STOCKHOLDERS' EQUITY - Note 5

12 Months Ended

Mar. 31, 2013

Notes to Financial Statements

STOCKHOLDERS' EQUITY - Note 5

5. STOCKHOLDERS' EQUITY

1996 Stock Plan

In June 1996, the Company's board of directors adopted the 1996 Stock Plan ("1996 Plan"). A total of 12,035,967 shares were reserved for issuance under the 1996 Plan prior to its expiration in June 2006. The 1996 Plan provided for granting incentive stock options to employees and nonstatutory stock options to employees, directors or consultants. The stock option price of incentive stock options granted could not be less than the determined fair market value at the date of grant. Options generally vested over four years and had a ten-year term.

1996 Director Option Plan

The Company's 1996 Director Option Plan ("Director Plan") was adopted in June 1996 and became effective in July 1997. A total of 1,650,000 shares of common stock were reserved for issuance under the Director Plan prior to its expiration in June 2006. The Director Plan provided for both discretionary and periodic grants of nonstatutory stock options to non-employee directors of the Company (the "Outside Directors"). The exercise price per share of all options granted under the Director Plan was equal to the fair market value of a share of the Company's common stock on the date of grant. Options generally vested over a period of four years. Options granted to Outside Directors under the Director Plan had a ten year term, or shorter upon termination of an Outside Director's status as a director.

1999 Nonstatutory Stock Option Plan

In fiscal 2000, the Company's board of directors approved the 1999 Nonstatutory Stock Option Plan ("1999 Plan") with 600,000 shares initially reserved for issuance thereunder. In fiscal 2001, the number of shares reserved for issuance was increased to 3,600,000 shares by the Company's board of directors. Under the terms of the 1999 Plan, options could not be issued to either officers or directors of the Company unless granted to an officer in connection with the officer's initial employment by the Company. Options generally vested over four years and expire ten years after grant. The 1999 Plan was not approved by the stockholders of the Company. In May 2006, the Company's board of directors cancelled the 1999 Plan, and no new grants may be made from the 1999 Plan. There were nooutstanding options under this plan at March 31, 2013.

2006 Stock Plan

In May 2006, the Company's board of directors approved the 2006 Stock Plan ("2006 Plan").  The Company's stockholders subsequently adopted the 2006 Plan in September 2006, and the 2006 Plan became effective in October 2006.  The Company reserved 7,000,000 shares of the Company's common stock for issuance under this plan.  The 2006 Plan provides for granting incentive stock options to employees and nonstatutory stock options to employees, directors or consultants.  The stock option price of incentive stock options granted may not be less than the fair market value on the effective date of the grant. Other types of options and awards under the 2006 Plan may be granted at any price approved by the administrator, which generally will be the compensation committee of the board of directors. Options generally vest over four years and expire ten years after grant.  In 2009, the 2006 Plan was amended to provide for the granting of stock purchase rights. The 2006 Plan expires in May 2016.

2003 Contactual Plan

In the second fiscal quarter of 2012, the Company assumed the Amended and Restated Contactual, Inc. 2003 Stock Option Plan (the "2003 Contactual Plan") and registered an aggregate of 171,974 shares of the Company's common stock that may be issued upon the exercise of stock options previously granted under the 2003 Contactual Plan and assumed by the Company when it acquired Contactual. No new stock options or other awards can be granted under 2003 Contactual Plan.

2012 Equity Incentive Plan

In June 2012, the Company's board of directors approved the 2012 Equity Incentive Plan ("2012 Plan").  The Company's stockholders subsequently adopted the 2012 Plan in July 2012, and the 2012 Plan became effective in August 2012.  The Company reserved 4,100,000 shares of the Company's common stock for issuance under this plan.  The 2012 Plan provides for granting incentive stock options to employees and nonstatutory stock options to employees, directors or consultants, and granting of stock appreciation rights, restricted stock, restricted stock units and performance units, qualified performance-based awards and stock grants. The stock option price of incentive stock options granted may not be less than the fair market value on the effective date of the grant. Other types of options and awards under the 2012 Plan may be granted at any price approved by the administrator, which generally will be the compensation committee of the board of directors. Options, restricted stock and restricted stock units generally vest over four years and expire ten years after grant. The 2012 Plan expires in June 2022.

