UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 000-25711
Extreme Networks, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
2121 RDU Center Drive, Suite 300
Morrisville, North Carolina
(Address of principal executive offices)
77-0430270
(I.R.S. Employer
Identification No.)
27560
(Zip Code)
Registrant’s telephone number, including area code: (408) 579-2800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Trading
Symbol(s)
EXTR
Name of each exchange on which registered
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
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 the preceding
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 past
90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. 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
Non-Accelerated Filer
Emerging growth company
☒
☐
☐
Accelerated Filer
Smaller reporting 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 revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
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 common equity held by non-affiliates of the Registrant was approximately $1.4 billion as of December 31, 2021 the last business day of the
Registrant’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 Market
reported 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 hold more
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 are affiliates
of the Registrant for any other purpose.
131,158,595 shares of the Registrant’s Common stock, $.001 par value, were outstanding as of August 18, 2022.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the year ended June 30, 2022 Annual Meeting of Stockholders to be filed with the Commission pursuant to Regulation
14A not later than 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-K
INDEX
PART I
PART II
Forward Looking Statements
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
SIGNATURES
PART IV
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FORWARD LOOKING STATEMENTS
Except 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-
looking statements, which speak only as of the date of this Annual Report. These forward-looking statements are contained principally under Item 1,
“Business,” and under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but may also be in other
sections of this Annual Report on Form 10-K. Because these forward-looking statements are subject to risks and uncertainties, actual results could differ
materially from the expectations expressed in the forward-looking statements. Important factors that could cause actual results to differ materially from the
expectations reflected in the forward-looking statements include those described in Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and
Analysis of Financial Condition 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 or to assess the impact of such risk factors on our business. Given these risks and uncertainties, you should not place undue
reliance on these forward-looking statements. We undertake no obligation to update or revise these forward-looking statements to reflect subsequent events
or circumstances.
SUMMARY OF MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
The principal risks and uncertainties affecting our business include the following:
• We purchase several key components for products from single or limited sources and could lose sales if these suppliers fail to meet our needs.
•
Supply chain constraints have exacerbated this situation.
Our dependence on a few manufacturers and third parties for our manufacturing, warehousing, and delivery requirements could harm our
business, financial condition, and operating results.
The coronavirus outbreak has had, and continues to have, a materially disruptive effect on our business.
•
• We depend upon international sales for a significant portion of our revenues which imposes a number of risks on our business.
•
To successfully manage our business or achieve our goals, we must attract, retain, train, motivate, develop and promote key employees, and
failure to do so can harm us.
If we fail to anticipate technological shifts, market needs and opportunities, and develop products, product enhancements and business strategies
that meet those technological shifts, needs and opportunities in a timely manner or if they do not gain market acceptance, we may not be able to
compete effectively and our ability to generate revenues will suffer.
The cloud networking market is rapidly evolving. If this market does not evolve as we anticipate or our target end customers do not adopt our
cloud networking solutions, we may not be able to compete effectively, and our ability to generate revenues will suffer.
System security risks, data breaches, and cyber-attacks could compromise our proprietary information, disrupt our internal operations and harm
public perception of our products, which could adversely affect our business, financial condition and results of operations.
•
•
•
• We cannot assure future profitability, and our financial results may fluctuate significantly from period to period.
• We may not realize anticipated benefits of past or future acquisitions, divestitures and strategic investments, and the integration of acquired
companies or technologies may negatively impact our business, financial condition and results of operations or dilute the ownership interests of
our stockholders.
Our stock price has been volatile in the past and may significantly fluctuate in the future.
•
The summary risk factors described above should be read together with the text of the full risk factors below in the section entitled “Risk Factors” and
the other information set forth in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes, as well as in
other documents that we file with the U.S. Securities and Exchange Commission (the “SEC”). The risks summarized above or described in full below are
not the only risks that we face. Additional risks and uncertainties not precisely known to us or that we currently deem to be immaterial may also materially
adversely affect our business, financial condition, results of operations, and future growth prospects.
2
Item 1. Business
Overview
PART I
Extreme Networks, Inc. (“Extreme” or “Company”) is a leading provider of end-to-end, cloud-driven networking solutions and top-rated services
and support. Providing a set of comprehensive solutions from the Internet of Things (“IoT”) edge to the cloud, Extreme designs, develops, and
manufactures wired and wireless network infrastructure equipment as well as a leading cloud networking platform and applications portfolio using cloud
management, machine learning, and artificial intelligence to deliver network policy, analytics, security, and access controls. Our solutions enable
companies to embrace the value of new cloud technology without having to rip and replace existing infrastructures.
Extreme has been pushing the boundaries of networking technology for a quarter of a century, driven by a higher purpose of helping our customers
connect beyond the network. Extreme’s cloud-driven technologies provide flexibility and scalability in deployment, management, and licensing of
networks globally. Our global footprint provides service to over 50,000 customers and over 10 million daily end users across the world including some of
the world’s leading names in business, hospitality, retail, transportation and logistics, education, government, healthcare, manufacturing and service
providers. We derive all our revenues from the sale of our networking equipment, software subscriptions, and related maintenance contracts.
Our global headquarters is located at 2121 RDU Center Drive, Suite 300, Morrisville, North Carolina 27560, and our telephone number is (408)
579-2800. We have several corporate offices in the United States and international locations. Our website is www.extremenetworks.com.
Industry Background
Enterprises are adopting new Information Technology (“IT”) delivery models and applications that require fundamental network alterations and
enhancements spanning from the access edge to the data center. With the impact of the global COVID-19 pandemic, we believe IT teams in every industry
will need more control and better insights than ever before to ensure secure, distributed connectivity and comprehensive centralized visibility. Machine
Learning (“ML”) and Artificial Intelligence (“AI”) technologies have the potential to vastly improve the network experience in the post-pandemic world by
collating large data sets to increase accuracy and derive resolutions to improve the operation of the network. When ML and AI are applied with cloud-
driven networking and automation, administrators can quickly scale to provide productivity, availability, accessibility, manageability, security, and speed,
regardless of how distributed the network is.
We believe that the network has never been more vital than it is today. As administrators grapple with more data, coming from more places, more
connected devices, and more Software-as-a-service (“SaaS”) based applications, the cloud is fundamental to establishing a new normal. Traditional
network offerings are not well-suited to fulfill enterprise expectations for rapid delivery of new services, more flexible business models, real-time response,
and massive scalability.
As enterprises continue to migrate increasing numbers of applications and services to either private clouds or public clouds offered by third parties
and to adopt new IT delivery models and applications, they are required to make fundamental network alterations and enhancements spanning from device
access points (“AP”) to the network core. In either case, the network infrastructure must adapt to this new dynamic environment. Intelligence and
automation are key if enterprises are to derive maximum benefit from their cloud deployments.
Service providers are investing in network enhancements with platforms and applications that deliver data insights, provide flexibility, and can
quickly respond to new user demands and 5G use cases.
We believe Extreme stands to benefit from the use of its technology to manage distributed campus network architecture centrally from the cloud.
Extreme has blended a dynamic fabric attach architecture that delivers simplicity for moves and changes at the edge of the network together with corporate-
wide role-based policy. This enables customers to migrate to new cloud managed switching and Wi-Fi, agnostic of the existing networking or wireless
equipment they already have installed. In the end, we expect these customers to see lower operating and capital expenditures, lower subscription costs,
lower overall cost of ownership and more flexibility along with a more resilient network.
We estimate the total addressable market for our Enterprise Networking solutions consisting of cloud networking, wireless local area networks
(“WLAN”), data center networking, ethernet switching, campus local area networks (“LAN”), and software-defined wide area network (“SD-WAN”)
solutions to be approximately $33 billion and growing at approximately 12% annually over the next three years. This is comprised of $22 billion for
campus networking, $4.6 billion for 5G service available market in 5G and data centers, for which Extreme is targeting growing to approximately $50 -
$100 million per year over the next three to five years, and a $2.2 billion SD-WAN market. We also participate in the $4 billion networking software
market for solutions such as cloud-based network management, network automation, on-premise network management, and other networking related
software.
3
The Extreme Strategy
The global COVID-19 pandemic resulted in unprecedented change – from the physical footprint of offices, to supply chain operations, to how we
connect. Organizations and workforces extend anywhere and everywhere. IT leaders are now tasked with ensuring the global, hybrid workforce is
functional and successful no matter where they are and ensure people can work wherever they want.
Extreme has recognized that the way we and our customers communicate has changed and has given rise to these distributed enterprise
environments, or in other words, the Infinite Enterprise, which has three tenets:
• Infinitely distributed connectivity is the enterprise-grade reliable connectivity that allows users to connect anywhere, from anywhere. It is always
present, available and assured, while being secure and manageable.
• Scalable cloud allows administrators to harness the power of the cloud to efficiently onboard, manage, orchestrate, troubleshoot the network, and
find data and insights of the distributed connectivity at their pace in their way.
• Consumer-centric experience designed to deliver a best-in-class experience to users who consume network services.
Extreme’s broad product, solutions and technology portfolio supports these three tenets and continues to innovate and evolve them to help
businesses succeed.
Key elements of Extreme’s strategy and differentiation include:
•
•
•
•
Creating effortless networking solutions that allow all of us to advance. We believe that progress is achieved when we connect—allowing us
to learn, understand, create, and grow. We make connecting simple and easy with effortless networking experiences that enable all of us to
advance how we live, work, and share.
Provide a differentiated end-to-end cloud architecture. Cloud networking is estimated to be a $4 billion segment of the networking market
comprised of cloud managed services and cloud-managed products, which are largely WLAN access points and ethernet switches, growing at a
12% over the next three years, according to data from 650 Group Market Research. Cloud management technology has evolved significantly over
the past decade. We believe we deliver a combination of innovation, reliability, and security with the leading end-to-end cloud management
platform powered by ML and AI that spans from the IoT edge to the enterprise data center. Key characteristics of our cloud architecture include:
o A robust cloud management platform that delivers visibility, intelligence, and assurance from the IoT edge to the core.
o
Cloud Choice for customers: Our cloud networking solution is available on all major cloud providers (Amazon Web Services
(“AWS”), Google Cloud Platform (“GCP”) and Microsoft Azure).
o Unlimited Network Data plans for the length of the cloud subscription to improve an organization’s ability to make smarter, more
effective business decisions.
Consumption Flexibility: Offer a range of financing and network purchase options. Our value-based subscription tiers (including
Connect, Navigator Pilot and CoPilot) provide customers with flexibility to grow as they go, as well as offer pool-able and portable
licenses that can be transferred between products (e.g. access points and switches) at one fixed price.
“No 9s” Reliability and Resiliency to ensure business continuity for our customers.
Zero-Trust Security (Information Security Management (“ISO”) 27001, 27017 and 27701 Certified).
o
o
o
Offer customers choice: public or private cloud, or on-premises. We leverage the cloud where it makes sense for our customers and provide
on-premises solutions where customers need it and also have a solution for those who want to harness the power of both. Our hybrid approach
gives our customers options to adapt the technology to their business. At the same time, all of our solutions have visibility, control and strategic
information built in, all tightly integrated with a single view across all of the installed products. Our customers can understand what is going on
across their network and applications in real time – who, when, and what is connected to the network, which is critical for bring your own device
(“BYOD”) and IoT usage.
Highest value of cloud management subscriptions. ExtremeCloud IQ Pilot provides our customers with four key applications enabling
organizations to eliminate overlays.
o
o
Extreme AirDefense™ is a comprehensive wireless intrusion prevention system (“WIPS”) that simplifies the protection, monitoring
and security of wireless networks. With the added Bluetooth and Bluetooth low energy intrusion prevention, network administrators
can address growing threats against bluetooth and bluetooth low energy devices.
ExtremeLocation™ delivers proximity, presence and location-based services for advanced contact tracing in support of the location-
intelligent enterprise.
4
o
o
ExtremeGuest™ is a comprehensive guest engagement solution that enables IT administrators to use analytical insights to engage
visitors with personalized engagements.
Extreme IoT™ delivers simple and secure onboarding, profiling, segmentation and filtering of IoT devices on a production network.
•
•
•
•
•
•
•
•
•
Offers universal platforms for enterprise class switching and wireless infrastructure. Extreme offers universal platforms which support
multiple deployment use cases, providing flexibility and investment protection.
o Universal switches (5720/5520/5420/5320) support fabric or traditional networking with a choice of cloud or on-premises (air-gapped
or cloud connected) management.
o Universal Wi-Fi 6/6E APs (300/400, 5000 series) support campus or distributed deployments with a choice of cloud or on-premises
(air-gapped or cloud connected) management.
o Universal licensing with one portable management license for any device and for any type of management. For switches, OS feature
licenses are portable, and bulk activated through ExtremeCloud IQ.
Enable a common fabric to simplify and automate the network. Fabric technologies virtualize the network infrastructure (decoupling network
services from physical connectivity) which enables network services to be turned up faster, with lower likelihood of error. They make the
underlying network much easier to design, implement, manage and troubleshoot.
End-to-End Portfolio. Our cloud-driven solutions provide visibility, control and strategic intelligence from the edge to the data center, across
networks and applications. Our solutions include wired switching, wireless switching, wireless access points, WLAN controllers, routers, and an
extensive portfolio of software applications that deliver AI-enhanced access control, network and application analytics, as well as network
management. All can be managed, assessed and controlled from a single pane of glass on premises or from the cloud.
Provide high-quality “in-house” customer service and support. We seek to enhance customer satisfaction and build customer loyalty through high-
quality service and support. This includes a wide range of standard support programs to the level of service our customers require, from standard
business hours to global 24-hour-a-day, 365-days-a-year real-time responsive support.
Extend switching and routing technology leadership. Our technological leadership is based on innovative switching, routing and wireless
products, the depth and focus of our market experience and our operating systems - the software that runs on all of our networking products. Our
products reduce operating expenses for our customers and enable a more flexible and dynamic network environment that will help them meet the
upcoming demands of IoT, mobile, and cloud.
Expand Wi-Fi technology leadership. Wireless is today’s network access method of choice and every business must deal with scale, density
and BYOD challenges. The network edge landscape is changing as the explosion of mobile devices increases the demand for mobile, transparent,
and always-on wired to wireless edge services. The unified access layer requires distributed intelligent components to ensure that access control
and resiliency of business services are available across the entire infrastructure and manageable from a single console. We are at a technology
inflection point with the pending migration from Wi-Fi 5 solutions to Wi-Fi 6 (802.11ax), focused on providing more efficient access to the broad
array of connected devices. We believe we have the industry’s broadest Wi-Fi 6 wireless portfolio providing intelligence for the wired/wireless
edge and enhanced by our cloud architecture with machine learning and AI-driven insights.
Offer a superior quality of experience. Our network-powered application analytics provide actionable business insights by capturing and
analyzing context-based data about the network and applications to deliver meaningful intelligence about applications, users, locations and
devices. With an easy to comprehend dashboard, our applications help businesses turn their network into a strategic business asset that helps
executives make faster and more effective decisions.
Expand market penetration by targeting high-growth market segments. Within the campus, we focus on the mobile user, leveraging our
automation capabilities and tracking WLAN growth. Our data center approach leverages our product portfolio to address the needs of public and
private cloud data center providers. We believe that the cloud networking compound annual growth rate will continue to outpace the compound
annual growth rate for on-premises managed networking. Our focus is on expanding our technology foothold in the critical cloud networking
segment to accelerate not only cloud management adoption, but also subscription-based licensing (SaaS) consumption.
Leverage and expand multiple distribution channels. We distribute our products through select distributors, a large number of resellers and
system-integrators worldwide, as well as several large strategic partners. We maintain a field sales force to support our channel partners and to
sell directly to certain strategic accounts. As an independent networking vendor, we seek to provide products that, when combined with the
offerings 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
both, provide increased and enhanced routes to market, and collaboratively develop unique solutions.
5
Products
Our products and services categories include:
• Cloud Networking Platform: Core to our product portfolio and providing the end-to-end visibility from the access edge to the data center is our
industry-leading cloud platform and cloud management application, ExtremeCloud IQ. ExtremeCloud IQ is an ML/AI powered, wired and
wireless cloud network management solution that offers advanced visibility and control over users, devices, and applications. ExtremeCloud IQ
allows customers to keep operational costs low, adjusts to customer demand, and delivers robust functionality for provisioning, management, and
troubleshooting, as well as the industry’s only unlimited data access for the life of the subscription, and guaranteed data durability to assure
access with 100% uptime. ExtremeCloud IQ is available in three deployment options (public, private, on-premises) that support one goal – to
provide customers with maximum flexibility, continuous innovation, and consistent user experience. It can be deployed in any major data center
environment such as AWS, GCP and Azure, or local private cloud options. The ExtremeCloud IQ application already manages millions of
devices in a public, private, and on-premises global cloud deployment. The platform is run from multiple regional data centers, which adds to the
resiliency of the platform.
• Automation, Analytics, and Security Applications: Our application portfolio delivers additional analytics, security, access control, and
management insights both on-premises and in the cloud. ExtremeCloud IQ – Site Engine extends cloud management to non-cloud native and
multi-vendor devices to provide one dashboard view of your entire network that can be managed in the cloud or on-premises. ExtremeCloud IQ
– Site Engine provides task automation, access control, granular visibility with real-time analytics and multi-vendor device management.
ExtremeCloud IQ Essentials provides four key applications - WIPS, location services, IoT, and guest management - for ExtremeCloud IQ Pilot
license customers at no added cost, enabling organizations to take advantage of an all-in-one platform for wired and wireless management,
business insights, location tracking, wireless security, seamless IoT onboarding and guest access, and guest access through a single user interface.
• Wireless LAN Access Points (“APs”): One of the industry’s broadest and most comprehensive, Extreme’s wireless AP portfolio includes both
indoor and outdoor Wi-Fi 6 and prior generation APs. Proven in some of the most demanding environments, ExtremeWireless delivers an
exceptional experience for BYOD and mobile users wherever they may roam. Included in that portfolio are our custom stadium and large venue
Wi-Fi 6 outdoor APs, which, when combined with ExtremeAnalytics, are the basis of our selection as the Official Wi-Fi & Analytics Provider
for the National Football League (“NFL”) and the Major League Baseball (“MLB”). In addition to powering large venues and stadiums, our
Extreme APs also deliver flexible and scalable options for highly distributed environments for major companies globally. Our APs allow our
customers to purchase unified hardware, starting with our Wi-Fi 6 (802.11ax) AP portfolio, and choose the software mode option for the optimal
deployment architecture in their environments. Our premier wireless security solution, ExtremeAirDefense delivers intrusion detection and
prevention capabilities across the wireless portfolio. Recently, we also introduced the first WIPS solution to incorporate support for Bluetooth
and Bluetooth Low Energy (“BLE”) visibility and intrusion protection. This includes device location support and change detection, rogue BLE
Beacon detection and unsanctioned BLE device detection.
• Wired for Edge, Campus, and Data Center: Our switching portfolio includes products designed to make every connection effortless by enabling
the deployment of high-speed performance at scale for access, high-density, campus, core, and data center environments. Within the
ExtremeSwitching portfolio are Access Edge products offering connection speeds ranging from 100 Megabytes per second (“Mbps”) to 25
Gigabytes per second (“Gbps”) – including edge multi-rate 2.5Gbps and 5Gbps capabilities. These switches provide various physical
presentations (copper and fiber) along with options to deliver traditional Ethernet or convergence-friendly Power-over-Ethernet (“PoE”),
including high-power universal POE consisting of 90W power to support new classes of Ethernet-powered devices. These switching products,
combined with our unique fabric capability, deliver automation and hyper-segmentation, as well as features, performance, and reliability required
by our customers to deploy, operate and manage converged infrastructure, along with the ability to harden the perimeter of the network
infrastructure.
Our aggregation/core switches are designed to address the demanding needs of aggregation, top-of-rack, and campus core environments.
Delivering 10G, 25G, 40G, 50G, and 100G connectivity with maximum throughput and reliability, these switches provide flexible Ethernet
connectivity over a range of interface types and speeds and are available in both fixed and modular configurations. These switching platforms, in
conjunction with our advanced operating systems and centralized management software, provide the density, performance, and reliability
required to serve in a diverse range of environments, especially where application demands and uptime expectations are mission critical.
Our campus switch portfolio also includes next-generation, low-profile, high-density Ethernet switches that empower the creation of versatile
always-on campus solutions that are fabric-enabled and 25 to 100 gigabit-ready. The technologies supported by these innovative platforms can
also leverage automated network attachment to proactively reduce operational burden and time-to-service.
6
Extreme’s data center switches and routers provide high levels of reliability and throughput - specifically designed to address the exacting
demands of high-performance enterprise and cloud data centers. These products are available in both fixed and modular chassis configurations
and include a set of advanced features such as redundant management and fabric modules, hot-swappable line cards on our chassis-based
platforms, as well as multi-speed stacking of up to 100G and flexible 10/25/40/50/100G port options on our fixed-form platforms, which makes
these switches well-suited for enterprise data center environments. Both platform types also provide 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, MPLS/VPLS, and
Shortest Path Bridging capabilities. Our industry-first integrated Extreme Fabric Automation simplifies and adds scalability to even the highest
performance environments. In addition to these capabilities, our data center switches offer innovative traffic optimization enabling virtual
machine mobility via Layer 3 Data Center Interconnect. Our architecture delivers tens of millions of flows for deep visibility and control over
users, services, and applications to meet the analytic and policy demands of today’s business applications.
• SD-WAN: ExtremeCloud SD-WAN is a software-defined wide area networks solution offered as an all-inclusive subscription, which includes
hardware, the cloud-based SD-WAN service, support and maintenance, and customer success support. This helps customers reduce total cost of
ownership as they deliver quality user experience for applications used in site-to-site and site-to-cloud environments. This solution detects and
optimizes applications automatically and can apply performance-based dynamic WAN selection for quality and reliability. Included also are
security options such as a built-in zone-based firewall, EdgeSentry (in partnership with Check Point) for cloud-based firewall as a service and
other advanced security capabilities, and integration with Secure Web Gateway partners such as Palo Alto Networks, Zscaler, and Symantec.
• Cloud Native Platforms and Applications for Service Providers: 5G is the first generation of cellular technologies built on cloud-native
principles, and most traditional network visibility tools cannot be easily adapted for future use cases like autonomous vehicles or industrial IoT.
Because many 5G use cases are still undefined, service providers need a composable solution that provides visibility into highly distributed
environments and is flexible enough to be adjusted for specific purposes as they arise without requiring expensive, time-consuming infrastructure
upgrades. Extreme has introduced the 9000 series switches and related software, featuring the Extreme 9920 intelligent network visibility
platform built with cloud-native design principles and a composable data pipeline to provide highly scalable traffic aggregation, packet filtering,
replication, and advanced network packet processing for analytics tools in distributed network environments. The Extreme Visibility Manager
has an intuitive graphical user interface to establish new rule sets and commands for all of Extreme's visibility devices. It provides full visibility
into every aspect of the network, from a highly geographically dispersed environment with regions and zones to the services running on the
system.
• Customer Service and Support: Our customers seek high reliability and maximum uptime for their networks. To that extent, we provide the
following service offerings:
o
o
Support services for end-users, resellers and distributors. We meet the service requirements of our customers and channel partners
through our Technical Assistance Centers (“TACs”), located in Morrisville, North Carolina; Salem, New Hampshire; Aurora, Illinois;
San Jose, California; Reading, United Kingdom; Penang, Malaysia; Brno, Czech Republic; Bangalore; Chennai, India; Seoul, Korea
and Tokyo, Japan. Our TAC engineers and technicians assist in diagnosing and troubleshooting technical issues regarding customer
networks. Development engineers work with the TACs to resolve product functionality issues specific to each customer.
Premier services. Premier Support is a proactive, high touch post-sale support service that assists customers in managing their
Extreme Networks products and network. All resources and deliverables are designed to manage day-to-day technical needs, provide
analysis and recommendations while building strong customer relationships, all focused at the network level.
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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-led networking solutions for deployment plans to meet individualized network strategies. These activities may
include the management and coordination of the design and network configuration, resource planning, staging, logistics, migration and
deployment. We also provide customized training and operational best practices manuals to assist customers in the transition and
sustenance of their networks.
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 networking environments. Classes may be scheduled and available at numerous locations worldwide. We deliver training using
our staff, on-line training classes and authorized training partners. In addition, we make much of our training materials accessible free-
of-charge on our internet site for customers and partners to use in self-education. We believe this approach enhances the market’s
ability to learn and understand the broad array of advantages of our products.
Sales, Marketing and Distribution
We conduct our sales and marketing activities on a worldwide basis through a channel that utilizes distributors, resellers and our field sales
organization. As of June 30, 2022, our worldwide sales and marketing organization consisted of 1,072 employees, including vice presidents, directors,
managers, sales representatives, and technical and administrative support personnel. We have domestic sales offices located in eight states within the
United States and international sales offices located in 28 countries.
We sell our products primarily through an ecosystem of channel partners who combine our infinite enterprise vision and product portfolio consisting
of cloud-driven applications, wired, wireless, management and analytics software products with their vertical specific offerings to create compelling
information technology solutions for end-user customers. We utilize our field sales organization to support our channel partners and to sell directly to
certain end-user customers, including some large enterprise and service provider global accounts.
The details of our sales and distribution channels are as follows:
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Alliance, Original Equipment Manufacturers ("OEM") and Strategic Relationships. We have active alliance, OEM and strategic
relationships with Broadcom, Barco NV, Ericsson Enterprise AB, Lenovo, Verizon, NFL, MLB, VMware and Nutanix as well as other global
industry technology leaders in which our products are qualified to be included into an overall solution or reference architecture. These tested and
validated solutions are then marketed and sold by the alliance, OEM or strategic partners into their specific 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. Each
of our distributors primarily resells our products to resellers. The distributors enhance our ability to sell and provide support to resellers who may
benefit from the broad service and product fulfillment capabilities offered by these distributors. Extreme maintains distribution agreements with
our largest distributors, Westcon Group Inc., TD Synnex Corporation and Jenne Inc. on substantially the same material terms as we generally
enter into with each of our distribution partners. Distributors are generally given the right to return a portion of inventory to us for the purpose of
stock rotation, to claim rebates for competitive discounts and participate in various cooperative marketing programs to promote the sale of our
products and services.
Resellers. We rely on many resellers worldwide that sell directly to the end-user customer. Our resellers include regional networking system
resellers, resellers who focus on specific vertical markets, value added resellers, network integrators and wholesale resellers. We provide training
and support to our resellers and our resellers generally provide the first level of contact to end-users of our products. Our relationships with
resellers are on a non-exclusive basis. Our resellers are not given rights to return inventory and do not automatically participate in any
cooperative marketing programs.
Field Sales. Our field sales organization is trained to sell solutions, support and develop leads for our resellers and to establish and maintain key
accounts 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;
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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; and
○ Assists our resellers to drive business opportunities to closure.
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Although we compete in many vertical markets, in fiscal year 2022, we have focused on the specific verticals of healthcare, education, retail,
manufacturing, government, sports, and entertainment venues. Years of experience and a track record of success in the verticals we serve enables us to
address industry-specific problems.
Customer Profiles:
Furthermore, in fiscal 2022, we decided to continue focus on the following customer profiles where we believe we can add the most value:
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Customer size: Those customers with annual revenues 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 or fewer, with an emphasis on service provider networks.
Vertical markets: Healthcare, education, government, manufacturing, retail, and hospitality, which includes sports and entertainment venues.
Customer characteristics: Our customers tend to operate in transient environments, such as college campuses, hospitals and sports venues,
where BYOD and secure network access and identity control are critical. Their networks must be highly available with the ability to continue
operations in 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 revenues or greater
See Note 3, Revenues, in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for more information regarding our
customers with 10% of net revenues or greater.
International sales
International sales are an important portion of our business. In fiscal 2022, sales to customers outside of the United States accounted for 55% of our
consolidated net revenues, compared to 52% in fiscal 2021, and 52% in fiscal 2020. These sales are conducted primarily through foreign-based distributors
and resellers managed by our worldwide sales organization. In addition, we have direct sales to end-user customers, including large global accounts. The
primary markets for sales outside of the United States are countries in Europe and Asia, as well as Canada, Mexico, Central America and South America.
We operate in one segment, the development and marketing of network infrastructure equipment and related software. Information concerning
revenues, results of operations and revenues by geographic area is set forth under Item 7, “Management's Discussion and Analysis of Financial Condition
and Results of Operations.” Information on risks attendant to our foreign operations is set forth below in Item 1A. “Risk Factors.”
Marketing
We continue to develop and execute a number of marketing programs to support the sale and distribution of our products by communicating the
value of our solutions to our existing and potential customers, our distribution channels, our resellers and our technology alliance partners. Our marketing
efforts 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 numerous
industry analyst ratings including Gartner Magic Quadrants, Gartner Critical Capabilities, Gartner Peer Insights, Forrester Waves, IDC MarketScape and
InfoTech Vendor Landscapes.
Backlog
Actual shipments of product depend on the then-current capacity of our contract manufacturers and the availability of materials and components
from our vendors. Current supply chain constraints have led to longer lead times before we are able to ship orders. We are working with our partners and
customers to provide product and have granted some flexibility in revising orders to compensate for the current situation. Although we believe the orders
included in the backlog are firm, all orders are subject to possible rescheduling by customers, and cancellations by customers, which we may elect to allow
on an exception basis. Therefore, we do not believe our backlog, as of any particular date is necessarily indicative of actual revenues for any future period.
Our product backlog at June 30, 2022, net of anticipated back-end rebates for distributor sales, was $513.0 million, compared to $105.0 million at
June 30, 2021. The increase in backlog is primarily attributable to supply chain constraints causing order fulfillment delays.
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Seasonality
Like many of our competitors, we historically have experienced seasonal fluctuations in customer spending patterns, which generally adversely
affect our first and third fiscal quarters. This pattern should not be relied upon or be considered indicative of our future performance, as it has varied in the
past.
Manufacturing
We utilize a global sourcing strategy that emphasizes procurement of materials and product manufacturing in competitive geographies. We rely upon
third-party contract manufactures and original design manufacturers (“ODM”), such as Alpha Networks, Lite-On Technology Corporation, Foxconn,
Quanta, Senao Networks, Sercomm Corporation and Wistron NeWeb Corporation to manufacture, support and ship our products, and therefore are exposed
to risks associated with their businesses, financial condition, geographies and geopolitical conflict in which they operate. Our arrangements with these Tier
1 manufacturers generally provide for quality, cost, and delivery requirements, as well as manufacturing process terms, such as continuity of supply;
inventory management; flexible capacity, quality, and cost management; oversight of manufacturing; and conditions for use of our intellectual property that
allows us to adjust more quickly to changing end-customer demand. We also leverage and depend on the strong Corporate and Social Responsibility
policies and standards of our Tier 1 manufacturers. The ODM manufacturing process uses automated testing equipment and burn-in procedures, as well as
comprehensive inspection, testing, and statistical process controls, which are designed to help ensure the quality and reliability of our products. To mitigate
security risks associated with conducting business across our interconnected supply chain we have a Supply Chain and Information Security Policy and
related procedures for communicating our requirements to suppliers and conducting annual compliance assessments. Additionally, we have launched new
products features such as Secure Boot, which are being designed to provide additional integrity assurance of the firmware and software running on our
hardware platform by establishing an encrypted key-based chain-of-trust relationship in the boot process. The manufacturing processes and procedures are
generally certified to International Organization for Standardization (“ISO”) 9001 standards. The manufacturing process and material supply chains
are flexible enough to be moved to steer away from geopolitical conflicts that impact cost.
We use a collaborative sales and operations planning forecast of expected demand based upon historical trends and analyses from our sales and
product management functions as adjusted for overall market conditions. We update these forecasts monthly to determine our material requirements. Our
manufacturing partners procure the components needed to build our products based on our demand forecasts. This allows us to leverage the purchasing
power of our manufacturing partners. Our products rely on key components, including merchant silicon, integrated circuit components and power supplies
purchased from a limited number of suppliers, including certain sole source providers. Lead times for materials and components vary significantly, and
depend on factors such as the specific supplier, complexity, contract terms, demand and availability for a component at a given time. From time to time, we
may experience price volatility or supply constraints for certain components that are not available from multiple qualified sources or where our suppliers
are geographically concentrated. We, like the rest of our industry, are currently experiencing such a shortage in semiconductors and other key components
used for our hardware. These shortages continue to drive increased costs for components and shipping. In addition, labor shortages and facility closures
related to the COVID-19 pandemic continue to cause delays and increased logistics costs. We continue to source scarce components for significantly higher
prices on the open market, which is impacting our gross margin and, disrupting production when such components are not available. We may also acquire
component inventory in anticipation of supply constraints and enter into longer-term pricing commitments with vendors to improve the priority, price and
availability of supply. Our product development efforts also depend upon continued collaboration with our key suppliers, including our merchant silicon
vendors such as Broadcom. As we develop our product roadmap and continue to expand our relationships with these and other merchant silicon vendors, it
is critical that we work in tandem with our key vendors to ensure that their silicon includes improved features and that our products take advantage of such
improved features.
We believe our sourcing and manufacturing strategy allowed us to adjust quickly to changes in market demand, working with our ODM suppliers
and developing direct relationships with key component suppliers to support the backlog generated through the unprecedented demand. We continue to
focus on optimizing product availability through sourcing, rationalizing our supply chain, outsourcing or virtualizing certain activities, and consolidating
distribution sites and service logistics partners. These efforts also include process optimization initiatives, such as vendor managed inventory, and other
operational models and strategies designed to drive improved efficiencies in our sourcing, production, logistics and fulfillment.
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Research and Development
The success of our products to date is due in large part to our focus on research and development. We believe that continued success in the
marketplace will depend on our ability to develop new and enhanced products employing leading-edge technology that provide business solutions
affordably, securely and effortlessly. Accordingly, we are undertaking development efforts with an emphasis on increasing the reliability, usability and
security while innovating our user and buyer experience reducing the overall network operating costs of customers.
Our product development activities focus on solving the needs of customers in the enterprise campus edge and core by providing a unified wired,
wireless, and SD-WAN cloud-driven network, enabling secure access from edge to public or private clouds in targeted verticals. Current activities include
the continuing development of our innovative switching technology aimed to give our customers flexibility in how they deploy, connect to the cloud, and
configure instantly saving time and money. Our ongoing research activities cover a broad range of areas, including cloud native technologies and solutions,
wired and wireless networking, switching, and routing, network security, identity management, open standards interfaces, software defined networks, and
data center fabrics. In addition, we continue to invest in ML/AI technology solutions targeting Cloud Wi-Fi, IoT anomaly detection, autonomous
networking, and user recommendations.
We continue to enhance the functionality of our network operating systems which have been designed to provide high reliability and availability.
This allows us to leverage a common operating system across different hardware and network chipsets.
As of June 30, 2022, our research and development organization consisted of 708 employees. Research and development efforts are conducted in
several of our locations, including Morrisville, North Carolina; San Jose, California; Salem, New Hampshire; Toronto, Canada; Shannon, Ireland; Massy,
France; Hangzhou, China; and Bangalore and Chennai, India.
Intellectual Property
We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property
rights. As of June 30, 2022, we had 744 issued patents in the United States and 472 patents outside of the United States. The expiration dates of our issued
patents in the United States range from 2022 to 2040. Although we have patent applications pending, there can be no assurance that patents will be issued
from pending applications or that claims allowed on any future patents will be sufficiently broad to protect our technology. As of June 30, 2022, we had 24
registered trademarks in the United States and 217 registered trademarks outside of the United States.
We enter into confidentiality, inventions assignment or license agreements with our employees, consultants and other third parties with whom we do
business, and control access to, and distribution of, our software, documentation and other proprietary information. In addition, we provide our software
products to end-user customers primarily under “clickwrap” license agreements. These agreements are not negotiated with or signed by the licensee, and
thus these agreements may not be enforceable in some jurisdictions. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy or otherwise obtain and use our products or technology, particularly in foreign countries where the laws may not protect our proprietary rights as
fully as in the United States.
Competition
The market for network switches, routers and software (including analytics) which is part of the broader market for networking equipment is
extremely competitive and characterized by rapid technological progress, frequent new product introductions, changes in customer requirements and
evolving industry standards. We believe the principal competitive factors in this market are:
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expertise and familiarity with network protocols, network switching/routing/wireless and network management;
robust, cloud-driven options that reduce the cost of acquisition, provisioning, and ongoing management of network management;
expertise and familiarity with application analytics software;
expertise with network operations and management software;
expertise in machine learning and artificial intelligence;
product performance, features, functionality and reliability;
price/performance characteristics;
timeliness of new product introductions;
adoption of emerging industry standards;
customer service and support;
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size and scope of distribution network;
brand name;
breadth of product offering;
access to customers; and
size of installed customer base.
We believe we compete with our competitors with respect to many of the foregoing factors. However, the market for network switching solutions is
dominated by a few large companies, particularly Cisco Systems, Inc., Hewlett-Packard Enterprise Co., Huawei Technologies Co. Ltd., Arista Networks
Inc., Juniper Networks Inc., and Ubiquiti Inc. Most of these competitors have longer operating histories, greater name recognition, larger customer bases,
broader product lines and substantially greater financial, technical, sales, marketing and other resources.
We expect to face increased competition from both traditional networking solutions companies and cloud platform companies offering
Infrastructure-as-a-Service (“IaaS”) and Platform-as-a-Service (“PaaS”) products to enterprise customers. In that regard, we expect to face increased
competition from certain cloud computing companies such as Amazon, Microsoft, and Google providing a cloud-based platform of data center compute
and networking services for enterprise customers.
We believe Extreme is uniquely positioned to address its overarching vision of the future, the Infinite Enterprise, with its bet on industry-leading
cloud solutions, automation and AI. Although we believe that our solutions and strategy will improve our ability to meet the needs of our current and
potential customers, we cannot guarantee future success.
Restructuring and Impairment
Fiscal year 2020
During fiscal 2020, we reduced our operating expenses by exiting a floor of our San Jose, California facility and additional space in our Salem, New
Hampshire facility. We continued our initiative to realign our operations resulting from the acquisition of Aerohive and consolidating our workforce and
exited the facility we acquired from Aerohive in Milpitas, California.
During the third quarter of fiscal 2020, with the global disruptions and slow-down in the demand of our products caused by the global pandemic
outbreak of, COVID-19, and the uncertainty around the timing of the recovery of the market, we initiated a reduction-in-force plan (the “2020 Plan”) to
reduce our operating costs and enhance financial flexibility. The plan affected approximately 320 employees primarily from the research and development
and sales organizations who were located mainly in the United States and India. Costs associated with the 2020 Plan are primarily comprised of employee
severance and benefits expenses.
Fiscal year 2021
Along with the reduction and realignment of the headcount under the 2020 Plan, we continued the process of relocating certain lab test equipment to
third-party consulting companies during fiscal 2021 and fiscal 2022.
Fiscal year 2022
During fiscal year 2022, the Company completed the reduction and realignment of the headcount and relocation of lab test equipment under the
2020 Plan.
Environmental Matters
We are subject to various environmental and other regulations governing product safety, materials usage, packaging and other environmental
impacts in the United States and in various countries where our products are manufactured and sold. We are also subject to regulatory developments,
including recent SEC disclosure regulations relating to so-called "conflict minerals," relating to ethically responsible sourcing of the components and
materials used in our products. To date, compliance with federal, state, local, and foreign laws enacted for the protection of the environment has had no
material effect on our capital 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 our
products in the marketplace. We maintain compliance with various regulations related to the environment, including the Waste Electrical and Electronic
Equipment and the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment regulations adopted by the European
Union. To date, our compliance efforts with various United States and foreign regulations related to the environment has not had a material effect on our
operating results.
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Human Capital
At Extreme, we manage our human capital guided by our core values of Candor, Transparency, Curiosity, Teamwork, Ownership, and Inclusion.
We apply these principles to talent acquisition and management, compensation and benefits, and diversity and inclusion.
As of June 30, 2022, we employed 2,643 people. Of these, 40.6% work in sales and marketing, 26.8% in research and development, 4.5% in
operations, 17.3% in customer support and services and 10.9% in finance and administration. These employees were located worldwide, with 48.5%
located in the United States, 7.1% in other locations in the Americas, 24.8% in the APAC region, which includes Asia Pacific, China, South Asia and
Japan, and 19.6% in the EMEA region, which includes Europe, Russia, Middle East and Africa.
None of our U.S. employees are subject to a collective bargaining agreement. In certain foreign jurisdictions, where required by local law or
custom, some of our employees are represented by local workers’ councils and/or industry collective bargaining agreements. We consider our relationship
with our employees to be good, and we have not experienced any work stoppages due to labor disagreements.
Talent Acquisition and Management. We strive to attract and retain the most qualified employees for each role within the Company. To do this, we
utilize various recruiting channels, including employee referrals and those targeting diverse candidates. We on-board new employees through the New Hire
Academy and encourage skill development throughout the employee journey utilizing various role-specific training programs, career development tools,
manager training, coaching, and mentorship.
Compensation and Benefits. Our compensation philosophy is to offer a competitive compensation package designed to reward achievement of the
Company’s goals. Our short-term bonus plan is designed to motivate employees to meet half-year goals, and our employee stock purchase plan and grants
of restricted stock units to eligible employees reward longer-term stock price appreciation. Our U.S. benefits plan includes health benefits, life and
disability insurance, various voluntary insurances, flexible time off and leave programs, an employee assistance plan, an educational assistance policy, and
a 401(k) plan with a competitive employer match. Our international benefits plans are competitive locally and generally provide similar benefits.
Diversity and Inclusion. We believe that we gain valuable perspective that drives better decision making when we listen to diverse voices. To foster
an inclusive environment, we support several employee resource groups (“ERGs”), including Women in Networking (the new name for our Women’s
Council), Black @ Extreme (Black/African American), LaRaza (Latinx/Hispanic), Maitri (employees in India), Pride Alliance (LGBTQ+), Global Veterans
Council, API (Asian Pacific Islanders), and APPs (Aspiring Professionals Program). We are stepping up to this challenge of fostering an inclusive
environment through efforts to improve recruiting of diverse candidates, identify and support high potential employees, and retain diverse employees. Since
we started our first ERG, Women in Networking, we have increased the number of women employees and our female leadership. We are striving to
increase the number of African-American/Black employees and Latinx/Hispanic employees by the end of calendar year 2025, and to increase the number
of women and underrepresented groups within our management teams.
Organization
We were incorporated in California in May 1996 and reincorporated in Delaware in March 1999. Our corporate headquarters are located at 2121
RDU Center Drive, Suite 300, Morrisville, NC 27560 and our telephone number is (408) 579-2800. We electronically file our Securities Exchange
Commission (“SEC”) disclosure reports with the SEC and they are available free of charge at both www.sec.gov and www.extremenetworks.com.
Our corporate governance guidelines, the charters of our audit committee, our compensation committee, our nominating, governance and social
responsibility committee and our code of business conduct and ethics policy (including code of ethics provisions that apply to our principal executive
officer, principal financial officer, controller and senior financial officers) are available on
the Investors section of our website at
investor.extremenetworks.com under “Corporate Governance.” These items are also available to any stockholder who requests them by calling (408) 579-
2800.
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Item 1A. Risk Factors
We face a number of risks and uncertainties which may have a material and adverse effect on our business, operations, industry, financial condition,
results of operations or future financial performance. While we believe we have identified and discussed below the key risk factors affecting our business,
there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our
business, results of operations, industry, financial position and financial performance in the future.
Risks Related to Our Business, Operations, and Industry
We purchase several key components for products from single or limited sources and could lose sales if these suppliers fail to meet our
needs. Supply chain constraints have exacerbated this situation.
We currently purchase several key components used in the manufacturing of our products from single or limited sources and are dependent upon
supply from these sources to meet our needs. At present, semiconductor chips and other components are currently in high demand with limited supply.
These shortages have been exacerbated by increased energy, raw material, and transportation costs, which are resulting in higher overall component costs,
higher delivery costs for expedited shipments, and significantly longer than usual lead times for these components. If we are unable to mitigate these
effects, this could have a material adverse effect on our ability to meet customer orders and will negatively impact our gross margin and results of
operations. Our principal sole-source components include:
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ASICs - merchant silicon, Ethernet switching, custom and physical interface;
microprocessors;
programmable integrated circuits;
selected other integrated circuits;
custom power supplies; and
custom-tooled sheet metal.
Our principal limited-source components include:
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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 have excess and/or obsolete inventory, which could have a material adverse effect on our business, operating results and financial condition. If orders
exceed forecasts, we may have inadequate supplies of certain materials and components, which could have a material adverse effect on our ability to meet
customer delivery requirements and to recognize revenue.
Our top ten suppliers accounted for a significant portion of our purchases during the year. 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 could
temporarily disrupt our operations. Additionally, our operations are materially dependent upon the continued market acceptance and quality of these
manufacturers’ products and their ability to continue to manufacture products that are competitive and that comply with laws relating to environmental and
efficiency standards. Our inability to obtain products from one or more of these suppliers or a decline in market acceptance of these suppliers’ products
could have a material adverse effect on our business, results of operations and financial condition. We do not have any material agreements with fixed long-
term prices or minimum volume requirements 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 or production. In addition, during the development of our products, we have experienced delays in the prototyping of our
chipsets, which in turn has led to delays in product introductions. Similar delays may occur in the future. Furthermore, the performance of the components
from our suppliers as incorporated in our products may not meet the quality requirements of our customers.
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The extended factory closures in China in the wake of the COVID-19 outbreak reduced the capacity of our supply chain and may continue to do
so. See also the risk factor below, “The coronavirus outbreak has had, and continues to have, a materially disruptive effect on our business.”
Our dependence on a few manufacturers and third parties for our manufacturing, warehousing, and delivery requirements could harm
our business, financial condition, and operating results.
We primarily rely on our manufacturing partners Alpha Networks, Senao Networks, Foxconn, Delta Networks, Wistron NeWeb Corporation,
Sercomm Corporation, Quanta, and select other partners to manufacture our products. We have experienced delays in product shipments from some of our
partners in the past, which in turn delayed product shipments to our customers. These or similar problems may arise in the future, such as delivery of
products of inferior quality, delivery of insufficient quantity of products, or the interruption or discontinuance of operations of a manufacturer or other
partner, any of which could have a material adverse effect on our business and operating results. While we maintain strong relationships with our
manufacturing and other partners, our agreements with these manufacturers are generally of limited duration and pricing, quality, and volume commitments
are negotiated on a recurring basis. The failure to maintain continuing agreements with our manufacturing partners or find replacements for them in a
timely manner could adversely affect our business. We intend to introduce new products and product enhancements, which will require that we rapidly
achieve volume production by coordinating our efforts with those 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 volume
efficiencies and the utilization of manufacturing sites in lower-cost geographies. However, we cannot be certain when or if such price reductions will occur,
particularly in light of supply chain disruptions and inflationary pressures. The failure to obtain such price reductions would adversely affect our business,
financial condition, and operating results.
In addition, any natural disaster, pandemic, or business interruption to our manufacturing partners could significantly disrupt our business. Business
interruption could be caused by geopolitical factors, including political or military actions between China and Taiwan, where much of our product and their
components are manufactured. Further, some of our products are manufactured in China and are therefore subject to the possibility of additional import
tariffs. The U.S. government has previously announced import tariffs on goods manufactured in China. These tariffs, depending upon their ultimate scope,
duration and how they are implemented, could negatively impact our business by continuing to increase our costs and by making our products less
competitive. We may not be able to pass such increased costs on to our customers. The relocation of contract manufacturing facilities to locations outside of
China or Taiwan may increase our costs and could impact the global competitiveness of our products.
The coronavirus outbreak has had, and continues to have, a materially disruptive effect on our business.
The novel coronavirus, known as COVID-19, has spread around the world and has resulted in authorities implementing numerous measures to try
to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. The spread of COVID-19 and new variants
continues to have a material negative impact on our business, financial condition, and results of operations. Current and potential impacts include, but are
not limited to, the following:
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our component suppliers and contract manufacturers have been negatively affected by changes and downturns in the economy resulting
from the COVID-19 pandemic, which may result in product delays and changes in pricing and service levels;
closures and slow ramp up of capacity of many factories in China, where our products and the components and subcomponents used in the
manufacture of our equipment are manufactured, continue to create supply chain disruptions for Extreme;
we have incurred costs such as expedite fees to be assured of supply of components;
supply and transportation costs have increased, and may continue to increase, as alternate suppliers are sought;
airport closures, labor shortages at airports and reductions in passenger flights have reduced capacity and led to a backlog of freight at
airport terminals, causing further disruptions to the supply chain;
labor shortages within delivery and other industries due to extended worker absences continue to create further supply chain disruptions;
demand for Extreme’s products and services, including Extreme’s enterprise-scale products, have been and may continue to be reduced
due to, among other things, uncertainties in the global economy and financial markets, cancellation or postponement of large gatherings,
reduction in office sizes, as well as reduced customer spending; and
reductions in earnings could increase our costs of borrowing, reduce our ability to comply with our credit agreement covenants, or make
extensions of credit unavailable to us.
The global outbreak of COVID-19 continues to rapidly evolve. The extent to which COVID-19 and new variants impacts our business will depend
on future developments, which are highly uncertain and cannot be predicted with confidence, such as the speed and extent of geographic spread of the
disease, the duration of the outbreak, travel restrictions and social distancing in the affected areas, business closures or business disruptions, and the
effectiveness of actions taken in the affected areas to contain and treat the disease.
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We depend upon international sales for a significant portion of our revenues which imposes a number of risks on our business.
International sales constitute a significant portion of our net revenues. 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
products internationally would limit our ability to sustain and grow our revenues. There are a number of risks arising from our international business,
including:
• difficulties in managing operations across disparate geographic areas;
• longer accounts receivable collection cycles;
• higher credit risks requiring cash in advance or letters of credit;
• potential adverse tax consequences;
• increased complexity of accounting rules and financial reporting requirements;
• the payment of operating expenses in local currencies, which exposes us to risks of currency fluctuations;
• fluctuations in local economies;
• 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;
• differing privacy regulations, data localization requirements, and restrictions on cross-border data transfers;
• compliance with regulatory requirements of foreign countries, including compliance with rapidly evolving environmental regulations;
• import tariffs imposed by the United States and the possibility of reciprocal tariffs by foreign countries;
• compliance with export controls, including restrictions on trade with embargoed or sanctioned countries or with denied parties, and rules
related to the export of encryption technology
• compliance with U.S. laws and regulations pertaining to the sale and distribution of products to customers in foreign countries, including
anti-corruption laws such as the Foreign Corrupt Practices Act and the U.K. Bribery Act 2010;
• difficulty in conducting due diligence with respect to business partners in certain international markets;
• political and economic turbulence or uncertainty;
• terrorism, war or other armed conflict; and
• natural disasters, epidemics, and pandemics.
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 the U.S.
Dollar relative to foreign currencies could make our products less competitive in international markets. In the future, we may elect to invoice a larger
portion of our international customers in local currency, which would expose us to greater fluctuations in exchange rates between the U.S. Dollar and the
particular 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 our
operating foreign subsidiaries. However, if we are not successful in managing these foreign currency transactions, we could incur losses from these
activities.
There are compliance risks associated with complex tariff regulations and export control laws. If we fail to comply with these laws and regulations,
we could incur penalties and sanctions from governments, and could be restricted from exporting products.
Local laws and customs in many countries differ significantly from, or conflict with, those in the United States or in other countries in which we
operate. 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
foreign laws and policies, there can be no complete assurance that any individual employee, contractor, channel partner, or agent will not violate our
policies and procedures. Violations of laws or key control policies by our employees, contractors, channel partners, or agents could result in termination of
our relationship, financial reporting problems, fines, and/or penalties for us, or prohibition on the importation or exportation of our products and could have
a material adverse effect on our business, financial condition, and results of operations.
