8x8 2007 Annual Report Download - page 68

as customer notification of account or password changes. At the present time we do not utilize our customer’s CPNI in a
manner which would require us to obtain consent from our customers, but in the event that we do in the future, we will be
required to adhere to specific CPNI rules aimed at marketing such services. Effective December 8, 2007, we will be required
to implement internal processes in order to be compliant with all of the FCC’s CPNI rules. This may impose additional
compliance costs on the Company and reduce our profitability or cause us to increase the retail price for our services.
On April 18, 2007, the FCC released a Notice of Proposed rulemaking or Notice tentatively concluding that providers of
interconnected VoIP services, like us, should pay regulatory fees. According to the Notice, the FCC would like to begin
collection of such fees in the August to September 2007 timeframe. The FCC is considering calculating contribution
obligations for interconnected VoIP providers based on either revenues or telephone numbers used by us. We cannot predict
the outcome of this proceeding.
On June 8, 2007, the FCC released an order implementing various recommendations from its Independent Panel Reviewing the
Impact of Hurricane Katrina on Communications Networks Panel, including a requirement that certain interconnected VoIP
providers submit reports regarding the reliability and resiliency of their 911 systems. At this time, we are not subject to these
reporting requirements but may become subject in future years.
On June 15, 2007, the FCC extended the disability access requirements of Sections 225 and 255 of the Communications Act,
which applied to traditional phone services, to providers of interconnected VoIP services and to manufacturers of specially
designed equipment used to provide those services. Section 255 of the Communications Act requires service providers to
ensure that its equipment and service is accessible to and usable by individuals with disabilities, if readily achievable, including
requiring service providers to ensure that information and documentation provided in connection with equipment or services be
accessible to people with disabilities, where readily achievable and that employee training account for accessibility
requirements. In addition, the FCC said that interconnected VoIP providers were subject to the requirements of Section 225,
including contributing to the Telecommunications Relay Services, or TRS, fund and that they must offer 711 abbreviated
dialing for access to relay services. At this time, we cannot predict the outcome of this proceeding or our ability to comply with
these disability obligations. We may be subject to enforcement actions including, but not limited to, fines, cease and desist
orders, or other penalties if we are not able to comply with these new disability obligations. When the Order becomes
effective, we will begin contributing to the federal TRS fund and we will likely pass those fees through to our customers
increasing their bills for service. Moreover, compliance with the new disability rules may impose additional costs on the
Company and reduce our profitability or cause us to increase the retail price for our services.
The effect of any future laws, regulations and the orders on our operations, including, but not limited to, the Packet8 service,
cannot be determined. But as a general matter, increased regulation and the imposition of additional funding obligations
increases our costs of providing service that may or may not be recoverable from our customers which could result in making
our services less competitive with traditional telecommunications services if we increase our retail prices or decrease our profit
margins if we attempt to absorb such costs.
7. STOCKHOLDERS' EQUITY
1996 Stock Plan
In June 1996, the Board adopted the 1996 Stock Plan (the 1996 Plan) and reserved 1,000,000 shares of the Company's common
stock for issuance under this plan. The Company's stockholders subsequently authorized increases in the number of shares of
the Company's common stock reserved for issuance under the 1996 Plan of 500,000 shares in June 1997 and 2,000,000 shares
in August 2000. The 1996 Plan also provides for an annual increase in the number of shares reserved for issuance under the
1996 Plan on the first day of the Company's fiscal year in an amount equal to 5% of the Company's common stock issued and
outstanding at the end of the immediately preceding fiscal year, subject to a maximum annual increase of 1,000,000 shares.
The annual increase was 1,000,000 shares in each of fiscal 2007, 2006 and 2005. To date, this provision has resulted in
increases in shares reserved for issuance under the 1996 Plan totaling 8,535,967. The 1996 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 determined fair market value at the date of grant. Options generally
vest over four years and expire ten years after grant. The 1996 Plan expired in June 2006.
1996 Director Option Plan
The Company's 1996 Director Option Plan (the Director Plan) was adopted in June 1996 and became effective in July 1997. A
total of 150,000 shares of common stock were initially reserved for issuance under the Director Plan. The Company's
stockholders subsequently authorized an increase in the number of shares of common stock reserved for issuance under the
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