8x8 2002 Annual Report Download - page 71

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ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the 2002 Proxy Statement under the captions "Election of
Directors -- Compensation of Directors," "Additional Information --
Executive Compensation" and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth in the 2002 Proxy Statement under the captions "Additional
Information -- Security Ownership" and "Additional Information --
Equity Compensation Plan Information" and are
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
Agreements with STMicroelectronics
In the quarter ended March 31, 2000, the Company entered into a strategic relationship with STMicroelectronics NV,
or STM. Under various agreements, STM purchased shares of 8x8 common stock and was granted certain related
rights, licensed certain of the Company's intellectual property and engaged the Company to jointly develop products
that enable voice and other multimedia services over internet protocol networks. In addition, STM and 8x8 entered into
a cross license agreement in March 2002 that is more fully described below.
Stock Purchase and Related Rights.
As part of the arrangement, STM purchased 3.7 million shares of 8x8's common
stock for $27.75 million. STM's share ownership currently represents 13.1% of our outstanding common stock making
them the Company's largest shareholder. STM has been granted certain registration rights that expire upon the earlier of
the date that STM can sell the remaining shares it holds in any three-
month period under Rule 144, or February 2007.
The registration rights allow STM to:
1
require us to file a registration statement with the U.S. Securities and Exchange Commission covering the resale
of some or all of the 3.7 million shares still held by STM, subject to certain conditions; and
1
participate in future registration statements, including a registered public offering involving an underwriting,
subject to certain conditions and limitations.
In addition, STM has preemptive rights that allow STM to purchase additional shares of common stock from the
Company or receive rights to acquire shares of 8x8 common stock, in proportion to their ownership percentage, to the
extent that shares of 8x8 common stock or rights to acquire 8x8 common stock are issued in connection with financing
activities. STM's preemptive rights terminate on the later of the date that it owns less than 10% of 8x8's outstanding
common stock or February 2003. Further, so long as STM holds at least 10% of 8x8's outstanding common stock, the
Company is obligated to nominate one qualified nominee selected by STM for election to 8x8's board of directors.
Christos Lagomichos, vice president and general manager of the Set-
Top Box Division of STM's subsidiary,
STMicroelectronics, Inc., was selected as a nominee by STM and currently serves on 8x8's board of directors.
License and Development Agreements
. Under a non-exclusive, royalty-
bearing license agreement entered into in the
quarter ended March 31, 2000 in conjunction with the stock purchase and rights agreements discussed above, the
Company provided a subsidiary of STM, STMicroelectronics, Inc., or STM Inc., with rights to use certain of its voice-
over-internet-
protocol semiconductor and embedded software technology. STM Inc. is required to pay royalties based
on a percentage of the net sales price of products sold by STM Inc. that incorporate the licensed technology.
Under a separate development agreement that was also executed in the quarter ended March 31, 2000, 8x8 and STM
Inc. established a framework
for the joint development of semiconductor products and defined two initial projects. One
project provides for the joint development of a voice-enabled chipset for cable modems and cable television set-
top
boxes. STM Inc. is not required to pay the Company any engineering fees associated with the development efforts
necessary to support this project, which is still ongoing. STM Inc. is required to pay certain per-
unit royalties based
upon shipments of products that may eventually result from this development effort. The other project involves the
integration of certain of our voice
-
over
-
internet protocol technology into products intended to be used in various