8x8 2009 Annual Report Download - page 69

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providers, like the Company, are not entirely clear but would likely be applicable should the Company discontinue one of its
service offerings in its entirety or if the Company were to exit the market in whole. The new discontinuance rules are not
currently effective but the Company does not expect these new obligations to have a material impact on the business.
The effect of any future laws, regulations and the orders on the Company’ s operations, including, but not limited to, the 8x8
service, cannot be determined. But as a general matter, increased regulation and the imposition of additional funding
obligations increases the Company’ s costs of providing service that may or may not be recoverable from the Company’ s
customers which could result in making the Company’ s services less competitive with traditional telecommunications services
if the Company increases its retail prices or decreases the Company’ s profit margins if it attempts to absorb such costs.
4. 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
Director Plan to 500,000 shares in August 2000, and 1,000,000 in July 2002. The Director Plan provides 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 will be equal to the fair market value of a share of the
Company's common stock on the date of grant. Options generally vest over a period of four years. Options granted to Outside
Directors under the Director Plan have a ten year term, or shorter upon termination of an Outside Director's status as a director.
The Director Plan expired in June 2006.
1999 Nonstatutory Stock Option Plan
In fiscal 2000, the Board approved the 1999 Nonstatutory Stock Option Plan (the 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 Board. Under the terms of the 1999 Plan, options may not be issued to either officers or directors of the Company
provided, however, that options may be granted to an officer in connection with the officer's initial employment by the
Company. Options generally vest over four years and expire ten years after grant. The 1999 Plan has not been approved by the
stockholders of the Company. In May 2006, the Board cancelled the 1999 Plan, and no new grants may be made from the
1999 Plan.
2006 Stock Plan
In May 2006, the Board approved the 2006 Stock Plan (the “2006 Plan”). The Company’ s stockholders subsequently adopted
the 2006 Plan at the 2006 Annual Meeting of Stockholders held September 18, 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.