To successfully manage our business or achieve our goals, we must attract, retain, train, motivate, develop and promote key employees, and
a failure 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 and
operations personnel, many of whom would be difficult to replace. We have experienced and may in the future experience significant turnover in our
executive personnel. Changes in our management and key employees could affect our financial results, and our prior reductions in force may impede our
ability to attract and retain highly skilled personnel. We believe our future
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success will also depend in large part upon our ability to attract and retain highly skilled managerial, engineering, sales and marketing, service, finance, and
operations personnel. The market for such personnel is competitive in certain regions for certain types of technical skills.
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 other
countries. In recent years, the United States has increased the level of scrutiny in granting H-1B, L-1 and other business visas. Compliance with U.S.
immigration and labor laws could require us to incur additional unexpected labor costs and expenses or could restrain our ability to retain skilled
professionals. Any of these restrictions could have a material adverse effect on our business, results of operations, and financial conditions.
If we fail to anticipate technological shifts, market needs and opportunities, and develop products, product enhancements and business
strategies that meet those technological shifts, needs and opportunities in a timely manner or if they do not gain market acceptance, we may not be
able to compete effectively and our ability to generate revenues will suffer.
The markets for our products are constantly evolving and characterized by rapid technological change, frequent product introductions, changes in
customer requirements, evolving industry standards, and continuous pricing pressures.
When we announce new products or product enhancements that have the potential to replace or shorten the life cycle of our existing products,
customers may defer or cancel orders for our existing products; in addition, ending sales of existing products may cause customers to cancel or defer orders
for our existing products. These actions could have a material adverse effect on our operating results by unexpectedly decreasing sales, increasing
inventory levels of older products and exposing us to greater risk of product obsolescence.
We cannot guarantee that we will be able to anticipate future technological shifts, market needs and opportunities or be able to develop new
products, product enhancements and business strategies to meet such technological shifts, needs or opportunities in a timely manner or at all. If we fail to
anticipate market requirements or opportunities or fail to develop and introduce new products, product enhancements or business strategies to meet those
requirements or opportunities in a timely manner, it could cause us to lose customers, and such failure could substantially decrease or delay market
acceptance and sales of our present and future products and services, which would significantly harm our business, financial condition, and results of
operations. Even if we are able to anticipate, develop, and commercially introduce new products and enhancements, we cannot assure that new products or
enhancements will achieve widespread market acceptance.
If our products do not effectively inter-operate with our customers’ networks and result in cancellations and delays of installations, our
business, financial condition and results of operations could be harmed.
Our products are designed to interface with our customers’ existing networks, each of which have different specifications and utilize multiple
protocol standards and products from other vendors. Many of our customers’ networks contain multiple generations of products that have been added over
time as these 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 in order 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 need to modify our software networking solutions to fix or overcome these errors so that our products will inter-operate and scale with
the existing software and hardware, which could be costly and could negatively affect our business, financial condition, and results of operations. In
addition, if our products do not inter-operate with those of our customers’ networks, demand for our products could be adversely affected or orders for our
products could be canceled. This could harm our operating results, and financial condition, damage our reputation, and seriously harm our business and
prospects.
Industry consolidation may lead to stronger competition and may harm our business, financial condition, and 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 to
strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations. Companies that are
strategic alliance partners in some areas of our business may acquire or form alliances with our competitors, thereby reducing their business with us. We
believe industry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for customers. This could lead to
more variability in our operating results and could have a material adverse effect on our business, operating results, and financial condition. Furthermore,
particularly in the service provider market, rapid consolidation 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 customer marketplace composed of more numerous participants.
The cloud networking market is rapidly evolving. If this market does not evolve as we anticipate or our target end customers do not adopt
our cloud networking solutions, we may not be able to compete effectively, and our ability to generate revenues will suffer.
The cloud networking market is the fastest growing segment of the networking industry. The market demand for cloud networking solutions has
increased in recent years as end customers have deployed larger networks and have increased the use of
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virtualization and cloud computing. Our success may be impacted by our ability to provide successful cloud networking solutions that address the needs of
our channel partners and end customers more effectively and economically than those of other competitors or existing technologies. If the cloud
networking solutions market does not develop in the way we anticipate, if our solutions do not offer significant benefits compared to competing legacy
network switching products, or if end customers do not recognize the benefits that our solutions provide, then our potential for growth in this cloud
networking market could be adversely affected. In addition, if the transition to a cloud-based model takes a significant amount of time, we run the risk of
affecting our current core revenue streams.
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 the
marketplace. In the past, we have experienced such errors in connection with new products and product updates. We have experienced component problems
in prior years that caused us to incur higher than expected warranty, service costs and expenses, and other related operating expenses. In the future, we
expect that, from time to time, such errors or component failures will be found in new or existing products after the commencement of commercial
shipments. These problems may have a material adverse effect on our business by causing us to incur significant warranty, repair and replacement costs,
diverting the attention of our engineering personnel from new product development efforts, delaying the recognition of revenue, and causing significant
customer relations problems. Further, if products are not accepted by customers due to such defects, and such returns exceed the amount we accrued for
defective returns, our business, financial condition, and results of operations would be adversely affected.
Our products must successfully inter-operate with products from other vendors. As a result, when problems occur in a network, it may be difficult
to identify 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
market acceptance of our products and any necessary revisions may cause us to incur significant expenses. The occurrence of any such problems would
likely have a material adverse effect on our business, operating results, and financial condition.
We must continue to develop and increase the productivity of our indirect distribution channels to increase net revenues and improve our
operating results.
Our distribution strategy focuses primarily on developing and increasing the productivity of our indirect distribution channels. If we fail to develop
and cultivate relationships with significant channel partners, if we are unable to meet their needs, or if these channel partners are not successful in their
sales efforts, sales of our products may decrease and our operating results could suffer. Many of our channel partners also sell products from other vendors
that compete with our products. Our channel partners may not continue to market or sell our products effectively or to devote the resources necessary to
provide us with effective sales, marketing, and technical support. We may not be able to successfully manage our sales channels or enter into additional
reseller and/or distribution agreements. Our failure to do any of these could limit our ability to grow or sustain revenues.
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 of
channel partners and other customers. However, we do not have binding purchase commitments from any of them. A substantial reduction or delay in sales
of our products to a significant reseller, distributor or other customer could harm our business, operating results and financial condition because our
expense levels are based on our expectations as to future revenues and, to a large extent, are fixed in the short term. Under specified conditions, some third-
party distributors are allowed to return products to us and unexpected returns could adversely affect our business, financial condition, and results of
operations.
The sales cycle for our products is long and we may incur substantial non-recoverable expenses or devote significant resources to sales that
do not occur when anticipated.
The purchase of our products represents a significant strategic decision by a customer regarding its communications infrastructure. The decision by
customers to purchase our products is often based on the results of a variety of internal procedures associated with the evaluation, testing, implementation,
and acceptance of new technologies. Accordingly, the product evaluation process frequently results in a lengthy sales cycle, typically ranging from three
months 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:
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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
resources difficult to assess;
we may incur substantial sales and marketing expenses and expend significant management time in an attempt to initiate or increase
the sale of products to customers, but not succeed;
when 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.
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We rely on third-party providers for services needed to deliver our cloud solutions and other third-party providers for our internal
operations. Any disruption in the services provided by such third-party providers could adversely affect our business and subject us to liability.
Our cloud solutions are hosted from and use computing infrastructure provided by third parties, including Amazon Web Services, Google Cloud
Platform, and Microsoft Azure. We do not own or control the operation of the third-party facilities or equipment used to provide the cloud services. Our
computing infrastructure service providers have no obligation to renew their agreements with us on commercially reasonable terms or at all. If we are
unable to renew these agreements on commercially reasonable terms, or if one of our computing infrastructure service providers is acquired, we may be
required to transition to a new provider and we may incur significant costs and possible service interruption in connection with doing so. In addition, such
service providers could decide to close their facilities or change or suspend their service offerings without adequate notice to us. Moreover, any financial
difficulties, such as bankruptcy, faced by such service providers may have negative effects on our business, the nature and extent of which are difficult to
predict.
If these third-party service providers experience service outages, performance problems or errors, this could adversely affect the experience of our
customers. Our agreements with third-party computing infrastructure service providers may not entitle us to corresponding service level credits to those we
offer to our customers. Any changes in third-party service levels at our computing infrastructure service providers or any related disruptions or performance
problems with our solutions could adversely affect our reputation and impact our customers’ operations, result in lengthy interruptions in our services, or
result in potential losses of customer data. Interruptions in our services might reduce our revenues, cause us to issue refunds to customers for prepaid and
unused subscriptions, subject us to service level credit claims and potential liability, or adversely affect our renewal rates.
Additionally, if a third-party service provider fails to maintain compliance with standards such as SOC2 or ISO27001, it could affect the underlying
controls that we maintain, or that our customers rely upon. This could entail additional costs to compensate for the lost controls, or have a negative impact
on revenue if our customers do not perceive our vendors as secure.
We rely on third-party cloud service providers such as Salesforce and Oracle to support internal operations. Disruptions to such service or data
breaches of those services could impact our ability to maintain efficient operations and to provide services to our customers.
System security risks, data breaches, and cyber-attacks could compromise our proprietary information, disrupt our internal operations,
impact services to customers, and harm public perception of our products, which could adversely affect our business, financial condition and
results of operations.
In the ordinary course of business, we provide cloud-based services and store data, including intellectual property, and our proprietary business
information and that of our customers, suppliers and business partners on our networks. In addition, we store information through cloud-based services that
may be hosted by third parties and in data center infrastructure maintained by third parties. The secure provision of services and maintenance of this
information is critical to our operations and business strategy.
Increasingly, companies, including us, are subject to a variety of attacks on their networks and/or cloud-based services on an ongoing basis. The
number and severity of these attacks could increase as a result of nation-state actors initiating attacks for political or cyber warfare purposes. Attacks could
include supply chain attacks targeting our suppliers and attempts to penetrate our systems or disrupt our services directly. In some cases, sophisticated
hardware and operating system software and applications that we produce or procure from third parties may contain vulnerabilities in design or
manufacture, including “bugs” and other problems that could allow network intrusion or unexpectedly interfere with the operation of our networks. Usage
of “legacy” products that have been determined to have reached an end of life engineering status but will continue to operate for a limited amount of time
may subject us or our customers to new vulnerabilities. Further, employee error, malfeasance, or other disruptions can result in a security or data breach.
Despite our security measures, we may not be able to effectively detect, prevent, or protect against or otherwise mitigate losses from all cyber-
attacks or prevent all security or data breaches. Because the techniques used by computer programmers and hackers, many of whom are highly
sophisticated and well-funded, to access or sabotage networks change frequently and generally are not recognized until after they are used, we may be
unable to anticipate or immediately detect these techniques. Any such breach could compromise our products, networks, or cloud-based services by
creating system disruptions, slowdowns or even shutdowns, and exploiting security vulnerabilities of our products, and the information stored as part of our
operations could be accessed, publicly disclosed, lost or stolen. Such events which could subject us to liability to our customers, suppliers, business
partners and others, could require significant management attention and resources, could result in the loss of business, regulatory actions and potential
liability, and could cause us reputational and financial harm.
If an actual or perceived breach of network security occurs in our products, network, or in the network of a customer of our networking products,
regardless of whether the breach is attributable to our products, the market perception of the effectiveness or security of our products could be harmed. This
could impede our sales, manufacturing, distribution, or other critical functions, which could adversely affect our business. In addition, the economic costs
to us to eliminate, mitigate, or recover from, or remediate cyber or
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other security problems, such as bugs, viruses, worms, ransomware or other malware, and security vulnerabilities could be significant and may be difficult
to anticipate or measure.
The ongoing military action between Russia and Ukraine could adversely affect our business, financial condition and results of operations.
On February 24, 2022, Russian military forces launched a military action in Ukraine,. Although the length, impact, and outcome of the ongoing
military conflict in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including significant volatility in
commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in
consumer or purchaser preferences as well as increases in cyberattacks and espionage.
Russia’s military actions in Ukraine have led to an unprecedented expansion of sanction programs imposed by the United States, the European
Union, the United Kingdom, Canada, Switzerland, Japan and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk
People’s Republic and the so-called Luhansk People’s Republic.
As the conflict in Ukraine continues to evolve, and the United States, the European Union, the United Kingdom and other countries may implement
additional sanctions, export controls or other measures against Russia, Belarus, and other countries, regions, officials, individuals, or industries in the
respective territories. Such sanctions and other measures, as well as the existing and potential further responses from Russia or other countries to such
sanctions, tensions, and military actions, could adversely affect the global economy and financial markets and could adversely affect our business, financial
condition, and results of operations.
We are actively monitoring the situation in Ukraine and assessing its impact on our business, including our business partners and customers. The
extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have substantial impact on
the global economy and our business for an unknown period of time. Any of the abovementioned factors could affect our business, financial condition and
results of operations. Any such disruptions may also magnify the impact of other risks described in this "Risk Factors" section.
Risks Related to Financial Matters
We cannot assure future profitability, and our financial results may fluctuate significantly from period to period.
We have not been consistently profitable. Even in years when we reported profits, we may not have been profitable in each quarter 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 below our
expectations and those of our investors, which could cause the price of our stock to fall.
We may experience challenges or delays in forecasting, generating or recognizing revenue for a number of reasons and our revenues and operating
results have varied significantly in the past and may vary significantly in the future due to a number of factors, including, but not limited to, the following:
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our dependence on obtaining orders during a quarter and shipping those orders in the same quarter to achieve our revenue objectives;
in particular, with current supply chain constraints, our backlog has continued to grow as we are unable to ship all orders obtained
during a quarter;
orders in our backlog could be cancelled by customers, impacting the accuracy of our revenue forecasting;
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;
seasonal fluctuations in demand for our products and services;
a disproportionate percentage of our sales occurring in the last month 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 in addition 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 volatile and 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;
our ability to obtain sufficient supplies of sole- or limited-source components for our products on a timely basis; and
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changes in funding for customer technology purchases in our markets.
In addition to risks related to revenue, we are subject to risks related to costs, which may be influenced by a number of factors, including, but not
limited to, the following:
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our ability to achieve and maintain targeted cost reductions;
fluctuations in warranty or other service expenses actually incurred;
increases in the price of the components we purchase;
increases in costs associated with sourcing and shipping components and finished products;
general inflationary pressures, increasing the cost of all inputs; and
rising interest rates, increasing the cost of borrowing.
We are subject to changes in general and specific macro-economic conditions in the networking industry, which could affect both revenue and
costs.
Due to the foregoing and other factors, many of which are described herein, period-to-period comparisons of our operating results should not be
relied upon as an indicator of our future performance.
We may not realize anticipated benefits of past or future acquisitions, divestitures and strategic investments, and the integration of
acquired companies or technologies may negatively impact our business, financial condition and results of operations 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 product
offerings, augment our market coverage or enhance our technical capabilities, or otherwise offer growth opportunities. For example, on September 14,
2021, we acquired Ipanematech SAS, the SD-WAN division of InfoVista SAS, for EUR 60 million in cash consideration. In the event of any future
acquisitions, we could:
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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 business, financial condition, and operating results or the price of our common stock.
There can be no assurance we will achieve the revenues, growth prospects, and synergies expected from any acquisition or that we will achieve
such revenues, growth prospects, and synergies in the anticipated time period and our failure to do so could have a material adverse effect on our business,
financial condition, and operating results. 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 when the expenses associated with an acquisition are incurred. This is particularly relevant in cases where it would be
necessary to integrate new types of technology into our existing portfolio and new types of products may be targeted for potential customers with which we
do not have pre-existing relationships.
Our ability to realize the anticipated benefits of any current and future acquisitions, divestitures and investment activities also entail numerous risks,
including, but not limited to:
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difficulties in the assimilation and successful integration of acquired operations, sales functions, 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
amortization costs for acquired intangible assets, that could negatively impact our business, financial condition, and results of
operations;
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.
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In addition, we may not be able to successfully integrate any businesses, products, technologies, or personnel that we might acquire in the future,
and our failure to do so could have a material adverse effect on our business, financial condition, and operating results.
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 anticipated
cost savings and other benefits from our restructuring efforts within expected time frames is subject to many estimates and assumptions and may vary
materially based on factors such as market conditions and the effect of our restructuring efforts on our work force. These estimates and assumptions are
subject to significant economic, competitive and other uncertainties, some of which are beyond our control. We cannot assure that we will fully realize the
anticipated positive impacts to future financial results from our current or future restructuring efforts. If our estimates and assumptions are incorrect or if
other unforeseen events occur, we may not achieve the cost savings expected from such restructurings, and our business, financial condition, and results of
operations could be adversely affected.
Our stock price has been volatile in the past and may significantly fluctuate in the future.
In the past, the trading price of shares of our common stock has fluctuated significantly. This could continue as we or our competitors announce
new products, our results or those of our customers or competition fluctuate, conditions in the networking or semiconductor industry change, conditions in
the global economy change, or when investors change their sentiment toward stocks in the networking technology sector.
In addition, fluctuations in our stock price and our enterprise value to sales valuation may make our stock attractive to momentum, hedge or day-
trading investors who often shift funds into and out of stock rapidly, exacerbating price fluctuations in either direction, particularly when viewed on a
quarterly basis. These fluctuations may adversely affect the trading price or liquidity of our common stock. Some companies, including us, that have had
volatile market 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.
Intense competition in the market for networking equipment and cloud platform companies could prevent us from increasing revenues and
attaining profitability.
The market for network switching solutions is intensely competitive and dominated primarily by Cisco Systems Inc., Hewlett-Packard Enterprise
Company, Juniper Networks, Huawei Technologies Co. Ltd., Arista Networks, Inc., and Ubiquiti Inc. Most of our competitors have longer operating
histories, greater name recognition, larger customer bases, broader product lines and substantially greater financial, technical, sales, marketing and other
resources. 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 make
attractive offers to channel partners and customers than we do. Further, many of our competitors have made substantial investments in hardware
networking capabilities and offerings. These competitors may be able to gain market share by leveraging their investments in hardware networking
capabilities to attract customers at lower prices or with greater synergies. Some of our customers may question whether we have the financial resources to
complete their projects and future service commitments.
We may also face increased competition from both traditional networking solutions companies and cloud platform companies offering IaaS and
PaaS products to enterprise customers. In particular, AWS, Microsoft Azure, and the Google Cloud Platform may provide enterprise customers with a
cloud-based platform of data center computing and networking services.
For example, we have encountered, and expect to continue to encounter in the future, many potential customers who are confident in and
committed to the product offerings of our principal competitors. Accordingly, these potential customers may not consider or evaluate our products. When
such potential customers 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 large competitors have offered significant price discounts to secure these sales.
The pricing policies of our competitors impact the overall demand for our products and services. Some of our competitors are capable of operating
at significant losses for extended periods of time, increasing pricing pressure on our products and services. If we do not maintain competitive pricing, the
demand 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 in
response to competitive pressure. When this happens, if we are unable to reduce our component costs or improve operating efficiencies, our revenues and
gross margins will be adversely affected.
One of our key differentiators is the quality of our support and services. Our failure to continue to provide high-quality support and services could
have a material adverse effect on our business, financial condition, results of operations and prospects.
We intend to invest in engineering, sales, services, marketing and manufacturing on a long-term basis, and delays or inability to attain the
expected benefits may result in unfavorable operating results.
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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
to our engineering, sales, services, marketing and manufacturing functions as we focus on our foundational priorities, such as leadership in our core
products and solutions and architectures for business transformation. We are likely to recognize the costs associated with these investments earlier than
some of the anticipated benefits and the return on these investments may be lower, or may develop more slowly, than we expect. If we do not achieve the
benefits anticipated from these investments, or if the achievement of these benefits is delayed, our business, financial condition, and operating results may
be adversely affected.
Our credit facilities impose financial and operating restrictions on us and if we fail to meet our payment or other obligations under our
2019 Credit Agreement (as defined in Item 7, “Liquidity and Capital Resources”), the lenders under such 2019 Credit Agreement, as amended,
could foreclose on, and acquire control of, substantially all of our assets.
Our 2019 Credit Agreement imposes, and the terms of any future debt may impose, operating and other restrictions on us. These restrictions could
affect, and in many respects limit or prohibit, among other items, our ability to:
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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.
Our 2019 Credit Agreement also requires us to achieve and maintain compliance with specified financial ratios and certain liquidity and revenue
metrics. A breach of any of these restrictive covenants or the inability to comply with the required financial ratios or metrics could result in a default under
our 2019 Credit Agreement. The lenders under our 2019 Credit Agreement also have the right in the event of a breach of the restrictive covenants to
terminate any commitments they have to provide further borrowings.
Further, our 2019 Credit Agreement is jointly and severally guaranteed by us and certain of our subsidiaries. Borrowings under our 2019 Credit
Agreement 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
that are loan party guarantors. If we are unable to repay outstanding borrowings when due or comply with other obligations and covenants under our 2019
Credit Agreement, the lenders under our 2019 Credit Agreement will have the right to proceed against these pledged capital stock and take control of
substantially all of our assets.
Our cash requirements may require us to seek additional debt or equity financing and we may not be able to obtain such financing on
favorable terms, or at all.
Our 2019 Credit Agreement may not be sufficient for our future working capital, investments and cash requirements, in which case we would need
to seek additional debt or equity financing or scale back our operations. In addition, we may need to seek additional financing to achieve and maintain
compliance with specified financial ratios under our 2019 Credit Agreement, as amended. We may not be able to access additional capital resources due to
a variety of reasons, including the restrictive covenants in our 2019 Credit Agreement and the lack of available capital due to global economic conditions.
If our financing requirements are not met and we are unable to access additional financing on favorable terms, or at all, our business, financial condition
and results of operations could be materially adversely affected.
Uncertainty about the future of the London Interbank Offered Rate (“LIBOR”) could impact the cost of our borrowing and ability to
mitigate interest rate risk.
Certain of our financing instruments involve variable rate debt, thus exposing us to the risk of fluctuations in interest rates. Our 2019 Credit
Agreement provides for interest to be calculated based on the LIBOR, however, the U.K. Financial Conduct Authority, which regulates LIBOR, intends to
phase out LIBOR completely by June 2023. With the expected discontinuation of LIBOR, the U.S. Federal Reserve has begun publishing a Secured
Overnight Funding Rate (“SOFR”), an index based on transactions in the Treasury repurchase market. The scheduled discontinuation of LIBOR in June of
2023 occurs before the maturity of borrowings under our existing credit facility. We expect to amend the terms of the credit facility to include SOFR based
borrowing before the final phase out of LIBOR in June of 2023. At this time, we cannot be certain that the amended terms will be as favorable as existing
terms. There is risk that market disruptions could impact our ability to amend the agreement, and/or enter into hedging arrangements to mitigate
23
interest rate risk. We may experience potential increases in interest rates on our variable rate debt, which could adversely impact our interest expense,
results of operations and cash flows.
We are exposed to the credit risk of our channel partners and some of our end customers, which could result in material losses.
Most of our sales are on an open credit basis, with standard payment terms of 30 days in the United States and, because of local customs or
conditions, longer in some markets outside the U.S. We monitor individual end-customer payment capability in granting such open credit arrangements,
seek to limit such open credit to amounts we believe the end customers can pay and maintain reserves we believe are adequate to cover exposure for
doubtful accounts. Any significant delay or default in the collection of significant accounts receivable could potentially result in an increased need for us to
obtain working capital from other sources, possibly on less favorable terms than we could have negotiated if we had established such working capital
resources prior to such delays or defaults. Any significant default could adversely affect our results of operations and delay our ability to recognize
revenue.
A material portion of our sales is derived through our distributors, systems integrators, and value-added resellers. Some of our distributors, systems
integrators and value-added resellers may experience financial difficulties, which could adversely affect our collection of accounts receivable. Our
exposure to credit risks of our channel partners may increase if our channel partners and their end customers are adversely affected by global or regional
economic conditions. One or more of these channel partners could delay payments or default on credit extended to them, either of which could materially
adversely affect our business, financial condition, results of operations and prospects.
Rising interest rates and increasing inflation could put additional financial pressures on some partners and customers, which could result in longer
collection times or default on payment to us.
If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our ability to manage and grow
our business may be harmed.
Our ability to successfully implement our business plan and comply with regulations requires an effective planning and management process. We
need to ensure that any businesses acquired are appropriately integrated in our financial systems. We need to continue improving our existing, and
implement new, operational and financial systems, procedures and controls. Any delay in the 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 future results.
We are required to evaluate the effectiveness of our internal control over financial reporting on an annual basis and publicly disclose any
material weaknesses in our controls. Any adverse results from such evaluation could result in a loss of investor confidence in our financial reports
and significant 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
and to 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
ongoing program to review the design of our internal controls framework in keeping with changes in business needs, implement necessary changes to our
controls design and test the system and process controls necessary to comply with these requirements. Because of the inherent limitations in all control
systems, no evaluation 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, if any, 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 if
quickly remedied, may cause investors to lose confidence in our financial statements and its stock price may decline. Remediation of a material weakness
could 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 and
accurate 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
sanctions or investigation by regulatory authorities, including the SEC or Nasdaq. We may also be required to restate our financial statements from prior
periods. Execution of restatements create a significant strain on our internal resources and could cause delays in our filing of quarterly or annual financial
results, increase our costs and cause management distraction. Restatements may also significantly affect our stock price in an adverse manner.
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 tax
revenues, 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 U.S.-based educational institutions comes from a federal funding program known as the E-Rate program. E-
Rate is a program of the Federal Communications Commission (the “FCC”) that subsidizes the purchase of approved telecommunications, Internet access,
and internal connection costs for eligible public
24
educational institutions. The E-Rate program, its eligibility criteria, the timing and specific amount of federal funding actually available and which Wi-Fi
infrastructure and product sectors will benefit, are uncertain and subject to final federal program approval and funding appropriation continues to be under
review by the FCC, and we cannot assure that this program or its equivalent will continue, and as a result, our business may be harmed. Furthermore, if
state or local funding of public education is significantly reduced because of legislative or policy changes or by reductions in tax revenues due to changing
economic conditions, our sales to educational institutions may be negatively impacted by these changed conditions. Any reduction in spending on
information technology systems by educational institutions would likely materially and adversely affect our business and results of operations. This is a
specific example of the many factors which add additional uncertainty to our future revenues from our end-customers in the education sector.
Regulatory, Tax and Legal Risks
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and
requirements, which could have a material adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to:
•
•
•
•
•
•
comply with securities laws and regulations or similar regulations of comparable foreign regulatory authorities;
comply with export controls and sanctions laws and regulations or similar regulations of comparable foreign regulatory authorities;
comply with anti-corruption laws and regulations or similar regulations of comparable foreign regulatory authorities;
comply with internal controls that we have established;
report financial information or data accurately; or
disclose unauthorized activities to us.
The precautions we take to detect and prevent misconduct may not be effective in controlling unknown or unmanaged risks or losses or in
protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If
any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant
impact on our business, financial condition, and results of operations, including the imposition of significant fines or other sanctions.
Our operating results may be negatively affected by legal proceedings.
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. In
addition to the risks related to the intellectual property lawsuits described above, we are currently parties to other litigation as described in Note 10,
Commitments and Contingencies, in the Notes to Consolidated Financial Statements included elsewhere in this Report. Regardless of the result, litigation
can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An
unfavorable resolution of a lawsuit in which 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 of operations or financial condition. Even if we are successful in prosecuting claims and lawsuits, we may not
recover damages sufficient to cover our expenses incurred to manage, investigate and pursue the litigation. In addition, subject to certain limitations, we
may be obligated to indemnify our current and former customers, suppliers, directors, officers and employees in certain lawsuits. We may not have
adequate insurance coverage to cover all of our litigation costs and liabilities.
Claims of infringement by others may increase and the resolution of such claims may adversely affect our business, financial condition, and
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. As we have grown, we have, and may continue to, experience greater
revenues and increased public visibility, which may cause competitors, customers, and governmental authorities to be more likely to initiate litigation
against us. Because of the existence of a large number of patents in the networking field, 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 or component might infringe the patent rights of others. Because of the
potential for courts awarding substantial damages, or internationally prohibiting us from exporting, in the case of China, or importing our products, in the
case of Germany, the lack of predictability of such awards and the high legal costs associated with the defense of such patent infringement matters that
would be expended to prove lack of infringement, it is not uncommon for companies in our industry to settle even potentially unmeritorious claims for very
substantial amounts. Furthermore, the entities with whom we have or could have disputes or discussions include entities with extensive patent portfolios
and substantial financial assets. These entities are actively engaged in programs to generate substantial revenues from their patent portfolios and are seeking
or may seek significant payments or royalties from us and others in our industry.
25
Litigation resulting from claims that we are infringing the proprietary rights of others has resulted and could in the future result in substantial costs
and a diversion of resources and could have a material adverse effect on our business, financial condition and results of operations. We previously received
notices 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;
redesign those products that use the disputed technology; or
face a ban on importation or exportation of our products into the United States or into another country.
In addition, our products include so-called “open source” software. Open source software is typically licensed for use at no initial charge but
imposes on 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
source software 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
intellectual property;
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
offer proprietary 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-party intellectual 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 or
licensing negotiations, though the amounts cannot be determined. These expenses may be material or otherwise adversely affect our business, financial
condition, and operating results.
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. It
may 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 licenses
would 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 other intellectual property licensed from third parties on a nonexclusive basis could limit our ability to protect our proprietary rights in our
products. Further, the failure to comply with the terms of any license, including free open source software, may result in our inability to continue to use
such license.
Failure to protect our intellectual property could affect our business.
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
independently develop similar or competing products that do not infringe on our patents. We generally enter into confidentiality, invention assignment or
license agreements with our employees, consultants and other third parties with whom we do business, and control access to and distribution of our
intellectual property and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise misappropriate or use our products or technology, which would adversely affect our business.
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 these
standards 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 with such standards.
26
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
to effectively 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 FCC, standards
established by governmental authorities in various foreign countries and recommendations of the International Telecommunication Union. In some
circumstances, we must obtain regulatory approvals or certificates of compliance before we can offer or distribute our products in certain jurisdictions or to
certain customers. Complying with new regulations or obtaining certifications can be costly and disruptive to our business.
If we do not comply with existing or evolving industry standards or government regulations, we will not be able to sell our products where these
standards or regulations apply, which may prevent us from sustaining our net revenues or achieving profitability.
Our provision for income taxes and overall cash tax costs are affected by a number of factors, including reorganizations or restructurings
of our business, jurisdictional revenue mix and changes in tax regulations or policy, all of which could materially adversely affect our business,
financial condition and results of operations.
We are a multinational company subject to income tax as well as non-income-based taxes in various jurisdictions including Ireland, where we have
an operating company supporting our business in most non-U.S. jurisdictions. Our income taxes are subject to volatility and could be adversely affected by
several factors including earnings that are lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have
higher tax rates, expiration of or lapses in the research and development tax credit laws, transfer pricing adjustments in the various jurisdictions we do
business, tax effects of nondeductible compensation, including stock-based compensation, changes in accounting principles and imposition of withholding
or other taxes on payments by subsidiaries or customers.
Significant judgment is required to determine our worldwide provision for income taxes. In the ordinary course of business, there are many
transactions where the ultimate tax determination is uncertain. Additionally, our calculations of income taxes payable, currently and on a deferred basis, are
based on our interpretation of applicable tax laws in the jurisdictions in which we are required to file tax returns. Although we believe our tax estimates are
reasonable, there is no assurance that the final determination of our income tax liability will not be materially different than what is reflected in our income
tax provisions and accruals. Changes in tax laws and regulations and the interpretation of such laws and regulations, including taxation of earnings
internationally, the introduction of base erosion and anti-abuse tax and the disallowance of tax deductions for certain expenses, as well as changes that may
be enacted in the future could materially impact our tax provision, cash tax liability and effective tax rate. The Organization for Economic Co-operation and
Development (“OECD”), an international association comprised of 38 countries including the United States and Ireland, has made changes and is
contemplating additional changes to numerous long-standing tax principles. There can be no assurance that these changes and any contemplated changes if
finalized and adopted by associated countries, will not have a materially adverse impact on our provision for income taxes. Recently, substantially all
member countries of the OECD agreed to certain tax principles, including a global minimum tax of 15%. Many countries are also actively considering
changes to existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do business, including the
introduction of taxes targeted at digital services.
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures currently and
requires taxpayers to capitalize and amortize them over five or fifteen years pursuant to IRC Section 174 depending on whether the expenditure is recorded
in the U.S. or a foreign jurisdiction. Although the U.S. Congress is considering legislation that would defer the capitalization and amortization requirement
to later years, we have no assurance the provision will be repealed or modified. If the requirement is not repealed or modified, our existing U.S. net
operating losses will be utilized on an accelerated basis, and we could potentially be subject to U.S. cash tax sooner than anticipated. In addition, our
effective tax rate will materially increase as we made an accounting policy election to treat Global Intangible Low Tax Income (“GILTI”) as a period cost
(i.e., recorded when incurred) in 2018 when the GILTI rules were introduced. Our research and development expenditures are shared by our U.S. parent
and Irish principal company and as such, the disallowed deduction will drive up our GILTI inclusion associated with Ireland, which in turn will increase
our effective tax rate.
A change in our future effective tax rate, including from the release of the valuation allowances recorded against our net U.S. and Irish deferred tax
assets may create volatility in our calculated tax expense. Our future effective tax rate in particular could be adversely affected by a change in ownership
pursuant to Section 382 of the U.S. Internal Revenue Code. If a change in ownership occurs, it may limit our ability to utilize our net operating losses to
offset our U.S. taxable income and therefore create a material adverse impact on our results of operations. On April 26, 2012, we adopted the Amended and
Restated Rights Agreement between the Company and Computershare Shareholder Services LLC as the rights agent (the “Restated Rights Plan”), which
was extended annually through 2021, to help protect our assets. On May 17, 2021, we adopted an Amended and Restated Tax Benefit Preservation Plan
(the “2021 Tax Benefit Preservation Plan”), which was approved by stockholders on November 4, 2021. In general, this does not
27
allow a stockholder to acquire more than 4.95% of our outstanding common stock without a waiver from our Board, who must take into account the
relevant tax analysis relating to potential limitation of our net operating losses. Our 2021 Tax Benefit Preservation Plan is effective through May 17, 2024,
unless earlier terminated by the Board.
Finally, we are subject to the examination of our income tax returns by the Internal Revenue Service, Irish Revenue, and other tax authorities
globally. Although we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for
income taxes, there is no assurance our assessments are, in fact, adequate. Changes in our effective tax rates or amounts assessed upon examination of our
tax returns may have a material, adverse impact on our business, financial condition, and results of operations.
Provisions in our charter documents and Delaware law and our adoption of a stockholder rights plan may delay or prevent an acquisition
of Extreme, 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 us
without the consent of our Board. Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of
15% or more of our outstanding common stock. In addition, our Board has the right to issue preferred stock without stockholder approval, which could be
used to dilute the stock ownership of a potential hostile acquirer. Although we believe these provisions of our certificate of incorporation and bylaws and
Delaware law will provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our Board, these provisions apply
even if the offer may be considered beneficial by some of our stockholders.
Our bylaws, as amended, provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware is the
exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of a fiduciary duty owed by any of our
directors, officers, other employees or stockholders to us, any action asserting a claim against us arising pursuant to the Delaware General Corporation
Law, our certificate of incorporation or our bylaws, any action to interpret, apply, enforce, or determine the validity of our certificate of incorporation or
bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. Our bylaws further provide that the federal district courts
of the United States shall be the exclusive forum for any cause of action arising under the Securities Act of 1933, as amended (the “Securities Act”). The
choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors,
officers, other employees or stockholders, which may discourage such lawsuits against us and our directors, officers, other employees and stockholders.
Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal
proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. While the Delaware courts have
determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those
designated in the exclusive-forum provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions. If a
court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may
incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
Our 2021 Tax Benefit Preservation Plan provides that if a single stockholder (or group) acquires more than 4.95% of our outstanding common stock
without a waiver from our Board, each holder of one share of our common stock (other than the stockholder or group who acquired in excess of 4.95% of
our common 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 Section
382 of the U.S. Internal Revenue Code, the 2021 Tax Benefit Preservation Plan 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 rules and regulations, require companies to maintain extensive corporate
governance measures, impose comprehensive reporting and disclosure requirements, set strict independence and financial expertise standards for audit and
other committee members and impose civil and criminal penalties for companies and their Chief Executive Officers, Chief Financial Officers and directors
for securities law violations. These laws, rules and regulations and the interpretation of these requirements are evolving, and we are making investments to
evaluate current practices and to continue to achieve compliance, which investments may have a material impact on our financial condition.
General
Natural or man-made disasters, acts of war or terrorism, pandemics, technological disruptions or other events beyond our control could
disrupt our operations and harm our business, financial condition and results of operations.
We have major offices in Morrisville, North Carolina, San Jose, California, and Salem, New Hampshire in the United States, as well as in
Bangalore, India, in Thornhill, Canada, in Shannon, Ireland and in Reading, United Kingdom. Historically, each location
28
has been vulnerable to natural disasters and other risks, such as earthquakes, fires, floods and tropical storms, which at times have disrupted the local
economy and posed physical risks to our property. We have contract manufacturers located in China, Taiwan, and Mexico where similar natural disasters
and other risks may disrupt the local economy and pose physical risks to our property and the property of our contract manufacturer. Global shipping could
be disrupted by natural disasters, which would impede our ability to get product to our customers. Climate change may exacerbate the frequency or severity
of such natural disasters.
In addition, the continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism,
may cause further disruptions to the economies of the United States and other countries. If such disruptions result in delays or cancellations of customer
orders for our products, our business, financial condition and operating results will suffer.
Civil unrest, riots, pandemics and other systemic disruptions could disrupt demand for products, supply chain, or distribution and could negatively
impact our costs or revenue. Such disruptions to the availability or integrity of utilities, transportation infrastructure, or the internet could have significant
macroeconomic impacts, decreasing demand for our products and impacting our ability to get them to market. As a result, our financial situation and
operating results would be negatively affected.
See also, “The coronavirus outbreak has had, and continues to have, a materially disruptive effect on our business.”
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters is located in Morrisville, North Carolina where we currently lease approximately 54,530 square feet of space under a
lease agreement that expires in fiscal year 2028.
In addition to our headquarters in Morrisville, we lease additional sites in the United States, including facilities in Salem, New Hampshire and San
Jose, California for research and development, sales and marketing and administrative offices. Outside the United States, we also lease office space in
various other international geographic locations for research and development, sales and service personnel and administration in other Americas, EMEA
and APAC, including Bangalore, India, Chennai, India, Markham, Canada, Reading, United Kingdom, and Shannon, Ireland.
As of June 30, 2022, we have leased approximately 0.9 million square feet of space with various expiration dates between fiscal year 2023 and fiscal
2032. We believe that our current facilities are sustainable and adequate to meet our current needs and the productive capacity of such facilities is
substantially being utilized or we have plans to utilize such capacity.
Item 3. Legal Proceedings
The information set forth under the heading “Legal Proceedings” in Note 10, Commitments and Contingencies, in Notes to Consolidated Financial
Statements in Item 8 of Part II of this Annual Report on Form 10-K, is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not Applicable
29
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock Market and Dividends
Our common stock trades on the Nasdaq Global Market and commenced trading on Nasdaq on April 9, 1999 under the symbol “EXTR”.
As of August 18, 2022, there were 168 stockholders of record of our common stock. Because many of our shares of common stock are held by
brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. We
have 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
Statement to be filed with the SEC in connection with the solicitation of proxies for our year ended June 30, 2022 Annual Meeting of Stockholders no later
than 120 days after the end of the fiscal year covered by this report.
Issuer Purchases of Equity Securities
The following table provides stock repurchase activity during the three months ended June 30, 2022 (in thousands, except per share amounts):
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar Value
of Shares
That May Yet Be Purchased
Under the Plans or Programs
(1) (2)
April 1, 2022 - April 30, 2022
May 1, 2022 - May 31, 2022
June 1, 2022 - June 30, 2022
Total
Authorization effective July 1, 2022(2)
200 $
1,852
—
2,052 $
9.78
9.74
—
9.74
200 $
1,852
—
2,052
$
28,070
10,032
10,032
200,000
(1)
(2)
On November 2, 2018, the Company announced that it had authorized management to repurchase up to $60.0 million of its common stock for
two years from the date of authorization. Purchases may be made from time to time in the open market or in privately negotiated transactions,
including accelerated share repurchases. In February 2020, the Board increased the authorization to repurchase by $40.0 million to $100.0
million which expires three years from the authorization on February 5, 2020. A maximum of $30.0 million of the Company’s common stock
may be repurchased in any calendar year.
On May 18, 2022, the Company announced that its Board of Directors had authorized an increase to our share repurchase authorization to
$200.0 million over a three-year period commencing on July 1, 2022. This authorization replaces the previous authorization effective July 1,
2022. Refer to Note 11, “Shareholders’ Equity”, in Notes to the Consolidated Financial Statements included elsewhere in this Report for
further information regarding the Company’s share repurchase program.
30
STOCK PRICE PERFORMANCE GRAPH
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such
information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, each as amended, whether made before or
after the date hereof and irrespective of any general incorporation language in any such filing, or otherwise subject to the liabilities under the Securities
Act or Exchange Act, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
Set forth below is a stock price performance graph comparing the annual percentage change in the cumulative total return on our common stock
with the cumulative total returns of companies comprising the NASDAQ US Benchmark TR index and the NASDAQ US Benchmark Computer Hardware
TR Index commencing July 1, 2017 and ending on June 30, 2022. The NASDAQ US Benchmark TR index replaces the NASDAQ Stock Market (US
Companies) Index and the NASDAQ US Benchmark Computer Hardware TR index replaces the NASDAQ Computer Manufacturers Index in this analysis
and going forward, as the Center for Research in Security Prices (CRSP) Index data is no longer accessible. The CRSP indexes have been included with
data through 2020. The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of our
common stock.
Comparison of Five-Year Cumulative Total Returns
Performance Graph for Extreme Networks, Inc.
Data and graph are calculated from CRSP Total Return Index for the Nasdaq Stock Market (U.S. Companies) and Nasdaq Computer Manufacturers
Securities, CRSP, Booth School of Business, and The University of Chicago. Index data Copyright NASDAQ OMX, Inc. Used with permission. All rights
reserved.
Item 6. [RESERVED]
31
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
The following discussion should be read with the Consolidated Financial Statements and the related notes in Part II, Item 8 of this Report.
The following discussion is based upon our Consolidated Financial Statements included elsewhere in this Report, which have been prepared in
accordance with U.S. generally accepted accounting principles, or U.S. GAAP. In the course of operating our business, we routinely make decisions as to
the timing of the payment of invoices, the collection of receivables, the manufacturing and shipment of products, the fulfillment of orders, the purchase of
supplies, and the building of inventory and service parts, among other matters. Each of these decisions has some impact on the financial results for any
given period. In making these decisions, we consider various factors including contractual obligations, customer satisfaction, competition, internal and
external financial 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 of
Operations.”
Extreme Networks, Inc., together with its subsidiaries (collectively referred to as “Extreme” and as “we”, “us” and “our”) is a leading provider of
networking software, hardware and services and offers related maintenance contracts for extended warranty and maintenance to our enterprise, data center
and service provider customers. We were incorporated in California in May 1996 and reincorporated in Delaware in March 1999. We recently changed our
corporate headquarters from San Jose, California to Morrisville, North Carolina. We derive substantially all of our revenues from the sale of our
networking software, hardware and services, and related maintenance contracts.
Extreme is a leader in providing software-driven networking solutions for enterprise customers. Providing a combined end-to-end solution from
enterprise edge to the cloud, Extreme designs, develops and manufactures wired and wireless network infrastructure equipment and develops the software
for network management, policy, analytics, security and access controls. Extreme gives customers and partners the power to mix and match this broad array
of software, hardware, and services (including third-party applications) to tailor a solution that can be managed and automated from end-to-end.
Enterprise network administrators 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, machine
learning, cognitive computing, and robotics add complexity to challenge the capabilities of traditional networks. Technology advances have a profound
effect across the entire enterprise network placing unprecedented demands on network administrators to enhance management capabilities, scalability,
programmability, agility, and analytics of the enterprise networks they manage.
A direction 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
orchestration between multiple platforms. We introduced our Cloud offering in 2016 and in August 2019 acquired Aerohive Networks, Inc to enhance our
Cloud strategy with a 3rd generation Cloud platform and to accelerate adoption of hybrid cloud networking solutions in the Enterprise. Extreme’s enhanced
Cloud solution is the only offering in the market that seamlessly integrates the cloud with on-premises infrastructures and enables visibility from the edge
to everywhere. See Part 1, Item 1. Business, for additional discussion of our business.
Acquisitions
Ipanematech SAS
On September 14, 2021 (the “Acquisition Date”), we completed our acquisition (the “Acquisition”) of Ipanematech SAS (“Ipanema”), the cloud-
native enterprise Software-Defined Wide Area Network (“SD-WAN”) business unit of InfoVista pursuant to a Sale and Purchase Agreement. Under the
terms of the Acquisition, the net consideration paid by Extreme to Ipanema stockholders was $70.9 million. The primary reason for the Acquisition was to
acquire the talent and the technology to allow us to expand our portfolio with new cloud-managed SD-WAN and security offerings to support our enterprise
customers. The acquisition was accounted for using the acquisition method of accounting whereby the acquired assets and liabilities of Ipanematech were
recorded at their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair
value of the identifiable net assets. Results of operations of Ipanematech are included in our operations beginning with the Acquisition Date. During the
fiscal year ended June 30, 2022, we recognized transaction costs related to this acquisition of $7.0 million, which is included in “Acquisition and
integration costs” in the accompanying consolidated statements of operations.
Aerohive Networks, Inc
On August 9, 2019 (the “Closing Date”), we completed our acquisition of Aerohive Networks, Inc. (“Aerohive”), a publicly held network company,
for $263.6 million in cash consideration and assumption of certain employee equity awards.
The business combination was accounted for using the acquisition method of accounting whereby the acquired assets and liabilities of Aerohive
were recorded at their respective fair values and added to those of ours including an amount for goodwill representing the difference between the
acquisition consideration and the fair value of the identifiable net assets. Results of operations
32
of Aerohive are included in our operations beginning with the Closing Date. During the fiscal year ended June 30, 2021 and 2020, we recognized related
transaction costs of $2.0 million and $32.1 million, respectively, which is included in “Acquisition and integration costs” in the accompanying consolidated
statements of operations.
Results of Operations
•
•
•
•
•
•
•
The following is a summary of our results of operations during fiscal year ended June 30, 2022:
Net revenues of $1,112.3 million, increased 10.2% from fiscal 2021 net revenues of $1,009.4 million.
Product revenues of $761.7 million, increased 8.9% from fiscal 2021 product revenues of $699.4 million.
Service revenues of $350.6 million, increased 13.1% from fiscal 2021 service revenues of $310.0 million.
Total gross margin of 56.6% of net revenues in fiscal 2022, compared to 58.0% in fiscal 2021.
Operating income of $64.2 million, compared to operating income of $34.4 million in fiscal 2021.
Net income was $44.3 million in fiscal 2022, compared to net income of $1.9 million in fiscal 2021.
Cash flow provided by operating activities of $128.2 million, compared to cash flow provided by operating activities of $144.5 million in fiscal
2021, a decrease of $16.3 million. Cash was $194.5 million as of June 30, 2022, a decrease of $52.4 million, compared to $246.9 million at the
end of fiscal 2021.
Net Revenues
The following table presents net product and service revenues for the fiscal years ended June 30, 2022, 2021 and 2020 (dollars in thousands):
Net revenues:
Product
Percentage of net revenues
Service and subscription
Percentage of net revenues
Total net revenues
Year Ended
Year Ended
June 30,
2022
June 30,
2021
$
Change
%
Change
June 30,
2021
June 30,
2020
$
Change
%
Change
$ 761,721
$ 699,396
$ 62,325
8.9% $ 699,396
$ 653,651
$ 45,745
7.0%
68.5%
69.3%
69.3%
68.9%
350,600
310,022
40,578
13.1%
310,022
294,368
15,654
5.3%
31.5%
30.7%
30.7%
31.1%
$ 1,112,321
$ 1,009,418
$ 102,903
10.2% $ 1,009,418
$ 948,019
$ 61,399
6.5%
Product revenues increased $62.3 million or 8.9% for the year ended June 30, 2022, compared to fiscal 2021. The product revenues increase for the
year ended June 30, 2022 as compared to fiscal 2021 was primarily due to strong demand for our products partially offset by supply chain constraints
which impacted our ability to fulfill the demand for our products during fiscal 2022. Additionally, the first half of fiscal 2021 product revenue was
impacted by the material slow-down in global demand due to the global outbreak of COVID-19.
Product revenues increased $45.7 million or 7.0% for the year ended June 30, 2021, compared to fiscal 2020. The product revenues increase for the
year ended June 30, 2021 as compared to fiscal 2020 was primarily due to the lower revenue in fiscal 2020 which was due to the impact of COVID-19 on
global demand across all geographies, which began in the second half of fiscal 2020 and continued to impact through the first two quarters in fiscal 2021.
We saw growth in our product revenues starting in the third quarter of fiscal 2021 as the economy started to recover from the impact of COVID-19 with the
availability of vaccinations and loosening of restrictions.
Service and subscription revenues increased $40.6 million or 13.1% for the year ended June 30, 2022, compared to fiscal 2021. The increase in
service and subscription revenues was primarily due to the growth in subscription revenues and partially due to the acquisition of Ipanema.
Service and subscription revenues increased $15.7 million or 5.3% for the year ended June 30, 2021, compared to fiscal 2020. The increase in
service and subscription revenues was primarily due to the growth in subscription revenues.
33
We operate in three regions: 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, South Asia, Japan and Australia. The following table presents
the total net revenues geographically for the fiscal years ended June 30, 2022, 2021 and 2020 (dollars in thousands):
Net Revenues
Americas:
United States
Other
Total Americas
Percentage of net revenues
June 30,
2022
Year Ended
June 30,
2021
$
Change
%
Change
June 30,
2021
Year Ended
June 30,
2020
$
Change
%
Change
$
$
503,635
44,608
548,243
485,471
48,049
533,520
$
18,164
(3,441)
14,723
3.7% $
(7.2)%
2.8%
485,471
48,049
533,520
$ 459,769
39,633
499,402
$ 25,702
8,416
34,118
5.6%
21.2%
6.8%
49.3%
52.9%
52.9%
52.7%
EMEA
477,081
387,545
89,536
23.1%
387,545
357,201
30,344
8.5%
Percentage of net revenues
42.9%
38.4%
38.4%
37.7%
APAC
86,997
88,353
(1,356)
(1.5)%
88,353
91,416
(3,063)
(3.4)%
Percentage of net revenues
Total net revenues
$
7.8%
$
1,112,321
8.8%
8.8%
9.6%
1,009,418
$ 102,903
10.2% $ 1,009,418
$ 948,019
$ 61,399
6.5%
We rely upon multiple channels of distribution, including distributors, direct resellers, OEMs and direct sales. Revenues through our distributor
channel were 80% of total product revenues in fiscal 2022, 77% of total product revenues in fiscal 2021 and 73% of total product revenue in fiscal 2020.
The level of sales to any one customer, including a distributor, may vary from period to period.
