8x8 2002 Annual Report Download - page 58

30, 2000. In February 2001, the Company paid approximately $560,000 to purchase all equipment outstanding under
the capital leases and repaid a bank loan of approximately $146,000.
NOTE 5 -- DISPOSITION OF VIDEO MONITORING PRODUCT LINE
On May 19, 2000, the Company entered into an Asset Purchase Agreement with Interlogix, Inc. (Interlogix) providing
for the sale of certain assets comprising the Company's video monitoring business (the Business) to Interlogix. The
assets sold included certain accounts receivable, inventories, technical information, machinery, equipment, contract
rights, intangibles, records, and supplies. Concurrently with the execution of the Asset Purchase Agreement, the
Company and Interlogix entered into a Technology License Agreement (the License Agreement) providing for the
licensing of certain related intellectual property to Interlogix, a Development Agreement providing Interlogix
continuing rights in certain products to be developed by the Company, a Transition Services Agreement providing for
certain services to be rendered by the Company to Interlogix in respect of the Business, and a Supply Agreement
providing for the continuing sale of certain products to Interlogix by the Company. The aggregate purchase price paid
by Interlogix was approximately $5.2 million in cash.
The Company's obligation's under the Transition Services Agreement expired in fiscal 2001. The cost of services
provided under the Transition Services Agreement was reimbursed by Interlogix. Pursuant to the Asset Purchase
Agreement, the Company is responsible for reimbursing Interlogix for costs they incur associated with warranty
obligations related to video monitoring products manufactured prior to May 19, 2000. The Company's estimated
remaining exposure to such warranty obligations is reflected in the warranty accrual at March 31, 2002.
At signing, the Company's continuing obligations under the License and Development Agreements included: (i)
providing future updates and upgrades to the licensed technology, if any, over the initial three-
year term of the License
Agreement (the Maintenance Obligations) and (ii) certain potential obligations to assist Interlogix in the development
of future products (the Development Obligations). The Company deferred the recognition of the approximately $3.9
million of revenue ascribed to the license of video monitoring technology to Interlogix until the Development
Obligations expired in the quarter ended March 31, 2001. Upon expiration of the Development Obligations, the
Company commenced recognition of the previously deferred revenue and is recognizing the revenue ratably over the
license term, which expires in May 2003, due to the remaining Maintenance Obligations. The remaining balance in
deferred revenue at March 31, 2002 is approximately $2.0 million.
NOTE 6 -- TRANSACTIONS WITH RELATED PARTIES
Strategic Relationship With STMicroelectronics
During the fourth quarter of fiscal 2000, the Company sold 3.7 million shares of its common stock to
STMicroelectronics NV (STM) at a purchase price of $7.50 per share. In addition, the Company granted STM the right
to a seat on the Company's Board of Directors as long as it holds at least 10% of the Company's outstanding shares.
STM was also granted certain rights to maintain its percentage ownership interest of the Company's outstanding voting
securities, including certain rights to participate in future securities offerings of the Company, or, in certain
circumstances, the right to acquire additional shares through market purchases. The Company also granted to an STM
subsidiary a non-exclusive, royalty-
bearing license to certain technology and undertook certain joint development
activities with a subsidiary of STM. Under the terms of the agreement, the STM subsidiary guaranteed certain
minimum payments to the Company totaling $1.0 million; $500,000 for prepaid royalties and $500,000 for certain non-
recurring engineering services (the Minimum Payments). The Company received the Minimum Payments in fiscal
2001.
Net proceeds from the sale of stock were $27.7 million, representing a discount of approximately $7.4 million from the
$35.1 million fair market value of the stock on the date of the agreement. As there was no assurance that the Company
would receive any future revenues from STM, the Company applied the discount to offset the Minimum Payments (the
result of which was that no revenues were recognized related to the Minimum Payments) and expensed the balance of
$6.4 million to Selling, General, and Administrative Expense in the period of the transaction.
Other Transactions