reasonably acceptable to Landlord, indemnify, defendand hold harmless Landlord and Landlord’s shareholders, directors,officers, employees, partners, affiliates, and agents from, any claims,liabilities, costs or expenses incurred or suffered by Landlord arising fromthe bringing, using, permitting, generating, emitting or disposing ofHazardous Materials by Tenant during the Lease Term or the violation ofany Governmental Regulation or environmental law, by Tenant or Tenant’sAgents. Tenant’s indemnification and hold harmless obligations include,without limitation, the following: (i) claims, liability, costs or expensesresulting from or based upon administrative, judicial (civil or criminal) orother action, legal or equitable, brought by any private or public personunder common law or under the Comprehensive Environmental Response,Compensation and Liability Act of 1980 (“CERCLA”), the ResourceConservation and Recovery Act of 1980 (“RCRA”) or any other Federal,State, County or Municipal law, ordinance or regulation; (ii) claims,liabilities, costs or expenses pertaining to the identification, monitoring,cleanup, Page 11containment, or removal of Hazardous Materials from soils, riverbeds oraquifers including the provision of an alternative public drinking watersource; (iii) all costs of defending such claims; (iv) losses attributable todiminution in the value of the Premises or the Building; (v) loss orrestriction of use of rentable space in the Building; (vi) adverse effect onthe marketing of any space in the Building; and (vi) all other liabilities,obligations, penalties, fines, claims, actions (including remedial orenforcement actions of any kind and administrative or judicialproceedings, orders or judgments), damages (including consequential andpunitive damages), and costs (including reasonable attorney, consultant,and expert fees and expenses) resulting from the release or violation. Thisindemnification shall survive the expiration or termination o this Lease.C. Actual Release by Tenant: Tenant agrees to notify Landlord of anylawsuits or orders which relate to the remedying of or actual release ofHazardous Materials by Tenant or Tenant’s Agents on or into the soils orground water at or under the Premises. Tenant shall also provide Landlordall notices required by Section 25359.7(b) of the Health and Safety Codeand all other notices required by law to be given to Landlord in connectionwith Hazardous Materials. Without limiting the foregoing, Tenant shallalso deliver to Landlord, within twenty (20) days after receipt thereof, anywritten notices from any governmental agency alleging a material violationby Tenant or Tenant’s Agents of, or material failure by Tenant or Tenant’sAgents to comply with, any federal, state or local laws, regulations,ordinances or orders, the violation of which or failure to comply with posesa foreseeable and material risk of contamination of the ground water orinjury to humans (other than injury solely to Tenant, Tenant’s Agents andemployees within the Building).In the event of any release on or into the Premises or into the soil orground water under the Premises, the Building or the Project of anyHazardous Materials used, treated, stored or disposed of by Tenant, Tenantagrees to comply, at its sole cost, with all laws, regulations, ordinances andorders of any federal, state or local agency relating to the monitoring orremediation of such Hazardous Materials. In the event of any such releaseof Hazardous Materials Tenant shall immediately give verbal and follow-up written notice of the release to Landlord, and Tenant agrees to meet andconfer with Landlord and its Lender to attempt to eliminate and mitigateany financial exposure to such Lender and resultant exposure to Landlordunder California Code of Civil Procedure Section 736(b) as a result of suchrelease, and promptlyto take reasonable monitoring, cleanup and remedial steps given, inter alia,the historical uses to which the Property has and continues to be used, therisks to public health posed by the release, the then available technologyand the costs of remediation, cleanup and monitoring, consistent withacceptable customary practices for the type and severity of suchcontamination and all applicable laws. Nothing in the preceding sentenceshall eliminate, modify or reduce the obligation of Tenant under 12.B ofthis Lease to indemnify and hold Landlord harmless from any claimsliabilities, costs or expenses incurred or suffered by Landlord. Tenant shallprovide Landlord prompt written notice of Tenant’s monitoring, cleanupand remedial steps.In the absence of an order of any federal, state or local governmental orquasi-governmental agency relating to the cleanup, remediation or otherresponse action required by applicable law, any dispute arising betweenLandlord and Tenant concerning Tenant’s obligation to Landlord underthis Section 12.C concerning the level, method, and manner of cleanup,remediation or response action required in connection with such a releaseof Hazardous Materials shall be resolved by mediation and/or arbitrationpursuant to the provisions of Section 19.E of this Lease.D. Environmental Monitoring: Landlord and its agents shall have theright to inspect, investigate, sample and monitor the Premises includingany air, soil, water, ground water or other sampling or any other testing,digging, drilling or analysis to determine whether Tenant is complyingwith the terms of this Section 12. If Landlord discovers that Tenant is not incompliance with the terms of this Section 12, any such costs incurred byLandlord, including reasonable attorneys’ and consultants’ fees, shall bedue and payable by Tenant to Landlord within thirty (30) days followingTenant’s receipt of Landlord’s written demand therefore.13. TENANT’S DEFAULT: The occurrence of any of the following shallconstitute a material default and breach of this Lease by Tenant: (i)Tenant’s failure to pay any rent including additional rent or any otherpayment due under this Lease by the date such rent is due, (ii) theabandonment or vacation of the Premises by Tenant; (iii) Tenant’s failureto observe and perform any other required provision of this Lease, wheresuch failure continues for thirty (30) days after written notice fromLandlord; (iv) Tenant’s making of any general assignment for the benefit ofcreditors; (v) the filing by or against Tenant of a petition to have Tenantadjudged a bankrupt or of a petition for reorganization or arrangementunder any law relating to bankruptcy Page 12(unless, in the case of a petition filed against Tenant, the same is dismissedafter the filing); (vi) the appointment of a trustee or receiver to takepossession of substantially all of Tenant’s assets located at the Premises orof Tenant’s interest in this Lease, where possession is not restored to Tenantwithin thirty (30) days; or (vii) the attachment, execution or other judicialseizure of substantially all of Tenant’s assets located at the Premises or ofTenant’s interest in this Lease, where such seizure is not discharged withinthirty (30) days.A. Remedies: In the event of any such default by Tenant, then inaddition to other remedies available to Landlord at law or in equity,Landlord shall have the immediate option to terminate this Lease and allrights of Tenant hereunder by giving written notice of such intention toterminate. In the event Landlord elects to so terminate this Lease, Landlordmay recover from Tenant all the following: (i) the worth at time of award ofany unpaid rent which had been earned at the time of such termination; (ii)the worth at time of award of the amount by which the unpaid rent whichwould have been earned after termination until the time of award exceedsthe amount of such rental loss for the same period that Tenant proves couldhave been reasonably avoided; (iii) the worth at time of award of theamount by which the unpaid rent for the balance of the Lease Term after thetime of award exceeds the amount of such rental loss that Tenant provescould be reasonably avoided; (iv) any other amount necessary tocompensate Landlord for all detriment proximately caused by Tenant’sfailure to perform its obligations under this Lease, or which in the ordinarycourse of things would be likely to result therefrom; including thefollowing: (x) expenses for repairing, altering or remodeling the Premisesfor purposes of reletting, (y) broker’s fees, advertising costs or otherexpenses of reletting the Premises, and (z) costs of carrying the Premisessuch as taxes, insurance premiums, utilities and security precautions, and(v) at Landlord’s election, such other amounts in addition to or in lieu ofthe foregoing as may be permitted by applicable California law. The term“rent”, as used herein, is defined as the minimum monthly installments ofBase Monthly Rent and all other sums required to be paid by Tenantpursuant to this Lease, all such other sums being deemed as additional rentdue hereunder. As used in (i) and (ii) above, “worth at the time of award”shall be computed by allowing interest at a rate equal to the discount rateof the Federal Reserve Bank of San Francisco plus five (5%) percent perannum. As used in (iii) above, “worth at the time of award” shall becomputed by discounting such amount at the discount rate of the FederalReserve Bank of San Francisco at the time of award plus one (1%) percent.B. Right to Re-enter: In the event of any such default by Tenant,Landlord shall have the right, after terminating this Lease, to re-enter thePremises and remove all persons and property. Such property may beremoved and stored in a public warehouse or elsewhere at the cost of andfor the account of Tenant, and disposed of by Landlord in any mannerpermitted by law.C. Abandonment: If Landlord does not elect to terminate this Lease asprovided in Section 13.A or 13.B above, then the provisions of CaliforniaCivil Code Section 1951.4, (Landlord may continue the lease in effect afterTenant’s breach and abandonment and recover rent as it becomes due ifTenant has a right to sublet and assign, subject only to reasonablelimitations) as amended from time to time, shall apply and Landlord mayfrom time to time, without terminating this Lease, either recover all rentalas it becomes due or relet the Premises or any part thereof for such term orterms and at such rental or rentals and upon such other terms andconditions as Landlord in its sole discretion may deem advisable, with theright to make alterations and repairs to the Premises. In the event thatLandlord elects to so relet, rentals received by Landlord from such relettingshall be applied in the following order to: (i) the payment of anyindebtedness other than Base Monthly Rent due hereunder from Tenant toLandlord; (ii) the payment of any cost of such reletting; (iii) the payment ofthe cost of any alterations and repairs to the Premises; and (iv) the paymentof Base Monthly Rent due and unpaid hereunder. The residual rentals, ifany, shall be held by Landlord and applied in payment of future BaseMonthly Rent as the same may become due and payable hereunder.Landlord shall have no obligation to relet the Premises following a defaultif Landlord has other available space within the Building or Project. In theevent the portion of rentals received from such reletting which is applied tothe payment of rent hereunder during any month be less than the rentpayable during that month by Tenant hereunder, then Tenant shall paysuch deficiency to Landlord immediately upon demand. Such deficiencyshall be calculated and paid monthly. Tenant shall also pay to Landlord, assoon as ascertained, any costs and expenses incurred by Landlord in suchreletting or in making such alterations and repairs not covered by therentals received from such reletting.D. Non-Waiver: Landlord may accept Tenant’s payments withoutwaiving any rights under this Lease, including rights under a previouslyserved notice of default. No payment by Tenant or receipt by Landlord of alesser amount than any installment of rent due shall be deemed as otherthan payment on account of the Page 13amount due. If Landlord accepts payments after serving a notice of default,Landlord may nevertheless commence and pursue an action to enforcerights and remedies under the previously served notice of default withoutgiving Tenant any further notice or demand. Furthermore, the Landlord’sacceptance of rent from the Tenant when the Tenant is holding overwithout express written consent does not convert Tenants Tenancy from atenancy at sufferance to a month to month tenancy. No waiver of anyprovision of this Lease shall be implied by any failure of Landlord toenforce any remedy for the violation of that provision, even if thatviolation continues or is repeated. Any waiver by Landlord of anyprovision of this Lease must be in writing. Such waiver shall affect only theprovision specified and only for the time and in the manner stated in thewriting. No delay or omission in the exercise of any right or remedy byLandlord shall impair such right or remedy or be construed as a waiverthereof by Landlord. No act