Extreme Networks Finds No Evidence of Fraud in Stock Option Probe

Extreme Networks announced that the Special Committee of its Board of Directors has completed its investigation into the company's historical stock option practices and found no evidence of fraud. However, the Special Committee found deficiencies in the company's processes for approving and documenting option grants, which resulted in the company erroneously treating the stated grant date as the measurement date for financial accounting purposes with respect to certain options. The Special Committee concluded that none of Extreme Networks' personnel involved intended to mislead investors or were aware that the Company's stock option granting and documentation practices had resulted or would result in a material misstatement of the Company's financial results.



Specifically, the Special Committee found no evidence of misconduct by current management, and found no involvement by (among others) the current CEO, CFO, Controller, or Vice President, General Counsel in any of the grants for which inaccurate measurement dates were used. The Special Committee also confirmed that none of the affected options granted to the company's officers or directors has ever been exercised.



The Special Committee reviewed and tested over 8,000 grants, including all grants to Board members, officers, and executive level employees between April 9, 1999, the date of the Company's initial public offering, and September 30, 2006.



As for financial restatements, Extreme Networks said it should have recognized approximately $223.0 million of pre-tax, non-cash, share-based compensation expense during the review period that was not accounted for in its previously issued financial statements. In addition, the company should have recorded approximately $0.3 million of income tax benefits. Therefore, Extreme Networks is restating financial information for fiscal years ended July 3, 2005, June 27, 2004, June 29, 2003, and June 30, 2002.

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