8x8 2003 Annual Report Download - page 57

54
Employee separation costs represent severance payments related to the 96 employees in the Montreal and Hull
offices who were terminated.
The impairment charges for fixed assets approximated $2.1 million which included write-offs of abandoned and
unusable assets of approximately $1.4 million, a loss on sale of assets of $567,000, and a charge for assets to be
disposed of $172,000. The asset write-offs of $1.4 million included approximately $850,000 related to leasehold
improvements and $560,000 related to computer equipment, furniture, and software. The loss on sale of assets of
$567,000 was attributable to the sale of office, computer, and other equipment of the Montreal office. The Company
received common stock of the purchaser valued at approximately $412,000 at the date of sale. Fair value of assets to
be disposed of was measured based on expected salvage value, less costs to sell. Assets to be disposed of consist of
computer equipment with a fair value of $57,000 at March 31, 2001. Substantially all of these assets were liquidated
during fiscal 2002.
The impairment charges for intangible assets represented the write-off of the unamortized intangible assets recorded
in connection with the acquisition of U|Force. The charges of approximately $30.2 million included: $28.7 million
for the goodwill related to the acquisition, $739,000 for the assembled workforce, and $789,000 related to a
distribution agreement. The impairments were directly attributable to the cessation of operations in Canada. The
Company performed an evaluation of the recoverability of the intangible assets related to these operations in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." The lack of estimated future net cash flows related to the acquired products necessitated an
impairment charge to write-off the remaining unamortized goodwill. The distribution agreement asset was written
off because the Company will no longer provide products and services to customers under that agreement.
Cash payments related to the restructuring during the quarter ended March 31, 2001, which included all employee
separation costs and certain lease termination costs, approximated $920,000. Accrued obligations related to
remaining lease commitments on the Montreal and Hull facilities totaled $212,000 at March 31, 2001. The Company
terminated the lease for its primary facility in Montreal in March 2001, but was required to pay rent on the facility
through May 31, 2001. The Company terminated the lease for the facility in Hull, Quebec, in fiscal 2002. The
payments made in fiscal 2002 related to the terminations of the Montreal and Hull facility leases totaled $225,000.
There were no remaining restructuring related accruals at March 31, 2002.
5. DEBT
Convertible Subordinated Debentures
Issuance of the Debentures
In December 1999, the Company issued $7.5 million of 4% Series A and Series B convertible subordinated
debentures (the Debentures) due in December 2002. In conjunction with the issuance of the Debentures, the lenders
received warrants to purchase 531,915 8x8 common shares at $7.05 per share and 105,634 shares at $35.50 per
share (the Lender Warrants). The Company also issued warrants to the placement agent to purchase 53,191 8x8
common shares at $7.05 per share and 10,563 shares at $35.50 per share. All of the warrants expired in December
2002 without being exercised.
Using the Black-Scholes pricing model, the Company determined that the debt discount associated with the fair
value of the warrants issued to the lenders approximated $2.2 million. The costs of issuing the Debentures totaled
Employee separation.....................................................................................
.
$765
Fixed asset losses and impairments............................................................
.
2,084
Intangible asset impairments.......................................................................
.
30,247
Lease obligation and termination................................................................
.
220
$33,316