or conduct of Landlord, including, withoutlimitation, the acceptance of keys to the Premises, shall constituteacceptance of the surrender of the Premises by Tenant before the ExpirationDate. Only written notice from Landlord to Tenant of acceptance shallconstitute such acceptance of surrender of the Premises. Landlord’s consentto or approval of any act by Tenant which requires Landlord’s consent orapprovals shall not be deemed to waive or render unnecessary Landlord’sconsent to or approval of any subsequent act by Tenant.E. Performance by Landlord: If Tenant fails to perform any obligationrequired under this Lease or by law or governmental regulation, Landlordin its sole discretion may, without notice, without waiving any rights orremedies and without releasing Tenant from its obligations hereunder,perform such obligation, in which event Tenant shall pay Landlord asadditional rent all sums paid by Landlord in connection with suchsubstitute performance, including interest at the Agreed Interest Ratewithin ten (10) days of Landlord’s written notice for such payment.F. Habitual Default: The provisions of Section 13 notwithstanding, theparties agree that if Tenant shall have defaulted in the performance of any(but not necessarily the same) term or condition of this Lease for three ormore times during any twelve (12) month period during the Lease Term,then such conduct shall, at the election of the Landlord, represent aseparate event of default which cannot be cured by Tenant. Tenantacknowledges that the purpose of this provision is to prevent repetitivedefaults by Tenant, which work a hardship upon Landlord and depriveLandlord of Tenant’s timely performance under this Lease.14. LANDLORD’S LIABILITY:A. Limitation on Landlord’s Liability: In the event of Landlord’sfailure to perform any of its covenants or agreements under this Lease,Tenant shall give Landlord written notice of such failure and shall giveLandlord thirty (30) days to cure or commence to cure such failure prior toany claim for breach or resultant damages, provided, however, that if thenature of the default is such that it cannot reasonably be cured within the30-day period, Landlord shall not be deemed in default if it commenceswithin such period to cure, and thereafter diligently prosecutes the same tocompletion. In addition, upon any such failure by Landlord, Tenant shallgive notice by registered or certified mail to any person or entity with asecurity interest in the Premises (“Mortgagee”) that has provided Tenantwith notice of its interest in the Premises, and shall provide Mortgagee areasonable opportunity to cure such failure, including such time to obtainpossession of the Premises by power of sale or judicial foreclosure, if suchshould prove necessary to effectuate a cure. Tenant agrees that each of theMortgagees to whom this Lease has been assigned is an expressed third-party beneficiary hereof.B. Limitation on Tenant’s Recourse: If Landlord is a corporation trust,partnership, joint venture, unincorporated association or other form ofbusiness entity: (i) the obligations of Landlord shall not constitute personalobligations of the officers, directors, trustees, partners, joint venturers,members, owners, stockholders, or other principals or representativesexcept to the extent of their interest in the Premises. Tenant shall haverecourse only to the interest of Landlord in the Premises or for thesatisfaction of the obligations of Landlord and shall not have recourse toany other assets of Landlord for the satisfaction of such obligations.C. Indemnification of Landlord: As a material part of theconsideration rendered to Landlord, Tenant hereby waives all claimsagainst Landlord for damages to goods, wares and merchandise, and allother personal property in, upon or about said Premises and for injuries topersons in or about said Premises, from any cause arising at any time to thefullest extent permitted by law, and Tenant shall indemnify and holdLandlord exempt and harmless from any damage or injury to any person, orto the goods, wares and merchandise and all other personal property of anyperson, arising from the use of the Premises, Building, and/or Project byTenant and Tenant’s Agents or from the failure of Tenant to keep thePremises in good condition and repair as herein provided, except to theextent due to the negligence or willful misconduct of Landlord. Further, Page 14in the event Landlord is made party to any litigation due to the acts oromission of Tenant and Tenant’s Agents. Tenant will indemnify, defend(with counsel reasonably acceptable to Landlord) and hold Landlordharmless from any such claim or liability including Landlord’s costs andexpenses and reasonable attorney’s fees incurred in defending such claims.15. DESTRUCTION OF PREMISES:A. Landlord’s Obligation to Restore: In the event of a destruction ofthe Premises during the Lease Term Landlord shall repair the same to theapproximate condition which existed prior to such destruction. Suchdestruction shall not annul or void this Lease; however, Tenant shall beentitled to a proportionate reduction of Base Monthly Rent while repairsare being made, such proportionate reduction to be based upon the extentto which the repairs interfere with Tenant’s business in the Premises, asreasonably determined by Landlord and Tenant jointly. In no event shallLandlord be required to replace or restore Alterations, TenantImprovements paid for by Tenant from sources other than the WorkAllowance, Tenant’s fixtures or personal property. With respect to adestruction which Landlord is obligated to repair or may elect to repairunder the terms of this Section, Tenant waives the provisions of Section1932, and Section 1933, Subdivision 4, of the Civil Code of the State ofCalifornia, and any other similarly enacted statute, and the provisions ofthis Section 15 shall govern in the case of such destruction.B. Limitations on Landlord’s Restoration Obligation:Notwithstanding the provisions of Section 15.A, Landlord shall have noobligation to repair, or restore the Premises if any of the following occur: (i)if the repairs cannot be made in 180 days from the date of receipt of allgovernmental approvals necessary under the laws and regulations of State,Federal, County or Municipal authorities, as reasonably determined byLandlord, (ii) if the holder of the first deed of trust or mortgageencumbering the Building elects not to permit the insurance proceedspayable upon damage or destruction to be used for such repair orrestoration, (iii) the damage or destruction is less than ninety percent (90%)covered by the insurance maintained by Landlord, (iv) the damage ordestruction occurs in the last twenty four (24) months of the Lease Term, (v)Tenant is in default pursuant to the provisions of Section 13, or (vi) Tenanthas vacated the Premises for more than ninety (90) days. In any such eventLandlord may elect either to (i) complete the repair or restoration, or (ii)terminate this Lease by providing Tenant written notice of its electionwithin sixty (60) days following the damage or destruction.16. CONDEMNATION: If any part of the Premises shall be taken for anypublic or quasi-public use, under any statute or by right of eminent domainor private purchase in lieu thereof, and only a part thereof remains which issusceptible of occupation hereunder, this Lease shall, as to the part sotaken, terminate as of the day before title vests in the condemnor orpurchaser (“Vesting Date”) and Base Monthly Rent payable hereundershall be adjusted so that Tenant is required to pay for the remainder of theLease Term only such portion of Base Monthly Rent as the value of thepart remaining after such taking bears to the value of the entire Premisesprior to such taking; but in such event, Landlord shall have the option toterminate this Lease as of the Vesting Date. If all of the Premises or suchpart thereof be taken so that there does not remain a portion susceptible foroccupation hereunder, this Lease shall terminate on the Vesting Date. Ifpart or all of the Premises be taken, all compensation awarded upon suchtaking shall go to Landlord, and Tenant shall have no claim thereto; butLandlord shall cooperate with Tenant, without cost to Landlord, to recovercompensation for damage to or taking of any Alterations, TenantImprovements paid for by Tenant from sources other than the WorkAllowance, or for Tenant’s moving costs. Tenant hereby waives theprovisions of California Code of Civil Procedures Section 1265.130 andany other similarly enacted statue, and the provisions of this Section 16shall govern in the case of such taking.17. ASSIGNMENT OR SUBLEASE:A. Consent by Landlord: Except as specifically provided in thisSection 17, Tenant may not assign, sublet, hypothecate, or allow a thirdparty to use the Premises without the express written consent of Landlord.In the event Tenant desires to assign this Lease or any interest hereinincluding, without limitation, a pledge, mortgage or other hypothecation,or sublet the Premises or any part thereof, Tenant shall deliver to Landlord(i) executed counterparts of any agreement and of all ancillary agreementswith the proposed assignee/subtenant, (ii) current financial statements ofthe transferee covering the preceding three years, (iii) the nature of theproposed transferee’s business to be carried on in the Premises and (iv) acurrent financial statement of Tenant. Landlord may condition its approvalof any Transfer to a certification from both Tenant and the proposedtransferee of all consideration to be paid to Tenant in connection with suchTransfer. At Landlord’s request, Tenant shall also provide additionalinformation reasonably required by Landlord to determine whether it willconsent to the proposed assignment or sublease. Landlord shall have athirty (30) day period following receipt of all the Page 15foregoing within which to notify Tenant in writing that Landlord elects to:(i) terminate this Lease as to the space so affected as of the date so specifiedby Tenant, in which case Tenant will be relieved of all further obligationsas to such space; (ii) permit Tenant to assign or sublet such space to thenamed assignee/ subtenant on the terms and conditions set forth in thenotice; or (iii) refuse consent. If Landlord should fail to notify Tenant inwriting of such election within the 30-day period, Landlord shall bedeemed to have elected option (ii) above. In the event Landlord electsoption (i) above, this Lease shall expire with respect to such part of thePremises on the date upon which the proposed sublease was to commence,and from such date forward, Base Monthly Rent and Tenant’s AllocableShare of all other costs and charges shall be adjusted based upon theproportion that the rentable area of the Premises remaining bears to thetotal rentable area of the Premises. In the event Landlord elects option (ii)above, Landlord’s written consent to the proposed assignment or subleaseshall not be unreasonably withheld, provided and upon the condition that:(i) the proposed assignee or subtenant is engaged in a business that islimited to the use expressly permitted under this Lease; (ii) the proposedassignee or subtenant is a company with sufficient financial worth andmanagement ability to undertake the financial obligation of this Lease andLandlord has been furnished with reasonable proof thereof; (iii) theproposed assignment or sublease is in form reasonably satisfactory toLandlord; (iv) the amount of the aggregate rent to be paid by the proposedsubtenant is not less than the then current “Fair Market Rental” as definedin Section 18.A below; (v) Tenant reimburses Landlord on demand for anycosts that may be incurred by Landlord in connection with said assignmentor sublease, including the costs of making investigations as to theacceptability of the proposed assignee or subtenant and legal costs incurredin connection with the granting of any requested consent; and (vi) Tenantshall not have advertised or publicized in any way the availability of thePremises without prior notice to Landlord. In the event all or any one of theforegoing conditions are not satisfied, Landlord shall be considered to haveacted reasonably if it withholds its consent.B. Assignment or Subletting Consideration: Any rent or othereconomic consideration realized by Tenant under any sublease andassignment, in excess of the rent payable hereunder and reasonablesubletting and assignment costs, shall be divided and paid fifty percent(50%) to Landlord and fifty percent (50%) to Tenant. Tenant’s obligationto pay over Landlord’s portion of the consideration constitutes anobligation for additional rent hereunder. The above provisionsrelating to Landlord’s right to terminate the Lease and relating to theallocation of bonus rent are independently negotiated terms of the Leasewhich constitute a material inducement for the Landlord to enter into theLease, and are agreed by the parties to be commercially reasonable. Noassignment or subletting by Tenant shall relieve it of any obligation underthis Lease. Any assignment or subletting