Cost of Revenues and Gross Profit
The following table presents the gross profit on product and service revenues and the gross profit percentage of net revenues for the fiscal years
ended June 30, 2022, 2021 and 2020 (dollars in thousands):
Gross profit:
Product
Percentage of product revenues
Service and subscription
Percentage of service and subscription revenues
Total gross profit
Year Ended
Year Ended
June 30,
2022
June 30,
2021
$
Change
%
Change
June 30,
2021
June 30,
2020
$
Change
%
Change
$ 401,159
$ 389,438
$ 11,721
3.0% $ 389,438
$ 327,318
$ 62,120
19.0%
52.7%
55.7%
55.7%
50.1%
228,779
195,685
33,094
16.9% 195,685
190,521
5,164
2.7%
65.3%
63.1%
63.1%
64.7%
$ 629,938
$ 585,123
$ 44,815
7.7% $ 585,123
$ 517,839
$ 67,284
13.0%
Percentage of net revenues
56.6%
58.0%
58.0%
54.6%
Cost of product revenues includes costs of materials, amounts paid to third-party contract manufacturers, costs related to warranty obligations,
charges for excess and obsolete inventory, scrap, distribution, product certification, amortization of developed technology intangibles, royalties under
technology license agreements, and internal costs associated with manufacturing overhead, including management, manufacturing engineering, quality
assurance, development of test plans, and document control. We outsource substantially all of our manufacturing. We conduct supply chain management,
quality assurance, manufacturing, engineering, and document control at our facilities in San Jose, California, Salem, New Hampshire, China, and Taiwan.
Product gross profit increased to $401.2 million for the year ended June 30, 2022, from $389.4 million in fiscal 2021, primarily due to increased
revenues along with lower amortization of intangibles of $9.5 million due to certain intangibles being fully amortized, and lower excess and obsolete
inventory charges of $3.0 million, partially offset by higher direct product costs and higher distribution cost of $18.5 million.
Product gross profit increased to $389.4 million for the year ended June 30, 2021, from $327.3 million in fiscal 2020, primarily due to increased
revenues along with lower distribution charges of $11.4 million, which were mainly due to decreased tariffs on manufactured products imported from
China and sold to U.S. customers, lower excess and obsolete inventory charges of $9.9 million, lower warranty costs of $7.9 million, and lower expensing
of the fair value step-up of inventories acquired from Aerohive of $7.3 million.
34
Our cost of service revenues consist primarily of labor, overhead, repair and freight costs and the cost of service parts used in providing support
under customer maintenance contracts.
Service and subscription gross profit increased to $228.8 million for the year ended June 30, 2022, from $195.7 million in fiscal 2021, primarily due
to higher service and subscription revenues partially offset by higher professional fees and increased cloud service costs.
Service and subscription gross profit increased to $195.7 million for the year ended June 30, 2021, from $190.5 million in fiscal 2020, primarily due
to higher service and subscription revenues partially offset by higher personnel costs and increased cloud service costs.
Operating Expenses
The following table presents operating expenses and operating income for the fiscal years ended June 30, 2022, 2021 and 2020 (dollars in
thousands):
Year Ended
Year Ended
June 30,
2022
June 30,
2021
$
Change
%
Change
June 30,
2021
June 30,
2020
$
Change
%
Change
Research and development
Sales and marketing
General and administrative
Acquisition and integration costs
Restructuring and related charges
Amortization of intangibles
Total operating expenses
$ 190,591 $ 196,995 $
276,841
66,201
1,975
2,625
6,110
$ 565,750 $ 550,747 $
294,470
68,697
7,009
1,748
3,235
(6,404)
17,629
2,496
5,034
(877)
(2,875)
15,003
(3.3)% $ 196,995 $ 209,606 $ (12,611)
(6,791)
6.4%
5,210
3.8%
(30,098)
254.9%
(19,386)
(33.4)%
(2,315)
(47.1)%
2.7% $ 550,747 $ 616,738 $ (65,991)
276,841
66,201
1,975
2,625
6,110
283,632
60,991
32,073
22,011
8,425
(6.0)%
(2.4)%
8.5%
(93.8)%
(88.1)%
(27.5)%
(10.7)%
The following table highlights our operating expenses and operating income (loss) as a percentage of net revenues for the fiscal years ended June 30,
2022, 2021 and 2020:
Research and development
Sales and marketing
General and administrative
Acquisition and integration costs
Restructuring and related charges
Amortization of intangibles
Total operating expenses
Operating income (loss)
Research and Development Expenses
June 30,
2022
Year Ended
June 30,
2021
June 30,
2020
17.1%
26.5%
6.2%
0.6%
0.2%
0.3%
50.9%
5.8%
19.5%
27.4%
6.6%
0.2%
0.3%
0.6%
54.6%
3.4%
22.1%
29.9%
6.4%
3.4%
2.3%
0.9%
65.1%
(10.4)%
Research and development expenses consist primarily of personnel costs (which consists of compensation, benefits and stock-based compensation),
consultant fees and prototype expenses related to the design, development, and testing of our products.
Research and development expenses decreased by $6.4 million or 3.25% for the year ended June 30, 2022 as compared to fiscal 2021. The decrease
in research and development expenses was due to a $0.7 million decrease in personnel costs, a $3.8 million decrease in facility and information technology
costs, a $1.2 million decrease in third-party software licenses and engineering project costs and a $1.0 million decrease in other expenses, partially offset by
a $0.3 million increase in travel expenses.
Research and development expenses decreased by $12.6 million or 6.0% for the year ended June 30, 2021 as compared to fiscal 2020. The decrease
in research and development expenses was due to a $16.5 million decrease in personnel costs primarily due to lower headcount as a result of the cost
reduction actions taken in fiscal 2020, a $5.2 million decrease in facility and information technology costs, a $2.6 million decrease in third-party software
licenses and engineering project costs and a $2.0 million decrease in travel due to COVID-19, decrease in equipment costs and decrease in other expenses,
partially offset by a $13.7 million increase in professional and contractor fees.
35
Sales and Marketing Expenses
Sales and marketing expenses consist of personnel costs (which consists of compensation, benefits and stock-based compensation) and related
expenses for personnel engaged in marketing and sales functions, as well as trade shows and promotional expenses.
Sales and marketing expenses increased by $17.6 million or 6.4% for the year ended June 30, 2022, as compared to fiscal 2021. The increase was
primarily due to a $6.6 million increase in personnel costs primarily due to higher headcount, a $7.0 million increase in marketing sales and promotional
costs, a $5.5 million increase in travel expenses due to loosening of COVID-19 restrictions, partially offset by a $1.5 million decrease in professional fees
and equipment related costs.
Sales and marketing expenses decreased by $6.8 million or 2.4% for the year ended June 30, 2021, as compared to fiscal 2020. The decrease was
primarily due to a $8.7 million decrease in travel costs due to COVID-19, a $4.9 million decrease in professional and recruiting fees, a $3.2 million
decrease in third-party software and equipment related costs, partially offset by a $8.4 million increase in personnel costs primarily commissions and
benefits and a $1.6 million increase in facility and information technology costs.
General and Administrative Expenses
General and administrative expense consists primarily of personnel costs (which consists of compensation, benefits and share-based compensation),
legal and professional service costs, travel and facilities and information technology costs.
General and administrative expenses increased by $2.5 million or 3.8% for the year ended June 30, 2022, as compared to fiscal 2021. The increase
in general and administrative expenses during fiscal 2022 was primarily due to a $1.4 million increase in third party software and equipment related costs, a
$1.9 increase in facilities and related costs, partially offset by a $0.2 million decrease in personnel costs and a $0.6 decrease in travel and professional fees.
General and administrative expenses increased by $5.2 million or 8.5% for the year ended June 30, 2021, as compared to fiscal 2020. The increase
in general and administrative expenses during fiscal 2021 was primarily due to a $7.4 million increase in personnel costs primarily compensation benefits
and stock-based compensation expenses, partially offset by a $2.2 million decrease in third-party software and equipment related costs.
Acquisition and Integration Costs
As a result of our acquisitions of Ipanema in fiscal 2022, and Aerohive in fiscal 2020, we incurred $7.0 million, $2.0 million and $32.1 million of
acquisition and integration costs in fiscal years ended June 30, 2022, 2021 and 2020, respectively.
For fiscal 2022, we incurred $7.0 million of acquisition and integration costs which consisted primarily of professional fees for product integration,
system integration, financial, legal and advisory services related to the Ipanema acquisition.
For fiscal 2021, we incurred $2.0 million of integration costs which consisted primarily of additional professional fees for system integration and
financial services related to the Aerohive acquisition.
For fiscal 2020, we incurred $32.1 million of operating integration costs related to the Aerohive acquisition which consisted primarily of
professional fees for financial and legal advisory services and severance charges for Aerohive employees. The acquisition and integration costs also
included a $6.8 million compensation charge for certain Aerohive executives’ stock awards that were accelerated due to change-in-control and termination
provisions included in the executives’ employment contracts.
Restructuring and Related Charges
During fiscal years ended June 30, 2022, 2021 and 2020, we recorded restructuring and related charges of $1.7 million, $2.6 million and $22.0
million, respectively.
Fiscal year ended 2022
During fiscal 2022, the Company recorded $1.7 million of restructuring charges which primarily comprised of facility related charges. The facility
restructuring charges included some impairment charges and additional facilities expenses related to previously impaired facilities. During fiscal 2022, the
Company completed the reduction-in-force action initiated in the third quarter of fiscal 2020.
Fiscal year ended 2021
During fiscal 2021, we continued our cost reduction initiative that began in the third quarter of fiscal 2020 and recorded related severance, benefits,
and equipment relocation charges of $1.5 million, related to the 2020 Plan. In addition, we had facility-related charges of $1.1 million, related to our
previously impaired facilities.
Fiscal year ended 2020
36
During fiscal 2020, we reduced our current and future operating expenses by exiting a floor of a building in our San Jose, California facility and
consolidating our workforce. Also, we exited additional space in our Salem, New Hampshire facility, which includes general office and lab space. We
continued our initiative to realign our operations resulting from the acquisition of Aerohive by consolidating our workforce and exiting the facility acquired
from Aerohive in Milpitas, California which included general office and lab space.
With the global disruptions and slow-down in the demand of our products caused by the global pandemic outbreak, COVID-19, and the uncertainty
around the timing of the recovery of the market, we initiated a reduction-in-force plan (the 2020 Plan) to reduce our operating costs and enhance financial
flexibility. The plan affected approximately 320 employees primarily from the research and development and sales organizations who were located mainly
in the United States and India. We recorded restructuring charges of $8.1 million during the fiscal year ended June 30, 2020 related to the 2020 Plan. The
costs associated with this restructuring plan primarily included employee severance and benefit expenses. We recorded additional severance and benefits
charges of $5.4 million for the fiscal year ended June 30, 2020 related to the prior period restructuring plans. In total we incurred $13.5 million in
restructuring charges for the year ended June 30, 2020 which were all severance and benefit related. In addition, we recorded facility impairment related
charges of $8.5 million for the fiscal year ended June 30, 2020 which included $6.7 million for the impairment of certain operating leases right-of-use
assets as discussed in the preceding paragraph, $0.9 million for impairment of long-lived assets, and $0.9 million of other charges related to previously
impaired facilities.
Amortization of Intangibles
During fiscal years ended June 30, 2022, 2021 and 2020, we recorded $3.2 million, $6.1 million and $8.4 million, respectively, of amortization
expense in operating expenses primarily for certain intangibles related to the acquisitions of the Ipanema, Aerohive, Campus Fabric, Data Center and
WLAN Businesses. The decrease in amortization expense in fiscal 2022 from fiscal 2021 was primarily due to certain acquired intangibles from previous
acquisitions becoming fully amortized, partially offset by an increase from the amortization of acquired intangibles from the Ipanema acquisition. The
decrease in amortization expense in fiscal 2021 from fiscal 2020 was primarily due to certain acquired intangibles from previous acquisitions becoming
fully amortized, partially offset by an increase from full period amortization of acquired intangibles from the Aerohive acquisition.
Interest Income
Interest income was $0.4 million, $0.4 million and $1.4 million in fiscal years ended June 30, 2022, 2021 and 2020, respectively. Interest income
remained flat in fiscal 2022 as compared to fiscal 2021 and decreased $1.0 million in fiscal 2021 from fiscal 2020. The decrease in fiscal 2021 from 2020
was due to lower interest rates and lower invested fund balances.
Interest Expense
We incurred $12.8 million, $22.9 million, and $23.8 million of interest expense for fiscal years ended June 30, 2022, 2021 and 2020, respectively.
The decrease in interest expense in fiscal year ended June 30, 2022 was primarily driven by lower average loan balances and lower average rates under our
2019 Credit Agreement. The decrease in interest expense in fiscal year ended June 30, 2021 was primarily driven by lower average loan balances and lower
average rates under our 2019 Credit Agreement.
Other Income (Expense), net
We had other income of $0.4 million and $0.7 million in fiscal years ended June 30, 2022 and 2020, respectively, and other expense of $1.7 million
in fiscal 2021. The other income for fiscal 2022 and 2020 was primarily due to foreign exchange gains from the revaluation of certain assets and liabilities
denominated in foreign currencies into U.S. Dollars. The other expense for fiscal 2021 was primarily due to foreign exchange losses from the revaluation of
certain assets and liabilities denominated in foreign currencies into U.S. Dollars.
Provision for Income Taxes
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective tax rate differs from the U.S. federal statutory
rate of 21% primarily due to the impact of (i) foreign income taxes of our international subsidiaries, (ii) foreign withholding taxes, (iii) state taxes, and (iv)
the full valuation of our deferred tax assets in the U.S. and certain foreign jurisdictions. For the fiscal years ended June 30, 2022, 2021 and 2020, we
recorded income tax provisions of $7.9 million, $8.2 million, and $6.4 million respectively.
For fiscal 2022, 2021 and 2020, our tax provision primarily related to taxes on our foreign operations, including foreign withholding taxes remitted
to foreign tax authorities by customers on our behalf, tax expense related to the establishment of a U.S. deferred tax liability for amortizable goodwill
resulting from the acquisition of Enterasys Networks, Inc., the WLAN Business, the Campus Fabric Business and the Data Center Business and state taxes
in states where we have exhausted available Net Operating Losses (“NOLs”) or are subject to certain franchise taxes qualifying as income tax under the
relevant tax accounting guidance.
In fiscal 2020, we recognized a $75.0 million U.S. tax gain on the transfer of non-American Aerohive intellectual property rights which was fully
offset by existing U.S. NOLs. Given the full U.S. valuation allowance against our U.S. deferred tax assets, this transaction did not impact net tax expense
or the overall tax rate.
37
For a full reconciliation of our effective tax rate to the U.S. federal statutory rate and for further explanation of our provisions for income taxes, see
Note 16, Income Taxes, in notes to Consolidated Financial Statements for additional information.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in Note 2, Summary of Significant Accounting Policies, in Notes to Consolidated
Financial Statements included in Item 8 of this Annual Report on Form 10-K. The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and
expenses during the period reported. By their nature, these estimates, assumptions and judgments are subject to an inherent degree of uncertainty. We base
our estimates, assumptions and judgments on historical experience, market trends and other factors that are believed to be reasonable under the
circumstances. Estimates, assumptions and judgments are reviewed on an ongoing basis and the effects of revisions are reflected in the consolidated
financial statements in the period they are determined to be necessary. 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. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have
not differed materially from actual results.
Revenue Recognition
We derive the majority of our revenue from sales of our networking equipment, with the remaining revenue generated from SaaS and service fees
relating to maintenance contracts, professional services, and training for our products. We sell our products and maintenance contracts direct to customers
and to partners in two distribution channels, or tiers. The first tier consists of a limited number of independent distributors that stock our products and sell
primarily to resellers. The second tier of the distribution channel consists of a non-stocking distributors and value-added resellers that sell directly to end-
users. Products and services may be sold separately or in bundled packages.
We consider customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. For each
contract, we consider the promise to transfer products and services, each of which are distinct, to be the identified performance obligations. In determining
the transaction price, we evaluate whether the price is subject to refund or adjustment to determine the net consideration to which we expect to be entitled.
We generally do not grant return privileges and pricing credits to our value-added resellers, non-stocking distributors and end-user customers, except
for defective products during the warranty period. We may provide sales incentives and other programs to these customers which are considered to be a
form of variable consideration and we maintain estimated accruals and allowances using the historical actuals.
Our stocking distributors are allowed to certain price adjustments in the form of rebates and limited stock rotation rights. In determining the
transaction price, we consider these rebate adjustments to be variable consideration which are estimated based on an analysis of actual claims, at the
distributor level over a period of time considered adequate to account for current pricing and business trends. Stock rotation rights grant the distributor the
ability to return certain specified amounts of inventory. Stock rotation adjustments are an additional form of variable consideration and are estimated based
on an analysis of historical return rates.
A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation
is satisfied. Certain of our contracts have multiple performance obligations, as the promise to transfer individual goods or services is separately identifiable
from other promises in the contracts and, therefore, is distinct. For contracts with multiple performance obligations, we allocate the contract’s transaction
price to each performance obligation based on our relative standalone selling price. The stand-alone selling prices are determined based on the prices at
which we separately sell these products. For items that are not sold separately, we estimate the stand-alone selling prices using other observable inputs.
Our performance obligations are satisfied at a point in time or over time as the customer receives and consumes the benefits provided. Substantially
all of our product sales revenues are recognized at a point in time and our service and subscription revenues are recognized over time. For revenues
recognized over time, we use an input measure, days elapsed, to measure progress.
See Note 3, Revenues, in notes to Consolidated Financial Statements for additional information.
38
Business Combinations
We apply the acquisition method of accounting for business combinations. Under this method of accounting, all tangible and intangible assets
acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. Determining the fair value of assets acquired and
liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with
respect to expected future cash inflows and outflows, discount rates, intangibles and other asset lives, among other items. Fair value is defined as the price
that would be 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). Market participants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair
value measurements for 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 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 we believe the assumptions and
estimates we have made are reasonable and appropriate, they are based in part on historical experience and information that may be obtained from the
management of the acquired company and are inherently uncertain. Unanticipated events and circumstances may occur that may affect the accuracy or
validity of such assumptions, estimates or actual results.
Inventory Valuation and Purchase Commitments
We write down inventory and record purchase commitment liabilities for estimated excess and obsolete inventory equal to the difference between
the cost of inventory and the estimated market value based upon the forecast of future product demand, product transition cycles, and market conditions.
Any significant unanticipated changes in demand or technological development could have a significant impact on the value of our inventory and purchase
commitments and our reported results. If actual market conditions are less favorable than those projected, additional inventory write-downs, purchase
commitment liabilities, and charges against earnings may be required.
New Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, in Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report
on Form 10-K for a full description of new accounting pronouncements, including the respective expected dates of adoption and effects on results of
operations and financial condition.
Liquidity and Capital Resources
The following summarizes information regarding our cash (in thousands):
Cash
June 30,
2022
June 30,
2021
$
194,522 $
246,894
As of June 30, 2022, our principal sources of liquidity consisted of cash of $194.5 million, accounts receivable, net of $184.1 million and available
borrowings under our five-year 2019 Revolving Facility (as defined below) of $60.2 million. We anticipate our principal uses of cash for fiscal 2023 will be
purchases of finished goods inventory from our contract manufacturers, payroll, payments under debt obligations and related interest, payments under lease
obligations, purchases of property and equipment and other operating expenses related to the development and marketing of our products. We believe that
our existing cash, cash flows from operations, and the availability of borrowings from the 2019 Revolving Facility will be sufficient to fund our planned
operations for at least the next 12 months. We are not currently aware of any material cash requirements beyond the next 12 months other than those
described above for fiscal 2023 and our known contractual obligations. See the section titled “Contractual Obligations” below.
On November 2, 2018, our Board of Directors announced that it had authorized management to repurchase up to $60.0 million of our shares of
common stock for two years from the date of authorization, of which $15.0 million was used for repurchases in the second quarter of fiscal 2019 and $30.0
million was used for repurchases in fiscal 2020. In February 2020 the Board increased the authorization to repurchase by $40.0 million to $100.0 million
and extended the period for repurchases for three years from February 5, 2020. On May 18, 2022, our Board of Directors authorized an increase to our
share repurchase authorization to $200.0 million over a three-year period beginning in our fiscal year commencing July 1, 2022. Purchases may be made
from time to time in the open market or in privately negotiated transactions. The manner, timing and amount of any future purchases will be determined by
our management based on their evaluation of market conditions, stock price, and Extreme’s ongoing determination that it is the best use of available cash
and other factors. The repurchase program does not obligate us to acquire any shares of our common stock, may be suspended or terminated at any time
without prior notice and will be subject to regulatory considerations. During the year ended June 30, 2022 we repurchased a total of 3,881,683 shares of
common stock on the open market at a total cost of $45.0 million.
In connection with the acquisition of Aerohive, as discussed in Note 4, Business Combinations, in Notes to Consolidated Financial Statements, as of
August 9, 2019, we amended the 2018 Credit Agreement, which is no longer outstanding, and entered into the Amended and Restated Credit Agreement
(the “2019 Credit Agreement”), by and among us, as borrower, several banks and other financial institutions as Lenders, BMO Harris Bank N.A., as an
issuing lender and swingline lender, Silicon Valley Bank, as an
39
Issuing Lender, and Bank of Montreal, as administrative agent and collateral agent for the Lenders. The 2019 Credit Agreement provides for a 5-year first
lien term loan facility in an aggregate principal amount of $380.0 million and a 5-year revolving loan facility in an aggregate principal amount of $75.0
million (“2019 Revolving Facility”). In addition, we may request incremental term loans and/or incremental revolving loan commitments in an aggregate
amount not to exceed the sum of $100 million plus an unlimited amount that is subject to pro forma compliance with certain financial tests. On August 9,
2019, we used the proceeds to partially fund the acquisition of Aerohive and for working capital and general corporate purposes.
At our election, the initial term loan (the “Initial Term Loan”) under the 2019 Credit Agreement may be made as either base rate loans or Eurodollar
loans. The applicable margin for base rate loans ranges from 0.25% to 2.50% per annum and the applicable margin for Eurodollar loans ranges from 1.25%
to 3.50%, in each case based on Extreme’s Consolidated Leverage Ratio. All Eurodollar loans are subject to a Base Rate floor of 0.00%. The 2019 Credit
Agreement is secured by substantially all of our assets.
The 2019 Credit Agreement requires us to maintain certain minimum financial ratios at the end of each fiscal quarter. The 2019 Credit Agreement
also includes covenants and restrictions that limit, among other things, our ability to incur additional indebtedness, create liens upon any of our property,
merge, consolidate or sell all or substantially all of our assets. The 2019 Credit Agreement also includes customary events of default which may result in
acceleration of the outstanding balance.
On April 8, 2020, we entered into the first amendment to our 2019 Credit Agreement (the “First Amendment”) to waive certain terms and financial
covenants of the 2019 Credit Agreement through July 31, 2020. On May 8, 2020, we entered into the second amendment to the 2019 Credit Agreement (the
“Second Amendment”) which superseded the First Amendment and provided certain revised terms and financial covenants effective through March 31,
2021. Subsequent to March 31, 2021, the original terms and financial covenants under the 2019 Credit Agreement resumed effect. The Second Amendment
required us to maintain certain minimum cash requirement and certain financial metrics at the end of each fiscal quarter through March 31, 2021. Under the
terms of the Second Amendment, we were not permitted to exceed $55.0 million in our outstanding balance under the 2019 Revolving Facility, the
applicable margin for Eurodollar rate was 4.5% and we were restricted from pursuing certain activities such as incurring additional debt, stock repurchases,
making acquisitions or declaring a dividend, until we came back into compliance with the original covenants of the 2019 Credit Agreement. On November
3, 2020, we and our lenders entered into the Third Amendment to increase the sublimit for letters of credit to $20.0 million. On December 8, 2020, we and
our lenders entered into the Fourth Amendment to waive and amend certain terms and financial covenants within the 2019 Credit Agreement through
March 31, 2021.
The Second Amendment provided for us to end the covenant Suspension Period early and revert to the covenants and interest rates per the original
terms of the 2019 Credit Agreement dated August 9, 2019 by filing a Suspension Period Early Termination Notice and Covenant Certificate demonstrating
compliance. For the twelve-month period ended March 31, 2021 our financial performance was in compliance with the original covenants defined in the
2019 Credit Agreement and as such we filed a Suspension Early Termination Notice and Covenant Certificate with the administration agent subsequent to
filing our Form 10-Q for the quarterly period ended March 31, 2021. Returning to compliance with the covenants per the original terms of the 2019 Credit
Agreement dated August 9, 2019 resulted in our Eurodollar loan spread decreasing from 4.5% during the Suspension Period to 2.75%, the unused facility
commitment fee decreasing from 0.4% to 0.35%, and the limitation on revolver borrowings being removed effective May 1, 2021 after filing of the
certificate with the administrative agent.
Key Components of Cash Flows and Liquidity
A summary of the sources and uses of cash and cash equivalents is as follows (in thousands) for the fiscal years ended June 30, 2022, 2021, and
2020:
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Foreign currency effect on cash
Net (decrease) increase in cash
June 30,
2022
Year Ended
June 30,
2021
June 30,
2020
$
$
128,177 $
(84,950)
(94,663)
(936)
(52,372) $
144,535 $
(17,176)
(74,782)
445
53,022 $
35,884
(189,477)
178,492
(634)
24,265
Cash was $194.5 million at June 30, 2022, representing a decrease of $52.4 million from $246.9 million at June 30, 2021. This decrease was
primarily due to cash used in financing activities of $94.7 million mainly as a result of payments on the Term Loan and share repurchases and cash used in
investing activities of $85.0 million, mainly for acquisition of Ipanema partially offset by cash provided by operations of $128.2 million.
Cash was $246.9 million at June 30, 2021, representing an increase of $53.0 million from $193.9 million at June 30, 2020. This increase was
primarily due to cash provided by operations of $144.5 million partially offset by cash used in financing activities of $74.8 million mainly as a result of
payments on the Term Loan and the Revolving Facility and cash used in investing activities of $17.2 million, mainly for capital expenditures.
40
Net Cash Provided by Operating Activities
Cash provided by operating activities during fiscal year ended June 30, 2022 was $128.2 million. Factors contributing to cash provided by operating
activities for the year ended June 30, 2022 were net income of $44.3 million, non-cash expenses of $104.0 million for items such as amortization of intangibles,
stock-based compensation, depreciation, reduction in carrying amount of right-of-use assets, deferred income taxes and interest. Other sources of cash for the
period included increases in accounts payable and deferred revenue. These amounts were partially offset by increases in accounts receivable, inventories and
prepaid expenses and other assets and decreases in accrued compensation, current and long-term liabilities and operating lease liabilities.
Cash provided by operating activities during fiscal year ended June 30, 2021 was $144.5 million. Factors contributing to cash provided by operating
activities for the year ended June 30, 2021 were net income of $1.9 million, non-cash expenses of $121.7 million for items such as amortization of intangibles,
stock-based compensation, depreciation, reduction in carrying amount of right-of-use assets, deferred income taxes and imputed interest. Other sources of cash
for the period included a decrease in inventory and increases in accounts payable, accrued compensation and deferred revenue. These amounts were partially
offset by increases in accounts receivable and prepaid expenses and other current assets and decreases in the current and long-term liabilities and operating
lease liabilities.
Cash provided by operating activities during fiscal year ended June 30, 2020 was $35.9 million. Factors contributing to cash provided by operating
activities for the year ended June 30, 2020 were non-cash expenses such as amortization of intangibles, stock-based compensation, depreciation, reduction in
carrying amount of right-of-use assets, restructuring charges, deferred income taxes and imputed interest. Other sources of cash for the period included a
decrease in accounts receivables, inventory, and prepaid expenses and other current assets and increases in deferred revenue. These amounts were partially
offset by our net loss of $126.8 million, decreases in accounts payable, accrued compensation, other current and long-term liabilities, and operating lease
liabilities.
Net Cash Used in Investing Activities
Cash used in investing activities during fiscal year ended June 30, 2022 was $85.0 million, primarily due to the payment of $69.5 million (net of cash
acquired) for the acquisition of Ipanema and $15.4 million for purchases of property and equipment.
Cash used in investing activities during fiscal year ended June 30, 2021 was $17.2 million for the purchases of property and equipment.
Cash used in investing activities during fiscal year ended June 30, 2020 was $189.5 million, including $219.5 million for the acquisition of Aerohive
(net of cash acquired), purchases of property and equipment of $15.3 million, which was partially offset by proceeds of $45.2 million related to the maturity
and sales of short-term investments.
Net cash (Used in) Provided by Financing Activities
Cash used in financing activities during fiscal year ended June 30, 2022 was $94.7 million due primarily to share repurchases of $45.0 million, debt
repayments of $38.1 million, payments of contingent consideration of $1.0 million and $4.0 million of deferred payments on acquisitions and a $6.5
million payment for taxes on vested and released stock awards net of proceeds from the issuance of shares of our common stock under our Employee Stock
Purchase Plan (“ESPP”) and exercise of stock options.
Cash used in financing activities during fiscal year ended June 30, 2021 was $74.8 million due primarily to debt repayments of $74.0 million,
payments of contingent consideration of $1.3 million and $4.0 million of deferred payments on acquisitions. This was partially offset by $4.5 million of
proceeds from issuance of shares of our common stock under our ESPP and the exercise of stock options, net of taxes paid on vested and released stock
awards.
Cash provided by financing activities during fiscal year ended June 30, 2020 was $178.5 million due primarily to additional borrowings of $199.5
million under our 2019 Credit Agreement to partially fund our acquisition of Aerohive, $55.0 million of borrowings under our 2019 Revolving Facility, and
by $8.8 million of proceeds from issuance of shares of our common stock under our ESPP and the exercise of stock options, net of taxes paid on vested and
released stock awards. This was partially offset by payments on debt obligations totaling $34.5 million, payment of loan fees incurred in connection with
our 2019 Credit Facility and related amendments of $12.0 million, payments of contingent consideration of $4.3 million and $4.0 million of deferred
payments on acquisitions. Cash provided by financing activities for the period also included repurchasing of our common shares of $30.0 million during
the fiscal year ended June 30, 2020, in accordance with our approved share repurchase plan.
Foreign Currency Effect on Cash
Foreign currency effect on cash increased in 2022, primarily due to changes in exchange rates between the U.S. Dollar and particularly the Indian
Rupee, U.K. Pound, and the Euro.
41
Contractual Obligations
As of June 30, 2022, we have contractual obligations for debt obligations, purchase obligations, lease obligations and other obligations.
Our debt obligations relate to amounts owed under our 2019 Credit Agreement. As of June 30, 2022, we have $308.6 million of debt outstanding
which are payable on quarterly installments through our fiscal year 2025. We are subject to interest rate on our debt obligations and unused commitment
fee. See Note 8, Debt, in the Notes to Consolidated Financial Statements for additional information regarding our debt obligations.
Our unconditional purchase obligations represent the purchase of long lead-time component inventory that our contract manufacturers procure in
accordance with our forecast. We expect to honor the inventory purchase commitments within the next 12 months. As of June 30, 2022, we have non-
cancelable commitments to purchase $60.3 million of inventory. See Note 10, Commitments and Contingencies, in the Notes to Consolidated Financial
Statements for additional information regarding our purchase obligations.
We lease facilities under operating lease arrangements at various locations that expire at various dates through our fiscal year 2032. As of June 30,
2022, the value of our obligations under operating leases was $53.3 million. See Note 8, Debt, in the Notes to Consolidated Financial Statements for
additional information regarding our lease obligations.
We have contractual commitments to our suppliers which represent commitments for future services. As of June 30, 2022, we have contractual
commitments of $54.8 million that are due through our fiscal year 2027.
We have deferred payments related to Data Center Business consideration obligation of $3.0 as of June 30, 2022 which are paid at $1.0 million per
quarter.
We have immaterial income tax liabilities related to uncertain tax positions and we are unable to reasonably estimate the timing of the settlement of
those liabilities.
We do not have any material commitments for capital expenditures as of June 30, 2022.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2022.
42
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
Our exposure to market risk for changes in interest rates relates primarily to our financial debt and foreign currencies. As of June 30, 2022, we did
not have any financial investments that were exposed to interest rate risk.
Debt
At certain points in time we are exposed to the impact of interest rate fluctuations, primarily in the form of variable rate borrowings from the 2019
Credit Agreement, which is fully described in Note 8, Debt, in the Notes to the Consolidated Financial Statements. At June 30, 2022, we had $308.6
million of debt outstanding, all of which was from the 2019 Credit Agreement. Through the end of our fiscal year, the average daily outstanding amount
was $328.8 million with a high of $346.8 million and a low of $308.6 million.
Cash Flow Hedges of Interest Rate Risk
In conjunction with our term loan under the 2019 Credit Agreement, we entered into interest rate swap contracts with large financial institutions.
This involves the receipt of variable rate amounts from these institutions in exchange for us making fixed-rate payments without exchange of the
underlying notional amount of $200.0 million of our debt. The derivative instruments hedge the impact of the changes in variable interest rates. We record
the changes in the fair value of these cash flow hedges of interest rate risk in accumulated other comprehensive income (loss) until termination of the
derivative agreements. As of June 30, 2022 the underlying notional amount of these interest rate swaps were $75.0 million.
The following table presents hypothetical changes in interest expense for the year ended June 30, 2022, on the outstanding borrowings under the
2019 Credit Agreement and interest rate swap contracts as of June 30, 2022, that are sensitive to changes in interest rates (in thousands):
Change in interest expense given a decrease in
interest rate of X bps*
Description
(100 bps)
(50 bps)
Debt
Interest Rate Swaps
Net
$
$
(3,157)
750
(2,407)
$
$
$
(1,578)
375
(1,203)
Average outstanding
as of June 30, 2022
Change in interest expense given an increase in
interest rate of X bps*
100 bps
50 bps
315,672
(75,000)
$
$
3,157
(750)
2,407
$
$
1,578
(375)
1,203
*
Underlying interest rate was 2.9% as of June 30, 2022.
Exchange Rate Sensitivity
A majority of our sales and our expenses are denominated in United States Dollars. While we conduct sale transactions and incur certain operating
expenses 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 because
of our foreign exchange risk management process discussed below.
Foreign Exchange Forward Contracts
We record all derivatives on the balance sheet at fair value. From time to time, we enter into foreign exchange forward contracts to mitigate the
effect of gains and losses generated by the foreign currency forecast transactions related to certain operating expenses and re-measurement of certain assets
and liabilities denominated in foreign currencies. Changes in the fair value of these foreign exchange forward contracts are offset largely by re-
measurement of the underlying foreign currency denominated assets and liabilities. As of June 30, 2022 and June 30, 2021, foreign exchange forward
currency contracts not designated as hedging instruments, had the total notional amount of $9.6 million and $23.0 million, respectively. These contracts
have maturities of less than 40 days. Changes in the fair value of derivatives are recognized in earnings as other income (expense), net. For the year ended
June 30, 2022 the net loss recorded in the consolidated statements from these contracts was $1.4 million. For the year ended June 30, 2021, the net gains
recorded in the consolidated statement of operations from these contracts $0.5 million. As of June 30, 2021 foreign exchange forward currency contracts
designated as hedging instruments had a notional amount of $21.8 million. These contracts have maturities of less than twelve months. Gains and losses
arising from these contracts designated as hedging instruments are recorded as a component of accumulated other comprehensive income (loss). As of June
30, 2021, these contracts had unrealized losses of $0.2 million which are recorded in accumulated other comprehensive income (loss) with the associated
liabilities in the accompanying consolidated balance sheets. There were no foreign exchange forward currency contracts that were designated as hedging
instruments at June 30, 2022 and June 30, 2020.
Foreign currency transaction gains and losses from operations had a gain of $1.7 million in fiscal year ended June 30, 2022, a loss of $2.2 million in
fiscal year ended June 30, 2021, and a gain of $0.6 million in the fiscal year 2020.
43
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF EXTREME NETWORKS, INC.
Reports of Independent Registered Public Accounting Firms (PCAOB ID 248)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
44
Page
45
50
51
52
53
54
55
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Extreme Networks, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheet of Extreme Networks, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of
June 30, 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the year ended June 30,
2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 2022, and the results of its operations and its cash flows for the year ended June 30, 2022, in
conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s
internal control over financial reporting as of June 30, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated August 26, 2022 expressed an unqualified
opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Rebate Adjustments Determined to be Variable Consideration
As described further in note 3 to the financial statements, sales to stocking distributors are made under terms allowing certain price adjustments in the form
of rebates. Frequently, distributors need to sell at a price lower than the contractual distribution price in order to win business and submit rebate requests for
the Company’s pre-approval prior to selling the product to a customer at the discounted price. At the time the distributor invoices its end customer or soon
thereafter, the distributor submits a rebate claim to the Company to adjust the distributor’s cost from the contractual price to the pre-approved lower price.
After the Company verifies that the claim was pre-approved, a credit memo is issued to the distributor for the rebate claim. In determining the transaction
price, the Company considers these rebate adjustments to be variable consideration. Such price adjustments are estimated based on an analysis of actual
claims at the distributor level over a period of time considered adequate to account for current pricing and business trends.
The principal consideration for our determination that rebate adjustments determined to be variable consideration is a critical audit matter is that the
estimates made in determining the rebate adjustments involve significant judgments. Evaluating the appropriateness of these estimates requires a high
degree of auditor judgment and increased audit effort.
45
Our audit procedures related to the rebate adjustments determined to be variable consideration included the following, among others:
•
•
•
•
Obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls over the estimation of
variable consideration for stocking distributor rebates, including:
o Historical actual rebate claims
o
o
o
Estimates of future rebate claims
End customer pricing
Channel inventory
Identified the sources of data and factors that management used in forming the assumptions, and considered whether such data and factors are
relevant, reliable, and sufficient.
Evaluated potential contrary evidence, including the historical accuracy of management’s estimates by comparing the estimated reserve rate to
the actual reserve rate in subsequent periods.
Assessed the appropriateness of the related disclosures in the consolidated financial statements.
/s/ Grant Thornton LLP
We have served as the Company’s auditor since 2021.
San Francisco, California
August 26, 2022
46
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Extreme Networks, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Extreme Networks, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of
June 30, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of June 30, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated
financial statements of the Company as of and for the year ended June 30, 2022, and our report dated August 26, 2022 expressed an unqualified opinion on
those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely 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 of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Grant Thornton LLP
San Francisco, California
August 26, 2022
47
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Extreme Networks, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Extreme Networks, Inc. (the Company) as of June 30, 2021, the related consolidated
statements of operations, comprehensive income, stockholders' equity and cash flows for the year ended June 30, 2021, and the related notes (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company at June 30, 2021, and the results of its operations and its cash flows for the year ended June 30, 2021, in conformity with
U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We served as the Company’s auditor from 2020 to 2021.
San Jose, California
August 27, 2021
48
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Extreme Networks, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows of Extreme Networks,
Inc. and subsidiaries (the Company) for the year ended June 30, 2020, and the related notes (collectively, the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended June
30, 2020, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of July 1, 2019 due to the
adoption of Accounting Standards Update 2016-02, Leases, and several related amendments, as issued by the Financial Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
We served as the Company’s auditor from 2010 to 2020.
Raleigh, North Carolina
August 31, 2020
/s/KPMG LLP
49
EXTREME NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
ASSETS
Current assets:
Cash
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets, net
Intangible assets, net
Goodwill
Other assets
Total assets
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt, net of unamortized debt issuance costs of $2,276
and $2,404, respectively
Accounts payable
Accrued compensation and benefits
Accrued warranty
Current portion of operating lease liabilities
Current portion of deferred revenue
Other accrued liabilities
Total current liabilities
Deferred revenue, less current portion
Long-term debt, less current portion, net of unamortized debt issuance costs of $2,430 and $4,760, respectively
Operating lease liabilities, less current portion
Deferred income taxes
Other long-term liabilities
Commitments and contingencies (Note 10)
Stockholders’ equity:
Convertible preferred stock, $0.001 par value, issuable in series, 2,000 shares
authorized; none issued
Common stock, $0.001 par value, 750,000 shares authorized; 139,742 and 133,279 shares issued,
respectively; 129,263 and 126,682 shares outstanding, respectively
Additional paid-in-capital
Accumulated other comprehensive loss
Accumulated deficit
Treasury stock at cost, 10,479 and 6,597 shares, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
50
June 30,
2022
June 30,
2021
$
$
$
194,522
184,097
49,231
61,239
489,089
49,578
36,454
32,515
400,144
60,730
1,068,510
33,349
84,338
53,710
10,852
13,956
238,262
65,714
500,181
163,357
270,570
33,256
7,717
3,086
246,894
156,476
32,885
51,340
487,595
55,004
36,927
36,038
331,159
63,370
1,010,093
23,721
60,142
71,610
11,623
18,743
212,412
57,449
455,700
133,172
315,865
32,515
3,828
14,545
—
—
140
1,115,416
(3,055)
(934,072)
(88,086)
90,343
1,068,510
$
133
1,078,602
(2,811)
(978,343)
(43,113)
54,468
1,010,093
$
$
$
$
Net revenues:
Product
Service and subscription
Total net revenues
Cost of revenues:
Product
Service and subscription
Total cost of revenues
Gross profit:
Product
Service and subscription
Total gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Acquisition and integration costs
Restructuring and related charges
Amortization of intangibles
Total operating expenses
Operating income (loss)
Interest income
Interest expense
Other income (expense), net
Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Basic and diluted income (loss) per share:
Net income (loss) per share - basic
Net income (loss) per share - diluted
Shares used in per share calculation - basic
Shares used in per share calculation - diluted
EXTREME NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
June 30,
2022
Year Ended
June 30,
2021
June 30,
2020
$
761,721 $
350,600
1,112,321
699,396 $
310,022
1,009,418
653,651
294,368
948,019
326,333
103,847
430,180
327,318
190,521
517,839
209,606
283,632
60,991
32,073
22,011
8,425
616,738
(98,899)
1,420
(23,750)
737
(120,492)
6,353
(126,845)
360,562
121,821
482,383
401,159
228,779
629,938
190,591
294,470
68,697
7,009
1,748
3,235
565,750
64,188
412
(12,789)
383
52,194
7,923
44,271 $
309,958
114,337
424,295
389,438
195,685
585,123
196,995
276,841
66,201
1,975
2,625
6,110
550,747
34,376
352
(22,856)
(1,687)
10,185
8,249
1,936 $
$
$
$
0.34 $
0.33 $
0.02 $
0.02 $
(1.06)
(1.06)
129,437
133,494
124,019
127,669
119,814
119,814
See accompanying notes to consolidated financial statements.
51
EXTREME NETWORKS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income (loss)
Other comprehensive income (loss):
Derivatives designated as hedging instruments:
Change in unrealized gains and losses on interest rate swaps
Reclassification adjustment related to interest rate swaps
Change in unrealized gains and losses on foreign currency forward contracts
Net change from derivatives designated as hedging instruments
Net change in foreign currency translation adjustments
Other comprehensive income (loss)
Total comprehensive income (loss)
Year Ended
June 30,
2022
June 30,
2021
$
44,271 $
1,936 $
Year Ended
June 30,
2020
(126,845)
1,652
796
205
2,653
(2,897)
(244)
44,027 $
(222)
858
(205)
431
3,136
3,567
5,503 $
(1,769)
-
-
(1,769)
(2,136)
(3,905)
(130,750)
$
See accompanying notes to consolidated financial statements.
52
EXTREME NETWORKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Common Stock
Treasury Stock
Shares
Amount
Additional Paid-
In-Capital
Accumulated Other
Comprehensive Loss
Balance at June 30, 2019
121,538 $
122 $
986,772 $
—
—
—
—
—
—
—
—
—
—
(126,845)
—
(2,473)
—
(3,905)
115,987
(126,845)
(3,905)
Shares
(2,366) $ (15,000) $ (853,434) $
Amount
Accumulated
Deficit
Total Stockholders'
Equity
Net loss
Other comprehensive loss
Issuance of common stock from
equity incentive plans, net of tax
withholding
Stock awards granted in
connection with acquisition
Stock-based compensation
Repurchase of stock
Balance at June 30, 2020
Net income
Other comprehensive income
Issuance of common stock from
equity incentive plans, net of tax
withholding
Stock-based compensation
Balance at June 30, 2021
Net income
Other comprehensive loss
Issuance of common stock from
equity incentive plans, net of tax
withholding
Stock-based compensation
Repurchase of stock
Balance at June 30, 2022
5,576
5
8,784
—
—
—
—
8,789
—
—
—
127,114 $
—
—
6,165
—
133,279 $
—
—
—
—
—
127 $
—
—
6
—
133 $
—
—
3,530
37,842
(1,887)
1,035,041 $
—
—
4,510
39,051
1,078,602 $
—
—
6,463
—
—
139,742 $
7
—
—
140 $
(6,548)
43,362
—
1,115,416 $
—
—
—
(6,378)
—
3,567
—
—
(2,811)
—
(244)
—
—
—
—
(4,231) (28,113)
(6,597) $ (43,113) $ (980,279) $
—
—
—
—
—
—
—
1,936
—
—
—
—
—
(6,597) $ (43,113) $ (978,343) $
—
—
—
—
—
—
44,271
—
—
—
—
—
—
—
—
—
(3,055) (10,479) $ (88,086) $ (934,072) $
(3,882) (44,973)
—
—
3,530
37,842
(30,000)
5,398
1,936
3,567
4,516
39,051
54,468
44,271
(244)
(6,541)
43,362
(44,973)
90,343
See accompanying notes to consolidated financial statements.
53
EXTREME NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation
Amortization of intangible assets
Reduction in carrying amount of right-of-use asset
Provision for doubtful accounts
Share-based compensation
Deferred income taxes
Non-cash restructuring and impairment charges
Non-cash interest expense
Other
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued compensation and benefits
Operating lease liabilities
Deferred revenue
Other current and long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Business acquisition, net of cash acquired
Maturities and sales of investments
Net cash used in investing activities
Cash flows from financing activities:
Borrowings under Revolving Facility
Borrowings under Term Loan
Payments on debt obligations
Loan fees on borrowings
Repurchase of common stock
Payments for tax withholdings, net of proceeds from issuance of common stock
Payment of contingent consideration obligations
Deferred payments on an acquisition
Net cash (used in) provided by financing activities
Foreign currency effect on cash
Net (decrease) increase in cash
Cash at beginning of period
Cash at end of period
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for taxes, net
Non-cash investing activities:
Unpaid capital expenditures
June 30,
2022
Year Ended
June 30,
2021
June 30,
2020
$
44,271
$
1,936
$
(126,845)
20,215
19,946
14,929
29
43,362
682
—
4,443
423
(26,231)
(16,722)
(4,469)
23,810
(20,709)
(18,949)
44,635
(1,488)
128,177
(15,433)
(69,517)
—
(84,950)
—
—
(38,125)
—
(44,973)
(6,541)
(1,024)
(4,000)
(94,663)
(936)
(52,372)
22,961
32,356
16,134
409
39,051
1,785
—
5,055
3,989
(34,158)
22,729
(18,979)
10,810
20,088
(19,986)
54,398
(14,043)
144,535
(17,176)
—
—
(17,176)
—
—
(74,000)
—
—
4,516
(1,298)
(4,000)
(74,782)
445
53,022
246,894
194,522
$
193,872
246,894
$
28,603
35,218
16,420
1,289
37,842
1,760
7,622
4,196
(349)
62,151
19,951
781
(26,080)
(8,080)
(17,345)
19,530
(20,780)
35,884
(15,268)
(219,458)
45,249
(189,477)
55,000
199,500
(34,517)
(12,029)
(30,000)
8,789
(4,251)
(4,000)
178,492
(634)
24,265
169,607
193,872
9,272
7,776
$
$
18,741
4,488
$
$
20,411
5,309
1,756
$
3,004
$
1,860
$
$
$
$
See accompanying notes to the consolidated financial statements.
54
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Basis of Presentation
Extreme Networks, Inc., together with its subsidiaries (collectively referred to as “Extreme” or “the Company”) is a leader in providing software-
driven networking solutions for enterprise customers. The Company conducts its sales and marketing activities on a worldwide basis through distributors,
resellers and the Company’s field sales organization. Extreme was incorporated in California in 1996 and reincorporated in Delaware in 1999.
Fiscal Year
The Company uses a fiscal calendar year ending on June 30. All references herein to fiscal year ended “fiscal year ended 2022” or “2022”; “fiscal
2021” or “2021”; “fiscal 2020” or “2020” represent the fiscal years ending, respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of Extreme Networks, Inc. and its wholly-owned subsidiaries. All inter-company
accounts and transactions have been eliminated.
The Company predominantly uses the United States Dollar as its functional currency. The functional currency for certain of its foreign subsidiaries
is the local currency. For those subsidiaries that operate in a local currency functional environment, all assets and liabilities are translated to United States
Dollars at current month end exchange rates; and revenues and expenses are translated using the monthly average rate.
Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results
could differ materially from these estimates.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company accounts for revenue in accordance with Topic 606, Revenue from Contracts with Customers. The Company derives revenues
primarily from sales of its networking equipment, with the remaining revenues generated from software delivered as a service (“SaaS”) and service fees
relating to maintenance contracts, professional services, and training for the products. The Company recognizes revenues when control of promised goods
or services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or
services.
See Note 3, Revenues, for further discussion.
Cash and Cash Equivalents
The Company considers highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents.
Allowance for Product Returns
The Company maintains estimates for product returns based on its historical returns, analysis of credit memos and its return policies. The allowance
includes the estimates for product allowances from end customers as well as stock rotations and other returns from the Company’s stocking distributors.
The allowance for product returns is shown as a reduction of accounts receivable as there is a contractual right of offset and returns are applied to accounts
receivable balances outstanding as of the balance sheet date. There have not been material revisions to the estimated product returns for any periods
presented.
55
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Allowance for Credit Losses
The Company maintains an allowance for credit losses which reflects its best estimate of potentially uncollectible trade receivables. The allowance
consists of both specific and general reserves. The Company continually monitors and evaluates the collectability of its trade receivables based on a
combination of factors. It records specific allowances for bad debts in general and administrative expense when it becomes aware of a specific customer’s
inability to meet its financial obligation to the Company, such as in the case of bankruptcy filings or deterioration of financial position. Estimates are used
in 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 historical
collection experience. The Company mitigates some collection risk by requiring certain of its customers in the Asia-Pacific region to pay cash in advance
or secure letters of credit when placing an order with the Company.
Inventories
The Company values its inventory at lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost, on
a first-in, first-out basis. The Company has established inventory allowances when conditions exist that suggest that inventory is obsolete or may be in
excess of anticipated demand based upon assumptions about future demand. At the point of the loss recognition, a new lower-cost basis for that inventory is
established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. Previously
written down or obsolete inventory subsequently sold has not had a material impact on gross margin for any of the periods presented.
Long-Lived Assets
Long-lived assets include (a) property and equipment, (b) operating lease right-of-use (“ROU”) assets, (c) goodwill and intangible assets, and (d)
other assets. Property and equipment, ROU assets, and definite-lived intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets or asset groups may not be recoverable. If such facts and circumstances exist, the Company
assesses the recoverability of these assets by comparing the projected undiscounted 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.
(a) Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the
straight-line method over the estimated useful lives of the assets. Estimated useful lives of one to four years are used for computer equipment and
purchased software. Estimated useful lives of three to seven years are used for office equipment and furniture and fixtures. Depreciation and amortization
of leasehold improvements is computed using the lesser of the useful life or lease terms.
