<SUBMISSION>
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<PERIOD>20020331
<FILING-DATE>20020523
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>8X8 INC /DE/
<CIK>0001023731
<ASSIGNED-SIC>3674
<IRS-NUMBER>770142404
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>0331
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-K
<ACT>34
<FILE-NUMBER>000-21783
<FILM-NUMBER>02661184
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>2445 MISSION COLLEGE BLVD
<CITY>SANTA CLARA
<STATE>CA
<ZIP>95054
<PHONE>4087271885
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>2445 MISSION COLLEGE BLVD
<CITY>SANTA CLARA
<STATE>CA
<ZIP>95054
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>8X8 INC
<DATE-CHANGED>19961023
</FORMER-COMPANY>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>NETERGY NETWORKS INC
<DATE-CHANGED>20000912
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>body10k.htm
<DESCRIPTION>BODY
<TEXT>
<html>
<head>
<title>FY2002 10K DOC</title>
</head>

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<FONT SIZE="3"><B><p align="center">
SECURITIES AND EXCHANGE COMMISSION<BR>
Washington, D.C. 20549</B></FONT></p>

<br>
<HR WIDTH="25%">
<br>

<FONT SIZE="5"><B><p align="center">FORM 10-K</P></B></FONT>

<br>
<HR WIDTH="25%">

<p>(MARK ONE)
<FONT SIZE="3"><B><p align="center">
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
</B></FONT></p>
<FONT SIZE="3" color="FF0000"><B><p align="center">
     For the fiscal year ended March 31, 2002
</P></FONT></B>

<FONT SIZE="3"><B><p align="center"> OR </P></FONT></B>

<FONT SIZE="3"><B><p align="center">
[&nbsp;&nbsp;&nbsp;]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
</P></FONT></B>
<FONT SIZE="3"><B><p align="center">
    FOR THE TRANSITION PERIOD FROM ___________ TO  _____________
</P></FONT></B>
<FONT SIZE="3"><B><U><p align="center">
                       Commission file number 000-21783
</P></FONT></U></B>
<FONT SIZE="5" color="#0000FF"><B><U><p align="center">
                                        8X8, INC.
</B></U></FONT><BR>
<FONT SIZE="2">
               (Exact name of Registrant as Specified in its Charter)
</FONT></p>

<P>&nbsp;
<TABLE COLS=2 WIDTH="100%" >
<TR>
<TD>
<FONT SIZE="3"><B>
<CENTER><u>Delaware</u></CENTER>
</FONT></B>
</TD>
<TD>
<FONT SIZE="3"><B>
<CENTER><u> 77-0142404 </u></CENTER>
</FONT></B>
</TD>
</TR>
<TR>
<TD>
<FONT SIZE="2">
<CENTER>&nbsp; (State or Other Jurisdiction of Incorporation or Organization)&nbsp;</CENTER>
</FONT>
</TD>
<TD>
<FONT SIZE="2">
<CENTER>(I.R.S. Employer Identification Number)</CENTER>
</FONT>
</TD>
</TR>
</TABLE>
<BR>



<FONT SIZE="3"><B><p align="center">
                           2445 Mission College Blvd.<br>
                            <U>Santa Clara, CA &nbsp;&nbsp;  95054
</U></FONT></B><br>

<FONT SIZE="2">
        (Address of Principal Executive Offices including Zip Code)
</FONT></p>

<FONT SIZE="3"><B><U><p align="center">
                                 (408) 727-1885
</U></FONT></B><br>

<FONT SIZE="2">
                 (Registrant's Telephone Number, Including Area Code)
<br>
<br>
<br>
</FONT></p>

<FONT SIZE="3"><p align="center">
        Securities registered pursuant to Section 12(b) of the Act: None
</FONT></p>
<FONT SIZE="3"><p align="center">
           Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR<br>
                             VALUE $.001 PER SHARE
</FONT></p>



<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;     Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
[X]  &nbsp;&nbsp;&nbsp;  No  [&nbsp; &nbsp; &nbsp;]



<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K.&nbsp;&nbsp;&nbsp;  [&nbsp; &nbsp; &nbsp;]


<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
     Based on the closing sale price of the Registrant's common stock on the
NASDAQ National Market System on May 13, 2002, the aggregate market value of the
voting stock held by non-affiliates of the Registrant was $20,798,332. Shares of
the Registrant's common stock held by each officer and director and by each
person who owns 5% or more of the Registrant's outstanding common stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.


<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
     The number of shares of the Registrant's common stock outstanding as of May
13, 2002 was 28,236,372.




<FONT SIZE="3"><p align="center">
                      DOCUMENTS INCORPORATED BY REFERENCE
</FONT></p>

     Items 10, 11, 12, and 13 of Part III incorporate information by reference from
the Proxy Statement for the Annual Meeting of Stockholders to be held on July
23, 2002.


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</DIV>
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<HR align=left SIZE=2 width="100%">
</DIV>

<P ALIGN="CENTER"><IMG SRC="logo.gif"></P>
<B><p align="center">
                                    8X8, INC.<br>
<br>
                                    INDEX TO
<br>
                           ANNUAL REPORT ON FORM 10-K
<br>
                        FOR YEAR ENDED MARCH 31, 2002
</P></B>

<P ALIGN="LEFT"><TABLE BORDER=0 CELLSPACING=1 CELLPADDING=7 WIDTH=650>
<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><B><FONT SIZE=3>Part I.
</B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Page</B></FONT></TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 1.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Business
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item1">1</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=3>
&nbsp;&nbsp;
Item 2.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Properties
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item2">13</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
&nbsp;&nbsp;
Item 3.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Legal Proceedings
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item3">13</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
&nbsp;&nbsp;
Item 4.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Submission of Matters to a Vote of Security Holders
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item4">13</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><B><FONT SIZE=3>Part II.
</B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
&nbsp;&nbsp;
Item 5.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Market for Registrant's Common Stock and Related Security Holder Matters
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item5">14</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
&nbsp;&nbsp;
Item 6.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Selected Financial Data
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item6">14</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
&nbsp;&nbsp;
Item 7.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Management's Discussion and Analysis of Financial Condition and Results of Operations
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item7">15</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
&nbsp;&nbsp;
Item 7a.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Quantitative and Qualitative Disclosures About Market Risk
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item7a">38</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
&nbsp;&nbsp;
Item 8.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Financial Statements and Supplementary Data
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item8">39</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
&nbsp;&nbsp;
Item 9.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item9">66</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<B><P ALIGN="JUSTIFY"><FONT SIZE=3>Part III.
</B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
&nbsp;&nbsp;
Item 10.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Directors and Executive Officers of the Registrant
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item10">67</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
&nbsp;&nbsp;
Item 11.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Executive Compensation
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item11">67</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
&nbsp;&nbsp;
Item 12.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Security Ownership of Certain Beneficial Owners and Management
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item12">67</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
&nbsp;&nbsp;
Item 13.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Certain Relationships and Related Transactions
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item13">67</A>
</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><B><P ALIGN="JUSTIFY">Part IV.
</B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>

<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
&nbsp;&nbsp;
Item 14.
</TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
Exhibits, Financial Statement Schedules and Reports on Form 8-K
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#item14">68</A>
</TD>
</TR>


<TR><TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="JUSTIFY"><B><FONT SIZE=3>Signatures
</B></TD>
<TD WIDTH="78%" VALIGN="TOP">
<P>
&nbsp;&nbsp;
</TD><TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">
<A HREF="#sign">69</A>
</TD>
</TR>
</TABLE>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>

<p align="center">

<FONT SIZE=3><B><P ALIGN="CENTER">PART I </B><BR>
</P>
<B><P><A NAME="item1"></A>ITEM 1. BUSINESS</P>
<I><P>OVERVIEW</P>
</B></I><P ALIGN="JUSTIFY">Statements contained in this Report on Form 10-K
regarding our expectations, beliefs, estimates, intentions or strategies are
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act and include statements regarding our
plans to conduct trials of our IP voice telephony service offering with follow-
on video capabilities; our research and development plans for our various
product groups; our expectation concerning the adequacy of our facilities; our
estimates of litigation exposure and our beliefs about the sufficiency of our
manufacturing arrangements. All forward-looking statements included in this
Report are based on information available to us on the date hereof, and we
assume no obligation to update any such forward-looking statements. You should
not place undue reliance on these forward-looking statements. Actual results
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including a shifting of internal
research and development focus based on changes in the market or adequacy of
funding; a failure of customers to adopt iPBX systems due to concerns about
VoIP technology or advances in competing systems; our business may grow in an
unanticipated manner causing us to require different types of facilities;
ordinary course litigation may cause a greater than anticipated impact due to
factual matters or issues beyond our control; and our ability to source our
products may be interrupted if our manufacturers cease operations or no longer
desire to do business with us.  Please also see the section entitled "Factors
That May Affect Future Results" for additional risks that may impact our
business.</P>
<P ALIGN="JUSTIFY">8x8, Inc., or 8x8, and its subsidiaries (collectively, the
Company) develop and market telecommunication technology for Internet Protocol,
or IP, telephony and video applications. The Company has three product lines:
voice and video semiconductors and related software; software that implements
the functionality of a private branch exchange, or PBX, over data networks; and
videophones, telephones and communication services that work over broadband
networks.  The Company has two primary subsidiaries, Netergy Microelectronics,
Inc., or Netergy, and Centile, Inc., or Centile, that comprise two of its three
product lines. In February 2002, we announced that we were beginning a new
effort to add video capabilities to Netergy's existing family of voice-over-IP,
or VoIP, semiconductors, along with software and systems support for the latest
compression standards for video.</P>
<P ALIGN="JUSTIFY">Netergy, formed in December 2000, provides voice and video
semiconductors and related communication software to original equipment
manufacturers, or OEMs, of telephones, terminal adapters, and other endpoint
communication devices and to other semiconductor companies. Netergy's
technologies are used to make IP telephones and media hubs and to voice-enable
cable and digital subscriber line, or DSL, modems, wireless devices, and other
broadband technologies.  Netergy's video semiconductors are used in applications
such as communication terminals (including videophones, telephones and room
videoconferencing systems) that allow video communication over telephone
networks, a company's internal networks (e.g., a local area network, or LAN) and
the Internet. </P>
<P ALIGN="JUSTIFY">Centile, formed in March 2001, develops and markets hosted
iPBX solutions that allow service providers to offer, to small and medium-sized
businesses over broadband networks, the features and functions found in a
typical business phone system.  A hosted iPBX solution is a software application
that implements the functionality of a business phone system over the same data
connection that a business uses for connection to the Internet.  The phone
system software runs on servers that are located at a central data center so
that the only phone system equipment that is required at the customer site are
telephones. Centile's hosted iPBX solution was commercially released and became
generally available in March 2001.</P>
<P ALIGN="JUSTIFY">At the parent company level, 8x8 is developing its third product
line that includes consumer videophones, telephones, and communication software
and services that work over broadband networks. In January 2002, the
Company announced two new consumer products, the DV324 desktop videophone, a
videophone for analog phone lines, and the Behind-U privacy peripheral for
personal computers. In November 2001, 8x8 announced its enhanced Service Logic
Execution Environment, or eSLEE, a high-performance service logic and execution
engine that provides a framework for deploying scalable telecommunications
applications. The eSLEE succeeds the service creation environment, or SCE,
technology that 8x8 acquired as a result of the acquisition of U|Force, Inc. in
fiscal 2001. In May 2002, 8x8 announced that it was developing an end-to-end,
internet-based voice and video communications platform and service, the Packet8
IP telephony platform and service, based upon 8x8's eSLEE and related
technology.</P>
<P ALIGN="JUSTIFY">The Company was founded as Integrated Information Technology,
Inc. in 1987 and completed its initial public offering on July 2, 1997 under the
name 8x8, Inc. In August 2000, the Company changed its name to Netergy Networks,
Inc., but subsequently changed it back to 8x8, Inc. in July 2001.</P>
<B><I><P>INDUSTRY BACKGROUND</P>
</B></I><P ALIGN="JUSTIFY">Traditional telecommunication networks use a fixed
electrical path that travels through a series of switches across the network.
These networks were designed solely to carry low-fidelity audio signals with a
high level of reliability. Although these networks are indeed reliable for their
initially intended use, these networks are not well suited to service the
explosive growth of digital communications applications. </P>
<P ALIGN="JUSTIFY">Traditional networks transmit data at very low rates and
resolutions, making them poorly suited for delivering high-fidelity audio,
entertainment-quality video or other rich multimedia content. Traditional
networks are also expensive to build because each subscriber's telephone must be
individually connected to the central office switch, which is usually several
miles away from a typical subscriber's location. The digital component of the
traditional telecommunications infrastructure is also less efficient than modern
networks because it allots fixed bandwidth throughout the duration of each call,
whether or not voice is actually being transmitted. Further, it is difficult for
telecommunication service providers to provide new or differentiated services or
functions, like video communications, that the network was not designed to
accommodate. </P>
<P ALIGN="JUSTIFY">In contrast to the traditional telecommunications
infrastructure or public switched telephone network (PSTN), data networks --
such as the Internet or a corporate LAN -- utilize a "packet-switched" system in
which information between two communicating terminals (for example, a PC
downloading a page from a web server) is transmitted in the form of small data
packets that travel through a series of switches, routers, and hubs across the
network. Packet-switched networks have been built mainly for carrying non real-time data.
The advantages of such networks are their efficiency, flexibility,
and scalability. Bandwidth is only consumed when needed. Networks can be built
in a variety of configurations to suit the number of users, client/server
application requirements and desired availability of bandwidth. Furthermore,
many terminals can share the same connection to the network. The exponential
growth of the Internet in recent years has proven the scalability of these
underlying packet networks. The most common protocol used for communicating on
these packet networks is Internet Protocol, or IP. </P>
<P ALIGN="JUSTIFY">As broadband connectivity has become more available and less
expensive, it is now possible for service providers to offer voice and video
services that run over these IP networks to businesses and consumers. Providing
such services has the potential to both substantially lower the cost of
telephone and equipment costs to these customers and to increase the breadth of
features available to the end-user. Services like full-motion, two-way video are
now supported by the bandwidth spectrum commonly available to broadband
customers, whether business or residential. To enable such new products to take
hold, service and equipment suppliers need semiconductor products and software
to connect input and output devices to the networks and the software that runs
on the network that enables these input/output devices to be easily installed,
operated, and managed, as well as to replace common functionalities of the
legacy switched network, such as billing and operator/directory assistance.</P>
<B><I><P>TECHNOLOGY AND PRODUCTS</P>
</B></I><P ALIGN="JUSTIFY">The Company has developed a broad range of
communication technologies, including semiconductors, embedded software, system
designs, telephony call management software, and consumer voice and video
systems that enable communication services over IP networks.</P>
<P ALIGN="JUSTIFY">The Company has leveraged its technologies to develop the
following product lines: semiconductors and embedded software designed for IP
telephony and videoconferencing applications, developed and marketed by Netergy;
hosted iPBX solutions, developed and marketed by Centile; and consumer systems
and communication software and services, developed and marketed by 8x8.</P>
<I><P>SEMICONDUCTORS AND EMBEDDED SOFTWARE</P>
</I><P ALIGN="JUSTIFY">Netergy develops and markets a range of technology
products, including semiconductors, embedded software, system software, and
reference designs, that allow telecommunication equipment OEMs to: i) build
voice and video IP phones, ii) build IP-to-analog phone adapter products, and
iii) add IP telephony functions to DSL, cable, and wireless modems.
Additionally, Netergy provides semiconductors and embedded software for use in
videoconferencing applications. The following sections describe Netergy's
technology and products in more detail. </P>
<B><P>Technology</P>
</B><P ALIGN="JUSTIFY">SEMICONDUCTOR ARCHITECTURE -- Netergy's semiconductors
are based on programmable processor architectures that enable implementation of
IP telephony and videoconferencing applications in a highly efficient manner.
Netergy's semiconductor architectures employ 32-bit reduced instruction set
computer, or RISC, microprocessor cores, which execute the embedded applications
software. Some of Netergy's semiconductors also employ a 64-bit Single
Instruction Multiple Data, or SIMD, digital signal processor, or DSP, to
accelerate the execution of signal processing intensive operations. Furthermore,
Netergy's Audacity-T2 and T2U semiconductors benefit from the unique feature of
not requiring any external SRAM or DRAM to operate.</P>
<P ALIGN="JUSTIFY">Netergy's RISC processor cores use a proprietary instruction
set specifically designed for multimedia communication applications. The RISC
cores control the overall chip operation and manage the input/output interface
through a variety of specialized ports that connect the chip directly to
external host, audio, and network subsystems. The cores are programmable in the
C programming language and allow customers to add their own features and
functionality to the device software provided by Netergy. Netergy's DSP core
architecture is a SIMD processor that implements computationally intensive
video, audio, and graphics processing routines as well as certain digital
communication protocols. The DSP cores are programmable with a proprietary
instruction set consisting of variable-length 32-bit and 64-bit microcode
instructions that provide the flexibility to improve algorithm performance,
enhance audio and video quality, and maintain compliance with changing digital
audio, video, graphics, and communication protocol standards. The DSP cores
access their instructions through an internal bus that interfaces to on-chip
SRAM and read-only memory, or ROM, that is pre-programmed with video and audio
processing subroutines.</P>
<P ALIGN="JUSTIFY">EMBEDDED SOFTWARE -- Netergy has developed a broad range of
embedded application software that runs on its semiconductor products. Netergy's
application software allows the use of its semiconductors in systems that
conform to various emerging and established international telephony standards
for audio and video encoders and decoders (also known as codecs) and call
signaling protocols. By refining its software, Netergy can enhance quality,
address new standards, and add significant features and functionality to systems
that contain the semiconductor products. In addition, certain customers have
licensed source code to which they add proprietary features and custom
interfaces and, in some cases, port to other semiconductor or processor
architectures. </P>
<P ALIGN="JUSTIFY">Call signaling protocol stacks are complex software programs
required to make voice calls over IP networks, including the Internet. Codecs
format and compress digital audio and video signals so they can be represented
and efficiently transmitted in a digital form. Developing functional VoIP and
video software and obtaining interoperability with other VoIP and video systems
requires significant development time, which is why many OEMs choose to license
it instead. Netergy's protocol stacks support the four most commonly deployed
VoIP protocols, along with seven codecs. </P>
<P ALIGN="JUSTIFY">Netergy is also developing new video compression algorithm
technology that is based on the H.26L standard. The H.26L standard is a new
algorithm being jointly specified by standards bodies in the International
Teleconferencing Union, or ITU, and the Motion Pictures Expert Group, or MPEG,
with the goal of improving video compression ratios by a factor of two against
any current video algorithm specification at any bit rate. For a given bit rate,
implementations of the new H.26L video codec are expected to improve the picture
quality of video streaming, telephony, and entertainment applications beyond the
quality of pictures that are available today from either the MPEG-2 or MPEG-4
algorithms.</P>
<P ALIGN="JUSTIFY">SYSTEM DESIGN -- Netergy has developed expertise in
integrating its semiconductors and software with peripheral components to
produce complete IP telephony and multimedia communication systems. Netergy's
system technology consists of modular subsystems that can be combined and
rearranged to interface to various networks (such as analog telephone, ISDN,
Ethernet LAN, wireless, and home networks) and to various telephony devices,
such as the analog phones in a home or FAX machines in an office environment.
</P>
<B><P>Products</P>
</B><P ALIGN="JUSTIFY">AUDACITY-T2 IP TELEPHONY PROCESSOR -- The Audacity-T2
semiconductor performs the digital processing functions required to build an IP
phone, including formatting digital audio data for transmission over packet
networks (such as Ethernet, the Internet, DSL links and digital cable systems).
The chip can also be used in two-port analog telephone terminal adapters or
gateway applications. </P>
<P ALIGN="JUSTIFY">AUDACITY-T2U IP TELEPHONY PROCESSOR -- The Audacity-T2U
semiconductor has all of the functionality of the Audacity-T2 processor but runs
at faster processing speeds, features more on-chip memory, and contains an extra
interface for connecting the chip to interfaces commonly found on DSL modem
chipsets. The additional on-chip memory and higher processing speed enable the
Audacity-T2U to address more advanced products, such as higher-end IP phones and
four-port terminal adapters or gateways.</P>
<P ALIGN="JUSTIFY">VERACITY SOFTWARE -- The Veracity software suite is a
comprehensive package of VoIP call control protocols, standard network
protocols, and audio processing functions. Veracity software stacks can run on
either the Audacity family of semiconductors or on third-party VoIP processors.
These stacks are designed for cost competitive, high quality applications,
including VoIP/VoDSL gateways, Ethernet PBXs, and IP phones. </P>
<P ALIGN="JUSTIFY">VP7 AUDIO COMPRESSION ENGINE -- The VP7 audio compression
engine, or VP7, is a synthesizable core that can be integrated into custom
semiconductor designs to add voice compression capability (e.g., telephony
applications).  For example, the VP7 has been integrated into STMicrolectronics'
STV0397 semiconductor. The VP7 is based on Netergy's proprietary DSP
architecture. </P>
<P ALIGN="JUSTIFY">REFERENCE DESIGN KITS -- Netergy currently supplies the
following reference design kits for its semiconductor products: </P>

