8x8 2006 Annual Report Download - page 59

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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.
5. 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 provided that at any time prior to December
31, 2009, TJF or its transferees could 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 could be exercised, and vesting
was based on the number of customers subscribing to the Company’s Packet8 service that were referred by TJF. The
shares subject to the warrant would commence vesting once TJF had delivered 50,000 subscribers to the Packet8
service. TJF did not deliver 50,000 subscribers to the Packet8 service, so no warrants had vested by December 31,
2005, and the warrant was automatically cancelled as of that date.
6. TRANSACTIONS WITH RELATED PARTIES
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.
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 the Company 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 belonged 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
arrangement, the Company was required to return to Mr. Parkinson the amount representing the increase in value of
the investment account over $1,000,000 to the extent required to restore replenishment payments made by Mr.
Parkinson in prior quarters. Through March 31, 2003, Mr. Parkinson made cumulative replenishment payments of
approximately $137,000 to offset losses incurred. As of December 31, 2003, the Company had repaid all the
replenishment payments received from Mr. Parkinson during fiscal 2003. In January 2004, the arrangement with
Mr. Parkinson was terminated and the Company’s securities trading accounts were closed.
In February 2005, the Board approved a bonus program for two of the Company's officers. Under the terms of the
bonus program, each of the officers would be entitled to receive 100,000 shares of common stock if the Company's
operations, excluding certain transactions, were cash flow positive on an operating basis for the quarter ended
September 30, 2005. In addition, each of the officers will be entitled to a cash bonus of $200,000 if the Company
had been cash flow positive for the quarter ended September 30, 2005, as adjusted for the potential payment of such