(b) Leases
The Company leases facilities, equipment and vehicles under operating leases that expire on various dates through fiscal 2028. The Company
determines if an arrangement is a lease at inception. We evaluate the classification of leases at commencement date and as necessary, at modification. In
general, for lease arrangements exceeding a twelve-month term, these arrangements are recognized as ROU assets with associated operating lease liabilities
on the consolidated balance sheets.
ROU assets under the Company’s operating leases represent the Company’s right to use an underlying asset over the lease term. Operating lease
liabilities represent the Company’s obligation to make payments arising from the lease. The ROU asset is reduced over a straight-line or other systematic
basis representative of the pattern in which the Company expects to consume the ROU assets’ future economic benefits. The ROU asset is also adjusted for
leasehold improvements paid by the lessor, lease incentives, and asset impairments, among other things.
See Note 9, Leases, for further discussion.
(c) Goodwill and Intangible Assets
Goodwill and intangible assets are generated as a result of business combinations and are comprised of, among other things, developed technology,
customer relationships, trade names, and licensing agreements.
The remaining lives of intangibles are considered regularly along with assessments of impairment and lives are adjusted or impairment charges
taken when required.
56
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Goodwill is calculated as the excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired. Goodwill is
not amortized, but rather is tested for impairment at least annually or more frequently if indicators of impairment are present. The Company has one
reporting unit and performs its annual goodwill impairment analysis as of the first day of the fourth quarter of each year. In assessing impairment on
goodwill, the Company bypasses the qualitative assessment and proceed directly to performing the quantitative evaluation of the fair value of the reporting
unit, to compare against the carrying value of the reporting unit. A goodwill impairment charge is recognized for the amount by which the reporting unit’s
fair value is less than its carrying value. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Based on the
results of the goodwill impairment analysis, the Company determined that no impairment charge needed to be recorded for any periods presented.
Business Combinations
The Company applies the acquisition method of accounting for business combinations. Under this method of accounting, all assets acquired and
liabilities assumed are recorded at their respective fair values at the date of the acquisition. Determining the fair value of assets acquired and liabilities
assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future
cash inflows and outflows, discount rates, useful lives, among other items. Fair value is defined as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are assumed to be buyers and
sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurements for an asset assume the highest and best
use of that asset by market participants. As a result, the Company may be required to value the acquired assets at 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 the
assumptions and estimates it has made are reasonable and appropriate, they are based in part on historical experience and information that may be obtained
from the management of the acquired company and are inherently uncertain. During the measurement period, which may be up to one year from the
acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill for facts and
considerations that were known at the acquisition date. Upon the conclusion of the measurement period or final determination of the values of assets
acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded within the Company’s consolidated statements of
operations.
Deferred Revenue
Deferred revenue represents amounts for (i) deferred maintenance, support, and SaaS revenues, and (ii) other deferred revenue including
professional services when the revenue recognition criteria have not been met.
Product Warranties and Guarantees
Networking products may contain undetected hardware or software errors when new products or new versions or updates of existing products are
released to the marketplace. The majority of the Company’s hardware products are shipped with either a one-year warranty or a limited lifetime warranty,
and software products receive a 90-day warranty. Upon shipment of products to its customers, the Company estimates expenses for the cost to repair or
replace products that may be returned under warranty and accrues a liability in cost of product revenues for this amount. The determination of the
Company’s warranty requirements is based on actual historical experience with the product or product family, estimates of repair and replacement costs and
any product warranty problems that are identified after shipment. The Company estimates and adjusts these accruals at each balance sheet date in
accordance with changes in these factors.
In the normal course of business to facilitate sales of its products, the Company indemnifies its resellers and end-user customers with respect to
certain matters. The Company has agreed to hold the customer harmless against losses arising from a breach of intellectual property infringement or other
claims made 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 not possible to estimate the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification
claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements
have not had a material impact on its operating results or financial position.
57
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Stock-based Compensation
The Company recognizes compensation expense related to stock-based awards, including stock options, restricted stock units (“RSUs”) and
employee stock purchases related to its 2014 Employee Stock Purchase Plan (the “2014 ESPP”), based on the estimated fair value of the award on the grant
date, over the requisite service period. The Company accounts for forfeitures as they occur. The Company calculates the fair value of stock options and
share purchase options under the 2014 ESPP using the Black-Scholes-Merton option valuation model. The fair value of RSUs is based on the closing stock
price of the Company’s common stock on the grant date.
The Company grants certain employees performance-based stock options and RSUs. The performance metrics include company-wide financial
performance and/or market conditions. For awards that include performance conditions, no compensation cost is recognized until the performance goals are
probable of being met, at which time the cumulative compensation expense from the service inception date would be recognized. For awards that contain
market conditions, compensation expense is measured using a Monte Carlo simulation model and recognized over the derived service period based on the
expected market performance as of the grant date.
Advertising
Advertising costs are expensed as incurred. Advertising expenses were immaterial in fiscal years 2022, 2021 and 2020.
Income Taxes
The Company accounts for income taxes utilizing the liability method. Deferred income taxes are recorded to reflect consequences on future years
of differences between financial reporting and the tax basis of assets and liabilities measured using the enacted statutory tax rates and tax laws applicable to
the periods in which differences are expected to affect taxable earnings. A valuation allowance is recognized to the extent that it is more likely than not that
the tax benefits will not be realized.
The Company accounts for uncertainty in income taxes using a two-step approach to recognize and measure uncertain tax positions. The first step is
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 sustained on
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 more
than 50% likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the extent that the
Company anticipates payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision
for income taxes. For additional discussion, see Note 16, Income Taxes.
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“the FASB”) issued ASU 2019-12, Income Taxes – Simplifying the Accounting for
Income Taxes (Topic 740), which reduces the complexity of accounting for income taxes including the removal of certain exceptions to the general
principles of Accounting Standards Codification (“ASC”) 740, Income Taxes, and simplification in several other areas such as accounting for franchise tax
(or similar tax) that is partially based on income. This standard is effective for fiscal years beginning after December 15, 2020, including interim periods
within the fiscal year. The standard was adopted on July 1, 2021 and did not have a material impact on the Company’s financial statements upon adoption.
Recently Issued and Adopted Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from
Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the
acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the
current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. ASU 2021-08 is
effective for annual periods beginning after December 15, 2022 and interim periods within those annual periods, with early adoption permitted, including
adoption in an interim period. The Company elected to early adopt the standard in the quarter ended December 31, 2021 and retrospectively applied the
standard to the acquisition that happened in the current fiscal year beginning July 1, 2021. The application of the guidance increased the deferred revenue
balance acquired through the acquisition of Ipanema by $7.1 million as of the acquisition date.
3. Revenues
Revenue Recognition
The Company derives the majority of its revenues from sales of its networking equipment, with the remaining revenues generated from sales of
services and subscriptions, which primarily includes maintenance contracts and software subscriptions delivered as software as a service (“SaaS”) and
additional revenues from professional services, and training for its products. The Company sells its products, maintenance contracts, and SaaS direct to
customers and to partners in two distribution channels, or tiers. The first tier consists of a limited number of independent distributors that stock its products
and sell primarily to resellers. The second tier of the distribution channel consists of a non-stocking distributors and value-added resellers that sell directly
to end-users. Products and services may be sold separately or in bundled packages.
58
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a
customer. For each contract, the Company considers the promise to transfer products and services, each of which are distinct, to be the identified
performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the
net consideration to which the Company expects to be entitled.
For all of the Company’s sales and distribution channels, revenue is recognized when control of the product is transferred to the customer (i.e., when
the Company’s performance obligation is satisfied), which typically occurs at shipment for product sales. Revenues from maintenance contracts and SaaS
are recognized over time as the Company’s performance obligations are satisfied. This is typically the contractual service period, which generally ranges
from one to five years. For product sales to value-added resellers of the Company, non-stocking distributors and end-user customers, the Company
generally does not grant return privileges, except for defective products during the warranty period, nor does the Company grant pricing credits. Sales taxes
collected from customers are excluded from revenues. Shipping costs are included in cost of product revenues. Sales incentives and other programs that the
Company may make available to these customers are considered to be a form of variable consideration and the Company maintains estimated accruals and
allowances using the historical actuals. There were no material changes in the current period to the estimated transaction price for performance obligations
which were satisfied or partially satisfied during previous periods.
Sales to stocking distributors are made under terms allowing certain price adjustments and limited rights of return (known as “stock rotation”) of the
Company’s products held in their inventory. Stock rotation rights grant the distributor the ability to return certain specified amounts of inventory.
Frequently, distributors need to sell at a price lower than the contractual distribution price in order to win business and submit rebate requests for the
Company’s pre-approval prior to selling the product to a customer at the discounted price. At the time the distributor invoices its end customer or soon
thereafter, the distributor submits a rebate claim to the Company to adjust the distributor’s cost from the contractual price to the pre-approved lower price.
After the Company verifies that the claim was pre-approved, a credit memo is issued to the distributor for the rebate claim. In determining the transaction
price, the Company considers these rebate adjustments to be variable consideration. Such price adjustments are estimated based on an analysis of actual
claims, at the distributor level over a period of time considered adequate to account for current pricing and business trends. Stock rotation adjustments are
an additional form of variable consideration and are estimated based on historical return rates and estimates provided by the distributors. There were no
material changes in the current period to the estimated variable consideration for performance obligations which were satisfied or partially satisfied during
previous periods.
Performance Obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit
of account in Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the
performance obligation is satisfied. Certain of the Company’s contracts have multiple performance obligations, as the promise to transfer individual goods
or services is separately identifiable from other promises in the contracts and, therefore, is distinct. For contracts with multiple performance obligations, the
Company allocates the contract’s transaction price to each performance obligation based on its relative standalone selling price. The stand-alone selling
prices are determined based on the prices at which the Company separately sells these products. For items that are not sold separately, the Company
estimates the stand-alone selling prices using the other observable inputs.
The Company’s performance obligations are satisfied at a point in time or over time as the customer receives and consumes the benefits provided.
Substantially all of the Company’s product sales revenues are recognized at a point in time. Substantially all of the Company’s service, subscription, and
SaaS revenues are recognized over time. For revenue recognized over time, the Company primarily uses an input measure, days elapsed, to measure
progress.
At June 30, 2022, the Company had $401.6 million of remaining performance obligations, which are primarily comprised of deferred maintenance
and SaaS revenues. The Company expects to recognize approximately 59% of this amount in fiscal 2023, an additional 21% percent in fiscal 2024 and 20%
of the balance thereafter.
Contract Balances. The timing of revenue recognition, billings and cash collections results in billed accounts receivable and deferred revenue in the
consolidated balance sheets. Services provided under renewable support arrangements of the Company are billed in accordance with agreed-upon
contractual terms, which are either billed fully at the inception of contract or at periodic intervals (e.g., quarterly or annually). The Company generally
receives payments from its customers in advance of services being provided, resulting in deferred revenue. These liabilities are reported on the consolidated
balance sheets on a contract-by-contract basis at the end of each reporting period.
59
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Revenue recognized for the years ended June 30, 2022 and 2021, that was included in the deferred revenue balance at the beginning of each period
was $208.4 million and $188.4 million, respectively.
Contract Costs. The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the
assets that the Company otherwise would have recognized is one year or less. Management expects that commission fees paid to sales representatives as a
result of obtaining service contracts and contract renewals, are recoverable and therefore the Company’s consolidated balance sheets included capitalized
balances in the amount of $16.3 million and $13.1 million at June 30, 2022 and 2021, respectively. Capitalized commission fees are amortized on a
straight-line basis over the average period of service contracts of approximately three years, and are included in “Sales and marketing” in the
accompanying consolidated statements of operations. Amortization recognized during the years ended June 30, 2022, 2021 and 2020 was $7.5 million, $5.6
million and $5.2 million, respectively.
Estimated Variable Consideration. There were no material changes in the current period to the estimated variable consideration for performance
obligations which were satisfied or partially satisfied during previous periods.
Disaggregation of Revenues: The Company operates in three geographic regions: 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 following tables set forth the Company’s revenues disaggregated by sales channel and geographic region based on the billing
addresses of its customers (in thousands):
Net Revenues
Americas:
United States
Other
Total Americas
EMEA
APAC
Total net revenues
Net Revenues
Americas:
United States
Other
Total Americas
EMEA
APAC
Total net revenues
Net Revenues
Americas:
United States
Other
Total Americas
EMEA
APAC
Total net revenues
Distributor
Year Ended June 30, 2022
Direct
Total
237,163 $
27,018
264,181
325,290
17,517
606,988 $
266,472 $
17,590
284,062
151,791
69,480
505,333 $
Distributor
Year Ended June 30, 2021
Direct
Total
244,851 $
31,583
276,434
250,897
14,280
541,611 $
240,620 $
16,466
257,086
136,648
74,073
467,807 $
Distributor
Year Ended June 30, 2020
Direct
Total
218,276 $
19,530
237,806
218,947
21,554
478,307 $
241,493 $
20,103
261,596
138,254
69,862
469,712 $
503,635
44,608
548,243
477,081
86,997
1,112,321
485,471
48,049
533,520
387,545
88,353
1,009,418
459,769
39,633
499,402
357,201
91,416
948,019
$
$
$
$
$
$
For the year ended June 30, 2022 and 2021, the Company generated 12% and 11%, respectively, of its revenue from the Netherlands. No other
foreign country accounted for 10% or more of the Company’s net revenue for the years ended June 30, 2022, 2021 and 2020.
60
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Concentrations
The Company may be subject to concentration of credit risk as a result of certain financial instruments consisting of accounts receivable. 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 the Company’s net revenues:
TD Synnex Corporation
Westcon Group Inc.
Jenne Inc.
June 30,
2022
20%
18%
16%
Year Ended
June 30,
2021
19%
16%
18%
June 30,
2020
18%
13%
15%
The following table sets forth major customers accounting for 10% or more of the Company’s accounts receivable, net as of June 30, 2022 and June
30, 2021:
Jenne Inc.
TD Synnex Corporation
4. Business Combinations
June 30,
2022
28%
11%
June 30,
2021
24%
19%
The Company completed one acquisition during the fiscal year ended June 30, 2022 and one acquisition during the fiscal year ended June 30, 2020.
The acquisitions were accounted for using the acquisition method of accounting. The estimated fair values were determined through established and
generally accepted valuation techniques, including work performed by third-party valuation specialists. The purchase price of each acquisition has been
allocated to tangible and identifiable intangible assets acquired and liabilities assumed. The fair value of working capital related items, such as other current
assets and accrued liabilities, approximated their book values at the date of acquisition. Inventories were valued at fair value using the net realizable value
approach. The fair value of property and equipment was determined using a cost approach. The fair value of the acquired deferred revenue was estimated
using the cost build-up approach. The cost build-up approach determines fair value using estimates of the costs required to provide the contracted
deliverables plus an assumed profit. The total costs including the assumed profit were adjusted to present value using a discount rate considered
appropriate. The resulting fair value approximates the amount the Company would be required to pay to a third party to assume the obligation. Intangible
assets were valued using income approaches based on management projections, which the Company considers to be Level 3 inputs. Results of operations
of the acquired entity is included in the Company’s operations beginning with the closing date of each acquisition.
Fiscal 2022 Acquisition
Ipanema Acquisition
On September 14, 2021 (the “Acquisition Date”), the Company completed its acquisition (the “Acquisition”) of Ipanematech SAS (“Ipanema”), the
cloud-native enterprise Software-Defined Wide Area Network (“SD-WAN”) business unit of InfoVista pursuant to a Sale and Purchase Agreement. Under
the terms of the Acquisition, the net consideration paid by Extreme to Ipanema stockholders was $70.9 million, which was funded from existing cash on
hand. The primary reason for the acquisition was to acquire the talent and the technology to allow the Company to expand its portfolio with new cloud-
managed SD-WAN and security offerings to support its enterprise customers.
The acquired assets and liabilities of Ipanema have been recorded at their respective fair values and added to those of the Company including an
amount for goodwill calculated as the difference between the acquisition consideration and the fair value of the identifiable net assets. The fair value of the
acquired deferred revenue was estimated using the cost build-up approach which was subsequently remeasured in accordance with ASC Topic 606 based
on the recently issued and adopted guidance ASU 2021-08. The Company has completed its analysis of the tax implications of the acquisition of the
intangible assets and a deferred tax liability has been established for the non-deductible intangible amortization, increasing the overall level of goodwill
associated with the Acquisition. All valuations are finalized as of June 30, 2022. Results of operations of Ipanema have been included in the operations of
the Company beginning with the Acquisition Date.
61
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The purchase price allocation is set forth in the table below and reflects estimated fair values (in thousands):
$
Cash and cash equivalents
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Property and equipment
Other assets
Accounts payable
Accrued compensation and benefits
Accrued warranty
Other accrued liabilities
Deferred revenue
Deferred taxes
Other liabilities
Net tangible liabilities
Identifiable intangible assets
Goodwill
Total intangible assets acquired
Preliminary Allocation as of
September 14, 2021
1,364
1,440
337
1,841
46
21
(1,220)
(2,304)
(41)
(71)
(2,758)
-
(723)
(2,068)
16,300
56,649
72,949
Adjustments
$
$
—
(6) a
(63) a
(1,231) a
—
—
244 a
467 a
—
(51) a
(7,376) a,b
(4,320) c
—
(12,336)
—
12,336 a,b,c
12,336
Total net assets acquired
$
70,881
$
—
$
Final Allocation as of
June 30, 2022
1,364
1,434
274
610
46
21
(976)
(1,837)
(41)
(122)
(10,134)
(4,320)
(723)
(14,404)
16,300
68,985
85,285
70,881
The changes made during the period in the table above include: (a) measurement period adjustments attributable to the Company’s review of the
additional information being obtained on preacquisition assets and liabilities, (b) the increase in deferred revenue (and the corresponding increase to
Goodwill by the same amount) is the result of the adoption of ASU 2021-08 in the period ended December 31, 2021, and (c) establishment of deferred tax
liability.
The following table presents details of the identifiable intangible assets acquired as part of the acquisition (in thousands):
Intangible Assets
Developed technologies
Customer relationships
Total identifiable intangible assets
Weighted Average
Estimated Useful Life
(in years)
6
4
Amount
14,500
1,800
16,300
$
$
The amortization for the developed technologies is recorded in “Cost of revenues” for product and the amortization for the remaining intangibles is
recorded in “Amortization of intangibles” in the accompanying consolidated statements of operations. The goodwill recognized is attributable primarily to
expected synergies and the assembled workforce of Ipanema. The Company will not be entitled to amortization of the goodwill and intangible assets for tax
purposes as this acquisition is a nontaxable stock acquisition.
The results of operations of Ipanema are included in the accompanying consolidated results of operations beginning September 15, 2021. The
overall results of Operations of Ipanema were not material to the consolidated financial statements of Extreme.
For the period ended June 30, 2022, the Company incurred acquisition and integration related expenses of $7.0 million associated with the
acquisition of Ipanema. Acquisition and integration costs consisted primarily of professional fees for financial and legal advisory services. Such
acquisition-related costs were expensed as incurred and are included in “Acquisition and integration costs” in the accompanying consolidated statements of
operations.
62
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Pro forma financial information
The following unaudited pro forma results of operations are presented as though the Acquisition had occurred as of the beginning of the earliest
period presented, July 1, 2020, the beginning of fiscal 2021, after giving effect to purchase accounting adjustments relating to deferred revenue,
depreciation and amortization of intangibles and acquisition and integration costs.
The pro forma results of operations are not necessarily indicative of the combined results that would have occurred had the acquisition been
consummated as of the beginning of fiscal 2021, nor are they necessarily indicative of future operating results. The unaudited pro forma results do not
include 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, 2022 combines the results for Extreme for such periods assuming the
transaction closed on July 1, 2020, which include the results of Ipanema subsequent to the Acquisition Date, and Ipanema’s historical results up to the
Acquisition Date. The unaudited pro forma financial information for the year ended June 30, 2021 combines the historical results of operations for Extreme
assuming the transaction closed on July 1, 2020 and historical results for Ipanema.
The following table summarizes the unaudited pro forma financial information (in thousands, except per share amounts):
Net revenues
Net income (loss)
Net income (loss) per share - basic
Net income (loss) per share - diluted
Shares used in per share calculation - basic
Shares used in per share calculation - diluted
Fiscal 2020 Acquisition
Aerohive Acquisition
Year Ended
June 30,
2022
June 30,
2021
$
$
$
$
1,115,942 $
53,659 $
0.41 $
0.40 $
129,437
133,494
1,031,825
(6,755)
(0.05)
(0.05)
124,019
124,019
On August 9, 2019, the Company consummated its acquisition of all of the outstanding common stock of Aerohive Networks, Inc. (“Aerohive”)
pursuant to that certain Agreement and Plan of Merger entered into as of June 26, 2019. Under the terms of the Aerohive acquisition, the net consideration
paid by Extreme to Aerohive stockholders was $267.1 million. The acquired assets and liabilities of Aerohive were recorded at their respective fair values
and added to those of the Company including an amount for goodwill calculated as the difference between the acquisition consideration and the fair value
of the identifiable net assets.
The components of aggregate purchase consideration are as follows (in thousands):
Purchase consideration
Cash paid to acquire outstanding shares
Replacement of stock-based awards
Aggregate purchase consideration
63
August 9, 2019
$
$
263,616
3,530
267,146
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The purchase price allocation is set forth in the table below and reflects estimated fair values (in thousands).
Final Allocation as of
June 30, 2020
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Property and equipment
Operating lease right-of-use assets
Other assets
Debt
Accounts payable
Accrued compensation and benefits
Accrued warranty
Other accrued liabilities
Operating lease liabilities
Deferred revenue
Other liabilities
Net tangible assets
Identifiable intangible assets
Goodwill
Total intangible assets acquired
Total net assets acquired
$
$
44,158
45,148
11,753
19,232
3,924
2,364
6,336
2,195
(20,000)
(9,737)
(7,129)
(570)
(1,960)
(4,752)
(68,415)
(483)
22,064
52,500
192,582
245,082
267,146
The following table presents details of the identifiable intangible assets acquired as part of the Aerohive acquisition (dollars in thousands):
Intangible Assets
Developed technology
Backlog
Customer relationships
Trade names
Total identifiable intangible assets
Estimated Useful Life
(in years)
4
1
7
1
Amount
39,100
400
11,400
1,600
52,500
$
$
The amortization for the developed technology and backlog is recorded in “Cost of revenues” for product and service and the amortization for the
remaining intangibles is recorded in “Amortization of intangibles” in the accompanying consolidated statements of operations. The goodwill recognized is
attributable primarily to expected synergies and the assembled workforce of Aerohive along with the future potential of the technology. The Company will
not be entitled to amortization of the goodwill and intangible assets for tax purposes as the Acquisition is a nontaxable stock acquisition.
The results of operations of Aerohive are included in the accompanying consolidated statements of operations beginning August 9, 2019. The
Aerohive revenues for the year ended June 30, 2020 were $125.1 million and were incorporated into the revenues of the Company. Certain associated
expenses of Aerohive were incorporated with the results of operations of the Company and, therefore, stand-alone operating results are not available for the
year ended June 30, 2020.
In the year ended June 30, 2020, the Company incurred acquisition and integration related expenses of $32.1 million associated with the Aerohive
acquisition, including a $6.8 million compensation charge for certain Aerohive Executive stock awards which were accelerated due to change-in-control
and termination provisions included in the Executives’ employment contracts. Other acquisition and integration costs consist primarily of professional fees
for financial and legal advisory services and severance charges for terminated Aerohive employees. Such acquisition-related costs were expensed as
incurred and are included in “Acquisition and integration costs” in the accompanying consolidated statements of operations.
64
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5. Balance Sheet Components
Accounts Receivable
The following is a summary of accounts receivable (in thousands):
Accounts receivable
Customer rebates
Allowance for credit losses
Allowance for product returns
Accounts receivable, net
The following table is a summary of the allowance for credit losses (in thousands):
June 30,
2022
June 30,
2021
$
$
368,778 $
(163,953)
(695)
(20,033)
184,097 $
324,343
(149,510)
(986)
(17,371)
156,476
Description
Year Ended June 30, 2022:
Allowance for credit losses
Year Ended June 30, 2021:
Allowance for credit losses
Year Ended June 30, 2020:
Allowance for credit losses
Balance at
beginning of
period
Provision for
expected credit
losses
Deductions (1)
Balance at
end of period
$
$
$
986
$
39
$
(330) $
1,212
$
409
$
(635) $
695
986
1,054
$
1,289
$
(1,131) $
1,212
(1) Uncollectible accounts written off, net of recoveries
The following table is a summary of the Company’s allowance for product returns (in thousands):
Description
Year Ended June 30, 2022:
Allowance for product returns
Year Ended June 30, 2021:
Allowance for product returns
Year Ended June 30, 2020:
Allowance for product returns
Inventories
Balance at
beginning of
period
Additions
Deductions
Balance at
end of period
$
$
$
17,371 $
67,407 $
(64,745) $
20,033
27,963 $
67,113 $
(77,705) $
17,371
25,897 $
76,802 $
(74,736) $
27,963
The following is a summary of the Company’s inventory by category (in thousands):
Finished goods
Raw materials
Total inventories
June 30,
2022
June 30,
2021
$
$
40,733 $
8,498
49,231 $
27,901
4,984
32,885
65
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Property and Equipment, Net
The following is a summary of the Company’s property and equipment by category (in thousands):
Computers and equipment
Purchased software
Office equipment, furniture and fixtures
Leasehold improvements
Total property and equipment
Less: accumulated depreciation and amortization
Property and equipment, net
June 30,
2022
June 30,
2021
$
$
75,387 $
47,161
9,463
52,564
184,575
(134,997)
49,578 $
75,866
40,037
10,201
53,329
179,433
(124,429)
55,004
The Company recognized depreciation expense of $19.8 million, $23.0 million, and $28.6 million related to property and equipment during the
years ended June 30, 2022, 2021 and 2020, respectively.
Deferred Revenue
The following table summarizes contract liabilities which are shown as deferred revenue (in thousands):
Deferred maintenance, support, and SaaS
Other deferred revenue
Total deferred revenue
Less: current portion
Non-current deferred revenue
Accrued Warranty
June 30,
2022
June 30,
2021
$
$
393,289 $
8,330
401,619
238,262
163,357 $
328,797
16,787
345,584
212,412
133,172
The following table summarizes the activity related to the Company’s product warranty liability during the following periods (in thousands):
Balance beginning of period
Warranties assumed due to acquisition
New warranties issued
Warranty expenditures
Balance end of period
6. Fair Value Measurements
Year Ended
June 30,
2022
11,623
41
$
13,314
(14,126)
10,852 $
June 30,
2021
14,035
—
$
11,760
(14,172)
11,623 $
June 30,
2020
14,779
570
19,686
(21,000)
14,035
$
$
A three-tier fair value hierarchy is utilized to prioritize the inputs used in measuring fair value. The hierarchy gives the highest priority to quoted
prices 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
directly or 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.
66
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis (in
thousands):
June 30, 2022
Assets
Interest rate swaps
Total assets measured at fair value
Liabilities
Foreign currency derivatives
Total liabilities measured at fair value
June 30, 2021
Liabilities
Foreign currency derivatives
Interest rate swaps
Acquisition-related contingent consideration obligations
Total liabilities measured at fair value
Level 1 Assets and Liabilities:
Level 1
Level 2
Level 3
Total
$
$
$
$
$
$
Level 1
—
—
—
—
—
—
—
—
$
$
$
$
$
$
1,314
1,314
31
31
560
1,133
—
1,693
$
$
$
$
$
$
Level 2
—
—
—
—
—
—
913
913
$
$
$
$
$
$
1,314
1,314
31
31
560
1,133
913
2,606
Total
Level 3
The Company’s financial instruments consist of cash, accounts receivable, accounts payable, and accrued liabilities. The Company states accounts
receivable, accounts payable and accrued liabilities at their carrying value, which approximates fair value due to the short time to the expected receipt or
payment.
Level 2 Assets and Liabilities:
The fair value of derivative instruments under the Company’s foreign exchange forward contracts and interest rate swaps are estimated based on
valuations provided by alternative pricing sources supported by observable inputs which is considered Level 2.
As of June 30, 2022 and 2021, foreign exchange forward currency contracts not designated as hedging instruments had a notional amount of $9.6
million and $23.0 million, respectively. These contracts have maturities of less than 40 days. Changes in the fair value of these foreign exchange forward
contracts not designated as hedging instruments are included in other income or expense. For the year ended June 30, 2022, the net loss recorded in the
consolidated statement of operations from these contracts was $1.4 million. For the years ended June 30, 2021 and 2020, the net gains recorded in the
consolidated statements of operations related to these contracts were $0.5 million and $0.1 million, respectively. As of June 30, 2021, foreign exchange
forward currency contracts designated as hedging instruments had a notional amount of $21.8 million. These contracts have maturities of less than twelve
months. Gains and losses arising from contracts designated as hedging instruments are recorded as a component of accumulated other comprehensive
income (loss). As of June 30, 2021 these contracts had unrealized loss of $0.2 million. There were no outstanding foreign exchange forward contracts that
were designated as hedging instruments at June 30, 2022 and at June 30, 2020. See Note 14, Derivatives and Hedging, for additional information.
The fair values of the interest rate swaps are based upon inputs corroborated by observable market data which is considered Level 2. As of June 30,
2022 and 2021, the Company had interest rate swap contracts, designated as cash flow hedges, with the total notional amount of $75.0 million and $200.0
million, respectively. Changes in fair value of these contracts are recorded as a component of accumulated other comprehensive income (loss). As of
June 30, 2022 and 2021, these contracts had unrealized gain of $1.3 million and unrealized loss of $1.1 million, respectively. See Note 14, Derivatives and
Hedging, for additional information.
The fair value of the borrowings under the 2019 Credit Agreement is estimated based on valuations provided by alternative pricing sources
supported by observable inputs which is considered Level 2. Since the interest rate is variable in the 2019 Credit Agreement, the fair value approximates
the face amount of the Company’s indebtedness of $308.6 million and $346.7 million as of June 30, 2022 and 2021, respectively.
Level 3 Assets and Liabilities:
Certain of the Company’s assets, including intangible assets and goodwill are measured at fair value on a non-recurring basis if impairment is
indicated.
At June 30, 2021, the Company reflected one liability measured at fair value of $0.9 million for contingent consideration related to a certain
acquisition completed in fiscal 2018. There was no outstanding liability at June 30, 2022. The fair value measurement of the contingent consideration
obligation is determined using Level 3 inputs. These fair value measurements represent Level 3 measurements as they are based on significant inputs not
observable in the market. Changes in the value of the contingent
67
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
consideration obligations is recorded in general and administrative expenses in the accompanying consolidated statements of operations.
The change in the acquisition-related contingent consideration obligations is as follows (in thousands):
Beginning balance
Payments
Accretion on discount
Ending balance
June 30,
2022
Year Ended
June 30,
2021
$
$
913 $
(1,024)
111
— $
2,167 $
(1,298)
44
913 $
June 30,
2020
6,298
(4,251)
120
2,167
There were no transfers of assets or liabilities between Level 1, Level 2 or Level 3 during the years ended June 30, 2022 and 2021. There were no
impairments recorded during the years ended June 30, 2022 and 2021.
7. Goodwill and Intangible Assets
The following table reflects the changes in the carrying amount of goodwill (in thousands):
Balance at beginning of period
Additions due to acquisitions (see Note 4)
Balance at end of period
June 30,
2022
June 30,
2021
331,159
68,985
400,144
$
$
331,159
—
331,159
$
The following tables summarize the components of gross and net intangible asset balances (in thousands, except years):
June 30, 2022
Developed technology
Customer relationships
Trade names
License agreements
Total intangibles, net
June 30, 2021
Developed technology
Customer relationships
Backlog
Trade names
License agreements
Total intangibles, net
Weighted Average
Remaining Amortization Gross Carrying
Period
Amount
Accumulated
Amortization
Net Carrying
Amount
3.3 years
3.9 years
0.1 years
4.4 years
$
$
170,600 $ 146,560 $
56,704
10,680
2,125
248,584 $ 216,069 $
64,839
10,700
2,445
24,040
8,135
20
320
32,515
Weighted Average
Remaining Amortization Gross Carrying Accumulated
Amortization
Amount
Period
Net Carrying
Amount
1.8 years
4.8 years
— years
0.7 years
5.4 years
$
$
156,100 $ 129,861 $
54,204
400
10,128
2,053
232,684 $ 196,646 $
63,039
400
10,700
2,445
26,239
8,835
—
572
392
36,038
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EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes the amortization expense of intangibles for the periods presented (in thousands):
Amortization of intangibles in “Total cost of revenues”
Amortization of intangibles in "Operations"
Total amortization expense
June 30,
2022
Year Ended
June 30,
2021
$
$
16,711 $
3,235
19,946 $
26,246 $
6,110
32,356 $
June 30,
2020
26,793
8,425
35,218
The amortization expense that is recognized in “Total cost of revenues” is comprised of amortization for developed technology, license agreements
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:
2023
2024
2025
2026
2027
Thereafter
Total
8. Debt
The Company’s debt is comprised of the following (in thousands):
Current portion of long-term debt:
Term Loan
Less: unamortized debt issuance costs
Current portion of long-term debt
Long-term debt, less current portion:
Term Loan
Less: unamortized debt issuance costs
Total long-term debt, less current portion
Total debt
$
$
15,513
5,571
4,757
3,411
1,528
1,735
32,515
June 30,
2022
June 30,
2021
$
$
$
$
35,625 $
(2,276)
33,349 $
273,000 $
(2,430)
270,570
303,919 $
26,125
(2,404)
23,721
320,625
(4,760)
315,865
339,586
On May 1, 2018, the Company entered into a Credit Agreement (the “2018 Credit Agreement”), by and among the Company, as borrower, BMO
Harris Bank N.A., as an issuing lender and swingline lender, Bank of Montreal, as an administrative and collateral agent, and the financial institutions or
entities that are a party thereto as lenders. The 2018 Credit Agreement provided for (i) a $40 million five-year revolving credit facility (the “2018
Revolving Facility”), (ii) a $190 million five-year term loan (the “2018 Term Loan”) and, (iii) an uncommitted additional incremental loan facility in the
principal amount of up to $100 million (“2018 Incremental Facility”).
In connection with the Aerohive Acquisition as discussed in Note 4, on August 9, 2019, the Company entered into the 2019 Credit Agreement.
The 2019 Credit Agreement, which replaced the 2018 Credit Agreement, provides for a 5-year first lien term loan facility in an aggregate principal
amount of $380 million and a 5-year revolving loan facility in an aggregate principal amount of $75 million (the “2019 Revolving Facility”). In addition,
the Company may request incremental term loans and/or incremental revolving loan commitments in an aggregate amount not to exceed the sum of $100
million plus an unlimited amount that is subject to pro forma compliance with certain financial tests. On August 9, 2019, the Company used the additional
proceeds from the term loan to partially fund the Aerohive Acquisition and for working capital and general corporate purposes.
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EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At the Company’s election, the initial term loan under the 2019 Credit Agreement may be made as either base rate loans or Eurodollar loans. The
applicable margin for base rate loans ranges from 0.25% to 2.50% per annum and the applicable margin for Eurodollar loans ranges from 1.25% to 3.50%,
in each case based on Extreme’s consolidated leverage ratio. All Eurodollar loans are subject to a Base Rate of 0.00%. In addition, the Company is required
to pay a commitment fee of between 0.25% and 0.40% quarterly (currently 0.25%) on the unused portion of the 2019 Revolving Facility, also based on the
Company’s consolidated leverage ratio. Principal installments are payable on the new term loan in varying percentages quarterly starting December 31,
2019 and to the extent not previously paid, all outstanding balances are to be paid at maturity. The 2019 Credit Agreement is secured by substantially all of
the Company’s assets.
The 2019 Credit Agreement requires the Company to maintain certain minimum financial ratios at the end of each fiscal quarter. The 2019 Credit
Agreement also includes covenants and restrictions that limit, among other things, the Company’s ability to incur additional indebtedness, create liens upon
any of its property, merge, consolidate or sell all or substantially all of its assets. The 2019 Credit Agreement also includes customary events of default
which may result in acceleration of the payment of the outstanding balance.
On April 8, 2020, the Company entered into the first amendment to the 2019 Credit Agreement (the “First Amendment”) to waive certain terms and
financial covenants of the 2019 Credit Agreement through July 31, 2020. On May 8, 2020, the Company entered into the second amendment to the 2019
Credit Agreement (the “Second Amendment”) which superseded the First Amendment and provided certain revised terms and financial covenants through
March 31, 2021. Subsequent to March 31, 2021, the original terms and financial covenants under the 2019 Credit Agreement resumed in effect. The
Second Amendment required the Company to maintain certain minimum cash requirement and certain financial metrics at the end of each fiscal quarter
through March 31, 2021. Under the terms of the Second Amendment, the Company was not permitted to exceed $55.0 million in its outstanding balance
under the 2019 Revolving Facility, the applicable margin for Eurodollar rate was 4.5% and the Company was restricted from pursuing certain activities
such as incurring additional debt, stock repurchases, making acquisitions or declaring a dividend, until the Company is in compliance with the original
covenants of the 2019 Credit Agreement.
On November 3, 2020, The Company and its lenders entered into the Third Amendment to the 2019 Credit Agreement (the “Third Amendment”), to
increase the sublimit for letters of credit to $20.0 million. On December 8, 2020, the Company and its lenders entered into the fourth amendment to the
2019 Credit Agreement (the “Fourth Amendment”), to waive and amend certain terms and financial covenants within the 2019 Credit Agreement through
March 31, 2021.
The Second Amendment provided for the Company to end the covenant Suspension Period early and revert to the covenants and interest rates per
the original terms of the 2019 Credit Agreement dated August 9, 2019 by filing a Suspension Period Early Termination Notice and Covenant Certificate
demonstrating compliance. For the twelve-month period ended March 31, 2021 the Company’s financial performance was in compliance with the original
covenants defined in the 2019 Credit Agreement and as such the Company filed a Suspension Early Termination Notice and Covenant Certificate with the
administration agent subsequent to filing its Form 10-Q for the quarterly period ended March 31, 2021. Returning to compliance with the covenants per the
original terms of the 2019 Credit Agreement dated August 9, 2019 resulted in the Company’s Eurodollar loan spread decreasing from 4.5% during the
Suspension Period to 2.75%, and the unused facility commitment fee decreasing from 0.4% to 0.35%, and the limitation on revolver borrowings being
removed effective May 1, 2021 after filing of the certificate with the administrative agent.
Financing costs incurred in connection with obtaining long-term financing are deferred and amortized over the term of the related indebtedness or
credit agreement. During the year ended June 30, 2020, the Company incurred $10.5 million of deferred financing costs in conjunction with 2019 Credit
Agreement and $1.5 million of deferred financing costs from the amendments and continues to amortize $1.6 million of debt issuance costs as of August 9,
2019 that were associated with the previous facility. The interest rate as of June 30, 2022 was 2.9% and as of June 30, 2021 was 2.8%.
70
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amortization of deferred financing costs is included in “Interest expense” in the accompanying consolidated statements of operations, totaled $3.0
million, $3.0 million and $2.5 million in fiscal years ended 2022, 2021 and 2020, respectively.
During the fiscal year ended June 30, 2021, the Company repaid $55.0 million against its 2019 Revolving Facility that was outstanding as of June
30, 2020 and had no outstanding balance as of June 30, 2022 and 2021. The Company has $60.2 million availability under the 2019 Revolving Facility as
of June 30, 2022. During the fiscal year ended June 30, 2022, the Company made an additional payment of $12.0 million against its term loan facility.
The Company had $14.8 million of outstanding letters of credit as of June 30, 2022.
The Company’s debt principal repayment schedule by period is as follows, excluding unamortized debt issuance costs (in thousands):
For the fiscal year ending:
2023
2024
2025
Total
9. Leases
Lessee Considerations
$
$
35,625
38,000
235,000
308,625
The Company leases certain facilities, equipment, and vehicles under operating leases that expire on various dates through fiscal 2032. Its leases
generally have terms that range from one year to ten years for its facilities, one year to five years for equipment, and one year to five years for vehicles.
Some of its leases contain renewal options, escalation clauses, rent concessions, and leasehold improvement incentives.
The Company determines if an arrangement is a lease at inception. The Company has elected not to recognize a lease liability or right-of-use
(“ROU”) asset for short-term leases (leases with a term of twelve months or less). Operating lease ROU assets and operating lease liabilities are recognized
based on the present value of the future minimum lease payments over the lease term at commencement date. The interest rate used to determine the
present value of future payments is the Company’s incremental borrowing rate at the commencement date because the rate implicit in the leases are not
readily determinable. The Company’s incremental borrowing rate is the rate for collateralized borrowings based on the current economic environment,
credit history, credit rating, value of leases, currency in which the lease obligation is satisfied, rate sensitivity, lease term and materiality. The biggest
drivers having the greatest effect determining the incremental borrowing rate for each one of the Company’s leases are term of the lease and the currency in
which the lease obligation is satisfied. Operating lease assets also included a reclassification for previous asset impairments and associated restructuring
liabilities, deferred rent, lease incentives and initial direct costs which reduced the operating lease ROU assets as of July 1, 2019.
Some operating leases contain lease and non-lease components. Certain lease contracts include fixed payments for services, such as operations,
maintenance, or other services. The Company has elected to account for fixed lease and non-lease components as a single lease component except for the
logistic service asset class. Cash payments made for non-lease costs and variable lease costs are not included in the measurement of operating lease assets
and liabilities and are recognized in the Company’s consolidated statements of operations as incurred. Some lease terms include one or more options to
renew. The Company does not assume renewals in its determination of the lease term unless it is reasonably certain that it will exercise that option. The
Company’s lease agreements do not contain any residual value guarantees.
71
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Activity and other information relating to operating leases is as follows (in thousands, except for lease term and discount rate):
Operating lease costs
Variable lease costs
Cash paid for amounts included in the measurement of operating liabilities
ROU assets obtained for new lease obligations
Weighted average remaining lease term (in years)
Weighted Average Discount Rate
Year Ended
June 30,
2022
June 30,
2021
$
16,852 $
6,921
20,890
18,641
18,840
6,487
22,676
2,162
June 30,
2022
June 30,
2021
4.8
4.7%
3.7
4.5%
Short-term lease expense, which represents expense for leases with terms of one year or less, was not material for the years ended June 30, 2022 and
2021.
The maturities of the Company’s operating lease liabilities as of June 30, 2022 by fiscal year are as follows:
2023
2024
2025
2026
2027
Thereafter
Total future minimum lease payments
Less amount representing interest
Total operating lease liabilities
Operating lease liabilities, current
Operating lease liabilities, non-current
Sublease Considerations
Operating Leases
(in thousands)
$
$
$
$
14,460
10,430
7,769
7,521
6,673
6,404
53,257
(6,045)
47,212
13,956
33,256
The Company currently is a sublessor on several operating facility subleases that expire on various dates through fiscal 2023. The subleases have
original terms ranging from two to six years and extend through the term of the underlying leases. The subleases do not include renewal options, purchase
options, or termination rights. These operating subleases include only lease components. The Company included $2.7 million and $2.9 million of sublease
income in lease expense for the years ended June 30, 2022 and 2021, respectively.
10. Commitments and Contingencies
Purchase Commitments
The Company currently has arrangements with contract manufacturers and suppliers for the manufacture of its products. Those arrangements allow
the contract manufactures to procure long lead-time component inventory based upon a rolling production forecast provided by the Company. The
Company is obligated to purchase long lead-time component inventory that its contract manufacturer procures in accordance with the forecast, unless the
Company gives notice of order cancellation outside of applicable component lead-times. As of June 30, 2022, the Company had non-cancelable
commitments to purchase $60.3 million of inventory and other services, which will be received and consumed during fiscal 2023. The Company expects to
utilize its non-cancelable purchase commitments in the normal ongoing operations.
Legal Proceedings
The Company may from time to time be party to litigation arising in the course of its business, including, without limitation, allegations relating to
commercial transactions, business relationships or intellectual property rights. Such claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources. Litigation in general, and intellectual
72
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
property in particular, can be expensive and disruptive 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 or
claims 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
quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that
would result in a loss contingency to become both probable and reasonably estimable. When a loss contingency is not both probable and reasonably
estimable, the Company does not record a loss accrual. However, if the loss (or an additional loss in excess of any prior accrual) is at least reasonably
possible and material, 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 cannot be 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 of complex judgments about future events. Even if a loss is reasonably possible, the Company may not be able to estimate a range of
possible loss, particularly where (i) the damages sought are substantial or indeterminate, (ii) the proceedings are in the early stages, or (iii) the matters
involve novel or unsettled legal theories or a large number of parties. In such cases, there is considerable uncertainty regarding the ultimate resolution of
such matters, including the amount of any possible loss, fine or penalty. Accordingly, for current proceedings, except as noted below, the Company is
currently unable to estimate any reasonably 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 the Company's results of operations in a particular quarter or fiscal year.
All currency conversions in this Legal Proceedings section are as of June 30, 2022.
XR Communications, LLC d/b/a Vivato Technologies v. Extreme Networks, Inc.
On April 19, 2017, XR Communications, LLC (“XR”) (d/b/a Vivato Technologies) filed a patent infringement lawsuit against the Company in the
Central District of California. The operative Second Amended Complaint asserts infringement of certain U.S. patents based on the Company’s
manufacture, use, sale, offer for sale, and/or importation into the 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. The Court dismissed
the case without prejudice on January 4, 2022 and on April 18, 2022, entered final judgment in favor of the Company. XR has appealed.
Orckit IP, LLC v. Extreme Networks, Inc., Extreme Networks Ireland Ltd., and Extreme Networks GmbH
On February 1, 2018, Orckit IP, LLC (“Orckit”) filed a patent infringement lawsuit against the Company and its Irish and German subsidiaries in the
District Court in Dusseldorf, Germany. The lawsuit alleges direct and indirect infringement of the German portion of a patent (“EP ’364”) based on the
offer, distribution, use, possession and/or importation into Germany of certain network switches that equipped with the ExtremeXOS operating system.
Orckit is seeking injunctive relief, accounting, and an unspecified declaration of liability for damages and costs of the lawsuit. On January 28, 2020, the
Court rendered a decision in the infringement case in favor of the Company. The matter is proceeding through the appellate process.
On April 23, 2019, Orckit filed an extension of the patent infringement complaint against the Company and its Irish and German subsidiaries in the
District Court in Dusseldorf, Germany. With this extension, Orckit alleges infringement of the German portion of a second patent (“EP ‘077”) based on the
offer, distribution, use, possession and/or importation into Germany of certain network switches that the Company no longer sells in Germany. Orckit is
seeking injunctive relief, accounting and sales information, and a declaration of liability for damages as well as costs of the lawsuit. On October 13, 2020,
the Court issued an infringement decision against the Company and granted to Orckit the right to enforce the judgment against the Company. Orckit has
provided notification to the Company that it will enforce the judgment. In the rendering of account, Orckit was informed that the products at issue were in
end of sale status prior to the filing of the EP‘077 complaint. The Company has appealed the infringement decision, and the matter is proceeding through
the appellate process.
The Company filed a nullity action related to the EP ‘364 patent on May 3, 2018, and one related to the EP ‘077 patent on October 31, 2019. Both
cases were filed in the Federal Patent Court in Munich. The court found the EP ‘364 patent to be valid and the Company has filed an appeal. The case filed
to seek to invalidate the EP ‘077 patent is proceeding, with a preliminary opinion that the EP ‘077 patent is likely invalid and a final decision from
expected later this year.
SNMP Research, Inc. and SNMP Research International, Inc. v. Broadcom Inc., Brocade Communications Systems LLC, and Extreme Networks,
Inc.
On October 26, 2020, SNMP Research, Inc. and SNMP Research International, Inc. (collectively, “SNMP”) filed a lawsuit against the Company in
the Eastern District of Tennessee for copyright infringement, alleging that the Company was not properly
73
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
licensed to use their software. SNMP is seeking actual damages and profits attributed to the infringement, as well as equitable relief. The Company has
filed a motion to dismiss and a motion to transfer the case to the Northern District of California. Both motions are pending. The trial date set for February
2023 has been rescheduled to January 2024.
Mala Technologies Ltd. v. Extreme Networks GmbH, Extreme Networks Ireland Ops Ltd., and Extreme Networks, Inc.
On April 15, 2021, Mala Technologies Ltd. (“Mala”) filed a patent infringement lawsuit against the Company and its Irish and German
subsidiaries in the District Court in Dusseldorf, Germany. The lawsuit alleges indirect infringement of the German portion of a patent (“EP ‘498”) based on
the offer and sale in Germany of certain network switches equipped with the ExtremeXOS operating system. Mala is seeking injunctive relief, accounting,
and an unspecified declaration of liability for damages and costs of the lawsuit. The hearing date set for July 14, 2022 has been postponed until November
22, 2022. The Company filed a nullity action related to the EP’498 patent on September 24, 2021 in the German Federal Patent Court.
Indemnification Obligations
Subject to certain limitations, the Company may be obligated to indemnify its current and former directors, officers and employees. These
obligations arise 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. The Company also
procures Directors and Officers liability insurance to help cover its defense and/or indemnification costs, although its ability to recover such costs through
insurance is uncertain. While it is not possible to estimate the maximum potential amount that could be owed under these governing documents and
agreements due to the Company’s limited history with prior indemnification claims, indemnification (including defense) costs could, in the future, have a
material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.
11. Stockholders’ Equity
Preferred Stock
In April 2001, in connection with entering into the Company’s Rights Agreement, the Company authorized the issuance of preferred stock. The
preferred stock may be issued from time to time in one or more series. The Board of Directors (the “Board”) is authorized to provide for the rights,
preferences and privileges of the shares of each series and any qualifications, limitations or restrictions on these shares. As of June 30, 2022, no shares of
preferred stock were outstanding.
Stockholders’ Rights Agreement
On April 26, 2012, the Company entered into the “Restated Rights Plan,” which governed the terms of each right (“Right”) that had been issued
with respect to each share of common stock of Extreme Networks. Each Right initially represented the right to purchase one one-thousandth of a share of
the Company’s Preferred Stock. From 2013 through 2020, the Board and stockholders approved amendments providing for one-year extensions of the term
of the Restated Rights Plan.
On May 17, 2021, the Company entered into the Amended and Restated Tax Benefit Preservation Plan (the “2021 Tax Benefit Preservation Plan”),
which amended and restated the Restated Rights Agreement between the Company and Computershare Shareholder Services LLC, as the rights agent. The
2021 Tax Benefit Preservation Plan governs the terms of each right (“Right”) that has been issued with respect to each share of common stock of Extreme
Networks. Each Right initially represents the right to purchase one one-thousandth of a share of the Company’s Preferred Stock. The Company’s Board of
Directors adopted the 2021 Tax Benefit Preservation Plan to preserve the value of deferred tax assets, including net operating loss carry forwards of the
Company, with respect to its ability to fully use its tax benefits to offset future income which may be limited if the Company experiences an “ownership
change” for purposes of Section 382 of the Internal Revenue Code of 1986 as a result of ordinary buying and selling of shares of its common stock.
Following its review of the terms of the plan, the Board decided it was necessary and in the best interests of the Company and its stockholders to enter into
the 2021 Tax Benefit Preservation Plan. The 2021 Tax Benefit Preservation Plan was approved for a period of three years by stockholders of the Company
at the annual meeting of stockholders on November 4, 2021.