<UL>
<LI>The Media Hub MH2 reference design is a two-line, VoIP gateway based on the
Audacity-T2 processor. It supports two analog telephone interfaces, a 10/100
Mbps Ethernet port, and a simple LCD display. </LI>
<LI>The IP phone reference design includes plastics, keypad, display, and
handset and is based on the Audacity-T2 processor. </LI>
<LI>The Media Hub MHx reference design is similar to the MH2; however, it is
based on the Audacity-T2U processor and supports up to four analog telephone
interfaces.</LI></UL>

<P ALIGN="JUSTIFY">Netergy's reference design kits are intended to serve as
prototype system products and allow a customer to leverage Netergy's system
design expertise to accelerate the time to market with new products. Each
reference design is provided with schematics, bills of materials, or BOMs,
documentation, embedded software, and a software development environment that
enables a customer to add new features and otherwise customize the software.
</P>
<P ALIGN="JUSTIFY">VIDEOCONFERENCING SEMICONDUCTORS -- Netergy's family of
videoconferencing semiconductors includes the VCP, LVP, VPIC, and VCPex. These
semiconductors are used in H.323, H.320, and H.324 videoconferencing
applications, including group videoconferencing systems, personal computer, or
PC, videophone add-in boards, consumer videophones, and video monitoring
systems. These semiconductors are based on Netergy's proprietary architecture,
which combines a custom RISC microprocessor, a high performance DSP core, SRAM,
and proprietary software on a single chip. The integrated semiconductors perform
the core processing functions required by LAN, ISDN, and analog telephone-based
video communication and other digital video applications.
Revenues derived from the sale of videoconferencing semiconductor products were
$4.1 million, $9.5 million and $11.3 million for the fiscal years ended March 31,
2002, 2001 and 2000, respectively. Revenues derived from videoconferencing
technology licenses and related maintenance revenues, as well as royalties
earned under such licenses, the majority of which were non-recurring in nature,
were $3.6 million, $3.1 million and $4.3 million for the fiscal years ended March
31, 2002, 2001 and 2000, respectively. </P>
<B><I><P>HOSTED IPBX SOLUTIONS</P>
</B></I><P ALIGN="JUSTIFY">Centile has developed and markets a hosted iPBX,
which is a software-driven telephony solution that allows network service
providers and PBX resellers to offer PBX functionality as a business
communication service over broadband IP networks. The following sections
describe Centile's technology and products in more detail.</P>
<B><P>Technology</P>
</B><P ALIGN="JUSTIFY">Typically, today's businesses require an individual phone
for each office worker. The phones include various productivity functions, such
as voicemail, transfer and hold capability, and other services. Small and
medium-sized enterprises will generally deploy dozens of such phones. Until
recently, there were two ways that businesses could obtain this type of phone
service: i) subscribe to Centrex services from their local telephone company, or
ii) buy a dedicated piece of hardware that operates as a business PBX system. In
a Centrex service, the telephone company provides a telephone line from its
central office switch for each "extension" and associates all of the lines with
a central number assigned to the business. Centrex, however, scales poorly for
both regulatory and architectural reasons. It is expensive on a per-line basis
when compared to enterprise-owned PBXs, which typically deliver additional
functionality as well. In addition, Centrex services do not offer the ability
for easy integration with computer programs, require long lead times to
implement service changes, and are difficult to manage. </P>
<P ALIGN="JUSTIFY">Rather than subscribe to individual telephone lines for each
employee (as with Centrex), most companies purchase a dedicated PBX system, a
telephone switch that allows dozens or hundreds of employees to share a few
incoming and outgoing telephone lines, resulting in a more efficient use of
those lines. Traditional PBXs use circuit-switched technology and must be
installed on the enterprise premise because every phone is connected to it by an
individual cable. These systems are expensive (from $20,000 to $200,000 or more,
depending on the number of extensions), difficult to manage, maintain, and use,
typically require vendor-specific telephones and cannot be easily integrated
with data processing systems. Suppliers have recently offered versions of these
dedicated PBXs that run over a company's LAN. Often, these offerings have the
same costs and drawbacks of the legacy PBX systems.</P>
<P ALIGN="JUSTIFY">With the availability of broadband IP connectivity to
businesses, however, a third alternative has emerged: hosted iPBX services. In
this model, the service provider delivers PBX functionality over an IP
connection, which reduces the scaling problems by allowing many extensions to
share a single connection. This solution also offers many of the advantages of
an enterprise-owned PBX and further enables integration with enterprise data
processing systems and support of call centers, while eliminating the capital
and maintenance investments required for dedicated on-site hardware that
provides the PBX functionality. </P>
<P ALIGN="JUSTIFY">TELEPHONY CALL MANAGEMENT SOFTWARE -- Centile's telephony
call management software (the iPBX server software, hosted iPBX, or iPBX) uses
an IP network for its switching fabric and media connections, and provides the
call routing, setup, and teardown necessary to establish a connection between
two terminals on an IP network. It also provides a variety of more complex PBX
features such as call transfers, web-based control, voice message retrieval, and
conferencing. </P>
<P ALIGN="JUSTIFY">The iPBX software runs on a cluster of carrier-grade server
platforms that are located in a data center. A cluster typically consists of
both active and backup servers. Each active server runs several copies or
"instances" of the iPBX software simultaneously. Each instance is dedicated to a
particular enterprise end customer. The server cluster in the data center is
linked to customer sites with a dedicated broadband IP link such as a T1 line.
On the customer premise, terminal adapters or IP telephones are connected to the
IP link via an IP router and Ethernet hubs or switches. Terminal adapters
connect standard analog telephones and fax machines to the IP network. </P>
<P ALIGN="JUSTIFY">To address scalability and reliability issues, Centile uses a
modular and distributed architecture for the iPBX system. In this architecture,
a single instance of the iPBX server software provides complete PBX
functionality. A single instance is designed to support approximately 100
extensions. This limitation minimizes both the processing capacity and memory
requirements of the server platform, allowing less powerful, less expensive
servers to be used. Multiple iPBX instances can be run on each server and larger
enterprises can be served by combining instances together to form a single
larger PBX. The system can be scaled in overall capacity by adding more servers.
</P>
<P ALIGN="JUSTIFY">Much of the flexibility of the iPBX is due to the use of
abstraction layers between the core iPBX engine and the devices with which it
interfaces and controls. To allow it to interface to a variety of different
telephone sets, PSTN gateways, and softswitches, the iPBX uses software drivers
that support various industry standard and proprietary call setup and teardown
protocols. Currently, the iPBX supports session initiation protocol, or SIP,
media gateway control protocol, or MGCP, H.323v2, and a variety of third-party
proprietary protocols. </P>
<P ALIGN="JUSTIFY">To allow easy integration with computer programs (computer
telephony integration, or CTI), the iPBX supports Sun Microsystems' Java
Telephony Application Program Interface, or JTAPI, version 1.3 for telephony
call control. JTAPI provides an industry standard series of function calls to
allow computer programs to control PBXs from more than one manufacturer.
Computer programs interfaced to the PBX might provide a graphical user interface
to make it easier to transfer calls or initiate conference calls, or they might
connect a company's customer relationship management software directly to the
phone system, displaying customer information on a computer screen when that
customer calls for support. </P>
<P ALIGN="JUSTIFY">The iPBX solution was designed to address the shortcomings of
traditional Centrex service offerings in a number of ways as described below:
</P>

<UL>
<LI>The use of an IP network allows the iPBX to scale relatively easily and
economically because subscribers can add additional extensions without adding a
new cable for each extension. Client devices such as IP phones and media hubs
can be plugged into a company's existing LAN. </LI>
<LI>The iPBX uses an IP network instead of a circuit-switched one so it can be
located in the service provider's data center which may be miles away from the
customer enterprise premise and connected to it by only a single broadband IP
link. </LI>
<LI>The redundancies built into the system increase its reliability,
particularly when compared to enterprise owned PBXs. </LI></UL>

