8x8 2003 Annual Report Download - page 73

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70
associated with the development effort and $500,000 of prepaid royalties. We have substantially completed our
obligations under this project and STM Inc. is currently marketing and selling a product resulting from this joint
development effort. STM Inc. is required to pay us additional per-unit royalties based upon shipments of this
product only if cumulative royalties owed eventually exceed the balance of prepaid royalties. Should STM Inc. elect
to have us provide extended product maintenance and support, they are required to pay us additional fees of which a
portion will be considered prepaid royalties.
In March 2002, 8x8 licensed certain STM Very Long Instruction Word, or VLIW, microprocessor cores, related
tools and MPEG4 video compression firmware from STM for use in the Company's Internet Protocol, or IP, video
communication processor development initiatives. Additionally, 8x8 agreed to license STM certain of its existing
and future H.263 and H.264 video compression/decompression firmware implementations for use with STM's
semiconductor products. The licenses are non-exclusive, non-transferable and non-assignable and provide for the
sharing of updates and enhancements to the licensed technology, subject to certain limitations. The agreement
includes provisions that allow the Company to manufacturing semiconductor devices that contain the STVLIW core
at STM or at other third-party fabrication facilities. The Company is required to pay STM per-unit royalties based
upon shipments of products that incorporate the VLIW technology. In addition, STM is required to pay the
Company certain per-unit royalties based upon shipments of STM semiconductor products that contain the
Company's video technology.
During fiscal 2003, the Company began purchasing semiconductors from STM Inc. In addition, the Company and
STM Inc. entered into an arrangement under which STM Inc. will provide the Company with non-recurring
engineering services related to the development of a new semiconductor product by the Company.
Additional information required by this Item is set forth in the 2003 Proxy Statement under the captions "Additional
Information -- Employment Contracts and Termination of Employment and Change in Control Arrangements,"
"Additional Information -- Compensation Committee Interlocks and Insider Participation," "Additional Information
-- Report of the Compensation Committee of the Board of Directors" and "Additional Information -- Stock
Performance Graph" and is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
Within the ninety day period prior to the date of the report, 8x8 carried out an evaluation, under the supervision and
with the participation of the management, including its Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of 8x8's disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14. Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that
8x8's disclosure controls and procedures are effective to timely alert them to material information related to
8x8 (including its consolidated subsidiaries) required to be included in 8x8's Exchange Act filings. Subsequent to
the date of management's evaluation, there were no significant changes in our internal controls or in other factors
that could significantly affect these controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The information required by this item is included in Item 8.
(a)(2) Financial Statement Schedules. The information required by this item is included in Item 8.
(a)(3) Exhibits. The documents listed on the Exhibit Index appearing at pages X-X of this Report are filed herewith.
Copies of the exhibits listed in the Exhibit Index will be furnished, upon request, to holders or beneficial owners of
the Company's common stock.
(b) Reports on Form 8-K. None.