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EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Equity Incentive Plan
The Compensation Committee of the Board unanimously approved an amendment to the Extreme Networks, Inc. Amended and Restated 2013
Equity Incentive Plan (the “2013 Plan”) on August 11, 2021 to update tax withholding obligations. The Compensation Committee of the Board
unanimously approved an amendment to the 2013 Plan on September 10, 2021 to increase the maximum number of available shares by 7.9 million shares,
which amendment was approved by the stockholders at the Company’s annual meeting of the stockholders held on November 4, 2021.
Employee Stock Purchase Plan
The Compensation Committee of the Board unanimously approved an amendment to the 2014 Employee Stock Purchase Plan (the “ESPP”) on
September 9, 2021 to increase the maximum number of shares that will be available for sale thereunder by 7.5 million shares. The amendment was ratified
by a majority of the stockholders of the Company at the annual meeting of stockholders held on November 4, 2021.
Common Stock Repurchases
On November 2, 2018, the Company announced that the Board had authorized management to repurchase up to $60.0 million of the Company’s
common stock over a two-year period from the date of authorization. Purchases may be made from time to time through any means including, but not
limited to, open market purchases and privately negotiated transactions. In February 2020, the Board increased the authorization to repurchase by $40.0
million to $100.0 million and extended the period for repurchase for three years from February 5, 2020. A maximum of $30.0 million may be repurchased
in any calendar year. In May 2022, the Board authorized an increase to the share repurchase authorization to $200.0 million over a three-year period
commencing July 1, 2022. A maximum of $25.0 million may be repurchased in any quarter. This authorization replaces the previous authorization effective
July 1, 2022.
In fiscal year 2022, the Company repurchased a total of 3.9 million shares of its common stock on the open market at a total cost of $45.0 million
with an average price of $11.59 per share. There were no shares repurchased during the year ended June 30, 2021.
12. Employee Benefit Plans
As of June 30, 2022, the Company has the following share-based compensation plans:
2013 Equity Incentive Plan
The 2013 Equity Incentive Plan (the “2013 Plan”) was approved by stockholders on November 20, 2013. The 2013 Plan replaced the 2005 Equity
Incentive Plan (the “2005 Plan”). Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock
units, performance shares, performance units, and other share-based or cash-based awards to employees and consultants. The 2013 Plan also authorizes the
grant of awards of stock options, stock appreciation rights, restricted stock and restricted stock units to non-employee members of the Board of Directors
and deferred compensation awards to officers, directors and certain management or highly compensated employees. The 2013 Plan authorized the issuance
of 9.0 million shares of the Company’s common stock. In addition, up to 12.7 million shares subject to stock options and awards available for issuance
under the 2005 Plan may be transferred to the 2013 Stock Plan and would be added to the number of shares available for future grant under the 2013 Plan.
The 2013 Plan includes provisions upon the granting of certain awards defined by the 2013 Plan as Full Value Awards in which the shares available for
grant under the 2013 Plan are decremented 1.5 shares for each such award granted. Upon forfeiture or cancellation of unvested awards, the same ratio is
applied in returning shares to the 2013 Plan for future issuance as was applied upon granting. During the year ended June 30, 2022 an additional 7.9 million
shares were authorized and made available for grant under the 2013 Plan. As of June 30, 2022, total options and awards to acquire 7.6 million shares were
outstanding under the 2013 Plan and 11.4 million shares are available for grant under the 2013 Plan. Options granted under this plan have a contractual
term of seven years.
Aerohive 2014 Equity Incentive Plan
Pursuant to the acquisition of Aerohive on August 9, 2019, the Company assumed the Aerohive 2014 Equity Incentive Plan (the “Aerohive Plan”).
Stock awards outstanding under the Aerohive Plan were converted into awards for Extreme shares as of the Acquisition Date at a predetermined rate pursuant
to the Merger Agreement. As of June 30, 2022, total awards to acquire 2,578 shares of Extreme common stock were outstanding under the Aerohive Plan. If a
participant terminates employment prior to the vesting dates, the non-vested shares will be forfeited and retired. No future grants may be made from the
Aerohive Plan.
75
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Shares Reserved for Issuance
The following are shares reserved for issuance (in thousands):
2013 Equity Incentive Plan shares available for grant
Employee stock options and awards outstanding
2014 Employee Stock Purchase Plan
Total shares reserved for issuance
Stock Options
The following table summarizes stock option activity under all plans (shares and intrinsic value in thousands):
June 30,
2022
June 30,
2021
11,430
7,616
9,961
29,007
6,753
10,359
4,414
21,526
Options outstanding at June 30, 2021
Granted
Exercised
Cancelled
Options outstanding at June 30, 2022
Vested and expected to vest at June 30, 2022
Exercisable at June 30, 2022
Weighted-
Average
Exercise Price
Per Share
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
Number of
Shares
1,645 $
—
(458)
—
1,187 $
1,187 $
988 $
5.44
—
2.54
—
6.56
6.56
6.53
3.62 $
9,404
3.70 $
3.70 $
3.60 $
2,801
2,801
2,359
The total intrinsic value of options exercised in fiscal years 2022, 2021 and 2020 was $4.9 million, $3.9 million and $0.6 million, respectively.
There were no stock options granted during the fiscal years 2022 and 2021. The weighted average estimated fair value of stock options granted in
fiscal year 2020 was $3.52 per share. As of June 30, 2022, there was $0.7 million of total unrecognized compensation cost related to unvested stock options
that will be recognized over a weighted-average period of 1.2 years.
Stock Options – Performance Stock Options
During the first quarter of fiscal 2019, the Company granted 851,700 Performance Stock Options (“PSOs”) to certain officers and executive vice
presidents that will vest if the Company’s stock price achieves a price hurdle of $10.00 during the three-year performance period from August 29, 2018
through August 31, 2021. The price hurdle will be deemed to have been achieved if, at any time over the performance period, the Company’s stock
maintains a price of $10.00 for 30 consecutive days. If the price hurdle is achieved, the PSOs will vest (ratably based upon the time elapsed between
August 31, 2018 and the date the hurdle is met) and the remainder will vest quarterly through August 31, 2021. The grant date fair value of these PSOs was
$2.62.
During the fourth quarter of fiscal 2021, the price hurdle was achieved and 550,300 PSOs remain outstanding as of June 30, 2022 and 2021.
Stock Awards
Stock awards may be granted under the 2013 Plan on terms approved by the Compensation Committee of the Board of Directors. Stock awards
generally provide for the issuance of restricted stock units (“RSUs”), including performance-based or market-based RSUs which vest over a fixed period of
time or based upon the satisfaction of certain performance criteria or market conditions. The Company recognizes compensation expense on the awards
over the vesting period based on the award’s intrinsic value as of the date of grant.
76
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes stock award activity (shares and market value in thousands):
Non-vested stock awards outstanding at June 30, 2021
Granted
Released
Cancelled
Non-vested stock awards outstanding at June 30, 2022
Stock awards expected to vest at June 30, 2022
Weighted- Average
Grant
Number of Shares
8,714 $
4,448
(6,235)
(498)
6,429 $
6,429 $
Date Fair Value
5.51
11.39
5.38
7.22
9.57
$
9.57 $
Aggregate Fair
Value
57,347
57,347
The RSUs granted under the 2013 plan vest over a period of time, generally one-to-three years, and are subject to participant's continued service to
the Company.
The aggregate fair value, as of the respective grant dates of awards granted during the fiscal years ended 2022, 2021 and 2020 was $50.7 million,
$32.9 million and $45.9 million, respectively.
For fiscal years ended 2022, 2021 and 2020, the Company withheld an aggregate of 2.2 million shares, 1.3 million shares, and 1.3 million shares,
respectively, upon the vesting of awards, based upon the closing share price on the vesting date as settlement of the employees’ minimum statutory
obligation for the applicable income and other employment taxes.
For fiscal years ended 2022, 2021 and 2020, the Company remitted cash of $24.5 million, $9.2 million and $8.0 million, respectively, to the
appropriate taxing authorities on behalf of the employees. The payment of the taxes by the Company reduced the number of shares that would have been
issued on the vesting date and was recorded as a reduction of additional paid-in capital in the consolidated balance sheets and as a reduction of “Proceeds
from issuance of common stock” in the financing activity within the consolidated statements of cash flows.
As of June 30, 2022, there was $42.9 million in unrecognized compensation costs related to non-vested stock awards which includes the
performance and market condition awards as discussed below. This cost is expected to be recognized over a weighted-average period of 1.6 years.
Stock Awards – Officers and Directors
RSUs granted during fiscal 2022 and 2021 to named executive officers and directors totaled 1.0 million awards and 1.6 million awards, respectively
which included awards with market conditions as discussed below. RSUs granted during fiscal 2020 included 0.6 million RSUs to named executive officers
and directors.
Stock Awards - Performance Awards
During fiscal 2022 and 2021, the Compensation Committee of the Board granted 0.7 million and 0.5 million RSUs, respectively with vesting based
on market conditions (“MSUs”) to certain of the Company’s named executive officers. These MSUs will vest based on the Company’s total shareholder
return (“TSR”) relative to the TSR of the Russell 2000 Index (“Index”). The MSU award represents the right to receive a target number of shares of
common stock up to 150% of the original grant. The MSUs vest based on the Company’s TSR relative to the TSR of the Index over performance periods
from August 15, 2020 through August 15, 2023, subject to the grantees’ continued service through the certification of performance.
Level
Relative TSR
Below Threshold
Threshold
Target
Maximum
TSR is less than the Index by more than 37.5 percentage points
TSR is less than the Index by 37.5 percentage points
TSR equals the Index
TSR is greater than the Index by 25 percentage points or more
Shares Vested
0%
25%
100%
150%
77
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Total shareholder return is calculated based on the average closing price for the 30-trading days prior to the beginning and end of the performance
periods. Performance is measured based on three periods, with the ability for up to one-third of target shares to vest after years 1 and 2 and the ability for
up to the maximum of the full award to vest based on the full 3-year TSR less any shares vested based on 1- and 2- year periods. Linear interpolation is
used to determine the number of shares vested for achievement between target levels.
The grant date fair value of each MSU was determined using the Monte Carlo simulation model. The weighted-average grant-date fair value of the
MSUs granted during the year ended June 30, 2022 was $12.69 per share. The assumptions used in the Monte Carlo simulation included the expected
volatility of 66%, risk-free rate of 0.44%, no expected dividend yield, expected term of 3 years and possible future stock prices over the performance period
based on the historical stock and market prices. The Company recognizes the expense related to these MSUs on a graded-vesting method over the estimated
term.
The weighted-average grant-date fair value of the MSUs granted during the year ended June 30, 2021 was $5.32 per share. The assumptions used in the
Monte-Carlo simulation included the expected volatility of 69%, risk-free rate of 0.18%, no expected dividend yield, expected term of 3 years and possible
future stock prices over the performance period based on the historical stock and market prices.
Stock Awards - Performance Awards Activity
The following table summarizes stock awards with market or performance-based conditions granted and the number of awards that have satisfied
the relevant market or performance criteria in each period (in thousands):
Performance awards granted
Performance awards earned
2014 Employee Stock Purchase Plan
Fiscal year 2022
Fiscal year 2021
727
158
475
—
Fiscal year 2020
—
56
On August 27, 2014, the Board of Directors approved the adoption of Extreme Network’s 2014 Employee Stock Purchase Plan (the “2014 ESPP”).
On November 12, 2014, the stockholders approved the 2014 ESPP with the maximum number of shares of common stock that may be issued under the
plan of 12.0 million shares. During the fiscal year ended June 30, 2022, the Board of Directors unanimously approved an amendment to the 2014 ESPP to
increase the maximum number of shares that will be available for sale by 7.5 million shares, which was ratified by the stockholders of the Company at the
annual meeting of stockholders held on November 4, 2021. The 2014 ESPP replaced the 1999 Employee Stock Purchase Plan. The 2014 ESPP allows
eligible employees to acquire shares of the Company’s common stock through periodic payroll deductions of up to 15% of total compensation, subject to
the terms of the specific offering periods outstanding. Each purchase period has a maximum duration of six months and the maximum shares issuable for
each purchase period is 1.5 million shares. The price at which the common stock may be purchased is 85% of the lesser of the fair market value of the
Company’s common stock on the first day of the applicable offering period or on the last day of the respective purchase period.
During the fiscal years ended June 30, 2022 and 2021, there were 2.0 million and 2.9 million shares issued under the 2014 ESPP. As of June 30,
2022, there have been an aggregate 17.0 million shares issued under the 2014 ESPP.
Share-Based Compensation Expense
Share-based compensation expense recognized in the financial statements by line item caption is as follows (in thousands):
Cost of product revenues
Cost of service and subscription revenues
Research and development
Sales and marketing
General and administrative
Total share-based compensation expense
June 30,
2022
Year Ended
June 30,
2021
June 30,
2020
$
$
1,186 $
1,421
9,995
15,000
15,760
43,362 $
1,209 $
1,662
9,969
12,505
13,706
39,051 $
1,240
1,620
10,324
11,914
12,265
37,842
The Company uses the straight-line method for expense attribution, other than for the PSUs and MSUs, which may use the accelerated attribution
method. The Company does not estimate forfeitures, but rather recognizes expense for those shares expected to vest and recognizes forfeitures when they
occur.
78
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair value of each stock option grant under the Company’s 2013 Plan is estimated on the date of grant that uses the Black-Scholes-Merton
option valuation model with the weighted average assumptions noted in the following table. The expected term of options granted is derived from historical
data on employee exercise and post-vesting employment termination behavior. The risk-free rate is based upon the estimated life of the option and is based
on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on a blended rate of the implied volatilities from traded options
on the Company’s stock and historical volatility on the Company’s stock.
The fair value of each RSU grant with market-based vesting criteria under the 2013 Plan is estimated on the date of grant using the Monte-Carlo
simulation model to determine the fair value and the derived service period of stock awards with market conditions, on the date of the grant.
The fair value of each share purchase option under the Company's 2014 ESPP is estimated on the date of grant using the Black-Scholes-Merton
option valuation model with the weighted average assumptions noted in the following table. The expected term of the 2014 ESPP shares is the offering
period for each purchase. The risk-free rate is based upon the estimated life and is based on the U.S. Treasury yield curve in effect at the time of grant.
Expected volatility is based on the historical volatility on the Company’s stock.
The weighted-average estimated per share fair value of shares under the 2014 ESPP in fiscal years 2022, 2021 and 2020, was $3.32, $2.47 and
$1.90, respectively.
Expected life
Risk-free interest rate
Volatility
Dividend yield
401(k) Plan
Employee Stock Purchase Plan
Year Ended
June 30,
2022
June 30,
2021
June 30,
2020
0.5 years
0.5 years
0.5 years
0.33%
49%
—%
0.09%
95%
—%
1.71%
43%
—%
The Company provides a tax-qualified employee savings and retirement plan, commonly known as a 401(k) plan (the “Plan”), which covers the
Company’s eligible employees. Pursuant to the Plan, employees may elect to reduce their current compensation up to the IRS annual contribution limit of
$20,500 for calendar year 2022. Employees aged 50 or over may elect to contribute an additional $6,500. The amount contributed to the Plan is on a pre-tax
basis.
The Company provides for discretionary matching contributions as determined by the Board of Directors for each calendar year. All matching
contributions vest immediately. In addition, the Plan provides for discretionary contributions as determined by the Board of Directors each year. The
program effective during fiscal 2022 was established to match $0.50 for every Dollar contributed by the employee up to the first 6.0% of pay with annual
cap of $4,000. The Company’s matching contributions to the Plan totaled $4.6 million, $4.2 million and $3.2 million, for fiscal years ended 2022, 2021 and
2020, respectively. No discretionary contributions were made in fiscal years ended 2022, 2021 and 2020.
13. Information about Segments of Geographic Areas
The Company operates in one segment, which develops and markets network infrastructure equipment. Revenues are attributed to a geographical
area 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’s chief operating decision maker, who is its CEO, reviews financial information presented on a consolidated
basis for purposes of allocating resources and evaluating financial performance.
See Note 3, Revenues, for the Company’s revenues by geographic regions and channel based on the customers’ billing address.
The Company’s long-lived assets are attributed to the geographic regions as follows (in thousands):
Americas
EMEA
APAC
Total long-lived assets
June 30,
2022
June 30,
2021
$
$
130,715 $
36,792
11,770
179,277 $
151,839
25,940
13,560
191,339
79
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
14. Derivatives and Hedging
Interest Rate Swaps
The Company is exposed to interest rate risk on its debt. The Company enters into interest rate swap contracts to effectively manage the impact of
fluctuations of interest rate changes on its outstanding debt which has floating interest rate. The Company does not enter into derivative contracts for
trading or speculative purposes.
At the inception date of the derivative contract, the Company performs an assessment of these contracts and has designated these contracts as cash
flow hedges. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the
Company making fixed-rate payments over the life of the agreement without exchange of the underlying notional amount. The Company also formally
assesses, both at the hedge’s inception and on an ongoing basis, by performing qualitative and quantitative assessment, whether the derivatives that are used
in hedging transactions are highly effective in offsetting changes in cash flow of hedged items. Changes in the fair value of a derivative that is qualified,
designated and highly effective as a cash flow hedge are recorded in other comprehensive income (loss). When it is determined that a derivative is not
highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively. In accordance
with ASC 815 “Derivatives and Hedging,” the Company may prospectively discontinue the hedge accounting for an existing hedge if the applicable criteria
are no longer met, the derivative instrument expires, is sold, terminated or exercised or if the Company removes the designation of the respective cash flow
hedge. In those circumstances, the net gain or loss remains in accumulated other comprehensive income (loss) and is reclassified into earnings in the same
period or periods during which the hedged forecasted transaction affects earnings, unless the forecasted transaction is no longer probable in which case the
net gain or loss is reclassified into earnings immediately.
During the fiscal year ended June 30, 2020, the Company entered into multiple interest rate swap contracts, designated as cash flow hedges, to
hedge the variability of cash flows in interest payments associated with the Company’s various tranches of floating-rate debt. As of June 30, 2022 and
June 30, 2021, the total notional amount of these interest rate swaps were $75.0 million and $200.0 million, respectively, and had maturity dates through
April 2023. As of June 30, 2022 and June 30, 2021, these contracts had unrealized gain of $1.3 million and unrealized loss of $1.1 million, respectively,
which are recorded in “Accumulated other comprehensive income (loss)” with the associated asset in “Prepaid expenses and other current assets” and with
the associated liability in “Other accrued liabilities”, respectively in the consolidated balance sheets. Cash flows associated with periodic settlements of
interest rate swaps are classified as operating activities in the consolidated statements of cash flows. Realized gains and losses are recognized as incurred
into interest expense. Amounts reported in accumulated other comprehensive income related to these cash flow hedges will be reclassified to interest
income (expense) over the life of the swap contracts. The Company estimates that $1.3 million will be reclassified to interest income over the next twelve
months. The classification and fair value of these cash flow hedges are discussed in Note 6, Fair Value Measurements.
Foreign Exchange Forward Contracts
The Company uses derivative financial instruments to manage exposures to foreign currency that may or may not be designated as hedging
instruments. The Company’s objective for holding derivatives is to use the most effective methods to minimize the impact of these exposures. The
Company does not enter into derivatives for speculative or trading purposes. The Company enters into foreign exchange forward contracts to mitigate the
effect of gains and losses generated by foreign currency transactions related to certain operating expenses and remeasurement of certain assets and
liabilities denominated in foreign currencies.
For foreign exchange forward contracts not designated as hedging instruments, the fair value of the derivatives in a gain position are recorded in
“Prepaid expenses and other current assets” and derivatives in a loss position are recorded in “Other accrued liabilities” in the accompanying consolidated
balance sheets. Changes in the fair value of derivatives are recorded in “Other income (expense), net” in the accompanying consolidated statements of
operations. As of June 30, 2022 and 2021 foreign exchange forward currency contracts not designated as hedging instruments had the total notional amount
of $9.6 million and, $23.0 million, respectively. These contracts had maturities of less than 40 days. For the years ended June 30, 2022 the net loss recorded
in the consolidated statement of operations from these contracts was $1.4 million. For the years ended June 30, 2021 and 2020 the net gains recorded in the
consolidated statement of operations from these contracts were $0.5 million and $0.1 million, respectively. Changes in the fair value of these foreign
exchange forward contracts are offset largely by remeasurement of the underlying assets and liabilities.
80
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For foreign exchange forward contracts designated as hedging instruments, gains and losses arising from these contracts are recorded as a
component of accumulated other comprehensive income (loss) on the consolidated balance sheets. The hedging gains and losses in accumulated other
comprehensive income are subsequently reclassified to expenses, as applicable, in the consolidated statements of operations in the same period in which the
underlying transactions affect the Company’s earnings. As of June 30, 2021, foreign exchange forward contracts designated as hedging instruments had the
notional amount of $21.8 million. These contracts have maturities of less than twelve months. As of June 30, 2021 these contracts had unrealized losses of
$0.2 million, which are recorded in accumulated other comprehensive income (loss) with the associated liability in other accrued liabilities in the
accompanying consolidated balance sheets. There were no outstanding foreign exchange forward contracts that were designated as hedging instruments at
June 30, 2022 and June 30, 2020.
Foreign currency transaction gains and losses from operations had a gain of $1.7 million in fiscal year ended June 30, 2022, a loss of $2.2 million in
fiscal year ended June 30, 2021 and a gain of $0.6 million in fiscal year ended June 30, 2020.
15. Restructuring, Impairments, and Related Charges
The Company does not have any restructuring liability as of June 30, 2022. As of June 30, 2021, restructuring liabilities were $0.3 million, which
were recorded in “Other accrued liabilities” in the accompanying consolidated balance sheets. The restructuring liabilities consist of obligations pertaining
to the estimated future obligations for non-cancelable lease payments and severance and benefits obligations through June 30, 2019 and only severance,
benefits and other related obligations subsequent to the adoption of ASU 2016-02 Leases (Topic 842) on July 1, 2019.
During fiscal years ended 2022, 2021 and 2020, the Company recorded restructuring, impairments and related charges of $1.7 million, $2.6 million
and $22.0 million, respectively. The charges are reflected in “Restructuring and related charges” in the consolidated statements of operations.
2022 Restructuring
During fiscal 2022, the Company recorded $1.7 million of restructuring charges which primarily comprised of facility related charges. The facility
restructuring charges included some impairment charges and additional facilities expenses related to previously impaired facilities. In addition, during
fiscal 2022, the Company completed the reduction-in-force action initiated in the third quarter of fiscal 2020 (the “2020 Plan”). The Company had incurred
$9.6 million of charges under the 2020 Plan through June 30, 2022.
2021 Restructuring
During fiscal 2021, the Company continued its cost reduction initiative begun in the third quarter of fiscal 2020 and recorded related severance,
benefits, and equipment relocation charges of $1.5 million, related to the 2020 Plan. In addition, the Company incurred facility-related charges of $1.1
million, which represented additional expenses related to previously impaired facilities. Severance and benefits charges consisted primarily of additional
employee severance and benefit expenses incurred under the 2020 Plan. With the reduction and realignment of the headcount under the 2020 Plan, the
Company relocated certain of its lab equipment to third-party consulting companies. The Company had incurred $9.6 million of charges under the 2020
Plan through June 30, 2021.
81
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2020 Restructuring and Impairment
During fiscal 2020, the Company moved to reduce its operating expenses by exiting a floor in its San Jose, California facility and consolidating its
workforce. Also, the Company exited additional space in its Salem, New Hampshire facility, which includes general office and lab space. The Company
continued its initiative to realign its operations resulting from the acquisition of Aerohive and consolidating its workforce and exiting the facility it acquired
from Aerohive in Milpitas, California which includes general office and lab space. The Company had the intent and ability to sub-lease these facilities
which it had ceased using and as such, had considered estimated future sub-lease income based on its existing lease agreements, as well as the local real
estate market conditions, in measuring the amount of asset impairment. The Company also factored into its estimate the time for a sub-lease tenant to enter
into an agreement and complete any improvements.
With the global disruptions and slow-down in the demand of its products caused by the global pandemic outbreak, COVID-19, and the uncertainty
around the timing of the recovery of the market, the Company initiated a reduction-in-force plan (the 2020 Plan) to reduce its operating costs and enhance
financial flexibility. The plan affected approximately 320 employees primarily from the research and development and sales organizations who were
located mainly in the U.S. and India. The Company recorded restructuring charges of $8.1 million during the fiscal year ended June 30, 2020 related to the
2020 Plan. The Company incurred additional charges related to this 2020 Plan through the first quarter of fiscal 2021, which primarily included employee
severance and benefit expenses. The Company recorded additional severance and benefits charges of $5.4 million for the fiscal year ended June 30, 2020
related to the previous year’s restructuring plans. In total the Company incurred $13.5 million in restructuring charges for the year ended June 30, 2020
which were all severance and benefit related. In addition, the Company recorded facility impairment related charges of $8.5 million for the fiscal year
ended June 30, 2020 which included $6.7 million for the impairment of ROU assets as referenced in the preceding paragraph, $0.9 million for impairment
of long-lived assets, and $0.9 million of other charges related to previously impaired facilities.
Restructuring liabilities consist of (in thousands):
Balance as of June 30, 2019
Period charges
Period reversals
Reclassification to reduce operating lease assets
Period payments
Balance at June 30, 2020
Period charges
Period reversals
Period payments
Balance at June 30, 2021
Period charges
Period reversals
Period payments
Balance at June 30, 2022
16. Income Taxes
Income (loss) before income taxes is as follows (in thousands):
Domestic
Foreign
Income (loss) before income taxes
82
Excess Facilities
Severance and Other
Total
$
$
$
$
1,764 $
—
—
(1,764)
—
— $
—
—
—
— $
—
—
—
— $
3,559 $
14,875
(1,369)
—
(14,846)
2,219 $
1,597
(128)
(3,417)
271 $
12
(41)
(242)
— $
5,323
14,875
(1,369)
(1,764)
(14,846)
2,219
1,597
(128)
(3,417)
271
12
(41)
(242)
—
June 30,
2022
Year Ended
June 30,
2021
$
$
(1,204) $
53,398
52,194
$
(4,194) $
14,379
10,185
$
June 30,
2020
(143,651)
23,159
(120,492)
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The provision for income taxes for the years ended June 30, 2022, 2021 and 2020 consisted of the following (in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Provision for income taxes
June 30,
2022
Year Ended
June 30,
2021
June 30,
2020
$
$
$
—
1,069
6,460
7,529
396
227
(229)
394
7,923
$
—
1,160
5,334
6,494
324
1,169
262
1,755
8,249
$
$
(22)
256
4,597
4,831
333
44
1,145
1,522
6,353
The difference between the provision for income taxes and the amount computed by applying the federal statutory income tax rate (21 percent) to
income (loss) before income taxes is explained below (in thousands):
June 30,
2022
Year Ended
June 30,
2021
Tax at federal statutory rate
State income tax, net of federal benefit
Global Intangible Low-Taxed Income (GILTI)
US valuation allowance change – deferred tax movement
Research and development credits
Tax impact of foreign earnings
Foreign withholding taxes
Stock based compensation
Goodwill amortization
Nondeductible officer compensation
Nondeductible meals and entertainment
AMT credit monetization
Gain on transfer of intellectual property
Other
Provision for income taxes
$
$
83
$
10,960
844
15,470
(13,795)
(3,122)
(3,762)
1,032
(5,011)
525
4,589
193
—
—
—
7,923
$
$
2,139
917
—
(9,387)
(2,423)
11,979
828
1,162
1,467
1,496
71
—
—
—
8,249
$
June 30,
2020
(25,303)
202
4,094
2,414
(4,947)
2,831
762
4,349
331
862
364
(22)
19,819
597
6,353
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Significant components of the Company’s deferred tax assets are as follows (in thousands):
Deferred tax assets:
Net operating loss carry-forwards
Tax credit carry-forwards
Depreciation
Intangible amortization
Deferred revenue
Inventory write-downs
Other allowances and accruals
Stock based compensation
Deferred intercompany gain
Ireland goodwill amortization
Other
Total deferred tax assets
Valuation allowance
Total net deferred tax assets
Deferred tax liabilities:
Goodwill amortization
Prepaid commissions
Deferred tax liability on foreign withholdings
Total deferred tax liabilities
Net deferred tax assets
Recorded as:
Net non-current deferred tax assets
Net non-current deferred tax liabilities
Net deferred tax assets
$
2022
June 30,
2021
$
51,494
70,683
2,093
29,538
15,928
13,121
26,508
2,746
3,693
5,583
244
221,631
(209,727)
11,904
$
69,126
68,003
3,113
35,340
11,625
14,501
28,899
2,792
3,693
6,303
1,175
244,570
(230,588)
13,982
(10,415)
(3,931)
(676)
(15,022)
(3,118) $
(8,575)
(3,166)
(578)
(12,319)
$
1,663
4,599
(7,717)
(3,118) $
5,491
(3,828)
$
1,663
$
$
2020
74,548
67,364
2,755
32,642
7,610
13,014
32,318
3,169
3,693
7,132
888
245,133
(232,862)
12,271
(6,691)
(1,958)
(551)
(9,200)
3,071
5,405
(2,334)
3,071
The Company’s global valuation allowance decreased by $20.9 million in the fiscal year ended June 30, 2022 and decreased by $2.2 million in the
fiscal year ended June 30, 2021. The Company has provided a full valuation allowance against all of its U.S. federal and state deferred tax assets, as well as
valuation allowances against certain non-U.S. deferred tax assets in Ireland and Brazil. The valuation allowance is determined by assessing both negative
and positive available evidence to determine whether it is more likely than not that the deferred tax assets will be recoverable. The Company's inconsistent
earnings in recent periods, including a cumulative loss over the last three years and the cyclical nature of the Company's business provides sufficient
negative evidence that require a full valuation allowance against its U.S. federal and state net deferred tax assets. The valuation allowance is evaluated
periodically and can be reversed partially or in full if business results and the economic environment have sufficiently improved to support realization of
the Company's deferred tax assets.
As of June 30, 2022, the Company had net operating loss carry-forwards (“NOLs”) for U.S. federal and state tax purposes of $184.5 million and
$162.8 million, respectively. As of June 30, 2022, the Company also had foreign net operating loss carry-forwards in Ireland, Australia and Brazil of $8.9
million, $6.9 million and $15.2 million, respectively. As of June 30, 2022, the Company also had federal and state tax credit carry-forwards of $44.0
million and $33.7 million, respectively. These credit carry-forwards consist of research and development tax credits as well as foreign tax credits. Of the
$184.5 million U.S. federal net operating loss carry-forwards, $87.4 million will begin to expire in the fiscal year ending June 30, 2035 and $97.1 million
have an indefinite carryforward life. The state net operating losses of $162.8 million will begin to partially expire in the fiscal year ending June 30, 2024.
The foreign net operating losses can generally be carried forward indefinitely. Federal research and development tax credits of $35.3 million will expire
beginning in fiscal 2023, if not utilized and foreign tax credits of $8.7 million will expire beginning in fiscal 2023. North Carolina state research and
development tax credits of $0.9 million will expire beginning in the fiscal year ending June 30, 2024, if not utilized. California state research and
development tax credits of $32.8 million do not expire and can be carried forward indefinitely.
84
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In May 2022, the Company performed an analysis under Section 382 of the Internal Revenue Code (“IRC”) 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 these U.S.
tax attributes. It was determined that no ownership change had occurred during the fiscal year ended June 30, 2020, however, it is possible a subsequent
ownership change could limit the utilization of the Company's tax attributes. The Company also performed in June 2020 a separate IRC section 382
analysis with respect to the NOLs and tax credits acquired from Aerohive and have determined that while the Company will be subject to an annual
limitation, the Company should not be limited on the full utilization of the losses and credits during the statutory allowable carryforward period for the
NOLs and credits.
As of June 30, 2022, cumulative undistributed, indefinitely reinvested earnings of non-U.S. subsidiaries totaled $33.1 million. It has been the
Company’s historical policy to invest the earnings of certain foreign subsidiaries indefinitely outside the U.S. The Company has reviewed its prior position
on the reinvestment of earnings of certain foreign subsidiaries and has recorded a deferred tax liability of $0.7 million related to withholding taxes that may
be incurred upon repatriation of earnings from jurisdictions where no indefinite reinvestment assertion is made. The Company continues to maintain an
indefinite reinvestment assertion for earnings in certain of its foreign jurisdictions. The unrecorded deferred tax liability for potential tax associated with
repatriation of these earnings as well as the deemed repatriation related to U.S. tax reform enacted in 2017 is $6.2 million.
On August 16, 2022, President Biden signed the Inflation Reduction Act which includes a new minimum tax on certain large corporations and an
excise tax on stock buybacks. We do not anticipate this legislation will have a material impact for the Company.
The Company conducts business globally and as a result, most of its subsidiaries file income tax returns in various domestic and foreign
jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. Its major tax jurisdictions
are the U.S., Ireland, India, California, New Hampshire, Texas and North Carolina. In general, the Company's U.S. federal income tax returns are subject to
examination by tax authorities for fiscal years ended June 2003 forward due to net operating losses and the Company's state income tax returns are subject
to examination for fiscal years ended June 2002 forward due to net operating losses. Statutes related to material foreign jurisdictions are generally open for
fiscal years ended June 2018 forward for Ireland and for tax year ended March 2018 forward for India.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law in the United States. The
CARES Act, among other things, includes modifications to net operating loss carryforward provisions and net interest expense deductions, and allows
deferment of employer social security tax payments. The Company evaluated the provisions of the CARES Act and how certain elections may impact its
financial position and results of operations, and have determined the enactment of the CARES Act did not have a material impact to the income tax
provision for the fiscal year ended June 30, 2020, or to the net deferred tax assets as of June 30, 2020.
The U.S. tax rules require U.S. tax on foreign earnings, known as Global Intangible Low Taxed Income (“GILTI”). Under U.S. GAAP, taxpayers are
allowed to make an accounting policy election of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-
period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes. The Company
has elected to account for GILTI tax as a component of tax expense in the period in which it is incurred under the period cost method.
On August 9, 2019, the Company completed its acquisition of Aerohive. This acquisition was treated as a non-taxable stock acquisition and
therefore Extreme Networks has carryover tax basis in the assets and liabilities acquired. During the fourth quarter of fiscal 2020 following the acquisition
of Aerohive, the Company realigned the Aerohive related non-American intellectual property rights to correspond with the Company’s global operating
model. This transaction resulted in recognition of a $75.0 million U.S. tax gain which was fully consumed by existing NOLs and the intangibles transferred
are being amortized over 10 years for Irish statutory purposes.
85
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of June 30, 2022, the Company had $18.4 million of unrecognized tax benefits. If fully recognized in the future, $0.3 million would impact the
effective tax rate, and $18.1 million would result in adjustments to deferred tax assets and corresponding adjustments to the valuation allowance. The
Company does not reasonably expect the amount of unrealized tax benefits to materially decrease during the next twelve months. The decrease in the
current year related to prior year tax positions relates to the reclassification of an unrecognized tax benefit to a valuation allowance with no net impact to
the financial statements.
A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows (in thousands):
Balance at June 30, 2019
Increase related to prior year tax positions
Increase related to current year tax positions
Decrease related to prior year tax positions
Lapse of statute of limitations
Balance at June 30, 2020
Decrease related to prior year tax positions
Increase related to prior year tax positions
Increase related to current year tax positions
Lapse of statute of limitations
Balance at June 30, 2021
Decrease related to prior year tax positions
Increase related to prior year tax positions
Increase related to current year tax positions
Lapse of statute of limitations
Balance at June 30, 2022
$
$
$
17,168
8,906
44
(1,800)
(421)
23,897
(4,296)
28
72
(637)
19,064
(34)
-
11
(674)
18,367
Estimated interest and penalties related to the underpayment of income taxes, if any are classified as a component of tax expense in the consolidated
statements of operations and totaled less than $0.1 million for each of the years ended June 30, 2022, 2021 and 2020.
17. Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares of common stock
outstanding during the period. Diluted income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares of
common stock used in the basic net income (loss) per share calculation plus the dilutive effect of shares subject to repurchase, options and unvested
restricted stock.
The following table presents the calculation of basic and diluted net income (loss) per share (in thousands, except per share data):
Net income (loss)
Weighted-average shares used in per share calculation - basic
Options to purchase common stock
Restricted stock units
Employee Stock Purchase Plan shares
Weighted-average shares used in per share calculation - diluted
Net income (loss) per share - basic and diluted
Net income (loss) per share - basic
Net income (loss) per share - diluted
86
June 30,
2022
Year Ended
June 30,
2021
$
44,271 $
1,936 $
129,437
567
3,490
—
133,494
124,019
542
3,047
61
127,669
June 30,
2020
(126,845)
119,814
—
—
—
119,814
$
$
0.34 $
0.33 $
0.02 $
0.02 $
(1.06)
(1.06)
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 of
outstanding stock options, the assumed vesting of outstanding restricted stock units, and the assumed issuance of common stock under the ESPP. Weighted
stock options outstanding with an exercise price higher than the Company's average stock price for the periods presented are excluded from the calculation
of diluted 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 periods
presented.
The following securities were excluded from the computation of net income (loss) per diluted share of common stock for the periods presented as
their effect would have been anti-dilutive (in thousands):
Options to purchase common stock
Restricted stock units
Employee Stock Purchase Plan shares
Total shares excluded
June 30,
2022
Year Ended
June 30,
2021
—
99
400
499
637
80
334
1,051
June 30,
2020
3,036
8,103
553
11,692
87
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our
reports filed under the Securities Exchange Act of 1934 as amended, such as this Report, is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and to reasonably assure that such information is accumulated and communicated to our management,
including the Chief 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 CEO and CFO, we evaluated the 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 this evaluation, our CEO and CFO
concluded that our disclosure controls and procedures were effective as of June 30, 2022.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. There are inherent limitations in
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 in conditions, the
effectiveness of internal control may vary over time.
We assessed the effectiveness of our internal control over financial reporting as of June 30, 2022. In making this assessment, we used the criteria set
forth 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, 2022, our internal control over financial reporting is effective.
During the year ended June 30, 2022, we completed our acquisitions of Ipanema SAS (“Ipanema”). In conducting our evaluation of the effectiveness
of our internal controls over financial reporting as of June 30, 2022, we have elected to exclude the Ipanema business from our evaluation for fiscal 2022 as
permitted under current Securities and Exchange Commission rules and regulations. As of and for the year ended June 30, 2022, the assets and revenues of
the acquired businesses not included in our evaluation represented less than 1% of consolidated assets and 1% of consolidated revenues. We are currently in
the process of integrating and assessing the internal controls over financial reporting of the acquired businesses with the rest of our Company. The
integration may lead to changes in future periods, but we do not expect these changes to materially affect our internal controls over financial reporting. We
expect to complete this integration in fiscal 2023.
Our independent registered public accounting firm, Grant Thornton, LLP, has audited the consolidated financial statements as of and for the year
ended June 30, 2022 included in this Annual Report on Form 10-K and has issued its report on our internal control over financial reporting as of June 30,
2022.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a – 15(f) and 15d – 15(f) under the Securities
Exchange Act of 1934, as amended) during the fourth quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
88
EXTREME NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Inherent Limitations on Effectiveness of Controls
Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent
or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the
control system’s objectives will be met. Our controls and procedures are designed to provide reasonable assurance that our control system’s objective will 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 a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation 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, if any, within Extreme have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual 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 based in part on certain
assumptions about the likelihood of future events. Projections of any evaluation of the effectiveness of controls in future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Notwithstanding
these limitations, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Our CEO and CFO have
concluded that our disclosure controls and procedures are, in fact, effective at the “reasonable assurance” level.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
89
PART III
Certain information required by Part III is incorporated by reference from our definitive Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the solicitation of proxies for our 2022 Annual Meeting of Stockholders (the “Proxy Statement”) not later than
120 days after 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 Governance
The information required by this section for our directors is incorporated by reference from the information in the section entitled “Proposal One:
Election of Directors” in the Proxy Statement. The information required by this section for our executive officers is incorporated by reference from the
information 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
Exchange Act. This disclosure is contained in the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement and
is incorporated 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 of
Ethics and Corporate Governance Materials” in the Proxy Statement.
Item 11. Executive Compensation
The information required by this section is incorporated by reference from the information in the sections entitled “Director 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 Matters
The information required by this section is incorporated by reference from the information in the section entitled “Security Ownership of Certain
Beneficial 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 reference
from the information in the section entitled “Equity Compensation Plan Information” in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this section is incorporated by reference from the information in the section titled “Certain Relationships and Related
Transactions” in the Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by this section is incorporated by reference from the information in the section titled “Principal Accounting Fees and
Services” in the Proxy Statement.
90
Item 15. Exhibits and Financial Statement Schedules
•
The following documents are filed as a part of this Form 10-K:
(1) Financial Statements:
PART IV
Reference is made to the Index to Consolidated Financial Statements of Extreme Networks, Inc. under Item 8 in Part II of this Annual Report on
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 notes
thereto.
•
Exhibits:
Incorporated herein by reference is a list of the Exhibits contained in the Exhibit Index immediately preceding the signature page of this Annual
Report on Form 10-K.
91
The exhibits listed below are required by Item 601 of Regulation S-K. Each management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K has been identified.
Incorporated by Reference
Provided
Herewith
EXHIBIT INDEX
Exhibit
Number
2.1†
2.2
2.3
2.4
2.5†
2.6
2.7
2.8
2.9†
3.1
3.2
3.3
4.1
4.2
10.1
10.2
10.3
Description of Document
Asset Purchase Agreement, dated as of September 13, 2016, by and
between Extreme Networks, Inc. and Zebra Technologies
Corporation.
Amendment No. 1 dated October 28, 2016 to the Asset Purchase
Agreement, dated as of September 13, 2016, by and between
Extreme Networks, Inc. and Zebra Technologies Corporation.
Asset Purchase Agreement, dated March 7, 2017, by and between
Extreme Networks, Inc. and Avaya, Inc.
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.
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, Broadcom Corporation.
Asset Purchase Agreement, dated as of October 3, 2017 between
Brocade Communications Systems. Inc. and Extreme Networks,
Inc.
Amendment No. 1 dated May 6, 2018 to the Asset Purchase
Agreement, dated as of October 3, 2017 between Brocade
Communications Systems. Inc. and Extreme Networks, Inc.
Agreement and Plan of Merger, dated June 26, 2019 by and among
Extreme Networks, Inc., Clover Merger Sub, Inc. and Aerohive
Networks, Inc.
Put Option Agreement, dated August 6, 2021 relating to the
acquisition of Ipanematech SAS.
Restated Certificate of Incorporation of Extreme Networks, Inc.
Amended and Restated Bylaws of Extreme Networks, Inc.
Certificate of Designation, Preferences and Rights of the Terms of
the Series A Preferred Stock.
Amended and Restated Tax Benefit Preservation Plan, dated as of
May 17, 2021 between Extreme Networks, Inc. and Computershare
Inc., which includes the Form of Right Certificate as Exhibit A.
Description of the Registrant's Securities Registered Pursuant to
Section 12 of the Securities Exchange Act of 1934.
Lease Agreement by and between RDU Center III LLC and
Extreme Networks, Inc. dated October 15, 2012.
First Amendment to Lease Agreement by and between RDU Center
III LLC and Extreme Networks, Inc. dated December 31, 2012.
Office Space Lease Agreement by and between W3 Ridge Rio
Robles Property LLC and Extreme Networks, Inc., dated December
31, 2012.
92
Form
8-K
10-Q
8-K
10-Q
8-K
8-K
10-K
8-K
10-K
8-K
10-Q
10-K
8-K
10-K
8-K
8-K
8-K
Filing
Date
9/15/2016
2/2/2017
3/7/2017
5/4/2017
3/30/2017
10/3/2017
8/29/2018
6/26/2019
8/27/2021
12/17/2010
5/11/2020
9/26/2001
5/18/2021
8/27/2021
10/19/2012
1/7/2013
1/7/2013
Number
2.1
2.1
2.1
2.2
2.1
2.1
2.8
2.1
2.9
3.1
3.4
3.7
4.1
4.2
10.1
10.1
10.2
10.4*
10.5*
10.6*
10.7*
10.8
10.9
10.10
10.11
10.12*
10.13
10.14*
10.15*
10.16*
10.17
10.18*
10.19*
10.20
10.21
10.22
10.23*
Amended and Restated 2013 Equity Incentive Plan, effective
November 2019.
Extreme Networks, Inc. 2014 Employee Stock Purchase Plan as
amended and restated December 2018.
Form of option award agreement under Extreme Networks, Inc.
2013 Equity Incentive Plan.
Amended and Restated Offer Letter, executed August 31, 2016,
between Extreme Networks, Inc. and Edward B. Meyercord.
Debt Commitment Letter, dated as of September 13, 2016, by and
between Extreme Networks, Inc. and Silicon Valley Bank.
Sublease Agreement, dated February 3, 2017, by and between the
Company as sub-landlord and Yangtze Memory Technologies, Inc.
as sub-tenant.
Lease for property at 6480 Via Del Oro, San Jose, California, dated
November 6, 2017 between SI 64 LLC, a California limited liability
company and Extreme Networks, Inc.
Lease for property at 6377 San Ignacio Avenue, San Jose, dated
November 6, 2017 between SI 33, LLC a California limited liability
company and Extreme Networks, Inc.
Form of 2017 restricted stock unit award agreement under Extreme
Networks, Inc. 2013 Equity Incentive Plan.
Consent Agreement, dated as of March 29, 2017, by and among LSI
Corporation, Extreme Networks, Inc. and solely for the purposes set
forth therein, Broadcom Corporation.
Form of Notice of Grant and Grant Agreement for Performance
Stock Option.
Form of Notice of Grant and Grant Agreement for Performance
Vesting Restricted Stock Units.
Offer Letter, executed November 15, 2018, between Extreme
Networks, Inc. and Remi Thomas.
Form of Indemnification Agreement for directors and officers.
Extreme Networks, Inc. Executive Change in Control Severance
Plan Amended and Restated April 30, 2019.
Agreement to Participate in the Extreme Networks, Inc. Executive
Change in Control Severance Plan.
Commitment Letter, June 26, 2019, among Bank of Montreal, BMO
Capital Markets Corp. and Extreme Networks, Inc.
Tender and Support Agreement by and among Extreme Networks,
Inc., Clover Merger Sub, Inc. and certain stockholders of Aerohive
Networks, Inc.
Credit Agreement, dated as of August 9, 2019, by and among Bank
of Montreal and BMO Capital Markets Corp. (and the other lenders
party thereto) and Extreme Networks, Inc. (and certain of its
affiliates).
Amended and Restated 2013 Equity Incentive Plan, effective
November 2021.
93
S-8
S-8
10-Q
10-K
8-K
10-Q
10-Q
10-Q
10-K
8-K
10-Q
10-Q
8-K
10-Q
10-Q
10-Q
8-K
8-K
12/1/2019
2/8/2019
11/2/2016
9/6/2016
9/15/2016
5/4/2017
2/08/2018
2/08/2018
9/13/2017
10/3/2017
11/02/2018
11/02/2018
11/20/2018
05/10/2019
05/10/2019
05/10/2019
06/26/2019
06/26/2019
99.1
99.1
10.1
10.27
10.1
10.2
10.5
10.6
10.42
10.1
10.3
10.4
10.1
10.1
10.2
10.3
10.1
99.1
Schedule
TO
08/09/2019
(b)(2)
S-8
11/24/2021
99.1
10.24*
10.25
10.26
10.27*
10.28*
10.29
10.30
10.31*
10.32*
10.33*
10.34*
10.35
10.36*
10.37*
16.1
16.2
21.1
23.1
23.2
Amended and Restated 2014 Employee Stock Purchase Plan,
effective November 2021.
First Amendment and Limited Waiver dated as of April 8, 2020, by
and among Extreme Networks, Inc., the Lenders party thereto, and
the Bank of Montreal, as administrative and collateral agent for the
Lenders.
Second Amendment to the Amended and Restated Credit
Agreement dated as of May 8, 2020, by and among Extreme
Networks, Inc., the Lenders party thereto, and the Bank of
Montreal, as administrative and collateral agent for the Lenders.
Offer Letter, executed May 27, 2020, between Extreme Networks,
Inc. and Joe Vitalone.
Form of Notice of Grant and Grant Agreement for Performance
Vesting Restricted Stock Units
Third Amendment to the Amended and Restated Credit Agreement
dated as of November 3, 2020, by and among Extreme Networks,
Inc., the Lenders party thereto, and the Bank of Montreal, as
administrative and collateral agent for the Lenders.
Fourth Amendment to the Amended and Restated Credit Agreement
dated as of December 8, 2020, by and among Extreme Networks,
Inc., the Lenders party thereto, and the Bank of Montreal, as
administrative and collateral agent for the Lenders.
Amendment to the Extreme Networks, Inc. Executive Change in
Control Severance Plan.
Executive Vice President Severance Practice only applies to Direct
Reports to CEO.
Form of Notice of Grant and Grant Agreement for Restricted Stock
Units under Extreme Networks, Inc. 2013 Equity Incentive Plan-
U.S.
Form of Notice of Grant and Grant Agreement for Restricted Stock
Units under Extreme Networks, Inc. 2013 Equity Incentive Plan-
International.
Third Amendment to Lease Agreement by and between RDU
Center III LLC and Extreme Networks, Inc. dated June 01, 2022.
Form of Notice of Grant of Performance Vesting Restricted Stock
Units under Extreme Networks, Inc. 2013 Equity Incentive Plan –
U.S.
Form of Notice of Grant of Performance Vesting Restricted Stock
Units under Extreme Networks, Inc. 2013 Equity Incentive Plan –
International.
Letter from KPMG LLP to SEC, dated September 11, 2020.
Letter from Ernst & Young LLP to SEC, dated September 21, 2021.
Subsidiaries of Extreme Networks, Inc.
Consent of Independent Registered Public Accounting Firm.
Consent of Independent Registered Public Accounting Firm.
94
S-8
10-Q
11/24/2021
5/11/2020
99.2
10.51
10-Q
5/11/2020
10.52
10-K
10-K
10-Q
8/31/2021
8/31/2021
2/9/2021
10.43
10.44
10.45
10-Q
2/9/2021
10.46
10-Q
10-Q
4/29/2021
4/29/2021
10.47
10.48
8-K
8-K
9/11/2020
9/22/2021
16.1
16.1
X
X
X
X
X
X
X
X
23.3
24.1
31.1
31.2
32.1**
32.2**
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (see the signature page of this Form 10 K).
Section 302 Certification of Chief Executive Officer.
Section 302 Certification of Chief Financial Officer.
Section 906 Certification of Chief Executive Officer.
Section 906 Certification of Chief Financial Officer.
Inline XBRL Instance Document – the instance document does not
appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document.
Inline XBRL Taxonomy Extension Schema Document.
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Inline XBRL Taxonomy Extension Definition Linkbase Document.
InlineXBRL Taxonomy Extension Label Linkbase Document.
Inline XBRL Taxonomy Extension Presentation Linkbase
Document.
Cover page from the Company’s Annual Report on Form 10-K for
the year ended June 30, 2022 formatted in Inline XBRL (included in
Exhibit 101).
X
X
X
X
X
X
X
X
X
X
X
X
X
*
Indicates management or board of directors contract or compensatory plan or arrangement.
** Exhibits 32.1 and 32.2 are being furnished and shall not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the
Securities Act of 1933, as amended; are deemed not to be “filed” for purposes of section 18 of the Securities Exchange Act of 1934, as amended; and
(the “Exchange Act”), or otherwise are not subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in
any registration statement or other document filed under these sections, the Securities Act of 1933, as amended, or the Exchange Act, except as
otherwise specifically stated in such filing.