<B><P>Products</P>
</B><P ALIGN="JUSTIFY">IPBX SERVER SOFTWARE -- The Centile iPBX server software
runs on a cluster of five Sun Microsystems carrier grade server platforms and
provides software PBX functionality over IP networks. The iPBX software was
designed specifically to allow service providers to deliver hosted iPBX services
to small and medium-sized business customers. The Centile iPBX allows service
providers to support up to eighty discrete iPBXs per cluster, each dedicated to
an individual customer, and up to five thousand total extensions. </P>
<P ALIGN="JUSTIFY">The server clusters running the iPBX server software are
located in a service provider's data center. It is connected to the customer's
premise using any broadband IP connection, though deployments to date have
generally utilized a T1 connection. For telephone sets, customers can use
terminal adapters to adapt standard analog telephones to IP service or they can
use IP phones. The iPBX server software connects to the PSTN and the long-
distance IP backbone through a gateway. </P>
<P ALIGN="JUSTIFY">Service providers control and configure the iPBX server
software via a Web interface, allowing the system administrator to manage the
iPBX from any location using any workstation with a browser. The administrator
interface is designed to provide control of phone number block assignments, dial
plans, service provisioning, direct dial phone number assignments, iPBX status,
and bandwidth management. The iPBX supports voicemail, interactive voice
response, automatic call distribution, auto attendants, directory service,
unified messaging modules, and operation, service, and support, or OSS,
integration. </P>
<P ALIGN="JUSTIFY">MULTIPBX - Introduced in May 2002, the MultiPBX combines the
iPBX server software with a complete package of VoIP and data equipment suited
for a building owner who desires to offer converged voice and data services
through a multi-tenant building.  The product can support thousands of user
extensions in its standard configuration and can be located anywhere within the
building.  Regular PSTN phones can be used with the MultiPBX and all regular
PSTN functions are supported with these phones: message waiting indicator,
caller ID, transfer, conference and others.  IP phones can also be used to
enable the more advanced features of the system at the user's desktop.  The
MultiPBX is able to place and receive local and long distance calls via a PSTN
gateway integrated with the product.  Interoffice and telecommuter calls can be
carried directly via a Virtual Private Network, or VPN, or directly across the
Internet, thus offsetting communication costs for distant offices and remote
facilities.  </P>
<P ALIGN="JUSTIFY">MH4 &amp; MH16 MEDIA HUBs -- Terminal adapters and media hubs
are customer premise equipment that adapt conventional telephony equipment, such
as analog telephones and fax machines, for IP service. Centile's MH4 and MH16
media hub products support four and sixteen analog lines, or ports,
respectively. Centile currently uses its MH4 and MH16 products, along with
certain IP phones and terminal adapters developed by third parties, in its
hosted iPBX and MultiPBX business communication service deployments. </P>
<P ALIGN="JUSTIFY">Each media hub supports as many simultaneous connections as
it has analog lines, and multiple media hubs can be used in an IP telephony
system to provide as many lines as required. Because it uses a standard touch-tone
telephone as both its audio and user interface, media hub-based systems are
both reliable and cost-effective, especially when compared to proprietary
digital PBX telephones. </P>
<P ALIGN="JUSTIFY">MH4 and MH16 media hubs support the MGCP IP telephony
standard with Centile extensions for auto-discovery and configuration. All media
hubs deployed by Centile incorporate FLASH memory for remote upgrade capability
so that the Centile iPBX server software can, as required, upgrade media hubs
automatically via the network. </P>
<P ALIGN="JUSTIFY">IPBX USER INTERFACE SOFTWARE -- Centile has announced three
user interface applications for its hosted iPBX solution: ComCenter,
Switchboard, and Administrator. All of these applications are designed to
harness the graphical capabilities of personal computers and workstations to
make the hosted iPBX easy to use. </P>
<P ALIGN="JUSTIFY">The Centile ComCenter software with Call Announcer is
designed for the end users of the iPBX. It provides Caller ID, call transfers,
conference call setup, on-screen directories, contact management, and call
logging. It also lets users set up and control their voicemail, listen to
messages, set call forwarding numbers and filters, and set up personal speed
dial numbers. </P>
<P ALIGN="JUSTIFY">The Centile Switchboard software, or Switchboard, is the
attendant interface for the iPBX. Switchboard runs on a personal computer or
workstation to allow attendants to route incoming calls to an enterprise with a
point-and-click interface. Switchboard provides caller ID for multiple incoming
calls, extension status, two-click call transfers, corporate voice mailbox
management, and multi-attendant support. Its graphical interface minimizes
training and improves attendant productivity. </P>
<P ALIGN="JUSTIFY">With the iPBX, customers control their own moves, adds, and
changes using the Centile Administrator, or Administrator. To add additional
lines, the customer simply connects an additional media hub to the IP network.
The Centile Auto Discovery mechanism automatically configures the media hub. The
customer then uses Administrator to assign extension numbers, associate user
names, and create a voicemail account for each line. Administrator also allows
the customer to define hunt groups, set user permissions, define phone button
functions, and set voicemail parameters, all with a point-and-click
interface.</P>
<B><I><P>CONSUMER SYSTEMS AND COMMUNICATION SOFTWARE PLATFORM AND SERVICES</P>
</I><P>Technology</P>
</B><P ALIGN="JUSTIFY">COMMUNICATION SERVICES -- In order to scale IP
communication networks to large numbers of customers, the software that controls
the communication network needs to incorporate the same infrastructure and
switching components that have enabled the Internet to scale to its current
level of deployment. Whereas the Centile iPBX system incorporates all of the
configuration, network management, dial plans, and messaging facilities needed
to operate the system in a single coherent package appropriate for a PBX system,
an IP communication network that scales to millions and millions of users should
use standard, open services that are widely deployed today. Such services
include the Internet Message Access Protocol, or IMAP, a messaging interface
that is used by e-mail clients; Domain Name Server, or DNS, for resolving names
and addresses; and Lightweight Directory Access Protocol, or LDAP, for directory
functions. </P>
<P ALIGN="JUSTIFY">8x8 is developing a distributed service platform for IP
communication networks called Packet8. Packet8 ties together these standard
Internet services with a collection of multimedia endpoints, including Windows
XP messenger clients, SIP phones, SIP-based 3G mobile phones, set-top boxes, and
legacy video devices such as H.323 and H.324 video endpoints. Packet8 is built
on Linux servers that run 8x8's
eSLEE software and is composed of a collection of software packages running on
the eSLEE that serve as proxies for linking Internet network resources together
to form an IP communications network. These proxies are based on the Session
Initiation Protocol, or SIP, and include functions for call routing,
registration, messaging, firewall/network address translation, or NAT,
traversal, 911 call handling, billing, and media and gateway services. This
distributed architecture also has the advantage that the software proxies can
manage the signaling traffic between endpoints or the Internet infrastructure
and enable endpoints that would otherwise be unable to communicate with each
other to be interoperable. The distributed proxy structure also allows signaling
and media traffic that would otherwise be blocked by NAT or firewall
configurations to traverse those obstructions without requiring any changes to
the physical NAT or firewall mechanisms. Thus, a consumer broadband subscriber
with a home gateway, who would otherwise be unable to access VoIP or video
telephony media without constructing a Virtual Private Network, or VPN, to
encapsulate the home network private IP addresses, can now connect an IP phone
to the home network without any special configuration and immediately access
media services via the translation services of 8x8's proxy architecture. Packet8
is being designed to comply with applicable emergency (911), eavesdropping
(CALEA), and other regulatory requirements needed by any broad-based
communications network.</P>
<P ALIGN="JUSTIFY">The Packet8 architecture is designed to enable the use of
video media in addition to VoIP traffic and includes a video voicemail function
built into the SIP proxy that can process video messages left by video-enabled
endpoints.</P>
<P ALIGN="JUSTIFY">CONSUMER SYSTEMS -- 8x8 is reselling private-branded analog
videophones and is planning to resell IP phones, some of which are manufactured by
some of Netergy's OEM semiconductor customers. These phones incorporate certain unique
software modifications to the protocol and application code that enable them to
take advantage of 8x8's Packet8 distributed IP services platform. The original
design of the videophone and IP phone systems is based on some of Netergy's
semiconductor reference designs.</P>
<P ALIGN="JUSTIFY">8x8 has also developed a motion detection peripheral, the
Behind-U workstation alert system, that can be used to signal a personal
computer or other device to detect movement and convey that information to the
computing device. The Behind-U system does not use any of Netergy's
semiconductor products. </P>
<B><P ALIGN="JUSTIFY">Products</P>
</B><P ALIGN="JUSTIFY">DV324 DESKTOP VIDEOPHONE -- 8x8's DV324 product is a
videophone with an integrated display and camera that is compatible with the
H.324 standard, and therefore works over standard analog phone lines. The
videophone can also be used to make a normal audio PSTN call. Controls on the
videophone and the on-screen menu system enable the user to adjust the quality
of the video that is sent and received, electronically pan/tilt/zoom the near-end and
far-end cameras, take a high-resolution snapshot image, and turn on
privacy mode to block outgoing video. The phone supports two sets of audio/video
inputs (for connecting external cameras, camcorders or digital cameras) and one
audio/video output port (for connecting an external TV or other display device)
and supports caller-ID, auto-answer (so the phone can be used as a monitoring
device), and 10 configurable speed-dial numbers.</P>
<P ALIGN="JUSTIFY">BEHIND-U WORKSTATION ALERT SYSTEM -- The Behind-U system
consists of an infrared motion sensor that plugs into the keyboard port on a
personal computer and associated software. The Behind-U monitors an area for
motion and relays the motion information to the software application running on
the PC. The software can be configured to notify the PC user that motion has
been detected, or can be used to temporarily hide the information currently
displayed on the computer screen.</P>
<P ALIGN="JUSTIFY">SIP IP PHONE -- 8x8 is working with several partners to
private-label an IP phone that is intended to be sold
in conjunction with the Packet8 IP voice telephony services offering. The phone
specifications include features to support multiple &quot;virtual&quot; lines of
IP telephony, an integrated Ethernet interface, speakerphone capability,
programmable feature buttons and on-hook dialing. The phone is designed to be
compatible with other SIP protocol devices.</P>
<P ALIGN="JUSTIFY">PACKET8 IP VOICE TELEPHONY SERVICE OFFERING -- 8x8 is
planning to conduct initial trials of its Packet8 voice telephony service
offering, with plans to integrate video capabilities into the service at a later
date.</P>
<B><I><P>CUSTOMERS AND MARKETING</P>
</B></I><P>SEMICONDUCTORS AND EMBEDDED SOFTWARE</P>
<B><P ALIGN="JUSTIFY">Customers</P>
</B><P ALIGN="JUSTIFY">Netergy sells its IP telephony semiconductors, embedded
software, and reference designs to OEMs of VoIP and VoDSL products, such as
Alcatel Microelectronics, D-Link, Ericsson and Telsey. Netergy has also
separately licensed a VoIP semiconductor core and embedded VoIP software to
STMicroelectronics. </P>
<P ALIGN="JUSTIFY">Netergy sells its video semiconductors and reference board
designs to OEMs of videoconferencing systems for the business, consumer, and
video monitoring markets, such as GE Interlogix, Leadtek Research, Mitsubishi,
Polycom, Sony, and VCON Telecommunications. Leadtek Research and GE Interlogix
represented 13% and 12% of the Company's fiscal 2002 revenues, respectively.</P>
<B><P ALIGN="JUSTIFY">Sales and Marketing</P>
</B><P ALIGN="JUSTIFY">Netergy markets its semiconductor, embedded software, and
reference design products through its own direct sales force and third-party
sales representatives. Netergy supports its domestic and international direct
sales efforts from its headquarters in Santa Clara, California and a European
office in Marlow, United Kingdom. Netergy's sales and marketing personnel
typically provide support to OEM customers through its application engineering
team and periodic training sessions. Netergy sells its products to customers on
an order-to-order basis and has long-term agreements with only a limited number
of customers. As such, order backlog at any given time generally is not significant
and may not be a reliable indicator of future revenues. </P>
<B><P ALIGN="JUSTIFY">Competition</P>
</B><P ALIGN="JUSTIFY">Netergy competes with both manufacturers of digital
signal processing semiconductors and software products developed for the OEM
VoIP marketplace. Netergy also competes with manufacturers of videoconferencing
semiconductors and related firmware. Intense competition, declining average
selling prices, and rapid technological changes characterize the markets for
Netergy's products. The principal competitive factors in the market for IP
telephony and videoconferencing semiconductors and embedded software include
product definition, product design, system integration, chip size, code size,
functionality, time-to-market, adherence to industry standards, price, and
reliability. Netergy has a number of competitors in this market including: Agere
Systems, Analog Devices, Atmel, Broadcom, DSP Group, Motorola, Radvision, Texas
Instruments/Telogy Networks, TriMedia Technologies, Winbond, and Zarlink
Semiconductor. </P>
<B><I><P>HOSTED IPBX SOLUTIONS</P>
</I><P ALIGN="JUSTIFY">Customers</P>
</B><P ALIGN="JUSTIFY">At the beginning of 2001, we decided that the long trials
and time-to-market constraints of the CLEC and service provider market, as well
as the decreasing availability of cash to certain competitive local exchange
carriers, or  CLECs, in the North American market, required that we provide a
hosted business communication service offering to PBX resellers in addition to
its existing service provider offering. In March 2001, Centile was formed to
conduct the operations of the hosted iPBX business and initiated the service in
conjunction with Dialink, a CLEC based in the San Francisco Bay Area. Centile is
still actively marketing the product to service providers in Europe, Asia and
North America. Centile has announced licensing agreements with Song Networks AB,
formerly Tele1 Europe Holding AB, and Oy Datatie AB, an ELISA group company.</P>
<B><P ALIGN="JUSTIFY">Sales and Marketing</P>
</B><P ALIGN="JUSTIFY">Centile markets the hosted iPBX software product through
a direct sales force. In addition, Centile intends to establish relationships
with PBX and other system integrators that can serve as resellers. The sales
force operates from the Company's headquarters in Santa Clara, California and
from its European office in Sophia-Antipolis, France.</P>
<B><P ALIGN="JUSTIFY">Competition</P>
</B><P ALIGN="JUSTIFY">Centile currently competes with suppliers of traditional
PBXs, Centrex equipment, and newer generation IP-based PBX or Centrex solutions
that seek to sell such products to telecommunication service providers or to the
small and medium-size enterprise marketplace. The main competition includes
Avaya, Commworks Corporation, Mitel, Nortel Networks, and several other
providers of traditional and newer generation IP-based solutions, such as
Broadsoft, Inc., Cisco Systems, Shoreline Communications, Syndeo Corporation,
Sylantro, VocalData, Inc., Vocaltec Communications, and Vertical Networks.</P>
<P ALIGN="JUSTIFY">As an IP-based solution, the hosted iPBX product competes by
leveraging the innate efficiencies of IP architectures and combining those
efficiencies with certain required features from competitive legacy products.
The principal competitive factors in the market for hosted iPBX solutions
include product reliability, product feature parity, interface design,
scalability, time-to-market, adherence to standards, price, functionality, and
IP network delivery/design. </P>
<B><I><P>CONSUMER SYSTEMS AND COMMUNICATION SOFTWARE PLATFORM AND SERVICES</P>
</I><P ALIGN="JUSTIFY">Customers</P>
</B><P ALIGN="JUSTIFY">In May 2001, 8x8 announced the first customer license of
its service creation technologies to Lucent. In January 2002, 8x8 introduced the
DV324 Desktop Videophone and Behind-U products and announced that these products
would be sold direct to end-users from 8x8's website. 8x8 has also announced
that Michigan State University has ordered DV324 Desktop Videophones for its
mental health and hospice patients.  8x8 plans to engage in early trials of its
Packet8 IP communication software platform and services offering for which no
customers have been announced.</P>
<B><P ALIGN="JUSTIFY">Sales and Marketing</P>
</B><P ALIGN="JUSTIFY">8x8 markets its consumer systems through its direct sales
force and third-party resellers. Sales of the products to end-users are also
conducted from the 8x8's website. 8x8 plans to market its Packet8 IP
communication services offering via its own direct sales force and through
third-party resellers.</P>
<B><P ALIGN="JUSTIFY">Competition</P>
</B><P ALIGN="JUSTIFY">8x8's consumer systems products compete with other
providers of videophones and videoconferencing systems, including Innomedia,
MotionMedia, and various software offerings that implement videophone
functionality on a personal computer, such as CU-SeeMe and Intel's videophone
software that is bundled with their webcam offerings. The main competitors for
the Company's eSLEE and Communication Services product line are deltaThree,
Dynamicsoft, Inc., GoBeam, Nortel Networks, Pagoo, Sylantro
Systems, Tekelec, Telcordia, Telsis, Ubiquity Software and Vonage. This market
is characterized by rapid technological change, intense competition, and
first-mover advantage. Principal competitive factors in the market for 8x8's products
include product feature parity, interface design, product reliability,
performance, time-to-market, adherence to standards, price, functionality, and
IP network delivery/design. </P>
<B><I><P>MANUFACTURING</P>
</B></I><P ALIGN="JUSTIFY">Netergy outsources the manufacturing of its
semiconductors to independent foundries, and its primary semiconductor wafer
supplier is Taiwan Semiconductor Manufacturing Corporation, or TSMC. Netergy
also relies on various independent third party companies for the assembly and
testing of its semiconductors. Our reliance on overseas wafer fabrication, sort,
assembly and test contractors and our maintenance of inventories at contractors'
facilities entails certain political and economic risks, including political
instability and expropriation, currency controls and exchange fluctuations, and
changes in tariff and freight rates. Furthermore, in the event overseas wafer
fabrication, sort, assembly or test operations, or air transportation to or from
foreign foundries or contractors, were disrupted for any reason, our operations
could be severely harmed. </P>
<P ALIGN="JUSTIFY">The principal raw materials utilized in the semiconductor
production process are polished silicon wafers, ultra-pure metals, chemicals and
gases. Encapsulation materials that enclose the chip and provide the external
connecting leads are provided by the independent assembly contractors. Shortages
could occur in various essential materials due to interruption of supply or due
to increased demand in the industry. Shortages have occurred in our history and
order lead times have been extended in the industry on occasion without
significantly harming us. However, future shortages, if any, could severely harm
our operations. Netergy does not have long-term purchase agreements with its
contract manufacturers or its component suppliers.</P>
<P ALIGN="JUSTIFY">Centile outsources the manufacturing of its media hubs and
8x8 outsources the manufacturing of its videophones to third-party
manufacturers, who are generally also semiconductor customers of Netergy.
Neither Centile nor 8x8 have long-term purchase agreements with their contract
manufacturers. We may not be able to obtain alternative manufacturing sources if
our current subcontractors become unavailable. If we are able to find
alternative subcontractors, a switchover to a new supplier would take time and
might result in an interruption in sales.</P>
<B><I><P>RESEARCH AND DEVELOPMENT</P>
</B></I><P ALIGN="JUSTIFY">Research and development expenses in the fiscal years
ending March 31, 2002, 2001, and 2000 were $11.6 million, $18.7 million, and
$11.9 million, respectively. The development of new products and the enhancement
of existing products by the Company and its subsidiaries are essential to their
success. </P>
<P ALIGN="JUSTIFY">The Company's current and future research and development
efforts relate primarily to VoIP semiconductors and embedded software, video
semiconductors and embedded software, hosted iPBX systems, and telecommunication
services technologies, including the development of new endpoints. Areas of
emphasis will include: enhanced versions of Netergy's Audacity semiconductor
family and architecture to provide higher performance, enhanced functionality,
and further integration of certain essential system functions and interfaces;
enhanced versions of 8x8's video communication processor technology to provide
support for H.26L and other new video compression algorithms; enhanced versions
of Centile's hosted iPBX business communication service to include additional
call control features, system management capabilities, additional protocol and
telephony device support, and new graphical user interface and web-based
applications; and enhanced versions of 8x8's eSLEE platform and Packet8
telecommunication services offering. Future developments may also focus on
emerging audio and video telephony standards and protocols, quality and
performance enhancements to multimedia compression algorithms, and additional
features supporting all of the Company's products.</P>
<B><I><P>INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS</P>
</B></I><P ALIGN="JUSTIFY">Our ability to compete depends, in part, on our
ability to obtain and enforce intellectual property protection for our
technology in the United States and internationally.   We currently rely
primarily on a combination of trade secrets, patents, copyrights, trademarks and
licenses to protect our intellectually property.  At this time we have forty-nine
United States patents and a number of United States and foreign patents
pending, none of which we consider critical to our business. Our patents expire
on dates ranging from 2012 to 2018.  We cannot predict whether our pending
patent applications will result in issued patents.  Due to rapid technological
change, we believe that factors such as the technological and creative skills of
our personnel, new product developments and enhancements to existing products
are more important than the various legal protections of our technology to
establishing and maintaining technology leadership.  </P>
<P ALIGN="JUSTIFY">To protect our trade secrets and other proprietary
information, we require our employees to sign agreements providing for the
maintenance of confidentiality and also the assignment of rights to inventions
made by them while in our employ.  There can be no assurance that our means of
protecting our proprietary rights in the United States or abroad will be
adequate or that competition will not independently develop technologies that
are similar or superior to our technology, duplicate our technology or design
around any of our patents.  We are also subject to the risks of adverse claims
and litigation alleging infringement of the intellectual property rights of
others.  The semiconductor and software industries are subject to frequent
litigation regarding patent and other intellectual property rights.  In
addition, the laws of foreign countries in which our products are or may be sold
do not protect our intellectual property rights to the same extent as do the
laws of the United States. Our failure to protect our proprietary information
could cause our business and operating results to suffer.</P>
<P ALIGN="JUSTIFY">We rely upon certain technology, including hardware and
software, licensed from third parties. There can be no assurance that the
technology licensed by us will continue to provide competitive features and
functionality or that licenses for technology currently utilized by us or other
technology which we may seek to license in the future will be available to us on
commercially reasonable terms or at all. The loss of, or inability to maintain
existing licenses could result in shipment delays or reductions until equivalent
technology or suitable alternative products could be developed, identified,
licensed and integrated, and could harm our business. These licenses are on
standard commercial terms made generally available by the companies providing
the licenses. The cost and terms of these licenses individually are not material
to our business.</P>
<B><I><P>LICENSING AND DEVELOPMENT ARRANGEMENTS</P>
</B></I><P ALIGN="JUSTIFY">The Company has entered into licensing and
development arrangements with its customers to promote the design, development,
manufacture, and sale of the Company's products. </P>
<P ALIGN="JUSTIFY">In order to encourage the use of its semiconductors, Netergy
has licensed portions of its systems technology and software object code for its
semiconductors to virtually all of its semiconductor customers. Moreover, many
of Netergy's OEM customers have licensed portions of the software source code
for its semiconductors. Netergy intends to continue to license its
semiconductor, software, and systems technology to other companies, many of
which are current or potential competitors. Such arrangements may enable these
companies to use Netergy's technology to produce products that compete with the
Company's IP telephony and video products. </P>
<P ALIGN="JUSTIFY">Netergy has also licensed the right to manufacture certain of
its videoconferencing and IP telephony semiconductor products to several
original equipment manufacturers, or OEMs. These licenses generally provide for
the payment of royalties; however, royalty obligations under a license of our
video compression technology to ESS Technology, Inc. that provided 13% of our
revenues in fiscal 2002 have now expired. Only certain of these OEM licensees
may sell semiconductors based on the licensed technology to third parties,
including STMicroelectronics, or STM, and Alcatel Microelectronics, while other
licensees are limited to sales of such semiconductors as part of multimedia
communication systems or sub-systems. Item 13 of this Report provides further
information regarding the Company's license and other arrangements with STM.</P>
<P ALIGN="JUSTIFY">Centile may, in the future, license its source code for
portions or all of the hosted iPBX technology to other companies. Such
arrangements may enable these companies to use the technology to produce
products that compete with Centile's products.</P>
<P ALIGN="JUSTIFY">In March 2002, 8x8 licensed certain 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.26L 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
manufacture semiconductor devices that contain the ST200 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
H.263 and H.26L video technology.</P>
<P ALIGN="JUSTIFY">In addition, 8x8 has licensed source code for its service
creation environment, or SCE, product to Lucent. The SCE product was the
predecessor of the eSLEE product. Under the agreement, Lucent has licensed the
technology for use in its Enhanced Service Authoring Environment (eSAE), which
enables carriers and application developers to design innovative new services
for converged voice and data networks. The Company may continue to license its
communication services platform and video source code to other companies. Such
arrangements may enable these companies to use the technology to produce
products that compete with the Company's consumer systems and communication
services products.</P>
<P ALIGN="JUSTIFY">The Company expects to continue licensing its technology to
others, many of whom may be located outside of the United States. In addition to
licensing its technology to others, the Company from time to time will take a
license to technology owned by third parties and currently relies upon certain
technology, including hardware and software, licensed from third parties. </P>
<B><I><P>INFORMATION ABOUT SEGMENTS AND GEOGRAPHIC AREAS</P>
</B></I><P ALIGN="JUSTIFY">Financial information relating to our segments and
information on revenues generated in different geographic areas are set forth in
Note 11 to our consolidated financial statements contained in Part II, Item 8 of
this Report.  In addition, information regarding risks attendant to our foreign
operations are set forth under the heading &quot;Factors that May Affect Future
Results&quot; later in this Report.</P>
<B><I><P>EMPLOYEES</P>
</B></I><P ALIGN="JUSTIFY">As of March 31, 2002, the Company employed 106
persons, including 6 in manufacturing operations, 60 in research and
development, 17 in sales and marketing, and 23 in general and administrative
capacities. None of the Company's employees are represented by a labor union or
are subject to a collective bargaining arrangement. The Company believes that
relations with employees are good.</P>
<B><P><A NAME="item2"></A>ITEM 2. PROPERTIES</P>
</B><P ALIGN="JUSTIFY">The Company's principal operations are located in an
approximately 45,000 square foot facility in Santa Clara, California that is
leased through May 2003. Design, limited manufacturing, research and
development, sales and marketing, and administrative activities are performed in
this facility. </P>
<P ALIGN="JUSTIFY">The Company also leases facilities for its sales office and
research and development operation in Marlow, United Kingdom and for its
research and development operation in Sophia-Antipolis, France. The Company
believes that its existing facilities are adequate to meet its current and
foreseeable future needs. For additional information regarding the Company's
obligations under leases see Note 8 to the consolidated financial statements
contained in Part II, Item 8. </P>
<B><P><A NAME="item3"></A>ITEM 3. LEGAL PROCEEDINGS</P>
</B><P ALIGN="JUSTIFY">The Company is involved in various legal claims and
litigation that have arisen in the normal course of the Company's operations.
While the results of such claims and litigation cannot be predicted with
certainty, the Company believes that the final outcome of such matters will not
have a significantly adverse effect on the Company's financial position or
results of operations. However, should the Company not prevail in any such
litigation, its operating results and financial condition could be adversely
impacted. </P>
<B><P><A NAME="item4"></A>ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS</P>
</B><P ALIGN="JUSTIFY">No matters were submitted to a vote of security holders
during the fourth quarter of fiscal 2002.  </P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<B><P ALIGN="CENTER"><A NAME="PartII"></A>PART II </B><BR>
</P>
<B><P><A NAME="item5"></A>ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS</P>
</B><P ALIGN="JUSTIFY">The Company completed its initial public offering on July
2, 1997 under the name 8x8, Inc. From that date through April 3, 2000, the
Company's common stock, $0.001 par value per share, was traded on the NASDAQ
National Market (the NASDAQ) under the symbol "EGHT." From April 4, 2000 through
July 18, 2001, the Company's common stock was traded on the NASDAQ under the
symbol "NTRG." From July 19, 2001 the Company's common stock has traded under
the symbol "EGHT." The Company has never paid cash dividends on its common stock
and has no present plans to do so. As of May 13, 2002, there were 272 holders of
record of the Company's common stock. The following table sets forth the range
of high and low closing prices for each period indicated: </P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=3 WIDTH=605>
<TR><TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<B><FONT SIZE=3><P ALIGN="JUSTIFY">Period</B></FONT></TD>
<TD WIDTH="55%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<B><FONT SIZE=3><P ALIGN="CENTER">High</B></FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<B><FONT SIZE=3><P ALIGN="CENTER">Low</B></FONT></TD>
</TR>
<TR><TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="JUSTIFY">Fiscal 2002:</FONT></TD>
<TD WIDTH="55%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
</TR>
<TR><TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
<TD WIDTH="55%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="JUSTIFY">First quarter</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$      2.32</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$      0.65</FONT></TD>
</TR>
<TR><TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
<TD WIDTH="55%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="JUSTIFY">Second quarter</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">         $      1.48</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$      0.60</FONT></TD>
</TR>
<TR><TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
<TD WIDTH="55%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="JUSTIFY">Third quarter</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$      1.11</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$      0.68</FONT></TD>
</TR>
<TR><TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
<TD WIDTH="55%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="JUSTIFY">Fourth quarter</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$      1.30</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$      0.84</FONT></TD>
</TR>
<TR><TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="JUSTIFY">Fiscal 2001:</FONT></TD>
<TD WIDTH="55%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
</TR>
<TR><TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
<TD WIDTH="55%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="JUSTIFY">First quarter</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$    29.63</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$      7.67</FONT></TD>
</TR>
<TR><TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
<TD WIDTH="55%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="JUSTIFY">Second quarter</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$    12.94</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$      6.63</FONT></TD>
</TR>
<TR><TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
<TD WIDTH="55%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="JUSTIFY">Third quarter</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$      9.06</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$      1.50</FONT></TD>
</TR>
<TR><TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20><P></P></TD>
<TD WIDTH="55%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="JUSTIFY">Fourth quarter</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$      4.72</FONT></TD>
<TD WIDTH="15%" VALIGN="MIDDLE" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">$      0.78</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><B><P ALIGN="CENTER">&nbsp;</P>
<P><A NAME="item6"></A>ITEM 6. SELECTED FINANCIAL DATA</FONT><FONT SIZE=2>
</B></P>

