STOCKHOLDERS' EQUITY - Note 9

12 Months Ended

Mar. 31, 2017

Equity [Abstract]

STOCKHOLDERS' EQUITY - Note 9

9. STOCKHOLDERS' EQUITY

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 became effective in October 2006.  The Company reserved 7,000,000 shares of the Company's common stock for issuance under this plan. As of March 31, 2017, there are no shares available for future grants under the 2006 Plan.  The 2006 Plan provides for granting incentive stock options to employees and non-statutory 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 expired 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 became effective in August 2012.  The Company reserved 4,100,000 shares of the Company's common stock for issuance under this plan. In August 2014 and 2016, the 2012 Plan was amended to allow for an additional 6,800,000 and 4,500,000 shares reserved for issuance, respectively. As of March 31, 2017, 4,060,411 shares remained available under the 2012 Plan.  The 2012 Plan provides for granting incentive stock options to employees and non-statutory 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.

2013 New Employee Inducement Incentive Plan

In September 2013, the Company's board of directors approved the 2013 New Employee Inducement Incentive Plan ("2013 Plan").  The Company reserved 1,000,000 shares of the Company's common stock for issuance under this plan. In November 2014, the 2013 Plan was amended to allow for an additional 1,200,000 shares reserved for issuance. In July 2015, the Plan was amended to allow for an additional 1,200,000 shares reserved for issuance. In connection with its approval of the August 2016 amendments to the 2012 Plan, the Board of Directors has approved the suspension of future grants under the 2013 Plan, which became effective immediately upon stockholder approval of the proposed 2012 Plan amendments in August 2016. In addition, the 2013 Plan was amended to reduce the number of shares reserved for issuance under the 2013 Plan to the number of shares that are then subject to outstanding awards under the 2013 Plan, leaving no shares available for future grant.  The 2013 Plan provided for granting non-statutory stock options, stock appreciation rights, restricted stock, restricted stock and performance units and stock grants solely to newly hired employees as a material inducement to accepting employment with the Company. Options were granted at market value on the grant date under the 2013 Plan, unless determined otherwise at the time of grant by the administrator, which generally will be the compensation committee of the board of directors. Options generally expire ten years after grant.

Stock-Based Compensation

The following table summarizes stock-based compensation expense (in thousands):

		Years Ended March 31,
		2017		2016		2015
Cost of service revenue	$	1,732	$	1,159	$	692
Cost of product revenue		-		-		-
Research and development		3,762		2,914		1,495
Sales and marketing		8,832		6,133		3,748
General and administrative		7,136		6,128		3,412
Total	$	21,462	$	16,334	$	9,347

Stock Options, Stock Purchase Right and Restricted Stock Unit Activity

Stock Option activity under all the Company's stock option plans since March 31, 2014, is summarized as follows:

			Weighted
			Average
			Exercise
	Number of		Price
	Shares		Per Share
Outstanding at March 31, 2014	6,002,382	$	4.14
Granted	1,110,466		7.29
Exercised	(1,326,385)		1.87
Canceled/Forfeited	(458,556)		6.06
Outstanding at March 31, 2015	5,327,907		5.19
Granted	723,776		8.63
Exercised	(1,162,175)		2.56
Canceled/Forfeited	(96,242)		8.06
Outstanding at March 31, 2016	4,793,266		6.29
Granted	407,392		14.63
Exercised	(603,998)		2.34
Canceled/Forfeited	(134,248)		8.41
Outstanding at March 31, 2017	4,462,412	$	7.52
Vested and expected to vest at March 31, 2017	4,462,412	$	7.52
Exercisable at March 31, 2017	3,191,879	$	6.47

Stock Purchase Right activity since March 31, 2014 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, 2014	489,627	$	4.83	1.93
Granted	31,432		7.88
Vested	(223,360)		3.98
Forfeited	(73,864)		5.39
Balance at March 31, 2015	223,835		5.92	1.50
Granted	-		-
Vested	(115,789)		5.32
Forfeited	(25,875)		7.40
Balance at March 31, 2016	82,171		6.30	0.76
Granted	-		-
Vested	(69,426)		6.00
Forfeited	(1,375)		6.72
Balance at March 31, 2017	11,370	$	8.10	1.09

Restricted Stock Unit activity since March 31, 2014 is summarized as follows:

			Weighted	Weighted Average
	Number of		Average Grant	Remaining Contractual
	Shares		Date Fair Value	Term (in Years)
Balance at March 31, 2014	1,134,856	$	9.00	2.00
Granted	1,965,786		6.68
Vested	(187,788)		9.54
Forfeited	(214,168)		8.30
Balance at March 31, 2015	2,698,686		7.33	1.88
Granted	2,681,997		8.78
Vested	(589,788)		7.79
Forfeited	(246,096)		8.15
Balance at March 31, 2016	4,544,799		8.08	1.67
Granted	2,491,877		15.15
Vested	(1,600,831)		7.89
Forfeited	(496,795)		9.56
Balance at March 31, 2017	4,939,050	$	11.57	2.47

Significant option groups outstanding at March 31, 2017 and related weighted average exercise price, contractual life, and aggregate intrinsic value 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 $ 4.60	912,189	$	1.91	2.0	$	12,168,894	912,189	$	1.91	$	12,168,894
$ 5.87 to $ 6.86	1,139,300	$	6.48	6.7		9,996,307	863,274	$	6.35		7,680,449
$ 7.52 to $ 9.21	920,268	$	8.43	7.4		6,277,429	503,564	$	8.47		3,414,760
$ 9.35 to $ 10.50	904,935	$	9.73	6.6		4,998,813	758,640	$	9.71		4,206,928
$ 10.86 to $ 15.40	585,720	$	13.48	8.8		1,043,018	154,212	$	11.68		551,242
	4,462,412				$	34,484,461	3,191,879			$	28,022,273

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, 2017 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, 2017.

The total intrinsic value of options exercised in the years ended March 31, 2017, 2016 and 2015 was $7.2 million, $9.2 million and $8.1 million, respectively. As of March 31, 2017, there was $48.5 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 2.05 years.

Unamortized stock-based compensation expense related to shares issued as part of the DXI acquisition (see Note 13) was approximately $1.3 million, which will be recognized over a weighted average period of 2.17 years.

Cash received from option exercises and purchases of shares under the Equity Compensation Plans for the years ended March 31, 2017, 2016 and 2015 were $5.1 million, $4.8 million and $4.5 million, respectively. The total tax benefit attributable to stock options exercised in the year ended March 31, 2017, 2016 and 2015 was $0.5 million, $0.2 million and $0.2 million, respectively.

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. 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 2017, 2016 and 2015, approximately 0.3 million, 0.4 million, and 0.3 million 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 August 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.

As of March 31, 2017, there were approximately $0.8 million of total unrecognized compensation cost related to employee stock purchases. This cost is expected to be recognized over a weighted average period of 0.5 years.

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,
		2017		2016		2015
Expected volatility		44%		53%		61%
Expected dividend yield		-		-		-
Risk-free interest rate		1.1% to 2.2%		1.5% to 1.8%		1.4% to 1.9%
Weighted average expected option term		4.9 years		5.4 years		6.0 years
Weighted average fair value of options granted	$	5.74	$	4.17	$	4.14

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

		Years Ended March 31,
		2017		2016		2015
Expected volatility		37%		43%		49%
Expected dividend yield		-		-		-
Risk-free interest rate		0.65%		0.39%		0.12%
Weighted average expected rights term		0.75 years		0.83 years		0.80 years
Weighted average fair value of rights granted	$	4.19	$	3.25	$	2.52

Stock Repurchases

In February 2015, the Company's board of directors authorized the Company to purchase up to $20.0 million of its common stock from time to time until February 29, 2016 (the "2015 Repurchase Plan"). This tranche of shares authorized for repurchase expired in February 2016.

In October 2015, the Company's board of directors authorized the Company to purchase an additional $15.0 million of its common stock from time to time until October 20, 2016 under the 2015 Repurchase Plan. The plan expired in October 2016 with an unused authorized repurchase amount of $15.0 million.

The stock repurchase activity as of March 31, 2017 is summarized as follows:

			Weighted
			Average
	Shares		Price		Amount
	Repurchased		Per Share		Repurchased(1)
Balance as of March 31, 2015	2,488,215		7.38	$	19,200,393
Repurchase of common stock under 2015 Repurchase Plan	1,392,135		8.02		11,164,329
Balance as of March 31, 2016	3,880,350	$		$	30,364,722
Repurchase of common stock under 2015 Repurchase Plan	-				-
Balance as of March 31, 2017	3,880,350	$		$	30,364,722
(1) Amount excludes commission fees.

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

In fiscal 2017, 2016 and 2015, the Company also withheld 289,899, 30,702, and 15,053 shares, respectively, shares related to tax withholdings on restricted stock awards with a total price of $3.0 million, $0.5 million, and $0.1 million, respectively.