†
This filing excludes schedules and exhibits pursuant to Item 601(b)(2) of Regulation S-K, which the registrant agrees to furnish supplementally to the
SEC upon request by the SEC.
Item 16. Form 10-K Summary
None.
95
Pursuant 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
on its behalf by the undersigned, thereunto duly authorized, on August 26, 2022.
SIGNATURES
EXTREME NETWORKS, INC.
(Registrant)
By:
/s/ REMI THOMAS
Remi Thomas
Executive Vice President, Chief Financial Officer,
(Principal Accounting Officer)
August 26, 2022
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Remi Thomas, his true
and lawful 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 the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that 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 the
Registrant and in the capacities and on the date indicated:
/s/ JOHN C. SHOEMAKER
John C. Shoemaker
Chairman of the Board
August 26, 2022
/s/ REMI THOMAS
Remi Thomas
Executive Vice President, Chief Financial Officer
(Principal Accounting Officer)
August 26, 2022
/s/ EDWARD B. MEYERCORD III
Edward B. Meyercord III
President and Chief Executive Officer, Director
(Principal Executive Officer)
August 26, 2022
/s/ CHARLES CARINALLI
Charles Carinalli
Director
August 26, 2022
/s/ KATHLEEN M. HOLMGREN
/s/ EDWARD H. KENNEDY
Kathleen M. Holmgren
Director
August 26, 2022
/s/ RAJ KHANNA
Raj Khanna
Director
August 26, 2022
Edward H. Kennedy
Director
August 26, 2022
/s/ INGRID BURTON
Ingrid Burton
Director
August 26, 2022
96
EXTREME NETWORKS, INC.
NOTICE OF GRANT OF RESTRICTED STOCK UNITS
(For U.S. Participants)
Exhibit 10.33
Extreme Networks, Inc. (the “Company”) has granted to the Participant an award (the “Award”) of certain units pursuant to the Extreme Networks, Inc.
2013 Equity 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:
Date of Grant:
%%FIRST_NAME%-%
%%LAST_NAME%-%
%%OPTION_DATE%-%
Employee ID: %%EMPLOYEE_IDENTIFIER%-
%
Total Number of Units: %%TOTAL_SHARES_GRANTED%-%, subject to adjustment as provided by the Restricted
Stock Units Agreement.
Settlement Date:
Except as provided by the Restricted Stock Units Agreement, the date on which a Unit becomes
a Vested Unit.
Vesting Start Date:
%%VEST_BASE_DATE%-%
Vested Units:
Except as provided in the Restricted Stock Units Agreement and provided that the Participant’s
Service has not terminated prior to the applicable date, as follows:
Vesting DateNumber of Units Vesting
%%VEST_DATE_PERIOD1%-%%%SHARES_PERIOD1%-
%%%VEST_DATE_PERIOD2%-%%%SHARES_PERIOD2%-
%%%VEST_DATE_PERIOD3%-%%%SHARES_PERIOD3%-
%%%VEST_DATE_PERIOD4%-%%%SHARES_PERIOD4%-
%%%VEST_DATE_PERIOD5%-%%%SHARES_PERIOD5%-
%%%VEST_DATE_PERIOD6%-%%%SHARES_PERIOD6%-
%%%VEST_DATE_PERIOD7%-%%%SHARES_PERIOD7%-
%%%VEST_DATE_PERIOD8%-%%%SHARES_PERIOD8%-
%%%VEST_DATE_PERIOD9%-%%%SHARES_PERIOD9%-%
Superseding
Agreement:
Extreme Networks, Inc Restricted Stock Units Agreement
The terms and conditions of the foregoing Superseding
Agreement to which the Participant is a party shall,
notwithstanding any provision of this notice to the contrary,
supersede any inconsistent term or condition set forth in the
intended by such Superseding
to
notice
Agreement.
the extent
By the Company’s authorized signature below and the Participant’s by electronic acceptance in a form authorized by the Company, the Company and the
Participant 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
which are made a part of this document, and by the Superseding Agreement, if any. The Participant acknowledges that copies of the Plan, the Restricted
Stock Units Agreement 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 attachment to the Participant’s copy of this Grant Notice. The Participant represents that the Participant has read and is familiar with the provisions of
the Restricted Stock Units Agreement and the Plan, and hereby accepts the Award subject to all of their terms and conditions.
EXTREME NETWORKS, INC.
2121 RDU Center Drive, Suite 300
Morrisville, NC 27560
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
“Grant Notice”) to which this Restricted Stock Units Agreement (the “Agreement”) is attached an Award consisting of
Restricted Stock Units (each a “Unit”) subject to the terms and conditions set forth in the Grant Notice and this Agreement. The
Award has been granted pursuant to and shall in all respects be subject to the terms and conditions of the Extreme Networks, Inc.
2013 Equity Incentive Plan (the “Plan”), as amended to the Date of Grant, the provisions of which are incorporated herein by
reference. By signing the Grant Notice, the Participant: (a) acknowledges receipt of and represents that the Participant has read
and is familiar with the Grant Notice, this Agreement, the Plan and a prospectus for the Plan prepared in connection with the
registration with the Securities and Exchange Commission of the shares issuable pursuant to the Award (the “Plan Prospectus”),
(b) accepts the Award subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan and (c) agrees to
accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the
Grant Notice, this Agreement or the Plan.
1.
DEFINITIONS AND CONSTRUCTION.
1.1
to such terms in the Grant Notice or the Plan.
Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings assigned
1.2
Construction. Captions and titles contained herein are for convenience only and shall not affect
the meaning or interpretation of any provision of this Agreement. Except when otherwise indicated by the context, the singular
shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the
context clearly requires otherwise.
2.
ADMINISTRATION.
All questions of interpretation concerning the Grant Notice, this Agreement, the Plan or any other form of
agreement or other document employed by the Company in the administration of the Plan or the Award shall be determined by
the Committee. All such determinations by the Committee shall be final, binding and conclusive upon all persons having an
interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by
the Committee in the exercise of its discretion pursuant to the Plan or the Award or other agreement thereunder (other than
determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons
having 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
apparent authority with respect to such matter, right, obligation, or election.
3.
THE AWARD.
3.1
Grant of Units. On the Date of Grant, the Participant shall acquire, subject to the provisions of
this Agreement, the Total Number of Units set forth in the Grant Notice, subject to adjustment as provided in Section 9. Each
Unit represents a right to receive on a date determined in accordance with the Grant Notice and this Agreement one (1) share of
Stock.
2
3.2
No 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
the Units, the consideration for which shall be past services actually rendered or future services to be rendered to a Participating
Company or for its benefit. Notwithstanding the foregoing, if required by applicable law, the Participant shall furnish
consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less
than the par value of the shares of Stock 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. For
purposes of determining the number of Vested Units following an Ownership Change Event, 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 the Ownership Change Event.
5.
COMPANY REACQUISITION RIGHT.
5.1
Grant of Company Reacquisition Right. Except to the extent otherwise provided by the
Superseding Agreement, if any, in the event that the Participant’s Service terminates for any reason or no reason, with or without
cause, the Participant shall forfeit and the Company shall automatically reacquire all Units which are not, as of the time of such
termination, Vested Units (“Unvested Units”), and the Participant shall not be entitled to any payment therefor (the “Company
Reacquisition Right”).
5.2
Ownership Change Event, Non-Cash Dividends, Distributions and Adjustments. Upon the
occurrence of an Ownership Change Event, a dividend or distribution to the stockholders of the Company paid in shares of Stock
or other property, or any other adjustment upon a change in the capital structure of the Company as described in Section 9, any
and all new, substituted or additional securities or other property (other than regular, periodic cash dividends paid on Stock
pursuant to the Company’s dividend policy) to which the Participant is entitled by reason of the Participant’s ownership of
Unvested Units shall be immediately subject to the Company Reacquisition Right and included in the terms “Units” and
“Unvested Units” for all purposes of the Company Reacquisition Right with the same force and effect as the Unvested Units
immediately prior to the Ownership Change Event, dividend, distribution or adjustment, as the case may be. For purposes of
determining the number of Vested Units following an Ownership Change Event, dividend, distribution or adjustment, 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.
6.1
Issuance of Shares of Stock. Subject to the provisions of Section 6.3, the Company shall issue to
the Participant on the Settlement Date with respect to each Vested Unit to be settled on such date one (1) share of Stock. The
Settlement Date 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 the Participant 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 the Trading Compliance Policy, but in any event on or before the 15th day of the third
3
calendar month following calendar year of the Original Settlement Date. Shares of Stock issued in settlement of Units shall not
be subject to any restriction on transfer other than any such restriction as may be required pursuant to Section 6.3, Section 7 or
the Company’s Trading Compliance Policy.
6.2
Beneficial Ownership of Shares; Certificate Registration. The Participant hereby authorizes the
Company, in its sole discretion, to deposit any or all shares acquired by the Participant pursuant to the settlement of the Award
with the Company’s transfer agent, including any successor transfer agent, to be held in book entry form, or to deposit such
shares for the benefit of the Participant with any broker with which the Participant has an account relationship of which the
Company has notice. Except as provided by the foregoing, a certificate for the shares acquired by the Participant shall be
registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.
6.3
Restrictions on Grant of the Award and Issuance of Shares. The grant of the Award and
issuance of shares of Stock upon settlement of the Award shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. No shares of Stock may be issued hereunder if the issuance of such
shares would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the
requirements of any stock exchange or market system upon which the Stock may then be listed. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary
to the lawful issuance of any shares subject to the Award shall relieve the Company of any liability in respect of the failure to
issue such shares as to which such requisite authority shall not have been obtained. As a condition to the settlement of the Award,
the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be
requested by the Company.
6.4
Fractional Shares. The Company shall not be required to issue fractional shares upon the
settlement of the Award.
7.
TAX WITHHOLDING.
7.1
In General. At the time the Grant Notice is executed, or at any time thereafter as requested by a
Participating 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 (including any social insurance) withholding obligations of the Participating Company, if any, which arise in connection with
the Award, the vesting of Units or the issuance of shares of Stock in settlement thereof. The Company shall have no obligation to
deliver shares of Stock until the tax withholding obligations of the Participating Company have been satisfied by the Participant.
7.2
Assignment of Sale Proceeds. Subject to compliance with applicable law and the Company’s
Trading Compliance Policy, if permitted by the Company, the Participant may satisfy the Participating Company’s tax
withholding obligations in accordance with procedures established by the Company providing for delivery by the Participant to
the Company or a broker approved by the Company of properly executed instructions, in a form approved by the Company,
providing for the assignment to the Company of the proceeds of a sale with respect to some or all of the shares being acquired
upon settlement of Units.
4
7.3
Withholding in Shares. The Company shall have the right, but not the obligation, to require the
Participant to satisfy all or any portion of a Participating Company’s tax withholding obligations by deducting from the shares of
Stock otherwise deliverable to the Participant in settlement of the Award a number of whole shares having a fair market value, as
determined by the Company as of the date on which the tax withholding obligations arise, not in excess of the amount of such tax
withholding obligations determined by the applicable minimum statutory withholding rates.
8.
EFFECT OF CHANGE IN CONTROL.
In the event of a Change in Control, the surviving, continuing, successor, or purchasing entity or parent
thereof, as the case may be (the “Acquiror”), may, without the consent of the Participant, assume or continue in full force and
effect the Company’s rights and obligations under all or any portion of the outstanding Units or substitute for all or any portion of
the outstanding Units substantially 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 this Agreement, the consideration (whether stock, cash, other securities or property or a combination
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 the outstanding shares of
Stock); provided, however, that if such consideration is not solely common stock of the Acquiror, the Committee may, with the
consent of the Acquiror, provide for the consideration to be received upon settlement of the Unit to consist solely of common
stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to 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
the Code 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 of the 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 the Fair Market Value of shares of Stock, appropriate and proportionate adjustments
shall be made in the number of Units subject to the Award and/or the number and kind of shares or other property to be issued in
settlement of the Award, in order to prevent dilution or enlargement of the Participant’s rights under the Award. For purposes of
the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of
consideration by the Company.” Any and all new, substituted or additional securities or other property (other than regular,
periodic cash dividends paid on Stock pursuant to the Company’s dividend policy) to which the Participant is entitled by reason
of ownership of Units acquired pursuant to this Award will be immediately subject to the provisions of this Award on the same
basis as all Units originally acquired hereunder. Any fractional Unit or share resulting from an adjustment pursuant to this
Section shall be rounded down to the nearest whole number. Such adjustments shall be determined by the Committee, and its
determination shall be final, binding and conclusive.
10.
RIGHTS AS A STOCKHOLDER, DIRECTOR, EMPLOYEE OR CONSULTANT.
The Participant shall have no rights as a stockholder with respect to any shares
5
which may be issued in settlement of 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 a duly authorized transfer agent of the Company). No adjustment shall be made for
dividends, distributions or other rights for which the record date is prior to the date the shares are issued, except as provided in
Section 9. If the Participant is an Employee, the Participant understands and acknowledges that, except as otherwise provided in
a separate, written employment agreement between a Participating Company and the Participant, the Participant’s employment is
“at will” and is for no specified term. Nothing in this Agreement shall confer upon the Participant any right to continue in the
Service of a Participating Company or interfere in any way with any right of the Participating 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
law restrictions on all certificates representing shares of stock issued pursuant to this Agreement. The Participant shall, at the
request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to this
Award in the possession 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
with this Award that may result in Section 409A Deferred Compensation shall comply in all respects with the applicable
requirements of Section 409A (including applicable regulations or other administrative guidance thereunder, as determined by the
Committee in good faith) to avoid the unfavorable tax consequences provided therein for non‑compliance. In connection with
effecting such compliance with Section 409A, the following shall apply:
12.1
from
Separation
Service; Required Delay
Specified
Employee. Notwithstanding anything set forth herein to the contrary, no amount payable pursuant to this Agreement on account
of the Participant’s termination of Service which constitutes a “deferral of compensation” within the meaning of the Treasury
Regulations issued pursuant to Section 409A of the Code (the “Section 409A Regulations”) shall be paid unless and until the
Participant has incurred a “separation from service” 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 that constitutes a deferral of compensation which is payable on account of the
Participant’s separation from service shall be paid to the Participant before the date (the “Delayed Payment Date”) which is first
day of the seventh month after the date of the Participant’s separation from service or, if earlier, the date of the Participant’s death
following such separation from service. All such amounts that would, but for this Section, become payable prior to the Delayed
Payment Date will be accumulated and paid on the Delayed Payment Date.
Payment
in
to
Other Changes in Time of Payment. Neither the Participant nor the Company shall take any
action to accelerate or delay the payment of any benefits under this Agreement in any manner which would not be in compliance
with the Section 409A Regulations.
12.2
Amendments to Comply with Section 409A; Indemnification. Notwithstanding any other
provision of this Agreement to the contrary, the Company is authorized to amend this Agreement, to void or amend any election
made by the Participant under this Agreement and/or to delay the payment of any monies and/or provision of any
12.3
6
benefits in such manner as may be determined by the Company, in its discretion, to be necessary or appropriate to comply with
the Section 409A Regulations without 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 other liability incurred by the Participant in connection with the Award, including as a
result of the application of Section 409A.
12.4
Advice of Independent Tax Advisor. The Company has not obtained a tax ruling or other
confirmation from the Internal Revenue Service with regard to the application of Section 409A to the Award, and the Company
does not represent or warrant that this Agreement will avoid adverse tax consequences to the Participant, including as a result of
the application of Section 409A to the Award. The Participant hereby acknowledges that he or she has been advised to seek the
advice of his or her own independent tax advisor prior to entering into this Agreement and is not relying upon any representations
of the Company or any of its agents as to the effect of or the advisability of entering into this Agreement.
13.
MISCELLANEOUS PROVISIONS.
13.1
Termination or Amendment. The Committee may terminate or amend the Plan or this
Agreement at any time; provided, however, that except as provided in Section 8 in connection with a Change in Control, no such
termination or amendment may have a materially adverse effect on the Participant’s rights under this Agreement without the
consent of the Participant unless such termination or amendment is necessary to comply with applicable law or government
regulation, including, but not limited to, Section 409A. No amendment or addition to this Agreement shall be effective unless in
writing.
13.2
Nontransferability of the Award. Prior to the issuance of shares of Stock on the applicable
Settlement 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 the Participant’s lifetime only by the Participant or the Participant’s guardian or legal representative.
such further action as may reasonably be necessary to carry out the intent of this Agreement.
13.3
Further Instruments. The parties hereto agree to execute such further instruments and to take
Binding Effect. This Agreement shall inure to the benefit of the successors and assigns of the
Company 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.
13.4
13.5
Delivery of Documents and Notices. Any document relating to participation in the Plan or any
notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that
this Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery at
the e-mail address, if any, provided for the Participant by a Participating Company, or upon deposit in the U.S. Post Office or
foreign postal service, 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 may designate in writing from time to time to the other party.
7
(a)
Description of Electronic Delivery. The Plan documents, which may include but do not
necessarily include: the Plan, the Grant Notice, this Agreement, the Plan Prospectus, and any reports of the Company provided
generally 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 as the Company may designate from time to time. Such means of electronic delivery may include but do
not necessarily include the delivery of a link to a Company intranet or the Internet site of a third party involved in administering
the Plan, the delivery of the document 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
read Section 13.5(a) of this Agreement and consents to the electronic delivery of the Plan documents and, if permitted by the
Company, the delivery of the Grant Notice, as described in Section 13.5(a). The Participant acknowledges that he or she may
receive from the Company a paper copy of any documents delivered electronically at no cost to the Participant by contacting the
Company by telephone or in writing. The Participant further acknowledges that the Participant will be provided with a paper
copy of any documents if the attempted electronic delivery of such documents fails. Similarly, the Participant understands that
the Participant must provide the Company or any designated third party administrator with a paper copy of any documents if the
attempted electronic delivery of such documents fails. The Participant may revoke his or her consent to the electronic delivery of
documents described in Section 13.5(a) or may change the electronic mail address to which such documents are to be delivered
(if Participant has provided an electronic mail address) at any time by notifying the Company of such revoked consent or revised
e-mail address by telephone, postal service or electronic mail. Finally, the Participant understands that he or she is not required to
consent to electronic delivery of documents described in Section 13.5(a).
13.6
Integrated Agreement. The Grant Notice, this Agreement and the Plan, together with the
Superseding Agreement, if any, shall constitute the entire understanding and agreement of the Participant and the Participating
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 to such subject matter. To the extent contemplated herein or therein, the provisions of the Grant Notice, this Agreement
and the Plan shall survive any settlement of the Award and shall remain in full force and effect.
13.7
without regard to its conflict of laws rules.
Applicable Law. This Agreement shall be governed by the laws of the State of California
deemed an original, but all of which together shall constitute one and the same instrument.
13.8
Counterparts. The Grant Notice may be executed in counterparts, each of which shall be
8
EXTREME NETWORKS, INC.
NOTICE OF GRANT OF RESTRICTED STOCK UNITS
(For Non-U.S. Participants)
Exhibit 10.34
Extreme Networks, Inc. (the “Company”) has granted to the Participant an award (the “Award”) of certain units pursuant to the Extreme Networks, Inc.
2013 Equity 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:
%%FIRST_NAME%-%
%%LAST_NAME%-%
Employee ID: %%EMPLOYEE_IDENTIFIER%-
%
Date of Grant:
%%OPTION_DATE%-%
Total Number of Units: %%TOTAL_SHARES_GRANTED%-%, subject to adjustment as provided by the Restricted
Stock Units Agreement.
Local Law
The laws, rules and regulations of %%COUNTRY%-% which the Participant is a resident.
Settlement Date:
Except as provided by the Restricted Stock Units Agreement, the date on which a Unit becomes
a Vested Unit.
Vesting Start Date:
%%VEST_BASE_DATE%-%
Vested Units:
Except as provided in the Restricted Stock Units Agreement and provided that the Participant’s
Service has not terminated prior to the applicable date, as follows:
Vesting DateNumber of Units Vesting%%VEST_DATE_PERIOD1%-
%%%SHARES_PERIOD1%-%%%VEST_DATE_PERIOD2%-
%%%SHARES_PERIOD2%-%%%VEST_DATE_PERIOD3%-
%%%SHARES_PERIOD3%-%%%VEST_DATE_PERIOD4%-
%%%SHARES_PERIOD4%-%%%VEST_DATE_PERIOD5%-
%%%SHARES_PERIOD5%-%%%VEST_DATE_PERIOD6%-
%%%SHARES_PERIOD6%-%%%VEST_DATE_PERIOD7%-
%%%SHARES_PERIOD7%-%%%VEST_DATE_PERIOD8%-
%%%SHARES_PERIOD8%-%%%VEST_DATE_PERIOD9%-
%%%SHARES_PERIOD9%-%
Superseding
Agreement:
Extreme Networks, Inc Restricted Stock Units Agreement
The terms and conditions of the foregoing Superseding
Agreement to which the Participant is a party shall,
notwithstanding any provision of this notice to the contrary,
supersede any inconsistent term or condition set forth in the
notice
intended by such Superseding
to
Agreement.
the extent
By the Company’s authorized signature below and the Participant’s by electronic acceptance in a form authorized by the Company, the Company and the
Participant 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
which are made a part of this document, and by the Superseding Agreement, if any. The Participant acknowledges that copies of the Plan, the Restricted
Stock Units Agreement 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 attachment to the Participant’s copy of this Grant Notice. The Participant represents that the Participant has read and is familiar with the provisions of
the Restricted Stock Units Agreement and the Plan, and hereby accepts the Award subject to all of their terms and conditions.
EXTREME NETWORKS, INC.
2121 RDU Center Drive, Suite 300
Morrisville, NC 27560
ATTACHMENTS:
2013 Equity Incentive Plan, as amended to the Date of Grant; Restricted Stock Units Agreement and Plan Prospectus
EXTREME NETWORKS, INC.
2013 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNITS AGREEMENT
(For Non-U.S. Participants)
Extreme Networks, Inc. has granted to the Participant named in the Notice of Grant of Restricted Stock Units (the
“Grant Notice”) to which this Restricted Stock Units Agreement (the “Agreement”) is attached an Award consisting of
Restricted Stock Units (each a “Unit”) subject to the terms and conditions set forth in the Grant Notice and this Agreement. The
Award has been granted pursuant to and shall in all respects be subject to the terms and conditions of the Extreme Networks, Inc.
2013 Equity Incentive Plan (the “Plan”), as amended to the Date of Grant, the provisions of which are incorporated herein by
reference. By signing the Grant Notice, the Participant: (a) acknowledges receipt of and represents that the Participant has read
and is familiar with the Grant Notice, this Agreement, the Plan and a prospectus for the Plan prepared in connection with the
registration with the Securities and Exchange Commission of the shares issuable pursuant to the Award (the “Plan Prospectus”),
(b) accepts the Award subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan and (c) agrees to
accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the
Grant Notice, this Agreement or the Plan.
1.
DEFINITIONS AND CONSTRUCTION.
1.1
to such terms in the Grant Notice or the Plan.
Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings assigned
1.2
Construction. Captions and titles contained herein are for convenience only and shall not affect
the meaning or interpretation of any provision of this Agreement. Except when otherwise indicated by the context, the singular
shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the
context clearly requires otherwise.
2.
CERTAIN CONDITIONS OF THE AWARD.
pursuant to the Award or transfer, assign, sell or otherwise deal with such shares except in compliance with Local Law.
2.1
Compliance with Local Law. The Participant agrees that the Participant will not acquire shares
understands and agrees that:
2.2
Service and Employment Conditions. In accepting the Award, the Participant acknowledges,
(a)
Any notice period mandated under Local Law shall not be treated as Service for the
purpose of determining the vesting of the Award; and the Participant’s right to receive shares in settlement of the Award after
termination of Service, if any, will be measured by the date of termination of the Participant’s active Service and will not be
extended by any notice period mandated under Local Law. Subject to the foregoing and the provisions of the Plan, the Company,
in its sole discretion, shall determine whether the Participant’s Service has terminated and the effective date of such termination.
2
The vesting of the Award shall cease upon, and no Units shall become Vested Units
following, the Participant’s termination of Service for any reason except as may be explicitly provided by the Plan or this
Agreement.
(b)
The Plan is established voluntarily by the Company. It is discretionary in nature and it
may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this
Agreement.
(c)
The grant of the Award is voluntary and occasional and does not create any contractual
or other right to receive future grants of Awards, or benefits in lieu of Awards, even if Awards have been granted repeatedly in the
past.
(d)
the Company.
(e)
All decisions with respect to future Award grants, if any, will be at the sole discretion of
The Participant’s participation in the Plan shall not create a right to further Service with
any Participating Company and shall not interfere with the ability of with any Participating Company to terminate the
Participant’s Service at any time, with or without cause.
(f)
(g)
The Participant is voluntarily participating in the Plan.
The Award is an extraordinary item that does not constitute compensation of any kind for
Service of any kind rendered to any Participating Company, and which is outside the scope of the Participant’s employment
contract, if any.
(h)
The Award is not part of normal or expected compensation or salary for any purpose,
including, but not limited to, calculating any severance, resignation, termination, redundancy, end-of-service payments, bonuses,
long-service awards, pension or retirement benefits or similar payments.
(i)
In the event that the Participant is not an employee of the Company, the Award grant will
not be interpreted to form an employment contract or relationship with the Company; and furthermore the Award grant will not
be interpreted to form an employment contract with any other Participating Company.
(j)
certainty. If the Participant obtains shares upon settlement of the Award, the value of those shares may increase or decrease.
(k)
The future value of the underlying shares is unknown and cannot be predicted with
(l)
No claim or entitlement to compensation or damages arises from termination of the
Award or diminution in value of the Award or shares acquired upon settlement of the Award resulting from termination of the
Participant’s Service (for any reason whether or not in breach of Local Law) and the Participant irrevocably releases the
Company and each other Participating Company from any such claim that may arise. If, notwithstanding the foregoing, any such
claim is found by a court of competent jurisdiction to have arisen then, by signing this Agreement, the Participant shall be
deemed irrevocably to have waived the Participant’s entitlement to pursue such a claim.
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2.3
Data Privacy Consent. Participant understands that the Company and the employer may
collect, where permissible under applicable law, certain personal information about Participant, including, but not limited to,
Participant’s name, home address and telephone number, date of birth, social insurance number or other identification
number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Awards or any
other entitlement to stock awarded, canceled, vested, unvested or outstanding in Participant’s favor (“Data”), for the exclusive
purpose of implementing, administering and managing the Plan. Participant understands that Company may transfer
Participant’s Data to the United States, which is not considered by the European Commission to have data protection laws
equivalent to the laws in Participant’s country. Participant understands that the Company will transfer Participant’s Data to a
stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the
implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be
located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data
privacy laws that the European Commission or Participant’s jurisdiction does not consider to be equivalent to the protections
in Participant’s country. Participant understands that if he or she resides outside the United States, he or she may request a
list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources
representative. Participant authorizes the Company and any other possible recipients which may assist the Company with
implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or
other form, for the sole purposes of implementing, administering and managing Participant’s participation in the
Plan. Participant understands that Data will be held only as long as is necessary to implement, administer and manage
Participant’s participation in the Plan. Participant understands that if he or she resides outside the United States, he or she
may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary
amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her
local human resources representative. Further, Participant understands that he or she is providing the consents herein on a
purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her
engagement as a service provider and career with the employer will not be adversely affected; the only adverse consequence of
refusing or withdrawing Participant’s consent is that the Company would not be able to grant Participant Awards or other
equity awards or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or
her consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of
Participant’s refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local
human resources representative. Participant understands that Participant has the right to access, and to request a copy of, the
Data held about Participant. Participant also understands that Participant has the right to discontinue the collection,
processing, or use of Participant’s Data, or supplement, correct, or request deletion of any of Participant’s Data. To exercise
Participant’s rights, Participant may contact Participant’s local human resources representative. Participant hereby explicitly
and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participant’s personal data as
described in this Agreement and any other Award grant materials by and among, as applicable, the employer, the Company
and any Parent or Affiliate for the exclusive purpose of implementing, administering and managing Participant’s
participation in the Plan. Participant understands that Participant’s consent will be sought and obtained for any processing
or transfer of Participant’s Data for any purpose other than as described in the Agreement and any other Plan materials.
4
3.
ADMINISTRATION.
All questions of interpretation concerning the Grant Notice, this Agreement, the Plan or any other form of
agreement or other document employed by the Company in the administration of the Plan or the Award shall be determined by
the Committee. All such determinations by the Committee shall be final, binding and conclusive upon all persons having an
interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by
the Committee in the exercise of its discretion pursuant to the Plan or the Award or other agreement thereunder (other than
determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons
having 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
apparent authority with respect to such matter, right, obligation, or election.
4.
THE AWARD.
4.1
Grant of Units. On the Date of Grant, the Participant shall acquire, subject to the provisions of
this Agreement, the Total Number of Units set forth in the Grant Notice, subject to adjustment as provided in Section 10. Each
Unit represents a right to receive on a date determined in accordance with the Grant Notice and this Agreement one (1) share of
Stock.
4.2
No 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
the Units, the consideration for which shall be past services actually rendered or future services to be rendered to a Participating
Company or for its benefit. Notwithstanding the foregoing, if required by applicable law, the Participant shall furnish
consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less
than the par value of the shares of Stock issued upon settlement of the Units.
5.
VESTING OF UNITS.
Units acquired pursuant to this Agreement shall become Vested Units as provided in the Grant Notice. For
purposes of determining the number of Vested Units following an Ownership Change Event, 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 the Ownership Change Event.
6.
COMPANY REACQUISITION RIGHT.
6.1
Grant of Company Reacquisition Right. Except to the extent otherwise provided by the
Superseding Agreement, if any, in the event that the Participant’s Service terminates for any reason or no reason, with or without
cause, the Participant shall forfeit and the Company shall automatically reacquire all Units which are not, as of the time of such
termination, Vested Units (“Unvested Units”), and the Participant shall not be entitled to any payment therefor (the “Company
Reacquisition Right”).
occurrence of an Ownership Change Event, a dividend or distribution to
6.2
Ownership Change Event, Non-Cash Dividends, Distributions and Adjustments. Upon the
5
the stockholders of the Company paid in shares of Stock or other property, or any other adjustment upon a change in the capital
structure of the Company as described in Section 10, any and all new, substituted or additional securities or other property (other
than regular, periodic cash dividends paid on Stock pursuant to the Company’s dividend policy) to which the Participant is
entitled by reason of the Participant’s ownership of Unvested Units shall be immediately subject to the Company Reacquisition
Right and included in the terms “Units” and “Unvested Units” for all purposes of the Company Reacquisition Right with the
same force and effect as the Unvested Units immediately prior to the Ownership Change Event, dividend, distribution or
adjustment, as the case may be. For purposes of determining the number of Vested Units following an Ownership Change Event,
dividend, distribution or adjustment, 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.
7.
SETTLEMENT OF THE AWARD.
7.1
Issuance of Shares of Stock. Subject to the provisions of Section 7.3, the Company shall issue to
the Participant on the Settlement Date with respect to each Vested Unit to be settled on such date one (1) share of Stock. The
Settlement Date 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 the Participant 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 the Trading Compliance Policy, but in any event on or before the 15th day of the third calendar month
following calendar year of the Original Settlement Date. Shares of Stock issued in settlement of Units shall not be subject to any
restriction on transfer other than any such restriction as may be required pursuant to Section 7.3, Section 8 or the Company’s
Trading Compliance Policy.
7.2
Beneficial Ownership of Shares; Certificate Registration. The Participant hereby authorizes the
Company, in its sole discretion, to deposit any or all shares acquired by the Participant pursuant to the settlement of the Award
with the Company’s transfer agent, including any successor transfer agent, to be held in book entry form, or to deposit such
shares for the benefit of the Participant with any broker with which the Participant has an account relationship of which the
Company has notice. Except as provided by the foregoing, a certificate for the shares acquired by the Participant shall be
registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.
7.3
Restrictions on Grant of the Award and Issuance of Shares. The grant of the Award and
issuance of shares of Stock upon settlement of the Award shall be subject to compliance with all applicable requirements of
United States federal and state law and Local Law with respect to such securities. No shares of Stock may be issued hereunder if
the issuance of such shares would constitute a violation of any applicable United States federal, state or foreign securities laws,
including Local Law, or other law or regulations or the requirements of any stock exchange or market system upon which the
Stock may then be listed. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if
any, deemed by the Company’s legal counsel to be necessary to the lawful issuance of any shares subject to the Award shall
relieve the Company of any liability in respect of the failure to issue such shares as to which such requisite authority shall not
have been obtained. As a condition to
6
the settlement of the Award, the Company may require the Participant to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
7.4
Fractional Shares. The Company shall not be required to issue fractional shares upon the
settlement of the Award.
8.
TAX WITHHOLDING.
8.1
In General. Regardless of any action taken by the Company or any other Participating Company
with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding
obligations in connection with any aspect of the Award, including the grant, vesting or settlement of the Award, the subsequent
sale of shares acquired pursuant to such settlement, or the receipt of any dividends and (the “Tax Obligations”), the Participant
acknowledges that the ultimate liability for all Tax Obligations legally due by the Participant is and remains the Participant’s
responsibility and that the Company (a) makes no representations or undertakings regarding the treatment of any Tax Obligations
(b) does not commit to structure the terms of the grant or any other aspect of the Award to reduce or eliminate the Participant’s
liability for Tax Obligations. The Participant shall pay or make adequate arrangements satisfactory to the Company to satisfy all
Tax Obligations of the Company and any other Participating Company at the time such Tax Obligations arise. In this regard, the
Participant hereby authorizes withholding of all applicable Tax Obligations from payroll and any other amounts payable to the
Participant, and otherwise agrees to make adequate provision for withholding of all applicable Tax Obligations, if any, by each
Participating Company which arise in connection with the Award. The Company shall have no obligation to process the
settlement of the Award or to deliver shares until the Tax Obligations as described in this Section have been satisfied by the
Participant.
8.2
Assignment of Sale Proceeds. Subject to compliance with applicable law, including Local Law,
and the Company’s Trading Compliance Policy, if permitted by the Company, the Participant may satisfy the Tax Obligations in
accordance with procedures established by the Company providing for delivery by the Participant to the Company or a broker
approved by the Company of properly executed instructions, in a form approved by the Company, providing for the assignment
to a Participating Company of the proceeds of a sale with respect to some or all of the shares being acquired upon settlement of
Units.
8.3
Withholding in Shares. If permissible under applicable law, including Local Law, the Company
shall have the right, but not the obligation, to require the Participant to satisfy all or any portion of the Tax Obligations by
deducting from the shares of Stock otherwise deliverable to the Participant in settlement of the Award a number of whole shares
having a fair market value, as determined by the Company as of the date on which the Tax Obligations arise, not in excess of the
amount of such Tax Obligations determined by the applicable minimum statutory withholding rates.
9.
EFFECT OF CHANGE IN CONTROL.
In the event of a Change in Control, the surviving, continuing, successor, or purchasing entity or parent
thereof, as the case may be (the “Acquiror”), may, without the consent of the Participant, assume or continue in full force and
effect the Company’s rights and obligations under all or any portion of the outstanding Units or substitute for all or any portion of
7
the outstanding Units substantially 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 this Agreement, the consideration (whether stock, cash, other securities or property or a combination
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 the outstanding shares of
Stock); provided, however, that if such consideration is not solely common stock of the Acquiror, the Committee may, with the
consent of the Acquiror, provide for the consideration to be received upon settlement of the Unit to consist solely of common
stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to the
Change in Control.
10.
ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
Subject to any required action by the stockholders of the Company, 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 of the 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 the Fair Market Value of shares
of Stock, appropriate and proportionate adjustments shall be made in the number of Units subject to the Award and/or the number
and kind of shares or other property to be issued in settlement of the Award, in order to prevent dilution or enlargement of the
Participant’s rights under the Award. For purposes of the foregoing, conversion of any convertible securities of the Company
shall not be treated as “effected without receipt of consideration by the Company.” Any and all new, substituted or additional
securities or other property (other than regular, periodic cash dividends paid on Stock pursuant to the Company’s dividend policy)
to which the Participant is entitled by reason of ownership of Units acquired pursuant to this Award will be immediately subject
to the provisions of this Award on the same basis as all Units originally acquired hereunder. Any fractional Unit or share
resulting from an adjustment pursuant to this Section shall be rounded down to the nearest whole number. Such adjustments shall
be determined by the Committee, and its determination shall be final, binding and conclusive.
11.
RIGHTS AS A STOCKHOLDER.
The Participant shall have no rights as a stockholder with respect to any shares which may be issued in
settlement of 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 a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or
other rights for which the record date is prior to the date the shares are issued, except as provided in Section 10.
12.
LEGENDS.
The Company may at any time place legends referencing any applicable United States federal, state or
foreign securities law, including Local Law, restrictions on all certificates representing shares of stock issued pursuant to this
Agreement. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates
representing shares acquired pursuant to this Award in the possession of the Participant in order to carry out
8
the provisions of this Section.
13.
MISCELLANEOUS PROVISIONS.
13.1
Termination or Amendment. The Committee may terminate or amend the Plan or this
Agreement at any time; provided, however, that except as provided in Section 9 in connection with a Change in Control, no such
termination or amendment may have a materially adverse effect on the Participant’s rights under this Agreement without the
consent of the Participant unless such termination or amendment is necessary to comply with applicable law or government
regulation. No amendment or addition to this Agreement shall be effective unless in writing.
13.2
Nontransferability of the Award. Prior to the issuance of shares of Stock on the applicable
Settlement 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 the Participant’s lifetime only by the Participant or the Participant’s guardian or legal representative.
such further action as may reasonably be necessary to carry out the intent of this Agreement.
13.3
Further Instruments. The parties hereto agree to execute such further instruments and to take
Binding Effect. This Agreement shall inure to the benefit of the successors and assigns of the
Company 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.
13.4
13.5
Delivery of Documents and Notices. Any document relating to participation in the Plan or any
notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that
this Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery at
the e-mail address, if any, provided for the Participant by a Participating Company, or upon deposit in the U.S. Post Office or
foreign postal service, 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 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 not
necessarily include: the Plan, the Grant Notice, this Agreement, the Plan Prospectus, and any reports of the Company provided
generally 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 as the Company may designate from time to time. Such means of electronic delivery may include but do
not necessarily include the delivery of a link to a Company intranet or the Internet site of a third party involved in administering
the Plan, the delivery of the document via e-mail or such other means of electronic delivery specified by the Company.
9
(b)
Consent to Electronic Delivery. The Participant acknowledges that the Participant has
read Section 13.5(a) of this Agreement and consents to the electronic delivery of the Plan documents and, if permitted by the
Company, the delivery of the Grant Notice, as described in Section 13.5(a). The Participant acknowledges that he or she may
receive from the Company a paper copy of any documents delivered electronically at no cost to the Participant by contacting the
Company by telephone or in writing. The Participant further acknowledges that the Participant will be provided with a paper
copy of any documents if the attempted electronic delivery of such documents fails. Similarly, the Participant understands that
the Participant must provide the Company or any designated third party administrator with a paper copy of any documents if the
attempted electronic delivery of such documents fails. The Participant may revoke his or her consent to the electronic delivery of
documents described in Section 13.5(a) or may change the electronic mail address to which such documents are to be delivered
(if Participant has provided an electronic mail address) at any time by notifying the Company of such revoked consent or revised
e-mail address by telephone, postal service or electronic mail. Finally, the Participant understands that he or she is not required to
consent to electronic delivery of documents described in Section 13.5(a).
13.6
Integrated Agreement. The Grant Notice, this Agreement and the Plan, together with the
Superseding Agreement, if any, shall constitute the entire understanding and agreement of the Participant and the Participating
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 to such subject matter. To the extent contemplated herein or therein, the provisions of the Grant Notice, this Agreement
and the Plan shall survive any settlement of the Award and shall remain in full force and effect.
13.7
Country-Specific Terms and Conditions. Notwithstanding any other provision of this
Agreement to the contrary, the Award shall be subject to the specific terms and conditions, if any, set forth in Appendix A to this
Agreement which are applicable to the Participant’s country of residence, the provisions of which are incorporated in and
constitute part of this Agreement. Moreover, if the Participant relocates to one of the countries included in Appendix A, the
specific terms and conditions applicable to such country will apply to the Award to the extent the Company determines that the
application of such terms and conditions is necessary or advisable in order to comply with Local Law or facilitate the
administration of the Plan or this Agreement.
13.8
Foreign Exchange / Exchange Control. The Participant acknowledges and agrees that it is the
Participant’s sole responsibility to investigate and comply with any applicable foreign exchange or exchange control laws in
connection with the issuance, delivery or sale of the shares of Stock pursuant to the Award and that the Participant shall be
responsible for any associated compliance or reporting of inbound international fund transfers required under applicable law. The
Participant is advised to seek appropriate professional advice as to how the foreign exchange or exchange control regulations
apply to the Participant’s specific situation.
13.9
No Advice Regarding Grant. The Company and its Affiliates are not providing any tax, legal or
financial advice, nor are they making any recommendations or assessments regarding Participant’s participation in the Plan, or
Participant’s acquisition or sale of the underlying shares of Stock. Participant is hereby advised to consult with his or her own
personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
10
Language. If Participant has received this Agreement, or any other document related to the
Award and/or the Plan translated into a language other than English and if the meaning of the translated version is different than
the English version, the English version will control, subject to Local Law.
13.10
13.11
Applicable Law. This Agreement shall be governed by the laws of the State of California
without regard to its conflict of laws rules. For purposes of litigating any dispute that arises directly or indirectly from the
relationship of the parties as evidenced by this Agreement, the parties hereby submit to and consent to the jurisdiction of the State
of California and agree that such litigation shall be conducted only in the courts of the County of Santa Clara, California, or the
federal courts of the United States for the Northern District of California, and no other courts, where this Agreement is made
and/or performed.
deemed an original, but all of which together shall constitute one and the same instrument.
13.12
Counterparts. The Grant Notice may be executed in counterparts, each of which shall be
11
EXTREME NETWORKS, INC.
2013 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNITS AGREEMENT
FOR NON-US PARTICIPANTS
APPENDIX A
Terms and Conditions
This Appendix includes additional terms and conditions that govern the Award granted to Participant under the Plan if he or she
resides in one of the countries listed below. Certain capitalized terms used but not defined in this Appendix have the meanings
set forth in the Plan and/or the main body of the Agreement.
Notifications
This Appendix also includes information regarding exchange controls and certain other issues of which Participant should be
aware with respect to his or her participation in the Plan. The information is based on the securities, exchange control and other
laws in effect in the respective countries as of January 2014. Such laws are often complex and change frequently. As a result, the
Company strongly recommends that Participant not rely on the information in this Appendix as the only source of information
relating to the consequences of Participant’s participation in the Plan because the information may be out of date at the time
Participant vests in the Shares or sells the Shares acquired under the Plan.
In addition, the information contained herein is general in nature and may not apply to Participant’s particular situation and the
Company is not in a position to assure Participant of any particular result. Accordingly, Participant is advised to seek appropriate
professional advice as to how the relevant laws of Participant’s country may apply to his or her situation.
Finally, if Participant is a citizen or resident of a country other than the one in which Participant is currently working or transfers
to another country after the grant of the Restricted Stock Units, or is considered a resident of another country for local law
purposes, the information contained herein may not be applicable to Participant in the same manner. In addition, the Company
shall, in its discretion, determine to what extent the terms and conditions contained herein shall apply to Participant under these
circumstances.
Notifications
AUSTRALIA
Securities Law Information. The offering and resale of shares of Stock acquired under the Plan to a person or entity resident in
Australia may be subject to disclosure requirements under Australian law. You should obtain legal advice regarding any
applicable disclosure requirements prior to making any such offer.
Terms and Conditions
Australian Securities Laws. If Participant acquires shares of Stock under the Plan and resells them in Australia, he or she may be
required to comply with certain Australian securities law disclosure requirements.
Foreign Exchange. Participant acknowledges and agrees that it is the Participant’s sole responsibility to investigate and comply with
any applicable exchange control laws in connection with the inflow of funds from the vesting of the Award or subsequent sale of the
shares of Stock and any dividends (if any) and that the Participant shall be responsible for any reporting of inbound international fund
transfers required under applicable law. The Participant is advised to seek appropriate professional advice as to how the exchange
control regulations apply to the Participant’s specific situation.
Terms and Conditions
BRAZIL
Compliance with Laws. By accepting the Award, Participant acknowledges that Participant agrees to comply with applicable
Brazilian laws and to report and pay any and all applicable Tax Obligations associated with the vesting of the Award, the sale of
the shares of Stock acquired pursuant thereto and the receipt of any dividends. That Participant agrees that, for all legal purposes:
(i) the benefits provided under the Plan are the result of commercial transactions unrelated to the Participant’s employment; (ii)
the Plan is not a part of the terms and conditions of the Participant’s employment; and (iii) the income from the Award, if any, is
not part of the Participant’s remuneration from employment.
Notifications
Report of Overseas Assets. If Participant is resident or domiciled in Brazil, Participant will be required to submit an annual
declaration of assets and rights held outside of Brazil to the Central Bank of Brazil if the aggregate value of such assets and rights
equals or exceeds US$100,000. Assets and rights that must be reported include, but are not limited to, the shares of Stock
acquired under the Plan.
Terms and Conditions
CANADA
Award Payable Only in Shares. Notwithstanding anything to the contrary in the Plan or Agreement, the grant of the Award
does not provide any right for Participant to receive a cash payment, and the Award is payable in shares of Stock only.
Termination of Continuous Service Status. In the event of Participant’s termination (for any reason whatsoever, whether or not
later found to be invalid and whether or not in breach of employment laws in the jurisdiction where Participant is employed or the
terms of Participant’s employment or service agreement, if any), Participant’s right to vest in the Award under the Plan, if any,
will terminate effective as of (1) the date that the Participant is no longer actively employed or providing services to the Company
or the Parent or Affiliate employing or retaining Participant, or at the discretion of the Committee, (2) the date the Participant
receives notice of Termination from the Company or the Parent or Affiliate employing or retaining Participant, if earlier than (1),
regardless of any notice period or period of pay in lieu of such notice required under local law (including, but not limited to
statutory law, regulatory law and/or common law); the Administrator shall have the exclusive discretion to determine when
Participant is no longer actively employed or providing services for purposes of Participant’s Award grant (including, but not
limited to, whether Participant may still be considered actively employed or providing services while on an approved leave of
absence).
The following provisions apply if Participant is a resident of Quebec:
Language Consent. The parties acknowledge that it is their express wish that this Agreement, as well as all documents, notices
and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in
English.
Les parties reconnaissent avoir expressement souhaité que la convention [“Agreement”], ainsi que tous les documents, avis et
procédures judiciaries, éxecutés, donnés ou intentés en vertu de, ou lié, directement ou indirectement à la présente convention,
soient rédigés en langue anglaise.
Data Privacy Notice and Consent. This provision supplements Section 2.3 of the Agreement:
Participant hereby authorizes the Company and the Company’s representatives to discuss with and obtain all relevant information
from all personnel, professional or not, involved in the administration and operation of the Plan. Participant further authorizes
the Company and any Affiliate and the Committee to disclose and discuss the Plan with their advisors. Participant further
authorizes the Company and any Affiliate to record such information and to keep such information in Participant’s employee file.
Terms and Conditions
FRANCE
Language Consent. By accepting the grant, Participant confirms having read and fully understood the Plan and the Agreement
which were provided in the English language. Participant accepts the terms of those documents accordingly.
Consentement Relatif à la Langue Utilisée. En acceptant l’attribution, le Participant confirme avoir lu et compris le Plan et le
Contrat, qui ont été communiqués en langue anglaise. Le Participant accepte les termes de ces documents en connaissance de
cause.
Notifications
Non-Qualified Tax Status. The Participant understands and agrees that the Award is not intended to qualify for tax-qualified
treatment under the French Commercial Code.
Tax Reporting Information. If Participant holds shares of Stock outside of France or maintains a foreign bank account,
Participant is required to report such to the French tax authorities when filing his or her annual tax return.
Securities Disclaimer. The grant of the Award is exempt from the requirement to publish a prospectus under the EU Prospectus
Directive as implemented in France.
Notifications
GERMANY
Exchange Control Information. If Participant remits proceeds in excess of €12,500 out of or into Germany, such cross-border
payment must be reported monthly to the State Central Bank. In the event that Participant makes or receives a payment in excess
of this amount, Participant is responsible for obtaining the appropriate form from a German bank and complying with applicable
reporting requirements. In addition, the Participant must also report on an annual basis in the unlikely event that the Participant
holds shares of Stock exceeding 10% of the total voting capital of the Company.
Securities Disclaimer. The grant of the Award is exempt from the requirement to publish a prospectus under the EU Prospectus
Directive as implemented in Germany.
Notifications
INDIA
Exchange Control Information. Participant understands and agrees that he or she must repatriate any proceeds from cash settlement or
the sale of shares acquired under the Plan to India and
convert the proceeds into local currency within 90 days of receipt. Participant will receive a foreign inward remittance certificate
("FIRC") from the bank where he or she deposits the foreign currency. Participant should maintain the FIRC as evidence of the
repatriation of funds in the event the Reserve Bank of India or his or her employer requests proof of repatriation.
Tax Reporting Obligation. Indian residents are required to declare the following items in their annual tax return: (i) any foreign
assets held by them (including shares acquired under the Plan), and (ii) any foreign bank accounts for which they have signing
authority. It is Participant’s ability to comply with applicable foreign asset tax laws in India and Participant should consult
with Participant’s personal tax advisor to ensure that Participant is properly reporting Participant’s foreign assets and bank
accounts.
Notifications
IRELAND
Director Notification Obligation. Participant acknowledges that if he or she is a director, shadow director or secretary of an
Irish Affiliate, Participant must notify the Irish Affiliate in writing within five business days of receiving or disposing of an
interest in the Company (e.g., the Award, shares of Stock, etc.), or within five business days of becoming aware of the event
giving rise to the notification requirement or within five business days of becoming a director or secretary if such an interest
exists at the time. This notification requirement also applies with respect to the interests of Participant’s spouse or children
under the age of 18 (whose interests will be attributed to Participant if Participant is a director, shadow director or secretary).
Securities Disclaimer. The grant of the Award is exempt from the requirement to publish a prospectus under the EU Prospectus
Directive as implemented in Ireland.
Notification
KOREA
Exchange Control Information. If Participant realizes US$500,000 or more from the sale of shares or the receipt of dividends
in a single transaction, Participant must repatriate the proceeds to Korea within 18 months of the sale/receipt. Under certain
circumstances, separate sales may be deemed a single transaction and aggregated for purposes of the US$500,000
threshold. Accordingly, Participant is strongly encouraged to consult his or her personal legal advisor if the sum of all such
transactions exceeds this threshold.
Terms and Conditions
MEXICO
Employment and Labor Law Acknowledgments. As a condition of accepting the Award, the
Participant acknowledges and agrees that: (i) the Award is not related to the salary or any other contractual benefits provided to
the Participant by the Participant’s employer; (ii) any modification of the Plan or its termination shall not constitute a change or
impairment of the terms and conditions of the Participant’s employment; (iii) the grant of the Award is unilateral and
discretionary and, therefore, the Company reserves the absolute right to amend it and discontinue it at any time without any
liability to the Participant; and (iv) neither the grant of the Award nor the issuance of shares in any way establishes a labor
relationship between the Participant and the Company, which is headquartered in the United States, or any additional rights
between the Participant and the Participant’s employer, based in Mexico. By accepting the Award, the Participant acknowledges
that the Participant has received a copy of the Plan, has reviewed the Plan and the Agreement in their entireties, and fully
understands and accepts all provisions of the Plan and the Agreement. The Participant acknowledges and confirms that the
Participant does not reserve any action or right to bring any claim against the Company for any compensation or damages as a
result of participation in the Plan and therefore grants a full and broad release to the Company with respect to any claim that may
arise under the Plan.