which conflicts with theprovisions hereof shall be void.C. No Release: Any assignment or sublease shall be made only if andshall not be effective until the assignee or subtenant shall execute,acknowledge, and deliver to Landlord an agreement, in form and substancesatisfactory to Landlord, whereby the assignee or subtenant shall assume allthe obligations of this Lease on the part of Tenant to be performed orobserved and shall be subject to all the covenants, agreements, terms,provisions and conditions in this Lease. Notwithstanding any suchsublease or assignment and the acceptance of rent by Landlord from anysubtenant or assignee, Tenant and any guarantor shall remain fully liablefor the payment of Base Monthly Rent and additional rent due, and tobecome due hereunder, for the performance of all the covenants,agreements, terms, provisions and conditions contained in this Lease on thepart of Tenant to be performed and for all acts and omissions of anylicensee, subtenant, assignee or any other person claiming under or throughany subtenant or assignee that shall be in violation of any of the terms andconditions of this Lease, and any such violation shall be deemed aviolation by Tenant. Tenant shall indemnify, defend and hold Landlordharmless from and against all losses, liabilities, damages, costs andexpenses (including reasonable attorney fees) resulting from any claimsthat may be made against Landlord by any real estate brokers or otherpersons claiming compensation in connection with the proposedassignment or sublease.D. Reorganization of Tenant: The provisions of this Section 17.D shallapply if Tenant is a corporation and: (i) there is a dissolution, merger,consolidation, or other reorganization of or affecting Tenant, where Tenantis not the surviving corporation, or (ii) there is a sale or transfer to oneperson or entity (or to any group of related persons or entities) of stockpossessing more than 50% of the total combined voting power of all classesof Tenant’s capital stock issued, outstanding and entitled to vote for theelection of directors, and after such sale or transfer of stock Tenant’s stockis no longer publicly traded. In a transaction under clause (i) the survivingcorporation shall promptly execute and deliver to Landlord an agreementin form reasonably satisfactory to Landlord under which such corporation Page 16assumes the obligations of Tenant hereunder, and in a transaction underclause (ii) the transferee shall promptly execute and deliver to Landlord anagreement in form reasonably satisfactory to Landlord under which suchtransferee assumes the obligations of Tenant to the extent accruing aftersuch transferee’s acquisition of Tenant’s stock possessing more than 50%of the total combined voting of all classes of Tenant’s capital stock issued,outstanding and entitled to vote for the election of directors.E. Permitted Transfers: Notwithstanding anything contained in thisSection 17, so long as Tenant otherwise complies with the provisions ofthis Article, Tenant may enter into any of the following transfers (a“Permitted Transfer”) without Landlord’s prior consent, and Landlord shallnot be entitled to terminate the Lease or to receive any part of any subrentresulting therefrom that would otherwise be due pursuant to Sections 17.Aand 17.B. Tenant may sublease all or part of the Premises or assign itsinterest in this Lease to (i) any corporation which controls, is controlled by,or is under common control with the original Tenant to this Lease by meansof an ownership interest of more than 50%; (ii) a corporation which resultsfrom a merger, consolidation or other reorganization in which Tenant is notthe surviving corporation, so long as the surviving corporation has a networth at the time of such assignment that is equal to or greater than the networth of Tenant immediately prior to such transaction; and (iii) acorporation which purchases or otherwise acquires all or substantially all ofthe assets of Tenant so long as such acquiring corporation has a net worthat the time of such assignment that is equal to or greater than the net worthof Tenant immediately prior to such transaction.F. Effect of Default: In the event of Tenant’s default, Tenant herebyassigns all rents due from any assignment or subletting to Landlord not toexceed the amount of such default as security for performance of itsobligations under this Lease, and Landlord may collect such rents asTenant’s Attorney-in-Fact, except that Tenant may collect such rents unlessa default occurs as described in Section 13 above. A Lease termination dueto Tenant’s default shall not automatically terminate an assignment orsublease then in existence; rather at Landlord’s election, such assignmentor sublease shall survive the Lease termination, the assignee or subtenantshall attorn to Landlord, and Landlord shall undertake the obligations ofTenant under the sublease or assignment; except that Landlord shall not beliable for prepaid rent, security deposits or other defaults of Tenant to thesubtenant or assignee, or for any acts or omissions of Tenant and Tenant’sAgents.G. Conveyance by Landlord: As used in this Lease, the term“Landlord” is defined only as the owner for the time being of the Premises,so that in the event of any sale or other conveyance of the Premises or inthe event of a master lease of the Premises, Landlord shall be entirely freedand relieved of all its covenants and obligations hereunder, and it shall bedeemed and construed, without further agreement between the parties andthe purchaser at any such sale or the master tenant of the Premises, that thepurchaser or master tenant of the Premises has assumed and agreed to carryout any and all covenants and obligations of Landlord hereunder. Suchtransferor shall transfer and deliver Tenant’s security deposit to thepurchaser at any such sale or the master tenant of the Premises, andthereupon the transferor shall be discharged from any further liability inreference thereto.F. Successors and Assigns: Subject to the provisions this Section 17,the covenants and conditions of this Lease shall apply to and bind theheirs, successors, executors, administrators and assigns of all parties hereto;and all parties hereto shall be jointly and severally liable hereunder.18. OPTION TO EXTEND THE LEASE TERM:A. Grant and Exercise of Option: Landlord grants to Tenant, subjectto the terms and conditions set forth in this Section 18.A, one (1) option(the “Option”) to extend the Lease Term for an additional term (the “OptionTerm”). The Option Term shall be for a period of sixty (60) months andshall be exercised, if at all, by written notice to Landlord no earlier thaneighteen (18) months prior to the Expiration Date but no later than twelve(12) months prior to the Expiration Date, time being of the essence for thegiving of such notice. If Tenant exercises the Option, all of the terms,covenants and conditions of this Lease except this Section shall applyduring the Option Term as though the expiration date of the Option Termwas the date originally set forth herein as the Expiration Date, providedthat Base Monthly Rent for the Premises payable by Tenant during theOption Term shall be the greater of (i) One Hundred Thirty Five Thousandand No/100 Dollars ($135,000.00), and (ii) ninety five percent (95%) of theFair Market Rental as hereinafter defined. Notwithstanding anything herein to thecontrary, if Tenant is in monetary or material non-monetary default underany of the terms, covenants or conditions of this Lease either at the timeTenant exercises the Option or at any time thereafter prior to thecommencement date of the Option Term, Landlord shall have, in additionto all of Landlord’s other rights and remedies provided in this Lease, theright to terminate the Option upon notice to Page 17Tenant, in which event the expiration date of this Lease shall be and remainthe Expiration Date. As used herein, the term “Fair Market Rental” isdefined as the rental and all other monetary payments, including anyescalations and adjustments thereto (including without limitationConsumer Price Indexing) that Landlord could obtain during the OptionTerm from a third party desiring to lease the Premises, based upon thecurrent use and other potential uses of the Premises, as determined by therents then being obtained for new leases of space comparable in age andquality to the Premises in the locality of the Building. Fair Market Rentalshall further take into account that Tenant is in occupancy and makingfunctional use of the Premises in its then existing condition. Fair MarketRental shall additionally include only value of the 67,000 sf of landassociated with Building Addition and shall exclude the balance of thevalue of Building Addition if such addition has been constructed byTenant. The appraisers shall be instructed that the foregoing five percent(5%) discount is intended to reduce comparable rents which include (i)brokerage commissions, (ii) tenant improvement allowances, and (iii)vacancy costs, to account for the fact that Landlord will not suffer suchcosts in the event Tenant exercises its Option.B. Determination of Fair Market Rental: If Tenant exercises theOption, Landlord shall send Tenant a notice setting forth the Fair MarketRental for the Option Term within thirty (30) days following the ExerciseDate. If Tenant disputes Landlord’s determination of Fair Market Rental forthe Option Term, Tenant shall, within thirty (30) days after the date ofTenant’s receipt of Landlord’s notice setting forth Fair Market Rental forthe Option Term, send to Landlord a notice stating that Tenant either electsto terminate its exercise of the Option, in which event the Option shalllapse and this Lease shall terminate on the Expiration Date, or that Tenantdisagrees with Landlord’s determination of Fair Market Rental for theOption Term and elects to resolve the disagreement as provided in Section18.C below. If Tenant does not send Landlord a notice as provided in theprevious sentence, Landlord’s determination of Fair Market Rental shall bethe basis for determining the Base Monthly Rent payable by Tenant duringthe Option Term. If Tenant elects to resolve the disagreement as providedin Section 18.C and such procedures are not concluded prior to thecommencement date of the Option Term, Tenant shall pay to Landlord asBase Monthly Rent the Fair Market Rental as determined by Landlord inthe manner provided above. If the Fair Market Rental as finally determinedpursuant to Section 18.C is greater than Landlord’s determination, Tenantshall pay Landlord the difference between theamount paid by Tenant and ninety five percent (95%) of the Fair MarketRental as so determined in Section 18.C within thirty (30) days after suchdetermination. If the Fair Market Rental as finally determined in Section18.C is less than Landlord’s determination, the difference between theamount paid by Tenant and the Fair Market Rental as so determined inSection 18.C shall be credited against the next installments of rent duefrom Tenant to Landlord hereunder.C. Resolution of a Disagreement over the Fair Market Rental: Anydisagreement regarding Fair Market Rental shall be resolved as follows:1. Within thirty (30) days after Tenant’s response to Landlord’s noticesetting forth the Fair Market Rental, Landlord and Tenant shall meet atleast two (2) times at a mutually agreeable time and place, in an attempt toresolve the disagreement.2. If within the 30-day period referred to above, Landlord and Tenantcannot reach agreement as to Fair Market Rental, each party shall selectone appraiser to determine Fair Market Rental. Each such appraiser shallarrive at a determination of Fair Market Rental and submit theirconclusions to Landlord and Tenant within thirty (30) days after theexpiration of the 30-day consultation period described above.3. If only one appraisal is submitted within the requisite time period, itshall be deemed as Fair Market Rental. If both appraisals are submittedwithin such time period and the two appraisals so submitted differ by lessthan ten percent (10%), the average of the two shall be deemed as FairMarket Rental. If the two appraisals differ by more than 10%, the appraisersshall immediately select a third appraiser who shall, within thirty (30) daysafter his selection, make and submit to Landlord and Tenant adetermination of Fair Market Rental. This third appraisal will then beaveraged with the closer of the two previous appraisals and the result shallbe Fair Market Rental.4. All appraisers specified pursuant to this Section shall be members ofthe American Institute of Real Estate Appraisers with not less than ten (10)years experience appraising office and industrial properties in the SantaClara Valley. Each party shall pay the cost of the appraiser selected by suchparty and one-half of the cost of the third appraiser.D. Personal to Tenant: All Options provided to Tenant in this Leaseare personal and granted to Symbol Technologies, Inc. and are notexercisable by any third party should Tenant assign or sublet all or aportion of its rights under