Option, Stock Purchase Right and Restricted Stock Unit Activity

Stock Purchase Right activity since March 31, 2010 is summarized as follows:

			Weighted	Weighted
			Average	Average
			Grant-Date	Remaining
	Number of		Fair Market	Contractual
	Shares		Value	Term (in Years)
Balance at March 31, 2010	353,720	$	0.71	3.26
Granted	836,432		1.72
Vested	(175,269)		0.96
Forfeited	(128,438)		1.46
Balance at March 31, 2011	886,445		1.51	3.00
Granted	563,100		3.64
Vested	(326,683)		1.55
Forfeited	(156,462)		2.99
Balance at March 31, 2012	966,400		2.50	2.61
Granted	443,436		5.75
Vested	(367,017)		2.14
Forfeited	(84,244)		2.89
Balance at March 31, 2013	958,575	$	4.11	2.52

Restricted Stock Unit activity since June 22, 2012 is summarized as follows:

				Weighted
				Average
			Weighted	Remaining
	Number of		Average	Contractual
	Shares		Purchase Price	Term (in Years)
Balance at June 22, 2012	-	$	-
Granted	25,000		-
Vested	-		-
Forfeited	-		-
Balance at March 31, 2013	25,000	$	-	2.47

Option activity under the Company's stock option plans since March 31, 2010, is summarized as follows:

.				Weighted
		Shares		Average
	Shares	Subject to		Exercise
	Available	Options		Price
	for Grant	Outstanding		Per Share
Balance at March 31, 2010	2,869,411	9,267,403	$	1.90
Granted - Options	(502,000)	502,000		2.69
Stock purchase rights	(836,432)	-		1.72
Exercised	-	(1,204,776)		1.48
Canceled/Forfeited	1,595,431	(1,595,431)		3.92
Termination of plans	(1,572,431)	-
Balance at March 31, 2011	1,553,979	6,969,196		1.56
Granted - Options (2)	(685,500)	857,474		4.05
Stock purchase rights (1)	(563,100)	-		3.64
Exercised	-	(1,645,308)		1.35
Canceled/Forfeited	147,027	(147,027)		2.07
Termination of plans	(76,860)	-
Balance at March 31, 2012	375,546	6,034,335		1.90
Change in options available for grant	4,100,000	-		-
Granted - Options	(932,000)	932,000		5.80
Stock purchase rights	(443,436)	-		5.75
Restricted Stock Units	(25,000)	-		-
Exercised	-	(835,246)		1.49
Canceled/Forfeited - Options	139,545	(139,545)		4.00
Canceled/Forfeited - Restricted Stock Units	4,000	-		-
Termination of plans	(43,394)	-
Balance at March 31, 2013	3,175,261	5,991,544	$	2.52

(1) The reduction to shares available for grant includes awards granted of 563,100 shares.
(2) The increase to shares subject to options outstanding includes 171,974 shares subject to options assumed under the 2003 Contactual Plan.

Significant option groups outstanding at March 31, 2013 and related weighted average exercise price and contractual life information for 8x8, Inc.'s stock option plans are as follows:

	Options Outstanding						Options Exercisable
			Weighted	Weighted					Weighted
			Average	Average					Average
			Exercise	Remaining		Aggregate			Exercise		Aggregate
			Price	Contractual		Intrinsic			Price		Intrinsic
	Shares		Per Share	Life (Years)		Value	Shares		Per Share		Value
$ 0.55 to $ 1.26	1,766,500	$	1.04	4.7	$	10,265,945	1,766,500	$	1.04	$	10,265,945
$ 1.27 to $ 1.72	1,475,904	$	1.53	2.3		7,854,890	1,475,904	$	1.53		7,854,890
$ 1.73 to $ 3.35	1,312,347	$	2.57	5.3		5,623,096	947,413	$	2.48		4,141,566
$ 3.36 to $ 5.87	1,394,793	$	5.30	8.6		2,166,680	343,177	$	4.99		637,058
$ 5.88 to $ 5.89	42,000	$	5.89	9.6		40,320	4,375	$	5.89		4,200
	5,991,544				$	25,950,931	4,537,369			$	22,903,659

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate difference between the closing stock price of the Company's common stock on March 31, 2013 and the exercise price for in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on March 31, 2013.

The total intrinsic value of options exercised in the years ended March 31, 2013, 2012 and 2011 was $3.3 million, $4.6 million and $1.4 million, respectively. As of March 31, 2013, there was $7.4 million of unamortized stock-based compensation expense related to unvested stock options and awards which is expected to be recognized over a weighted average period of 2.91 years.