<FONT FACE="Courier New"><PRE>
<font size="2">

                                                            Years Ended March 31, (1)
                                            ----------------------------------------------------------
                                             2002 (2)   2001(6)(3)  2000(4)(6)   1999(5)       1998
                                            ----------  ----------  ----------  ----------  ----------
                                                       (in thousands, except per share amounts)
<br>
Total revenues............................ $   14,691  $   18,228  $   25,384  $   31,682  $   49,776
Net income (loss)......................... $   (9,105) $  (74,399) $  (24,848) $  (19,224) $    3,727
Net income (loss) per share:
  Basic................................... $    (0.33) $    (2.99) $    (1.38) $    (1.28) $     0.31
  Diluted................................. $    (0.33) $    (2.99) $    (1.38) $    (1.28) $     0.25
Total assets.............................. $   19,653  $   39,145  $   59,983  $   28,709  $   46,429
Convertible subordinated debentures....... $       --  $    6,238  $    5,498  $       --  $       --
Contingently redeemable common stock...... $      813  $       --  $       --  $       --  $       --
Accumulated deficit....................... $ (137,276) $ (128,146) $  (53,747) $  (28,899) $   (9,675)
Total stockholders' equity................ $   13,234  $   21,632  $   47,390  $   18,823  $   36,443

</font size="2">
</PRE><FONT FACE="Times New Roman" SIZE="3">


<OL>

<P ALIGN="JUSTIFY"><LI>Fiscal 2001 was a 52 week and 2 day fiscal year. Fiscal
year 2000 was a 53-week fiscal year, while fiscal 2002, 1999, and 1998 were 52-week
fiscal years. </LI></P>
<P ALIGN="JUSTIFY"><LI>Net loss and net loss per share include an extraordinary
gain of $779,000 resulting from the early extinguishment of our convertible
subordinated debentures. </LI></P>
<P ALIGN="JUSTIFY"><LI>Net loss and net loss per share include a restructuring
charge of $33.3 million, an in-process research and development charge of $4.6
million, and a $1.1 million charge for the cumulative effect of a change in
accounting principle. </LI></P>
<P ALIGN="JUSTIFY"><LI>Net loss and net loss per share include a $6.4 million
charge for a discount on the issuance of common stock and an in-process research
and development charge of $10.1 million. </LI></P>
<P ALIGN="JUSTIFY"><LI>Net loss and net loss per share include a $5.7 million
charge associated with the write off of ViaTV consumer videophone inventories.
</LI></P>
<P ALIGN="JUSTIFY"><LI>The convertible subordinated debentures, which had face
value of $7.5 million, are presented net of the related debt discount, which was
amortized over the initial three-year term of the debentures. The debentures
were redeemed in December 2001.</LI></P></OL>

<B><P><A NAME="item7"></A>ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS</P>
<I><P>FORWARD-LOOKING STATEMENTS</P>
</B></I><P ALIGN="JUSTIFY">This Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act,
including our statements regarding our assumptions underlying our critical
accounting determinations concerning revenue, allowances for doubtful accounts,
valuation of goodwill, tax allowances and reserves for legal issues; the
anticipated continued decline in videoconferencing semiconductor revenues;
factors that could impact our gross margins; the sufficiency of cash to fund our
ongoing obligations through at least March 31, 2003, efforts to raise additional
financing, the acquisition of or investment in other businesses and products,
commitment of resources, and reduction in operating costs including the possible
sale or cessation of certain business segments and the possible further
reduction of personnel and suspension of salary increases and capital
expenditures. You should not place undue reliance on these forward-looking
statements. Actual results could differ materially from those anticipated in
these forward-looking statements as a result of a number of factors, including
our good faith assumptions being incorrect, our business expenses being greater
than anticipated due to competitive factors or unanticipated development or
sales costs; revenues not resulting in the manner anticipated due to a continued
slow down in technology spending, particularly in the telecommunications market;
our failure to generate investor interest or to sell certain of our assets or
business segments. The forward-looking statements may also be impacted by the
additional risks faced by us as described in this Report, including those set
forth under the section entitled "Factors that May Affect Future Results." All
forward-looking statements included in this Report are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements.</P>
<B><I><P>OVERVIEW</P>
</B></I><P ALIGN="JUSTIFY">8x8, Inc., or 8x8, and its subsidiaries
(collectively, the Company) develop and market telecommunication technology for
Internet Protocol, or IP, telephony and video applications. The Company has
three product lines: voice and video semiconductors and related software;
software that implements the functionality of a private branch exchange, or PBX,
over data networks; and telephones, videophones, and communication services that
work over broadband networks.</P>
<P ALIGN="JUSTIFY">The Company has two primary subsidiaries, Netergy
Microelectronics, Inc. (Netergy) and Centile, Inc. (Centile). Netergy provides
voice and video semiconductors and related communication software to original
equipment manufacturers, or OEMs, of telephones, terminal adapters, and other
endpoint communication devices and to other semiconductor companies. Netergy's
technologies are used to make IP telephones and to voice-enable cable and
digital subscriber line, or DSL, modems, wireless devices, and other broadband
technologies. Centile develops and markets hosted iPBX solutions that allow
service providers to offer to small and medium-sized businesses over broadband
networks the features and functions that are commonly found in a typical
business phone system.  A hosted iPBX solution is a software application that
implements the functionality of a business phone system over the same data
connection that a business uses for connection to the Internet.  The phone
system software runs on servers that are located at a central data center so
that the only phone system equipment that is required at the customer site are
telephones.  The phone system can also be accessed and controlled from any web
browser on the Internet. 8x8 is developing its third product line that includes
consumer telephones, videophones, and communication software and services that
work over broadband networks, at the parent company level. 8x8 sells videophones
that work over normal phone lines and is planning to initiate trials of its IP
telephony software and service offering that is designed to enable customers to
communicate with IP telephones and videophones using an Internet based
communications software platform and service. </P>
<I><P>CRITICAL ACCOUNTING POLICIES</P>
</I><P ALIGN="JUSTIFY">The Company's consolidated financial statements are
prepared in conformity with accounting principles generally accepted in the
United States. The Company does not have any ownership interest in any special
purpose entities that are not wholly-owned and consolidated subsidiaries of the
Company. </P>
<P ALIGN="JUSTIFY">We have identified the policies below as some of the most
critical to our business and the understanding of our results of operations.
These policies require critical judgments and estimates about matters that are
inherently uncertain. Although we believe our judgments and estimates are
appropriate and correct, actual future results may differ from our estimates.
The impact and any associated risks related to these policies on our business
operations is discussed throughout Management's Discussion and Analysis of
Financial Condition and Results of Operations where such policies affect our
reported and expected financial results. For a detailed discussion of the
application of these and other accounting policies, see Note 1 to the
consolidated financial statements in Part II, Item 8 of this  Report. </P>
<B><P ALIGN="JUSTIFY">Use of estimates</P>
</B><P ALIGN="JUSTIFY">The preparation of our consolidated financial statements,
in conformity with accounting principles generally accepted in the United
States, requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities and equity and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. These estimates,
particularly estimates relating to litigation and other contingencies, have a
material impact on our financial statements, and are discussed in detail
throughout our analysis of the results of operations.</P>
<P ALIGN="JUSTIFY">In addition to evaluating estimates relating to the items
discussed above, we also consider other estimates, including, but not limited
to, those related to bad debts, the valuation of inventories, goodwill, income
taxes, and financing operations. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets, liabilities and equity that are not readily
apparent from other sources. Actual results could differ from those estimates
under different assumptions or conditions. Additional information regarding risk
factors that may impact our estimates is included below under "Factors that May
Affect Future Results."</P>
<B><P ALIGN="JUSTIFY">Revenue recognition</P>
</B><P ALIGN="JUSTIFY">Our revenue recognition policies are described in Note 1
to the consolidated financial statements in Part II, Item 8 of this Report. As
described below, significant management judgments and estimates must be made and
used in connection with the revenue recognized in any accounting period.
Material differences may result in the amount and timing of our revenue for any
period if our management made different judgments or utilized different
estimates. </P>
<P ALIGN="JUSTIFY">At the time of each revenue transaction we assess whether the
revenue amount is fixed and determinable and whether or not collection is
reasonably assured. We assess whether the fee is fixed and determinable based on
the payment terms associated with the transaction. If a significant portion of a
fee is due after our normal payment terms, which are thirty to ninety days from
invoice date, we account for the fee as not being fixed and determinable. In
these cases, we recognize revenue as the fees become due. We assess collection
based on a number of factors, including past transaction history with the
customer and the credit-worthiness of the customer. We generally do not request
collateral from our customers. If we determine that collection of a fee is not
reasonably assured, we defer the fee and recognize revenue at the time
collection becomes reasonably assured, which is generally upon receipt of cash.
</P>
<P ALIGN="JUSTIFY">For arrangements with multiple obligations (for example,
undelivered maintenance and support), we allocate revenue to each component of
the arrangement using the residual value method based on the fair value of the
undelivered elements, which is specific to the Company. This means that we defer
revenue from the arranged fee that is equivalent to the fair value of the
undelivered elements. Fair values for the ongoing maintenance and support
obligations for our technology licenses are based upon separate sales of
renewals to other customers or upon renewal rates quoted in the contracts. The
Company bases the fair value of services, such as training or consulting, on
separate sales of these services to other customers. We recognize revenue for
maintenance services ratably over the contract term. Our training and consulting
services are billed based on hourly rates and we generally recognize revenue as
these services are performed. </P>
<P ALIGN="JUSTIFY">If an arrangement includes acceptance criteria, revenue is
not recognized until we can objectively demonstrate that the software or service
can meet the acceptance criteria. If the software license arrangement obligates
us to deliver unspecified future products, revenue is recognized on a
subscription basis, ratably over the term of the contract.</P>
<P ALIGN="JUSTIFY">Our ability to enter into revenue generating transactions and
recognize revenue in the future is subject to a number of business and economic
risks discussed below under "Factors that May Affect Future Results."</P>
<B><P ALIGN="JUSTIFY">Allowance for doubtful accounts</P>
</B><P ALIGN="JUSTIFY">We must make estimates of the collectability of our
accounts receivable. Management specifically analyzes accounts receivable,
including historical bad debts, customer concentrations, customer credit-
worthiness, current economic trends and changes in our customer payment terms
when evaluating the adequacy of the allowance for doubtful accounts. The
accounts receivable balance was $1.2 million, net of an allowance for doubtful
accounts of $286,000 as of March 31, 2002. One customer represented $684,000, or
45%, of our gross accounts receivable at March 31, 2002.  Based upon the
customer's past payment history, discussions with the customer and our review of
their financial condition, outstanding balances were considered collectible and
therefore no portion of this balance was specifically reserved for at March 31,
2002.</P>
<B><P ALIGN="JUSTIFY">Valuation of inventories</P>
</B><P ALIGN="JUSTIFY">We write down our inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions. If actual future demand or market conditions are less favorable than
those projected by us, additional inventory write-downs may be required. </P>
<B><P ALIGN="JUSTIFY">Valuation of goodwill and long-lived and intangible
assets</P>
</B><P ALIGN="JUSTIFY">We assess the impairment of identifiable intangibles,
long-lived assets and goodwill whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors we consider
important that could trigger an impairment review include the following: </P>

<UL>
<LI>significant underperformance relative to projected future
operating results; </LI>
<LI>significant changes in the manner of our use of the
acquired assets or the strategy for our overall business; </LI>
<LI>significant negative industry or economic trends;
</LI>
<LI>significant decline in our stock price for a sustained
period; and </LI>
<LI>our market capitalization relative to net book value.
</LI></UL>

