8x8 2005 Annual Report Download - page 58

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share (the Lender Warrants).
In December 2001, the Company redeemed the Debentures for $4,500,000 in cash and 1,000,000 contingently
redeemable shares of common stock. Additionally, the Company agreed to reduce the exercise price of the Lender
Warrants to $0.898 per share. This transaction resulted in an extraordinary gain of $779,000, net of the incremental
fair value of the repriced warrants, the write-off of unamortized debt discount and debt issue costs, and other costs
associated with the early extinguishment of the Debentures. Under the terms of the registration rights agreement
that the Company and the lenders entered into in connection with the issuance of the 1,000,000 shares of common
stock associated with the extinguishment described above, the Company agreed to register the shares for resale and
maintain the effectiveness of the registration statement for specified periods of time until the shares are resold or can
be resold without the registration statement (the Maintenance Requirements). The Company further agreed that if it
did not comply with the Maintenance Requirements in the future, it would be required to pay cash penalties and
redeem all or a portion of the shares held by the lenders at the higher of $0.898 per share or the market price of the
Company’s stock at the time of the redemption. The redemption rights expired in December 2003, and at December
31, 2003, the amount recorded as contingently redeemable common stock was reclassified to equity.
6. TJF WARRANT
In connection with, and in consideration for, the execution of a marketing and distribution agreement with TJF
Associates, LLC ("TJF") on December 10, 2004, the Company agreed to issue a warrant to TJF for the purchase of
up to 4,500,000 shares of 8x8 common stock. The terms of the warrant will provide that at any time prior to
December 31, 2009, TJF or its transferees may exercise in whole or in part a warrant to acquire up to 4,500,000
shares (subject to certain customary adjustments) of 8x8 common stock, at a purchase price per share equal to $5.50
(subject to certain customary adjustments). Only the vested portion of the warrant can be exercised, and vesting is
based on the number of customers subscribing to the Company’s Packet8 service that were referred by TJF. The
shares subject to the warrant commence vesting once TJF has delivered 50,000 subscribers to the Packet8 service.
The warrants shall vest quarterly at a rate of six shares per incremental net Packet8 subscriber attributable to TJF in
existence on the last day of each calendar quarter until December 31, 2009, the expiration date of the warrant. If TJF
delivers 50,000 subscribers to the Packet8 service on or before August 31, 2005, beginning with the quarter ending
September 30, 2005, eight shares vest for each subscriber to 8x8's Packet8 service, and thereafter the warrants shall
vest quarterly at a rate of eight shares per incremental net subscriber. If no warrants have vested by December 31,
2005, then the warrant shall be automatically cancelled and expire as of that date. The Company has granted TJF
piggyback registration rights such that TJF may sell some or all of its vested shares in connection with certain
registered offerings made by the Company. As of March 31, 2005, the expense recorded for the fair value of the
warrants potentially earnable by TJF was not material.
7. TRANSACTIONS WITH RELATED PARTIES
Strategic Relationship with STMicroelectronics NV
During the fourth quarter of fiscal 2000, the Company sold 3,700,000 shares of its common stock to
STMicroelectronics NV (STM) at a purchase price of $7.50 per share and received net proceeds of $27,700,000
million. In December 2003, STM’s representative on the Company’s Board resigned and STM subsequently began
to sell on the open market shares of 8x8, Inc. common stock that it was holding. As a result, STM ceased to be a
related party of the Company as of December 31, 2003. During the first nine months of fiscal 2004, the Company
purchased approximately $150,000 of semiconductors from a subsidiary of STM and paid a subsidiary of STM
$237,500 for non-recurring engineering services. During fiscal 2003, such purchases approximated $550,000.
Other Transactions
In March 2002, 8x8’s board of directors (the Board) authorized the Company to open securities trading accounts
with two brokerage firms and make investments of up to $1,000,000 on behalf of 8x8, Inc. as directed by its then
Chairman, Joe Parkinson, Chief Executive Officer, or Chief Financial Officer. Since the formation of these
accounts in 2002, neither the Company’s Chief Executive Officer nor Chief Financial Officers made any trades in
the investment accounts as these officers had not agreed to reimburse us for any losses incurred as a result of their
trading activity. Mr. Parkinson did not have use of any of the investment account funds for his personal benefit. The
funds were always held in investment accounts in the Company’s name and all benefits belong to 8x8. The
Company invested in mutual funds, money market funds, and equity and debt securities and options of publicly
traded corporations. The investment accounts were not used to trade in the Company’s own stock. Under the