Cash received from option exercises and purchases of shares under the Purchase Plans for the years ended March 31, 2013, 2012 and 2011 were $2.4 million, $3.1 million and $2.3 million, respectively. The total tax benefit attributable to stock options exercised in the year ended March 31, 2013 was $49,000.

1996 Employee Stock Purchase Plan

The Company's 1996 Stock Purchase Plan ("Employee Stock Purchase Plan") was adopted in June 1996 and became effective upon the closing of the Company's initial public offering in July 1997. The Company suspended the Employee Stock Purchase Plan in 2003 and reactivated the Employee Stock Purchase Plan in fiscal 2005. Under the Employee Stock Purchase Plan, 500,000 shares of common stock were initially reserved for issuance. At the start of each fiscal year, the number of shares of common stock subject to the Employee Stock Purchase Plan increases so that 500,000 shares remain available for issuance. During fiscal 2013, 2012 and 2011, 301,303, 358,166 and 489,501 shares, respectively, were issued under the Employee Stock Purchase Plan. In May 2006, the Company's board of directors approved a ten-year extension of the Employee Stock Purchase Plan. Stockholders approved a ten-year extension of the Employee Stock Purchase Plan at the 2006 Annual Meeting of Stockholders held September 18, 2006. The Employee Stock Purchase Plan is effective until 2017.

The Employee Stock Purchase Plan permits eligible employees to purchase common stock through payroll deductions at a price equal to 85% of the fair market value of the common stock at the beginning of each two year offering period or the end of a six month purchase period, whichever is lower. When the Employee Stock Purchase Plan was reinstated in fiscal 2005, the offering period was reduced from two years to one year. The contribution amount may not exceed ten percent of an employee's base compensation, including commissions, but not including bonuses and overtime. In the event of a merger of the Company with or into another corporation or the sale of all or substantially all of the assets of the Company, the Employee Stock Purchase Plan provides that a new exercise date will be set for each option under the plan which exercise date will occur before the date of the merger or asset sale.

Assumptions Used to Calculate Stock-Based Compensation Expense

The fair value of each of the Company's option grants has been estimated on the date of grant using the Black-Scholes pricing model with the following assumptions:

		Years Ended March 31,
		2013		2012		2011
Expected volatility		70%		72%		69%
Expected dividend yield		-		-		-
Risk-free interest rate		0.5% to 0.8%		0.3% to 1.2%		1.2% to 2.0%
Weighted average expected option term		5.3 years		4.8 years		4.3 years
Weighted average fair value of options granted	$	3.32	$	2.30	$	1.45

The estimated fair value of stock purchase rights granted under the Purchase Plans were estimated using the Black-Scholes pricing model with the following weighted-average assumptions:

		Years Ended March 31,
		2013		2012		2011
Expected volatility		40%		73%		61%
Expected dividend yield		-		-		-
Risk-free interest rate		0.14%		0.10%		0.23%
Weighted average expected rights term		0.75 years		0.75 years		0.75 years
Weighted average fair value of rights granted	$	1.78	$	1.67	$	0.79

STOCK REPURCHASES

On October 19, 2010, the Company's board of directors authorized the Company to create a new stock repurchase plan to purchase an additional $10.0 million of its common stock from time to time until October 19, 2011. The stock repurchase plan expired on October 19, 2011. The stock repurchase activity since March 31, 2010 is summarized as follows:

			Weighted
			Average
	Shares		Price		Amount
	Repurchased		Per Share		Repurchased
Balance at March 31, 2010	282,376	$	0.75	$	211,741
Repurchase of common stock	3,588,609		2.30		7,810,949
Balance at March 31, 2011	3,870,985		2.26		8,022,690
Repurchase of common stock	301,800		2.95		888,964
Balance at March 31, 2012	4,172,785		2.23		8,911,654
Repurchase of common stock	-		-		-
Balance at March 31, 2013	4,172,785	$	2.33	$	8,911,654

The total purchase prices of the common stock repurchased and retired were reflected as a reduction to consolidated stockholders' equity during the period of repurchase.

In fiscal 2012, the Company also repurchased in two transactions at current market prices 352,030 shares with a total repurchase price of $1.5 million from former and current members of the board of directors outside of the stock repurchase plan.

In fiscal 2013, the Company also withheld 73,751 shares related to net share settlement of restricted stock awards with a total price of $0.4 million.