this Lease, unless Landlord Page 18consents to permit exercise of any option by any assignee or subtenant, inLandlord’s sole and absolute discretion. In the event Tenant has multipleoptions to extend this Lease, a later option to extend the Lease cannot beexercised unless the prior option has been so exercised.19. GENERAL PROVISIONS:A. Attorney’s Fees: In the event a suit or alternative form of disputeresolution is brought for the possession of the Premises, for the recovery ofany sum due hereunder, to interpret the Lease, or because of the breach ofany other covenant herein; then the losing party shall pay to the prevailingparty reasonable attorney’s fees including the expense of expert witnesses,depositions and court testimony as part of its costs which shall be deemedto have accrued on the commencement of such action. The prevailing partyshall also be entitled to recover all costs and expenses including reasonableattorney’s fees incurred in enforcing any judgment or award against theother party. The foregoing provision relating to post-judgment costs isseverable from all other provisions of this Lease.B. Authority of Parties: Tenant represents and warrants that it is dulyformed and in good standing, and is duly authorized to execute and deliverthis Lease on behalf of said corporation, in accordance with a duly adoptedresolution of the Board of Directors of said corporation or in accordancewith the by-laws of said corporation, and that this Lease is binding uponsaid corporation in accordance with its terms. At Landlord’s request, Tenantshall provide Landlord with corporate resolutions or other proof in a formacceptable to Landlord, authorizing the execution of the Lease.C. Brokers: Tenant represents it has not utilized or contacted a realestate broker or finder with respect to this Lease other than Colliers Parrishwhich shall be paid in its entirety by Landlord and Tenant agrees toindemnify, defend and hold Landlord harmless against any claim, cost,liability or cause of action asserted by any other broker or finder claimingthrough Tenant.D. Choice of Law: This Lease shall be governed by and construed inaccordance with California law. Venue shall be Santa Clara County.E. Dispute Resolution: Landlord and Tenant and any other party thatmay become a party to this Lease or be deemed a party to this Leaseincluding any subtenants agree that, except for any claim by Landlord forunlawful detainer or any claim within the jurisdiction of the small claimscourt (which for suchclaims the parties agree shall be the sole court of competent jurisdiction),any controversy, dispute, or claim of whatever nature arising out of, inconnection with or in relation to the interpretation, performance or breachof this Lease, including any claim based on contract, tort, or statute, shallbe resolved at the request of any party to this agreement through a two-stepdispute resolution process administered by J. A. M. S. or another judicialmediation service mutually acceptable to the parties located in Santa ClaraCounty. The dispute resolution process shall involve first, mediation,followed, if necessary, by final and binding arbitration administered by andin accordance with the then existing rules and practices of J. A. M. S. orother judicial mediation service selected. In the event of any disputesubject to this provision, either party may initiate a request for mediationand the parties shall use reasonable efforts to promptly select a J. A. M. S.mediator and commence the mediation. In the event the parties are not ableto agree on a mediator within thirty (30) days, J. A. M. S. or another judicialmediation service mutually acceptable to the parties shall appoint amediator. The mediation shall be confidential and in accordance withCalifornia Evidence Code § 1152.5. The mediation shall be held in SantaClara County and in accordance with the existing rules and practice of J. A.M. S. (or other judicial and mediation service selected). The parties shalluse reasonable efforts to conclude the mediation within sixty (60) days ofthe date of either party’s request for mediation. The mediation shall be heldprior to any arbitration or court action (other than a claim by Landlord forunlawful detainer or any claim within the jurisdiction of the small claimscourt which are not subject to this mediation/arbitration provision and maybe filed directly with a court of competent jurisdiction). Should theprevailing party in any dispute subject to this Section 19.E attempt anarbitration or a court action before attempting to mediate, THEPREVAILING PARTY SHALL NOT BE ENTITLED TO ATTORNEY’SFEES THAT MIGHT OTHERWISE BE AVAILABLE TO THEM IN ACOURT ACTION OR ARBITRATION AND IN ADDITION THERETO,THE PARTY WHO IS DETERMINED BY THE ARBITRATOR TO HAVERESISTED MEDIATION, SHALL BE SANCTIONED BY THEARBITRATOR OR JUDGE.If a mediation is conducted but is unsuccessful, it shall be followed by finaland binding arbitration administered by and in accordance with the thenexisting rules and practices of J. A. M. S. or the other judicial andmediation service selected, and judgment upon any award rendered by thearbitrator(s) may be entered by any state or federal court having jurisdictionthereof. The parties to the arbitration shall have those Page 19rights of discovery that the arbitrator(s) deem necessary (after application tothe arbitrator(s)) to a full and fair hearing of the matter. However, in noevent shall the parties be entitled to propound interrogatories or request foradmissions during the arbitration process. The arbitrator shall be a retiredjudge or a licensed California attorney. The venue for any such arbitrationor mediation shall be in Santa Clara County, California.F. Entire Agreement: This Lease and the exhibits attached heretocontains all of the agreements and conditions made between the partieshereto and may not be modified orally or in any other manner other than bywritten agreement signed by all parties hereto or their respective successorsin interest. This Lease supersedes and revokes all previous negotiations,letters of intent, lease proposals, brochures, agreements, representations,promises, warranties, and understandings, whether oral or in writing,between the parties or their respective representatives or any other personpurporting to represent Landlord or Tenant.G. Entry by Landlord: Upon prior notice to Tenant and subject toTenant’s reasonable security regulations, Tenant shall permit Landlord andhis agents to enter into and upon the Premises at all reasonable times, andwithout any rent abatement or reduction or any liability to Tenant for anyloss of occupation or quiet enjoyment of the Premises thereby occasioned,for the following purposes; (i) inspecting and maintaining the Premises; (ii)making repairs, alterations or additions to the Premises; (iii) erectingadditional building(s) and improvements on the land where the Premisesare situated or on adjacent land owned by Landlord; and (iv) performingany obligations of Landlord under the Lease including remediation ofhazardous materials if determined to be the responsibility of Landlord.Tenant shall permit Landlord and his agents, at any time within onehundred eighty (180) days prior to the Expiration Date (or at any timeduring the Lease if Tenant is in default hereunder), to place upon thePremises “For Lease” signs and exhibit the Premises to real estate brokersand prospective tenants at reasonable hours.H. Estoppel Certificates: At any time during the Lease Term, Tenantshall, within ten (10) days following Tenant’s receipt of written notice fromLandlord, execute and deliver to Landlord a written statement certifying, iftrue, the following: (i) that this Lease is unmodified and in full force andeffect (or, if modified, stating the nature of such modification); (ii) the dateto which rent and other charges are paid in advance, if any; (iii)acknowledging that there are not, to Tenant’s knowledge, any uncureddefaults on Landlord’s part hereunder (or specifying such defaultsif they are claimed); and (iv) such other information as Landlord mayreasonably request. Any such statement may be conclusively relied uponby any prospective purchaser or encumbrancer of Landlord’s interest in thePremises. Tenant’s failure to deliver such statement within such time shallbe conclusive upon the Tenant that this Lease is in full force and effectwithout modification, except as may be represented by Landlord, and thatthere are no uncured defaults in Landlord’s performance. Tenant agrees toprovide, within fifteen (15) days of Tenant’s receipt of Landlord’s writtenrequest, Tenant’s most recent three (3) years of audited financial statementsfor Landlord’s use in financing the Premises or Landlord’s interest therein.I. Exhibits: All exhibits referred to are attached to this Lease andincorporated by reference.J. Interest: All rent due hereunder, if not paid when due, shall bearinterest at the rate of the Reference Rate published by Bank of America,San Francisco Branch, plus two percent (2%) per annum from that date untilpaid in full (“Agreed Interest Rate”). This provision shall survive theexpiration or sooner termination of the Lease. Despite any other provisionof this Lease, the total liability for interest payments shall not exceed thelimits, if any, imposed by the usury laws of the State of California. Anyinterest paid in excess of those limits shall be refunded to Tenant byapplication of the amount of excess interest paid against any sumsoutstanding in any order that Landlord requires. If the amount of excessinterest paid exceeds the sums outstanding, the portion exceeding thosesums shall be refunded in cash to Tenant by Landlord. To ascertain whetherany interest payable exceeds the limits imposed, any non-principalpayment(including late charges) shall be considered to the extent permittedby law to be an expense or a fee, premium, or penalty rather than interest.K. Modifications Required by Lender: If any Lender of Landlord orground lessor of the Real Property Requires a modification of this Leasethat will not increase Tenant’s cost or expense or materially or adverselychange Tenant’s rights and obligations, this Lease shall be so modified andTenant shall execute whatever documents are required and deliver them toLandlord within fifteen (15) days after Tenant’s receipt of Landlord’swritten request.L. No Presumption Against Drafter: Landlord and Tenant understand,agree and acknowledge that this Lease has been freely negotiated by bothparties; and that in any controversy, dispute, or contest over the meaning,interpretation, validity, or enforceability of Page 20this Lease or any of its terms or conditions, there shall be no inference,presumption, or conclusion drawn whatsoever against either party by virtueof that party presumption, or conclusion drawn whatsoever against eitherparty by virtue of that party having drafted this Lease or any portionthereof.M. Notices: All notices, demands, requests, or consents required to begiven under this Lease shall be sent in writing by U.S. certified mail, returnreceipt requested, or by personal delivery addressed to the party to benotified at the address for such party specified in Section 1 of this Lease, orto such other place as the party to be notified may from time to timedesignate by at least fifteen (15) days prior notice to the notifying party.When this Lease requires service of a notice, that notice shall replace ratherthan supplement any equivalent or similar statutory notice, including anynotices required by Code of Civil Procedure Section 1161 or any similar orsuccessor statute, when a statute requires service of a notice in a particularmanner, service of that notice (or a similar notice required by this lease)shall replace and satisfy the statutory service-of-notice procedures,including those required by Code of Civil Procedure Section 1162 or anysimilar or successor statute.N. Property Management: In addition, Tenant agrees to pay Landlordalong with the expenses to be reimbursed by Tenant a monthly fee formanagement services rendered by either Landlord or a third party managerengaged by Landlord (which may be a party affiliated with Landlord), inthe amount of three percent (3%) of the Base Monthly Rent.O. Rent: All monetary sums due from Tenant to Landlord under thisLease, including, without limitation those referred to as “additional rent”,shall be deemed as rent.P. Representations: Tenant acknowledges that neither Landlord norany of its employees or agents have made any agreements, representations,warranties or promises with respect to the Premises or with respect topresent or future rents, expenses, operations, tenancies or any other matter.Except as herein expressly set forth herein, Tenant relied on no statement ofLandlord or its employees or agents for that purpose.Q. Rights and Remedies: All rights and remedies hereunder arecumulative and not alternative to the extent permitted by law, and are inaddition to all other rights and remedies in law and in equity.R. Severability: If any term or provision of this Lease is heldunenforceable