8x8 2009 Annual Report Download - page 59

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57
provisions of SFAS No. 123(R), share-based compensation cost is measured at the grant date, based on the estimated fair value
of the award, and is recognized as an expense over the employee’ s requisite service period (generally the vesting period of the
equity grant), net of estimated forfeitures. The Company has elected to adopt the modified prospective transition method as
provided by SFAS No. 123(R) and, accordingly, financial statement amounts for the prior periods have not been restated to
reflect the fair value method of expensing share-based compensation.
Prior to April 1, 2006, the Company accounted for stock-based awards in accordance with APB 25, whereby the difference
between the exercise price and the fair market value on the date of grant, the intrinsic value, is recognized as compensation
expense. Under the intrinsic value method of accounting, no compensation expense was generally recognized since the
exercise price of the employee stock option grants generally equaled the fair market value of the underlying common stock on
the date of grant. However, to the extent awards were granted either below fair market value or were modified which required
a re-measurement of compensation costs, the Company recorded compensation expense.
To value option grants and stock purchase rights under the Purchase Plan for actual and pro forma stock-based compensation
the Company used the Black-Scholes option valuation model. Fair value determined using the Black-Scholes option valuation
model varies based on assumptions used for the expected stock prices volatility, expected life, risk free interest rates and future
dividend payments. For fiscal years 2009, 2008 and 2007, the Company used the historical volatility of the Company’ s stock
over a period equal to the expected life of the options to their fair value. The expected life assumptions represent the weighted-
average period stock-based awards are expecting to remain outstanding. These expected life assumptions are established
through the review of historical exercise behavior of stock-based award grants with similar vesting periods. The risk free
interest is based on the closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for
the expected term equal to the expected term of the option. The dividend yield assumption is based on the Company’ s history
and expectation of future dividend payout.
Stock-based compensation expense recognized in the Consolidated Statements of Operations for fiscal 2009, 2008 and 2007
included both the unvested portion of stock-based awards granted prior to April 1, 2006 and stock-based awards granted
subsequent to April 1, 2006. Stock options granted in periods prior to fiscal 2007 were measured based on SFAS No. 123
criteria, whereas stock options granted subsequent to April 1, 2006 were measured based on SFAS No. 123(R) criteria. In
conjunction with the adoption of SFAS No. 123(R), the Company changed its method of attributing the value of stock-based
compensation to expense from the accelerated multiple-option approach to the straight-line single option method.
Compensation expense for all share-based payment awards granted subsequent to April 1, 2006 is recognized using the
straight-line single-option method. Stock-based compensation expense included in fiscal 2009, 2008 and 2007 includes the
impact of estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those estimates.
On January 27, 2009, the Company’ s board of directors approved the acceleration of unvested stock options to purchase
3,902,186 shares of common stock. 1,737,509 of these shares are subject to options held by the Company’ s executive officers
and directors. These options of the Company’ s executive officers and directors, taken as a whole, have a weighted average
exercise price of $1.06 per share and range from $0.63 to $1.79 per share, and a weighted average remaining vesting term of
2.85 years. Approximately $1.1 million of the $2.4 million stock-based compensation charge in the fourth quarter of 2009
applies to the options held by the Company’ s executive officers and directors.