<P ALIGN="JUSTIFY">When we determine that the carrying value of goodwill, long-lived
assets and intangibles may not be recoverable based upon the existence of
one or more of the above indicators of impairment, we measure any impairment
based on a projected discounted cash flow method using a discount rate
determined by our management to be commensurate with the risk inherent in our
current business model. Net goodwill and intangible assets amounted to $1.5
million as of March 31, 2002. Net long-lived assets were $3.1 million as of
March 31, 2002. </P>
<P ALIGN="JUSTIFY">Effective April 1, 2002, Statement of Financial Accounting
Standards, or SFAS, No. 142, "Goodwill and Other Intangible Assets" became
effective and as a result, we will reclassify workforce related intangibles of
$11,000 to goodwill and cease to amortize approximately $1.5 million of
remaining goodwill associated with the acquisition of Odisei. We recorded
approximately $763,000 of amortization on goodwill and intangible assets related
to assembled workforce during fiscal 2002 and would have recorded approximately
$707,000 of amortization during fiscal 2003. In lieu of amortization, we are
required to perform an initial impairment review of our goodwill in fiscal 2003
and an annual impairment review thereafter. We expect to complete our initial
review during the quarter ended September 30, 2002. There can be no assurance
that at the time the review is completed a material impairment charge will not
be recorded. </P>
<B><P ALIGN="JUSTIFY">Accounting for income taxes</P>
</B><P ALIGN="JUSTIFY">As part of the process of preparing our consolidated
financial statements we are required to estimate our income taxes in each of the
jurisdictions in which we operate. This process involves us estimating our
actual current tax expense together with assessing temporary differences
resulting from differing treatment of items, such as deferred revenue, for tax
and accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within our consolidated balance sheet. We must
then assess the likelihood that our deferred tax assets will be recovered from
future taxable income and to the extent we believe that recovery is not likely,
we must establish a valuation allowance. In the event that we determine that we
would be able to realize deferred tax assets in the future in excess of the net
recorded amount, an adjustment to the deferred tax asset would increase income
in the period such determination was made.</P>
<P ALIGN="JUSTIFY">Significant management judgment is required in determining
the valuation allowance recorded against our net deferred tax assets, which
primarily consist of net operating loss and tax credit carryforwards. We have
recorded a valuation allowance of $47.3 million as of March 31, 2002, due to
uncertainties related to our ability to utilize most of our deferred tax assets
before they expire. The valuation allowance is based on our estimates of taxable
income by jurisdiction in which we operate and the period over which our
deferred tax assets will be recoverable. </P>
<B><P ALIGN="JUSTIFY">Litigation</P>
</B><P ALIGN="JUSTIFY">Management's current estimated range of liability related
to pending litigation involving the Company is based on claims for which our
management can estimate the amount and range of loss. We have recorded the
minimum estimated liability related to those claims, where there is a range of
loss. Because of the uncertainties related to both the amount and range of loss
on pending litigation, management is unable to make a reasonable estimate of the
liability that could result from an unfavorable outcome. As additional
information becomes available, we will assess the potential liability, if any,
related to our pending litigation and revise our estimates. Such revisions in
our estimates of the potential liability could materially impact our results of
operation and financial position.</P>
<B><I>
<P>RESULTS OF OPERATIONS</P>
</B></I><P>The following table sets forth consolidated statement of operations
data for each of the years ended March 31, 2002, 2001, and 2000, expressed as
the percentage of our total revenues represented by each item. Cost of product
revenues is presented as a percentage of product revenues and cost of license
and other revenues is presented as a percentage of license and other revenues.
You should read this information in conjunction with our Consolidated Financial
Statements and related notes included elsewhere in this Report: </P>

<FONT FACE="Courier New"><PRE>
<FONT SIZE=2>

                                                        Year Ended March 31,
                                                      -------------------------
                                                         2002     2001    2000
                                                      ------- -------- --------

Product revenues.....................................     41 %     70 %     82 %
License and other revenues...........................     59 %     30 %     18 %
                                                       ------  -------  -------
          Total revenues.............................    100 %    100 %    100 %
                                                       ------  -------  -------
Cost of product revenues.............................     43 %     41 %     41 %
Cost of license and other revenues...................      2 %     32 %      3 %
                                                       ------  -------  -------
          Total cost of revenues.....................     19 %     38 %     34 %
                                                       ------  -------  -------
          Gross profit...............................     81 %     62 %     66 %
                                                       ------  -------  -------
Operating expenses:
  Research and development...........................     79 %    103 %     47 %
  Selling, general and administrative................     65 %     99 %     84 %
  In-process research and development................     -- %     25 %     40 %
  Amortization of intangibles........................      5 %     60 %      2 %
  Restructuring charge...............................     -- %    183 %     -- %
                                                       ------  -------  -------
          Total operating expenses...................    149 %    470 %    173 %
                                                       ------  -------  -------
Loss from operations.................................    (68)%   (408)%   (107)%
Other income, net....................................      7 %     14 %     11 %
Interest expense.....................................     (6)%     (8)%     (2)%
                                                       ------  -------  -------
Loss before provision for income taxes...............    (67)%   (402)%    (98)%
Provision for income taxes...........................     -- %     -- %     -- %
                                                       ------  -------  -------
Net loss before extraordinary gain and cumulative
  effect of change in accounting principle ..........    (67)%   (402)%    (98)%
Extraordinary gain on extinguishment of debt, net....      5 %     -- %     -- %
Cumulative effect of change in accounting principle..     -- %     (6)%     -- %
                                                       ------  -------  -------
Net loss.............................................    (62)%   (408)%    (98)%
                                                       ======  =======  =======

</FONT SIZE=2>
</PRE><FONT FACE="Times New Roman" SIZE="3">


<I><P>REVENUES</P>
</I><B><P ALIGN="JUSTIFY">Product revenues</B> were $6.0 million in fiscal 2002,
a decrease of $6.8 million from the $12.8 million reported in fiscal 2001. The
decrease in product revenues in fiscal 2002 was due to decreases in sales of
video monitoring and consumer videophone systems totaling $969,000, resulting
from our decision to terminate further development and sales of these product
lines in prior years, a slight decrease in IP telephony semiconductor sales, a
$305,000 decrease in media hub system revenues, and a $5.4 million decrease in
revenue derived from our videoconferencing semiconductor products. The decrease
in media hub system revenues as compared to the prior year period was due
primarily to a decline in sales to a significant customer. The significant
decrease in videoconferencing semiconductor revenues was due primarily to a
significant decrease in unit shipments, offset partially by increases in average
selling prices, or ASPs. Factors that contributed to the significant decrease in
unit shipments of our videoconferencing semiconductors as compared to the prior
year, and that we anticipate will result in a continued decline in revenues
derived from videoconferencing semiconductors for the foreseeable future,
include:</P>

<UL>
<LI>Increased competition from other developers of
semiconductors used in videoconferencing applications;</LI>
<LI>The acquisition of two of our customers by a company that
appears to have standardized its product development efforts around technology
supplied by one or more of our competitors;</LI>
<LI>Increased competition from evolving PC-based
videoconferencing applications which has resulted in reduced demand for products
marketed and sold by our customers that incorporate our videoconferencing
semiconductors; and</LI>
<LI>Decreased corporate and consumer spending.</LI></UL>

<P ALIGN="JUSTIFY">Product revenues were $12.8 million in fiscal 2001, a
decrease of $8.0 million from the $20.8 million reported in fiscal 2000. The
decrease in product revenues in fiscal 2001 was primarily due to decreases in
sales of video monitoring and consumer videophone systems for the reasons
discussed above, and a decrease in average selling prices for our
videoconferencing semiconductors. These decreases were partially offset by an
increase in IP telephony semiconductor revenues resulting from the commercial
release of our Audacity-T2 product in fiscal 2001. </P>
<B><P ALIGN="JUSTIFY">License and other revenues</B> were $8.6 million in fiscal
2002, an increase of $3.2 million from the $5.4 million recognized in fiscal
2001. License and other revenues recognized in fiscal 2002, the majority of
which are considered to be non-recurring in nature, consist primarily of
technology licenses and related maintenance revenues, as well as royalties
earned under such licenses. License and other revenues for fiscal 2001 also
included $1.2 million of professional service revenues associated with our
Canadian operations. No professional service revenues were recognized in fiscal
2002 due to the elimination of the professional services organization as part of
the restructuring of our Canadian operations in the fourth quarter of fiscal
2001. The negative impact of eliminating professional service revenues in fiscal
2002 was more than offset by the following:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>An increase in royalties earned by Netergy under a
license agreement for certain of our video compression technology. Royalty
revenue recognized under this agreement totaled $2.0 million for fiscal 2002 as
compared to $768,000 for fiscal 2001. Apart from a final royalty payment of
$750,000 that we received (and will recognize as revenue) in the first quarter
of fiscal 2003, the licensee has no further obligations to pay royalties on
shipments of products that incorporate our technology;</LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>A $1.3 million increase in license revenue associated
with our embedded IP telephony firmware technology, e.g., Veracity VoIP software
and Audacity-T2 based reference design kits marketed by Netergy;</LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>The recognition of $309,000 of previously deferred
revenue associated with our license of unified messaging technology to Milinx.
See Note 8 to the Consolidated Financial Statements in Item 8 for further
discussion. Also, license revenues in fiscal 2002 included $680,000 of non-recurring
revenue associated with the license of our SCE technology to
Lucent;</LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>A $1.6 million increase in revenue in fiscal 2002
associated with the license of our video monitoring technology to Interlogix in
fiscal 2001. Recognition of the approximately $3.9 million of revenue ascribed
to the license of video monitoring technology to Interlogix had been deferred
until we satisfied certain remaining obligations in the quarter ended March 31,
2001. Revenue associated with the license is being recognized ratably over the
license term, which expires in May 2003. The remaining balance in deferred
revenue at March 31, 2002 is approximately $2.0 million.  All cash receipts
associated with this license were received in fiscal 2001;</LI></P>
<P ALIGN="JUSTIFY"><LI>A decrease of approximately $700,000 in non-recurring
license and maintenance revenues associated with Netergy's videoconferencing
technology.</LI></P></UL>

<P ALIGN="JUSTIFY">License and other revenues increased $853,000 from fiscal
2000 to fiscal 2001 due primarily to U|Force professional service revenues of
$1.2 million recognized in fiscal 2001 and a $646,000 increase in revenue
associated with licenses of Netergy's embedded IP telephony firmware technology,
offset by a decrease in royalties earned under the video compression technology
license agreement discussed above. </P>
<P ALIGN="JUSTIFY">Revenues from our ten largest customers in the fiscal years
ended March 31, 2002, 2001, and 2000 accounted for approximately 73%, 48%, and
35%, respectively, of our total revenues. Three customers represented more than
10% of our total revenues in fiscal 2002. These customers, ESS Technology, Inc.,
Leadtek Research, and GE Interlogix, represented 13%, 13% and 12% of our total
revenues, respectively.  During the fiscal years ended March 31, 2001 and 2000,
no customer accounted for 10% or more of total revenues.</P>
<P ALIGN="JUSTIFY">Sales to customers outside the United States represented 61%,
69%, and 47% of total revenues in the fiscal years ended March 31, 2002, 2001,
and 2000, respectively. The following table illustrates our net revenues by
geographic area. Revenues are attributed to countries based on the destination
of shipment (in thousands):</P>

<FONT FACE="Courier New"><PRE>
<FONT SIZE=2>

                                                  Year Ended March 31,
                                          -------------------------------------
                                             2002         2001         2000
                                          -----------  -----------  -----------
United States........................... $     5,777  $     5,632  $    13,381
Europe..................................       4,126        5,862        5,808
Taiwan..................................       2,026        2,739        1,737
Japan...................................       1,119        1,188        2,351
Other...................................       1,643        2,807        2,107
                                          -----------  -----------  -----------
                                         $    14,691  $    18,228  $    25,384
                                          ===========  ===========  ===========

</FONT SIZE=2>
</PRE><FONT FACE="Times New Roman" SIZE="3">


<I><P>COST OF REVENUES AND GROSS PROFIT</P>
</I><P ALIGN="JUSTIFY">The cost of product revenues consists of costs associated
with components, semiconductor wafer fabrication, system and semiconductor
assembly and testing performed by third-party vendors, and direct and indirect
costs associated with purchasing, scheduling, and quality assurance.  Gross
profit from product revenues was $3.4 million, $7.6 million, and $12.3 million
for the fiscal years ended March 31, 2002, 2001, and 2000, respectively.
Product gross margin was 57%, 59% and 59% for the fiscal years ended March 31,
2002, 2001, and 2000, respectively.  </P>
<P ALIGN="JUSTIFY">The $4.1 million decrease in gross profit from fiscal 2001 to
fiscal 2002 is due primarily to a significant decrease in sales of our
videoconferencing semiconductors and video monitoring systems.  Gross profit in
fiscal 2002 was also impacted by a decrease in product gross margins due to
lower average selling prices realized on sales of our IP telephony
semiconductors, and to a lessor extent, an increase in inventory reserves
associated with our media hub products in the first quarter of fiscal 2002. The
decrease in margins was mitigated to some extent by an increase in average
selling prices realized on the sale of our videoconferencing semiconductors and
the reversal of $143,000 of reserves associated with our semiconductor products
in the fourth quarter of fiscal 2002 due to the sale of inventory that had been
specifically reserved for in fiscal 2001. The $4.7 million decrease in gross
profit from fiscal 2000 to fiscal 2001 is due primarily to a significant
decrease in sales of our video monitoring and consumer videophone products due
to our exit from those businesses.  Gross profit in fiscal 2001 was also
impacted by lower average selling prices realized on sales of our
videoconferencing semiconductors and an increase in reserves associated with our
semiconductor products, offset by a significant increase in IP telephony
semiconductor sales. </P>
<P ALIGN="JUSTIFY">Gross profit from license and other revenues, which were
largely nonrecurring, was $8.4 million, $3.7 million, and $4.4 million in fiscal
2002, 2001, and 2000, respectively.  Associated gross margins were 98%, 68%, and
97% in fiscal 2002, 2001, and 2000. The significant increase in gross margin
from fiscal 2001 to fiscal 2002 was due to the elimination of our professional
service organization as part of the restructuring of our Canadian operations in
the fourth quarter of fiscal 2001. </P>
<P ALIGN="JUSTIFY">Our gross margin is affected by a number of factors
including, product mix, the recognition of license and other revenues for which
there may be no or little corresponding cost of revenues, product pricing, the
percentage of direct sales and sales to resellers, and manufacturing and
component costs. The markets for our products are characterized by falling
average selling prices. In the likely event that we encounter significant price
competition in the markets for our products, we could be at a significant
disadvantage compared to our competitors, many of whom have substantially
greater resources, and therefore may be better able to withstand an extended
period of downward pricing pressure. To respond to competitive pricing
pressures, we will be required to introduce differentiated products and continue
to reduce costs as a means of maintaining our margins. We may not be successful
in our development efforts or product cost reduction measures and may face
continued erosion of margins.</P>
<I><P>RESEARCH AND DEVELOPMENT EXPENSES</P>
</I><P ALIGN="JUSTIFY">Research and development expenses consist primarily of
personnel, system prototype design and fabrication, mask, prototype wafer, and
equipment costs necessary for us to conduct our development efforts. Research
and development costs, including software development costs, are expensed as
incurred. Research and development expenses were $11.6 million, $18.7 million,
and $11.9 million for fiscal 2002, 2001, and 2000, respectively. The significant
decreases in research and development expenses in fiscal 2002 as compared to
fiscal 2001 were due to the following:</P>

<UL>
<LI>The elimination of our Canadian operations in the fourth
quarter of fiscal 2001. Research and development expenses incurred by our
Canadian operations in fiscal 2001 were approximately $2.5 million;</LI>
<LI>Reductions in research and development personnel staffing
levels in the first and second quarters of fiscal 2002;</LI>
<LI>Lower tooling and other project related expenses
associated with semiconductor and system-level reference design projects in
fiscal 2002;</LI>
<LI>Lower third-party consulting expenses associated with
development of the graphical user interface for Centile's hosted iPBX product;
</LI>
<LI>A decrease in stock compensation charges of approximately
$325,000; and</LI>
<LI>Our overall efforts to reduce discretionary operating
costs.</LI></UL>

<P ALIGN="JUSTIFY">Higher research and development expenses during fiscal 2001
as compared to fiscal 2000 were due primarily to increases in personnel
resulting from the acquisition of U|Force and increases in hosted iPBX
development efforts, higher third-party consulting expenses associated with the
development of a graphical user interface for the hosted iPBX product, higher
depreciation and maintenance expenses as a result of additional lab equipment
and computer aided design tools, and increased stock compensation charges of
approximately $325,000 related to stock option bonus programs. </P>
<I><P>SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES</P>
</I><P ALIGN="JUSTIFY">Selling, general, and administrative expenses consist
primarily of personnel and related overhead costs for sales, marketing, finance,
human resources, and general management. Such costs also include advertising,
sales commissions, trade show, and other marketing and promotional expenses.
Selling, general, and administrative expenses were $9.5 million, $18.1 million,
and $21.3 million in fiscal 2002, 2001, and 2000, respectively. The significant
decrease in selling, general, and administrative expenses in fiscal 2002 as
compared to fiscal 2001 was due to the following:</P>

<UL>
<LI>A $3.7 million decrease due to the elimination of our
Canadian operations in the fourth quarter of fiscal 2001;</LI>
<LI>Reductions in sales, marketing and administrative
personnel staffing levels in the first quarter of fiscal 2002; </LI>
<LI>A decrease in stock compensation charges; and</LI>
<LI>Lower legal, financial reporting, corporate function,
telephone, travel, corporate marketing, public relations and trade show
expenditures resulting from our efforts to reduce discretionary operating costs.
</LI></UL>

