UNITED STATES
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Washington, D.C. 20549
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8x8, Inc.
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8X8, INC.
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8X8, INC.
NOTICE OF THE 20122014 ANNUAL MEETING OF STOCKHOLDERS
JULY 24, 20122014
Dear Stockholder:
The 20122014 Annual Meeting of Stockholders (the "2012"2014 Annual Meeting") of 8x8, Inc., a Delaware corporation (the "Company"), will be held Tuesday,Thursday, July 24, 2012,2014, at 2:10:00 p.m.a.m., local time, at the corporate offices of the Company at 810 West Maude Avenue, Sunnyvale,2125 O'Nel Drive, San Jose, California 94085,95131, for the following purposes:
To hold an advisory vote to 200,000,000 shares;approve executive compensation; and
These items of business are more fully described in the proxy statement accompanying this notice. Only stockholders of record at the close of business on June 4, 2012,2, 2014, are entitled to notice of and to vote at the 20122014 Annual Meeting or at any adjournment or postponement thereof.
All stockholders are cordially invited to attend the 20122014 Annual Meeting in person. However, to ensure your representation at the 20122014 Annual Meeting, you are urged to vote as promptly as possible. Any stockholder of record attending the 20122014 Annual Meeting may vote in person even if he or she has previously returned a proxy. For ten days prior to the 20122014 Annual Meeting, a complete list of stockholders entitled to vote at the 20122014 Annual Meeting will be available for examination by any stockholder for any purpose relating to this 20122014 Annual Meeting, during ordinary business hours at the Company's corporate headquarters located at 810 West Maude Avenue, Sunnyvale,2125 O'Nel Drive, San Jose, California 94085.95131.
By Order of the Board of Directors
Bryan R. Martin
Chairman and Chief Executive Officer
Sunnyvale,San Jose, California
June 22, 201125, 2014
8X8, INC.
810 West Maude Avenue2125 O'Nel DriveSunnyvale,San Jose, California 9408595131
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The accompanying proxy is solicited by the Board of Directors (the "Board") of 8x8, Inc. (referred to throughout this proxy statement as "8x8," the "Company," "we," "us," and "our"), a Delaware corporation, for use at the 20122014 Annual Meeting of Stockholders (the "2012"2014 Annual Meeting") to be held July 24, 2012,2014, at 2:10:00 p.m.a.m., local time, or at any adjournment thereof.The 20122014 Annual Meeting will be held at our principal executive offices at 810 West Maude Avenue, Sunnyvale,2125 O'Nel Drive, San Jose, California 94085.95131. Our telephone number is (408) 727-1885.
This proxy statement, the accompanying proxy card and our Annual Report on Form 10-K for the year ended March 31, 20122014 ("Annual Report") are being mailed on or about July 5, 2012June 27, 2014 to all stockholders of our common stock as of the record date of June 4, 20122, 2014 (the "Record Date").On the Record Date, we had 70,751,21188,630,702 shares of common stock issued and outstanding held in street name or by registered stockholders.
Furthermore, stockholders who wish to view our Annual Report, as filed with the Securities and Exchange Commission, or the SEC, including our audited financial statements, will find it available on the Investor Relations section of our web site athttp://www.8x8.com. To request a printed copy of our proxy and Annual Report, which we will provide to you free of charge, either: write to 8x8's Investor Relations Department at 8x8, Inc., 810 West Maude Avenue, Sunnyvale,2125 O'Nel Drive, San Jose, CA 94085;95131; call us at (866) 587-8516; or email us at 2012@8x8.com.2014@8x8.com.
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE 20122014 ANNUAL MEETING
Q: What information is contained in this proxy statement?
A:The information in this proxy statement relates to the proposals to be voted on at the 20122014 Annual Meeting, the voting process, our corporate governance, the compensation of our directors and most highly paidnamed executive officers in fiscal 2012,2014, and certain other required information.
Q: What shares can I vote?
A:Each share of 8x8 common stock issued and outstanding as of the Record Date is entitled to vote on all proposals presented at the 20122014 Annual Meeting. You may vote all shares owned by you as of the Record Date, including (1) shares held directly in your name as thestockholder of recordand (2) shares held for you as thebeneficial owner in street name.
Q: How many votes am I entitled to per share?
A:Each holder of shares of common stock is entitled to one vote for each share of common stock held as of the Record Date.
Q: Can I attend the 20122014 Annual Meeting?
A:You are entitled to attend the 20122014 Annual Meeting only if you were an 8x8 stockholder or joint holder as of the Record Date, or if you hold a valid proxy for the 20122014 Annual Meeting. You should be prepared to present government-issued photo identification (such as a driver's license or passport) for admittance. If you are not a stockholder of record but hold shares in street name through a broker, trustee or nominee, you should be prepared to provide proof of beneficial ownership as of the Record Date, such as your most recent account statement prior to June 4, 2012,2, 2014, a copy of the voting instruction card provided by your bank, broker, trustee or nominee, or other similar evidence of ownership.
The meeting will begin promptly at 2:10:00 p.m.a.m., local time. Check-in will begin at 1:9:30 p.m.a.m., local time, and you should allow ample time for the check-in procedures.
Q: How can I vote my shares in person at the 20122014 Annual Meeting?
A: Shares held in your name as the stockholder of record may be voted by you in person at the 20122014 Annual Meeting. Shares held beneficially in street name may be voted by you in person at the 20122014 Annual Meeting only if you obtain a valid proxy, or "legal proxy," from the broker, trustee or nominee that holds your shares giving you the right to vote the shares. Even if you plan to attend the 20122014 Annual Meeting, we recommend that you also submit your voting instructions prior to the meeting to ensure your vote will be counted if you later decide not to attend the meeting.
Q: How can I vote my shares without attending the 20122014 Annual Meeting?
A:If you hold shares directly as the stockholder of record, you may direct how your shares are voted without attending the 20122014 Annual Meeting in accordance with the instructions included in the proxy statement and proxy. Our Chief Executive Officer and our Chief Financial Officer have been designated by the Board to be the proxy holders for the 20122014 Annual Meeting. They will cast votes for Proposal Nos. One, Two, Three and Four at the meeting in accordance with the direction provided in the proxy.
Q: Can I change my vote?
A:YouYour proxy is revocable and you may change your vote at any time prior to the vote at the 20122014 Annual Meeting. If you are the stockholder of record, you may change your vote by granting a new proxy bearing a later date (which automatically revokes the earlier proxy) using any of the methods described above (and until the applicable deadline for each method), by providing a written notice of revocation to 8x8, Inc., Attn: Secretary, 810 West Maude Avenue, Sunnyvale,2125 O'Nel Drive, San Jose, CA 94085,95131, prior to your shares being voted, or by attending the 20122014 Annual Meeting and voting in person. Attendance at the meeting will not cause your previously granted proxy to be revoked unless you specifically so request. For shares you hold beneficially in street name, you may change your vote by submitting new voting instructions to your broker, trustee or nominee following the instructions they provided or, if you have obtained a legal proxy from your broker or nominee giving you the right to vote your shares, by attending the meeting and voting in person.
Q: How many shares must be present or represented to conduct business at the 20122014 Annual Meeting?
A:The quorum requirement for holding and transacting business at the 20122014 Annual Meeting is that holders of a majority of the voting power of the issued and outstanding shares of our common stock of 8x8 must be present in person or represented by proxy. Both abstentions and broker non-votes are counted for the purpose of determining the presence of a quorum.
Q: What is the voting requirement to approve each of the proposals?
A:The voting requirements for the proposals that we will consider at the Annual Meeting are:
-Proposal No. 1-Election of Directors. Directors are elected by a plurality, and the five directors who receive the most votes will be elected to our Board. Shares represented by properly completed and timely submitted proxies will be voted "FOR" the election of the nominees listed in the Notice of the Annual Meeting, unless authority to do so is specifically withheld. If any nominee declines to serve or becomes unavailable for any reason, or if a vacancy occurs before the election (although we know of no reason to anticipate that this will occur), the proxies may be voted for such substitute nominees as the board may designate.
- Proposal No. 1—Election of Directors. The nominees receiving more votes cast "FOR" his or her election than "withheld" shall be elected as directors. Any director nominee who fails to receive more votes cast "for" his or her election than "withheld" is expected to tender his or her resignation to the Nominating Committee of the Board. The Nominating Committee shall consider each resignation tendered under the policy and recommend to the Board whether or not to accept the resignation. - Proposal No. 2—Ratification of Appointment of Moss Adams LLP as Independent Registered Public Accounting Firm. An affirmative vote of the holders of a majority of the shares present or represented by proxy and entitled to vote on this proposal at the Annual Meeting is necessary for approval of this proposal. - Proposal No. 3—Increase the Number of Shares of Common Stock Reserved for Issuance under the 2012 Equity Incentive Plan. An affirmative vote of the holders of a majority of the shares present or represented by proxy and entitled to vote at the Annual Meeting - Proposal No. 4—Advisory Vote to Approve Executive Compensation. An affirmative vote of the holders of a majority of the shares present or represented by proxy and entitled to vote on this proposal at the Annual Meeting will constitute approval of this proposal.-Proposal No. 2-Ratification is necessary for approval of this proposal.-Proposal No. 3-Approval of 2012 Equity Incentive Plan.An affirmative vote of the holders of a majority of the shares present or reported by proxy and entitled to vote on this proposal at the Annual Meeting will constitute approval of this proposal.-Proposal No. 4-Approval to amend restated certificate of incorporation to increase the number of authorized shares of common stock from 100,000,000 to 200,000,000 shares.An affirmative vote of the holders of a majority of the outstanding shares of our common stock will constitute approval of this proposal.
Q: What happens if additional matters are presented at the 20122014 Annual Meeting?
A:Other than the items of business described in this proxy statement, we are not aware of any additional business to be acted upon at the 20122014 Annual Meeting. If you grant a proxy, the named proxy holders, Bryan MartinVikram Verma and Dan Weirich, will have the discretion to vote your shares on any additional matters properly presented for a vote at the meeting.meeting except with respect to broker non-votes, as explained below. If, for any reason, any of our nominees is not available as a candidate for director, the named proxy holders will vote your proxy for such other candidate or candidates as may be nominated by the Board.
Q: How will votes be counted at the 20122014 Annual Meeting?
A:An automated system administered by Broadridge Financial Solutions, Inc. ("Broadridge") will tabulate stockholder votes by proxy instructions submitted by beneficial owners over the Internet, by telephone, or by proxy cards mailed to Broadridge. Our transfer agent, Computershare Investor Services, will tabulate stockholder votes submitted by proxies submitted by stockholders of record other than beneficial owners. The inspector of the election will tabulate votes cast in person at the 20122014 Annual Meeting.
Q: How are "broker non-votes" and abstentions treated?
A:Brokers holding shares in street name for customers have discretionary authority to vote on some matters when they have not received instructions from the beneficial owners of shares. Under the Delaware General Corporation Law, an abstaining vote and a broker "non-vote" are counted as present and are, therefore, included for purposes of determining whether a quorum of shares is present at the Annual Meeting. A broker "non-vote" occurs when a broker or other nominee holding shares for a beneficial owner signs and returns a proxy with respect to shares of common stock held in a fiduciary capacity (typically referred to as being held in "street name") but does not vote on a particular matter due to a lack of discretionary voting power and instructions from the beneficial owner. Under listing rules governing voting with respect to shares held in street name, brokers have the discretion to vote such shares on routine matters but not on non-routinenon- routine matters. At the Annual Meeting, the uncontested election of nominees for the Board, advisory vote to approve executive compensation and increase the approvalnumber of shares of common stock reserved for issuance under the 2012 Equity Incentive Plan and the amendment of the restated certificate of incorporation are non-routine matters under these rules. Brokers that do not receive instructions from the beneficial owners of the shares are entitled to vote only on Proposal No. 2 (the ratification of appointment of Moss Adams LLP as our independent registered public accounting firm for the fiscal 20132015 audit).
Broker non-votes are considered present but not entitled to vote at the meeting. They will not affect the outcome of the vote on the proposals for the election of director, the ratificationany of the appointment of Moss Adams LLP, and the approval of the 2012 Equity Incentive Planproposals at the Annual Meeting because broker non-votes are excluded from the tabulation of votes cast on each proposal. Abstentions are counted as present and entitled to vote for purposes of establishing a quorum. An abstention will have no effect on the election of directors under Proposals No. 1. However, an abstention will have the same effect as a vote "against" the ratification of the appointment by the Audit Committee of Moss Adams LLP as our independent registered public accounting firm for the fiscal 20132015 audit under Proposal No. 2, a vote against the approval to increase the number of shares of common stock reserved for issuance under the 2012 Equity Incentive Plan under Proposal No. 3, and the advisory vote to approve executive compensation under Proposal 4, because a vote against the approvalin favor of these proposals from a majority of the amendment of the restated certificate of incorporation under Proposal No. 4.shares present in person or by proxy and entitled to vote is needed for approval.
Q: Who will serve as inspector of elections?
A: The inspector of elections will be a representative from the Company.
Q: What should I do if I receive more than one set of voting materials?
A:You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate proxy card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please vote using each control number and proxy card that you receive.
Q: Who will bear the cost of soliciting votes for the 20122014 Annual Meeting?
A:The Company is making this solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials and soliciting votes. If you choose to access the proxy materials or vote over the Internet, you are responsible for any Internet access charges you may incur. If you choose to vote by telephone, you are responsible for any telephone charges you may incur. In addition to the mailing of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our directors, officers and employees, who will not receive any additional compensation for such solicitation activities.
PROPOSAL NO. ONE:
ELECTION OF DIRECTORS
Nominees
The Board currently consists of fiveseven directors, all of whom have been nominated for re-election at the 20122014 Annual Meeting and have agreed to serve if elected.
Proxies cannot be voted for a greater number of persons than the number of nominees named. Each of the directors elected at the 20122014 Annual Meeting will hold office until the 20132015 Annual Meeting of Stockholders or until his successor has been duly elected and qualified. Unless otherwise instructed, the proxy holders will vote the proxies received by them for each of our fiveseven nominees named below, all of whom are directors currently serving on the Board. In the event that any of our nominees becomes unable or declines to serve as a director at the time of the 20122014 Annual Meeting, the proxy holders will vote the proxies for any substitute nominee who is designated by the current Board to fill the vacancy. It is not expected that any nominee listed below will be unable or will decline to serve as a director. The names of the nominees and certain information about each of them are set forth below.
Name | Age | Principal Occupation | Director Since | Age | Principal Occupation | Director Since |
Bryan R. Martin | 44 | Chairman of the Board and Chief Executive Officer 8x8, Inc. | 2001 | 46 | Chairman of the Board and Chief Technology Officer 8x8, Inc. | 2001 |
Guy L. Hecker, Jr. (1)(2)(3)(4) | 80 | Retired Major General, USAF | 1997 | 82 | Major General, USAF, Retired | 1997 |
Mansour Salame (3)(4) | 41 | Managing Member, Truemetrics LLC | 2012 | |||
Eric Salzman (1)(4) | 45 | Managing Member, SarniHaan Capital Partners LLC | 2012 | |||
Vikram Verma (1)(3) | 47 | President of Strategic Venture Development, Lockheed Martin | 2012 | |||
Vikram Verma | 49 | Chief Executive Officer, 8x8, Inc. | 2012 | |||
Ian Potter (1)(3) | 50 | Managing Partner of Lion City Capital Partners | 2013 | |||
Jaswinder Pal Singh (1) | 48 | Professor of Computer Science at Princeton University and Chairman and Co-Founder of Gwynnie Bee, Inc. | 2013 | |||
Vladimir Jacimovic | 50 | Managing Partner, Continuum Capital Partners | 2014 |
(1) Member of the audit committeeAudit Committee
(2) Lead director
(3) Member of the compensation committeeCompensation Committee
(4) Member of the nominating committeeNominating Committee
Except as indicated below, each nominee or incumbent director has been engaged in the principal occupation set forth above during the past five years. There are no family relationships between any of our directors or executive officers. There are also no arrangements or understandings between any director, nominee or executive officer and any other person pursuant to which he or she has been or will be selected as a director and/or executive officer.
Bryan R. Martin has served as Chairman of the Board since December 2003. Mr. Martin2003, has served as Chief ExecutiveTechnology Officer since September 2013, and as a director since 2001. From February 2002. 2002 to September 2013, he served as Chief Executive Officer. From March 2007 to November 2008, and again from April 2011 to December 2011, he served as President of the Company.President. From February 2001 to February 2002, he served as President and Chief Operating Officer and a director of the Company. He served as Senior Vice President, Engineering Operations from July 2000 to February 2001 and as the Company's Chief Technical Officer from August 1995 to August 2000. He also served as a director from January 1998 to July 1999. In addition, Mr. Martin served in various technical roles for the Company from April 1990 to August 1995. He received a B.S. and a M.S. in Electrical Engineering from Stanford University. We believe Mr. Martin's qualifications to serve as a director include his tenure as our Chief Executive Officer and as a member of our Board, his more than 2224 years of service to us with extensive experience in the development and sale of communications technologies and services and the 4145 United States patents that he holdsissued to him in the fields of semiconductors, computer architecture, video processing algorithms, videophones and communications.
Major General Guy L. Hecker, Jr.has served as a director since August 1997 and lead director since January 2010. He was the founder of Stafford, Burke and Hecker, Inc., a consulting firm based in Alexandria, Virginia, and served as its President from 1982 to 2008. Prior to his retirement from the United States Air Force in 1982, Major General Hecker's duties included serving as Director of the Air Force Office of Legislative Liaison and an appointment in the Office of the Deputy Chief of Staff, Research, Development and Acquisition for the Air Force. Earlier, he served as a pilot and commander in both fighter and bomber aircraft units, including command of a bomber wing and an air division. During his Air Force career, Major General Hecker was awarded a number of military decorations, including the Air Force Distinguished Service Medal, the Silver Star, the Legion of Merit (awarded twice) and the Distinguished Flying Cross. He currently serves on the board of directors of NavCom Defense Electronics and The Citadel Foundation.Electronics. Major General Hecker received a B.A. from The Citadel, an M.A. in International Relations from George Washington University, an honorary Ph.D. in military science from The
Citadel and completed the management development program at Harvard Business School. We believe that Major General Hecker's qualifications to serve on the Board include his extensive business and investing experience, including the founding of a successful business at Stafford, Burke and Hecker after retiring from the Air Force and his involvement in venture capital investing including being an initial investor in Micron Computer, a subsidiary of Micron Technology, Inc., prior to its initial public offering and a director and principal shareholder of NavCom Defense Electronics since its founding in 1984.
Mansour SalamehasVikram Verma has served as Chief Executive Officer since September 2013 and as a director since January 2012. HeFrom 2008 to August 2013, Mr. Verma was the founderPresident of Contactual, Inc.,Strategic Venture Development at Lockheed Martin with responsibility for monetizing existing Lockheed Martin technologies in new global commercial markets through technology incubators, intellectual property licensing and international strategic partnerships. From 2006 to 2008, Mr. Verma was President of IS&GS Savi Group, a cloud-based contact center provider the Company acquired in September 2011. Since 2003, Mr. Salame served as either theLockheed Martin technology and information services division providing real-time supply chain management and security solutions for government and commercial markets worldwide. Prior to that, he was Chairman orand Chief Executive Officer of Contactual, Inc. Prior to Contactual,Savi Technology, Inc., Mr. Salame founded NextAge Technologies whicha leader in RFID-based tracking and security solutions and a pioneer in using RFID tags to track cargo containers and their content globally via public and private clouds. Savi was acquired by AlcatelLockheed Martin in 19982006. Mr. Verma holds a B.S degree from the Florida Institute of Technology, a M.S.E degree from University of Michigan and worked at Genesys Telecommunications Laboratories, Inc. and as a consultant at Anderson Consulting (now Accenture). Mr. Salame has a Mastersgraduate degree of Science degreeEngineer in electrical engineering from Stanford University. He has also attended executive management programs at the Harvard Business School, Stanford Graduate School of Business and the University of California at Berkeley Haas School of Business. He has been granted eight patents and has won numerous other accolades including being named a "Technology Pioneer" by the World Economic Forum in Davos, Switzerland and a Bachelor of Science degree in electrical engineering from Northwestern University.Tau Beta Pi - Williams Fellow. We believe Mr. Salame'sVerma's qualifications to serve as a director include his successful track record of foundingexperience leading Savi Technology, Inc. through its growth and selling two companies in the contact center space, a market in which we actively participate, as well aseventual sale to Lockheed Martin and his expertise in technologybringing advanced technology-based solutions to new domestic and his background as a consultant.international markets, all of which are critical components for our business success.
