8x8 2010 Annual Report Download - page 55

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53
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for its employee stock options and stock purchase rights granted under the 1996 Stock Plan, 1996
Director Option Plan, 1999 Nonstatutory Stock Option Plan and the 2006 Stock Plan and stock purchase rights under the 1996
Employee Stock Purchase Plan (“Purchase Plan”) under the provisions of ASC 718 – Stock Compensation (formerly Statement
of Financial Accounting Standards No. 123(R), “Share-Based Payment”). Under the provisions of ASC 718, 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 ASC 718 and,
accordingly, financial statement amounts for the prior periods have not been restated to reflect the fair value method of
expensing share-based compensation.
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 2010, 2009 and 2008, 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 2010, 2009 and 2008
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 ASC 718 (formerly
SFAS No. 123) criteria, whereas stock options granted subsequent to April 1, 2006 were measured based on ASC 718
(formerly SFAS No. 123(R)) criteria. In conjunction with the adoption of ASC 718 (formerly 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 2010, 2009 and 2008 includes the impact of estimated forfeitures. ASC 718 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, when the share price of the Company’s stock closed at $0.55 per share, 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.