or invalid by a court of competent jurisdiction, theremainder of the Lease shall not be invalidated thereby but shall beenforceable in accordance with its terms, omitting the invalid orunenforceable term.S. Submission of Lease: Submission of this document for examinationor signature by the parties does not constitute an option or offer to lease thePremises on the terms in this document or a reservation of the Premises infavor of Tenant. This document is not effective as a lease or otherwise untilexecuted and delivered by both Landlord and Tenant.T. Subordination: This Lease is subject and subordinate to ground andunderlying leases, mortgages and deeds of trust (collectively“Encumbrances”) which may now affect the Premises, to any covenants,conditions or restrictions of record, and to all renewals, modifications,consolidations, replacements and extensions thereof; provided, however, ifthe holder or holders of any such Encumbrance (“Holder”) require that thisLease be prior and superior thereto, within seven (7) days after Tenant’sreceipt of a written request of Landlord, Tenant shall execute, haveacknowledged and deliver all documents or instruments, in the formpresented to Tenant, which Landlord or Holder deems necessary ordesirable for such purposes. Landlord shall have the right to cause thisLease to be and become and remain subject and subordinate to any and allEncumbrances which are now or may hereafter be executed covering thePremises or any renewals, modifications, consolidations, replacements orextensions thereof, for the full amount of all advances made or to be madethereunder and without regard to the time or character of such advances,together with interest thereon and subject to all the terms and provisionsthereof; provided only, that in the event of termination of any such lease orupon the foreclosure of any such mortgage or deed of trust, Holder agrees torecognize Tenant’s rights under this Lease as long as Tenant is not then indefault and continues to pay Base Monthly Rent and additional rent andobserves and performs all required provisions of this Lease. Within ten (10)days after Tenant’s receipt of Landlord’s written request, Tenant shallexecute any documents required by Landlord or the Holder to make thisLease subordinate to any lien of the Encumbrance. If Tenant fails to do so,then in addition to such failure constituting a default by Tenant, it shall bedeemed that Page 21this Lease is so subordinated to such Encumbrance. Notwithstandinganything to the contrary in this Section, Tenant hereby attorns and agreesto attorn to any entity purchasing or otherwise acquiring the Premises atany sale or other proceeding or pursuant to the exercise of any other rights,powers or remedies under such encumbrance.U. Survival of Indemnities: All indemnification, defense, and holdharmless obligations of Landlord and Tenant under this Lease shall survivethe expiration or sooner termination of the Lease.V. Time: Time is of the essence hereunder.W. This paragraph intentionally left blankX. Waiver of Right to Jury Trial: Landlord and Tenant waive theirrespective rights to trial by jury of any contract or tort claim, counterclaim,cross-complaint, or cause of action in any action, proceeding, or hearingbrought by either party against the other on any matter arising out of or inany way connected with this Lease, the relationship of Landlord andTenant, or Tenant’s use or occupancy of the Premises, including any claimof injury or damage or the enforcement of any remedy under any current orfuture law, statute, regulation, code, or ordinance. Page 22 IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and year first above written. Landlord: SOBRATO LAND HOLDINGS Tenant: SYMBOL TECHNOLOGIES, INC.a California Limited Partnership a Delaware Corporation By: /s/ John M. Sobrato By: /s/ Brian T. Burke John M. Sobrato Brian T. BurkeIts: General Partner Its: Senior VP.  10600 North De Anza Blvd. 408.446.0700Suite 200 Facsimile: 408.446.0583Cupertino, CA 95014-2075 www.sobrato.com FIRST AMENDMENT TO LEASEThis first amendment to lease (“Amendment”) is made this 13th day of August, 1999 (“Effective Date”) by and between SOBRATO LAND HOLDINGS, aCalifornia limited partnership having an address at 10600 N. De Anza Blvd., Suite 200, Cupertino, California 95014 (“Landlord”) and SYMBOLTECHNOLOGIES, INC., a Delaware corporation having its principal place of business at One Symbol Plaza, Holtsville, NY 11742-1300 (“Tenant”).WITNESSETHWHEREAS Landlord and Tenant entered into a lease dated August 24, 1998, (the “Lease”) for the premises (“Premises”) located at 6480 Via Del Oro SanJose, California; andWHEREAS Landlord and Tenant wish to document the Commencement Date and extend the Lease Term by several weeks;NOW, THEREFORE, in order to effect the intent of the parties as set forth above and for good and valuable consideration exchanged between the parties,the Lease is amended as of the Effective Date as follows:1.The Commencement Date of the Lease is agreed by the Parties to be the date of August 13, 1999. Tenant has previously paid Landlord the rent for thefirst month of the Lease Term pursuant to the terms of the Lease.2.Notwithstanding the terms of the Lease, the Expiration Date of the Lease is agreed by the Parties to be the date of August 31, 2009.3.All defined terms shall have the same meanings as in the Lease, except as otherwise stated in this Amendment.4.Except as hereby amended, the Lease and all of the terms, covenants and conditions thereof shall remain unmodified and in full force and effect. Inthe event of any conflict or inconsistency between the terms and provisions of this First Amendment and the terms and provisions of the Lease, theterms and provisions of this First Amendment shall prevail.IN WITNESS WHEREOF, the parties hereto have set their hands to this Amendment as of the day and date first above written. Landlord TenantSOBRATO LAND HOLDINGS SYMBOL TECHNOLOGIES, INC.a California limited partnership a Delaware Corporation By: /s/ John M. Sobrato By: /s/ Brian T. BurkeIts: General Partner Its: SENIOR VP  SECOND AMENDMENT TO LEASEThis second amendment to lease (“Amendment”) is made this 13th day of August, 1999 (“Effective Date”) by and between Sobrato Land Holdings aCalifornia limited partnership having an address at 10600 N. De Anza Blvd., Suite 200, Cupertino, California 95014 (“Landlord”) and Symbol Technologies,Inc., a Delaware corporation having its principal place of business at One Symbol Plaza, Holtsville, New York 11742-1300 (“Tenant”).WITNESSETHWHEREAS Landlord and Tenant entered into a lease dated August 24, 1998, and a first amendment to lease dated August 13, 1999 (the “Lease”) for thepremises (“Premises”) located at 6480 Via Del Oro, California; andWHEREAS Landlord and Tenant wish to modify the square footage of the building, the monthly rent and the work allowanceNOW, THEREFORE, in order to effect the intent of the parties as set forth above and for good and valuable consideration exchanged between the parties,the Lease is amended as of the Effective Date as follows:1.The square footage of the premises has been measured following completion of construction and has been determined to be 102,139 square feetpursuant to paragraph 2.B of the Lease.2.The initial Base Monthly Rent shall be increased based on the final square footage to $137,887.65, subject to further increase pursuant to Sections4.B and 7.B3.The Work Allowance based on the final square footage shall be increased to $3,268,448.004.All defined terms shall have the same meanings as in the Lease, except as otherwise stated in this Amendment.5.Except as hereby amended, the Lease and all of the terms, covenants and conditions thereof shall remain unmodified and in full force and effect. Inthe event of any conflict or inconsistency between the terms and provisions of this Second Amendment and the terms and provisions of the Lease, theterms and provisions of this Second Amendment shall prevail.IN WITNESS WHEREOF, the parties hereto have set their hands to this Amendment as of the day and date first above written. Landlord TenantSobrato Land Holdings, Symbol Technologies, Inc.,a California limited partnership a Delaware Corporation By: /s/ John M. Sobrato By: /s/ Brian T. Burke John M. Sobrato BRIAN T. BURKEIts: General Partner Its: SENIOR VP  10600 North De Anza Blvd.408. 446. 0700Suite 200Facsimile: 408. 446. 0583Cupertino, CA 95014-2075www.sobrato.com THIRD AMENDMENT TO LEASEThis third amendment to lease (“Amendment”) is made this 8th day of April, 2008 (“Effective Date”) by and between Sobrato Land Holdings, a Californialimited partnership having an address at 10600 N. De Anza Blvd., Suite 200, Cupertino, California 95014 (“Landlord”) and Symbol Technologies, Inc., aDelaware corporation and Motorola Inc., a Delaware corporation, jointly as tenants, both having their principal place of business at 1303 E. Algonquin Road,Schaumburg, IL 60196 (“Tenant”).WITNESSETHWHEREAS Landlord and Symbol Technologies, Inc. entered into a lease dated August 24, 1998 (the “Lease”) for the building of 102,139 rentable squarefeet located at 6480 Via Del Oro in San Jose, California (“Premises”); andWHEREAS Landlord and Tenant entered into a First Amendment to Lease and a Second Amendment to Lease both dated August 13, 1999; andWHEREAS Motorola, Inc. joined Symbol Technologies Inc. as tenant under the Lease and became jointly and severally liable with Symbol for theperformance of all obligations, agreements, covenants, indemnities and other undertakings on the part of the Tenant that are incurred or accrue from and afterJanuary 9, 2007.WHEREAS effective with the date of this Amendment, Landlord and Tenant wish to modify the Lease to: (i) extend the Lease Term; (ii) specify the BaseMonthly Rent schedule for the remainder of Lease Term and during the extension term (iii) cancel Tenant’s obligation to provide a Security Deposit; and (iv)provide Tenant with an additional option to renew.NOW, THEREFORE, in order to effect the intent of the parties as set forth above and for good and valuable consideration exchanged between the parties,the Lease is amended as of the Effective Date as follows: 1.The Lease Term is extended for sixty (60) months from August 31, 2009; resulting in a revised Lease Expiration Date of August 31, 2014. 2.The Base Monthly Rent schedule for the Premises is a follows: 05/01/2008 through 08/31/2008 $145,635 per month09/01/2008 through 08/31/2009 $149,685 per month09/01/2009 through 08/31/2010 $153,857 per month09/01/2010 through 08/31/2011 $158,153 per month09/01/2011 through 08/31/2012 $162,579 per month09/01/2012 through 08/31/2013 $167,137 per month09/01/2013 through 08/31/2014 $171,832 per month  3.Upon execution of this Amendment Landlord shall no longer require Tenant to provide a Security Deposit and Paragraph 4(D) is herebydeleted. Landlord shall return to Tenant the Security Deposit documentation or cash in its possession together with the executed thirdAmendment. 4.Section 18 of the Lease entitled “Option to Extend The Lease Term” shall continue to apply and Tenant is hereby granted an additionaloption to renew and extend the Lease pursuant to the terms of Section 18, except that Section 18D shall be amended to include Motorola,Inc. as well as Symbol Technologies, Inc. 5.All defined terms shall have the same meanings as in the Lease, except as otherwise stated in this Amendment. 6.Except as hereby amended, the Lease and all of the terms, covenants and conditions thereof shall remain unmodified and in full force andeffect. In the event of any conflict or inconsistency between the terms and provisions of this First Amendment and the terms and provisions ofthe Lease, the terms and provisions of this First Amendment shall prevail.IN WITNESS WHEREOF, the parties hereto have set their hands to this Amendment as of the day and date first above written. LandlordSobrato Development Companies #871a California limited partnershipBy: /s/ John M. SobratoPrint Name: John M. SobratoIts: General Partner TenantSymbol Technologies, Inc.a Delaware corporationBy: /s/ Terry RiethPrint Name: TERRY RIETHIts: SENIOR AIRECTOR REAL ESTATE OPERATION Motorola, Inc. a Delaware corporation By: /s/ Terry RiethPrint Name: TERRY RIETHIts: SENIOR AIRECTOR REAL ESTATE OPERATION Page 2 FOURTH AMENDMENT TO LEASEThis fourth amendment to lease (“Amendment”) is made this 22 day of November, 2011 (“Effective Date”) by and between SI 25, a Limited LiabilityCompany as successor in interest to Sobrato Land Holdings having an address at 10600 N. De Anza Blvd., Suite 200, Cupertino, California 95014(“Landlord”) and Symbol Technologies, Inc., a Delaware corporation and Motorola Solutions Inc. (f/k/a Motorola, Inc.), a Delaware corporation, jointly astenants, both having their principal place of business at 1303 E. Algonquin Road, Schaumburg, IL 60196 (“Tenant”).WITNESSETHWHEREAS Landlord and Symbol Technologies, Inc. entered into a lease dated August 24, 1998, as amended by a First Amendment to Lease and a SecondAmendment to Lease both dated August 13, 1999 and a Third Amendment to Lease dated April 8, 2008 (collectively, the “Lease”) for the building of102,139 rentable square feet located at 6480 Via Del Oro in San Jose, California (“Premises”); andWHEREAS Motorola, Inc. joined Symbol Technologies Inc. as tenant under the Lease and became jointly and severally liable with Symbol for theperformance of all obligations, agreements, covenants, indemnities and other undertakings on the part of the Tenant that are incurred or accrue from and afterJanuary 9, 2007.WHEREAS effective with the date of this Amendment, Landlord and Tenant wish to modify the Lease to: (i) extend the Lease Term; (ii) specify the BaseMonthly Rent schedule for the remainder of Lease Term and during the Extension Term (iii) provide Tenant a Work Allowance; and (iv) provide Tenant withan additional option to renew.NOW, THEREFORE, in order to effect the intent of the parties as set forth above and for good and valuable consideration exchanged between the parties,the Lease is amended as of the Effective Date as follows: 1.The Lease Term is extended for sixty (60) months from August 31, 2014; resulting in a revised Lease Expiration Date of August 31, 2019. 