Notifications
NETHERLANDS
The Participant should be aware of the Dutch insider trading rules, which may affect the sale of shares acquired under the
Plan. In particular, the Participant may be prohibited from effecting certain share transactions if the Participant has insider
information regarding the Company. Below is a discussion of the applicable restrictions. The Participant is advised to read the
discussion carefully to determine whether the insider rules could apply to the Participant. If it is uncertain whether the insider
rules apply, the Company recommends that the Participant consult with a legal advisor. The Company cannot be held liable if the
Participant violates the Dutch insider trading rules. The Participant is responsible for ensuring your compliance with these
rules.
Prohibition Against Insider Trading
Dutch securities laws prohibit insider trading. The regulations are based upon the European Market Abuse Directive and are
stated in section 5:56 of the Dutch Financial Supervision Act (Wet op het financieel toezicht or Wft) and in section 2 of the
Market Abuse Decree (Besluit marktmisbruik Wft). For further information you are referred to the website of the Authority for
the Financial Markets (AFM); http://www.afm.nl/~/media/Files/brochures/2012/insider-dealing.ashx.
Given the broad scope of the definition of inside information, certain employees of the Company working at its Dutch Affiliate
may have inside information and thus are prohibited from making a transaction in securities in the Netherlands at a time when
they have such inside information. By entering into this Agreement and participating in the Plan, the Participant acknowledges
having read and understood the notification above and acknowledges that it is the Participant’s responsibility to comply with the
Dutch insider trading rules, as discussed herein.
Securities Disclaimer. The grant of the Award is exempt from the requirement to publish a prospectus under the EU Prospectus
Directive as implemented in the Netherlands.
Notifications
SINGAPORE
Securities Law Information. The grant of the Award is being made pursuant to the “Qualifying Person” exemption under
section 273(1)(f) of the Singapore Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”). The Plan has not been lodged or
registered as a prospectus with the Monetary Authority of Singapore. Participant should note that the Award is subject to section
257 of the SFA and Participant will not be able to make any subsequent sale in Singapore of the Shares acquired through the
vesting of the Award or any offer of such sale in Singapore unless such sale or offer is made pursuant to the exemptions under
Part XIII Division (1) Subdivision (4) (other than section 280) of the SFA.
Director Notification Obligation. If Participant is a director, associate director or shadow director of a Singapore Affiliate,
Participant is subject to certain notification requirements under the Singapore Companies Act. Among these requirements is an
obligation to notify the Singapore Affiliate in writing when Participant receives an interest (e.g., Award, shares of Stock) in the
Company or any Affiliate. In addition, Participant must notify the Singapore Affiliate when Participant sells shares of the
Company or any Affiliate (including when Participant sells shares acquired through the vesting of his or her Award). These
notifications must be made within two business days of acquiring or disposing of any interest in the Company or any Affiliate. In
addition, a notification must be made of Participant’s interests in the Company or any Affiliate within two business days of
becoming a director.
Terms and Conditions
Nature of Grant. This provision supplements Section 2.2 of the Agreement:
SPAIN
In accepting the Award, Participant consents to participate in the Plan and acknowledges that he or she has received a copy of the
Plan.
Participant understands that the Company has unilaterally, gratuitously, and in its sole discretion decided to grant Awards under
the Plan to individuals who may be employees of the Company or one of its Affiliates throughout the world. The decision is a
limited decision that is entered into upon the express assumption and condition that any grant will not bind the Company or any
Affiliate, other than to the extent set forth in the Agreement. Consequently, Participant understands that the grant of the Award is
made on the assumption and condition that the Award
and any shares of Stock acquired under the Plan are not part of any employment contract (either with the Company or any
Affiliate), and shall not be considered a mandatory benefit, salary for any purposes (including severance compensation) or any
other right whatsoever. Further, Participant understands that the grant of the Award would not be made but for the assumptions
and conditions referred to above; thus, he or she acknowledges and freely accept that, should any or all of the assumptions be
mistaken or should any of the conditions not be met for any reason, then any grant of or right to the Award shall be null and void.
Notifications
Tax Reporting Obligation for Assets Held Abroad. Individuals in Spain are required to report assets and right located outside
of Spain (which would include Shares or any funds held in a U.S. brokerage account) on Form 720 by March 31st after each
calendar year. A report is not required if the value of assets held outside of Spain is EUR 50,000 or less or if the assets held
outside of Spain have not increased by more than EUR 20,000 compared to the previous year (assuming that a prior report has
been filed reporting these assets). Please consult your personal tax advisor for more information on how to complete the report
and the specific information on what types of assets are required to be reported.
Exchange Control Information. Participant must declare the acquisition of stock in a foreign company (including shares of
Stock acquired under the Plan) to the Dirección General de Política Comercial e Inversiones Exteriores (“DGPCIE”) of the
Ministerio de Economia for statistical purposes. He or she must also declare ownership of any stock in a foreign company
(including shares of Stock acquired under the Plan) with the Directorate of Foreign Transactions each January while the stock is
owned. In addition, if Participant wishes to import the share certificates into Spain, he or she must declare the importation of
such securities to the DGPCIE.
When receiving foreign currency payments derived from the ownership of the shares (i.e., dividends or sale proceeds),
Participant must inform the financial institution receiving the payment of the basis upon which such payment is
made. Participant will need to provide the following information: (i) his or her name, address, and fiscal identification number;
(ii) the name and corporate domicile of the Company; (iii) the amount of the payment and the currency used; (iv) the country of
origin; (v) the reasons for the payment; and (vi) any further information that may be required.
Securities Disclaimer. The grant of the Award is exempt from the requirement to publish a prospectus under the EU Prospectus
Directive as implemented in Spain.
There are no country specific provisions.
UNITED ARAB EMIRATES
Terms and Conditions
UNITED KINGDOM
Tax Reporting and Payment Liability. The following provision supplements Section 8 of the Agreement:
The Participant agrees that the Company or the employer Affiliate may calculate the Tax Obligations to be withheld and
accounted for by reference to the maximum applicable rates, without prejudice to any right the Participant may have to recover
any overpayment from relevant U.K. tax authorities. If payment or withholding of any income tax liability arising in connection
with the Participant's participation in the Plan is not made by the Participant to the employer Affiliate within ninety (90) days of
the event giving rise to such income tax liability or such other period specified in Section 222(1)(c) of the U.K. Income Tax
(Earnings and Pensions) Act 2003 (the “Due Date”), The Participant understands and agrees that the amount of any uncollected
income tax will constitute a loan owed by the Participant to the employer Affiliate, effective on the Due Date. The Participant
understands and agrees that the loan will bear interest at the then-current official rate of Her Majesty’s Revenue and Customs, it
will be immediately due and repayable by the Participant, and the Company and/or the employer Affiliate may recover it at any
time thereafter by any of the means referred to in the Plan and/or this Agreement. Notwithstanding the foregoing, the Participant
understands and agrees that if they are a director or an executive officer of the Company (within the meaning of such terms for
purposes of Section 13(k) of the Exchange Act), they will not be eligible for such a loan to cover the income tax liability. In the
event that the Participant is a director or executive officer and the income tax is not collected from or paid by the Participant by
the Due Date, The Participant understands that the amount of any uncollected income tax will constitute an additional benefit to
the Participant on which additional income tax and National Insurance Contributions will be payable. The Participant
understands and agrees that they will be responsible for reporting and paying any income tax due on this additional benefit
directly to Her Majesty’s Revenue and Customs under the self-assessment regime and for reimbursing the Company or the
employer Affiliate (as appropriate) for the value of any primary and (to the extent legally possible) secondary class 1 national
insurance contributions due on this additional benefit which the Company or the employer Affiliate may recover from the
Participant by any of the means referred to in the Plan and/or this Agreement.
Notwithstanding the foregoing, if Participant is an executive officer or director (as within the meaning of Section 13(k) of the
U.S. Securities and Exchange Act of 1934, as amended), the terms of the provision above will not apply. In the event that
Participant is an executive office or director and income tax is not collected from or paid by Participant by the Due Date, the
amount of any uncollected income tax will constitute a benefit to Participant on which additional income tax and National
Insurance Contributions (“NICs”) (including Employer's NICs) may be payable. Participant understands that he or she will be
responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment
regime and for reimbursing the Company and/or the employer Affiliate (as appropriate) for the value of any NICs
due on this additional benefit.
Notification
Securities Disclaimer. Neither this Agreement nor Appendix is an approved prospectus for the purposes of section 85(1) of the
Financial Services and Markets Act 2000 (“FSMA”) and no offer of transferable securities to the public (for the purposes of
section 102B of FSMA) is being made in connection with the Plan. The Plan and the Award is exclusively available in the UK to
bona fide employees and former employees of the Company or its Affiliate.
****
End of the Appendix
THIRD LEASE AMENDMENT
Exhibit 10.35
This THIRD LEASE AMENDMENT (this “Amendment”) is entered into as of the ____1st____ day of June 2022
(the “Effective Date”), by and between TDC BLUE IV, LLC, a Delaware limited liability company (“Landlord”) and
EXTREME NETWORKS, INC., a Delaware corporation (“Tenant”).
W I T N E S S E T H:
WHEREAS, Tenant and Landlord (as remote successor-in-interest to RDU Center III LLC), entered into that certain
Lease dated October 15, 2012, as amended by that certain First Amendment to Lease Agreement dated December 31, 2012 and
that certain Second Lease Amendment dated December 17, 2015 (as amended, the “Lease”), for approximately Fifty-Four
Thousand Five Hundred Thirty (54,530) rentable square feet (the “Premises”) in the office building commonly known as RDU
Center III and located at 2121 RDU Center Drive, Morrisville, North Carolina (the “Project”);
WHEREAS, Landlord and Tenant have agreed to amend the Lease by, among other things, extending the Term of the
Lease, all as more particularly set forth below.
NOW, THEREFORE, in consideration of the mutual and reciprocal promises contained herein and for other good
and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree to
amend the Lease as follows:
1.
Capitalized Terms. All capitalized terms used but not otherwise defined herein have the meanings ascribed to
them in the Lease. As of the Effective Date, this Amendment shall be part of the Lease.
2.
Extension of Term. Landlord and Tenant hereby agree that the Term of the Lease shall be extended
from February 1, 2023 (“Extension Commencement Date”) until January 31, 2028 (“Extension Expiration Date”) (the period
beginning on the Extension Commencement Date and ending on the Extension Expiration Date is referred to as the “Extension
Term”). All references in the Lease to the “Term” shall hereafter be deemed to include the Extension Term and expire on
January 31, 2028.
3.
Monthly Base Rental. Effective as of June 1, 2022, and notwithstanding anything to the contrary
contained in the Lease, Tenant shall pay to Landlord Monthly Base Rent for the Premises pursuant to the terms of the Lease
applicable to the payment of Monthly Base Rent in the amounts as follows:
June 1, 2022 – January 31, 2023*
Period
Rent per RSF
$12.65*
Monthly Base Rent
$57,483.71 (after taking into
account abatement below)
February 1, 2023 – May 31, 2023*
$12.50*
$56,802.08 (after taking into
account abatement below)
June 1, 2023 – January 31, 2024
February 1, 2024– January 31, 2025
February 1, 2025 – January 31, 2026
February 1, 2026 – January 31, 2027
February 1, 2027 – January 31, 2028
$25.00
$25.69
$26.39
$27.12
$27.87
$113,604.17
$116,728.28
$119,938.31
$123,236.61
$126,645.62
*Provided Tenant is not in default of the terms of the Lease, and does not default in the terms of this Lease beyond any cure or
grace period during the Term, Landlord shall forgive payment of one-half of the monthly installments of Monthly Base Rent for
the months of June, July, August, September, October, November, and December of 2022 and January, February, March, April,
and May of 2023 as shown above (rent abatement value equaling $687,078.00); provided that during such period, all other sums
due under the Lease shall continue to be due in accordance with the applicable terms and provisions thereof. Notwithstanding the
foregoing, such abated rent shall immediately become due and payable in full upon Tenant’s default if such default is not cured
prior to the expiration of the applicable notice period prescribed in the Lease.
Prior to June 1, 2022, Monthly Base Rent for the Premises shall continue as provided elsewhere in the Lease, including, without
limitation, paragraph 5 of the Second Lease Amendment. Nothing contained in this Amendment shall affect Tenant’s obligation
to continue to pay Operating Expenses and other Additional Rent pursuant to the Lease; provided, however, that beginning on the
Extension Commencement Date, all references in the Lease to the “Base Expense Stop” shall mean Operating Expenses incurred
during the calendar year 2023.
4.
Premises. Tenant currently occupies the Premises and represents to Landlord that it has examined and
inspected the same, finds them satisfactory for Tenant’s intended use, and constitutes Tenant’s acceptance “AS IS - WITH ALL
FAULTS.” Landlord makes no express or implied representations or warranties as to the condition of the Premises
whatsoever. Tenant, at Tenant’s sole cost and expense, shall be responsible for any work or improvements that it decides to
perform to the Premises in connection with its continued occupancy.
5.
Amendment Allowance. Landlord, provided Tenant is not in default of the terms of the Lease, agrees to
provide Tenant with an allowance in an amount equal to One
Million Three Hundred Sixty-Three Thousand Two Hundred Fifty and 00/100 Dollars ($1,363,250.00) (the “Allowance”) on or
before June 30, 2023.
6.
Holdover. Section 4.2 of the Lease is hereby deleted in its entirety and replaced with the following:
“Tenant will, at the termination of this Lease by lapse of time or otherwise, yield up immediate possession
of the Premises to Landlord with all repairs and maintenance required herein to be performed by Tenant
completed. If Tenant remains in possession after such termination without Landlord’s written consent, such
holdover shall not be deemed to be a renewal of this Lease but shall be deemed to create a month-to-month
term which may be terminated by either party on the thirtieth (30th) day after written notice is delivered to
the other party. In the event that any such holdover exists, all of the terms and provisions of this Lease shall
be applicable during such holdover period, except that Tenant shall pay Landlord from time to time upon
demand, as rent for the first three (3) months of any holdover an amount equal to the then-current Monthly
Base Rent and Operating Expenses in effect on the termination date, and thereafter, an amount equal to one
hundred fifty percent (150%) of the Monthly Base Rent and Operating Expenses in effect on the
termination date, computed on a daily basis for each day of the holdover period. Tenant agrees to
indemnify, defend and hold Landlord harmless from any and all claims, loss or damage arising from
Tenant’s holdover.”
7.
Name, Address and Contact. The Face Page of the Lease is hereby amended to provide that Landlord’s
name, address, contact information, and rent payment address for the Lease shall be the following addresses:
Landlord’s address for notices:
TDC Blue IV, LLC
c/o The Dilweg Companies
5310 S. Alston Avenue, Suite 210
Durham, North Carolina 27713
Attn: Asset Manager
Facsimile: (919) 402-9119
E-mail: jwitek@dilweg.com
With a copy to:
TDC Blue IV, LLC
c/o The Dilweg Companies
5310 S. Alston Avenue, Suite 210
Durham, North Carolina 27713
Attn: President
Facsimile: (919) 402-9119
E-mail: jbenson@dilweg.com
Rent payment address:
TDC Blue IV, LLC
c/o The Dilweg Companies
5310 S. Alston Avenue, Suite 210
Durham, North Carolina 27713
ATTN: Asset Manager
Telephone: (919) 402-9100
Facsimile: (919) 402-9119
8.
Brokers. Notwithstanding anything to the contrary contained in the Lease, Tenant represents and warrants to
Landlord that is has not entered into any agreement with, or otherwise had any dealings with, any broker or agent other than CB
Richard Ellis – Raleigh LLC, a Delaware limited liability company d/b/a CBRE│Raleigh (“Tenant’s Agent”) in connection with
this Amendment. Landlord represents and warrants to Tenant that is has not entered into any agreement with, or otherwise had
any dealings with, any broker or agent other than Foundry Commercial, LLC (“Landlord’s Agent”) in connection with this
Amendment. Tenant hereby indemnifies and holds harmless from and against all loss, costs, damage or expense (including, but
not limited to, court costs, investigation costs and reasonable attorneys’ fees), as a result of any agreement or dealings, or alleged
agreement or dealings, between Tenant and any such agent or broker other than Tenant’s Agent. Landlord hereby indemnifies and
holds Tenant harmless from and against all loss, costs, damage or expense (including, but not limited to, court costs, investigation
costs and reasonable attorneys’ fees), as a result of any agreement or dealings, or alleged agreement or dealings, between
Landlord any such agent or broker other than Landlord’s Agent. Landlord shall pay a commission to Landlord’s Agent pursuant
to a separate agreement between Landlord and Landlord’s Agent. The provisions of this Paragraph 8 shall survive the expiration
or earlier termination of the Lease.
9.
Patriot Act. Each party shall take any actions that may be required to comply with the terms of the USA
Patriot Act of 2001, as amended, any regulations promulgated under the foregoing law, Executive Order No. 13224 on Terrorist
Financing, any sanctions program administrated by the U.S. Department of Treasury’s Office of Foreign Asset Control or
Financial Crimes Enforcement Network, or any other laws, regulations, executive orders or government programs designed to
combat terrorism or money laundering, or the effect of any of the foregoing laws, regulations, orders or programs, if applicable,
on the Lease. Each party represents and warrants to the other party that it is not an entity named on the List of Specially
Designated Nationals and Blocked
Persons maintained by the U.S. Department of Treasury, as last updated prior to the date of this Amendment.
10.
Confidentiality. Tenant acknowledges and agrees that the terms of the Lease are confidential and constitute
propriety information of Landlord. Disclosure of the terms hereof could adversely affect the ability of Landlord to negotiate
other leases with respect to the Project and may impair Landlord’s relationship with other tenants in the Project. Tenant agrees
that it and its partners, officers, directors, employees, brokers, and attorneys, if any, shall not disclose the terms and conditions of
the Lease to any other person or entity without the prior written consent of Landlord which may be given or withheld by
Landlord, in Landlord’s sole discretion. It is understood and agreed that damages alone would be an inadequate remedy for the
breach of this provision by Tenant, and Landlord shall also have the right to seek specific performance of this provision and to
seek injunctive relief to prevent its breach or continued breach.
11.
Tenant’s Acknowledgment. Tenant acknowledges that Landlord has complied with all of its obligations
under the Lease to date, and, to the extent not expressly modified hereby, all of the terms and conditions of said Lease shall
remain unchanged and in full force and effect.
12.
Miscellaneous. The foregoing is intended to be an addition and a modification to the Lease. Except as
modified and amended by this Amendment, the Lease shall remain in full force and effect. If anything contained in this
Amendment conflicts with any terms of the Lease, then the terms of this Amendment shall govern and any conflicting terms in
the Lease shall be deemed deleted in their entirety. Each party to this Amendment shall execute all instruments and documents
and take such further action as may be reasonably required to effectuate the purposes of this Amendment. This Amendment may
be executed by electronic signature, which shall be considered as an original signature for all purposes and shall have the same
force and effect as an original signature. For these purposes, “electronic signature” shall mean electronically scanned and
transmitted versions (e.g., via PDF file) of an original signature, signatures electronically inserted and verified by software, or
faxed versions of an original signature. This Amendment may be modified only by a writing executed by the parties hereto. This
Amendment may be executed in multiple counterparts, each of which shall be deemed an original, and all such counterparts shall
together constitute one and the same instrument. The invalidity of any portion of this Amendment shall not have any effect on
the balance hereof. This Amendment shall be binding upon the parties hereto, as well as their successors, heirs, executors and
assigns. This Amendment shall be governed by, and construed in accordance with, North Carolina law.
[Signature Page Attached Hereto]
IN WITNESS WHEREOF, Tenant and Landlord have caused this Amendment to be executed as of the date first above written,
by their respective officers or parties thereunto duly authorized.
TENANT:
EXTREME NETWORKS, INC.,
a Delaware corporation
By:
Name:
Title:
/S/ Remi Thomas
Remi Thomas
CFO
LANDLORD:
TDC Blue IV, LLC,
a Delaware limited liability company
By:
TDC BLUE II, LLC,
a Delaware limited liability company
its Sole Member
By:
TDC BLUE MEMBER, LLC,
a Delaware limited liability company
its Sole Member
By:
DILWEG CAPITAL, LLC,
a North Carolina limited liability company,
its Managing Member
By:
Drew P. Cunningham, Chief Operating Officer
/S/ Drew P. Cunningham
EXTREME NETWORKS, INC.
NOTICE OF GRANT OF
PERFORMANCE VESTING RESTRICTED STOCK UNITS
(For U.S. Participants)
Exhibit 10.36
Extreme Networks, Inc. (the “Company”) has granted to the Participant an award (the “Award”) of certain units (each, a “Unit”) pursuant to the Extreme
Networks, Inc. 2013 Equity Incentive Plan (the “Plan”), each of which represents the right to receive on the applicable settlement date (the “Settlement
Date”) one (1) share of Stock, as follows:
Participant:
Grant Date:
[name]
[date]
Employee ID:
[ID]
Target Number of Units:
[xxx], subject to adjustment as provided by the Performance Vesting Restricted Stock Units
Agreement (the “Agreement”).
Settlement Date:
Vested Units:
Except as provided by the Agreement, the date on which a Unit vests (such unit, a “Vested
Unit”).
The Units shall be eligible to become Vested Units based on the Company’s achievement of
Relative TSR (as defined in Appendix A) over each of the three performance periods (each,
a “Performance Period”) set forth below:
•The Grant Date through the first anniversary of the Grant Date (the “First
Performance Period”);
•The Grant Date through the second anniversary of the Grant Date (the “Second
Performance Period”); and
•The Grant Date through the third anniversary of the Grant Date (the “Third
Performance Period”).
Subject to the terms of the Agreement:
•The number of Units that become Vested Units in respect of each of the First
Performance Period and the Second Performance Period will be determined by
multiplying the Achievement Percentage (as determined in accordance with
Appendix A) for such Performance Period by one-third of the Target Number of
Units set forth above; and
•the number of Units that become Vested Units in respect of the Third Performance
Period will be (i) the product of the Achievement Percentage (as determined in
accordance with Appendix A) for the Third Performance Period and the Target
Number of Units set forth above, less (ii) the total number of Vested Units earned
in respect of the First Performance Period and the Second Performance Period.
Upon the date that the Committee determines the Achievement Percentage for a
Performance Period, which shall in no event be more than sixty (60) days following the
completion of such Performance Period (the “Determination Date”), the applicable Units
shall become Vested Units, subject to the Participant’s continued Service through the
Determination Date.
Change in Control
In the event of a Change in Control, the Units will be treated as set forth in Section 8.2 of
the Agreement.
Superseding Agreement: None
US-DOCS\93913327.3
By the Company’s authorized signature below and the Participant’s by electronic acceptance in a form authorized by the Company, the Company and the
Participant agree that the Award is governed by this Grant Notice and by the provisions of the Performance Vesting Restricted Stock Units Agreement and
the Plan, both of which are made a part of this document, and by the Superseding Agreement, if any. The Participant acknowledges that copies of the Plan,
the Performance Vesting Restricted Stock Units Agreement 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 attachment to the Participant’s copy of this Grant Notice. The Participant represents that the Participant has read
and is familiar with the provisions of the Performance Vesting Restricted Stock Units Agreement and the Plan, and hereby accepts the Award subject to all
of their terms and conditions.
By:
EXTREME NETWORKS, INC.
2121 RDU Center Dr, STE 300
Morrisville, NC 27560
ATTACHMENTS:
2013 Equity Incentive Plan, as amended to the Date of Grant; Performance Vesting Restricted Stock Units Agreement and
Plan Prospectus
I have reviewed the attached documents and accept this grant.
______________________________
[name]
Date:________________________________
2
US-DOCS\93913327.3
EXTREME NETWORKS, INC.
PERFORMANCE VESTING RESTRICTED
STOCK UNITS AGREEMENT
(For U.S. Participants)
Extreme Networks, Inc. has granted to the Participant named in the Notice of Grant of Performance Vesting Restricted
Stock Units (the “Grant Notice”) to which this Performance Vesting Restricted Stock Units Agreement (the “Agreement”) is
attached an Award consisting of Performance Vesting Restricted Stock Units (each a “Unit”) subject to the terms and conditions
set forth in the Grant Notice and this Agreement. The Award has been granted pursuant to and shall in all respects be subject to
the terms and conditions of the Extreme Networks, Inc. 2013 Equity Incentive Plan (the “Plan”), as amended to the Date of
Grant, the provisions of which are incorporated herein by reference. By signing the Grant Notice, the Participant:
(a) acknowledges receipt of and represents that the Participant has read and is familiar with the Grant Notice, this Agreement, the
Plan and a prospectus for the Plan prepared in connection with the registration with the Securities and Exchange Commission of the
shares issuable pursuant to the Award (the “Plan Prospectus”), (b) accepts the Award subject to all of the terms and conditions of
the Grant Notice, this Agreement and the Plan and (c) agrees to accept as binding, conclusive and final all decisions or
interpretations of the Committee upon any questions arising under the Grant Notice, this Agreement or the Plan.
1.
DEFINITIONS AND CONSTRUCTION.
1.1
to such terms in the Grant Notice or the Plan.
Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings assigned
1.2
Construction. Captions and titles contained herein are for convenience only and shall not affect
the meaning or interpretation of any provision of this Agreement. Except when otherwise indicated by the context, the singular
shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the
context clearly requires otherwise.
2.
ADMINISTRATION.
All questions of interpretation concerning the Grant Notice, this Agreement, the Plan or any other form of
agreement or other document employed by the Company in the administration of the Plan or the Award shall be determined by
the Committee. All such determinations by the Committee shall be final, binding and conclusive upon all persons having an
interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by
the Committee in the exercise of its discretion pursuant to the Plan or the Award or other agreement thereunder (other than
determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons
having 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
apparent authority with respect to such matter, right, obligation, or election.
3
US-DOCS\93913327.3
3.
THE AWARD.
3.1
Grant of Units. The Company hereby grants to the Participant the Award set forth in the Grant
Notice, which, based on attainment of applicable Relative TSR goals set forth on Appendix A, may result in the Participant
earning up to 150% of the Target Number of Units set forth in the Grant Notice. Subject to the terms of this Agreement and the
Plan, each Vested Unit represents a right to receive on the applicable Settlement Date one (1) share of Stock. Unless and until a
Unit has become one or more Vested Units as set forth in the Grant Notice and this Agreement, the Participant will have no right
to settlement of such Unit. Prior to settlement of any Vested Units, such Units will represent an unfunded and unsecured
obligation of the Company.
3.2
No 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
the Units, the consideration for which shall be past services actually rendered or future services to be rendered to a Participating
Company or for its benefit. Notwithstanding the foregoing, if required by applicable law, the Participant shall furnish
consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less
than the par value of the shares of Stock issued upon settlement of the Units.
4.
VESTING OF UNITS.
Units as provided in the Grant Notice.
4.1
Normal Vesting. Except as otherwise provided by this Agreement, Units shall become Vested
4.2
Effect of Termination of Service upon Vesting. Except as provided by Section 4.4 or a
Superseding Agreement, if any, if the Participant’s Service terminates for any reason, all Units subject to the Award which have
not become Vested Units as of the time of such termination of Service shall automatically be forfeited.
treated as set forth in Section 8.2.
4.3
Effect of a Change in Control. In the event of a Change in Control, the number of Units shall be
4.4
Vesting Upon Termination Upon a Change in Control. In the event of the Participant’s
“Termination Upon a Change in Control” (as defined by the Extreme Networks, Inc. Executive Change in Control Severance
Plan, as amended or its successor (the “Change in Control Plan”)), the vesting of Units shall be determined in accordance with
Section 8.3.
5.
FORFEITURE.
5.1
Termination of Service. Except to the extent otherwise provided by Section 4.4 or a Superseding
Agreement, if any, in the event that the Participant’s Service terminates for any reason or no reason, with or without cause, the
Participant shall forfeit all Units which are not, as of the time of such termination, Vested Units (“Unvested Units”), and the
Participant shall not be entitled to any payment therefor.
4
US-DOCS\93913327.3
End of Third Performance Period. Any Units that do not become Vested Units upon the
Determination Date for the Third Performance Period shall automatically be cancelled and forfeited for no consideration as of
such Determination Date.
5.2
5.3
Ownership Change Event, Non-Cash Dividends, Distributions and Adjustments. Upon the
occurrence of an Ownership Change Event, a dividend or distribution to the stockholders of the Company paid in shares of Stock
or other property, or any other adjustment upon a change in the capital structure of the Company as described in Section 9, any
and all new, substituted or additional securities or other property (other than regular, periodic cash dividends paid on Stock
pursuant to the Company’s dividend policy) to which the Participant is entitled by reason of the Participant’s ownership of
Unvested Units shall be subject to forfeiture pursuant to Section 5.1 above and included in the terms “Units” and “Unvested
Units” for all purposes of such forfeiture condition with the same force and effect as the Unvested Units immediately prior to the
Ownership Change Event, dividend, distribution or adjustment, as the case may be. For purposes of determining the number of
Vested Units following an Ownership Change Event, dividend, distribution or adjustment, 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.
6.1
Issuance of Shares of Stock. Subject to the provisions of Section 6.3, the Company shall issue to
the Participant on the Settlement Date with respect to each Vested Unit to be settled on such date one (1) share of Stock. The
Settlement Date with respect to a Unit shall be the date on which such Unit becomes one or more Vested Units 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 the Participant 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 the Trading Compliance Policy, but in any event on or before the 15th day of the third calendar month
following calendar year of the Original Settlement Date. Shares of Stock issued in settlement of Units shall not be subject to any
restriction on transfer other than any such restriction as may be required pursuant to Section 6.3, Section 7 or the Company’s
Trading Compliance Policy.
6.2
Beneficial Ownership of Shares; Certificate Registration. The Participant hereby authorizes the
Company, in its sole discretion, to deposit any or all shares acquired by the Participant pursuant to the settlement of the Award
with the Company’s transfer agent, including any successor transfer agent, to be held in book entry form, or to deposit such
shares for the benefit of the Participant with any broker with which the Participant has an account relationship of which the
Company has notice. Except as provided by the foregoing, a certificate for the shares acquired by the Participant shall be
registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.
Restrictions on Grant of the Award and Issuance of Shares. The grant of the Award and
issuance of shares of Stock upon settlement of the Award shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such
6.3
5
US-DOCS\93913327.3
securities. No shares of Stock may be issued hereunder if the issuance of such shares would constitute a violation of any
applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market
system upon which the Stock may then be listed. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance of any shares
subject to the Award shall relieve the Company of any liability in respect of the failure to issue such shares as to which such
requisite authority shall not have been obtained. As a condition to the settlement of the Award, the Company may require the
Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
6.4
Fractional Shares. The Company shall not be required to issue fractional shares upon the
settlement of the Award.
7.
TAX WITHHOLDING.
7.1
In General. At the time the Grant Notice is executed, or at any time thereafter as requested by a
Participating 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 (including any social insurance) withholding obligations of the Participating Company, if any, which arise in connection with
the Award, the vesting of Units or the issuance of shares of Stock in settlement thereof. The Company shall have no obligation to
deliver shares of Stock until the tax withholding obligations of the Participating Company have been satisfied by the Participant.
7.2
Assignment of Sale Proceeds. Subject to compliance with applicable law and the Company’s
Trading Compliance Policy, if permitted by the Company, the Participant may satisfy the Participating Company’s tax
withholding obligations in accordance with procedures established by the Company providing for delivery by the Participant to
the Company or a broker approved by the Company of properly executed instructions, in a form approved by the Company,
providing for the assignment to the Company of the proceeds of a sale with respect to some or all of the shares being acquired
upon settlement of Units.
7.3
Withholding in Shares. The Company shall have the right, but not the obligation, to require the
Participant to satisfy all or any portion of a Participating Company’s tax withholding obligations by deducting from the shares of
Stock otherwise deliverable to the Participant in settlement of the Award a number of whole shares having a fair market value, as
determined by the Company as of the date on which the tax withholding obligations arise, not in excess of the amount of such tax
withholding obligations determined by the applicable minimum statutory withholding rates.
8.
EFFECT OF CHANGE IN CONTROL.
In General. In the event of a Change in Control, subject to Section 8.2 below, the surviving,
continuing, successor, or purchasing entity or parent thereof, as the case may be (the “Acquiror”), may, without the consent of the
Participant, assume or continue in full force
8.1
6
US-DOCS\93913327.3
and effect the Company’s rights and obligations under all or any portion of the outstanding Units or substitute for all or any
portion of the outstanding Units substantially 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 this Agreement, the consideration (whether stock, cash, other securities or property or a combination
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 the outstanding shares of
Stock); provided, however, that if such consideration is not solely common stock of the Acquiror, the Committee may, with the
consent of the Acquiror, provide for the consideration to be received upon settlement of the Unit to consist solely of common
stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to the
Change in Control.
Grant Date, subject to the Participant’s continued Service as of immediately prior to the Change in Control:
8.2
Earned Units. In the event of a Change in Control that occurs prior to the third anniversary of the
(a)
A number of Units equal to (i) the Target Number of Units set forth in the Grant Notice
multiplied by (ii) the greater of (x) 100% or (y) the Achievement Percentage determined in accordance with Appendix A as if a
Performance Period had ended upon a date within ten days prior to the Change in Control, as determined by the Committee,
using, in the case of the Company TSR calculation, the value of the per share consideration to be received by Company
stockholders in the Change in Control (as determined by the Committee) as the ending share price (which Achievement
Percentage, for the avoidance of doubt, shall not be capped at 100%), shall be deemed earned units (“Earned Units”);
(b)
A number of Units equal to (i) the Earned Units, multiplied by a fraction, the numerator
of which is the number of days between the Grant Date and the date of the Change in Control and the denominator of which is
the total number of days in the Third Performance Period, less (ii) the total number of Vested Units previously earned shall
become Vested Units as of immediately prior to the Change in Control (the “Accelerated Units”); and
(c)
A number of Units equal to the Earned Units less the total number of Vested Units
previously earned (including the Accelerated Units) shall cease to vest in accordance with the Grant Notice and will instead
become eligible to vest solely based on the Participant’s continued Service (the “Time-Vesting Units”). The Time-Vesting Units
will become Vested Units in substantially equal quarterly installments through the third anniversary of the Grant Date, subject to
the Participant’s continued Service through the applicable vesting date, with the first vesting date being the first quarterly date
that would result in the Time-Vesting Units vesting in full on the third anniversary of the Grant Date, subject to continued
Service.
automatically be cancelled and forfeited for no consideration as of immediately prior to the Change in Control.
(d)
Any Units that have not become Accelerated Units or Time-Vesting Units will
7
US-DOCS\93913327.3
8.3
Change in Control Plan. This Section 8.3 shall apply only if the Participant is a participant in a
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 the vesting of each Time-Vesting Unit determined in
accordance with Section 8.2 shall be accelerated, and such Time-Vesting Units shall become Vested Units to the extent provided
by the Change in Control Plan and the Participant’s participation agreement in such plan effective as of the date of the
Participant’s termination of Service. In addition, in the event that Award is not assumed or substituted by the Acquiror, each
Time-Vesting Unit will vest in full immediately prior to the Change in Control. For the purposes of this Section 8.3, the
settlement date shall occur upon or as soon as practicable following the vesting date, but in any event no later than the 15th day
of the third calendar month following the 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
the Code 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 of the 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 the Fair Market Value of shares of Stock, appropriate and proportionate adjustments
shall be made in the number of Units subject to the Award and/or the number and kind of shares or other property to be issued in
settlement of the Award, in order to prevent dilution or enlargement of the Participant’s rights under the Award. For purposes of
the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of
consideration by the Company.” Any and all new, substituted or additional securities or other property (other than regular,
periodic cash dividends paid on Stock pursuant to the Company’s dividend policy) to which the Participant is entitled by reason
of ownership of Units acquired pursuant to this Award will be immediately subject to the provisions of this Award on the same
basis as all Units originally acquired hereunder. Any fractional Unit or share resulting from an adjustment pursuant to this
Section shall be rounded down to the nearest whole number. Such adjustments shall be determined by the Committee, and its
determination shall be final, binding and conclusive.
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
settlement of 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 a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or
other rights for which the record date is prior to the date the shares are issued, except as provided in Section 9. If the Participant
is an Employee, the Participant understands and acknowledges that, except as otherwise provided in a separate, written
employment agreement between a Participating
8
US-DOCS\93913327.3
Company and the Participant, the Participant’s employment is “at will” and is for no specified term. Nothing in this Agreement
shall confer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any
right of the Participating 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
law restrictions on all certificates representing shares of stock issued pursuant to this Agreement. The Participant shall, at the
request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to this
Award in the possession 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
with this Award that may result in Section 409A Deferred Compensation shall comply in all respects with the applicable
requirements of Section 409A (including applicable regulations or other administrative guidance thereunder, as determined by the
Committee in good faith) to avoid the unfavorable tax consequences provided therein for non‑compliance. In connection with
effecting such compliance with Section 409A, the following shall apply:
12.1
from
Separation
Service; Required Delay
Specified
Employee. Notwithstanding anything set forth herein to the contrary, no amount payable pursuant to this Agreement on account
of the Participant’s termination of Service which constitutes a “deferral of compensation” within the meaning of the Treasury
Regulations issued pursuant to Section 409A of the Code (the “Section 409A Regulations”) shall be paid unless and until the
Participant has incurred a “separation from service” 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 that constitutes a deferral of compensation which is payable on account of the
Participant’s separation from service shall be paid to the Participant before the date (the “Delayed Payment Date”) which is first
day of the seventh month after the date of the Participant’s separation from service or, if earlier, the date of the Participant’s death
following such separation from service. All such amounts that would, but for this Section, become payable prior to the Delayed
Payment Date will be accumulated and paid on the Delayed Payment Date.
Payment
in
to
Other Changes in Time of Payment. Neither the Participant nor the Company shall take any
action to accelerate or delay the payment of any benefits under this Agreement in any manner which would not be in compliance
with the Section 409A Regulations.
12.2
12.3
Amendments to Comply with Section 409A; Indemnification. Notwithstanding any other
provision of this Agreement to the contrary, the Company is authorized to amend this Agreement, to void or amend any election
made by the Participant under this Agreement and/or to delay the payment of any monies and/or provision of any benefits in such
manner as may be determined by the Company, in its discretion, to be necessary or appropriate to
9
US-DOCS\93913327.3
comply with the Section 409A Regulations without 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 other liability incurred by the Participant in connection with the Award,
including as a result of the application of Section 409A.
12.4
Advice of Independent Tax Advisor. The Company has not obtained a tax ruling or other
confirmation from the Internal Revenue Service with regard to the application of Section 409A to the Award, and the Company
does not represent or warrant that this Agreement will avoid adverse tax consequences to the Participant, including as a result of
the application of Section 409A to the Award. The Participant hereby acknowledges that he or she has been advised to seek the
advice of his or her own independent tax advisor prior to entering into this Agreement and is not relying upon any representations
of the Company or any of its agents as to the effect of or the advisability of entering into this Agreement.
13.
MISCELLANEOUS PROVISIONS.
13.1
Administration. 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 Award shall be determined by the Committee. All such determinations by the Committee shall be final, binding and
conclusive upon all persons having an interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions
and determinations taken or made by the Committee in the exercise of its discretion pursuant to the Plan or the Award or other
agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final,
binding and conclusive upon all persons having 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 apparent authority with respect to such matter, right, obligation, or election.
13.2
Termination or Amendment. The Committee may terminate or amend the Plan or this
Agreement at any time; provided, however, that except as provided in Section 8 in connection with a Change in Control, no such
termination or amendment may have a materially adverse effect on the Participant’s rights under this Agreement without the
consent of the Participant unless such termination or amendment is necessary to comply with applicable law or government
regulation, including, but not limited to, Section 409A. No amendment or addition to this Agreement shall be effective unless in
writing.
13.3
Nontransferability of the Award. Prior to the issuance of shares of Stock on the applicable
Settlement 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 the Participant’s lifetime only by the Participant or the Participant’s guardian or legal representative.
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US-DOCS\93913327.3
such further action as may reasonably be necessary to carry out the intent of this Agreement.
13.4
Further Instruments. The parties hereto agree to execute such further instruments and to take
Binding Effect. This Agreement shall inure to the benefit of the successors and assigns of the
Company 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.
13.5
13.6
Delivery of Documents and Notices. Any document relating to participation in the Plan or any
notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that
this Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery at
the e-mail address, if any, provided for the Participant by a Participating Company, or upon deposit in the U.S. Post Office or
foreign postal service, 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 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 not
necessarily include: the Plan, the Grant Notice, this Agreement, the Plan Prospectus, and any reports of the Company provided
generally 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 as the Company may designate from time to time. Such means of electronic delivery may include but do
not necessarily include the delivery of a link to a Company intranet or the Internet site of a third party involved in administering
the Plan, the delivery of the document 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
read Section 13.6(a) of this Agreement and consents to the electronic delivery of the Plan documents and, if permitted by the
Company, the delivery of the Grant Notice, as described in Section 13.6(a). The Participant acknowledges that he or she may
receive from the Company a paper copy of any documents delivered electronically at no cost to the Participant by contacting the
Company by telephone or in writing. The Participant further acknowledges that the Participant will be provided with a paper
copy of any documents if the attempted electronic delivery of such documents fails. Similarly, the Participant understands that
the Participant must provide the Company or any designated third party administrator with a paper copy of any documents if the
attempted electronic delivery of such documents fails. The Participant may revoke his or her consent to the electronic delivery of
documents described in Section 13.6(a) or may change the electronic mail address to which such documents are to be delivered
(if Participant has provided an electronic mail address) at any time by notifying the Company of such revoked consent or revised
e-mail address by telephone, postal service or electronic mail. Finally, the Participant understands that he or she is not required to
consent to electronic delivery of documents described in Section 13.6(a).
11
US-DOCS\93913327.3
13.7
Integrated Agreement. The Grant Notice, this Agreement and the Plan, together with the
Superseding Agreement, if any, shall constitute the entire understanding and agreement of the Participant and the Participating
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 to such subject matter. To the extent contemplated herein or therein, the provisions of the Grant Notice, this Agreement
and the Plan shall survive any settlement of the Award and shall remain in full force and effect.
13.8
Applicable Law. This Agreement shall be governed by the laws of the State of California as
such laws are applied to agreements between California residents entered into and to be performed entirely within the State of
California. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties as
evidenced by this Agreement, the parties hereby submit to and consent to the jurisdiction of California and agree that such
litigation shall be conducted only in the courts of the County of Santa Clara, California, or the federal courts of the United States
for the Northern District of California, and no other courts, where this Agreement is made and/or performed.
deemed an original, but all of which together shall constitute one and the same instrument.
13.9
Counterparts. The Grant Notice may be executed in counterparts, each of which shall be
12
US-DOCS\93913327.3
Exhibit 10.36
1.
DEFINITIONS.
1.1
“Benchmark Index” shall mean the Russell 2000 Index.
Appendix A
1.2
“Benchmark TSR” shall mean the total shareholder return of the Benchmark Index, expressed as a
percentage and calculated based on the change in index price over the applicable Performance Period, where the beginning price
for purposes of the calculation is the average closing price over the 30 consecutive trading days ending on the last trading day
prior to the first day of the applicable Performance Period and the ending price for purposes of the calculation is based on the
average closing trading price over the 30 consecutive trading days ending on the last trading day prior to the last day of the
applicable Performance Period.
1.3
“Company TSR” shall mean the total shareholder return of the Stock, expressed as a percentage
and calculated based on the change in the price of one share of Stock over the applicable Performance Period , where the
beginning share price for purposes of the calculation is the average closing trading price over the 30 consecutive trading days
ending on the last trading day prior to the first day of the applicable Performance Period and the ending share price for purposes
of the calculation is based on the average closing trading price over the 30 consecutive trading days ending on the last trading
day prior to the last day of the applicable Performance Period, and assuming dividends (if any) are reinvested.
the Benchmark TSR and may be a negative number.
1.4
“Relative TSR” shall mean the percentage points obtained by subtracting the Company TSR from
2.
ACHIEVEMENT PERCENTAGE. Following the end of a Performance Period, the Achievement Percentage for a
Performance Period will be determined by the Committee based on the Relative TSR for such Performance Period in accordance
with the following table, with the Achievement Percentage determined using linear interpolation for Relative TSR performance
between the threshold level and the target level or the target level and the maximum level. Notwithstanding the foregoing, in no
event may the Achievement Percentage exceed 100% for each of the First Performance Period and the Second Performance
Period.
Below Threshold
Threshold
Target
Maximum
Relative TSR
Less than -37.5 percentage points
-37.5 percentage points
0 percentage points
25 percentage points or more
Achievement Percentage
0%
25%
100%
150%
An example of the determination of the Achievement Percentage and Vested Units is set forth on Annex A hereto.
US-DOCS\93913327.3
PSU – Payout Slope Detail
Annex A
Exhibit 10.36
PSU – Example Potential Payout
US-DOCS\93913327.3
EXTREME NETWORKS, INC.
NOTICE OF GRANT OF
PERFORMANCE VESTING RESTRICTED STOCK UNITS
(For non-U.S. Participants)
Exhibit 10.37
Extreme Networks, Inc. (the “Company”) has granted to the Participant an award (the “Award”) of certain units (each, a “Unit”) pursuant to the Extreme
Networks, Inc. 2013 Equity Incentive Plan (the “Plan”), each of which represents the right to receive on the applicable settlement date (the “Settlement
Date”) one (1) share of Stock, as follows:
Participant:
Grant Date:
[name]
[date]
Employee ID:
[ID]
Target Number of Units:
]xxx], subject to adjustment as provided by the Performance Vesting Restricted Stock Units
Agreement (the “Agreement”).
Settlement Date:
Vested Units:
Except as provided by the Agreement, the date on which a Unit vests (such unit, a “Vested
Unit”).
The Units shall be eligible to become Vested Units based on the Company’s achievement of
Relative TSR (as defined in Appendix A) over each of the three performance periods (each,
a “Performance Period”) set forth below:
•The Grant Date through the first anniversary of the Grant Date (the “First
Performance Period”);
•The Grant Date through the second anniversary of the Grant Date (the “Second
Performance Period”); and
•The Grant Date through the third anniversary of the Grant Date (the “Third
Performance Period”).
Subject to the terms of the Agreement:
•The number of Units that become Vested Units in respect of each of the First
Performance Period and the Second Performance Period will be determined by
multiplying the Achievement Percentage (as determined in accordance with
Appendix A) for such Performance Period by one-third of the Target Number of
Units set forth above; and
•the number of Units that become Vested Units in respect of the Third Performance
Period will be (i) the product of the Achievement Percentage (as determined in
accordance with Appendix A) for the Third Performance Period and the Target
Number of Units set forth above, less (ii) the total number of Vested Units earned
in respect of the First Performance Period and the Second Performance Period.
Upon the date that the Committee determines the Achievement Percentage for a
Performance Period, which shall in no event be more than sixty (60) days following the
completion of such Performance Period (the “Determination Date”), the applicable Units
shall become Vested Units, subject to the Participant’s continued Service through the
Determination Date.
Change in Control
In the event of a Change in Control, the Units will be treated as set forth in Section 8.2 of
the Agreement.
Superseding Agreement: None
By the Company’s authorized signature below and the Participant’s by electronic acceptance in a form authorized by the Company, the Company and the
Participant agree that the Award is governed by this Grant Notice and by the
provisions of the Performance Vesting Restricted Stock Units Agreement and the Plan, both of which are made a part of this document, and by the
Superseding Agreement, if any. The Participant acknowledges that copies of the Plan, the Performance Vesting Restricted Stock Units Agreement 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 attachment to the
Participant’s copy of this Grant Notice. The Participant represents that the Participant has read and is familiar with the provisions of the Performance
Vesting Restricted Stock Units Agreement and the Plan, and hereby accepts the Award subject to all of their terms and conditions.
By:
EXTREME NETWORKS, INC.
2121 RDU Center Dr, STE 300
Morrisville, NC 27560
ATTACHMENTS:
2013 Equity Incentive Plan, as amended to the Date of Grant; Performance Vesting Restricted Stock Units Agreement and
Plan Prospectus
I have reviewed the attached documents and accept this grant.
______________________________
[name]
Date:________________________________
2
EXTREME NETWORKS, INC.
PERFORMANCE VESTING
RESTRICTED STOCK UNITS AGREEMENT
(For Non-U.S. Participants)
Extreme Networks, Inc. has granted to the Participant named in the Notice of Grant of Performance Vesting Restricted
Stock Units (the “Grant Notice”) to which this Performance Vesting Restricted Stock Units Agreement (the “Agreement”) is
attached an Award consisting of Performance Vesting Restricted Stock Units (each a “Unit”) subject to the terms and conditions
set forth in the Grant Notice and this Agreement. The Award has been granted pursuant to and shall in all respects be subject to
the terms and conditions of the Extreme Networks, Inc. 2013 Equity Incentive Plan (the “Plan”), as amended to the Date of
Grant, the provisions of which are incorporated herein by reference. By signing the Grant Notice, the Participant:
(a) acknowledges receipt of and represents that the Participant has read and is familiar with the Grant Notice, this Agreement, the
Plan and a prospectus for the Plan prepared in connection with the registration with the Securities and Exchange Commission of the
shares issuable pursuant to the Award (the “Plan Prospectus”), (b) accepts the Award subject to all of the terms and conditions of
the Grant Notice, this Agreement and the Plan and (c) agrees to accept as binding, conclusive and final all decisions or
interpretations of the Committee upon any questions arising under the Grant Notice, this Agreement or the Plan.
1.
DEFINITIONS AND CONSTRUCTION.
1.1
to such terms in the Grant Notice or the Plan.
Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings assigned
1.2
Construction. Captions and titles contained herein are for convenience only and shall not affect
the meaning or interpretation of any provision of this Agreement. Except when otherwise indicated by the context, the singular
shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the
context clearly requires otherwise.
2.
CERTAIN CONDITIONS OF THE AWARD.
Compliance with Local Law. The Participant agrees that the Participant will
not acquire shares pursuant to the Award or transfer, assign, sell or otherwise deal with such shares except in compliance with
Local Law.
2.1
2.2
acknowledges, understands and agrees that:
Service and Employment Conditions. In accepting the Award, the Participant
Any notice period mandated under Local Law shall not be
treated as Service for the purpose of determining the vesting of the Award; and the Participant’s right to receive shares in
settlement of the Award after termination of Service, if any, will be measured by the date of termination of the Participant’s
active Service and will not be extended by any
(a)
3
notice period mandated under Local Law. Subject to the foregoing and the provisions of the Plan, the Company, in its sole
discretion, shall determine whether the Participant’s Service has terminated and the effective date of such termination.
The vesting of the Award shall cease upon, and no Units shall
become Vested Units following, the Participant’s termination of Service for any reason except as may be explicitly provided by
the Plan or this Agreement.
(b)
The Plan is established voluntarily by the Company. It is
discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless
otherwise provided in the Plan and this Agreement.
(c)
The grant of the Award is voluntary and occasional and does
not create any contractual or other right to receive future grants of Awards, or benefits in lieu of Awards, even if Awards have
been granted repeatedly in the past.
(d)
(e)
All decisions with respect to future Award grants, if any, will
be at the sole discretion of the Company.