<P ALIGN="JUSTIFY">The decrease in selling, general, and administrative expenses
during the year ended March 31, 2001 as compared to the comparable period in the
prior year is due primarily to a one-time $6.4 million charge related to the
sale of 3.7 million shares of our common stock to STMicroelectronics that we
recorded in the fourth quarter of fiscal 2000. The charge reflected the discount
from the fair market value of our common stock on the date of the related
agreement. The decrease also reflected lower headcount and other costs required
to support ViaTV and video monitoring sales, promotion, and support activities
due to our exit from the consumer videophone and video monitoring businesses.
These decreases were substantially offset by increased expenses associated with
the addition of the U|Force sales, marketing, finance, and corporate
organizations, costs incurred related to our name change, and increased stock
compensation charges. </P>
<I><P>IN-PROCESS RESEARCH AND DEVELOPMENT AND AMORTIZATION OF INTANGIBLES</P>
</I><P ALIGN="JUSTIFY">We incurred in-process research and development charges
of $4.6 million in the second quarter of fiscal 2001 related to the acquisition
of U|Force, Inc. (U|Force), and $10.1 million in the first quarter of fiscal
2000 related to the acquisition of Odisei S.A. (Odisei). A discussion of these
acquisitions follows below. </P>
<B><P>U|Force, Inc.</P>
</B><P ALIGN="JUSTIFY">The Company's consolidated financial statements reflect
the acquisition of all of the outstanding stock of U|Force, Inc. on June 30,
2000 for a total purchase price of $46.8 million. U|Force, based in Montreal,
Canada, was a developer of IP-based software applications and a provider of
professional services. U|Force was also developing a Java-based service creation
environment (SCE) designed to allow telecommunication service providers to
develop, deploy, and manage telephony applications and services to their
customers. The purchase price was comprised of 8x8 common stock with a fair
value of approximately $38.0 million comprised of: (i) 1,447,523 shares issued
at closing of the acquisition, and (ii) 2,107,780 shares to be issued upon the
exchange or redemption of the exchangeable shares (the Exchangeable Shares) of
Canadian entities held by former employee shareholders or indirect owners of
U|Force stock. The Exchangeable Shares held by U|Force employees were subject to
certain restrictions, including our right to repurchase the Exchangeable Shares
if an employee departed prior to vesting. In addition, we also agreed to issue
one share of preferred stock (the Special Voting Share) that provides holders of
Exchangeable Shares with voting rights equivalent to the shares of common stock
into which their shares are convertible. We also assumed outstanding stock
options to purchase shares of U|Force common stock for which the Black-Scholes
pricing model value of approximately $6.5 million was included in the purchase
price. Direct transaction costs related to the merger were approximately
$747,000. Additionally, the Company advanced $1.5 million to U|Force upon
signing the acquisition agreement, but prior to the close of the transaction.
This amount was accounted for as part of the purchase price. The following table
summarizes the composition of the purchase price (in thousands):</P>

<FONT FACE="Courier New"><PRE>
<FONT SIZE=2>

Value of common stock and Exchangable Shares issued...... $  38,042
Value of stock otions assumed............................     6,546
Cash advanced to U|Force prior to closing................     1,500
Direct transaction costs.................................       747
                                                            ---------
                                                          $  46,835
                                                            =========
</FONT SIZE=2>
</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">The purchase price was allocated to tangible assets acquired
and liabilities assumed based on the book value of U|Force's assets and
liabilities, which we believe approximated their fair value. Intangible assets
acquired included amounts allocated to U|Force's in-process research and
development. The in-process research and development related to U|Force's
initial products, the SCE and a unified messaging application, for which
technological feasibility had not been established and the technology had no
alternative future use. The estimated percentage complete for the unified
messaging and SCE products was approximately 44% and 34%, respectively, at June
30, 2000. The fair value of the in-process technology was based on a discounted
cash flow model, similar to the traditional "Income Approach," which discounts
expected future cash flows to present value, net of tax. In developing cash flow
projections, revenues were forecasted based on relevant factors, including
estimated aggregate revenue growth rates for the business as a whole,
characteristics of the potential market for the technology, and the anticipated
life of the technology. Projected annual revenues for the in-process research
and development projects were assumed to ramp up initially and decline
significantly at the end of the in-process technology's economic life. Operating
expenses and resulting profit margins were forecasted based on the
characteristics and cash flow generating potential of the acquired in-process
technologies. Risks that were considered as part of the analysis included the
scope of the efforts necessary to achieve technological feasibility, rapidly
changing customer markets, and significant competitive threats from numerous
companies. We also considered the risk that if we failed to bring the products
to market in a timely manner, it could adversely affect sales and profitability
of the combined company in the future. The resulting estimated net cash flows
were discounted at a rate of 25%. This discount rate was based on the estimated
cost of capital plus an additional discount for the increased risk associated
with in-process technology. The value of the acquired U|Force in-process
research and development, which was expensed in the second quarter of fiscal
2001, approximated $4.6 million. The excess of the purchase price over the net
tangible and intangible assets acquired and liabilities assumed was allocated to
goodwill. Amounts allocated to goodwill, the value of an assumed distribution
agreement, and workforce were being amortized on a straight-line basis over
three, three, and two years, respectively. The allocation of the purchase price
was as follows (in thousands): </P>

<FONT FACE="Courier New"><PRE>
<FONT SIZE=2>

In-process research and development............... $   4,563
Distribution agreement............................     1,053
Workforce.........................................     1,182
U|Force net tangible assets.......................     1,801
Goodwill..........................................    38,236
                                                    ---------
                                                   $  46,835
                                                    =========

</FONT SIZE=2>
</PRE><FONT FACE="Times New Roman" SIZE="3">


<P ALIGN="JUSTIFY">Our consolidated financial statements include the results of
the operations of U|Force from the date of the acquisition, June 30, 2000, the
beginning of our second quarter of fiscal 2001. </P>
<B><P>Odisei S.A.</P>
</B><P ALIGN="JUSTIFY">In May 1999, we acquired Odisei, a privately held,
development stage company based in Sophia Antipolis, France, that was developing
software for managing voice-over IP networks. The consolidated financial
statements reflect the acquisition of Odisei on May 24, 1999 for approximately
2,868,000 shares of 8x8's common stock and approximately 121,000 of contingent
shares, which were subsequently issued to Odisei employee shareholders in March
2000. The purchase price was approximately $13.6 million, which includes
approximately $295,000 of acquisition-related costs. The purchase price was
allocated to tangible assets acquired and liabilities assumed based on the book
value of Odisei's current assets and liabilities, which we believed approximated
their fair value. Intangible assets acquired included amounts allocated to
Odisei's in-process research and development. The in-process research and
development related to Odisei's initial product for which technological
feasibility had not been established and was estimated to be approximately 60%
complete. The fair value of the in-process technology was based on a discounted
cash flow model, which discounted expected future cash flows to present value,
net of tax. In developing cash flow projections, revenues were forecasted based
on relevant factors, including estimated aggregate revenue growth rates for the
business as a whole, characteristics of the potential market for the technology,
and the anticipated life of the technology. Projected annual revenues for the
in-process research and development projects were assumed to ramp up initially
and decline significantly at the end of the in-process technology's economic
life. Operating expenses and resulting profit margins were forecasted based on
the characteristics and estimated cash flow generating potential of the acquired
in-process technology. Associated risks include the inherent difficulties and
uncertainties in completing the project and thereby achieving technological
feasibility, and risks related to the impact of potential changes in market
conditions and technology. The resulting estimated net cash flows were
discounted at a rate of 27%. This discount rate was based on the estimated cost
of capital plus an additional discount for the increased risk associated with
in-process technology. The value of the acquired Odisei in-process research and
development, which was expensed in the fiscal year ended March 31, 2000, was
$10.1 million. The excess of the purchase price over the net tangible and
intangible assets acquired and liabilities assumed was allocated to goodwill.
Until the adoption of SFAS 142 on April 1, 2002, amounts allocated to goodwill
and workforce were being amortized on a straight-line basis over five and three
years, respectively. The allocation of the purchase price was as follows (in
thousands): </P>
<P ALIGN="JUSTIFY"></P>

<FONT FACE="Courier New"><PRE>
<FONT SIZE=2>

In-process research and development............... $  10,100
Workforce.........................................       200
Net tangible liabilities..........................      (219)
Goodwill..........................................     3,481
                                                    ---------
                                                   $  13,562
                                                    =========
</FONT SIZE=2>
</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">Our consolidated financial statements for the fiscal year
ended March 31, 2000 included the results of Odisei from the date of
acquisition. </P>
<P ALIGN="JUSTIFY">Amortization of goodwill and intangible assets charged to
operations was $763,000, $11.0 million and $614,000 during the fiscal years
ended March 31, 2002, 2001 and 2000, respectively. </P>
<I><P>RESTRUCTURING CHARGES</P>
</I><P ALIGN="JUSTIFY">During the fourth quarter of fiscal 2001, after a
significant number of employees had resigned, we discontinued our Canadian
operations acquired in conjunction with the acquisition of U|Force in June 2000.
We closed our offices in Montreal and Hull, Quebec and laid-off all remaining
employees resulting in the cessation of the research and development efforts and
the sales and marketing and professional services activities associated with the
U|Force business. As a result of the restructuring, we recorded a one-time
charge of $33.3 million in the quarter ended March 31, 2001. The restructuring
charges consisted of the following (in thousands): </P>

<FONT FACE="Courier New"><PRE>
<FONT SIZE=2>

Employee separation............................... $     765
Fixed asset losses and impairments................     2,084
Intangible asset impairments......................    30,247
Lease obligation and termination..................       220
                                                    ---------
                                                   $  33,316
                                                    =========
</FONT SIZE=2>
</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">Employee separation costs represent severance payments
related to the 96 employees in the Montreal and Hull offices who were laid-off.
</P>
<P ALIGN="JUSTIFY">The impairment charges for fixed assets of approximately $2.1
million 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 loss on sale of assets of $567,000 was attributable
to the sale of office, computer, and other equipment of the Montreal office. We
received common stock of the purchaser valued at approximately $412,000 as of
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.</P>
<P ALIGN="JUSTIFY">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.
We 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 we will no
longer provide products and services to customers under that agreement. </P>
<P ALIGN="JUSTIFY">We terminated the lease for our primary facility in Montreal
in March 2001, but we were required to pay rent on the facility through May 31,
2001. We terminated the lease for our facility in Hull, Quebec in fiscal 2002.
Accrued obligations related to remaining lease commitments on the Montreal and
Hull facilities totaled $212,000 at March 31, 2001. There are no remaining
restructuring related accruals at March 31, 2002.</P>
<P ALIGN="JUSTIFY">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. The payments made in fiscal 2002
related to the terminations of the Montreal and Hull facility leases totaled
$225,000. </P>
<I><P>OTHER INCOME, NET</P>
</I><P ALIGN="JUSTIFY">In fiscal 2002, 2001, and 2000, other income, net, was
approximately $1.0 million, $2.6 million, and $2.8 million, respectively.  The
decrease in other income, net, in fiscal 2002 compared to fiscal 2001 was due
primarily to a significant decrease in interest income resulting from lower
average cash and cash equivalent balances and lower interest rates.  Gains
realized on the sale of investments also decreased by approximately $94,000 in
fiscal 2002 as compared to fiscal 2001. The decrease in other income, net, in
fiscal 2001 compared to fiscal 2000 was due primarily to a $1.7 million decrease
in gains realized from the sale of equity investments, offset by an increase in
interest income resulting from higher average cash equivalent and short-term
investment balances as compared to fiscal 2000. </P>
<I><P>INTEREST EXPENSE</P>
</I><P ALIGN="JUSTIFY">Interest expense in each of the three years ended March
31, 2002 consisted mainly of charges associated with the 4% convertible
subordinated debentures, or the Debentures, that we issued in December 1999,
including the amortization of the related debt discount and debt issuance costs.
We redeemed the Debentures in December 2001.
Interest expense for the year ended March 31, 2001 also
included approximately $128,000 associated with lease lines of credit and a bank
loan assumed as part of the U|Force acquisition. All of the U|Force debt
obligations were repaid in the quarter ended March 31, 2001.</P>
<I><P>PROVISION FOR INCOME TAXES</P>
</I><P ALIGN="JUSTIFY">The provisions of $15,000, $17,000 and $120,000 for the
years ended March 31, 2002, 2001 and 2000, respectively, were comprised
primarily of certain foreign taxes.  The provision for the year ended March 31,
2002 also reflected a $10,000 refund of U.S. federal income taxes received in
fiscal 2002.</P>
<P ALIGN="JUSTIFY">At March 31, 2002, we had net operating loss carryforwards
for federal and state income tax purposes of approximately $67.0 million and
$17.0 million, respectively, which expire at various dates beginning in 2005. In
addition, at March 31, 2002, we had research and development credit
carryforwards for federal and state tax reporting purposes of approximately $3.0
million and $2.5 million, respectively. The federal credit carryforwards will
begin expiring in 2010 while the California credit will carryforward
indefinitely. Under the ownership change limitations of the Internal Revenue
Code of 1986, as amended, the amount and benefit from the net operating losses
and credit carryforwards may be impaired or limited in certain circumstances.
</P>
<P ALIGN="JUSTIFY">At March 31, 2002, we had gross deferred tax assets of
approximately $47.3 million. We believe that, based on a number of factors, the
weight of objective available evidence indicates that it is more likely than not
that we will not be able to realize our deferred tax assets, and thus a full
valuation allowance was recorded at March 31, 2002 and March 31, 2001. </P>
<I><P>EXTRAORDINARY GAIN</P>
</I><P ALIGN="JUSTIFY">We realized an extraordinary gain of $779,000 in the
third quarter of fiscal 2002 resulting from the early extinguishment of our
convertible subordinated debentures.  See Note 4 to the consolidated financial
statements in Part II, Item 8 of this Report for further discussion of this
transaction.</P>
<I><P>CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE</P>
</I><P ALIGN="JUSTIFY">In November 2000, the Emerging Issues Task Force reached
several conclusions regarding the accounting for debt and equity securities with
beneficial conversion features, including a consensus requiring the application
of the "accounting conversion price" method, versus the use of the stated
conversion price, to calculate the beneficial conversion feature for such
securities. The SEC required companies to record a cumulative catch-up
adjustment in the fourth quarter of calendar 2000 related to the application of
the "accounting conversion price" method to securities issued after May 21,
1999. Accordingly, we recorded a $1.1 million non-cash expense during the
quarter ended December 31, 2000 to account for a beneficial conversion feature
associated with the convertible subordinated debentures and related warrants
issued in December 1999, and we presented it as a cumulative effect of a change
in accounting principle as required by the SEC.</P>
<I><P>LIQUIDITY AND CAPITAL RESOURCES</P>
</I><P ALIGN="JUSTIFY">As of March 31, 2002, we had cash and cash equivalents
totaling $12.4 million, representing a decrease of $11.7 million from March 31,
2001. We currently have no borrowing arrangements. </P>
<P ALIGN="JUSTIFY">Cash used in operations of $7.9 million in fiscal 2002
reflected a net loss of $9.1 million, a decrease in accounts payable of
$839,000, a decrease in accrued compensation of $610,000, a decrease of $579,000
in other accrued liabilities, a $3.5 million decrease in deferred revenue and a
non-cash extraordinary gain of $779,000 due to redemption of the convertible
subordinated debentures. Cash used in operations was partially offset by a
decrease in accounts receivable of $1.7 million, a $501,000 decrease in
inventory, a $1.6 million decrease in other current assets, and non-cash items
including depreciation and amortization of $3.9 million. Cash provided by
investing activities in fiscal 2002 was attributable to proceeds from the sale
of an investment in marketable equity securities of $543,000 and proceeds from
the sale of equipment of $116,000, partially offset by capital expenditures of
$172,000. Cash used in financing activities during fiscal 2002 consisted of the
$4.6 million payment associated with the redemption of the convertible
subordinated debentures and certain costs incurred in connection with the
redemption, offset partially by proceeds of $335,000 resulting from the sale of
our common stock to employees through our employee stock purchase and stock
option plans.</P>
<P ALIGN="JUSTIFY">Cash used in operations of $24.6 million in fiscal 2001
reflected a net loss of $74.4 million, decreases in accounts payable and accrued
compensation of $2.2 million and $623,000, an increase in other current and non-current
assets of $1.3 million, and a non-cash adjustment for a gain on sale of
investments of $225,000. Cash used in operations was partially offset by cash
provided by a decrease in accounts receivable of $851,000, an increase in other
accrued liabilities of $378,000, and non-cash items, including restructuring
charges of $32.3 million, depreciation and amortization of $14.4 million, in-
process research and development of $4.6 million, the cumulative effect of a
change in accounting principle of $1.1 million, and stock compensation charges
of $753,000. Cash provided by investing activities in fiscal 2001 is primarily
attributable to net proceeds from the sale of assets and the license of
technology associated with our video monitoring product line of $5.2 million,
offset by acquisitions of property and equipment of $6.1 million and cash paid
for acquisitions, net, of $558,000. Cash flows from financing activities in
fiscal 2000 consisted primarily of proceeds from sales of the Company's common
stock totaling $2.8 million, offset by debt repayments of $891,000 and
repurchases of common stock and Exchangeable Shares of $514,000. For the year,
cash and cash equivalents decreased $24.5 million. </P>
<P ALIGN="JUSTIFY">Cash used in operations of $4.1 million in fiscal 2000
reflected a net loss of $24.8 million, a decrease in deferred revenue of $3.4
million, and a non-cash adjustment for a gain on sale of investments, net, of
$1.7 million. Cash used in operations was partially offset by cash provided by a
decrease in accounts receivable of $3.5 million, a decrease in inventory of $2.5
million, and non-cash items, including depreciation and amortization of $2.1
million, in-process research and development of $10.1 million, and discount on
issuance of common stock of $7.4 million. Cash provided by investing activities
in fiscal 2000 is attributable to proceeds from the sale of an investment of
$1.9 million, offset by acquisitions of property and equipment of $1.7 million
and cash paid for acquisitions, net, of $149,000. Cash flows from financing
activities in fiscal 2000 consisted primarily of proceeds from the sale of
convertible subordinated debentures of $7.5 million and sales of the Company's
common stock totaling $29.8 million, offset by debt issuance costs of $617,000.
For the year, cash and cash equivalents increased $32.8 million. </P>
<P ALIGN="JUSTIFY">As of March 31, 2002, our principal commitments consisted of
obligations outstanding under noncancelable operating leases.  At March 31,
2002, future minimum annual lease payments under noncancelable operating leases,
net of sublease income, were as follows (in thousands):</P>