Eric Salzman has served as a director since February 2012. From August 2011 to present, Mr. Salzman has beencurrently serves as the Managing Member of SarniHaan Capital Partners, LLC. PriorLLC, a boutique consulting firm he established to SarniHaanprovide high impact strategic advice to public and private technology companies and maintains an investment banking affiliation with Monarch Capital Partners LLC,Group, LLC. Mr. Salzman previously spent several years at Lehman Brothers Holdings, Inc., including as Managing Director in the Private Equity and Principal Investing Group as well asand Managing Director in the Global Trading Strategies Division. Mr. Salzman has extensive public and private board experience and currently is a B.A.director of publicly traded Rainmaker Systems, Inc., a B2B commerce technology provider, where he serves as Chairman of the Audit Committee and a member of the Compensation and Governance and Nominating Committees. Mr. Salzman graduated with an MBA from the Harvard Graduate School of Business and a BA Honors from the University of Michigan and a MBA from Harvard University.Michigan. We believe Mr. Salzman's qualifications to serve as a director include his 20 years of experience working in the financial services industry, his investment experience in the telecommunications industry and his past experience working in private equity.
Vikram Verma Ian Potter has served as a director since January 2012.September 2013. Mr. Potter is currently a Distinguished Fellow with INSEAD's Global Private Equity Initiative, a Senior Advisor at Morgan Stanley and the Managing Partner of Lion City Capital Partners. From 20081994 until his retirement from Morgan Stanley in 2013, he supervised all aspects of the firm's commodity business in Asia while serving on a number of internal and external private company boards. During this time, he opened the group's New Delhi, Shanghai, and Tokyo offices and was responsible for developing the group's capacity across the region and expanding its product offerings. Mr. Potter began his career in finance in London and New York working for Chase Manhattan Bank N.A. where he contributed to present, Mr. Verma has been the Presidentdevelopment of Strategic Venture Development at Lockheed Martin. Prior to 2008, Mr. Verma was Chief Executive Officer of Savi Technology, Inc., a leaderthe bank's interest rate and currency derivatives business. He holds an MBA from INSEAD in RFID-based tracking and security solutionsFrance and a pioneerBA from Queen's University in managed service offerings for government and commercial logistic applications, which was acquired by Lockheed Martin in 2006. Mr. Verma holds a B.S degree from the Florida Institute of Technology, an M.S.E degree from University of Michigan and a graduate degree in electrical engineering from Stanford University. He has also attended executive management programs at the Harvard Business School, Stanford Graduate School of Business and the University of California at Berkley Haas School of Business. He has been granted eight patents and has won numerous other accolades including being named one of 40 "Technology Pioneers" by the World Economic Forum in Davos, Switzerland.Canada. We believe Mr. Verma'sPotter's qualifications to serve as a director include his experience25 years in international business development, management, and operational experience.
Jaswinder Pal Singh has served as a director since October 2013. Dr. Singh is currently a Full Professor of Computer Science at Princeton University, where he has served on the faculty for nearly 20 years. He is also a director of InMobi, a mobile advertising company, and of Gwynnie Bee, Inc., an Internet technology company in the retail space. Previously, he was Co-founder and Chief Technology Officer at FirstRain, Inc., a SaaS provider of market intelligence solutions for the enterprise, where he led the development of award-winning technologies and products for web-based communication and information access. Dr. Singh also served as an advisor to Right Media, Inc., a SaaS online advertising exchange that was acquired by Yahoo in 2007, and later led the development of Yahoo's innovative next-generation advertising marketplace. Dr. Singh has a BSE degree from Princeton University and obtained his MS and PhD degrees from Stanford University. We believe Dr. Singh's qualifications to serve as a director include his qualification as a leading Savi Technology, Inc. through its rapid growthauthority on scalable computing systems, infrastructure and eventual sale to Lockheed Martinapplications and his service to several technology companies. He also is a coauthor of Parallel Computer Architecture: A Hardware-Software Approach, the leading textbook in Parallel Computing, an inventor under of several patents, and an author of over 75 published research papers.
Vladimir Jacimovichas served as a director since March 2014. He is the Founder and Managing Partner of Continuum Capital Partners, an investment firm that specializes in crossover investments targeting private and public technology companies. Previously, Mr. Jacimovic was a Partner at New Enterprise Associates (NEA), a leading global venture capital firm focused on helping entrepreneurs build transformational businesses across multiple stages, sectors and geographies, and a Managing Director at Crosslink Capital, a leading stage-independent venture capital firm. Since beginning his venture career in 1996, Mr. Jacimovic has been involved in more than 30 investments in software, communications, and technology enabled services. We believe Mr. Jacimovic qualifications to serve as director include his 25 years of investing and operating experience with high growth companies in the technology and services industry with specific expertise in new venture development.the software as a service (SaaS), big data and security segments.
Vote Required and Recommendation
The five nominees receiving the highest number of affirmativemore votes of the shares entitled to vote on this mattercast "FOR" his or her election than "withheld" shall be elected as directors. Any director nominee who fails to receive more votes cast "for" his or her election than "withheld" is expected to tender his or her resignation to the Nominating Committee of the Board. The Nominating Committee shall consider each resignation tendered under the policy and recommend to the Board whether or not to accept the resignation.
The Board unanimously recommends that the stockholders vote "FOR" the election of the nominees set forth above.
PROPOSAL NO. TWO:
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The audit committeeAudit Committee of the Board is directly responsible for the appointment of our independent registered public accounting firm. The audit committeeAudit Committee has appointed Moss Adams LLP, Independent Registered Accounting Firm, to audit our financial statements for the fiscal year ending March 31, 2013.2015. The Board proposes that the stockholders ratify this appointment. The audit committeeAudit Committee understands the need for Moss Adams LLP to maintain objectivity and independence in its audits of our financial statements.
The audit committeeAudit Committee retained Moss Adams LLP to audit our consolidated financial statements for fiscal 20122014 and the audit committee retained Moss Adams LLPalso to provide other auditing and non-auditing services in fiscal 2012.2014. The audit committeeAudit Committee has reviewed all non-audit services provided by Moss Adams LLP and has concluded that the provision of such services was compatible with maintaining Moss Adams LLP's independence in the conduct of its auditing functions.
To help ensure the independence of the independent registered public accounting firm, the audit committeeAudit Committee has adopted a policy for the pre-approval of all audit and non-audit services to be performed for us by our independent registered public accounting firm. The audit committeeAudit Committee may delegate to one or more of its members the authority to grant the required approvals, provided that any exercise of such authority is presented to the full audit committeeAudit Committee at its next regularly scheduled meeting.
The following table sets forth the aggregate fees billed to us by Moss Adams LLP for the fiscal years ended March 31, 20122014 and 2011:2013:
Service Categories | Fiscal 2012 | Fiscal 2011 | Fiscal 2014 | Fiscal 2013 | ||||
Audit fees (1) | $ | 401,500 | $ | 337,000 | $543,000 | $371,000 | ||
Audit-related fees (2) | 4,500 | - | $12,000 | $11,500 | ||||
Tax fees | - | - | $101,348 | - | ||||
All other fees (4) | $2,367 | $2,367 | ||||||
Total | $ | 406,000 | $ | 337,000 | $658,715 | $384,867 |
(1) | Audit |
(2) | Audit-related fees consist of fees for |
(3) | Tax fees consist of fees billed for professional services rendered for tax consultations. |
(4) | All other fees include fees for an online accounting research tool. |
Vote Required and Recommendation
The ratification of the selection of Moss Adams LLP as our independent registered public accounting firm for fiscal 20132015 will require the affirmative vote of holders of a majority of the shares entitled to vote on this matter. Votes withheldAbstentions will be counted for purposes of determining the presence or absence of a quorum, but are not counted as affirmative votes. In the event that stockholders fail to ratify the appointment, the audit committeeAudit Committee may reconsider its selection. Even if the selection is ratified, the audit committee,Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the audit committeeAudit Committee determines that such a change would be in our best interests.
Representatives of Moss Adams LLP are expected to be present at the annual meeting, will have the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions.
The Board unanimously recommends that the stockholders vote "FOR" the proposal to ratify our audit committee'sAudit Committee's appointment of Moss Adams LLP to serve as our independent registered public accounting firm for the fiscal year ending March 31, 2013.2015.
PROPOSAL NO. THREE:
APPROVALAPPROVE THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S 2012 EQUITY INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES CURRENTLY RESERVED FOR ISSUANCE THEREUNDER BY ADDING TO THE SHARE RESERVE AN ADDITIONAL 6,800,000 SHARES
We are requesting that the stockholders vote in favor of approving the 8x8, Inc.amendment and restatement of the 2012 Equity Incentive Plan or the ("2012 Plan,Plan") attached to this Proxy Statement as Appendix A, which was adopted by our Board on June 22, 2012.25, 2014, to increase the number of shares currently reserved for issuance thereunder by adding to the share reserve an additional 6,800,000 shares. The maximum number of shares of common stock which may be issued or made subject to awards under the 2012 Plan is 4,100,000 shares.will be 10,900,000 shares following the increase.
We have experienced steady growth in recent years, with our workforce increasing from 254357 to 301484 employees in our most recent fiscal year. This employment growth includes 3247 new employees from our acquisition of Contactual, Inc.Voicenet, Ltd. in September 2011.November 2013. Over 50%41% of our regular, full-time employees currently hold stock options or other equity awards, with over 40%45% of all outstanding awards held by non-executive employees.
As a small cloud-based services company headquartered in Silicon Valley, we must compete with many successful companies for a limited pool of talented people. We believe it is essential that we continue our use of equity compensation to help retain our skilled employees and recruit talented new employees to achieve our objectives, which include growing our business, developing new products and increasing stockholder value. Employees with a stake in the future success of our business are highly motivated to achieve long-term growth and increase stockholder value.
We intend to use the additional shares to recruit and retain employees in the highly competitive job market in Silicon Valley and anticipate the duration of the increased share pool to be two to four years.
We also recognize the dilutive impact of our equity compensation programs on our stockholders and we continuously strive to balance this concern with the competition for talent, competitive compensation practices and the need to attract and retain talent. Our three-year average annual gross burn rate, calculated using the Institutional Shareholder Services ("ISS") methodology, is approximately 2.0%3.5%, which is well below the ISS burn rate threshold of 6.5%4.22% applied to our industry. Asthe Telecommunications Services GICS sub-industry.
If the stockholders approve the proposed increase in the number of shares reserved for March 31,2012, we hadissuance under the 2012 Plan, the Board has approved the following amendments to the 2012 Plan, which may have a favorable impact on our stockholders:
"Fungible" Share Counting. We will reduce the number of shares available under the amended and restated 2012 Plan by 1.50 shares for every share granted in connection with a restricted share or stock unit award granted on or after July 25, 2014, and by one share for every share granted in connection with a stock option or stock appreciation right.
No Share Recycling for "Net Exercises" or Tax Withholding. Under the amended and restated 2012 Plan, shares retained by or delivered to us to pay either the exercise price of an outstanding stock option or the withholding taxes in connection with an award do not become available for issuance as future awards under the plan. In addition, the full number of shares subject to a stock appreciation right settled by the issuance of shares will count against the number of shares available under the amended and restated 2012 Plan, regardless of the number of shares actually issued on settlement of the award.
Term of Awards. The amended and restated 2012 Plan limits the term of stock options and stock appreciation rights to ten years or less.
No Discounted Options. Stock options and stock appreciation rights may not be granted with exercise prices lower than the fair market value of the underlying shares on the grant date.
Promotion of Good Corporate Governance Practices
The existing 2012 Plan also includes a number of responsible corporate governance provisions. These include, but are not limited to, the following:
No Re-pricing without Stockholder Approval. Under the 2012 Plan, we cannot, without stockholder approval, re-price stock options or stock appreciation rights that are "underwater" by reducing the exercise price or exchanging the stock option or stock appreciation right for cash or new or other stock awards.
No "Evergreen." The 2012 Plan does not include an "evergreen" feature pursuant to which the shares authorized for issuance under the Plan can be automatically replenished.
No Transferability. Awards generally may not be transferred, except by will or the laws of descent and distribution, unless approved by the Compensation Committee of our Board.
No Tax Gross-ups. The 2012 Plan does not provide for any tax gross-ups.
Key Data
The following table includes information regarding outstanding equity awards and shares available for future awards under our equity compensation programs:
Equity Plan Informationstock plans as of March 31, 201212014 (1):
Options Outstanding |
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Shares Available for Grant: 2006 and 2013 Plans (2) | 496,837 |
Weighted Average Exercise Price of Outstanding Options | $ |
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Additional Shares Requested: 2012 Plan | 6,800,000 |
1(1) This table excludes shares requested for the 2012 Plan and shares associated with our8x8 Employee Stock Purchase Plan.
The purpose of this proposal is
(2) Shares available under the 2006 and 2013 Plans are not subject to provide 8x8 with additional flexibility and a sufficientfungible share reserve to continue to provide new hires, employees and management for the next few years with opportunities for equity ownership, taking into account our projected hiring growth and the possibility of additional strategic transactions during this period. Our Board decided to adopt a new plan, rather than increase the share reserve under our 2006 Plan, primarily because the 2012 Plan would allow us to grant a wider range of equity awards, as discussed below. Our 2006 Plan permits us to grant only stock options and stock purchase rights.counting methodology.
By voting in favor of this proposal, our stockholders will be voting to approve:
The 2012 Plan including for the purpose of qualifying awards thereunder as performance-based compensation under Section 162(m) of the Code.
was adopted by our Board in June 2012 and was approved by our stockholders in July 2012. The principal features of the 2012 Plan (prior to any of the amendments described above) are summarized below, but the summary is qualified in its entirety by reference to the 2012 Plan itself, which is attached to this Proxy Statement as Appendix A.itself.
Purpose.Purpose. The 2012 Plan is intended to encourage ownership of our common stock by our employees, consultants and directors and to provide additional incentive for them to promote the success of our business through the grant of awards of or relating to our common stock.
Administration.Administration. The 2012 Plan may be administered by the Board or the compensation committee.Compensation Committee. The Board intends to have the compensation committeeCompensation Committee administer the 2012 Plan. Subject to the provisions of the 2012 Plan, the compensation committeeCompensation Committee has discretion to determine the employee, consultant or director to receive an award, the form of award and any acceleration or extension of an award. Further, the compensation committeeCompensation Committee has complete authority to interpret the 2012 Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective award agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the 2012 Plan.
Eligibility.Eligibility. Awards may be granted to any employee of or consultant to us or our affiliates or to non-employeenonemployee members of the Board or of any board of directors (or similar governing authority) of any affiliate of ours. As of June 15, 2012,May 31, 2014, we had 310510 employees and fourfive non-employee directors who would beare eligible to participate in the 2012 Plan.
Term of Plan.Plan. Unless the 2012 Plan is terminated earlier by the Board, awards may be made under the 2012 Plan until the tenth anniversary of its adoption by the Board, or June 22, 2022.
Shares Subject to Plan.Plan. The shares issued or to be issued under the 2012 Plan are authorized but unissued shares of our common stock. The maximum number of shares of common stock which may be issued or made subject to awards under the 2012 Plan is 4,100,000 shares.shares prior to the proposed amendment to increase the total number of shares subject to awards under the 2012 Plan to 10,900,000.
Types of Awards.Awards. Awards under the 2012 Plan may include Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, Qualified Performance-Based Awards and Stock Grants. Each award will be evidenced by an instrument in such form as the compensation committeeCompensation Committee may prescribe, setting forth applicable terms such as the exercise price and term of any option or applicable forfeiture conditions or performance requirements for any Restricted Stock or Restricted Stock Units. Except as noted below, all relevant terms of any award will be set by the compensation committeeCompensation Committee in its discretion.
Incentive Stock Options may be granted only to eligible employees of us or any parent or subsidiary corporation of ours and must have an exercise price of not less than 100% of the fair market value of our common stock on the date of grant (110% for Incentive Stock Options granted to any 10% stockholder of ours). In addition, the term of an Incentive Stock Option may not exceed 10 years (five years, if granted to any 10% stockholder). Nonstatutory Stock Options must have an exercise price of not less than 100% of the fair market value of our common stock on the date of grant, unless the Board or the compensation committeeCompensation Committee determines otherwise. In the case of an Incentive Stock Option, the amount of the aggregate fair market value of common stock (determined at the time of grant) with respect to which Incentive Stock Options are exercisable for the first time by an employee during any calendar year (under all such plans of his or her employer corporation and its parent and subsidiary corporations) may not exceed $100,000.
Transferability. In general, no award under the 2012 Plan may be transferred by the recipient and during the life of the recipient all rights under an award may be exercised only by the recipient or his or her legal representative. However, the Board or the Compensation Committee may approve the transfer, without consideration, of an award of a Nonstatutory Option or Restricted Stock to a family member.
Awards of Restricted Stock Units and Performance Units are grants of rights to receive either shares of common stock (in the case of Restricted Stock Units) or the appreciation over a base value (as specified by the Board or the compensation committee)Compensation Committee) of a number of shares of common stock (in the case of Performance Stock Units) subject to satisfaction of service or performance requirements established by the Board or the compensation committeeCompensation Committee in connection with the award. Such awards may, in the discretion of the Board or the compensation committee,Compensation Committee, include the right to the equivalent to any dividends on the shares covered by the award, but any such dividends would be paid only if and when the award vests.
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Qualified Performance-Based Awards in the form of Stock Options must have an exercise price which is not less than 100% of the fair market value of our common stock on the date of grant. No payment or other amount will be available to a recipient of a Qualified Performance-Based Award except upon the Board's or the compensation committee'sCompensation Committee's determination that particular goal or goals established by the Board or the compensation committeeCompensation Committee for the criteria (from among those specified above) selected by the Board or the compensation committeeCompensation Committee have been satisfied. The maximum number of shares that may be subject to awards granted as Qualified Performance-Based Awards to any one person in any one calendar year is 750,000 shares.
Effect of Termination of Employment or Association. Unless the Board or the compensation committeeCompensation Committee determines otherwise in connection with any particular award under the 2012 Plan, Stock Options and SARs will generally terminate six months following the recipient's termination of employment or other association with us due to death or disability and three months following the recipient's termination of employment or other association with us for any other reason. The effect of termination on other awards will depend on the terms of those awards.
Transferability. In general, no award under the 2012 Plan may be transferred by the recipient and during the life of the recipient all rights under an award may be exercised only by the recipient or his or her legal representative. However, the Board or the compensation committeeCompensation Committee may approve the transfer, without consideration, of an award of a Nonstatutory Option or Restricted Stock to a family member.
Adjustments Uponupon Changes in Capitalization.Capitalization. In the event of any change in the outstanding shares of common stock through any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other distribution with respect to such shares of common stock, our Board will make an appropriate adjustment to the following: (i) the maximum numbers and kinds of shares subject to the 2012 Plan and the 2012 Plan limits, (ii) the numbers and kinds of shares or other securities subject to the then outstanding awards, (iii) the exercise or hurdle price for each share or other unit of any other securities subject to then outstanding Stock Options or SARs (without change in the aggregate purchase or hurdle price as to which Stock Options or SARs remain exercisable), and (iv) the repurchase price of each share of Restricted Stock then subject to a risk of forfeiture in theform of a Company repurchase right.
Fundamental Transaction, Liquidation or Dissolution.Dissolution. In the event that we (1) merge or consolidate with or into another entity as a result of which our common stock is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (2) sell or exchange all of our common stock for cash, securities or
other property, (3) sell, transfer or otherwise dispose of all or substantially all of our assets to one or more other persons in a single transaction or series of related transactions or (4) undertake a liquidation or dissolution (each, a "Corporate Transaction"), our Board or the compensation committeeCompensation Committee may take any one or more of the following actions with respect to all or any portion of our outstanding awards:
Buy-Back of Awards.Awards. The Board or the compensation committeeCompensation Committee may offer to buy out any award in
exchange for a cash payment or for another award, or may authorize the recipient of an award to elect to cash out the award, in each case based upon such terms and conditions as the Board or the compensation committeeCompensation Committee may establish; provided, however, that any repricingre-pricing of an outstanding award would require stockholder approval under the 2012 Plan.
Amendments to the 2012 Plan.Plan. The Board may amend or modify the 2012 Plan at any time subject to the rights of holders of outstanding awards on the date of amendment or modification; provided, however, that the Board may not, without the approval of stockholders, repricere-price outstanding awards.