The Participant’s participation in the Plan shall not create a right
to further Service with any Participating Company and shall not interfere with the ability of with any Participating Company to
terminate the Participant’s Service at any time, with or without cause.
(f)
(g)
The Participant is voluntarily participating in the Plan.
The Award is an extraordinary item that does not constitute
compensation of any kind for Service of any kind rendered to any Participating Company, and which is outside the scope of
the Participant’s employment contract, if any.
(h)
The Award is not part of normal or expected compensation or
salary for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, end-of-
service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.
(i)
In the event that the Participant is not an employee of the
Company, the Award grant will not be interpreted to form an employment contract or relationship with the Company; and
furthermore the Award grant will not be interpreted to form an employment contract with any other Participating Company.
(j)
The future value of the underlying shares is unknown and
cannot be predicted with certainty. If the Participant obtains shares upon settlement of the Award, the value of those shares
may increase or decrease.
(k)
(l)
No claim or entitlement to compensation or damages arises
from termination of the Award or diminution in value of the Award or shares acquired upon settlement of the Award resulting
from termination of the Participant’s Service (for any reason whether or not in breach of Local Law) and the Participant
irrevocably releases the Company and each other Participating Company from any such claim that may arise.
If,
notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen then, by signing
this Agreement, the Participant shall be deemed irrevocably to have waived the Participant’s entitlement to pursue such a
claim.
4
2.3
Data Privacy Consent. Participant understands that the Company and the
employer may collect, where permissible under applicable law, certain personal information about Participant, including,
but not limited to, Participant’s name, home address and telephone number, date of birth, social insurance number or other
identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all
Awards or any other entitlement to stock awarded, canceled, vested, unvested or outstanding in Participant’s favor
(“Data”), for the exclusive purpose of implementing, administering and managing the Plan. Participant understands that
Company may transfer Participant’s Data to the United States, which is not considered by the European Commission to
have data protection laws equivalent to the laws in Participant’s country. Participant understands that the Company will
transfer Participant’s Data to a stock plan service provider as may be selected by the Company in the future, which is
assisting the Company with the implementation, administration and management of the Plan. Participant understands that
the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United
States) may have different data privacy laws that the European Commission or Participant’s jurisdiction does not consider
to be equivalent to the protections in Participant’s country. Participant understands that if he or she resides outside the
United States, he or she may request a list with the names and addresses of any potential recipients of the Data by
contacting his or her local human resources representative. Participant authorizes the Company and any other possible
recipients which may assist the Company with implementing, administering and managing the Plan to receive, possess, use,
retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and
managing Participant’s participation in the Plan. Participant understands that Data will be held only as long as is
necessary to implement, administer and manage Participant’s participation in the Plan. Participant understands that if he
or she resides outside the United States, he or she may, at any time, view Data, request additional information about the
storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in
any case without cost, by contacting in writing his or her local human resources representative. Further, Participant
understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or
if Participant later seeks to revoke his or her consent, his or her engagement as a service provider and career with the
employer will not be adversely affected; the only adverse consequence of refusing or withdrawing Participant’s consent is
that the Company would not be able to grant Participant Awards or other equity awards or administer or maintain such
awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participant’s ability
to participate in the Plan. For more information on the consequences of Participant’s refusal to consent or withdrawal of
consent, Participant understands that he or she may contact his or her local human resources representative. Participant
understands that Participant has the right to access, and to request a copy of, the Data held about Participant. Participant
also understands that Participant has the right to discontinue the collection, processing, or use of Participant’s Data, or
supplement, correct, or request deletion of any of Participant’s Data. To exercise Participant’s rights, Participant may
contact Participant’s local human resources representative. Participant hereby explicitly and unambiguously consents
to the collection, use and transfer, in electronic or other form, of Participant’s personal data as described in this Agreement
and any other Award grant materials by and among, as applicable, the employer, the Company and any Parent or Affiliate
for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan. Participant
understands that Participant’s consent will be sought and obtained for any processing or transfer of Participant’s Data for
any purpose other than as described in the Agreement and any other Plan materials.
2.
ADMINISTRATION.
All questions of interpretation concerning the Grant Notice, this Agreement, the Plan or any other form of
agreement or other document employed by the Company in the administration of the Plan or the Award shall be determined by
the Committee. All such determinations by the Committee shall be final, binding and conclusive upon all persons having an
interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by
the Committee in the exercise of its discretion pursuant to the Plan or the Award or other agreement thereunder (other than
determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons
having 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
apparent authority with respect to such matter, right, obligation, or election.
3.
THE AWARD.
3.1
Grant of Units. The Company hereby grants to the Participant the Award set forth in the Grant
Notice, which, based on attainment of applicable Relative TSR goals set forth on Appendix A, may result in the Participant
earning up to 150% of the Target Number of Units set forth in the Grant Notice. Subject to the terms of this Agreement and the
Plan, each Vested Unit represents a right to receive on the applicable Settlement Date one (1) share of Stock. Unless and until a
Unit has become one or more Vested Units as set forth in the Grant Notice and this Agreement, the Participant will have no right
to settlement of such Unit. Prior to settlement of any Vested Units, such Units will represent an unfunded and unsecured
obligation of the Company.
3.2
No 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
the Units, the consideration for which shall be past services actually rendered or future services to be rendered to a Participating
Company or for its benefit. Notwithstanding the foregoing, if required by applicable law, the Participant shall furnish
consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less
than the par value of the shares of Stock issued upon settlement of the Units.
4.
VESTING OF UNITS.
Units as provided in the Grant Notice.
4.1
Normal Vesting. Except as otherwise provided by this Agreement, Units shall become Vested
Superseding Agreement, if any, if the Participant’s Service terminates for any
4.2
Effect of Termination of Service upon Vesting. Except as provided by Section 4.4 or a
5
reason, all Units subject to the Award which have not become Vested Units as of the time of such termination of Service shall
automatically be forfeited.
treated as set forth in Section 8.2.
4.3
Effect of a Change in Control. In the event of a Change in Control, the number of Units shall be
4.4
Vesting Upon Termination Upon a Change in Control. In the event of the Participant’s
“Termination Upon a Change in Control” (as defined by the Extreme Networks, Inc. Executive Change in Control Severance
Plan, as amended or its successor (the “Change in Control Plan”)), the vesting of Units shall be determined in accordance with
Section 8.3.
5.
FORFEITURE.
5.1
Termination of Service. Except to the extent otherwise provided by Section 4.4 or a Superseding
Agreement, if any, in the event that the Participant’s Service terminates for any reason or no reason, with or without cause, the
Participant shall forfeit all Units which are not, as of the time of such termination, Vested Units (“Unvested Units”), and the
Participant shall not be entitled to any payment therefor.
End of Third Performance Period. Any Units that do not become Vested Units upon the
Determination Date for the Third Performance Period shall automatically be cancelled and forfeited for no consideration as of
such Determination Date.
5.2
5.3
Ownership Change Event, Non-Cash Dividends, Distributions and Adjustments. Upon the
occurrence of an Ownership Change Event, a dividend or distribution to the stockholders of the Company paid in shares of Stock
or other property, or any other adjustment upon a change in the capital structure of the Company as described in Section 9, any
and all new, substituted or additional securities or other property (other than regular, periodic cash dividends paid on Stock
pursuant to the Company’s dividend policy) to which the Participant is entitled by reason of the Participant’s ownership of
Unvested Units shall be subject to forfeiture pursuant to Section 5.1 above and included in the terms “Units” and “Unvested
Units” for all purposes of such forfeiture condition with the same force and effect as the Unvested Units immediately prior to the
Ownership Change Event, dividend, distribution or adjustment, as the case may be. For purposes of determining the number of
Vested Units following an Ownership Change Event, dividend, distribution or adjustment, 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.
6.1
Issuance of Shares of Stock. Subject to the provisions of Section 6.3, the Company shall issue to
the Participant on the Settlement Date with respect to each Vested Unit to be settled on such date one (1) share of Stock. The
Settlement Date with respect to a Unit shall be the date on which such Unit becomes one or more Vested Units 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 the Participant 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
6
not violate the Trading Compliance Policy, but in any event on or before the 15th day of the third calendar month following
calendar year of the Original Settlement Date. Shares of Stock issued in settlement of Units shall not be subject to any restriction
on transfer other than any such restriction as may be required pursuant to Section 6.3, Section 7 or the Company’s Trading
Compliance Policy.
6.2
Beneficial Ownership of Shares; Certificate Registration. The Participant hereby authorizes the
Company, in its sole discretion, to deposit any or all shares acquired by the Participant pursuant to the settlement of the Award
with the Company’s transfer agent, including any successor transfer agent, to be held in book entry form, or to deposit such
shares for the benefit of the Participant with any broker with which the Participant has an account relationship of which the
Company has notice. Except as provided by the foregoing, a certificate for the shares acquired by the Participant shall be
registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.
6.3
Restrictions on Grant of the Award and Issuance of Shares. The grant of the Award and
issuance of shares of Stock upon settlement of the Award shall be subject to compliance with all applicable requirements of
United States federal, state or Local Law with respect to such securities. No shares of Stock may be issued hereunder if the
issuance of such shares would constitute a violation of any applicable United States federal, state or foreign securities laws,
including Local Law, or other law or regulations or the requirements of any stock exchange or market system upon which the
Stock may then be listed. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if
any, deemed by the Company’s legal counsel to be necessary to the lawful issuance of any shares subject to the Award shall
relieve the Company of any liability in respect of the failure to issue such shares as to which such requisite authority shall not
have been obtained. As a condition to the settlement of the Award, the Company may require the Participant to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make
any representation or warranty with respect thereto as may be requested by the Company.
6.4
Fractional Shares. The Company shall not be required to issue fractional shares upon the
settlement of the Award.
7.
TAX WITHHOLDING.
7.1
In General. Regardless of any action taken by the Company or any other Participating Company
with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding
obligations in connection with any aspect of the Award, including the grant, vesting or settlement of the Award, the subsequent
sale of shares acquired pursuant to such settlement, or the receipt of any dividends and (the “Tax Obligations”), the Participant
acknowledges that the ultimate liability for all Tax Obligations legally due by the Participant is and remains the Participant’s
responsibility and that the Company (a) makes no representations or undertakings regarding the treatment of any Tax Obligations
(b) does not commit to structure the terms of the grant or any other aspect of the Award to reduce or eliminate the Participant’s
liability for Tax Obligations. The Participant shall pay or make adequate arrangements satisfactory to the Company to satisfy all
Tax Obligations of the Company and any other Participating Company at the time such Tax Obligations arise. In this regard, the
Participant
7
hereby authorizes withholding of all applicable Tax Obligations from payroll and any other amounts payable to the Participant,
and otherwise agrees to make adequate provision for withholding of all applicable Tax Obligations, if any, by each Participating
Company which arise in connection with the Award. The Company shall have no obligation to process the settlement of the
Award or to deliver shares until the Tax Obligations as described in this Section have been satisfied by the Participant.
7.2
Assignment of Sale Proceeds. Subject to compliance with applicable law, including Local Law,
and the Company’s Trading Compliance Policy, if permitted by the Company, the Participant may satisfy the Tax Obligations in
accordance with procedures established by the Company providing for delivery by the Participant to the Company or a broker
approved by the Company of properly executed instructions, in a form approved by the Company, providing for the assignment
to a Participating Company of the proceeds of a sale with respect to some or all of the shares being acquired upon settlement of
Units.
2.4
Withholding in Shares. If permissible under applicable law, including Local
Law, the Company shall have the right, but not the obligation, to require the Participant to satisfy all or any portion of the Tax
Obligations by deducting from the shares of Stock otherwise deliverable to the Participant in settlement of the Award a number
of whole shares having a fair market value, as determined by the Company as of the date on which the Tax Obligations arise,
not in excess of the amount of such Tax Obligations determined by the applicable minimum statutory withholding rates.
8.
EFFECT OF CHANGE IN CONTROL.
8.1
In General. In the event of a Change in Control, subject to Section 8.2 below, the surviving,
continuing, successor, or purchasing entity or parent thereof, as the case may be (the “Acquiror”), may, without the consent of the
Participant, assume or continue in full force and effect the Company’s rights and obligations under all or any portion of the
outstanding Units or substitute for all or any portion of the outstanding Units substantially 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 this Agreement, the consideration (whether stock,
cash, other securities or property or a combination 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 the outstanding shares of Stock); provided, however, that if such consideration is not solely common
stock of the Acquiror, the Committee may, with the consent of the Acquiror, provide for the consideration to be received upon
settlement of the Unit to consist solely of common stock of the Acquiror equal in Fair Market Value to the per share consideration
received by holders of Stock pursuant to the Change in Control.
Grant Date, subject to the Participant’s continued Service as of immediately prior to the Change in Control:
8.2
Earned Units. In the event of a Change in Control that occurs prior to the third anniversary of the
A number of Units equal to (i) the Target Number of Units set forth in the Grant Notice
multiplied by (ii) the greater of (x) 100% or (y) the Achievement Percentage determined in accordance with Appendix A as if a
Performance Period had ended upon a date
(a)
8
within ten days prior to the Change in Control, as determined by the Committee, using, in the case of the Company TSR
calculation, the value of the per share consideration to be received by Company stockholders in the Change in Control (as
determined by the Committee) as the ending share price (which Achievement Percentage, for the avoidance of doubt, shall not be
capped at 100%), shall be deemed earned units (“Earned Units”);
A number of Units equal to (i) the Earned Units, multiplied by a fraction, the numerator
of which is the number of days between the Grant Date and the date of the Change in Control and the denominator of which is
the total number of days in the Third Performance Period, less (ii) the total number of Vested Units previously earned shall
become Vested Units as of immediately prior to the Change in Control (the “Accelerated Units”); and
(b)
(c)
A number of Units equal to the Earned Units less the total number of Vested Units
previously earned (including the Accelerated Units) shall cease to vest in accordance with the Grant Notice and will instead
become eligible to vest solely based on the Participant’s continued Service (the “Time-Vesting Units”). The Time-Vesting Units
will become Vested Units in substantially equal quarterly installments through the third anniversary of the Grant Date, subject to
the Participant’s continued Service through the applicable vesting date, with the first vesting date being the first quarterly date
that would result in the Time-Vesting Units vesting in full on the third anniversary of the Grant Date, subject to continued
Service.
automatically be cancelled and forfeited for no consideration as of immediately prior to the Change in Control.
(d)
Any Units that have not become Accelerated Units or Time-Vesting Units will
8.3
Change in Control Plan. This Section 8.3 shall apply only if the Participant is a participant in a
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 the vesting of each Time-Vesting Unit determined in
accordance with Section 8.2 shall be accelerated, and such Time-Vesting Units shall become Vested Units to the extent provided
by the Change in Control Plan and the Participant’s participation agreement in such plan effective as of the date of the
Participant’s termination of Service. In addition, in the event that Award is not assumed or substituted by the Acquiror, each
Time-Vesting Unit will vest in full immediately prior to the Change in Control. For the purposes of this Section 8.3, the
settlement date shall occur upon or as soon as practicable following the vesting date, but in any event no later than the 15th day
of the third calendar month following the 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, 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 of the 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 the Fair Market Value of shares
of Stock, appropriate and proportionate adjustments shall be made in the number of Units
9
subject to the Award and/or the number and kind of shares or other property to be issued in settlement of the Award, in order to
prevent dilution or enlargement of the Participant’s rights under the Award. For purposes of the foregoing, conversion of any
convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.” Any
and all new, substituted or additional securities or other property (other than regular, periodic cash dividends paid on Stock
pursuant to the Company’s dividend policy) to which the Participant is entitled by reason of ownership of Units acquired
pursuant to this Award will be immediately subject to the provisions of this Award on the same basis as all Units originally
acquired hereunder. Any fractional Unit or share resulting from an adjustment pursuant to this Section shall be rounded down to
the nearest whole number. Such adjustments shall be determined by the Committee, and its determination shall be final, binding
and conclusive.
10.
RIGHTS AS A STOCKHOLDER.
The Participant shall have no rights as a stockholder with respect to any shares which may be issued in
settlement of 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 a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or
other rights for which the record date is prior to the date the shares are issued, except as provided in Section 9.
11.
LEGENDS.
The Company may at any time place legends referencing any applicable United States federal, state or
foreign securities law, including Local Law, restrictions on all certificates representing shares of stock issued pursuant to this
Agreement. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates
representing shares acquired pursuant to this Award in the possession of the Participant in order to carry out the provisions of this
Section.
12.
MISCELLANEOUS PROVISIONS.
12.1
Administration. 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 Award shall be determined by the Committee. All such determinations by the Committee shall be final, binding and
conclusive upon all persons having an interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions
and determinations taken or made by the Committee in the exercise of its discretion pursuant to the Plan or the Award or other
agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final,
binding and conclusive upon all persons having 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 apparent authority with respect to such matter, right, obligation, or election.
Termination or Amendment. The Committee may terminate or amend the Plan or this
Agreement at any time; provided, however, that except as provided in Section 8 in connection with a Change in Control, no such
termination or amendment may have a materially
12.2
10
adverse effect on the Participant’s rights under this Agreement without the consent of the Participant unless such termination or
amendment is necessary to comply with applicable law or government regulation. No amendment or addition to this Agreement
shall be effective unless in writing.
12.3
Nontransferability of the Award. Prior to the issuance of shares of Stock on the applicable
Settlement 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 the Participant’s lifetime only by the Participant or the Participant’s guardian or legal representative.
such further action as may reasonably be necessary to carry out the intent of this Agreement.
12.4
Further Instruments. The parties hereto agree to execute such further instruments and to take
Binding Effect. This Agreement shall inure to the benefit of the successors and assigns of the
Company 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.
12.5
12.6
Delivery of Documents and Notices. Any document relating to participation in the Plan or any
notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that
this Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery at
the e-mail address, if any, provided for the Participant by a Participating Company, or upon deposit in the U.S. Post Office or
foreign postal service, 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 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 not
necessarily include: the Plan, the Grant Notice, this Agreement, the Plan Prospectus, and any reports of the Company provided
generally 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 as the Company may designate from time to time. Such means of electronic delivery may include but do
not necessarily include the delivery of a link to a Company intranet or the Internet site of a third party involved in administering
the Plan, the delivery of the document 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
read Section 12.6(a) of this Agreement and consents to the electronic delivery of the Plan documents and, if permitted by the
Company, the delivery of the Grant Notice, as described in Section 12.6(a). The Participant acknowledges that he or she may
receive from the Company a paper copy of any documents delivered electronically at no cost to the Participant by contacting the
Company by telephone or in writing. The Participant further acknowledges that the
11
Participant will be provided with a paper copy of any documents if the attempted electronic delivery of such documents fails.
Similarly, the Participant understands that the Participant must provide the Company or any designated third party administrator
with a paper copy of any documents if the attempted electronic delivery of such documents fails. The Participant may revoke his
or her consent to the electronic delivery of documents described in Section 12.6(a) or may change the electronic mail address to
which such documents are to be delivered (if Participant has provided an electronic mail address) at any time by notifying the
Company of such revoked consent or revised e-mail address by telephone, postal service or electronic mail. Finally, the
Participant understands that he or she is not required to consent to electronic delivery of documents described in Section 12.6(a).
12.7
Integrated Agreement. The Grant Notice, this Agreement and the Plan, together with the
Superseding Agreement, if any, shall constitute the entire understanding and agreement of the Participant and the Participating
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 to such subject matter. To the extent contemplated herein or therein, the provisions of the Grant Notice, this Agreement
and the Plan shall survive any settlement of the Award and shall remain in full force and effect.
12.8
Country-Specific Terms and Conditions. Notwithstanding any other provision of this
Agreement to the contrary, the Award shall be subject to the specific terms and conditions, if any, set forth in Appendix B to this
Agreement which are applicable to the Participant’s country of residence, the provisions of which are incorporated in and
constitute part of this Agreement. Moreover, if the Participant relocates to one of the countries included in Appendix B, the
specific terms and conditions applicable to such country will apply to the Award to the extent the Company determines that the
application of such terms and conditions is necessary or advisable in order to comply with Local Law or facilitate the
administration of the Plan or this Agreement.
12.9
Foreign Exchange / Exchange Control. The Participant acknowledges and agrees that it is the
Participant’s sole responsibility to investigate and comply with any applicable foreign exchange or exchange control laws in
connection with the issuance, delivery or sale of the shares of Stock pursuant to the Award and that the Participant shall be
responsible for any associated compliance or reporting of inbound international fund transfers required under applicable law. The
Participant is advised to seek appropriate professional advice as to how the foreign exchange or exchange control regulations
apply to the Participant’s specific situation.
12.10
No Advice Regarding Grant. The Company and its Affiliates are not providing any tax, legal
or financial advice, nor are they making any recommendations or assessments regarding Participant’s participation in the Plan, or
Participant’s acquisition or sale of the underlying shares of Stock. Participant is hereby advised to consult with his or her own
personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
Award and/or the Plan translated into a language other than English and
12.11
Language. If Participant has received this Agreement, or any other document related to the
12
if the meaning of the translated version is different than the English version, the English version will control, subject to Local
Law.
12.12
Applicable Law. This Agreement shall be governed by the laws of the State of California
without regard to its conflict of laws rules. For purposes of litigating any dispute that arises directly or indirectly from the
relationship of the parties as evidenced by this Agreement, the parties hereby submit to and consent to the jurisdiction of the State
of California and agree that such litigation shall be conducted only in the courts of the County of Santa Clara, California, or the
federal courts of the United States for the Northern District of California, and no other courts, where this Agreement is made
and/or performed.
deemed an original, but all of which together shall constitute one and the same instrument.
12.13
Counterparts. The Grant Notice may be executed in counterparts, each of which shall be
13
1.
DEFINITIONS.
1.1
“Benchmark Index” shall mean the Russell 2000 Index.
Appendix A
1.2
“Benchmark TSR” shall mean the total shareholder return of the Benchmark Index, expressed as a
percentage and calculated based on the change in index price over the applicable Performance Period, where the beginning price
for purposes of the calculation is the average closing price over the 30 consecutive trading days ending on the last trading day
prior to the first day of the applicable Performance Period and the ending price for purposes of the calculation is based on the
average closing trading price over the 30 consecutive trading days ending on the last trading day prior to the last day of the
applicable Performance Period.
1.3
“Company TSR” shall mean the total shareholder return of the Stock, expressed as a percentage
and calculated based on the change in the price of one share of Stock over the applicable Performance Period , where the
beginning share price for purposes of the calculation is the average closing trading price over the 30 consecutive trading days
ending on the last trading day prior to the first day of the applicable Performance Period and the ending share price for purposes
of the calculation is based on the average closing trading price over the 30 consecutive trading days ending on the last trading
day prior to the last day of the applicable Performance Period, and assuming dividends (if any) are reinvested.
the Benchmark TSR and may be a negative number.
1.4
“Relative TSR” shall mean the percentage points obtained by subtracting the Company TSR from
2.
ACHIEVEMENT PERCENTAGE. Following the end of a Performance Period, the Achievement Percentage for a
Performance Period will be determined by the Committee based on the Relative TSR for such Performance Period in accordance
with the following table, with the Achievement Percentage determined using linear interpolation for Relative TSR performance
between the threshold level and the target level or the target level and the maximum level. Notwithstanding the foregoing, in no
event may the Achievement Percentage exceed 100% for each of the First Performance Period and the Second Performance
Period.
Below Threshold
Threshold
Target
Maximum
Relative TSR
Less than -37.5 percentage points
-37.5 percentage points
0 percentage points
25 percentage points or more
Achievement Percentage
0%
25%
100%
150%
An example of the determination of the Achievement Percentage and Vested Units is set forth on Annex A hereto.
14
PSU – Payout Slope Detail
Annex A
PSU – Example Potential Payout
15
APPENDIX B
EXTREME NETWORKS, INC.
2013 EQUITY INCENTIVE PLAN
PERFORMANCE VESTING
RESTRICTED SHARE UNITS AGREEMENT
FOR NON-US PARTICIPANTS
Terms and Conditions
This Appendix includes additional terms and conditions that govern the Award granted to Participant under the Plan
if he or she resides in one of the countries listed below. Certain capitalized terms used but not defined in this Appendix have
the meanings set forth in the Plan and/or the main body of the Agreement.
Notifications
This Appendix also includes information regarding exchange controls and certain other issues of which Participant
should be aware with respect to his or her participation in the Plan. The information is based on the securities, exchange
control and other laws in effect in the respective countries as of January 2014. Such laws are often complex and change
frequently. As a result, the Company strongly recommends that Participant not rely on the information in this Appendix as the
only source of information relating to the consequences of Participant’s participation in the Plan because the information may
be out of date at the time Participant vests in the Shares or sells the Shares acquired under the Plan.
In addition, the information contained herein is general in nature and may not apply to Participant’s particular
situation and the Company is not in a position to assure Participant of any particular result. Accordingly, Participant is
advised to seek appropriate professional advice as to how the relevant laws of Participant’s country may apply to his or her
situation.
Finally, if Participant is a citizen or resident of a country other than the one in which Participant is currently working
or transfers to another country after the grant of the Restricted Stock Units, or is considered a resident of another country for
local law purposes, the information contained herein may not be applicable to Participant in the same manner. In addition, the
Company shall, in its discretion, determine to what extent the terms and conditions contained herein shall apply to Participant
under these circumstances.
Rev. 2022.08.22
Notifications
AUSTRALIA
Securities Law Information. The offering and resale of shares of Stock acquired under the Plan to a person or entity
resident in Australia may be subject to disclosure requirements under Australian law. You should obtain legal advice regarding
any applicable disclosure requirements prior to making any such offer.
Terms and Conditions
Australian Securities Laws. If Participant acquires shares of Stock under the Plan and resells them in Australia, he or
she may be required to comply with certain Australian securities law disclosure requirements.
Foreign Exchange. Participant acknowledges and agrees that it is the Participant’s sole responsibility to investigate
and comply with any applicable exchange control laws in connection with the inflow of funds from the vesting of the Award or
subsequent sale of the shares of Stock and any dividends (if any) and that the Participant shall be responsible for any reporting
of inbound international fund transfers required under applicable law. The Participant is advised to seek appropriate
professional advice as to how the exchange control regulations apply to the Participant’s specific situation.
Rev. 2022.08.22
Terms and Conditions
BRAZIL
Compliance with Laws. By accepting the Award, Participant acknowledges that Participant agrees to comply with
applicable Brazilian laws and to report and pay any and all applicable Tax Obligations associated with the vesting of the
Award, the sale of the shares of Stock acquired pursuant thereto and the receipt of any dividends. That Participant agrees that,
for all legal purposes: (i) the benefits provided under the Plan are the result of commercial transactions unrelated to the
Participant’s employment; (ii) the Plan is not a part of the terms and conditions of the Participant’s employment; and (iii) the
income from the Award, if any, is not part of the Participant’s remuneration from employment.
Notifications
Report of Overseas Assets. If Participant is resident or domiciled in Brazil, Participant will be required to submit an
annual declaration of assets and rights held outside of Brazil to the Central Bank of Brazil if the aggregate value of such assets
and rights equals or exceeds US$100,000. Assets and rights that must be reported include, but are not limited to, the shares of
Stock acquired under the Plan.
Rev. 2022.08.22
Terms and Conditions
CANADA
Award Payable Only in Shares. Notwithstanding anything to the contrary in the Plan or Agreement, the grant of
the Award does not provide any right for Participant to receive a cash payment, and the Award is payable in shares of Stock
only.
Termination of Continuous Service Status. In the event of Participant’s termination (for any reason whatsoever,
whether or not later found to be invalid and whether or not in breach of employment laws in the jurisdiction where Participant
is employed or the terms of Participant’s employment or service agreement, if any), Participant’s right to vest in the Award
under the Plan, if any, will terminate effective as of (1) the date that the Participant is no longer actively employed or
providing services to the Company or the Parent or Affiliate employing or retaining Participant, or at the discretion of the
Committee, (2) the date the Participant receives notice of Termination from the Company or the Parent or Affiliate employing
or retaining Participant, if earlier than (1), regardless of any notice period or period of pay in lieu of such notice required under
local law (including, but not limited to statutory law, regulatory law and/or common law); the Administrator shall have the
exclusive discretion to determine when Participant is no longer actively employed or providing services for purposes of
Participant’s Award grant (including, but not limited to, whether Participant may still be considered actively employed or
providing services while on an approved leave of absence).
The following provisions apply if Participant is a resident of Quebec:
Language Consent. The parties acknowledge that it is their express wish that this Agreement, as well as all
documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly
hereto, be drawn up in English.
Les parties reconnaissent avoir expressement souhaité que la convention [“Agreement”], ainsi que tous les documents, avis et
procédures judiciaries, éxecutés, donnés ou intentés en vertu de, ou lié, directement ou indirectement à la présente convention,
soient rédigés en langue anglaise.
This provision supplements Section 2.3 of the Agreement:
Data Privacy Notice and Consent.
Participant hereby authorizes the Company and the Company’s representatives to discuss with and obtain all relevant
information from all personnel, professional or not, involved in the administration and operation of the Plan. Participant
further authorizes the Company and any Affiliate and the Committee to disclose and discuss the Plan with their advisors.
Participant further authorizes the Company and any Affiliate to record such information and to keep such information in
Participant’s employee file.
Rev. 2022.08.22
Terms and Conditions
FRANCE
Language Consent. By accepting the grant, Participant confirms having read and fully understood the Plan and the
Agreement which were provided in the English language. Participant accepts the terms of those documents accordingly.
Consentement Relatif à la Langue Utilisée. En acceptant l’attribution, le Participant confirme avoir lu et compris le Plan et
le Contrat, qui ont été communiqués en langue anglaise. Le Participant accepte les termes de ces documents en connaissance
de cause.
Notifications
Non-Qualified Tax Status.
The Participant understands and agrees that the Award is not intended to qualify for
tax-qualified treatment under the French Commercial Code.
Tax Reporting Information. If Participant holds shares of Stock outside of France or maintains a foreign bank
account, Participant is required to report such to the French tax authorities when filing his or her annual tax return.
Securities Disclaimer. The grant of the Award is exempt from the requirement to publish a prospectus under the
EU Prospectus Directive as implemented in France.
Notifications
GERMANY
Exchange Control Information. If Participant remits proceeds in excess of €12,500 out of or into Germany, such
cross-border payment must be reported monthly to the State Central Bank. In the event that Participant makes or receives a
payment in excess of this amount, Participant is responsible for obtaining the appropriate form from a German bank and
complying with applicable reporting requirements. In addition, the Participant must also report on an annual basis in the
unlikely event that the Participant holds shares of Stock exceeding 10% of the total voting capital of the Company.
Securities Disclaimer. The grant of the Award is exempt from the requirement to publish a prospectus under the EU
Prospectus Directive as implemented in Germany.
Notifications
INDIA
Exchange Control Information. Participant understands and agrees that he or she must repatriate any proceeds from cash
settlement or the sale of shares acquired under the Plan to India and convert the proceeds into local currency within 90 days of receipt.
Participant will receive a foreign inward remittance certificate ("FIRC") from the bank where he or she deposits the foreign currency.
Participant should maintain the FIRC as evidence of the repatriation of funds in the event the Reserve Bank of India or his or her
employer requests proof of repatriation.
Tax Reporting Obligation. Indian residents are required to declare the following items in their annual tax return: (i)
any foreign assets held by them (including shares acquired under the Plan), and (ii) any foreign bank accounts for which they
have signing authority. It is Participant’s ability to comply with applicable foreign asset tax laws in India and Participant
should consult with Participant’s personal tax advisor to ensure that Participant is properly reporting Participant’s foreign
assets and bank accounts.
Notifications
IRELAND
Director Notification Obligation. Participant acknowledges that if he or she is a director, shadow director or
secretary of an Irish Affiliate, Participant must notify the Irish Affiliate in writing within five business days of receiving or
disposing of an interest in the Company (e.g., the Award, shares of Stock, etc.), or within five business days of becoming
aware of the event giving rise to the notification requirement or within five business days of becoming a director or secretary if
such an interest exists at the time. This notification requirement also applies with respect to the interests of Participant’s
spouse or children under the age of 18 (whose interests will be attributed to Participant if Participant is a director, shadow
director or secretary).
Securities Disclaimer. The grant of the Award is exempt from the requirement to publish a prospectus under the EU
Prospectus Directive as implemented in Ireland.
Notification
KOREA
Exchange Control Information. If Participant realizes US$500,000 or more from the sale of shares or the receipt of
dividends in a single transaction, Participant must repatriate the proceeds to Korea within 18 months of the sale/receipt. Under
certain circumstances, separate sales may be deemed a single transaction and aggregated for purposes of the US$500,000
threshold. Accordingly, Participant is strongly encouraged to consult his or her personal legal advisor if the sum of all such
transactions exceeds this threshold.
Terms and Conditions
MEXICO
Employment and Labor Law Acknowledgments. As a condition of accepting the Award, the Participant
acknowledges and agrees that: (i) the Award is not related to the salary or any other contractual benefits provided to the
Participant by the Participant’s employer; (ii) any modification of the Plan or its termination shall not constitute a change or
impairment of the terms and conditions of the Participant’s employment; (iii) the grant of the Award is unilateral and
discretionary and, therefore, the Company reserves the absolute right to amend it and discontinue it at any time without any
liability to the Participant; and (iv) neither the grant of the Award nor the issuance of shares in any way establishes a
labor relationship between the Participant and the Company, which is headquartered in the United States, or any additional
rights between the Participant and the Participant’s employer, based in Mexico. By accepting the Award, the Participant
acknowledges that the Participant has received a copy of the Plan, has reviewed the Plan and the Agreement in their entireties,
and fully understands and accepts all provisions of the Plan and the Agreement. The Participant acknowledges and confirms
that the Participant does not reserve any action or right to bring any claim against the Company for any compensation or
damages as a result of participation in the Plan and therefore grants a full and broad release to the Company with respect to
any claim that may arise under the Plan.
Notifications
NETHERLANDS
The Participant should be aware of the Dutch insider trading rules, which may affect the sale of shares acquired
under the Plan. In particular, the Participant may be prohibited from effecting certain share transactions if the Participant has
insider information regarding the Company. Below is a discussion of the applicable restrictions. The Participant is advised to
read the discussion carefully to determine whether the insider rules could apply to the Participant. If it is uncertain whether the
insider rules apply, the Company recommends that the Participant consult with a legal advisor. The Company cannot be held
liable if the Participant violates the Dutch insider trading rules. The Participant is responsible for ensuring your compliance
with these rules.
Prohibition Against Insider Trading
Dutch securities laws prohibit insider trading. The regulations are based upon the European Market Abuse Directive
and are stated in section 5:56 of the Dutch Financial Supervision Act (Wet op het financieel toezicht or Wft) and in section 2 of
the Market Abuse Decree (Besluit marktmisbruik Wft). For further information you are referred to the website of the Authority
for the Financial Markets (AFM); http://www.afm.nl/~/media/Files/brochures/2012/insider- dealing.ashx.
Given the broad scope of the definition of inside information, certain employees of the Company working at its
Dutch Affiliate may have inside information and thus are prohibited from making a transaction in securities in the Netherlands
at a time when they have such inside information. By entering into this Agreement and participating in the Plan, the Participant
acknowledges having read and understood the notification above and acknowledges that it is the Participant’s responsibility to
comply with the Dutch insider trading rules, as discussed herein.
Securities Disclaimer. The grant of the Award is exempt from the requirement to publish a prospectus under the EU
Prospectus Directive as implemented in the Netherlands.
Notifications
SINGAPORE
Securities Law Information. The grant of the Award is being made pursuant to the “Qualifying Person” exemption
under section 273(1)(f) of the Singapore Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”). The Plan has not been
lodged or registered as a prospectus with the Monetary Authority of Singapore. Participant should note that the Award is
subject to section 257 of the SFA and Participant will not be able to make any subsequent sale in Singapore of the Shares
acquired through the vesting of the Award or any offer of such sale in Singapore unless such sale or offer is made pursuant to
the exemptions under Part XIII Division (1) Subdivision (4) (other than section 280) of the SFA.
Director Notification Obligation. If Participant is a director, associate director or shadow director of a Singapore
Affiliate, Participant is subject to certain notification requirements under the Singapore Companies Act. Among these
requirements is an obligation to notify the Singapore Affiliate in writing when Participant receives an interest (e.g., Award,
shares of Stock) in the Company or any Affiliate. In addition, Participant must notify the Singapore Affiliate when Participant
sells shares of the Company or any Affiliate (including when Participant sells shares acquired through the vesting of his or her
Award). These notifications must be made within two business days of acquiring or disposing of any interest in the Company
or any Affiliate. In addition, a notification must be made of Participant’s interests in the Company or any Affiliate within two
business days of becoming a director.
Exhibit 10.37
SPAIN
Terms and Conditions
This provision supplements Section 2.2 of the Agreement:
Nature of Grant.
In accepting the Award, Participant consents to participate in the Plan and acknowledges that he or she has received a
copy of the Plan.
Participant understands that the Company has unilaterally, gratuitously, and in its sole discretion decided to grant
Awards under the Plan to individuals who may be employees of the Company or one of its Affiliates throughout the world. The
decision is a limited decision that is entered into upon the express assumption and condition that any grant will not bind the
Company or any Affiliate, other than to the extent set forth in the Agreement. Consequently, Participant understands that the
grant of the Award is made on the assumption and condition that the Award and any shares of Stock acquired under the Plan are
not part of any employment contract (either with the Company or any Affiliate), and shall not be considered a mandatory
benefit, salary for any purposes (including severance compensation) or any other right whatsoever. Further, Participant
understands that the grant of the Award would not be made but for the assumptions and conditions referred to above; thus, he or
she acknowledges and freely accept that, should any or all of the assumptions be mistaken or should any of the conditions not be
met for any reason, then any grant of or right to the Award shall be null and void.
Notifications
Tax Reporting Obligation for Assets Held Abroad. Individuals in Spain are required to report assets and right
located outside of Spain (which would include Shares or any funds held in a U.S. brokerage account) on Form 720 by March
31st after each calendar year. A report is not required if the value of assets held outside of Spain is EUR 50,000 or less or if the
assets held outside of Spain have not increased by more than EUR 20,000 compared to the previous year (assuming that a prior
report has been filed reporting these assets). Please consult your personal tax advisor for more information on how to complete
the report and the specific information on what types of assets are required to be reported.
Exchange Control Information. Participant must declare the acquisition of stock in a foreign company (including
shares of Stock acquired under the Plan) to the Dirección General de Política Comercial e Inversiones Exteriores (“DGPCIE”)
of the Ministerio de Economia for statistical purposes. He or she must also declare ownership of any stock in a foreign
company (including shares of Stock acquired under the Plan) with the Directorate of Foreign Transactions each January while
the stock is owned. In addition, if Participant wishes to import the share certificates into Spain, he or she must declare the
importation of such securities to the DGPCIE.
When receiving foreign currency payments derived from the ownership of the shares (i.e., dividends or sale
proceeds), Participant must inform the financial institution receiving the payment of the basis upon which such payment is
made. Participant will need to provide the following information: (i) his or her name, address, and fiscal identification number;
(ii) the name
and corporate domicile of the Company; (iii) the amount of the payment and the currency used; (iv) the country of origin; (v)
the reasons for the payment; and (vi) any further information that may be required.
Securities Disclaimer. The grant of the Award is exempt from the requirement to publish a prospectus under the EU
Prospectus Directive as implemented in Spain.
There are no country specific provisions.
UNITED ARAB EMIRATES
Terms and Conditions
UNITED KINGDOM
Tax Reporting and Payment Liability. The following provision supplements Section 8 of the Agreement:
The Participant agrees that the Company or the employer Affiliate may calculate the Tax Obligations to be withheld
and accounted for by reference to the maximum applicable rates, without prejudice to any right the Participant may have to
recover any overpayment from relevant U.K. tax authorities. If payment or withholding of any income tax liability arising in
connection with the Participant's participation in the Plan is not made by the Participant to the employer Affiliate within ninety
(90) days of the event giving rise to such income tax liability or such other period specified in Section 222(1)(c) of the U.K.
Income Tax (Earnings and Pensions) Act 2003 (the “Due Date”), The Participant understands and agrees that the amount of
any uncollected income tax will constitute a loan owed by the Participant to the employer Affiliate, effective on the Due Date.
The Participant understands and agrees that the loan will bear interest at the then-current official rate of Her Majesty’s
Revenue and Customs, it will be immediately due and repayable by the Participant, and the Company and/or the employer
Affiliate may recover it at any time thereafter by any of the means referred to in the Plan and/or this Agreement.
Notwithstanding the foregoing, the Participant understands and agrees that if they are a director or an executive officer of the
Company (within the meaning of such terms for purposes of Section 13(k) of the Exchange Act), they will not be eligible for
such a loan to cover the income tax liability. In the event that the Participant is a director or executive officer and the income
tax is not collected from or paid by the Participant by the Due Date, The Participant understands that the amount of any
uncollected income tax will constitute an additional benefit to the Participant on which additional income tax and National
Insurance Contributions will be payable. The Participant understands and agrees that they will be responsible for reporting and
paying any income tax due on this additional benefit directly to Her Majesty’s Revenue and Customs under the self-assessment
regime and for reimbursing the Company or the employer Affiliate (as appropriate) for the value of any primary and (to the
extent legally possible) secondary class 1 national insurance contributions due on this additional benefit which the Company or
the employer Affiliate may recover from the Participant by any of the means referred to in the Plan and/or this Agreement.
Notwithstanding the foregoing, if Participant is an executive officer or director (as within the meaning of Section
13(k) of the U.S. Securities and Exchange Act of 1934, as amended), the terms of the provision above will not apply. In the
event that Participant is an executive office or director and income tax is not collected from or paid by Participant by the Due
Date, the amount of any uncollected income tax will constitute a benefit to Participant on which additional income tax and
National Insurance Contributions (“NICs”) (including Employer's NICs) may be payable. Participant understands that he or
she will be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the
self-assessment regime and for reimbursing the Company and/or the employer Affiliate (as appropriate) for the value of any
NICs due on this additional benefit.
Notification
Securities Disclaimer. Neither this Agreement nor Appendix is an approved prospectus for the purposes of section
85(1) of the Financial Services and Markets Act 2000 (“FSMA”) and no offer of transferable securities to the public (for the
purposes of section 102B of FSMA) is being made in connection with the Plan. The Plan and the Award is exclusively
available in the UK to bona fide employees and former employees of the Company or its Affiliate.
****
EXTREME NETWORKS, INC.
SUBSIDIARY LIST
Exhibit 21.1
Name
Extreme Networks, Inc.
Extreme Networks IHC, Inc.
Enterasys Networks, Inc.
Extreme Networks Delaware LLC
Extreme Networks Canada Inc.
Extreme Networks International Ltd.
Extreme Networks EMEA Ltd.
Extreme Networks Australia PTY, Ltd.
Extreme Networks Singapore Pte. Ltd.
Extreme Networks Korea Ltd.
Extreme Networks India Private Ltd.
Extreme Networks Hong Kong Ltd.
Extreme Networks China Ltd.
Extreme Networks Technology Co. (Beijing) Ltd.
Extreme Networks Mauritius
Extreme Networks KK
Extreme Networks APAC Sdn Bhd
Extreme Networks Do Brazil, Ltda
Extreme Networks Mexico, SA de CV
Extreme Networks Chile, Ltda.
Extreme Networks Spain SL
Extreme Networks SRL
Extreme Networks GmbH
Extreme Networks Switzerland GmbH
Extreme Networks UK Technology Ltd.
Extreme Networks Netherlands BV
Extreme Networks Rus LLC
IHC Networks AB
Extreme Networks Ireland Ltd.
Extreme Networks Ireland Holding Ltd.
Extreme Networks Ireland Ops Ltd.
Extreme Federal Inc.
Extreme Networks s.r.o.
Aerohive Networks, Inc.
Aerohive Networks Ltd.
Aerohive Networks Europe Ltd.
Aerohive Networks, LLC
Aerohive Networks (Hangzhou) Ltd.
Extreme Networks Belgium SARL
Extreme Network Bilisim Teknolojileri Hizmetleri Limited Sirketi
Extreme Networks France SAS
IpanemaTech UK Ltd
Location
Delaware
Delaware
Delaware
Delaware
Canada
Cayman
Cayman
Australia
Singapore
Korea
India
Hong Kong
Hong Kong
China
Mauritius
Japan
Malaysia
Brazil
Mexico
Chile
Spain
Italy
Germany
Switzerland
United Kingdom
Netherlands
Russia
Sweden
Ireland
Ireland
Ireland
Delaware
Czech Republic
Delaware
Cayman Islands
United Kingdom
Delaware
China
Belgium
Turkey
France
United Kingdom
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated August 26, 2022, with respect to the consolidated financial statements and internal control over financial reporting
included in the Annual Report of Extreme Networks, Inc. on Form 10-K for the year ended June 30, 2022. We consent to the incorporation by reference of
said reports in the Registration Statements of Extreme Networks, Inc. on Forms S-8 (File No. 333-83729, File No. 333-54278, File No. 333-55644, File
No. 333-58634, File No. 333-65636, File No. 333-76798, File No. 333-105767, File No. 333-112831, File No. 333-131705, File No. 333-165268, File No.
333-192507, File No. 333-201456, File No. 333-215648, File No. 333-221876, File No. 333-229582, File No. 333-233164, File No. 333-235541 and File
No. 333-261350).
/s/ GRANT THORNTON LLP
San Francisco, California
August 26, 2022
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
Exhibit 23.2
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Registration Statement (Form S-8 No. 333-83729), pertaining to the Extreme Networks, Inc. Amended 1996 Stock Option Plan, 1999
Employee Stock Purchase Plan and an Individual Stock Option Agreement,
Registration Statement (Form S-8 No. 333-54278), pertaining to the Extreme Networks, Inc. Amended 1996 Stock Option Plan, 1999
Employee Stock Purchase Plan and 2000 Nonstatutory Stock Option Plan,
Registration Statement (Form S-8 No. 333-55644), pertaining to the Extreme Networks, Inc. Individual Option Agreements Granted
Under the Optranet, Inc. 2000 Stock Option Plan and Assumed by Extreme Networks, Inc.,
Registration Statement (Form S-8 No. 333-58634), pertaining to the Extreme Networks, Inc. Individual Option Agreements Granted
Under the Webstacks, Inc. 2000 Stock Option Plan and Assumed by Extreme Networks, Inc.,
Registration Statement (Form S-8 No. 333-65636), pertaining to the Extreme Networks, Inc. 2001 Nonstatutory Stock Option Plan,
Registration Statement (Form S-8 No. 333-76798), pertaining to the Extreme Networks, Inc. Amended 1996 Stock Option Plan,
Registration Statement (Form S-8 No. 333-105767), pertaining to the Extreme Networks, Inc. Amended 1996 Stock Option Plan,
Registration Statement (Form S-8 No. 333-112831), pertaining to the Extreme Networks, Inc. Amended 1996 Stock Option Plan and
1999 Employee Stock Purchase Plan,
Registration Statement (Form S-8 No. 333-131705), pertaining to the Extreme Networks, Inc. 2005 Equity Incentive Plan and 1999
Employee Stock Purchase Plan,
(10)
Registration Statement (Form S-8 No. 333-165268), pertaining to the Extreme Networks, Inc. 2005 Equity Incentive Plan,
(11)
Registration Statement (Form S-8 No. 333-192507), pertaining to the Extreme Networks, Inc. 2013 Equity Incentive Plan and Enterasys
Inc. 2013 Stock Plan,
(12)
Registration Statement (Form S-8 No. 333-201456), pertaining to the Extreme Networks, Inc. 2014 Employee Stock Purchase Plan,
(13)
Registration Statement (Form S-8 No. 333-215648), pertaining to the Extreme Networks, Inc. 2013 Equity Incentive Plan,
(14)
Registration Statement (Form S-8 No. 333-221876), pertaining to the Extreme Networks, Inc. 2013 Equity Incentive Plan,
(15)
Registration Statement (Form S-8 No. 333-229582), pertaining to the Extreme Networks, Inc. 2014 Amended Employee Stock Purchase
Plan,
(16)
Registration Statement (Form S-8 No. 333-233164), pertaining to the Aerohive Networks, Inc. 2014 Equity Incentive Plan,
(17)
(18)
Registration Statement (Form S-8 No. 333-235541), pertaining to the Extreme Networks, Inc. Amended and Restated 2013 Equity
Incentive Plan, and
Registration Statement (Form S-8 No. 333-261350), pertaining to the Extreme Networks, Inc. Amended and Restated 2013 Equity
Incentive Plan and the Extreme Networks, Inc. Amended and Restated 2014 Employee Stock Purchase Plan;
of our report dated August 27, 2021, with respect to the consolidated financial statements of Extreme Networks, Inc. as of and for the year ended June 30,
2021 included in this Annual Report (Form 10-K) of Extreme Networks, Inc. for the year ended June 30, 2022.
/s/ Ernst & Young LLP
San Jose, California
August 26, 2022
Consent of Independent Registered Public Accounting Firm
Exhibit 23.3
We consent to the incorporation by reference in the registration statement(s) (Nos. 333-192507, 333-165268, 333-112831, 333-105767, 333-76798, 333-
65636, 333-58634, 333-55644, 333-131705, 333-201456, 333-83729, 333-215648, 333-221876, 333-229582, 333-233164, 333-235541, 333-54278 and
333-261350) on Form S-8 of our report dated August 31, 2020, with respect to the consolidated statements of operations, comprehensive loss,
stockholders’ equity, and cash flows of Extreme Networks, Inc. for the year ended June 30, 2020.
Our report dated August 31, 2020, on the consolidated financial statements for the year ended June 30, 2020, contains an explanatory paragraph that states
that the company has changed its method of accounting for leases as of July 1, 2019, due to the adoption of Accounting Standards Update (ASU) 2016-02,
Leases, and several related amendments, as issued by the Financial Accounting Standards Board.
Raleigh, North Carolina
August 26, 2022
/s/KPMG LLP
SECTION 302 CERTIFICATION OF EDWARD B. MEYERCORD III
AS CHIEF EXECUTIVE OFFICER
I, Edward B. Meyercord III, certify that:
Exhibit 31.1
1.
2.
3.
4.
I have reviewed this Form 10-K of Extreme Networks, Inc.;
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 make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely 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,
to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent function):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:August 26, 2022
/s/ EDWARD B. MEYERCORD III
Edward B. Meyercord III
President and Chief Executive Officer
Exhibit 31.2
I, Remi Thomas, certify that:
SECTION 302 CERTIFICATION OF REMI THOMAS
AS CHIEF FINANCIAL OFFICER
1.
2.
3.
4.
I have reviewed this Form 10-K of Extreme Networks, Inc.;
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 make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely 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,
to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent function):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:August 26, 2022
/s/ REMI THOMAS
Remi Thomas
Executive Vice President, Chief Financial Officer
(Principal Accounting Officer)
CERTIFICATION OF EDWARD B. MEYERCORD III AS CHIEF EXECUTIVE OFFICER, PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Extreme Networks, Inc. on Form 10-K for the period ended June 30, 2022, as filed with the Securities and
Exchange Commission 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)
(2)
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
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ EDWARD B. MEYERCORD III
Edward B. Meyercord III
President and Chief Executive Officer
August 26, 2022
CERTIFICATION OF REMI THOMAS AS CHIEF FINANCIAL OFFICER, PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Extreme Networks, Inc. on Form 10-K for the period ended June 30, 2022, as filed with the Securities and
Exchange Commission 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)
(2)
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
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ REMI THOMAS
Remi Thomas
Executive Vice President, Chief Financial Officer
(Principal Accounting Officer)
August 26, 2022