<FONT FACE="Courier New"><PRE>
<FONT SIZE=2>

 YEAR ENDING MARCH 31,
 ---------------------
2003.............................................. $   1,405
2004..............................................       449
2005..............................................       270
2006..............................................       256
2007..............................................       242
2008 and thereafter...............................       889
                                                    ---------
          Total minimum payments.................. $   3,511
                                                    =========
</FONT SIZE=2>
</PRE><FONT FACE="Times New Roman" SIZE="3">


<P ALIGN="JUSTIFY">As noted previously, we redeemed our convertible subordinated
debentures in December 2001. The consideration included issuing 1,000,000 shares
of our common stock to the lenders. We have committed to maintaining the
effectiveness of the registration statement filed with the SEC covering the
resale of these shares. Should we fail to maintain the effectiveness of the
registration statement we may be required to pay cash penalties and redeem all
or a portion of the shares at the higher of $0.898 or the market price of our
common stock at the time of the redemption which could have a material adverse
effect on our cash flows. The value of the shares still held by the lenders of
$813,000 at March 31, 2002, based upon the $0.898 per share minimum potential
redemption price, is reflected as contingently redeemable common stock in the
consolidated balance sheet. </P>
<P ALIGN="JUSTIFY">Based upon our current expectations, we believe that our
current cash and cash equivalents, and cash generated from operations, if any,
will satisfy our expected working capital and capital expenditure requirements
through at least the next 12 months. We will, however, need additional working
capital during fiscal 2004. Accordingly, we will be seeking additional financing
during the next twelve months in order to meet our cash requirements for fiscal
2004. We will be evaluating financing alternatives prior to that time. We may
also seek to explore business opportunities, including acquiring or investing in
complementary businesses or products that will require additional capital from
equity or debt sources. Additionally, the development and marketing of new
products could require a significant commitment of resources, which could in
turn require us to obtain additional financing earlier than otherwise expected.
We may not be able to obtain additional financing as needed on acceptable terms,
or at all, which may require us to reduce our operating costs and other
expenditures, including reductions of personnel and suspension of salary
increases and capital expenditures. Alternatively, or in addition to such
potential measures, we may elect to implement other cost reduction actions as we
may determine are necessary and in our best interests, including the possible
sale or cessation of certain of our business segments. Any such actions
undertaken might limit our opportunities to realize plans for revenue growth and
we might not be able to reduce our costs in amounts sufficient to achieve break-
even or profitable operations. If we issue additional equity or convertible debt
securities to raise funds, the ownership percentage of our existing stockholders
would be reduced. New investors may demand rights, preferences or privileges
senior to those of existing holders of our common stock. </P>
<I><P>RELATED PARTY TRANSACTIONS</P>
</I><P ALIGN="JUSTIFY">Given the currently low yields on governmental and
corporate debt securities and money market funds, our Board of Directors (the
Board) believes that we may benefit from investing in other classes of
securities that may generate higher returns.  Toward this end, in March 2002 the
Board authorized us to open securities trading accounts and make investments of
up to $1.0 million on behalf of 8x8, Inc. as directed by the Company's Chairman,
Joe Parkinson; Chief Executive Officer, Bryan Martin; or Chief Financial
Officer, David Stoll. Mr. Parkinson has agreed to personally reimburse 8x8 on a
quarterly basis for any losses resulting from his trading activities in order to
maintain a minimum investment account balance of $1.0 million. The Board has
been assured of Mr. Parkinson's ability to cover any such losses; however,
should he be unable to do so it could have a material impact on our cash flows
and results of operations. As part of the arrangement, our Board has expressed
its intent, but not obligation, to pay Mr. Parkinson a quarterly bonus in an
amount equal to 25% of the profits attributable to investments made on our
behalf by Mr. Parkinson to the extent such a bonus exceeds his salary for the
corresponding period. The Company or Mr. Parkinson can terminate this
arrangement at any time, subject to the terms of an agreement that has been
filed with this Report as exhibit 10.24. As of March 31, 2002, the $1.0 million
was invested in money market accounts.</P>
<P ALIGN="JUSTIFY">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. Item 13 of this Report
provides further information regarding the Company's license and other
arrangements with STM.</P>
<I><P>RECENT ACCOUNTING PRONOUNCEMENTS</P>
</I><P ALIGN="JUSTIFY">In July 2001, the FASB issued SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
141 requires all business combinations to be accounted for using the purchase
method of accounting, and also requires that certain intangible assets acquired
in a business combination be recognized as assets apart from
goodwill. SFAS No. 141
was effective for all business combinations initiated after June 30,
2001.  Under SFAS No.
142, goodwill will no longer be amortized, but will be subject to annual
impairment tests. Goodwill should be assigned to an entity's reporting units,
which, under SFAS No. 142, are defined as operating segments, or one level below
that. Furthermore, SFAS No. 142 requires purchased intangible assets other than
goodwill to be amortized over their useful lives, unless these lives are
determined to be indefinite, and, upon adoption, requires a reassessment of the
useful lives previously assigned to its recognized intangible assets. In
addition, if certain recognized intangible assets do not meet certain criteria,
such assets should be reclassified to goodwill. Conversely, certain intangible
assets that have been reported as part of goodwill may need to be reclassified
as of the date that SFAS No. 142 is initially applied in its entirety.</P>
<P ALIGN="JUSTIFY">Goodwill that existed at June 30, 2001 was amortized through
March 31, 2002. The net carrying value of goodwill at March 31, 2002 was $1.5
million. Upon adoption of these standards in the first quarter of fiscal 2003,
the $11,000 remaining balance of the workforce intangible asset acquired in
conjunction with our acquisition of Odisei will be reclassified as goodwill.
Goodwill will no longer be amortized, but will be subject to impairment tests on
at least an annual basis or upon the occurrence of triggering events, if
earlier, to identify potential goodwill impairment and measure the amount of
goodwill impairment loss to be recognized, if any. An impairment loss is
recognized when the carrying amount of reporting unit goodwill exceeds the
implied fair value of that goodwill. After a goodwill impairment loss is
recognized, the adjusted carrying amount of the goodwill will be its new
accounting basis. The first step of the goodwill impairment test should be
performed by September 30, 2002. If an impairment is indicated, the second step
of the impairment test must be completed no later than March 31, 2003. We will
be required to determine if any reclassification of some portion of the goodwill
to intangible assets will be required. We anticipate that our operating segments
will comprise our reporting units, and, accordingly, annual impairment tests
would be performed at the operating segment level. Based on acquisitions
completed as of June 30, 2001, application of the goodwill non-amortization
provisions of SFAS No. 142 is expected to result in a decrease in operating
expenses of approximately $707,000 for fiscal 2003. </P>
<P ALIGN="JUSTIFY">On October 3, 2001, the FASB issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets.&quot; SFAS No. 144
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of."  SFAS No. 144 applies to all long-
lived assets (including discontinued operations) and consequently amends
Accounting Principles Board Opinion No. 30. SFAS No. 144 develops one accounting
model for long-lived assets that are to be disposed of by sale. SFAS No. 144
requires that long-lived assets that are to be disposed of by sale be measured
at the lower of book value or fair value less cost to sell.  Additionally, SFAS
No. 144 expands the scope of discontinued operations to include all components
of an entity with operations that (i) can be distinguished from the rest of the
entity and (ii) will be eliminated from the ongoing operations of the entity in
a disposal transaction.  SFAS No. 144 is effective for the Company for all
financial statements issued in fiscal 2003. The adoption of SFAS No. 144 is not
expected to have a material impact on our results of operations.</P>
<B><P ALIGN="CENTER">FACTORS THAT MAY AFFECT FUTURE RESULTS </P>
<P ALIGN="JUSTIFY">We will need to raise additional capital to support our
operations, and failure to do so in a timely manner may cause us to implement
additional cost reduction strategies </P>
</B><P ALIGN="JUSTIFY">As of March 31, 2002, we had approximately $12.4 million
in cash and cash equivalents. Although we believe that our current cash and cash
equivalents will satisfy our expected working capital and capital expenditure
requirements through at least the next twelve months, our business may change in
ways we do not currently anticipate requiring us to raise additional funds to
support our operations earlier than otherwise expected. Accordingly, we will be
seeking additional financing during the next twelve months in order to meet our
cash requirements in fiscal 2004.  We may also seek to explore business
opportunities, including acquiring or investing in complementary businesses or
products that will require additional capital from equity or debt sources.
Additionally, the development and marketing of new products could require a
significant commitment of resources, which could in turn require us to obtain
additional financing earlier than otherwise expected.  We may not be able to
obtain additional financing as needed on acceptable terms, or at all, which may
require us to further reduce our operating costs and other expenditures,
including additional reductions of personnel and suspension of salary increases
and capital expenditures.  Alternatively, or in addition to such potential
measures, we may elect to implement other cost reduction actions as we may
determine are necessary and in our best interests, including the possible sale
or cessation of certain of our business segments.  Any such actions undertaken
might limit our opportunities to realize plans for revenue growth and we might
not be able to reduce our costs in amounts sufficient to achieve break-even or
profitable operations.  If we issue additional equity or convertible debt
securities to raise funds, the ownership percentage of our existing stockholders
would be reduced.  New investors may demand rights, preferences or privileges
senior to those of existing holders of our common stock. If we are not
successful in these actions we may be forced to cease operations.</P>
<B><P ALIGN="JUSTIFY">We have a history of losses and we are uncertain as to our
future profitability</P>
</B><P ALIGN="JUSTIFY">We recorded an operating loss of approximately $10.0
million in the fiscal year ended March 31, 2002 and we ended the period with an
accumulated deficit of $137.3 million.  In addition, we recorded operating
losses of $74.5 million and $27.1 million for the fiscal years ended
March&nbsp;31, 2001 and 2000, respectively.  We expect that we will continue to
incur operating losses for the foreseeable future, and such losses may be
substantial.  We will need to generate significant revenue growth to achieve an
operating profit.  Given our history of fluctuating revenues and operating
losses, we cannot be certain that we will be able to achieve profitability on
either a quarterly or annual basis in the future.</P>
<B><P ALIGN="JUSTIFY">If we fail to meet the continued listing requirements of
the Nasdaq National Market, our common stock could be delisted resulting in a
decline in the liquidity of our common stock </P>
</B><P ALIGN="JUSTIFY">As of March 31, 2002, our common stock was listed on the
Nasdaq National Market.  The Nasdaq Stock Market's Marketplace Rules impose
requirements for companies listed on the Nasdaq National Market to maintain
their listing status, including: i) maintaining a minimum bid price of $1.00 per
share, subject to certain conditions, and ii) maintaining stockholders' equity
of at least $10.0 million or net tangible assets of at least $4.0 million;
however, qualifying for listing under the net tangible asset listing standard is
only available until November 1, 2002. </P>
<P ALIGN="JUSTIFY">Our stockholders' equity and net tangible assets were $13.2
million and $11.7 million, respectively, at March 31, 2002. Additionally, we
have been notified by Nasdaq that the bid price for our common stock must close
at $1.00 per share or more for a minimum of ten consecutive trading days during
the ninety calendar day period ending July 9, 2002 or we may be delisted.
Should we fail to regain compliance under the Nasdaq National Market minimum bid
price listing standard prior to July 9, 2002, we intend to apply for a transfer
to the Nasdaq Smallcap Market. However, there is no guarantee that the Nasdaq
Staff would accept our transfer application, in which case our stock would be
delisted. Delisting could reduce the ability of our shareholders to purchase or
sell shares as quickly and as inexpensively as they have done historically.  For
instance, failure to obtain listing on another market or exchange may make it
more difficult for traders to sell our securities.  Broker-dealers may be less
willing or able to sell or make a market in our common stock.  Not maintaining a
listing on a major stock market may:</P>

<UL>
<LI>result in a decrease in the trading price of our common stock due to a
decrease in liquidity;</LI>
<LI>lessen interest by institutions and individuals in investing in our common
stock; </LI>
<LI>make it more difficult to obtain analyst coverage; and</LI>
<LI>make it more difficult for us to raise capital in the future.</LI></UL>

<B><P ALIGN="JUSTIFY">The growth of our business and future profitability
depends on future IP telephony revenue</P>
</B><P ALIGN="JUSTIFY">We believe that our business and future profitability
will be largely dependent on widespread market acceptance of our IP telephony
technology and products.  Our videoconferencing semiconductor business has not
provided, nor is it expected to provide, sufficient revenues to profitably
operate our business.  To date, we have not generated significant revenue from
the sale of our IP telephony products.  If we are not able to generate
significant revenues selling into the IP telephony market, our business and
operating results would be seriously harmed.</P>
<P ALIGN="JUSTIFY">Success of our IP telephony product strategy assumes that
there will be future demand for IP telephony systems and services.  In order for
the IP telephony market to continue to grow, several things need to occur.
Telephone service providers must continue to invest in the deployment of high
speed broadband networks to residential and commercial customers.  IP networks
must improve quality of service for real-time communications, managing effects
such as packet jitter, packet loss, and unreliable bandwidth, so that toll-
quality service can be provided.  IP telephony equipment must achieve the
99.999% reliability that users of the public switched telephone network have
come to expect from their telephone service.  IP telephony service providers
must offer cost and feature benefits to their customers that are sufficient to
cause the customers to switch away from traditional telephony service providers.
If any or all of these factors fail to occur, our business may not grow. </P>
<B><P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">Our future operating results may not follow past or expected
trends due to many factors and any of these could cause our stock price to
fall</P>
</B><P ALIGN="JUSTIFY">Our historical operating results have fluctuated
significantly and will likely continue to fluctuate in the future, and a decline
in our operating results could cause our stock price to fall.  On an annual and
a quarterly basis, there are a number of factors that may affect our operating
results, many of which are outside our control.  These include, but are not
limited to:</P>

<UL>
<LI>changes in market demand;</LI>
<LI>the timing of customer orders;</LI>
<LI>competitive market conditions;</LI>
<LI>lengthy sales cycles and/or regulatory approval cycles;</LI>
<LI>new product introductions by us or our competitors;</LI>
<LI>market acceptance of new or existing products;</LI>
<LI>the cost and availability of components;</LI>
<LI>the mix of our customer base and sales channels;</LI>
<LI>the mix of products sold;</LI>
<LI>the management of inventory;</LI>
<LI>the level of international sales;</LI>
<LI>continued compliance with industry standards; and</LI>
<LI>general economic conditions.</LI></UL>

<P ALIGN="JUSTIFY">Our gross margin is affected by a number of factors
including, product mix, the recognition of license and other revenues for which
there may be little or no corresponding cost of revenues, product pricing, the
allocation between international and domestic sales, the percentage of direct
sales and sales to resellers, and manufacturing and component costs.  The
markets for our products are characterized by falling average selling prices.
We expect that, as a result of competitive pressures and other factors, gross
profit as a percentage of revenue for our videoconferencing semiconductor
products will continue to decrease for the foreseeable future.  Average selling
prices realized to date for our IP telephony semiconductors have been lower than
those historically attained for our videoconferencing semiconductor products
resulting in lower gross margins.  In the likely event that we encounter
significant price competition in the markets for our products, we could be at a
significant disadvantage compared to our competitors, many of whom have
substantially greater resources, and therefore may be better able to withstand
an extended period of downward pricing pressure. </P>
<P ALIGN="JUSTIFY">Variations in timing of sales may cause significant
fluctuations in future operating results.  In addition, because a significant
portion of our business may be derived from orders placed by a limited number of
large customers, including original equipment manufacturers, the timing of such
orders can also cause significant fluctuations in our operating results.
Anticipated orders from customers may fail to materialize.  Delivery schedules
may be deferred or canceled for a number of reasons, including changes in
specific customer requirements or international economic conditions.  The
adverse impact of a shortfall in our revenues may be magnified by our inability
to adjust spending to compensate for such shortfall.  Announcements by our
competitors or us of new products and technologies could cause customers to
defer purchases of our existing products, which would also have a material
adverse effect on our business and operating results.  As a result of these and
other factors, it is likely that in some or all future periods our operating
results will be below the expectations of securities analysts or investors,
which would likely result in a significant reduction in the market price of our
common stock.</P>
<B><P ALIGN="JUSTIFY">If we fail to maintain effectiveness of a registration
statement for the resale of shares of our common stock issued in connection with
the redemption of our outstanding convertible debt, we may be forced to pay a
cash penalty or redeem all or a portion of the shares causing our business to
suffer</P>
</B><P ALIGN="JUSTIFY">Under the terms of a registration rights agreement we
entered into in connection with the redemption of our outstanding convertible
debt, we agreed to register the 1,000,000 shares of our common stock issued to
the former note holders for resale. If we fail to maintain the effectiveness of
the registration statement, we may be required to pay cash penalties and may be
required to redeem all or a portion of the shares of common stock held by the
former note holders. Under the agreement the redemption price would be the
higher of $0.898 or the market price of our common stock at the time of the
redemption.  If we are required to pay a cash penalty or to redeem any of the
shares, this will deplete our cash reserves, which may cause harm to our
business, results of operations and financial condition.</P>
<B><P ALIGN="JUSTIFY">We depend on purchase orders from key customers and
failure to receive significant purchase orders in the future would cause a
decline in our operating results</P>
</B><P ALIGN="JUSTIFY">Historically, a significant portion of our sales has been
to relatively few customers, although the composition of these customers has
varied. Revenues from our ten largest customers for the fiscal years ended
March&nbsp;31, 2002, 2001 and 2000 accounted for approximately 73%, 48% and 35%,
respectively, of total revenues.  Substantially all of our product sales have
been made, and are expected to continue to be made, on a purchase order basis.
None of our customers has entered into a long-term agreement requiring it to
purchase our products.  In the future, we will need to gain purchase orders for
our products to earn additional revenue.  Further, substantially all of our
license and other revenues are nonrecurring. </P>
<B><P ALIGN="JUSTIFY">The IP telephony market is subject to rapid technological
change and we depend on new product introduction in order to maintain and grow
our business</P>
</B><P ALIGN="JUSTIFY">IP telephony is an emerging market that is characterized
by rapid changes in customer requirements, frequent introductions of new and
enhanced products, and continuing and rapid technological advancement.  To
compete successfully in this emerging market, we must continue to design,
develop, manufacture, and sell new and enhanced semiconductor and IP telephony
software products and services that provide increasingly higher levels of
performance and reliability at lower cost.  These new and enhanced products must
take advantage of technological advancements and changes, and respond to new
customer requirements. Our success in designing, developing, manufacturing, and
selling such products and services will depend on a variety of factors,
including:</P>