2.The Base Monthly Rent schedule for the Premises is a follows: 09/01/2011 through 08/31/2012 $162,579 per month09/01/2012 through 08/31/2013 $167,137 per month09/01/2013 through 08/31/2014 $171,832 per month09/01/2014 through 08/31/2015 $176,643 per month09/01/2015 through 08/31/2016 $181,589 per month09/01/2016 through 08/31/2017 $186,674 per month09/01/2017 through 08/31/2018 $191,901 per month09/01/2018 through 08/31/2019 $197,274 per month 3.In connection with this Lease Amendment Landlord shall provide Tenant a work allowance in the amount of One Million Twenty OneThousand Three Hundred and Ninety Dollars and no/00 ($1,021,390.00). Landlord shall pay Tenant within 30 days of Tenant submittinginvoices to Landlord showing the work performed at the Premises. 4.Section 18 of the Lease entitled “Option to Extend The Lease Term” shall continue to apply and Tenant is hereby granted and shall have one(1) option to renew and extend the Lease pursuant to the terms of Section 18, except that Section 18D shall be amended to include MotorolaSolutions, Inc. as well as Symbol Technologies, Inc. 5.All defined terms shall have the same meanings as in the Lease, except as otherwise stated in this Amendment. 6.Except as hereby amended, the Lease and all of the terms, covenants and conditions thereof shall remain unmodified and in full force andeffect. In the event of any conflict or inconsistency between the terms  and provisions of this Fourth Amendment and the terms and provisions of the Lease, the terms and provisions of this Fourth Amendmentshall prevail.IN WITNESS WHEREOF, the parties hereto have set their hands to this Amendment as of the day and date first above written. LandlordSI 25a Limited Liability CompanyBy: /s/ John Michael SobratoPrint Name: John Michael SobratoIts: General Partner TenantSymbol Technologies, Inc.a Delaware corporation By: /s/ Delmer KnipferPrint Name: Delmer KnipferIts: Authorized Signatory Motorola, Inc.a Delaware corporation By: /s/ Delmer KnipferPrint Name: Delmer KnipferIts: DIRECTOR, GLOBAL Real ESTATE  ASSIGNMENT OF LEASE THIS ASSIGNMENT OF LEASE is made and entered into as of the 28th day of October, 2016, by andbetween Zebra Technologies Corporation, a Delaware corporation (hereinafter called “Assignor”) and Extreme Networks,Inc., a Delaware corporation (hereinafter called “Assignee”). WITNESSETH THAT: WHEREAS, Assignor is the tenant of the premises located at 6480 Via del Oro, in the City of San Jose,County of Santa Clara, State of California and more particularly described in the hereinafter referred to Lease(“Premises”); WHEREAS, Assignor leases the Premises from SI 25, LLC, a California limited liability company(“Landlord”) pursuant to that certain Lease dated August 24, 1998 between Landlord’s predecessor in interest, SobratoLand Holding, a California limited partnership (“SLH”), and Assignor’s predecessor in interest, Symbol Technologies, Inc., aDelaware corporation (“Symbol”), as amended by a First Amendment to Lease and a Second Amendment to Lease bothdated August 13, 1999 between SLH and Symbol, a Joinder signed by Motorola, Inc., a Delaware corporation (“Motorola”)dated effective as of January 9, 2007, a Third Amendment to Lease dated April 8, 2008 between SLH, as the landlord, andSymbol and Motorola, as the tenant, and a Fourth Amendment to Lease dated November 22, 2011 between Landlord, asthe landlord, and Symbol and Motorola, as the tenant (as amended the “Lease”) a copy of the Lease being incorporatedherein by reference and attached hereto as Exhibit A; WHEREAS, Landlord consented to the assignment of the Lease to Tenant pursuant to a Landlord’sConsent To Assignment previously entered into by and among Symbol, Motorola, Zebra and Landlord (the “PriorAssignment Consent”); and WHEREAS, Assignor and Assignee desire that all of the rights of Assignor under the Lease shall beassigned and transferred to Assignee; NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties, and agreementscontained herein, as well as other good and valuable consideration, the receipt and adequacy are hereby acknowledged, itis hereby agreed by and between the parties as follows: 1.Assignor does hereby assign to Assignee all of its right, title, and interest in andto the Lease, effective on the date hereof (the “Effective Date”). 2.Assignee hereby accepts the above assignment from Assignor, and agrees fullyand timely to satisfy, uphold, and perform all duties and obligations of Assignor pursuant to the Lease, including, but notlimited to, the payment of rent as referenced therein, accruing from the Effective Date forward. Assignee shall have no  liability whatsoever for any payments due or other obligations which arose or were required to be performed under theLease prior to the Effective Date.3.The parties acknowledge that Landlord holds a security deposit in the amountof $0. As of the Effective Date, Assignor hereby assigns to Assignee all of Assignor’s right, title, and interest in and to saidamounts, and Assignee shall reimburse Assignor in cash for same. Landlord shall apply said amounts towards Assignee’saccount or return any unearned portion thereof to Assignee in accordance with the terms of the Lease. 4.Any notice, request, demand, or other communication to be given hereunder orpursuant to the Lease shall be in writing and shall be deemed to have been duly given on the date of service if servedpersonally on the party to whom notice is to be given or on the third day after mailing if mailed by first-class certified mail,postage prepaid, return receipt requested, addressed to the intended recipient thereof at the address set forth below.Either party may change its notice address by giving the other party written notice of such change in the manner set forthherein. Assignee:Extreme Networks, Inc.145 Rio RoblesSan Jose, CA 95134Attention: Ted LawsonAssignor: Zebra Technologies Corporation3 Overlook PointLincolnshire, IL 60069Attention: Deanna CheslogCopy to:Extreme Networks, Inc.145 Rio RoblesSan Jose, CA 95134Attention : Katy MotieyCopy to: Zebra Technologies Corporation3 Overlook PointLincolnshire, IL 60069Attention: Legal Department Executed as of the date first set forth above.  “Assignee”Extreme Networks, Inc.,a Delaware corporation/s/ Katy MotieyBy: Katy MotieyIts: EVP,CAO“Assignor” Zebra Technologies Corporation,a Delaware corporation /s/ Michael Cho By: Michael Cho Its: Senior Vice President, Corporate Development Exhibit 10.42EXTREME NETWORKS, INC.NOTICE OF GRANT OF RESTRICTED STOCK UNITS(For U.S. Participants)Extreme Networks, Inc. (the “Company”) has granted to the Participant an award (the “Award”) of certain units pursuant to the Extreme Networks, Inc. 2013Equity Incentive Plan (the “Plan”), each of which represents the right to receive on the applicable Settlement Date one (1) share of Stock, as follows: Participant: Employee ID:Date of Grant: Total Number of Units: Settlement Date:Except as provided by the Restricted Stock Units Agreement, the date on which a Unit becomes a Vested Unit.Vesting Start Date: Vested Units:Except as provided in the Restricted Stock Units Agreement and provided that the Participant’s Service has notterminated prior to the applicable date, as follows:Vesting Date Number of Units Vesting Superseding Agreement:Extreme Networks, Inc Restricted Stock Units Agreement The terms and conditions of the foregoing Superseding Agreement to which the Participantis a party shall, notwithstanding any provision of this notice to the contrary, supersede anyinconsistent term or condition set forth in the notice to the extent intended by suchSuperseding Agreement. By the Company’s authorized signature below and the Participant’s by electronic acceptance in a form authorized by the Company, the Company and theParticipant agree that the Award is governed by this Grant Notice and by the provisions of the Restricted Stock Units Agreement and the Plan, both of whichare made a part of this document, and by the Superseding Agreement, if any. The Participant acknowledges that copies of the Plan, the Restricted Stock UnitsAgreement and the prospectus for the Plan are available on the Company’s internal web site and may be viewed and printed by the Participant for attachmentto the Participant’s copy of this Grant Notice. The Participant represents that the Participant has read and is familiar with the provisions of the RestrictedStock Units Agreement and the Plan, and hereby accepts the Award subject to all of their terms and conditions. EXTREME NETWORKS, INC. 6480 Via Del Oro San Jose, CA ATTACHMENTS:2013 Equity Incentive Plan, as amended to the Date of Grant; Restricted Stock Units Agreement and Plan Prospectus  EXTREME NETWORKS, INC.RESTRICTED STOCK UNITS AGREEMENT(For U.S. Participants) Extreme Networks, Inc. has granted to the Participant named in the Notice of Grant of Restricted Stock Units (the “GrantNotice”) to which this Restricted Stock Units Agreement (the “Agreement”) is attached an Award consisting of Restricted StockUnits (each a “Unit”) subject to the terms and conditions set forth in the Grant Notice and this Agreement. The Award has beengranted pursuant to and shall in all respects be subject to the terms conditions of the Extreme Networks, Inc. 2013 Equity IncentivePlan (the “Plan”), as amended to the Date of Grant, the provisions of which are incorporated herein by reference. By signing theGrant Notice, the Participant: (a) acknowledges receipt of and represents that the Participant has read and is familiar with the GrantNotice, this Agreement, the Plan and a prospectus for the Plan prepared in connection with the registration with the Securities andExchange Commission of the shares issuable pursuant to the Award (the “Plan Prospectus”), (b) accepts the Award subject to all ofthe terms and conditions of the Grant Notice, this Agreement and the Plan and (c) agrees to accept as binding, conclusive and final alldecisions or interpretations of the Committee upon any questions arising under the Grant Notice, this Agreement or the Plan.1.Definitions and Construction.1.1Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings assigned tosuch terms in the Grant Notice or the Plan.1.2Construction. Captions and titles contained herein are for convenience only and shall not affect themeaning or interpretation of any provision of this Agreement. Except when otherwise indicated by the context, the singular shallinclude the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the contextclearly requires otherwise.2.Administration.All questions of interpretation concerning the Grant Notice, this Agreement, the Plan or any other form ofagreement or other document employed by the Company in the administration of the Plan or the Award shall be determined by theCommittee. All such determinations by the Committee shall be final, binding and conclusive upon all persons having an interest in theAward, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Committee inthe exercise of its discretion pursuant to the Plan or the Award or other agreement thereunder (other than determining questions ofinterpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest in theAward. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or electionwhich is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect tosuch matter, right, obligation, or election.3.The Award.3.1Grant of Units. On the Date of Grant, the Participant shall acquire, subject to the provisions of thisAgreement, the Total Number of Units set forth in the Grant Notice, subject to adjustment as provided in Section 9. Each Unitrepresents a right to receive on a date determined in accordance with the Grant Notice and this Agreement one (1) share of Stock.WEST\245560255.12  3.2No Monetary Payment Required. The Participant is not required to make any monetary payment(other than applicable tax withholding, if any) as a condition to receiving the Units or shares of Stock issued upon settlement of theUnits, the consideration for which shall be past services actually rendered or future services to be rendered to a Participating Companyor for its benefit. Notwithstanding the foregoing, if required by applicable law, the Participant shall furnish consideration in the form ofcash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares ofStock issued upon settlement of the Units.4.Vesting of Units.Units acquired pursuant to this Agreement shall become Vested Units as provided in the Grant Notice. Forpurposes of determining the number of Vested Units following an Ownership Change Event, credited Service shall include all Servicewith any corporation which is a Participating Company at the time the Service is rendered, whether or not such corporation is aParticipating Company both before and after the Ownership Change Event.5.Company Reacquisition Right.5.1Grant of Company Reacquisition Right. Except to the extent otherwise provided by theSuperseding Agreement, if any, in the event that the Participant’s Service terminates for any reason or no reason, with or withoutcause, the Participant shall forfeit and the Company shall automatically reacquire all Units which are not, as of the time of suchtermination, Vested Units (“Unvested Units”), and the Participant shall not be entitled to any payment therefor (the “CompanyReacquisition Right”).5.2Ownership Change Event, Non-Cash Dividends, Distributions and Adjustments. Upon theoccurrence of an Ownership Change Event, a dividend or distribution to the stockholders of the Company paid in shares of Stock orother property, or any other adjustment upon a change in the capital structure of the Company as described in Section 9, any and allnew, substituted or additional securities or other property (other than regular, periodic cash dividends paid on Stock pursuant to theCompany’s dividend policy) to which the Participant is entitled by reason of the Participant’s ownership of Unvested Units shall beimmediately subject to the Company Reacquisition Right and included in the terms “Units” and “Unvested Units” for all purposes ofthe Company Reacquisition Right with the same force and effect as the Unvested Units immediately prior to the Ownership ChangeEvent, dividend, distribution or adjustment, as the case may be. For purposes of determining the number of Vested Units following anOwnership Change Event, dividend, distribution or adjustment, credited Service shall include all Service with any corporation which isa Participating Company at the time the Service is rendered, whether or not such corporation is a Participating Company both beforeand after any such event.6.Settlement of the Award.6.1Issuance of Shares of Stock. Subject to the provisions of Section 6.3, the Company shall issue to theParticipant on the Settlement Date with respect to each Vested Unit to be settled on such date one (1) share of Stock. The SettlementDate with respect to a Unit shall be the date on which such Unit becomes a Vested Unit as provided by the Grant Notice (an“Original Settlement Date”); provided, however, that if the Original Settlement Date would occur on a date on which a sale by theParticipant of the shares to be issued in settlement of the Vested Units would violate the Trading Compliance Policy of the Company,the Settlement Date for such Vested Units shall be deferred until the next day on which the sale of such shares would not violate theTrading Compliance Policy, but in any event on or before the 15th day of the thirdWEST\245560255.13  calendar month following calendar year of the Original Settlement Date. Shares of Stock issued in settlement of Units shall not besubject to any restriction on transfer other than any such restriction as may be required pursuant to Section 6.3, Section 7 or theCompany’s Trading Compliance Policy.6.2Beneficial Ownership of Shares; Certificate Registration. The Participant hereby authorizes theCompany, in its sole discretion, to deposit any or all shares acquired by the Participant pursuant to the settlement of the Award with theCompany’s transfer agent, including any successor transfer agent, to be held in book entry form, or to deposit such shares for thebenefit of the Participant with any broker with which the Participant has an account relationship of which the Company hasnotice. Except as provided by the foregoing, a certificate for the shares acquired by the Participant shall be registered in the name ofthe Participant, or, if applicable, in the names of the heirs of the Participant.6.3Restrictions on Grant of the Award and Issuance of Shares. The grant of the Award and issuanceof shares of Stock upon settlement of the Award shall be subject to compliance with all applicable requirements of federal, state orforeign law with respect to such securities. No shares of Stock may be issued hereunder if the issuance of such shares would constitutea violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stockexchange or market system upon which the Stock may then be listed. The inability of the Company to obtain from any regulatorybody having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance of anyshares subject to the Award shall relieve the Company of any liability in respect of the failure to issue such shares as to which suchrequisite authority shall not have been obtained. As a condition to the settlement of the Award, the Company may require theParticipant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law orregulation and to make any representation or warranty with respect thereto as may be requested by the Company.6.4Fractional Shares. The Company shall not be required to issue fractional shares upon the settlementof the Award.7.Tax Withholding.7.1In General. At the time the Grant Notice is executed, or at any time thereafter as requested by aParticipating Company, the Participant hereby authorizes withholding from payroll and any other amounts payable to the Participant,and otherwise agrees to make adequate provision for, any sums required to satisfy the federal, state, local and foreign tax (includingany social insurance) withholding obligations of the Participating Company, if any, which arise in connection with the Award, thevesting of Units or the issuance of shares of Stock in settlement thereof. The Company shall have no obligation to deliver shares ofStock until the tax withholding obligations of the Participating Company have been satisfied by the Participant.7.2Assignment of Sale Proceeds. Subject to compliance with applicable law and the Company’s TradingCompliance Policy, if permitted by the Company, the Participant may satisfy the Participating Company’s tax withholding obligationsin accordance with procedures established by the Company providing for delivery by the Participant to the Company or a brokerapproved by the Company of properly executed instructions, in a form approved by the Company, providing for the assignment to theCompany of the proceeds of a sale with respect to some or all of the shares being acquired upon settlement of Units.WEST\245560255.14  7.3Withholding in Shares. The Company shall have the right, but not the obligation, to require theParticipant to satisfy all or any portion of a Participating Company’s tax withholding obligations by deducting from the shares of Stockotherwise deliverable to the Participant in settlement of the Award a number of whole shares having a fair market value, as determinedby the Company as of the date on which the tax withholding obligations arise, not in excess of the amount of such tax withholdingobligations determined by the applicable minimum statutory withholding rates.8.Effect of Change in Control.In the event of a Change in Control, except to the extent that the Committee determines to cash out the Award inaccordance with Section 14.1(c) of the Plan, the surviving, continuing, successor, or purchasing entity or parent thereof, as the casemay be (the “Acquiror”), may, without the consent of the Participant, assume or continue in full force and effect the Company’s rightsand obligations under all or any portion of the outstanding Units or substitute for all or any portion of the outstanding Unitssubstantially equivalent rights with respect to the Acquiror’s stock. For purposes of this Section, a Unit shall be deemed assumed if,following the Change in Control, the Unit confers the right to receive, subject to the terms and conditions of the Plan and thisAgreement, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a shareof Stock on the effective date of the Change in Control was entitled (and if holders were offered a choice of consideration, the type ofconsideration chosen by the holders of a majority of the outstanding shares of Stock); provided, however, that if such consideration isnot solely common stock of the Acquiror, the Committee may, with the consent of the Acquiror, provide for the consideration to bereceived upon settlement of the Unit to consist solely of common stock of the Acquiror equal in Fair Market Value to the per shareconsideration received by holders of Stock pursuant to the Change in Control. The Award shall terminate and cease to be outstandingeffective as of the time of consummation or the Change in Control to the extent that Units subject to the Award are neither assumed orcontinued by the Acquiror in connection with the Change in Control nor settled as of the time of the Change in Control.9.Adjustments for Changes in Capital Structure.Subject to any required action by the stockholders of the Company and the requirements of Section 409A of theCode to the extent applicable, in the event of any change in the Stock effected without receipt of consideration by the Company,whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split,reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure ofthe Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock(other than regular, periodic cash dividends paid on Stock pursuant to the Company’s dividend policy) that has a material effect on theFair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number of Units subject to theAward and/or the number and kind of shares or other property to be issued in settlement of the Award, in order to prevent dilution orenlargement of the Participant’s rights under the Award. For purposes of the foregoing, conversion of any convertible securities of theCompany shall not be treated as “effected without receipt of consideration by the Company.” Any and all new, substituted oradditional securities or other property (other than regular, periodic cash dividends paid on Stock pursuant to the Company’s dividendpolicy) to which the Participant is entitled by reason of ownership of Units acquired pursuant to this Award will be immediately subjectto the provisions of this Award on the same basis as all Units originally acquired hereunder. Any fractional Unit or share resultingfrom an adjustment pursuant to this Section shall be rounded down to theWEST\245560255.15  nearest whole number. Such adjustments shall be determined by the Committee, and its determination shall be final, binding andconclusive.10.Rights as a Stockholder, Director, Employee or Consultant.The Participant shall have no rights as a stockholder with respect to any shares which may be issued in settlementof this Award until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of aduly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which therecord date is prior to the date the shares are issued, except as provided in Section 9. If the Participant is an Employee, the Participantunderstands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a ParticipatingCompany and the Participant, the Participant’s employment is “at will” and is for no specified term. Nothing in this Agreement shallconfer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any right of theParticipating Company Group to terminate the Participant’s Service at any time.11.Legends.The Company may at any time place legends referencing any applicable federal, state or foreign securities lawrestrictions on all certificates representing shares of stock issued pursuant to this Agreement. The Participant shall, at the request of theCompany, promptly present to the Company any and all certificates representing shares acquired pursuant to this Award in thepossession of the Participant in order to carry out the provisions of this Section.12.Compliance with Section 409A.It is intended that any election, payment or benefit which is made or provided pursuant to or in connection withthis Award that may result in Section 409A Deferred Compensation shall comply in all respects with the applicable requirements ofSection 409A (including applicable regulations or other administrative guidance thereunder, as determined by the Committee in goodfaith) to avoid the unfavorable tax consequences provided therein for non‑compliance. In connection with effecting such compliancewith Section 409A, the following shall apply:12.1Separation