Summary of Tax Consequences.Consequences. The following is a brief and general discussion of the United States federal income tax consequences to recipients of awards granted under the 2012 Plan. This summary is not comprehensive and is based upon laws and regulations in effect on June 22, 2012. Such laws and regulations are subject to change. This summary is intended for the information of stockholders considering how to vote and not as tax guidance to participants in the 2012 Plan. Participants in the 2012 Plan should consult their own tax advisors as to the tax consequences of participation.
years after the date the Option was granted and at least one year after the exercise of the Option, the subsequent sale of common stock will give rise to a long-term capital gain or loss to the participant and no deduction will be available to us. If the participant sells the shares of common stock within two years after the date an Incentive Stock Option is granted or within one year after the exercise of an Option, the participant will recognize ordinary income in an amount equal to the difference between the fair market value at the exercise date and the Option exercise price, and any additional gain or loss will be a capital gain or loss. Some participants may have to pay alternative minimum tax in connection with exercise of an Incentive Stock Option, however.
general, by limiting any flexibility in the time of payment). For example, the award of an SAR at less than 100% of the market value of our common stock, would constitute deferred compensation. If an award includes deferred compensation, and its terms do not comply with the requirements of the legislation, then such award will be taxable when it is earned and vested (even if not then payable) and the recipient will be subject to a 20% additional tax.
New Plan Benefits.Benefits. The benefits or amounts that will be received under the 2012 Plan by or allocated to each of (1) the named executive officers, (2) each of the nominees for election as a director, (3) all directors who are not executive officers of the company as a group, (4) all present executive officers as a group, and (5) all employees, including all other current officers, as a group are not determinable.
Vote Required.Required. The proposal to approve the adoption of the 2012 Plan will require approval by a majority of the shares of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote on such proposal. In approving the adoption
Stockholder approval of our request for additional shares under Proposal No. 3 is necessary to authorize a sufficient number of shares under the 2012 Plan to allow us to continue to attract, motivate, reward and retain the services of our personnel. If this increase is not approved, the 2012 Plan will remain in effect with its current terms and conditions but without the additional shares we consider necessary for our continued competitiveness.
The Board unanimously recommends that the stockholders also will be approvingvote "FOR" approval of the material termsamendment and restatement of the 2012 Equity Incentive Plan to increase the number of shares currently reserved for purposes ofissuance by an additional 6,800,000 shares.
PROPOSAL NO. FOUR:
ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
We are providing stockholders with an advisory vote on executive compensation as required by Section 162(m)14A of the Code.Exchange Act. Section 14A was added to the Exchange Act by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
This vote is advisory, and, therefore, not binding on us, the Board, or the Compensation Committee. However, the Board and the Compensation Committee value the opinions of our stockholders and to the extent there is any significant vote against the compensation of our named executive officers, as disclosed in this Proxy Statement, we will consider our stockholders' concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.
As discussed in the Compensation Discussion and Analysis, we have designed our executive compensation program to develop, motivate and retain high quality executive officers, align executive compensation with our strategies and business objectives and the long-term creation of stockholder value, and provide meaningful equity ownership by our executive officers.
Accordingly, the Board encourages you to review carefully the Compensation Discussion and Analysis and the tabular and other disclosures on compensation under Executive Compensation, and cast a vote to approve our executive compensation programs and the following resolution:
"RESOLVED, that the Company's stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Proxy Statement for the 2014 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the fiscal year 2014 Summary Compensation Table and the other related tables and disclosure."
The Board unanimously recommends that the stockholders vote "FOR" approval of the adoption of the 2012 Equity Incentive Plan.foregoing resolution.
PROPOSAL NO. FOUR:
APPROVAL OF AMENDMENT OF OUR CERTIFICATE OF INCORPORATION TO INCREASE THENUMBER OF AUTHORIZED SHARES OF COMMON STOCK
Our certificate of incorporation currently authorizes the issuance of 100,000,000 shares of common stock, par value $0.001 per share. On June 22, 2012, our Board adopted a proposal to amend the certificate of incorporation to increase the number of shares of common stock that we are authorized to issue from 100,000,000 to 200,000,000 shares, subject to stockholder approval at our Annual Meeting. Our Board has determined that the proposed amendment is advisable and in the best interests of 8x8 and our stockholders and is accordingly submitting the proposed amendment to be voted on by the stockholders.
The additional common stock to be authorized by adoption of the amendment would have rights identical to our currently outstanding common stock. Adoption of the proposed amendment and issuance of the common stock would not affect the rights of the holders of our currently outstanding common stock, except for effects incidental to increasing the number of shares of our common stock outstanding, such as dilution of the earnings per share and voting rights of current holders of our common stock. If the amendment is adopted, it will become effective upon filing of a certificate of amendment to our certificate of incorporation (or a restated certificate of incorporation) with the Secretary of State of the State of Delaware.
Our certificate of incorporation currently also authorizes the issuance of 5,000,000 shares of preferred stock, par value $0.001 per share, none of which are issued or outstanding. The proposed amendment to the certificate of incorporation would not change the authorized number of shares of preferred stock. There are currently no plans, arrangements, commitments or understandings with respect to the issuance of any shares of preferred stock.
In addition to the 70,751,211 shares of our common stock outstanding on June 4, 2012, the Board has reserved 6,889,443 shares for issuance pursuant to options and other equity awards outstanding on June 4, 2012 and 4,451,755 shares for future issuances and grants made under our equity incentive plans (including the 2012 Plan). As a result, on June 4, 2012, there were only 17,907,591 shares of common stock available for issuance for other purposes.
Although at present the Board has no other plans to issue the additional shares of common stock, it desires to have the shares available to provide additional flexibility to use its capital stock for business and financial purposes in the future. The additional shares may be used for various purposes without further stockholder approval to amend our certificate of incorporation to authorize more shares, including for future acquisitions, capital-raising or financing transactions involving the issuance of shares of our common stock, the issuance of convertible securities or other equity securities, stock splits, stock dividends and current or future equity compensation plans, although such transactions and equity compensation plans may require stockholder approval in particular instances.
The issuance of additional shares of common stock could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of 8x8. We are not aware of any attempts on the part of a third party to effect a takeover of 8x8, and the amendment has been proposed for the reasons stated above and not with the intention that any increase in the authorized shares of common stock be used as an anti-takeover device.
If this proposal is approved and the amendment becomes effective, the first paragraph of Article IV of our certificate of incorporation, as amended to date, will be amended to read as follows:
"IV. This corporation is authorized to issue two classes of shares to be designated respectively Common Stock and Preferred Stock. Each share of Common Stock shall have a par value of $0.001 and each share of Preferred Stock shall have a par value of $0.001. The total number of shares of Common Stock this corporation shall have authority to issue is 200,000,000, and the total number of shares of Preferred Stock this Corporation shall have authority to issue is 5,000,000."
Vote Required.The affirmative vote of the holders of a majority of the outstanding shares of our common stock will be required to approve this amendment to our Certificate of Incorporation.
The Board unanimously recommends that the stockholders vote "FOR" the proposal to approve the amendment of the certificate of incorporation to increase the number of authorized shares of the Company's common stock from 100,000,000 to 200,000,000 shares.
CORPORATE GOVERNANCE
Information Regarding the Board and its Committees
The Board held a total of 1615 meetings during fiscal 2012.2014. The non-employee members of the Board also met four times in regularly scheduled executive sessions without management present. Every director attended all of the meetings of the Board and committees of the Board during the time and upon which such directors served during fiscal 2012, except that Chris McNiffe, who resigned from the Board in February 2012 did not attend one of the audit committee meetings.2014. The Board acted three timestwice by written consent during fiscal 2012. As allowed by our bylaws,2014. In fiscal 2014, the board dissolved the strategy committee, Mr. Salame resigned in October 2013, and Mr. Potter, Dr. Singh and Mr.Jacimovic were appointed to the Board reducedto fill existing vacancies. Also, in September 2013, Mr. Verma resigned from his committee appointments upon his appointment as Chief Executive Officer.
In September 2013, the number of Board seats from five to four by solution in June 2011 and increased the number of directors on the Board seats from fourfive to five by resolutionsix and subsequently increased the number of directors on the Board from six to seven in February 2012.
March 2014. The Board has an audit committee,Audit Committee, a compensation committeeCompensation Committee, and a nominating committee.Nominating Committee. The Board has adopted charters for each of these committees that are available on our website under "Corporate Governance" which can be found athttp://investors.8x8.com.
The Board has determined that the following directors are "independent" as defined under Marketplace Rule 5605(a)(2) of the listing rules of the NASDAQ Stock Market ("NASDAQ"): Major General Hecker, Mr. Salame,Salzman, Mr. SalzmanPotter, Dr. Singh, and Mr. Vikram.Jacimovic. For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationship with us that would impair his or her independence. The Board has established guidelines to assist it in determining director independence, which conform to the independence requirements in the NASDAQ listing rules. The Board has concluded that there are no business relationships that are material or that would interfere with the exercise of independent judgment by any of the independent directors in their service on the Board or its committees. Each of the Board's audit, compensationAudit, Compensation and nominating committeesNominating Committees is comprised solely of independent directors in accordance with the NASDAQ listing rules.
Audit Committee
The audit committeeAudit Committee oversees our corporate accounting and financial reporting process and performs several functions in the performance of this role. Among other responsibilities as set forth in our audit committeeAudit Committee charter, the audit committeeAudit Committee evaluates the performance of and assesses the qualifications of the independent auditors; determines and approves the engagement of the independent auditors; determines whether to retain or terminate the existing independent auditors or to appoint and engage new independent auditors; reviews and approves the retention of the independent auditors to perform any proposed permissible non-audit services; monitors the rotation of partners of the independent auditors on our audit engagement team as required by law; confers with management and the independent auditors regarding the effectiveness of internal controls over financial reporting; and discusses with management and the independent auditors the results of the annual audit and the results of the reviews of our quarterly financial statements. The Audit Committee is also responsible for reviewing and approving all business transactions between us and any director, officer, affiliate or related party, including transactions required to be reported in our proxy statement, of which there have been none since the end of fiscal year 2013.
The current members of the audit committeeAudit Committee are Major General Hecker (Chairman), Mr. Salzman, Mr. Potter, and Mr. Verma.Dr. Singh. The Board has determined that each of these directors meets the requirements for membership to the audit committee,Audit Committee, including the independence requirements of the SEC and the NASDAQ listing standards under Marketplace Rule 5605(c)(2). The Board has identified Major General Hecker as the member of the audit committeeAudit Committee who is an "audit committee financial expert" as defined under Item 407(d)(5)(ii) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 (the "Exchange Act"), but that status does not impose on him duties, liabilities or obligations that are greater than the duties, liabilities or obligations otherwise imposed on him as a member of our audit committeeAudit Committee or our Board. The audit committeeAudit Committee held four meetings during fiscal 2012.2014. The audit committeeAudit Committee held four executive sessions during fiscal 20122014 and did not actacted by written consent once during fiscal 2012.2014.
Compensation Committee
The compensation committeeCompensation Committee recommends the compensation of the Chief Executive Officer to the Board for its approval and reviews the Chief Executive Officer's recommendations to the Board concerning the compensation of our other officers and directorsemployees and the administration of our stock-based award and employee stock purchase plans. The compensation committeeCompensation Committee held one meetingsix meetings during fiscal 2012.2014. The compensation committeeCompensation Committee currently consists of Mr. VermaSalzman (Chairman), Major General Hecker, and Mr. Salame, whomPotter, who are independent directors as
currently defined in the NASDAQ listing rules. The compensation committee did not actCompensation Committee acted by written consent once during fiscal 2012. The compensation committee has met three times in fiscal 2013 as of the date of this proxy statement.
2014.
Nominating Committee
The nominating committeeNominating Committee is responsible for identifying, reviewing and evaluating candidates to serve as directors of the Company, consistent with criteria approved by the Board, reviewing and evaluating incumbent directors, recommending to the Board candidates for election to the Board, making recommendations to the Board regarding the membership of the committees of the Board, and assessing the performance of management and the Board. Pursuant to the charter of the nominating committee,Nominating Committee, all members of the nominating committeeNominating Committee must be qualified to serve under the NASDAQ listing rules and any other applicable law, rule regulation and other additional requirements that the Board deems appropriate. The nominating committeeNominating Committee currently consists of Major General Hecker (Chairman), Mr. Salame and Mr. Salzman. The nominating committeeNominating Committee held threefive meetings during fiscal 20122014 and has recommended all current directors for nomination to be elected as directors at the 2012May 19, 2014 Annual Meeting. The Nominating Committee acted by written consent once during fiscal 2014.
Combined Chairman/CEOBoard Structure and Lead Director
We believe that the current size of the Board is suited to the relatively small size of our current operations. Given the current sizeUpon appointment of Mr. Verma as Chief Executive Officer, Bryan R. Martin, Chief Executive Officer and Chairman of the Board we operate with a combinedprior to Mr. Verma's appointment, became our Chief Technology Officer, and retained his position as Chairman of the Board. The Board believes that the separation of the offices of the Chairman and Chief Executive Officer position. Theis appropriate at this time because it allows our Chief Executive Officer to focus primarily on our business strategy, operations and corporate vision. However, the Board also believesdoes not have a policy mandating that the roles of Chairman and Chief Executive Officer continue to be separated. Our Board elects our Chairman and our Chief Executive Officer, and each of these positions may be held by the same person or may be held by different people. We believe it is important that we havethe Board retain flexibility to determine whether the two roles should be separate or combined based upon the Board's assessment of the company's needs and leadership at a singlegiven point of focused leadership to interact with our stockholders, customers, partners and employees, and the combined position achieves this result.in time.
In January 2010, the Board created the independent director position of lead director and appointed Major General Hecker to be theour first lead director. The lead director is responsible for (i) establishing the agenda for the executive sessions held by non-managementnon- management directors of the Board and acting as chair of those sessions, (ii) polling the other non-management directors for agenda items both for regular board meetings and executive sessions of the non-management directors and (iii) working with the Chairman of the Board and Chief Executive Officer on the agenda for regular Board meetings. The Board believes that this structure of a combined Chairman and Chief Executive Officer with the lead director reconciling the viewpoints and discussions amongst the outside directors is the most effective Board leadership structure for the Company.
Consideration of Director Nominees
Stockholder Nominations and Recommendations.It is the policy of the nominating committeeNominating Committee to consider both recommendations and nominations for candidates to the Board from stockholders. To recommend a prospective candidate for consideration by the nominating committee,Nominating Committee, a stockholder must hold at least $2,000 in market value or one percent of the outstanding voting securities of our common stock for at least one year prior to the date of submission of the recommendation. Stockholder recommendations for candidates to the Board must be directed in writing to our Secretary at the address of our principal executive offices at 810 West Maude Avenue, Sunnyvale,2125 O'Nel Drive, San Jose, California 94085,95131, and must include the candidate's name, age, business address and residence address, the candidate's principal occupation or employment, the class and number of shares of our stock which are beneficially owned by such candidate, a description of all arrangements or understandings between the stockholder making such recommendation and each candidate and any other person or persons (naming such person or persons) pursuant to which the recommendations are to be made by the stockholder, detailed biographical data and qualifications of the candidate and information regarding any relationships between the candidate and us within the last three years, and any other information relating to such recommended candidate that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act. A stockholder's recommendation to the Secretary must also set forth the name and address, as they appear on our books, of the stockholder making such recommendation, the class and number of our shares which are beneficially owned by the stockholder and the date such shares were acquired by the stockholder, any material interest of the stockholder in such recommendation, any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Exchange Act, in his capacity as a proponent to a stockholder proposal, and a statement from the recommending stockholder in support of the candidate, references for the candidate, and the candidate's written consent indicating his or her willingness to serve, if elected.
When submitting candidates for nomination to be elected at our annual meeting of stockholders, stockholders must follow the notice procedures and provide the information required by our bylaws. You may contact us at 8x8, Inc., Attn: Secretary, 810 West Maude Avenue, Sunnyvale,2125 O'Nel Drive, San Jose, CA 94085,95131, for a copy of the relevant bylaw provisions regarding the requirements for submitting stockholder proposals and nominating director candidates.
We have never considered nor rejected nominations by 5% or more stockholders.
Director Qualifications.Members of the Board should have the highest professional and personal ethics and values, and conduct themselves consistent with our Code of Business Conduct and Ethics. While the nominating committeeNominating Committee has not established specific minimum qualifications for director candidates, the nominating committeeNominating Committee believes that candidates and nominees must reflect a Board that is comprised of directors who:
Are predominantly independent;
Have strong integrity;
Have qualifications that will increase overall Board effectiveness; and
Meet other requirements as may be required by applicable rules, such as financial literacy or financial expertise with respect to audit committeeAudit Committee members.
Upon completion of its review and evaluation, our nominating committeeNominating Committee made its recommendation to the Board regarding the candidates. After considering our nominating committee'sNominating Committee's recommendations, our Board determined and approved the existing candidates.
Identifying and Evaluating Director Nominees.Although candidates for nomination to the Board typically are suggested by existing directors or by our executive officers, candidates may come to the attention of the Board through professional search firms, stockholders or other persons. The nominating committeeNominating Committee will review the qualifications of any candidates who have been properly brought to the nominating committee'sNominating Committee's attention. Such review may, in the nominating committee'sNominating Committee's discretion, include a review solely of information provided to the nominating committeeNominating Committee or may also include discussions with persons familiar with the candidate, an interview with the candidate or other actions that the nominating committeeNominating Committee deems proper. The nominating committeeNominating Committee will consider the suitability of each candidate, including the current members of the Board, in light of the current size and composition of the Board. In evaluating the qualifications of the candidates, the nominating committeeNominating Committee may consider many factors, including issues of character, judgment, independence, age, expertise, diversity of experience and perspective, length of service, other commitments and the like. The nominating committeeNominating Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether the candidate was recommended by a stockholder or not.
In fiscal 2012, the nominating committee recommended the election of three new members to the Board to fill vacancies created by the resignations of former directors; one such vacancy having been unfilled for more than one year. Mr. Salame was appointed to the Board due to his expertise and network of contacts in the contact center industry and his prior work experience as a strategic consultant. Mr. Verma was appointed to the Board because of his substantial technical knowledge and managerial experience. Mr. Salzman was appointed to the Board because of knowledge of the debt and equity capital markets. In addition, the nominating committee concluded that all of the candidates met our qualifications of being predominantly independent, having strong integrity and having unique qualifications to increase the Board's effectiveness.
Members of the Board are strongly encouraged, but not required, to attend each annual meeting of stockholders. TwoOne of our Board members attended the annual meeting of stockholders in August 2011.July 2013.
Compensation Committee Interlocks and Insider Participation
The compensation committeeCompensation Committee of the Board currently consists of Mr. Salzman (Chairman), Major General Hecker, Mr. Salame and Mr. Verma.Potter. None of thethese individuals is currently an officer or employee of ours or was an officer or employee of ours at any time during fiscal 2012. Mr. Salame served as an executive of Contactual, Inc., which we acquired in fiscal 2012, during fiscal 2012 prior to the closing of the acquisition. His employment with Contactual terminated prior to the closing, and he has never been employed by us.
2014. None of our executive officers or directors served as a member of the Board or compensation committeeCompensation Committee of any entity that had one or more executive officers serving as a member of the Board or our compensation committeeCompensation Committee at any time during fiscal 2012.2014.
Code of Business Conduct and Ethics
We are committed to maintaining the highest standards of business conduct and ethics. Our Code of Business Conduct and Ethics (the "Code of Ethics") reflects the values and the business practices and principles of behavior that support this commitment. The Code of Ethics is available on our website under "Corporate Governance "Governance" which can be found athttp://investors.8x8.com. We will post any amendment to, or a waiver from, a provision of the Code of Ethics as well as any waivers that are required to be disclosed by the rules of the SEC or NASDAQ, on our website athttp://investors.8x8.com.
Board's Role in the Oversight of Risk
As a relatively small operating company, the entire Board is involved in our risk management practices. The Board as a whole is consulted on any matters which might result in material financial changes, investments or strategic direction of the Company. The Board oversees these risks through its interaction with senior management which occurs at formal Board meetings, committee meetings, and through other periodic written and oral communications. Additionally, the Board has delegated some of its risk oversight activities to its committees. For example, the compensation committeeCompensation Committee oversees the risks associated with compensation for our named executive officers and directors, including whether any of our compensation policies has the potential to encourage excessive risk-taking. The audit committeeAudit Committee oversees compliance with our Code of Ethics, our financial reporting process and our systems of internal controls and reviews with management our major financial risk exposures and the steps taken to control such exposures.
Stockholder Communications with the Board
The Board has implemented a process by which stockholders may send written communications directly to the attention of the Board or any individual Board member, which is explained on our website athttp://investors.8x8.com under the "Investor FAQs" section.
COMPENSATION OF NON-EMPLOYEE DIRECTORS
Fiscal 20122014 Director Compensation Table
The following Director Compensation Table sets forth summary information concerning the compensation paid to our non-employee directors in fiscal 20122014 for their services as directors.
Name (1)(2) | Fees Earned or | Stock Awards (3) | Option Awards (4) | Total |
Guy L. Hecker, Jr. | $114,000 | $153,235 | -- | $267,235 |
Christopher McNiffe (5) | $52,000 | $153,235 | -- | $205,235 |
Mansour Salame (6) | $13,000 | -- | $154,319 | $167,319 |
Eric Salzman (7) | $6,000 | -- | $199,553 | $205,553 |
Vikram Verma (8) | $8,000 | -- | $204,428 | $212,428 |
Donn Wilson (9) | $51,000 | $153,235 | -- | $204,235 |
Name (1)(2) | Fees Earned or | Stock Awards (3)(5) | Total |
Guy L. Hecker, Jr. | $150,000 | $324,459 | $474,459 |
Mansour Salame (4) | $39,000 | $324,459 | $363,459 |
Eric Salzman | $79,000 | $648,918 | $727,918 |
Ian Potter | $32,000 | $448,598 | $480,598 |
Jaswinder Pal Singh | $18,000 | $490,140 | $508,140 |
Vladimir Jacimovic | $-- | $507,960 | $507,960 |
(1) Includes only those columns relating to compensation awarded to, earned by, or paid to directors for their services in fiscal 2012.2014. All other columns have been omitted.
(2) As of March 31, 2012,2014, each of our non-employee directors held outstanding stock options to purchase the following number of shares of our common stock: Major General Hecker, Jr., 550,000;500,000; Mr. Salame,Salzman, 75,000; Mr. Salzman, 75,000Potter, 75,000; Dr. Singh, 75,000; and Mr. Verma,Jacimovic, 75,000. As of March 31, 2012,2014, each of our non-employee directors held outstanding stock awards, subject to the following number of shares: Major General Hecker, held 64,542 shares of unvested stock awards.
78,422; Mr. Salzman, 66,624; Mr. Potter, 0; Dr. Singh, 0; and Mr. Jacimovic, 0.
(3) On September 20, 2011,17, 2013, Major General Hecker, Mr. McNiffeSalame, and Mr. WilsonSalzman received a grant of a stock award forin the form of stock purchase rights representing the right to receive 33,312, 33,312, and 66,624, respectively, shares of common stock.stock vesting at the rate of 25% annually. The amounts reported reflect the aggregate grant date fair value of stock awards computed in accordance with FASB ASC Topic 718 based on the closing market price of our common stock on the date of the grant. For a more detailed discussion on the valuation model and assumptions used to calculate the fair value of our stock awards, refer to note 5 to the consolidated financial statements contained in our 20122014 Annual Report on Form 10-K for our fiscal year ended March 31, 2012.
2014.
(4) On January 2, 2012, Mr. Salame resigned as Director in October 2013,and forfeited all unvested stock awards and options at the time of his resignation including all of the stock awards granted to him in fiscal 2014.
(5) On September 17, 2013, October, 28, 2013, and March 20, 2014, the respective dates of their initial appointments to the Board, Mr. Potter, Dr. Singh and Mr. Jacimovic received a stock option grant to purchaseaward of 75,000 shares of common stock. On January 19, 2012, Mr. Verma received a stock, option grantwhich are the initial grants of stock options that it is our policy to purchase 75,000 sharesaward to new directors at the time of common stock. On February 24, 2012, Mr. Salzman received a stock option granttheir initial appointment to purchase 75,000 shares of common stock.the Board. These grants vest annually over four years, subject to the director's continued service. The amounts reported reflect the aggregate grant date fair value of stock awardsthe option grants computed in accordance with FASB ASC Topic 718.718 based on the closing market price of our common stock on the grant date. For a more detailed discussion on the valuation model and assumptions used to calculate the fair value of our stock awards, refer to note 5 to the consolidated financial statements contained in our 20122014 Annual Report on Form 10-K for our fiscal year ended March 31, 2012.
(5) Mr. McNiffe resigned as a director of the Company on February 21, 2012, and forfeited all unvested stock awards at the time of his resignation including all of the stock awards granted to him in fiscal 2012.
(6) Mr. Salame was appointed as a director of the Company on January 2, 2012. Mr. Salame's severance agreement with Contactual, Inc. provided coverage by Contactual, Inc. for 12 months of COBRA medical coverage. Between September 16, 2011 and March 31, 2012, we paid $9,106 related to this severance agreement.
(7) Mr. Salzman was appointed as a director of the Company on February 24, 2012.
(8) Mr. Verma was appointed as a director of the Company on January 17, 2012.
(9) Mr. Wilson resigned as a director of the Company on January 2, 2012, and forfeited all unvested stock awards at the time of his resignation including all of the stock awards granted to him in fiscal 2012.2014.
We use a combination of cash and equity-based compensation to attract and retain qualified candidates to serve on our Board. In setting director compensation, we consider the significant amount of time that our directors expend in fulfilling their duties as well as the skill-level required by us of members of our Board.
Upon a change-in-control, all unvested stock options, stock purchase rights, and restricted stock units then held by directors will accelerate to become fully vested as of the date of such change-in-control. For this purpose, a change-in-control generally means (1) the liquidation or dissolution of the Company; or (2) the sale of stock by stockholders representing more than 50% of our voting stock, a sale, transfer, or other disposition of all or substantially all of our assets, or a merger or consolidation after which the stockholders immediately before such transaction do not retain more than 50% of the outstanding voting stock.
Cash Compensation Paid to Non-Employee Directors
Directors who are also employees do not receive any additional cash compensation for serving as members of our Board.
We paid non-employee directors a cash fee for attendance at Board meetings and reimbursed them for certain expenses in connection with attendance at Board meetings. Non-employee directors receive fees of $2,000 for each telephonic Board and committee meeting and $5,000 for attendance at in-person Board and committee meetings. The Chairman of the audit committeeAudit Committee is also paid an annual stipend of $10,000. The lead director is paid a quarterly stipend of $10,000. A director may elect to defer payment of all or a portion of the annual stipend and meeting fees payable to him to postpone taxation on such amounts.
In addition, upon termination of service as a director of the Company or upon a change-in-controlChange-in-Control of the Company, each of the non-employee directors and their immediate families will be eligible for medical insurance coverage for life, subject to the director reimbursing the cost of such coverage to us. However, if an individual commences coverage under another plan, coverage under our medical insurance will be discontinued.
Equity-Based Grants to Non-Employee Directors
Non-employee directors are eligible to receive awards under the 2012 Plan, but such awards are discretionary, based on service and time committed. Our policy has been to make initial awards to newly elected or appointed non-employee directors upon joining the Board, typically the grant of an Option to purchase 75,000 shares, vesting annually over four years. It is also our policy to award a stock grant to our non-employee directors upon re-election to the Board, except where the non-employee director's initial term is shorter than six months, and he or she received an initial award upon joining the Board. In fiscal year 2012, our practice was that2014, upon a non-employee director'sMajor General Hecker, Mr. Salame, and Mr. Salzman's re-election to our Board, the non-employee director receivesthey received a grant of a stock award for 33,312, 33,312 and 66,624 shares of our common stock that vestvests annually on September 17, in equal increments over a period of 48 months. Equity awards are not made upon re-election tofour years.In light of our Board in cases where a non-employee director's initial term ispolicy of shorter than six months. In January and Februarymonths, we did not grant an annual stock award to Mr. Salzman after the 2012 Mssrs. Salame, Salzman, and Verma joinedAnnual Meeting of Stockholders with respect to fiscal 2013. However, the Board for their initial term as non-employee directors. At that time, the Board awarded each of these new members a stock optiondetermined in August 2013 to purchase 75,000 shares of common stock in lieu of a stock award. These option awards become exercisable at the rate one-fourth of the shares after one year andgrant an additional one thirty-sixthstock award of 33,312 shares to Mr. Salzman due to his extraordinary service and time commitment to us, as well as granting him the remainingannual director's award of 33,312 shares at the end of each full month thereafter. Inwith for fiscal 2013, our Board will review Board compensation and may revise the equity compensation received by directors.2014.
TRANSACTIONS WITH RELATED PERSONS AND CERTAIN CONTROL PERSONS
In connection with Mr. Wilson's resignation from the Board, we purchased 75,000 stock options from him, net of the aggregate exercise price of such options for a net payment to him $103,500 on January 3, 2012, and entered into a non-binding agreement that may be terminated by the Company at anytime with Mr. Wilson to provide consulting services for an amount not to exceed $55,000 on matters related to channel and franchise opportunities to the Company throughout calendar 2012.
On February 28, 2012, we purchased 60,000 shares of our common stock from Mr. Salame for $258,600 or $4.31 per share. This repurchase was in lieu of open market transactions and the agreed price was equal to the lesser of: a) the average closing price of a share of our common stock as reported on the Nasdaq Capital Market for the five trading days ending February 28, 2012 and b) the closing price of a share of our common stock as reported on the Nasdaq Capital Market for the five trading days ending February 28, 2012. The closing market price of our common stock on February 28, 2012 was $4.31 per share. The disinterested members of our Board unanimously approved the purchase of shares from Mr. Salame.
Other than the transactions with Mr. Salame and Mr. Wilson, weWe believe during fiscal 20122014 there were no transactions, or series of similar transactions, to which we were or are to be a party in which the amount involved exceeded $120,000, and in which any of our directors or executive officers, any holders of more than 5% of our common stock, any members of any such person's immediate family, had or will have a direct or indirect material interest, other than compensation described in the sections titled "Compensation of Non-employee Directors" and "Executive Compensation" above.
It is our policy to require that all transactions between us and any related person, as defined above, must be approved by a majority of our Board, including a majority of independent directors who are disinterested in the transactions to be approved.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our officers and directors and persons who beneficially own more than ten percent of our common stock (collectively, "Reporting Persons") to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Reporting Persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of such reports received or written representations from certain Reporting Persons during the fiscal year ended March 31, 2012,2014, we believe that all Reporting Persons complied with all applicable reporting requirements.
REPORT OF THE AUDIT COMMITTEEOF THE BOARD OF DIRECTORS
The audit committeeAudit Committee oversees our financial reporting process on behalf of the Board. Management is responsible for our internal controls, financial reporting process and compliance with laws, regulations and ethical business standards. Our independent registered public accounting firm is responsible for performing an integrated audit of our consolidated financial statements and of our internal control over financial reporting in accordance with standards of the public company accounting oversight board (United States), and to issue opinions thereon. The audit committee'sAudit Committee's responsibility is to monitor and oversee these processes. In this capacity, the audit committeeAudit Committee provides advice, counsel, and direction to management and the auditors on the basis of the information it receives, discussions with management and the auditors, and the experience of the audit committee'sAudit Committee's members in business, financial and accounting matters.
The audit committeeAudit Committee reviewed and discussed our fiscal 20122014 audited consolidated financial statements with our management and Moss Adams LLP, our independent registered public accounting firm for fiscal 2012.2014. The audit committeeAudit Committee reviewed and discussed with such auditorsmanagement and the independent auditor management's assessment of the effectiveness of the Company's internal control over financial reporting and the independent auditor's opinion about the effectiveness of the Company's internal control over financial reporting. The Audit Committee has discussed with Moss Adams LLP matters required to be discussed by Codification of Statements on Auditing Standards, AU section 380, as adopted by the Public Company Accounting Oversight Board (PCAOB) and interpreted under AU section 9380.
Auditing Standard No. 16, "Communications with Audit Committees," as currently in effect. The audit committee alsoAudit Committee received from such auditors the written disclosures and a letter from the letter required byindependent auditors pursuant to the Public Company Accounting Oversight Board Rule 3526 (Communicationsapplicable requirements of the PCAOB regarding the independent auditor's communications with the Audit Committees Concerning Independence),Committee concerning independence, and the audit committeeAudit Committee discussed with Moss Adams LLP that firm's independence.the auditors their independence,
Based upon the audit committee'sAudit Committee's discussions with management and the auditors and the audit committee'sAudit Committee's review of the representations of management and the report of the auditors to the audit committee,Audit Committee, the audit committeeAudit Committee recommended to the Board, and the Board approved, the inclusion of our audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.2014.
THE AUDIT COMMITTEE
Guy L. Hecker, Jr.,Chairman
Eric SalzmanVikram VermaIan Potter
Jaswinder Pal Singh
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This Compensation Discussion and Analysis explainsprovides information regarding the fiscal 2014 compensation program for our compensation philosophy, policies, practices, and decisions with respect toChief Executive Officer, our principal executive officer (our "Chief Executive Officer"), principal financial officer,Chief Financial Officer, and the three otherexecutive officers (other than our Chief Executive Officer and Chief Financial Officer) who were serving as the most highly compensated membershighly-compensated executive officers of the Company during the fiscal year ended March 31, 2014. In addition, our former President who resigned October 18, 2013, is included in this Compensation Discussion and Analysis. During fiscal 2014, these individuals were:
Vikram Verma, our Chief Executive Officer (our "CEO");
Bryan R. Martin, the Chairman of our Board and our Chief Technology Officer;
Dan Weirich, our Chief Financial Officer (our "CFO");
Darren Hakeman, our Senior Vice President of Product & Strategy;
Huw Rees, our Senior Vice President of Business Development; and
Kim Niederman, former President.
We refer to these executive officers collectively in this Compensation Discussion and Analysis and the related compensation tables as the "named executive officers."
Significant Management Changes during Fiscal 2014
Mr. Verma was appointed as our CEO on September 9, 2013. At that time, Mr. Martin, who had served as our Chief Executive Officer until that date, was appointed as our Chief Technology Officer and agreed to continue to serve as the Chairman of our Board.
Mr. Hakeman was appointed as our Senior Vice President of Product & Strategy on September 9, 2013.
On October 17, 2013, the Board approved an amendment to our bylaws to eliminate the office of President and clarify that the CEO is the sole chief executive officer of the Company. Mr. Niederman, resigned from the Company on October 18, 2013. The terms of his severance agreement and general release are discussed below under "Employment Arrangements."
Specifically, this Compensation Discussion and Analysis provides an overview of our executive management team, who are collectively referredcompensation philosophy, the overall objectives of our executive compensation program, and each material element of compensation that we provide to asthe named executive officers. In addition, we explain how and why the Compensation Committee of our Board (the "Compensation Committee") and our Board arrived at the specific compensation policies and decisions involving the named executive officers or "NEOs."during fiscal 2014.
SummaryOverview
Fiscal year 20122014 Business Highlights
Fiscal 2014 was aanother successful year for us and the execution of our business strategy. As we continuecontinued to develop our cloud basedcloud-based services and increase our focus on small and medium size business, mid-market business customers,and large distributed enterprises, our revenue and bottom line continuecontinued to improve. Someimprove, while the year represented our fifth consecutive year of profitable growth. Significant financial highlights are:
Fiscal 2014 Compensation Highlights
In line with our performance and compensation objectives, during fiscal 2014 the Compensation Committee or our Board approved or recommended, the following compensation actions for fiscal year 2012.
Board approved annual cash incentive payments under our Management Incentive Plan to our incumbent executive officers in amounts that ranged from $66,603 to $153,723; and
Board approved the grant of long-term incentive compensation in the form of options to purchase shares of our common stock and performance-based restricted stock unit awards for shares of our common stock to our incumbent executive officers, with each award vehicle weighted 70% towards options and 30% towards Performance Stock Unit awards.
Mr. Verma's Employment
In connection with Mr. Verma's appointment as our Chief Executive Officer on September 9, 2013, we entered into an employment letter agreement with him providing for an initial annual base salary of $400,000 and a target annual cash incentive award opportunity equal to 100% of his annual base salary. Any annual cash incentive award earned by Mr. Verma can be payable to him in the form of a restricted stock unit award for shares of our common stock, if he elects to do so.
In addition, Mr. Verma was granted an initial equity award in the form of an option to purchase 300,000 shares of our common stock, a time-based restricted stock unit (RSU) award for 100,000 shares of our common stock, a performance-based restricted stock unit (PSU) award for 103,500 shares of our common stock to be earned based on the absolute price performance of our common stock over a four-year period, and a PSU award for 107,100 shares of our common stock to be earned based on our total shareholder return ("TSR") over performance periods ending March 31, 2015, March 31, 2016, and March 31, 2017 relative to the NASDAQ Composite Index (^IXIC).
Mr. Hakeman's Employment
In connection with Mr. Hakeman's appointment as our Senior Vice President of Product & Strategy on September 9, 2013, we entered into an employment letter agreement with him providing for an initial annual base salary of $260,000, a target annual cash incentive award opportunity equal to 50% of his annual base salary, and an initial equity award in the form of an option to purchase 150,000 shares of our common stock, a time-based based RSU award for 20,000 shares of our common stock, a PSU award for 25,400 shares of our common stock to be earned based on the absolute price performance of our common stock over a four-year period, and a PSU award for 26,200 shares of our common stock to be earned based on our TSR over performance periods ending March 31, 2015, March 31, 2016, and March 31, 2017 relative to the NASDAQ Composite Index (^IXIC).
Fiscal 2014 Executive Compensation Policies and Practices
We endeavor to maintain sound governance standards consistent with our executive compensation for fiscal year 2012 was little changed from our practices in fiscal year 2011.
Independent Compensation Committee. The Compensation Committee is comprised solely of independent directors who have established effective means for communicating with 98% ofstockholders regarding their executive compensation ideas and concerns.
Independent Compensation Committee Advisors. The Compensation Committee engaged its own compensation consultant to assist with its fiscal 2014 compensation reviews. This consultant performed no consulting or other services for the votes cast in favorCompany.
Annual Executive Compensation Review. The Compensation Committee conducts an annual review and approval of the proposal.
Executive Compensation Policies and Practices. Our compensation committee determined it would be appropriatephilosophy and related corporate governance policies and practices are complemented by several specific compensation practices that are designed to closely reviewalign our executive compensation program to ensure its competitiveness and alignment with our business strategy. In connection with this review, our compensation committee tooklong-term stockholder interests, including the following actions:following:
The Objectives of our Executive Compensation Program
At-Risk. Our executive compensation program is designed so that a significant portion of our executive officers' compensation is "at risk" based on corporate performance, as well as equity-based to align the interests of our executive officers and stockholders.
No Retirement Plans. We do not currently offer, nor do we have plans to provide, pension arrangements, retirement plans, or nonqualified deferred compensation plans or arrangements to our executive officers.
No Perquisites. We do not provide any perquisites or other personal benefits to our executive officers.
No Tax Reimbursements. We do not provide any tax reimbursement payments (including "gross-ups") on any perquisites or other personal benefits.
No Special Health or Welfare Benefits. Our executive officers participate in broad-based company-sponsored health and welfare benefits programs on the same basis as our other full-time, salaried employees.
No Post-Employment Tax Reimbursements. We do not provide any tax reimbursement payments (including "gross-ups") on any severance or Change-in-Control payments or benefits.
"Double-Trigger" Change-in-Control Arrangements. With the exception of our CEO's initial equity awards, all our obligations for change-in-control payments and benefits are based on a "double-trigger" arrangement (that is, they require both a change-in-control of the Company plus a qualifying termination of employment before payments and benefits are paid).
Chief Executive Officer Stock Ownership Requirement.Our CEO is required to acquire and retain an ownership interest in shares of our common stock equal in value to three times the amount of his initial base salary by September 9, 2018.
Multi-Year Vesting Requirements. The equity awards granted to our executive officers vest or are earned over multi-year periods, consistent with current market practice and our retention objectives.
Executive Compensation Program Objectives
We have designed our executive compensation program to achieve the following objectives:
attract, develop, motivate, and retain top talent and to focus our executive management teamofficers on key business goals that enhance stockholder value;
ensure executive compensation is aligned with our corporate strategies and business objectives;
To achieve these objectives, the compensation committeeCompensation Committee regularly evaluates our executive compensation program with the goal of setting compensation at levels the committeeit believes are aligned with our current financial and operational business objectives, as well as competitive with thosethe pay of other companies thatwith whom we compete with us for executive talent balanced with our current corporate and business objectives. We provide a portiontalent. The majority of the target total direct compensation opportunities of our executive officers are incentive-based and, consequently, "at risk." These opportunities include an annual cash bonus opportunity that may be earned based on the level of achievement as measured against pre-established performance goals related to the important financial objectives set forth in our annual operating plan. These opportunities also consist of long-term incentive compensation in the form of stock-basedequity awards that vestare earned over time based on continued service, which helpshelp us retain our executivesexecutive officers and align their interests with those of our stockholders by allowing them to participate in the longer termour long-term success as reflected in stock price appreciation.