from Service; Required Delay in Payment to Specified Employee. Notwithstandinganything set forth herein to the contrary, no amount payable pursuant to this Agreement on account of the Participant’s termination ofService which constitutes a “deferral of compensation” within the meaning of the Treasury Regulations issued pursuant to Section409A of the Code (the “Section 409A Regulations”) shall be paid unless and until the Participant has incurred a “separation fromservice” within the meaning of the Section 409A Regulations. Furthermore, to the extent that the Participant is a “specified employee”within the meaning of the Section 409A Regulations as of the date of the Participant’s separation from service, no amount thatconstitutes a deferral of compensation which is payable on account of the Participant’s separation from service shall be paid to theParticipant before the date (the “Delayed Payment Date”) which is first day of the seventh month after the date of the Participant’sseparation from service or, if earlier, the date of the Participant’s death following such separation from service. All such amounts thatwould, but for this Section, become payable prior to the Delayed Payment Date will be accumulated and paid on the Delayed PaymentDate.WEST\245560255.16  12.2Other Changes in Time of Payment. Neither the Participant nor the Company shall take any actionto accelerate or delay the payment of any benefits under this Agreement in any manner which would not be in compliance with theSection 409A Regulations.12.3Amendments to Comply with Section 409A; Indemnification. Notwithstanding any otherprovision of this Agreement to the contrary, the Company is authorized to amend this Agreement, to void or amend any election madeby the Participant under this Agreement and/or to delay the payment of any monies and/or provision of any benefits in such manner asmay be determined by the Company, in its discretion, to be necessary or appropriate to comply with the Section 409A Regulationswithout prior notice to or consent of the Participant. The Participant hereby releases and holds harmless the Company, its directors,officers and stockholders from any and all claims that may arise from or relate to any tax liability, penalties, interest, costs, fees or otherliability incurred by the Participant in connection with the Award, including as a result of the application of Section 409A.12.4Advice of Independent Tax Advisor. The Company has not obtained a tax ruling or otherconfirmation from the Internal Revenue Service with regard to the application of Section 409A to the Award, and the Company doesnot represent or warrant that this Agreement will avoid adverse tax consequences to the Participant, including as a result of theapplication of Section 409A to the Award. The Participant hereby acknowledges that he or she has been advised to seek the advice ofhis or her own independent tax advisor prior to entering into this Agreement and is not relying upon any representations of theCompany or any of its agents as to the effect of or the advisability of entering into this Agreement.13.Miscellaneous Provisions.13.1Termination or Amendment. The Committee may terminate or amend the Plan or this Agreementat any time; provided, however, that except as provided in Section 8 in connection with a Change in Control, no such termination oramendment may have a materially adverse effect on the Participant’s rights under this Agreement without the consent of the Participantunless such termination or amendment is necessary to comply with applicable law or government regulation, including, but not limitedto, Section 409A. No amendment or addition to this Agreement shall be effective unless in writing.13.2Nontransferability of the Award. Prior to the issuance of shares of Stock on the applicableSettlement Date, neither this Award nor any Units subject to this Award shall be subject in any manner to anticipation, alienation, sale,exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary,except transfer by will or by the laws of descent and distribution. All rights with respect to the Award shall be exercisable during theParticipant’s lifetime only by the Participant or the Participant’s guardian or legal representative.13.3Further Instruments. The parties hereto agree to execute such further instruments and to take suchfurther action as may reasonably be necessary to carry out the intent of this Agreement.13.4Binding Effect. This Agreement shall inure to the benefit of the successors and assigns of theCompany and, subject to the restrictions on transfer set forth herein, be binding upon the Participant and the Participant’s heirs,executors, administrators, successors and assigns.13.5Delivery of Documents and Notices. Any document relating to participation in the Plan or anynotice required or permitted hereunder shall be given in writingWEST\245560255.17  and shall be deemed effectively given (except to the extent that this Agreement provides for effectiveness only upon actual receipt ofsuch notice) upon personal delivery, electronic delivery at the e-mail address, if any, provided for the Participant by a ParticipatingCompany, or upon deposit in the U.S. Post Office or foreign postal service, by registered or certified mail, or with a nationallyrecognized overnight courier service, with postage and fees prepaid, addressed to the other party at the address of such party set forthin the Grant Notice or at such other address as such party may designate in writing from time to time to the other party.(a)Description of Electronic Delivery. The Plan documents, which may include but do notnecessarily include: the Plan, the Grant Notice, this Agreement, the Plan Prospectus, and any reports of the Company providedgenerally to the Company’s stockholders, may be delivered to the Participant electronically. In addition, if permitted by the Company,the Participant may deliver electronically the Grant Notice to the Company or to such third party involved in administering the Plan asthe Company may designate from time to time. Such means of electronic delivery may include but do not necessarily include thedelivery of a link to a Company intranet or the Internet site of a third party involved in administering the Plan, the delivery of thedocument via e-mail or such other means of electronic delivery specified by the Company.(b)Consent to Electronic Delivery. The Participant acknowledges that the Participant has readSection 13.5(a) of this Agreement and consents to the electronic delivery of the Plan documents and, if permitted by the Company, thedelivery of the Grant Notice, as described in Section 13.5(a). The Participant acknowledges that he or she may receive from theCompany a paper copy of any documents delivered electronically at no cost to the Participant by contacting the Company by telephoneor in writing. The Participant further acknowledges that the Participant will be provided with a paper copy of any documents if theattempted electronic delivery of such documents fails. Similarly, the Participant understands that the Participant must provide theCompany or any designated third party administrator with a paper copy of any documents if the attempted electronic delivery of suchdocuments fails. The Participant may revoke his or her consent to the electronic delivery of documents described in Section 13.5(a) ormay change the electronic mail address to which such documents are to be delivered (if Participant has provided an electronic mailaddress) at any time by notifying the Company of such revoked consent or revised e-mail address by telephone, postal service orelectronic mail. Finally, the Participant understands that he or she is not required to consent to electronic delivery of documentsdescribed in Section 13.5(a).13.6Integrated Agreement. The Grant Notice, this Agreement and the Plan, together with theSuperseding Agreement, if any, shall constitute the entire understanding and agreement of the Participant and the ParticipatingCompany Group with respect to the subject matter contained herein or therein and supersede any prior agreements, understandings,restrictions, representations, or warranties among the Participant and the Participating Company Group with respect to such subjectmatter. To the extent contemplated herein or therein, the provisions of the Grant Notice, this Agreement and the Plan shall survive anysettlement of the Award and shall remain in full force and effect.13.7Applicable Law. This Agreement shall be governed by the laws of the State of California as suchlaws are applied to agreements between California residents entered into and to be performed entirely within the State of California.13.8Counterparts. The Grant Notice may be executed in counterparts, each of which shall be deemed anoriginal, but all of which together shall constitute one and the same instrument.WEST\245560255.18 Exhibit 21.1EXTREME NETWORKS, INC.SUBSIDIARY LIST Name LocationExtreme Networks, Inc. DelawareExtreme Networks IHC, Inc. DelawareExtreme Networks Delaware LLC DelawareExtreme Networks Canada Inc. CanadaExtreme Networks International CaymanExtreme Networks EMEA CaymanExtreme Networks Australia Pty Ltd. AustraliaExtreme Networks Singapore Pte. Ltd. SingaporeExtreme Networks Korea Ltd. KoreaExtreme Networks India Private Limited IndiaExtreme Networks Hong Kong Limited Hong KongExtreme Networks China Limited Hong KongExtreme Networks Technology (Beijing) Co. Ltd ChinaExtreme Networks Mauritius MauritiusExtreme Networks K.K. JapanExtreme Networks Do Brasil, Ltda BrazilExtreme Networks Mexico, S. De R.L. de C.V. MexicoExtreme Networks Chile Ltda. ChileEnterasys Networks Argentina SA ArgentinaExtreme Networks SARL FranceExtreme Networks Spain, S.L. SpainExtreme Networks Srl ItalyExtreme Networks GmbH GermanyExtreme Networks Switzerland GmbH SwitzerlandExtreme Networks UK Technology Limited United KingdomExtreme Networks B.V. NetherlandsExtreme Networks Rus LLC RussiaSummit CV NetherlandsIHC Networks AB SwedenExtreme Networks Ireland Limited IrelandEnterasys Networks SARL FranceExtreme Networks UK Limited United KingdomEnterasys Networks, Inc. Delaware Exhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of DirectorsExtreme Networks Inc.:We consent to the incorporation by reference in the registration statement (No. 333‑192507, 333-165268, 333-112831, 333-105767,333-76798, 333-65636, 333-58634, 333-55644, 333-131705, 333-201456, 333-83729 and 333‑215648) on Form S-8 of ExtremeNetworks, Inc. of our report dated September 13, 2017, with respect to the consolidated balance sheets of Extreme Networks, Inc. andsubsidiaries as of June 30, 2017 and 2016, and the related consolidated statements of operations, comprehensive loss, stockholders’equity, and cash flows for each of the years in the three-year period ended June 30, 2017, and the effectiveness of internal control overfinancial reporting as of June 30, 2017, which report appears in the June 30, 2017 annual report on Form 10‑K of Extreme Networks,Inc./s/ KPMG LLPRaleigh, North Carolina September 13, 2017 Exhibit 31.1SECTION 302 CERTIFICATION OF EDWARD B. MEYERCORD IIIAS CHIEF EXECUTIVE OFFICERI, Edward B. Meyercord III, certify that: 1.I have reviewed this Form 10-K of Extreme Networks, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent function): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date:September 13, 2017/s/ EDWARD B. MEYERCORD III Edward B. Meyercord III President and Chief Executive Officer Exhibit 31.2SECTION 302 CERTIFICATION OF B. DREW DAVIESAS CHIEF FINANCIAL OFFICERI, B. Drew Davies, certify that: 1.I have reviewed this Form 10-K of Extreme Networks, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent function): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date:September 13, 2017/s/ B. DREW DAVIES B. Drew Davies Executive Vice President, Chief Financial Officer(Principal Accounting Officer) Exhibit 32.1CERTIFICATION OF EDWARD B. MEYERCORD III AS CHIEF EXECUTIVE OFFICER, PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Extreme Networks, Inc. on Form 10-K for the period ended June 30, 2017, as filed with the Securities and ExchangeCommission on the date hereof (the “Report”), the undersigned, in the capacities and on the date specified below, hereby certifies pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. /s/ EDWARD B. MEYEROCRD III Edward B. Meyercord III President and Chief Executive Officer September 13, 2017 Exhibit 32.2CERTIFICATION OF B. DREW DAVIES AS CHIEF FINANCIAL OFFICER, PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Extreme Networks, Inc. on Form 10-K for the period ended June 30, 2017, as filed with the Securities and ExchangeCommission on the date hereof (the “Report”), the undersigned, in the capacities and on the date specified below, hereby certifies, pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. /s/ B. DREW DAVIES B. Drew Davies Executive Vice President, Chief Financial Officer(Principal Accounting Officer) September 13, 2017 

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