Compensation-Setting Process
Role of Compensation Committee
The components of fiscal year 2012 compensation that we provided toCompensation Committee is responsible for overseeing our executive management teamcompensation program and all related policies and practices. The Compensation Committee operates pursuant to meet these objectives area formal written charter approved by our Board, which is available on our website at www.8x8.com.
At least annually, the Compensation Committee reviews our executive compensation program and formulates recommendations for the consideration and approval of our Board of the various elements of our executive officers' compensation, as follows:
Our compensation committee reviews the compensation program periodically, includingof our executive officers is consistent with our executive compensation philosophy and objectives. The Compensation Committee also determines whether each of the above elements, to determine whether they providecompensation element provides appropriate incentives and motivation to our executive management teamofficers and whether theyeach such element adequately compensatecompensates our executive officers relative to the individuals holding comparable officers in otherpositions at the principal companies with which we believe we compete for executive talent.
Response toThe Compensation Committee meets regularly during the 2011 Say-on-Pay Vote
We conducted our first advisory vote on executive compensation lastfiscal year at our 2011 Annual Meeting of Stockholders. While this vote was not binding on the Board or us, we believe that it is important for our stockholders to have an opportunity to express their views regarding our executive compensation philosophy, program and practices as disclosed in our proxy statement on an annual basis. The Board and our compensation committee value stockholders' opinions and, to the extent there is any significant vote against the compensation of our named executive officers, we will consider their concerns and the compensation committee will evaluate whether any actions are necessary to address those concerns.
At our 2011 Annual Meeting of Stockholders, 98% of the votes cast on the advisory vote on executive compensation supported our named executive officers' compensation as disclosed in the proxy statement. Our compensation committee reviewed the favorable results of this advisory vote, noting the widespread support from our stockholders. Although none of our compensation committee's subsequent actions or decisions with respect to the compensation of our executive officers were directly attributable to the results of the vote, our compensation committee took the vote outcome into consideration in the course of its deliberations. Our compensation committee believes that stockholder feedback and concerns on executive compensation matters should be considered as part of its deliberations and intends to consider the results of future advisory votes in its compensation review process.
As well, an overwhelming majority of the shares entitled to vote on the matter at our 2011 Annual Meeting preferred our recommended frequency of say-on-pay votes. Accordingly, the next advisory say-on-pay vote is expected to occur at our 2014 annual meeting of stockholders.
Determination of Competitive Compensation
The members of our executive management team are appointed by our Board. Our compensation committee is responsible for establishing and administering our policies and practices governing the compensation for our executive management team. Our compensation committee holds its meetings both with and without the presence of members of our Chief Executive Officer and other executive management team.officers. The compensation committeeCompensation Committee also discusses compensation issues with our Chief Executive Officer and other members of the Board between its formal meetings.
Role of Executive Officers
The Compensation Committee receives support from our Human Resources Department in designing our executive compensation program and analyzing competitive market practices. Our Chief Executive Officer also submitsregularly participates in Compensation Committee meetings, providing management input on organizational structure, executive development, and financial analysis. Our Chief Executive Officer also develops and provides recommendations (except with respect to his own compensation) to the Compensation Committee regarding the cash and equity compensation recommendationsfor our executive officers and how to use incentive compensation to further our growth. Our executive officers are not present when their specific compensation arrangements are discussed.
Role of Compensation Consultant
In fulfilling its duties and responsibilities, the Compensation Committee has the authority to engage the services of outside advisers. In fiscal 2014, the Compensation Committee engaged Compensia, to assist it with compensation matters. A representative of Compensia attended one meeting of the Compensation Committee, responded to committee members' inquiries, and provided its analysis with respect to these inquiries.
The nature and scope of services provided to the Compensation Committee by Compensia in fiscal 2014 were as follows:
assisted in the review and updating of our compensation committee,peer group;
analyzed the executive compensation levels and practices of the companies in our compensation peer group;
provided advice with respect to compensation best practices and market trends for executive officers and directors;
assisted with the design of the short-term and long-term incentive compensation plans for our executive officers; and
provided ad hoc advice and support throughout the year.
Compensia does not provide any services to us other than the services provided to the Compensation Committee. The Compensation Committee has assessed the independence of Compensia taking into account, among other things, the factors set forth in Exchange Act Rule 10C-1 and the entire Board ratifies the actionslisting standards of the compensation committee.Nasdaq Stock Market, and has concluded that no conflict of interest exists with respect to the work that Compensia performs for the Compensation Committee.
Competitive Positioning
To attract and retain executivesexecutive officers with the ability and the experience necessary to lead us and to deliver strong performance to our stockholders, we provide total direct compensation opportunities for executives that are intended to be competitive with market practice.
To evaluate In connection with its annual review of our executive compensation levels duringprogram for fiscal year 2012,2014, the Compensation Committee, with the assistance of Compensia, revised the compensation committee reviewed publicly available executivepeer group to generate competitive market data appropriate for comparison with our current size and industry focus.
For fiscal 2014, the compensation data for apeer group was updated based on review of companies within the same or similar in compositionindustry sectors (information technology and telecom) as us within a revenue range of 0.5x to 2.0x of our last four fiscal quarters at the time of the review and a market capitalization range of 0.25x to 4.0x of our market capitalization at the time of the review. Our compensation peer group for fiscal 2014 consisted of the following companies:
Actuate | Guidance Software | Procera Networks | ||
Boingo Wireless | inContact | ShoreTel | ||
BroadSoft | Keynote Systems | Sonus Networks | ||
CalAmp | LivePerson | Support.com | ||
Demandware | LogMeIn | Synchronoss Technologies | ||
E2open | Monotype Imaging Holdings | Telular | ||
Ellie Mae | ORBCOM |
At the time the updated compensation peer group was approved, the revenues of the peer group of companies examined for the previouslast four fiscal year, including: Altigen Communications, Inc., Broadsoft, Inc., Cbeyond, Inc., Constant Contact, Inc., Fusion Telecommunications International, Inc., ShoreTel, Inc., Stamps.com, Inc., Vonage Holdings Corp, and Web.com Group, Inc. This peer group is comprised of telecommunications companies and general industry companies that sell servicesquarters ranged from 0.6x to small and medium-sized business customers similar to ours. Because the average revenue and market capitalization of those companies was more than twice the size2.8x of our revenue and market capitalizationreviews and the compensation levels were significantly higher than pay at 8x8, the compensation committee did not rely entirely onmarket capitalizations of the peer group pay levels when determining fiscal 2012 compensation forcompanies ranged from 0.4x to 2.4x of our NEOs. market capitalization.
The compensation committeeCompensation Committee also reviewed executive compensation survey data provided by Radford Surveys and Consulting, a business unit of Aon Hewitt Consulting, Inc. ("Radford"), from publicpublicly-traded and privateprivately-held technology companies with comparable revenues to us headquartered in Northern California. Radford isdid not aprovide compensation consultantconsulting services to the Company or the compensation committee.Compensation Committee during fiscal 2014.
In connection with modifications toFiscal 2014 Compensation Elements
The elements of our executive bonus compensation plan, forprogram during fiscal year 20132014 were as mentioned above,follows:
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Overview of Fiscal 2012 NEO Compensation
We believe that the total compensation paidopportunities provided to our NEOsexecutive officers, including the named executive officers, for the fiscal year ended March 31, 20122014 achieved the overall objectives of our executive compensation program. Our
The executive compensation committee reviewedanalysis conducted by Compensia based on its review of the Radford datacompensation practices of the compensation peer group and determinedCompensia Technology Industry Survey indicated that our NEO'sNEO compensation was generally within the ranges of cash, equity and total compensation for small and mid-sized companies identified25th to 75th percentile range. The competitive assessment also indicated that our long-term incentive awards prior to fiscal 2013, which had previously been delivered in the Radfordform of restricted stock, fell below the median, and, in several cases, below the 25th percentile, of the peer group data.
Salary Consequently, beginning in fiscal 2013 and continuing in fiscal 2014 the Compensation Committee chose to increase the value of equity awards delivered to executives relative to the fiscal 2012 awards, and to deliver equity in the form of stock options in order to maintain a strong link between pay and long term shareholder returns.
Base Salary
Generally, the Compensation Committee reviews the base salaries are provided as compensation for day-to-day responsibilities and services to us. Base salaries are reviewed annuallyof our executive officers, including the named executive officers, as part of its annual review of our formalexecutive compensation review process. Theprogram and makes recommendation to our Board for adjustments to their base salaries for all executives were not increasedto take into account competitive market practices, company and individual performance from the prior fiscal year and promotions or changes in fiscal 2012, because the compensation committee determined
responsibilities. Typically, our Board sets the base salaries were withinof our executive officers at levels which are competitive with the rangescompetitive market as reflected in our compensation peer group, and after taking into consideration each individual executive officer's role and the scope of his or her responsibilities, his or her experience, and the base salary levels of the Radford market data.other executive officers.
Stock Purchase Right AwardsOn September 16, 2013, the Compensation Committee recommended that base salaries of our incumbent named executive officers should not be changed except for the following adjustments officers that the Compensation Committee approved based on its consideration of the foregoing factors:
Named Executive Officer | Fiscal 2013 Base Salary | Fiscal 2014 Base Salary | Percentage Adjustment |
Mr. Weirich | $260,000 | $275,000 | 5.8% |
Mr. Rees | $235,000 | $250,000 | 6.4% |
In addition, the annual base salaries of Mr. Verma, and Stock OptionsMr. Hakeman, were set at $400,000 and $260,000, respectively, under their employment agreements as described above.
In April 2012, our Board recommended and approved grantsThe base salaries of stock purchase rights, or stockthe named executive officers during fiscal 2014 are set forth in the "Fiscal 2014 Summary Compensation Table" below.
Annual Cash Incentive Awards
We use annual cash incentive awards to motivate and incentivize our executive officers, including the NEOs based on the levelnamed executive officers, to achieve our short-term financial and operational objectives while making progress towards our longer-term growth and other goals. Consistent with our executive compensation philosophy, these annual cash incentive awards constitute significant percentage of the individual's responsibility and individual contributions to the Company. The Board approves all grants of stock awards. The Board usually makes annual grants to NEOs in the first or second fiscal quarter in connection with our annual performance reviews and initially upon hiring such officers.
The number of shares under stock awards granted to each NEO was determined by reviewing historical grants and the contribution to the Company in the prior fiscal year. Stock awards for 33,312 shares of our common stock were granted to Mr. Martin, Mr. Weirich, Mr. Rees and Ms. Severin, each with a grant date fair value of $96,272, based on the significant increase in net income generated in fiscal 2012 compared to fiscal 2011. In January 2012, Mr. Niederman received a stock option grant with a grant date fair value of $154,320 upon his promotion to President of the Company. This award was considered to be appropriate by the Board based on Mr. Niederman's expected contribution to the success of the Company is his new role, and in light of the Company's desire to retain him as an executive officer of the Company. These were the only stock awards and stock option grants to our NEOs in fiscal 2012.
At the present time, we do not have stock ownership guidelines; however, we believe equitytarget total direct compensation is important to align the executives' interests with those of our stockholders.
Profit Sharing
In 1995, our Board adopted a resolution implementing a profit sharing plan ("1995 Profit Sharing Plan") that provides the potential for additional compensation to employees equal to 15% of quarterly net income after accrued taxes to be paid and before any extraordinary items identified by our Board (e.g. change in fair value of warrant liability). Of these amounts, one third is shared by all of our employees, one third is shared by key employees, excluding executive officers, identified by the executive officers, and one third is shared by allopportunity of our executive officers. All profit sharing amounts are approved by our Board priorTypically, the Compensation Committee makes annual cash incentive awards pursuant to payment.
In fiscal 2012, profit sharing payments totaling $1,181,640 were paid to our employees, including our NEOs, based on our Company's performance for the fiscal year. The Chief Executive Officer received $55,372a formal cash bonus plan that measures and all other NEOs received a total of $229,717 in profit sharing payments based on the Company's performance in fiscal 2012. The Board modified the 1995 Profit Sharing Plan on May 15, 2012 to be based on different amounts and to exclude executives and certain other key employees of the Company.
On May 15, 2012, the compensation committee also decided that executives would participate in a newly adopted Management Incentive Plan, a described further below, in lieu of the profit sharing plan. With the exclusion of executives from participation, the bonus pool for the fiscal 2013 profit sharing plan has been reduced from 15% to 4% of quarterly income.
Annual Executive Incentive Plan
On July 19, 2011, our Board adopted the 8x8, Inc. Annual Executive Incentive Plan (the "Incentive Plan"). Under the Incentive Plan, each ofrewards our executive officers is eligible to receive annual awards at the discretion of the compensation committee. The Incentive Plan provides for the establishment of a cash bonus pool by the compensation committee as soon as practicable after the beginning of eachour corporate and their individual performance over our fiscal year. The bonus pool for the fiscal year ending March 31, 2012 was $634,000. The total amount of the bonus poolThis plan is allocated between revenue-based targets (75% weight), referreddesigned to as the revenue pool, and adjusted net income-based targets (25% weight), referred to as the adjusted net income pool.
For fiscal 2012, the compensation committee established two targets for each pool -- a lower target A and a higher target B. The revenue and adjusted net income targets were based on our revenues and net income, respectively, for the fiscal year, as set forth inpay above-target amounts when we exceed our annual income statement; however, in measuring the attainment of the adjusted net income targets, under the Incentive Plan, the compensation committee may, in its sole discretion, exclude one or more of the items specified in the Incentive Plan.
As approved by the compensation committee for fiscal 2012, a portion of the relevant pool (25%) was to be paid in full to the participants if target A was attained, which payment would be distributed equally among the participants. The remaining portion of the relevant pool (75%) was to be paid out on a sliding scale to the extent that target A was exceeded but target B was not attained, with payment in full upon attainment of target B. That payment was to be distributed among the participants based on their relative contributions towards the attainment of the targets, as determined by the compensation committee in its discretion. Any cash payments due to the participants were to be made as soon as practicable following the compensation committee's measurement of the performance targets during the fiscal year.
The fiscal 2012 target Afinancial objectives and target B revenue targets were $80,000,000 and $90,000,000. Our fiscal 2012 revenue of $85.8 million exceeded the target A revenue target but did not exceed the target B revenue target. The fiscal 2012 target A and target B adjusted net income targets were $8,000,000 and $9,000,000. We didbelow-target amounts when we do not achieve the target A adjusted net income target.these objectives.
For fiscal 2012, our executive officers earned, in the aggregate, $325,806 under the Incentive Plan. $118,875 of this amount was based on the achievement of the revenue target A and was allocated evenly among the participants of the Incentive Plan. The remaining value paid for fiscal year 2012 was attributable to the Company's revenue performance in excess of target A, and was allocated based on the compensation committee's assessment of the individual performance and contributions of each participant in the Incentive Plan, taking into consideration the Chief Executive Officer's evaluation of participants other than himself, and subject to the approval of the compensation committee. Because we did not achieve the net income target A, none of the 25% portion of the pool tied to net income performance was earned for 2012. The NEOs received the following incentive compensation under this Incentive Plan in fiscal 2012: Mr. Martin, $45,000; Mr. Weirich, $52,172; Mr. Niederman, $52,172; Mr. Rees, $52,719; and Ms. Severin, $36,245. The Incentive Plan was terminated onIn June 22, 2012.
Management Incentive Plan
On June 22, 2012, our Board adopted the 8x8, Inc. Management Incentive Plan or MIP. The purpose ofMIP, which replaced our previous Executive Incentive Plan. Each year, the participants in the MIP is to promote the success of the Company by providing financial incentives to eligible employees to strive for more effective operation of our business. The participants under the plan for each fiscal year will beare selected by the Compensation Committee, which acts as the plan administrator, which generally will beadministrator. Typically, all members of senior management, including the compensation committee. All NEOs and other executives will be participantsnamed executive officers, participate in the plan, and will no longer be eligible for our employee profit sharing plan or other similar plans.MIP. The compensation committee willCompensation Committee may identify other key employees and contributors to participate in the planMIP for each fiscal year. On June 22, 2012, the Board also terminated the Incentive Plan, which has been replaced by the MIP.
We intend to useThe purpose of the MIP is to linkpromote our success by providing financial incentives to eligible employees who contribute to our overall success and achieve corporate and individual performance goals. The performance goals established under the interest of our stockholders and plan participants by motivating the participantsMIP are designed to focus participants on profitable revenue growth and product quality, and to complete individual objectives that support our overall business strategy, to attract and retain participants' services and to create a variable compensation plan that is competitive with other companies in our market. All paymentsstrategy.
Target Annual Cash Incentive Award Opportunities
The target annual cash incentive award opportunity for each of the named executive officers under the MIP will be made in cash.
Awards under the MIP will be earned based on quarterly and annual performance. Awards for quarterly periods will be based on our performance in meeting specific quarterly targets as set forthis developed by the compensation committee forCompensation Committee, and approved by our Board, at the fiscal year. Annual awards will be based on successful completionbeginning of approved individual objectives for theeach fiscal year and expressed as a percentage of his or her annual base salary. Typically, our performance against predetermined metrics set forth byBoard sets the compensation committeetarget annual cash incentive award opportunities for the fiscal year. Target amounts for awards for participants will be determined by competitive market information relevant to the job the individual is performing for us,our executive officers after considering the job function of the individual and the individual'seach executive officer, his or her expected contributions to us for the upcoming fiscal year. The target amounts may be a specified cash amount or a percentageyear, the recommendations of base pay. In general,our CEO, and the compensation committee will setcompetitive market. For fiscal 2014, the target awardsannual cash incentive award opportunities for our incumbent named executive officers were as follows:
Named Executive Officer | Fiscal 2014 Base Salary (1) | Target Annual Cash Incentive Award Opportunity (as a percentage of base salary) (2) | Target Annual Cash Incentive Award Opportunity (as a dollar amount) |
Mr. Martin | $275,000 | 90% | $247,500 |
Mr. Weirich | $267,500 | 60% | $160,500 |
Mr. Rees | $242,500 | 45% | $109,125 |
Mr. Niederman | $235,000 | 60% | $141,000 |
(1) Mr. Weirich's salary was increased from $260,000 to $275,000 and Mr. Rees' salary was increased from $240,000 to $250,000 effective September 16, 2013. The fiscal 2014 Base Salary for this table is the average base salary for the respective NEO in fiscal 2014.
(2) Mr. Martin's target annual cash incentive award from April 1, 2013 to December 31, 2013 was 100%. Effective January 1, 2014, Mr. Martin's target annual cash incentive award was reduced to 60%, in light of his change in role to Chief Technology Officer. Mr. Rees' target annual cash incentive award was 40% from April 1 to September 30, 2013 and was increased to 50% effective October 1, 2013.
Because Messrs. Verma's and Hakeman's employment began in September 2013, they were not included in the fiscal 2014 MIP, however, as provided in their employment agreements effective beginning April 1, 2014 for fiscal 2015, the target annual cash incentive award opportunities of Mr. Verma, and Mr. Hakeman will be at 100% of annual base salary and 50% of annual base salary, respectively.
Performance Objectives
For fiscal 2014, the performance objectives for the MIP were developed by the Compensation Committee, after taking into consideration the recommendations of our CEO and CFO and consisted of both corporate and individual performance objectives.
The fiscal 2014 corporate performance objectives for the MIP were adjusted non-GAAP net income and organic recurring service revenue ("RSR"). RSR is GAAP service revenue plus revenue allocated in accordance with the guidance of ASC 605-25 less non-recurring engineering fees that are not recognized ratably over a term greater than one month less any revenue acquired during the plan fiscal year (through acquisition, merger or business combination). For purposes of the MIP, "adjusted non-GAAP net income" was calculated as GAAP net income plus loss on investment, non-cash tax adjustments, stock-based compensation, amortization of acquired intangible assets, acquisition-related costs, facility exit costs, gain on patent sale and other extraordinary or non-recurring, non-representative items determined by the Compensation Committee, including profit and/or loss associated with acquisitions, mergers and/or business combinations.
The fiscal 2014 individual performance objectives for the MIP consisted of individually-assigned Management Bonus Objectives ("MBOs"). These MBOs were established at the beginning of the fiscal year. year for each participant in the MIP, including each of our executive officers and were related to the participant's specific area of responsibility, although by their nature some MBOs (for example, in the case of certain executive officers, new customer and revenue targets) were shared by more than one participant. All MBOs were subject to review and approval by the Compensation Committee, and typically required achievement of specific goals tied to, for example, sales targets, customer retention, and operational improvements.
Terms of the MIP
For fiscal 2014, the Compensation Committee approved MIP targets with an initial condition that no annual cash incentive awards would be paid unless our adjusted non-GAAP net income for the year was at least equal to 10% of our revenue for the year. If our non-GAAP net income exceeded this 10% threshold level for each fiscal quarter, as well as for the full fiscal year, a corporate performance factor based on non-GAAP net income and RSR results would be calculated. In December 2013, the Compensation Committee decided to revise the 10% non-GAAP net income thresholds for the third and fourth quarter of fiscal 2014, and were reduced to 8% of our revenue for the respective quarter and 9% of revenue for the full fiscal year. The effect of each corporate performance objectives were setwas cumulative, as illustrated by the compensation committee, after taking into account suggestions fromfollowing table.
Performance Attainment Level | Non-GAAP Net Income Performance Objective | RSR | Corporate Performance Factor |
Threshold | 15% | 35% | 50% |
Target | 30% | 70% | 100% |
Stretch | 30% | 140% | 170% |
Maximum | 30% | 210% | 240% |
In addition, under the fiscal 2014 MIP, 10% of the target annual cash incentive award opportunity of each MIP participant could be earned each fiscal quarter, such that 40% of his or her target annual cash incentive award was tied to our Chief Executive Officer and Chief Financial Officer and independent compensation consultantsquarterly results. The remaining 60% of each MIP participant's target annual cash incentive award was tied to our full fiscal year results.
Under the fiscal 2014 MIP, the quarterly bonus payable to the MIP participant was equal to 10% of his or her target annual cash incentive award opportunity multiplied by the corporate performance factor for that fiscal quarter, as determined by our actual financial results. As reflected by the table above, the maximum amount that could be earned by a participant for each fiscal quarter was limited to 240% of his or her target annual cash incentive opportunity for that quarter.
Under the fiscal 2014 MIP, the annual bonus payable to each MIP participant at the timeend of the recent adoptionfiscal year was equal to 60% of his or her target annual cash incentive award opportunity multiplied by the corporate performance factor for the full fiscal year, as determined by our actual financial results. In addition, the amount payable at the end of the MIP.fiscal year was subject to adjustment based on each participant's attainment of his or her individual MBOs. The degree of achievement of the MBOs generated an MBO factor for each participant ranging from 0% to 115%.
The annual cash incentive award payment for each participant was calculated as the product of the corporate performance factor for the full fiscal year and the MBO factor determined for each participant. Under the MIP, the maximum payment for any participant with respect to the annual performance portion of the MIP was equal to 262% of the individual's target bonuses, asannual cash incentive award opportunity for this portion of the award.
For fiscal 2014, the MIP also provided that if payment of the full accrual amounts to all participants based on target level achievement of the performance objectives would reduce the adjusted non-GAAP net income to less than 10% of revenue for the first and second quarter, 8% of revenue for the third and fourth quarter and 9% for the full year, then the available bonus pool for such period would be reduced to achieve the minimum non-GAAP net income, and individual award payments would be adjusted on a percentage of base salary under this plan for our NEO'spro ratabasis.
Award Decisions
For the fiscal 2014 MIP, the non-GAAP net income and RSR target levels for fiscal 2014 under the MIP and the fiscal 2014 corporate performance factor for each fiscal quarter and for the full fiscal year based on our actual performance were as follows (dollar amounts represent millions):
Q1 | Q2 | Q3 | Q4 | FY 2014 | |
Non-GAAP Net Income ($MM) | $4.04 | $4.32 | $2.88 | $3.03 | $14.27 |
RSR ($MM) | $27.53 | $29.09 | $29.74 | $31.39 | $117.76 |
Actual Company Performance Factor | 105.6% | 85.4% | 82.2% | 83.5% | 94.3% |
Following the divestiture of our dedicated server hosting business on September 30, 2013, arethe Compensation Committee revised the non-GAAP net income and RSR targets for the third and fourth quarters of fiscal 2014 to exclude the portions of forecasted non-GAAP net income and RSR in our forecast related to this business. Further, based on an evaluation of each named executive officer's individual performance, their individual MBO factors were as follows: Mr. Martin, 100%46.3%; Mr. Weirich, 60%; Mr. Niederman, 60%100%; Mr. Rees, 40%45%; and Ms. Severin, 30%Mr. Niederman 0%. Mr. Verma and Mr. Hakeman were not eligible participants in the fiscal 2014 MIP.
Following the end of fiscal 2014, the Compensation Committee determined that the named executive officers had earned annual cash incentive award payments in the following amounts:
Named Executive | Target Annual Cash | Actual Annual Cash | Actual Annual Cash |
Mr. Martin | $247,500 | $153,723 | 62.1% |
Mr. Weirich | $160,500 | $148,273 | 92.4% |
Mr. Rees | $109,125 | $66,603 | 61.0% |
Mr. Niederman | $141,000 | $50,742 | 36.0% |
The annual cash incentive awards paid to the named executive officers for fiscal 2014 are set forth in the "Fiscal 2014 Summary Compensation Table" below.
Long-Term Incentive Compensation
Our long-term incentive compensation consists of equity awards in the form of options to purchase shares of our common stock, time-based restricted stock unit ("RSU") awards for shares of our common stock, and performance-based restricted stock unit ("PSU") awards for shares of our common stock to ensure that our senior management members, including the named executive officers, have a continuing stake in our long-term success. The Compensation Committee believes that these types of equity awards best meets our overall goals of alignment with long-term performance and stockholder value creation, and retention of our executive officers.
Typically, we grant equity awards to our executive officers during the first or second fiscal quarter of each year in connection with our annual performance reviews and, initially, when an individual is hired as an executive officer. In determining the size of the long-term incentive compensation awards for our named executive officers, the Compensation Committee considers our performance against our long-term strategic plan, each individual named executive officer's role and responsibilities, his or her performance against his or her performance objectives and expected future contributions, market data concerning comparative share ownership levels, the extent to which the shares of our common stock subject to previously-granted equity awards are vested, and the recommendations of our Chief Executive Officer.
On September 17, 2013, the Board approved, the grant of options to purchase shares of common stock and PSU awards for shares of common stock to our incumbent named executive officers based on its consideration of the foregoing factors. These awards were as follows:
Named Executive | Stock Options | Performance Stock | Performance | Aggregate Grant |
Mr. Martin | 84,864 | 13,808 | 14,224 | $724,000 |
Mr. Weirich | 72,720 | 11,836 | 12,228 | $620,000 |
Mr. Rees | 48,480 | 7,888 | 8,152 | $414,000 |
The options to purchase shares of our common stock have a ten-year term, and vest over a period of four years from the date of grant at the rate of 1/48th of the total number of shares of common stock subject to the option on the last day of each full month from the date of grant, subject to their continued employment with us.
Awards of Restricted Stock Units and Performance Stock Units are grants of rights to receive either shares of common stock (in the case of RSUs) or the appreciation over a base value (as specified by the Board or the Compensation Committee) of a number of shares of common stock (in the case of PSUs) subject to satisfaction of service or performance requirements established by the Board or the Compensation Committee in connection with the award. Such awards may, in the discretion of the Board or the Compensation Committee, include the right to the equivalent to any dividends on the shares covered by the award, but any such dividends would be paid only if and when the award vests. The PSU awards shown in the preceding table are subject to the following performance conditions for fiscal 2015, 2016, and 2017, described below, as well as time-based vesting over four years.
Each award increment for the measurement periods set forth above is subject to the following performance conditions:
If the performance return on the price per share of our common stock exceeds the performance return on the NASDAQ Composite Index (determined by subtracting the percentage return on the NASDAQ Composite Index from the percentage return on the price per share of the Common Stock), then 100% of the shares of our common stock allocated to that measurement period will be earned;
If the performance return on the price per share of our common stock is more than 50% lower than the performance return on the NASDAQ Composition Index, then none of the shares of our common stock allocated to that measurement period will be earned; and
If the performance return on the price per share of our common stock is between 0% and 50% lower than the performance return on the NASDAQ Composite Index, then the number of shares of our common stock earned for that measurement period will be reduced by 2% for each 1% by which the performance return on the NASDAQ Composite Index exceeds the performance return on our common stock.
In addition, our employment agreements with Messrs. Verma and Hakeman included initial equity awards, which are summarized below:
Mr. Verma's Equity Award
On September 9, 2013, the Board granted Mr. Verma the following equity awards:
An option to purchase 300,000 shares of our common stock, with an exercise price per share equal to the closing market price of our common stock on the grant date and a ten-year term, vesting over a period of four years from the date of grant at the rate as to 25% of the total number of shares of common stock subject to the option on the first anniversary of his employment start date and as to 1/36th of the remaining shares of common stock subject to the option at the end of each consecutive month thereafter, subject to his continued employment with us.
A time-based RSU for 100,000 shares of our common stock, vesting in full six months from the date of grant, subject to his continued employment with us, which was awarded in lieu of participation in the fiscal 2014 MIP.
A PSU award for 103,500 shares of our common stock that may be earned as follows:
If, during the four-year period following the date of grant, the average closing market price of our common stock exceeds 150% of its closing market price on the date of grant for at least one period of 30 consecutive trading days,
Then 25% of the shares of our common stock subject to the award will vest on each consecutive anniversary of the date of grant of the award, subject to his continued employment with us on each such vesting date.
A PSU award for 107,100 shares of our common stock that may be earned (subject to his continued employment with us on each of the specified measurement dates and the performance of the price per share of our common stock relative to the NASDAQ Composite Index (^IXIC)) as follows:
25% of the shares of our common stock subject to the award may be earned between the date of grant of the award and March 31, 2015, based on the performance conditions described above;
50% of the shares of our common stock subject to the award may be earned between the date of grant of the award and March 31, 2016, based on the performance conditions described above; and
25% of the shares of our common stock subject to the award may be earned between the date of grant and March 31, 2017, based on the performance conditions described above.
Mr. Hakeman's Equity Award
On September 9, 2013, the Board granted Mr. Hakeman the following equity awards:
An option to purchase 150,000 shares of our common stock, with an exercise price per share equal to the closing market price of our common stock on the grant date and a ten-year term, vesting over a period of four years from the date of grant at the rate as to 25% of the total number of shares of common stock subject to the option on the first anniversary of his employment start date and as to 1/36th of the remaining shares of common stock subject to the option at the end of each consecutive month thereafter, subject to his continued employment with us;
A time-based RSU award for 20,000 shares of our common stock, vesting in full six months from the date of grant, subject to his continued employment with us.
A PSU award for 25,400 shares of our common stock that may be earned as follows:
If, during the four-year period following the date of grant, the average closing market price of our common stock exceeds 150% of its closing market price on the date of grant for at least one period of 30 consecutive trading days,
Then 25% of the shares of our common stock subject to the award will vest on each consecutive anniversary of the date of grant of the award, subject to his continued employment with us on each such vesting date.
A PSU award for 26,200 shares of our common stock that may be earned (subject to his continued employment with us on each of the specified measurement dates and the performance of the price per share of our common stock relative to the NASDAQ Composite Index (^IXIC)) as follows:
25% of the shares of our common stock subject to the award may be earned between the date of grant of the award and March 31, 2015, based on the performance conditions described below;
50% of the shares of our common stock subject to the award may be earned between the date of grant of the award and March 31, 2016, based on the performance conditions described below; and
25% of the shares of our common stock subject to the award may be earned between the date of grant and March 31, 2017, based on the performance conditions described below.
The equity awards granted to our named executive officers during fiscal 2014 are set forth in the "Fiscal 2014 Summary Compensation Table" and the "Fiscal 2014 Grants of Plan-Based Awards Table" below.
Health, Welfare, and Other Benefits
We offer additionalhealth and welfare benefits to our employees, including our executive officers, which are designed to be competitive with overall market practices and to attract, retain, and motivate the talent needed by us to achieve our strategic and financial goals. All United States salaried employees, including our executive officers, are eligible to participate in our Section 401(k) plan, health care coverage, life insurance, disability, paid time-off, and paid holidays.
In addition, we provide our employees, including our executive officers, with the opportunity to purchase discounted shares of our common stock under the 1996 Employee Stock Purchase Plan (the "Purchase Plan"), which is intended to be a qualified plan under Section 423 of the Internal Revenue Code. WeCode (the "Code").
Perquisites and Other Personal Benefits
Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program.Although we do not have a formal policy relating to perquisites butand other personal benefits, during fiscal 2014 we did not provide any perquisites or other personal benefits to our executive officers.
In the future, we may provide perquisites or other personal benefits in limited circumstances, such as where we believe it is appropriate to assist an individual executive officer in the performance of his or her duties, to make our executive officers more efficient and effective, and for recruitment, motivation, or retention purposes. All future practices with respect to perquisites or other personal benefits will be approved and subject to periodic review by the Compensation Committee.
Employment Arrangements
General
We have extended written employment offer letters to Mr. Verma and Mr. Hakeman when they joined us as employees. The negotiation of these employment offer letters was undertaken on our behalf by our Board of Directors. All such offer letters provide for "at will" employment, with an initial basis annual salary, bonus plans, and initial equity awards. We do not currently provide any personal benefit perquisiteshave written employment offer letters with our other NEOs.
Vikram Verma
On September 9, 2013, we entered into an employment letter agreement with Mr. Verma in connection with his appointment as our CEO and with Mr. Hakeman in connection with his appointment as Senior Vice President of Product and Strategy. These agreements were approved on our behalf by our Board. We believe that Mr. Verma's employment arrangement was necessary to induce Mr. Verma to forego other employment opportunities and leave his current employer for the uncertainty of a demanding position in a new and unfamiliar organization.
In filling the position of CEO, our executives.Board was aware that it would be necessary to recruit candidates with the requisite experience and skills to manage a growing business in a dynamic and ever-changing industry. Accordingly, it recognized that it would need to develop a competitive compensation package to attract a qualified candidate in a highly-competitive labor market. At the same time, our Board was sensitive to the need to integrate this individual into the executive compensation structure that it was seeking to develop, balancing both competitive and internal equity considerations.
Certain NEOs areMr. Verma's employment agreement provides for "at will" employment. Under his employment agreement, he is entitled to receive paymentsthe cash compensation and equity awards described above. In addition, his base salary is subject to annual review by the Board and may be adjusted in its discretion, but it may not be reduced except as part of a salary reduction plan that similarly affects all executives reporting to the CEO. He may elect to receive any bonus under the MIP in cash or RSUs at the time of the award, with the RSU value fixed as of the first day of the applicable fiscal year.He is entitled to standard benefits, including vacation, for our executive officers, with a maximum vacation accrual of 300 hours.
Mr. Verma has agreed by the fifth anniversary of his start date to acquire and retain an ownership interest in Common Stock which is equal in value to three times the amount of his initial base salary.
If Mr. Verma resigns his employment with us without "good reason" or his employment is terminated by us for "cause" (as each term is defined in the employment agreement), he will not be entitled to any compensation or benefits from the Company beyond what he has earned through the date of termination. If Mr. Verma resigns his employment for good reason or his employment is terminated without cause or by reason of his death or incapacity, provided he signs a general release of claims, in addition to all pay and benefits uponotherwise due on termination, he will be entitled to: (1) premiums necessary to continue group health insurance under COBRA or comparable coverage until the earlier of 18 months after his employment termination date and the date he first becomes eligible to participate in another employer's group health insurance plan; (2) the prorated portion of any MIP bonus that he would have earned, if any, during the fiscal year if and when such bonuses are paid to continuing employees; and (3) vesting of his unvested initial equity awards will be accelerated by 12 months from the termination date with respect to any stock and any RSUs with exclusively-time-based vesting or for which only time-based vesting conditions remain as of the termination date."Good Reason" means any of the following conditions, which condition(s) remain in effect 30 days after written notice from you to the Board of said condition(s): (i) a material reduction in his then-current base salary or annual target bonus (expressed as a percentage of his then-current base salary), without his written consent; or (ii) a material reduction in his employee benefits taken as a whole without his written consent; or (iii) a material reduction in his responsibilities, including, but not limited to, being removed as CEO, without his written consent; or (iv) a material breach by us of any material provision of the employment agreement; or (v) a requirement that he relocate his office to a location more than 35 miles from his then-current office location
without his written consent; or (vi) if he is not nominated by the Board for election as a director at any annual meeting of stockholders.
Upon a Change-in-Control, as defined below, vesting of his initial equity awards granted September 9, 2013, is subject to acceleration as follows:
Any unvested time-based vesting shares will vest in full on the closing date of the Change-in-Control transaction;
If the stock price condition applicable to the PSUs has been met (based on the price per share of Common Stock being paid in such transaction), vesting will accelerate with respect to the percentage of then unvested PSUs still subject to the time-based condition which equals 100% times the quotient of the number of months from the grant date to such closing date divided by 48, and the remainder of the unvested PSUs will continue to vest in accordance with the original vesting schedule, subject only to continued service subsequent to the Change-in-Control.
Any PSUs for which the TSR performance conditions have been met as of the closing date (based on the price per share of Common Stock being paid in such transaction) will be settled by delivery of the corresponding number of shares of Common Stock, and all other unvested TSR PSUs will vest over the remainder of the original period expiring March 31, 2017, subject only to continued service subsequent to the Change-in-Control with no further performance conditions.
Under Mr. Verma's employment agreement:
"good reason" means any of the following conditions, which condition(s) remain in effect 30 days after written notice from you to the Board of said condition(s): (i) a material reduction in his then-current base salary or annual target bonus (expressed as a percentage of his then-current base salary), without his written consent; or (ii) a material reduction in his employee benefits taken as a whole without his written consent; or (iii) a material reduction in his responsibilities, including, but not limited to, being removed as CEO, without his written consent; or (iv) a material breach by us of any material provision of the employment agreement; or (v) a requirement that he relocate his office to a location more than 35 miles from his then-current office location without his written consent; or (vi) if he is not nominated by the Board for election as a director at any annual meeting of stockholders.
"cause" occurs his employment is terminated for any of the following reasons: (i) any willful failure by him to attend to his duties under the employment agreement; (ii) any material breach of the employment agreement by him; provided, however, that for any alleged failure or breach under sub-sections (i) or (ii) above, the Board first provides him written notice setting forth with reasonable specificity the reasons that the Board believes he has committed such alleged failure or breach, and provides him 30 days to cure such alleged failure or breach to the reasonable satisfaction of the Board; (iii) his conviction of (or pleading guilty or nolo contendere to) any felony or misdemeanor involving theft, embezzlement, dishonesty or moral turpitude; or (iv) any misconduct by him resulting in material harm to our business or reputation; and
Darren Hakeman
Mr. Hakeman's employment agreement provides for "at will" employment. Under his employment agreement, he is entitled to receive the cash compensation and equity awards described above. In addition, his base salary is subject to annual review by the Board and may be adjusted in its discretion. He is entitled to standard benefits, including vacation, for our executive officers. Mr. Hakeman has agreed by the fifth anniversary of his start date to acquire and retain an ownership interest in common stock which is equal in value to one times the amount of his initial base salary.
If Mr. Hakeman's employment is terminated due to an involuntary termination within one year following a corporate transaction, as described belowdefined under "Potential Payments Upon Terminationthe 2013 New Employee Inducement Incentive Plan:
If the condition applicable to the PSUs for 24,500 shares has been met as of the closing date of the corporate transaction (based on the price per share of common stock being paid in such transaction), vesting shall accelerate with respect to the percentage of then unvested PSUs still subject to time-based vesting, which equals 100% times the quotient of the number of months from the grant date to such closing date divided by 48, and the remainder of the unvested RSUs will continue to vest in accordance with the original vesting schedule, subject only to his continued service subsequent to the corporate transaction;
If any TSR PSUs for which the performance conditions in have been met as of the closing date of the corporate transaction (based on the price per share of common stock being paid in such transaction) shall be settled by delivery of the corresponding number of shares of common stock, and all other unvested TSR Performance Shares shall vest over the remainder of the original period expiring March 31, 2017, subject only to his continued service subsequent to the corporate transaction with no further performance conditions; and
All remaining unvested options and RSUs as of the closing date of the corporate transaction shall continue to vest thereafter subject only to his continued service and if, his employment is terminated without cause (as defined below) within 12 months following a corporate transaction all of his remaining unvested options and RSUs granted will vest in full.
Under Mr. Hakeman's employment agreement:
"corporate transaction" is defined as a (i) merger or Changeconsolidation of us with or into another entity as a result of which our common stock is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (ii) sale or exchange of all of our common stock for cash, securities or other property, (iii) sale, transfer, or other disposition of all or substantially all of our assets to one or more other persons in Control.a single transaction or series of related transactions or (iv) our liquidation or dissolution; except, in the case of clauses (i) and (ii), for a transaction the principal purpose of which is to change the state in which we are incorporated;
" These arrangements areinvoluntary termination" means any of the following events: (i) without his express written consent, a significant reduction of his duties, position or responsibilities relative to his duties, position or responsibilities in effect immediately prior to such reduction; (ii) without his express written consent, a material reduction by us (or our successor) of his base salary as in effect immediately prior to such reduction; (iii) without his express written consent, a material reduction by us (or our successor) in the kind or level of employee benefits to which he was entitled immediately prior to such reduction with the result that his overall benefits package is significantly reduced; (iv) without his express written consent, his relocation to a facility or a location more than 25 miles from his location immediately prior to such relocation; or (v) any purported termination of his employment other than for Cause; and "Cause" means: (i) any act of personal dishonesty taken by him in connection with his responsibilities in his or her service to us which is intended to ensureresult in his personal enrichment; (ii) his conviction of a felony; (iii) any act by him that managementconstitutes material misconduct and is incentivizedinjurious to remainus; or (iv) continued violations by him of his obligations to us or (v) any purported termination of his employment other than for cause; and
"cause" means: (i) any act of personal dishonesty taken by him in connection with his responsibilities in his or her service to us which is intended to result in his personal enrichment; (ii) his conviction of a felony; (iii) any act by him that constitutes material misconduct and is injurious to us; or (iv) continued violations by him of his obligations to us.
Kim Niederman
On October 18, 2013, Mr. Niederman resigned as our President, a position which had been eliminated upon determination by the Board. Mr. Niederman remained employed with us until April 21, 2014 pursuant to a severance agreement and general release signed on October 30, 2013, which agreement included a general release of all his potential legal claims and rights, except as set forth in the agreement. The severance agreement superseded Mr. Niederman's employment offer letter agreement dated as of February 3, 2012. The severance agreement obligated Mr. Niederman to consult with us and work on special projects that might be assigned by the CEO or the Board during the extended period of his employment which ended April 21, 2014. Under the severance agreement, Mr. Niederman was entitled to receive (i) paid administrative leave from October 18, 2013 until November 8, 2013 at his former base weekly compensation rate of $4,519.23, less applicable withholdings, payable pursuant to 8x8's regular payroll process; (ii) a lump sum payment in the amount of $45,192.31; and (iii) an additional lump sum payment of $58,750.00 contingent upon his remaining employed with us until the completionend of the extended employment period, and his signing a second severance agreement and general release. The additional lump sum payment was made when the general release under the second severance agreement became legally irrevocable. In addition, subject to his compliance with the terms of the severance agreement, Mr. Niederman continued to (i) vest with respect to his stock options and stock purchase rights that were unvested at October 18, 2013, (ii) be eligible to participate in our medical and other benefit plans, including 401(k) and employee stock purchase plan, other than paid time off, which ceased to accrue, and (iii) be eligible for participation in the MIP for the third and fourth quarters of fiscal 2014.
Other Compensation Policies
Equity Award Grant Policy
Our equity awards are not timed in relation to the release of material information about the Company. Further, the Compensation Committee grants options to purchase shares of our common stock with exercise prices set at the closing market price of our common stock on the date of grant as reported on the Nasdaq Capital or Global Select Market.
Stock Ownership Policy
At the present time, we do not have formal stock ownership guidelines in place. We believe, however, that equity compensation is important to align the interests of our executive officers with those of our stockholders and that, given their historical practice, our executive officers tend to hold onto all or a portion of their vested equity awards to benefit from further stock price appreciation.Consistent with this belief, our Chief Executive Officer has agreed to acquire and retain an ownership interest in shares of our common stock equal in value to three times the amount of his initial base salary by the fifth anniversary of September 9, 2013, his employment start date. In addition, Mr. Hakeman, as part of his employment agreement, shall acquire and retain an ownership interest in common stock which is equal in value to one times the amount of his initial base salary, through any means of ownership. He has five years to meet this stock ownership threshold.
Compensation Recovery Policy
Currently, we have not implemented a policy regarding retroactive adjustments to any cash or equity-based incentive compensation paid to our executive officers and other employees where the payments were predicated upon the achievement of financial results that were subsequently the subject of a transaction regardlessfinancial restatement. We intend to adopt a general compensation recovery ("clawback") policy covering our annual and long-term incentive award plans and arrangements once the SEC adopts final rules implementing the requirement of whether theySection 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Fiscal 2011 Stockholder Advisory Vote on Executive Compensation
At our fiscal 2011 Annual Meeting of Stockholders, we conducted a stockholder advisory vote on the fiscal 2011 compensation of the Named Executive Officers (commonly known as a "Say-on-Pay" vote). Our stockholders approved the fiscal 2011 compensation of the then-named executive officers with approximately 98% of the votes cast in favor of the proposal.
We believe that the outcome of the Say-on-Pay vote reflects our stockholders' support of our compensation approach, specifically our efforts to attract, retain, and motivate our executive officers through a performance-oriented executive compensation program. Accordingly, no significant design changes were made to the executive compensation program following the fiscal 2011 Say-on-Pay vote.
We value the opinions of our stockholders and will continue employment followingto consider the transaction, and that management will actoutcome of future Say-on-Pay votes, as well as feedback received throughout the year, when making compensation decisions for our executive officers, including the named executive officers. Proposal No. 4 described in the best intereststhis proxy statement is for approval of the shareholders when evaluating a transaction.compensation for named executive officers for fiscal 2014. Following the Annual Meeting of Stockholders to which this proxy statement relates, the next stockholder advisory vote on the compensation of the named executive officers will take place in 2017, reflecting the results of the separate stockholder advisory vote on the frequency of future stockholder advisory votes regarding the compensation of the named executive officers conducted at our fiscal 2011 Annual Meeting of Stockholders, our Board of Directors determined that we will hold our Say-on-Pay votes once every three years.
Tax and Accounting Considerations
Deductibility of Compensation
OurSection 162(m) of the Code generally disallows a deduction for federal income tax purposes to any publicly-traded corporation for any remuneration in excess of $1 million paid in any taxable year to its chief executive officer and each of the three other most highly-compensated executive officers (other than its chief financial officer). Generally, remuneration in excess of $1 million may be deducted, however, if, among other things, it qualifies as "performance-based compensation" within the meaning of the Code. In this regard, the compensation income realized upon the exercise of options to purchase shares of the granting company's securities granted under a stockholder-approved stock option plan will be deductible so long as the options are granted by a committee has reviewedwhose members are outside directors and certain other conditions are satisfied.
The Compensation Committee regularly reviews the impact of tax and accounting treatmentSection 162(m) on the various componentselements of our executive compensation program. We believeFurther, the Compensation Committee believes that, at this time, achieving theour compensation objectives discussed above is more important than the benefit of tax deductibility and our executivedeductibility. Consequently, the compensation programs may, from time to time, award incentive compensation that is not exempt from the deduction limit the tax deductibility of certain components of compensation.Section 162(m). Nevertheless, when not inconsistent with these objectives, we endeavorthe Compensation Committee endeavors to award compensation that will be deductible for federal income tax purposes. Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to publicly-held companies for compensation paid to "covered" executive officers, to the extent that compensation paid to such an officer exceeds $1 million during the taxable year. None of the compensation paid to our covered executive officers for the fiscal year ended March 31, 20122013 that would be taken into account underfor purposes of Section 162(m) exceeded the $1 million limitation.limitation for fiscal 2014.
Accounting for Stock-Based Compensation
The Compensation Committee takes accounting considerations into account in designing compensation plans and arrangements for our executive officers and other employees. Chief among these is Financial Accounting Standards Board Accounting Standards Codification Topic 718 ("ASC Topic 718"), the standard which governs the accounting treatment of stock-based compensation awards.
ASC Topic 718 requires us to recognize in our consolidated statement of operations all share-based payments to employees, including grants of options to purchase shares of our common stock and restricted stock unit awards for shares of our common stock to our executive officers, based on their fair values. ASC Topic 718 also requires companies to recognize the compensation cost of their share-based payment awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award (which, generally, will correspond to the award's vesting schedule).
Compensation Risk Assessment
The compensation committeeCompensation Committee has reviewed our compensation programs in order to ensure that theour incentive and other motivational elements of pay are aligned with long termlong-term value creation, taking into consideration prudent risk management. We do not believe any of our compensation policies and practices create any risks that are reasonably likely to have a material adverse effect on us. In making this determination, the committee hasCompensation Committee consideredthe mix of fixed and variable compensation, our use of equity in our long-term incentive compensation arrangements, the time horizon of performance measurement in incentive opportunities, and the ability of the committeeCompensation Committee and management to rely on judgment in determining compensation and assessing performance outcomes.outcome.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The compensation committeeCompensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this proxy statement. Based on this review and discussion, the compensation committeeCompensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.2014.
THE COMPENSATION COMMITTEEVikram Verma,Eric Salzman,Chairman
Guy HeckerMansour SalameIan Potter
FISCAL 20122014 SUMMARY COMPENSATION TABLE
Name and Principal Position | Fiscal | Salary | Bonus | Stock | Option | Non-Equity | All Other | Total |
Bryan R. Martin | 2012 | $275,000 | $25,000 | $96,272 | -- | $100,372 | $2,250 | $498,894 |
Chairman, Chief Executive | 2011 | $275,000 | -- | $45,637 | -- | $60,919 | $2,100 | $383,656 |
Officer and President | 2010 | $245,000 | -- | $24,551 | -- | $39,170 | $2,028 | $310,749 |
Dan Weirich | 2012 | $260,000 | $20,000 | $96,272 | -- | $107,217 | $2,071 | $485,560 |
Chief Financial Officer | 2011 | $260,000 | -- | $45,637 | -- | $60,503 | $2,007 | $368,147 |
2010 | $245,000 | -- | $24,551 | -- | $39,170 | $1,777 | $310,498 | |
Kim Niederman (4) | 2012 | $235,000 | $10,000 | -- | $154,320 | $117,844 | $4,826 | $521,990 |
President | 2011 | $37,510 | -- | $544,000 | $575,963 | -- | $554 | $1,158,027 |
Huw Rees | 2012 | $235,000 | -- | $96,272 | -- | $107,219 | $2,804 | $441,295 |
Vice President, Business | 2011 | $235,000 | -- | $45,637 | -- | $59,810 | $2,357 | $342,804 |
Development | 2010 | $235,000 | -- | $12,275 | -- | $38,977 | $2,256 | $288,508 |
Debbie Jo Severin | 2012 | $235,000 | -- | $96,272 | -- | $90,745 | $2,804 | $424,821 |
Chief Marketing Officer | 2011 | $235,000 | -- | $45,637 | -- | $59,810 | $2,659 | $343,106 |
2010 | $232,063 | -- | -- | -- | $34,176 | $2,659 | $268,898 |
Name and Principal Position | Fiscal | Salary | Bonus | Stock | Option | Non-Equity | All Other | Total |
Vikram Verma (6) | 2014 | $224,359 | -- | $2,597,675 | $1,791,060 | -- | $42,177 | $4,655,271 |
Chief Executive Officer | 2013 | -- | -- | -- | -- | -- | -- | -- |
2012 | -- | -- | -- | -- | -- | -- | -- | |
Bryan R. Martin | 2014 | $275,000 | -- | $216,164 | $507,597 | $153,723 | $2,400 | $1,154,884 |
Chairman, Chief | 2013 | $275,000 | -- | -- | $702,560 | $212,077 | $2,550 | $1,192,187 |
Technology Officer | 2012 | $275,000 | $25,000 | $96,272 | -- | $100,372 | $2,250 | $ 498,894 |
Dan Weirich (7) | 2014 | $267,500 | -- | $185,559 | $434,866 | $148,273 | $2,039 | $1,038,237 |
Chief Financial Officer | 2013 | $260,000 | -- | -- | $439,100 | $139,882 | $2,092 | $841,074 |
2012 | $260,000 | $20,000 | $96,272 | -- | $107,217 | $2,071 | $485,560 | |
Darren Hakeman (8) | 2014 | $145,833 | -- | $592,816 | $895,530 | -- | $329 | $1,634,508 |
Senior Vice President, | 2013 | -- | -- | -- | -- | -- | -- | -- |
Product Development | 2012 | -- | -- | -- | -- | -- | -- | -- |
Huw Rees (9) | 2014 | $242,500 | -- | $123,686 | $289,974 | $66,603 | $2,701 | $725,464 |
Senior Vice President, | 2013 | $235,000 | -- | -- | $228,332 | $96,084 | $2,852 | $562,268 |
Business Development | 2012 | $235,000 | -- | $96,272 | -- | $107,219 | $2,804 | $441,295 |
Kim Niederman (10) | 2014 | $247,503 | -- | -- | $1,068,088 | $50,742 | $2,218 | $1,368,551 |
President | 2013 | $235,000 | -- | -- | $439,100 | $108,738 | $5,103 | $787,941 |
2012 | $235,000 | $10,000 | -- | $154,320 | $117,844 | $4,826 | $521,990 |
(1) The following NEOs received spot bonuses in fiscal 2012: Mr. Martin, $25,000; Mr. Weirich, $20,000; and Mr. Niederman $10,000. Mr. Martin and Mr. Weirich received spot bonuses for their work in completing the Contactual, Inc. acquisition. Mr. Niederman received a spot bonus for his work in his initial three months of employment with the Company. All three of these bonuses were based on individual performance.
(2) The amounts reported reflect the aggregate grant date fair value of stock awards computed in accordance with FASB ASC FASBTopic 718 Topic based on the closing price of our common stock on the date of the grant. For a more detailed discussion of the assumptions used to calculate the fair value of our stock awards, refer to note 5 to the consolidated financial statements contained in our 20122014 Annual Report on Form 10-K for our fiscal year ended March 31, 2012.2014.(2)(3) The amounts reported reflect the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718. The fair value of each option grant is estimated based on its fair market value on the date of grant using the Black-Scholes option-pricing model. For a more detailed discussion of the valuation model and assumptions used to calculate the fair value of our options, refer to note 5 to the consolidated financial statements contained in our 20122014 Annual Report on Form 10-K for our fiscal year ended March 31, 2012.2014.(3)(4) Compensation earned based on the NEO's participation in the MIP in fiscal 2014 and 2013 and the 1995 Profit Sharing Plan and awards to the NEO based on our annual performance and the individual's contributions as determined by the compensation committee under theExecutive Incentive Plan.Plan in fiscal 2012.(4)(5) Reserved.
(6) Mr. Niederman joined us on February 3, 2011Verma was appointed Chief Executive Officer September 9, 2013 at an annual base salary of $235,000.$400,000. The fiscal 20112014 salary reported for him reflects paymentssalary earned from February 3, 2011September 9, 2013 to March 31, 2011.2014. Other compensation includes $40,000 of director fees.
(7) Mr. Weirich's salary was increased to $275,000 effective September 16, 2013.
(8) Mr. Hakeman joined us on September 9, 2013 at an annual base salary of $260,000. The fiscal 2014 salary reported for him reflects salary earned from September 9, 2013 to March 31, 2014.
(9) Mr. Rees's salary was increased to $250,000 effective September 16, 2013.
(10) Effective October 18, 2013, Mr. Niederman resigned as President of the Company. Mr. Niederman continued to receive salary through April 21, 2014 and, medical insurance and other fringe benefits until April 30, 2014. His existing options to purchase common stock continued to vest through April 21, 2014. Of his total compensation, $103,942 was a severance payment.
FISCAL 20122014 GRANTS OF PLAN-BASED AWARDS TABLE
The following table sets forth certain information regarding plan-based awards granted to the NEOs during the fiscal year ended March 31, 2012.2014.
Name | Grant | Number of | Number of | Exercise or | Grant Date | Grant | Estimated | Estimated | All Other | All Other | Exercise or | Grant Date |
Vikram Verma | -- | -- | -- | -- | ||||||||
9/9/13 | -- | 103,500 (5) | -- | -- | $815,321 | |||||||
9/9/13 | -- | 107,100 (6) | -- | -- | $812,354 | |||||||
9/9/13 | -- | -- | 100,000 (7) | -- | $970,000 | |||||||
9/9/13 | -- | -- | -- | 300,000 (8) | $9.70 | $1,791,060 | ||||||
Bryan R. Martin | 4/19/11 | 33,312 (2) | -- | -- | $ 96,272 | -- | $247,500 | -- | -- | -- | -- | |
9/17/13 | -- | 13,808 (5) | -- | -- | $108,773 | |||||||
9/17/13 | -- | 14,224 (6) | -- | -- | $107,391 | |||||||
9/17/13 | -- | -- | -- | 84,864 (9) | $9.74 | $507,597 | ||||||
Dan Weirich | 4/19/11 | 33,312 (2) | -- | -- | $ 96,272 | -- | $160,500 | -- | -- | -- | -- | |
9/17/13 | -- | 11,836 (5) | -- | -- | $93,238 | |||||||
9/17/13 | -- | 12,228 (6) | -- | -- | $92,321 | |||||||
9/17/13 | -- | -- | -- | 72,720 (9) | $9.74 | $434,866 | ||||||
Darren Hakeman | -- | -- | -- | -- | -- | -- | ||||||
9/9/13 | -- | 25,400 (5) | -- | -- | $200,089 | |||||||
9/9/13 | -- | 26,200 (6) | -- | -- | $198,727 | |||||||
9/9/13 | -- | -- | 20,000 (7) | -- | $194,000 | |||||||
9/9/13 | -- | -- | -- | 150,000 (8) | $9.70 | $895,530 | ||||||
Huw Rees | -- | $109,125 | -- | -- | -- | -- | ||||||
9/17/13 | -- | 7,888 (5) | -- | $62,138 | ||||||||
9/17/13 | 8,152 (6) | -- | $61,548 | |||||||||
9/17/13 | -- | -- | -- | 48,480 (9) | $9.74 | $289,974 | ||||||
Kim Niederman | 1/2/12 | -- | 75,000 (3) | $3.17 | $154,320 | 10/18/13 | $141,000 | -- | -- | -- | -- | |
Huw Rees | 4/19/11 | 33,312 (2) | -- | -- | $ 96,272 | |||||||
Debbie Jo Severin | 4/19/11 | 33,312 (2) | -- | -- | $ 96,272 | |||||||
| 10/18/13 | -- | -- | -- | 46,875 (10) | $2.72 | $432,707 | |||||
10/18/13 | -- | -- | -- | 9,375 (10) | $3.17 | $82,325 | ||||||
10/18/13 | -- | -- | -- | 18,229 (10) | $5.87 | $110,906 | ||||||
10/18/13 | -- | -- | 37,000 (10) | -- | $11.95 | $442,150 |
(1) Except with respect to Messrs. Verma and Hakeman, the amounts reported in the "Estimated Possible Payouts under Non-Equity Incentive Plan Awards" column represent the annual bonuses payable pursuant to the Company's Management Incentive Plan (the "MIP"). For a discussion of the fiscal 2014 MIP, see "Compensation Discussion and Analysis - Annual Cash Incentive Awards" above. As a result of their initial employment with the Company in fiscal 2014, Messrs. Verma and Hakeman were not eligible to participate in the MIP in fiscal 2014.
(2) The amounts reported in the "Estimated Future Payments under Equity Incentive Plan Awards" column represent the number of shares of our common stock subject to performance-based restricted stock unit awards granted to the NEOs during fiscal 2014. The shares of common stock to these awards could be earned upon achievement of the performance conditions established by the Compensation Committee in connection with the awards. The performance conditions of the performance-based restricted stock unit awards are described in "Compensation Discussion and Analysis - Long-Term Incentive Compensation" above. Such awards may, in the discretion of the Compensation Committee, include the right to the equivalent to any dividends on the shares of common stock covered by the award, but any such dividends would be paid only if and when the awards vest.
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(3) The exercise price of the options to purchase shares of our common stock is equal to the value of a share of our common stock on the date of grant, and reflects the closing market price of our common stock on such date. | |
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FISCAL 20122014 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
The following table sets forth certain information concerning outstanding equity awards held by the NEOs at March 31, 2012.2014.
Option Awards | Stock Awards | |||||
Name | Number of | Number of | Option | Option | Number of | Market Value |
Bryan Martin | 125,000 | -- | $1.72 | 9/17/2013 | -- | -- |
100,000 | -- | $3.35 | 11/22/2014 | -- | -- | |
100,000 | -- | $1.79 | 8/23/2015 | -- | -- | |
100,000 | -- | $1.27 | 10/24/2016 | -- | -- | |
100,000 | -- | $1.26 | 8/28/2017 | -- | -- | |
100,000 | -- | $0.87 | 9/30/2018 | -- | -- | |
-- | -- | -- | -- | 11,104 (5) | $ 46,637 | |
-- | -- | -- | -- | 20,820 (6) | $ 87,444 | |
-- | -- | -- | -- | 27,066 (7) | $113,677 | |
Dan Weirich | 50,000 | -- | $2.81 | 3/23/2014 | -- | -- |
25,000 | -- | $1.32 | 4/26/2015 | -- | -- | |
100,000 | -- | $1.59 | 4/18/2016 | -- | -- | |
200,000 | -- | $1.07 | 6/20/2016 | -- | -- | |
100,000 | -- | $1.26 | 8/28/2017 | -- | -- | |
50,000 | -- | $0.87 | 9/30/2018 | -- | -- | |
250,000 | -- | $0.63 | 11/6/2018 | -- | -- | |
-- | -- | -- | -- | 11,104 (5) | $ 46,637 | |
-- | -- | -- | -- | 20,820 (6) | $ 87,444 | |
-- | -- | -- | -- | 27,066 (7) | $113,677 | |
Kim Niederman | 101,562 | 273,438 (9) | $2.72 | 2/3/2021 | -- | -- |
-- | -- | -- | -- | 150,000 (10) | $630,000 | |
-- | 75,000 (11) | $3.17 | 1/2/2022 | -- | -- | |
Huw Rees | 2,000 | -- | $0.56 | 7/23/2012 | -- | -- |
125,000 | -- | $1.72 | 9/17/2013 | -- | -- | |
50,000 | -- | $3.35 | 11/22/2014 | -- | -- | |
100,000 | -- | $1.72 | 10/25/2015 | -- | -- | |
100,000 | -- | $1.48 | 5/23/2016 | -- | -- | |
100,000 | -- | $1.26 | 8/28/2017 | -- | -- | |
50,000 | -- | $0.87 | 9/30/2018 | -- | -- | |
-- | -- | -- | -- | 5,552 (5) | $ 23,318 | |
-- | -- | -- | -- | 20,820 (6) | $ 87,444 | |
-- | -- | -- | -- | 27,066 (7) | $113,677 | |
Debbie Jo Severin | -- | -- | -- | -- | 25,000 (8) | $105,000 |
-- | -- | -- | -- | 20,820 (6) | $ 87,844 | |
-- | -- | -- | -- | 27,066 (7) | $113,677 |
Option Awards | Stock Awards | |||||
Name | Number of | Number of | Option | Option | Number of Shares | Market Value of |
Vikram Verma | -- | -- | -- | -- | 24,984 (4) | $270,077 |
-- | -- | -- | -- | 103,500 (5) | $1,118,835 | |
-- | -- | -- | -- | 107,100 (6) | $1,157,751 | |
40,625 | 34,375 (7) | $4.26 | 1/19/2022 | -- | -- | |
-- | 300,000 (8) | $9.70 | 9/9/2023 | -- | -- | |
Bryan R. Martin | 50,000 | -- | $3.35 | 11/22/2014 | -- | -- |
100,000 | -- | $1.79 | 8/23/2015 | -- | -- | |
100,000 | -- | $1.27 | 10/24/2016 | -- | -- | |
100,000 | -- | $1.26 | 8/28/2017 | -- | -- | |
100,000 | -- | $0.87 | 9/30/2018 | -- | -- | |
-- | -- | -- | -- | 4,164 (9) | $45,013 | |
-- | -- | -- | -- | 10,410 (10) | $112,532 | |
79,165 | 120,835 (11) | $5.87 | 8/21/2022 | -- | -- | |
10,608 | 74,256 (12) | $9.74 | 9/17/2023 | -- | -- | |
-- | -- | -- | -- | 13,808 (13) | $149,264 | |
-- | -- | -- | -- | 14,224 (14) | $153,761 | |
Dan Weirich | 100,000 | -- | $1.59 | 4/18/2016 | -- | -- |
200,000 | -- | $1.07 | 6/20/2016 | -- | -- | |
100,000 | -- | $1.26 | 8/28/2017 | -- | -- |
50,000 -- $0.87 9/30/2018 -- -- 250,000 -- $0.63 11/6/2018 -- -- -- -- -- -- 4,164 (9) $ 45,013 -- -- -- -- 10,410 (10) $112,532 49,477 75,523 (11) $5.87 8/21/2022 -- -- 9,090 63,630 (12) $9.74 9/17/2023 -- -- -- -- -- -- 11,836 (13) $127,947 -- -- -- -- 12,228 (14) $132,185 Darren Hakeman -- 150,000 (8) $9.70 -- -- -- -- -- -- -- 25,400 (5) $274,574 -- -- -- -- 26,200 (6) $283,222 Huw Rees 50,000 -- $3.35 11/22/2014 -- -- 100,000 -- $1.72 10/25/2015 -- -- 100,000 -- $1.48 5/23/2016 -- -- 100,000 -- $1.26 8/28/2017 -- -- 50,000 -- $0.87 9/30/2018 -- -- -- -- -- -- 4,164 (9) $45,013 -- -- -- -- 10,410 (10) $112,532 25,729 39,271 (11) $5.87 8/21/2022 -- -- 6,059 42,421 (12) $9.74 9/17/2023 -- -- -- -- -- -- 7,888 (13) $85,269 -- -- -- -- 8,152 (14) $88,123 Kim Niederman -- 11,979 (15) -- -- -- --
(1) Each outstanding stock option has a 10 year term.
(2) All stock options that were exercisable at fiscal year end were vested as of March 31, 2012.
(3) The vesting of any unvested shares is subject to the recipient's continuous employment.
(4)
(3) The market value of unvested stock awards is calculated by multiplying the number of unvested stock awards held by the applicable NEOs by the closing market price of our common stock on the NASDAQ CapitalGlobal Select Market ("Nasdaq CM"GSM") on March 30,31, 2014.
(4) Stock awards granted August 21, 2012.
(5) Subject to continuous employment of the recipient, 1/48th4th of the total number of shares vest monthlyannually on the grant date anniversary until all of the options have vested.
(5) Awards granted September 9, 2013. Subject to continuous employment of the recipient and performance requirements earned based on the absolute price performance of our common stock over a four-year period.
(6) Awards granted September 9, 2013. Subject to continuous employment of the recipient and performance requirements to be earned based on our TSR over performance periods ending March 31, 2015, March 31, 2016, and March 31, 2017 relative to the NASDAQ Composite Index (^IXIC).
(7) Stock options granted January 19, 2012. Subject to continuous employment of the recipient, 1/4th of the total number of shares vest on January 19, 2013, and 1/36th of the remaining shares vest on the last day of each full month after the vesting commencement date thereafter until all stock options have vested.
(8) Stock options granted September 9, 2013. Subject to continuous employment of the recipient, 1/4th of the total number of shares vested on September 9, 2014, and 1/36th of the remaining shares vest on the last day of each full month thereafter until all stock awardsoptions have vested. Stock awards granted on July 28, 2009.
(6)
(9) Subject to continuous employment of the recipient, 1/16th of the total number of shares vest quarterly on the last day of each three full months after the vesting commencement date thereafter until all of the stock awards have vested. Stock awards granted on August 31, 2010.
(7)
(10) Subject to continuous employment of the recipient, 1/16th of the total number of shares vest quarterly on the last day of each three full months after the vesting commencement date thereafter until all of the stock awards have vested. Stock awards granted on April 19, 2011.
(8) 1/4th of the total number of shares vested on March 31, 2010, and subject to continuous employment of the recipient 1/36th of the remaining shares vest on the last day of each of the following full month thereafter until all of the stock awards have vested. Stock awards granted on March 31, 2009.
(9)
(11) Stock options granted February 3, 2011.August 21, 2012. Subject to continuous employment of the recipient, 1/448th of the total number of shares vest on February 3, 2012, andthe last day of each full month until all stock options have vested.
(12) Stock options granted September 17, 2013. Subject to continuous employment of the recipient, 1/3648th of the remainingtotal number of shares vest on the last day of each full month thereafter until all stock options have vested.
(10)
(13) Awards granted September 17, 2013. Subject to continuous employment of the recipient 1/4th of the total number of shares vest on February 3, 2012, and 1/8th of the remaining shares vestperformance requirements earned based on the last dayabsolute price performance of each of the following three full months thereafter until all of theour common stock awards have vested. Stock awardsover a four-year period.
(14) Awards granted on February 3, 2011.
(11) Stock options granted January 2, 2012.September 17, 2013. Subject to continuous employment of the recipient 1/4thand performance requirements to be earned based on our TSR over performance periods ending March 31, 2015, March 31, 2016, and March 31, 2017 relative to the NASDAQ Composite Index (^IXIC).
(15) Effective October 18, 2013, Mr. Niederman resigned as President of the total numberCompany. 121,357 shares were forfeited as a result of his resignation. As part of his severance agreement and general release, the following options were allowed to vest through April 21, 2014: 7,812 shares vestgranted on February 3, 2011 at $2.72/share; 1,563 shares granted on January 2, 2013,2012 at $3.17/share; and 1/36th of the remaining2,604 shares vestgranted on the last day of each full month thereafter until all stock options have vested.August 21, 2012 at $5.87/share.
FISCAL 20122014 OPTION EXERCISES AND STOCK VESTED TABLE
The following table presents, for each of the NEOs, the number of shares of common stock acquired upon the exercise of stock options and the vesting of stock awards during the fiscal year ended March 31, 2012,2014, and the aggregate value realized upon the exercise or vesting of such awards.
Option Awards | Stock Awards | Option Awards | Stock Awards | |||||
Name | Number of | Value Realized | Number of | Value | Number of | Value Realized | Number of | Value Realized on |
Bryan Martin | 103,000 | $318,633 | 22,902 | $93,787 | ||||
Vikram Verma | -- | $-- | 108,328 | $1,158,618 | ||||
Bryan R. Martin | 175,000 | $1,068,023 | 19,432 | $184,215 | ||||
Dan Weirich | 50,000 | $133,500 | 22,902 | $93,787 | 50,000 | $287,474 | 19,432 | $184,215 |
Darren Hakeman | -- | $-- | 20,000 | $216,400 | ||||
Huw Rees | 125,000 | $758,466 | 18,044 | $172,921 | ||||
Kim Niederman | -- | -- | 54,895 | $243,352 | 376,560 | $2,630,232 | 75,000 | $711,938 |
Huw Rees | 101,000 | $325,094 | 18,738 | $77,457 | ||||
Debbie Jo Severin | -- | -- | 41,659 | $167,781 |
(1) The value realized has been calculated by multiplying the number of shares acquired upon exercise by the difference between the exercise price and the closing market price of our common stock on the date of exercise.
(2) The value reported is the closing market price of a share of our common stock on the Nasdaq CMGSM on the date of vesting multiplied by the number of shares that vested on that date.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROLCHANGE-IN-CONTROL
In 1995,Other than the Board adoptedequity grants to Mr. Verma and Mr. Hakeman discussed above, all NEO equity grants beginning August 21, 2012 include a resolution providingprovision that in the eventaccelerates vesting of all then unvested options and stock awards upon a change-in-control. For this purpose, a change-in-control generally means (1) the liquidation or dissolution of the Company, allCompany; or (2) the sale of stock options held by our officers under anystockholders representing more than 50% of our voting stock, option plans will vesta sale of all or substantially all of our assets, or a merger or consolidation after which the stockholders immediately without regard to the termsbefore such transaction do not retain more than 50% of the option with respect to stock options granted prior to June 22, 2012. In 2010, the Board adopted a resolution providing that, in the event of a change-in-control of the Company, all stock awards held by our officers under any of our then existing stock-based compensation plans will vest immediately without regard to the term of the stock awards with respect to stock awards granted prior to June 22, 2012. In addition, in such an event, each officer will be eligible to receive one year of severance pay and continuing medical, dental and vision benefits for life at such time following the change-in-control as the officer voluntarily or involuntarily leaves the Company, provided that such medical, dental and vision benefits will cease should such officer accept employment with a competing company. Pursuant to the 1995 Board resolution, a change-in-control of the Company is defined as an individual or corporate entity and any related parties cumulatively acquiring stock greater than or equal to 35% of our fully diluted commonoutstanding voting stock. Our Board has the power to modify or revoke this resolution at any time.
The following table quantifies potential payments to our NEOsnamed executive officers upon termination of employment and/or after a change in control of the Companychange-in-control assuming the triggering event took place on March 31, 2012,2014, the last business day of our last completed fiscal year.year, including the August 2012 option grants described in the preceding paragraph and payments due Messrs. Verma and Hakeman upon a change-in-control as specifically defined under their employment agreements, described above under "EXECUTIVE COMPENSATION."
Name | Cash | Bonus | Value of | Acceleration | Continuation | Total |
Bryan R. Martin | ||||||
Change in Control | -- | -- | -- | -- | -- | -- |
Termination or resignation following a Change in Control | $275,000 | -- | $247,758 | -- | $1,864,090 | $2,386,848 |
Dan Weirich | ||||||
Change in Control | -- | -- | -- | -- | -- | -- |
Termination or resignation following a Change in Control | $260,000 | -- | $247,758 | -- | $3,437,561 | $3,945,319 |
Huw Rees | ||||||
Change in Control | -- | -- | -- | -- | -- | -- |
Termination or resignation following a Change in Control | $235,000 | -- | $224,440 | -- | $997,318 | $1,456,758 |
Debbie Jo Severin | ||||||
Change in Control | -- | -- | -- | -- | -- | -- |
Termination or resignation following a Change in Control | $235,000 | -- | $306,121 | -- | $805,695 | $1,346,816 |
Kim Niederman | ||||||
Change in Control | -- | -- | -- | -- | - | -- |
Termination or resignation following a Change in Control | $235,000 | -- | $630,000 | $481,938 | $327,752 | $1,674,690 |
Name | Cash | Bonus | Value of | Acceleration | Total |
Vikram Verma | |||||
Termination or resignation of | -- | -- | -- | -- | -- |
employment | -- | -- | $2,546,663 | $558,156 | $3,104,819 |
Bryan R. Martin | |||||
Change-in-Control | -- | -- | -- | -- | -- |
Termination or resignation following a Change-in-Control | -- | -- | $460,571 | $676,379 | $1,136,950 |
Dan Weirich | |||||
Change-in-Control | -- | -- | -- | -- | -- |
Termination or resignation following a Change-in-Control | -- | -- | $417,677 | $441,168 | $858,845 |
Darren Hakeman | |||||
Change-in-Control | -- | -- | -- | -- | -- |
Termination or resignation following a Change-in-Control | -- | -- | $557,796 | $166,500 | $724,296 |
Huw Rees | |||||
Change-in-Control | -- | -- | -- | -- | -- |
Termination or resignation following a Change-in-Control | -- | -- | $330,937 | $239,389 | $570,326 |
Kim Niederman | |||||
Termination of employment | $103,942 | -- | -- | $88,004 | $191,946 |
Termination or resignation following a Change-in-Control | -- | -- | -- | -- | -- |
(1) Represents the value of unvested stock awards held by each NEO on March 31, 2012,2014, the vesting of which would be accelerated by the applicable triggering event, based upon the closing market price of $4.20$10.81 per share of our common stock on the Nasdaq CMGSM on March 30, 2012.
31, 2014.
(2) The value represented in this column is the number of shares of our common stock subject to stock options for which vesting would be accelerated by the applicable triggering event multiplied by the amount in-the-money (market price less the exercise price) of the stock options as of March 30, 2012.
(3) Upon a change in control of the Company, officers are provided medical, dental and vision benefits for life. The payments related to continuation of medical benefits in the table assume an annual health insurance premium rate increase of 10.4% and a life expectancy of 78 years. The 10.4% annual health insurance premium rate is our average health insurance premium increase over the past three years.31, 2014.
Employment and Indemnification Arrangements
In addition to the change-in-control arrangements summarized above, we have entered into employment offer letters with Ms. Severin and Mr. Niederman. The offer letters specify the initial base salary amount, bonus arrangement, if any, both of which are subject to adjustment over time, and initial stock option and stock award grant. None of the letters indicate a specific term of employment, and each officer's employment may be terminated by either party at any time.
We have entered into indemnification agreements with each of our current and former directors and the members of our executive management team, including our NEOs, in addition to the indemnification provided for in our certificate of incorporation and bylaws and the 2013, 2012 and 2006 Stock Plan.Plans. Such indemnification agreements require us to indemnify the directors and executive officers to the fullest extent permitted by Delaware law. These agreements, among other things, provide for indemnification of our directors and executive officers for any expenses, including attorneys' fees, judgments, fines, penalties and settlement amounts reasonably incurred by any such person in connection with any threatened, pending or completed action, suit or proceeding, including any action by or in the right of the Company, arising out of such person's services as a director or executive officer.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information concerning shares of our common stock that may be issued upon the exercise of stock options and other rights under all of our existing equity compensation plans as of March 31, 2014, including the 2013 New Employee Inducement Incentive Plan, 2012 includingEquity Incentive Plan, 2006 Stock Plan, and the Purchase Plan.
Plan Category | Number of | Weighted-Average | Number of Securities Remaining |
Equity Compensation plans approved by security holders | 7,031,607 | $3.25 | 1,448,389 (1) |
Equity Compensation plans not approved by security holders | 595,258 (2) | $0.38 | 383,492 |
Total | 7,626,865 | $3.63 | 1,831,881 |
(1) The number of securities remaining for issuance consists of 383,492 shares issuable under the 2013 New Employee Inducement Incentive Plan, 1,117,106 shares issuable under the 2012 Equity Incentive Plan, 113,345 shares issuable under the 2006 Stock Plan the 2003 Contactual Plan, the 1999 Nonstatuatory Stock Option Plan, the 1996 Stock Option Plan, the 1996 Director Option Plan, and 217,938 under the Employee Stock Purchase Plan. All other option plans have expired or been terminated.
(2) This amount reflects restricted stock units granted in fiscal 2014 in accordance with Rule 5635(c)(4) (formerly Rule 4350(i)(l)(A)(iv)) of the NASDAQ listing rules to new employees as inducements material to their entering into employment with us. Rule 5635(c)(4) requires all such awards to be approved by the Compensation Committee or a majority of the independent directors on our Board, but does not require stockholder approval of these awards.
Plan Category | Number of | Weighted-Average | Number of Securities |
Equity Compensation plans approved by security holders | 6,031,667 | $1.90 | 517,380 (1) |
Equity Compensation plans not approved by security holders (2) | 2,668 | $0.56 | -- |
Total | 6,034,335 | $1.90 | 517,380 (1) |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of June 4, 20122, 2014 by:
Ownership information is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC. The number of shares of common stock beneficially owned by each person is determined under rules promulgated by the SEC. Under such rules, beneficial ownership includes any shares as to which the person has sole or shared voting power or investment power, and also includes any shares that the person has the right to acquire within 60 days of the date as of which the beneficial ownership determination is made. Applicable percentages are based upon70,751,21188,630,702voting shares issued and outstanding as of June 4, 2012,2, 2014, and treating any shares that the holder has the right to acquire within sixty days as outstanding for purposes of computing their percent ownership. Unless otherwise noted, the address of the beneficial owner is c/o 8x8, Inc. 810 West Maude Avenue, Sunnyvale,2125 O'Nel Drive, San Jose, CA 94085.95131.
Except as indicated in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them, subject to community property laws where applicable.
Name and Address of Beneficial Owner | Amount and Nature of | Percent of Class | Amount and Nature of | Percent of Class |
Named Executive Officers & Directors(1): | ||||
Mansour Salame | 1,633,154 | 2.2% | ||
Guy L. Hecker, Jr. | 1,044,574 | 1.4% | 1,040,169 | 1.2% |
Bryan R. Martin | 997,003 | 1.3% | 905,046 | 1.0% |
Dan Weirich | 934,000 | 1.2% | 855,286 | 1.0% |
Huw Rees | 662,098 | * | 543,627 | * |
Kim Niederman | 319,497 | * | ||
Debbie Jo Severin | 163,312 | * | ||
Vikram Verma | 218,203 | * | ||
Eric Salzman | - | * | 45,312 | * |
Vikram Verma | - | * | ||
All officers and directors as a group | 6,261,733 | 7.6% | ||
Ian Potter | 30,000 | * | ||
Darren Hakeman | 12,133 | * | ||
Jaswinder Pal Singh | -- | * | ||
Vladimir Jacimovic | -- | * | ||
All officers and directors as a group (10 persons) | 3,649,776 | 4.1% | ||
5% Stockholders: | ||||
Archon Capital Management LLC(2) | 4,546,400 | 6.0% | ||
BlackRock, Inc.(2) | 8,789,400 | 9.9% | ||
FMR, LLC(3) | 5,282,495 | 6.0% |
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