<UL>
<LI>the identification of market demand for new products;</LI>
<LI>the scalability of our IP telephony software products;</LI>
<LI>product and feature selection;</LI>
<LI>timely implementation of product design and development;</LI>
<LI>product performance;</LI>
<LI>cost-effectiveness of products under development;</LI>
<LI>effective manufacturing processes; and</LI>
<LI>success of promotional efforts.</LI></UL>

<P ALIGN="JUSTIFY">Additionally, we may also be required to collaborate with
third parties to develop our products and may not be able to do so on a timely
and cost-effective basis, if at all.  We have in the past experienced delays in
the development of new products and the enhancement of existing products, and
such delays will likely occur in the future.  If we are unable, due to resource
constraints or technological or other reasons, to develop and introduce new or
enhanced products in a timely manner, if such new or enhanced products do not
achieve sufficient market acceptance, or if such new product introductions
decrease demand for existing products, our operating results would decline and
our business would not grow.</P>
<B><P ALIGN="JUSTIFY">The long and variable sales and deployment cycles for our
IP telephony software products may cause our revenue and operating results to
vary </P>
</B><P ALIGN="JUSTIFY">Our IP telephony software and semiconductor products,
including our hosted iPBX and eSLEE products and our Audacity family of
semiconductors, have lengthy sales cycles, and we may incur substantial sales
and marketing expenses and expend significant management effort without making a
sale.  A customer's decision to purchase our products often involves a
significant commitment of its resources and a lengthy product evaluation and
qualification process.  In addition, the length of our sales cycles will vary
depending on the type of customer to whom we are selling and the product being
sold.  Even after making the decision to purchase our products, our customers
may deploy our products slowly.  Timing of deployment can vary widely and will
depend on various factors, including:</P>

<UL>
<LI>the size of the network deployment;</LI>
<LI>the complexity of our customers' network environments;</LI>
<LI>our customers' skill sets;</LI>
<LI>the hardware and software configuration and customization necessary to
deploy our products; and</LI>
<LI>our customers' ability to finance their purchase of our products.</LI></UL>

<P ALIGN="JUSTIFY">As a result, it is difficult for us to predict the quarter in
which our customers may purchase our IP telephony software or semiconductor
products, and our revenue and operating results may vary significantly from
quarter to quarter.</P>
<B><P ALIGN="JUSTIFY">If our products do not interoperate with our customers'
networks, orders for our products will be delayed or canceled and substantial
product returns could occur, which could harm our business</P>
</B><P ALIGN="JUSTIFY">Many of the potential customers for our hosted iPBX and
eSLEE-based products have requested that our products be designed to
interoperate with their existing networks, each of which may have different
specifications and use multiple standards.  Our customers' networks may contain
multiple generations of products from different vendors that have been added
over time as their networks have grown and evolved.  Our products must
interoperate with these products as well as with future products in order to
meet our customers' requirements.  In some cases, we may be required to modify
our product designs to achieve a sale, which may result in a longer sales cycle,
increased research and development expense, and reduced operating margins.  If
our products do not interoperate with existing equipment or software in our
customers' networks, installations could be delayed, orders for our products
could be canceled or our products could be returned.  This could harm our
business, financial condition, and results of operations.</P>
<B><P ALIGN="JUSTIFY">We may have difficulty identifying the source of the
problem when there is a problem in a network</P>
</B><P ALIGN="JUSTIFY">Our hosted iPBX and Packet8 solutions must successfully integrate
with products from other vendors, such as traditional telephone systems.  As a
result, when problems occur in a network, it may be difficult to identify the
source of the problem.  The occurrence of hardware and software errors, whether
caused by our hosted iPBX solution, Packet8 solution or another vendor's products, may
result in the delay or loss of market acceptance of our products and any necessary
revisions may force us to incur significant expenses.  The occurrence of some of
these types of problems may seriously harm our business, financial condition and
results of operations.</P>
<B><P ALIGN="JUSTIFY">Intense competition in the markets in which we compete
could prevent us from increasing or sustaining our revenue and prevent us from
achieving profitability </P>
</B><P ALIGN="JUSTIFY">We expect our competitors to continue to improve the
performance of their current products and introduce new products or new
technologies.  If our competitors successfully introduce new products or enhance
their existing products, this could reduce the sales or market acceptance of our
products and services, increase price competition or make our products obsolete.
To be competitive, we must continue to invest significant resources in research
and development, sales and marketing, and customer support.  We may not have
sufficient resources to make these investments or to make the technological
advances necessary to be competitive, which in turn will cause our business to
suffer.</P>
<P ALIGN="JUSTIFY">In addition, our focus on developing a range of technology
products, including semiconductors and related embedded software, hosted iPBX
solutions, and eSLEE based products, places a significant strain on our research
and development resources. Competitors that focus on one aspect of technology,
such as software or semiconductors, may have a considerable advantage over us.
In addition, many of our current and potential competitors have longer operating
histories, are substantially larger, and have greater financial, manufacturing,
marketing, technical, and other resources.  For example, certain competitors in
the market for our semiconductor products maintain their own semiconductor
foundries and may therefore benefit from certain capacity, cost and technical
advantages.  Many also have greater name recognition and a larger installed base
of products than we have.  Competition in our markets may result in significant
price reductions.  As a result of their greater resources, many current and
potential competitors may be better able than us to initiate and withstand
significant price competition or downturns in the economy.  There can be no
assurance that we will be able to continue to compete effectively, and any
failure to do so would harm our business, operating results, and financial
condition.</P>
<B><P ALIGN="JUSTIFY">If we do not develop and maintain successful partnerships
for IP telephony products, we may not be able to successfully market our
solutions</P>
</B><P ALIGN="JUSTIFY">We are entering into new market areas and our success is
partly dependent on our ability to forge new marketing and engineering
partnerships.  IP telephony communication systems are extremely complex and no
single company possesses all the required technology components needed to build
a complete end to end solution.  We will likely need to enter into partnerships
to augment our development programs and to assist us in marketing complete
solutions to our targeted customers.  We may not be able to develop such
partnerships in the course of our product development.  Even if we do establish
the necessary partnerships, we may not be able to adequately capitalize on these
partnerships to aid in the success of our business.</P>
<B><P ALIGN="JUSTIFY">Inability to protect our proprietary technology or our
infringement of a third party's proprietary technology would disrupt our
business</P>
</B><P ALIGN="JUSTIFY">We rely in part on trademark, copyright, and trade secret
law to protect our intellectual property in the United States and abroad.  We
seek to protect our software, documentation, and other written materials under
trade secret and copyright law, which afford only limited protection.  We also
rely in part on patent law to protect our intellectual property in the United
States and internationally.  As of the date of this filing we hold forty-nine
United States patents and have a number of United States and foreign patent
applications pending.  We cannot predict whether such pending patent
applications will result in issued patents.  We may not be able to protect our
proprietary rights in the United States or internationally (where effective
intellectual property protection may be unavailable or limited), and competitors
may independently develop technologies that are similar or superior to our
technology, duplicate our technology or design around any patent of ours.  We
have in the past licensed and in the future expect to continue licensing our
technology to others; many of who are located or may be located abroad.  There
are no assurances that such licensees will protect our technology from
misappropriation.  Moreover, litigation may be necessary in the future to
enforce our intellectual property rights, to determine the validity and scope of
the proprietary rights of others, or to defend against claims of infringement or
invalidity.  Such litigation could result in substantial costs and diversion of
management time and resources and could have a material adverse effect on our
business, financial condition, liquidity and operating results.  Any settlement
or adverse determination in such litigation would also subject us to significant
liability.</P>
<P ALIGN="JUSTIFY">There has been substantial litigation in the semiconductor,
electronics, and related industries regarding intellectual property rights, and
from time to time third parties may claim infringement by us of their
intellectual property rights.  Our broad range of technology, including systems,
digital and analog circuits, software, and semiconductors, increases the
likelihood that third parties may claim infringement by us of their intellectual
property rights.  If we were found to be infringing on the intellectual property
rights of any third party, we could be subject to liabilities for such
infringement, which could be material.  We could also be required to refrain
from using, manufacturing or selling certain products or using certain
processes, either of which could have a material adverse effect on our business
and operating results.  From time to time, we have received, and may continue to
receive in the future, notices of claims of infringement, misappropriation or
misuse of other parties' proprietary rights.  There can be no assurance that we
will prevail in these discussions and actions or that other actions alleging
infringement by us of third-party patents will not be asserted or prosecuted
against the Company.</P>
<P ALIGN="JUSTIFY">We rely upon certain technology, including hardware and
software, licensed from third parties. There can be no assurance that the
technology licensed by us will continue to provide competitive features and
functionality or that licenses for technology currently utilized by us or other
technology which we may seek to license in the future will be available to us on
commercially reasonable terms or at all. The loss of, or inability to maintain
existing licenses could result in shipment delays or reductions until equivalent
technology or suitable alternative products could be developed, identified,
licensed and integrated, and could harm our business.  These licenses are on
standard commercial terms made generally available by the companies providing
the licenses.  The cost and terms of these licenses individually are not
material to our business.</P>
<B><P ALIGN="JUSTIFY">Continued reductions in levels of capital investment by
telecommunication service providers might impact our ability to increase revenue
and prevent us from achieving profitability</P>
</B><P ALIGN="JUSTIFY">The market for internet-based communication services
provided by telecommunication service providers has only begun to emerge, and
many of these service providers are still building their infrastructure and
deploying their services.  These telecommunication service providers require
substantial capital for the development, construction, and expansion of their
networks and the introduction of their services. Financing may not be available
to telecommunication service providers on favorable terms, if at all. The
inability of our current or potential telecommunication service provider
customers to acquire and keep customers, to successfully raise needed funds, or
to respond to any other trends such as price reductions for their services or
diminished demand for telecommunication services generally, could adversely
affect their operating results or cause them to reduce their capital spending
programs.  If our current or potential customers are forced to defer or further
curtail their capital spending programs, sales of our hosted iPBX and eSLEE
products to those telecommunication service providers and sales of our IP
telephony semiconductors to manufacturers of telecommunication equipment may be
adversely affected, which would negatively impact our business, financial
condition, and results of operations.  In addition, many of the industries in
which telecommunication service providers operate have experienced
consolidation.  The loss of one or more of our current or potential
telecommunication service provider or telecommunication equipment OEM customers,
through industry consolidation or otherwise, could reduce or eliminate our sales
to such a customer and consequently harm our business, financial condition, and
results of operations.</P>
<B><P ALIGN="JUSTIFY">The failure of IP networks to meet the reliability and
quality standards required for voice communications could render our products
obsolete</P>
</B><P ALIGN="JUSTIFY">Circuit-switched telephony networks feature very high
reliability, with a guaranteed quality of service. In addition, such networks
have imperceptible delay and consistently satisfactory audio quality.  Emerging
broadband IP networks, such as LANs, WANs, and the Internet, or emerging last
mile technologies such as cable, digital subscriber lines, and wireless local
loop, may not be used for telephony unless such networks and technologies can
provide reliability and quality consistent with these standards.<B> </P>
<P ALIGN="JUSTIFY">Our products must comply with industry standards and FCC
regulations, and changes may require us to modify existing products</P>
</B><P ALIGN="JUSTIFY">In addition to reliability and quality standards, the
market acceptance of telephony over broadband IP networks is dependent upon the
adoption of industry standards so that products from multiple manufacturers are
able to communicate with each other.  IP telephony products rely heavily on
standards such as H.323, SIP, MGCP, and Megaco to interoperate with other
vendors' equipment.  There is currently a lack of agreement among industry
leaders about which standard should be used for a particular application, and
about the definition of the standards themselves.  We also must comply with
certain rules and regulations of the Federal Communications Commission regarding
electromagnetic radiation and safety standards established by Underwriters
Laboratories as well as similar regulations and standards applicable in other
countries.  Standards are continuously being modified and replaced.  As
standards evolve, we may be required to modify our existing products or develop
and support new versions of our products.  The failure of our products to
comply, or delays in compliance, with various existing and evolving industry
standards could delay or interrupt volume production of our IP telephony
products, which would have a material adverse effect on our business, financial
condition and operating results.</P>
<B><P ALIGN="JUSTIFY">Future regulation or legislation of the Internet could
restrict our business or increase our cost of doing business</P>
</B><P ALIGN="JUSTIFY">At present there are few laws or regulations that
specifically address access to or commerce on the Internet, including IP
telephony.  We are unable to predict the impact, if any, that future
legislation, legal decisions or regulations concerning the Internet may have on
our business, financial condition, and results of operations.  Regulation may be
targeted towards, among other things, assessing access or settlement charges,
imposing tariffs or imposing regulations based on encryption concerns or the
characteristics and quality of products and services, any of which could
restrict our business or increase our cost of doing business.  The increasing
growth of the broadband IP telephony market and popularity of broadband IP
telephony products and services heighten the risk that governments will seek to
regulate broadband IP telephony and the Internet.  In addition, large,
established telecommunication companies may devote substantial lobbying efforts
to influence the regulation of the broadband IP telephony market, which may be
contrary to our interests.</P>
<B><P ALIGN="JUSTIFY">We may transition to smaller geometry process technologies
and higher levels of design integration, which could disrupt our business</P>
</B><P ALIGN="JUSTIFY">We continuously evaluate the benefits, on an integrated
circuit, product-by-product basis, of migrating to smaller geometry process
technologies in order to reduce costs related to the development and production
of our semiconductors.  We believe that the transition of our products to
increasingly smaller geometries will be important for us to remain competitive.
We have in the past experienced difficulty in migrating to new manufacturing
processes, which has resulted and could continue to result in reduced yields,
delays in product deliveries, and increased expense levels.  Moreover, we are
dependent on relationships with our foundries and their partners to migrate to
smaller geometry processes successfully.  If any such transition is
substantially delayed or inefficiently implemented, we may experience delays in
product introductions and incur increased expenses.  As smaller geometry
processes become more prevalent, we expect to integrate greater levels of
functionality, as well as customer and third party intellectual property, into
our products.  We cannot predict whether higher levels of design integration or
the use of third-party intellectual property will adversely affect our ability
to deliver new integrated products on a timely basis, or at all.</P>
<B><P ALIGN="JUSTIFY">We depend on contract manufacturers to manufacture
substantially all of our products, and any delay or interruption in
manufacturing by these contract manufacturers would result in delayed or reduced
shipments to our customers and may harm our business </P>
</B><P ALIGN="JUSTIFY">We outsource the manufacturing of our semiconductor
products to independent foundries.  Our primary semiconductor manufacturer is
Taiwan Semiconductor Manufacturing Corporation (TSMC).  While TSMC has been a
valuable and capable supplier, there are no assurances or supply contracts
guaranteeing that they will continue to supply us with our required wafer
supply.  Furthermore, Taiwan is always subject to geological or geopolitical
disturbances that could instantly cut off such supply.  We also rely on other
third party manufacturers for packaging and testing of our semiconductors. </P>
<P ALIGN="JUSTIFY">We do not have long-term purchase agreements with our
contract manufacturers or our component suppliers.  There can be no assurance
that our subcontract manufacturers will be able or willing to reliably
manufacture our products, in volumes, on a cost effective basis or in a timely
manner.  For our semiconductor products, the time to port our technology to
another foundry, the time to qualify the new versions of product, and the cost
of this effort as well as the tooling associated with wafer production would
have a material adverse effect on our business, operating results, and financial
condition.</P>
<B><P ALIGN="JUSTIFY">If we discover product defects, we may have product-related
liabilities which may cause us to lose revenues or delay market
acceptance of our products</P>
</B><P ALIGN="JUSTIFY">Products as complex as those we offer frequently contain
errors, defects, and functional limitations when first introduced or as new
versions are released.  We have in the past experienced such errors, defects or
functional limitations.  We sell products into markets that are extremely
demanding of robust, reliable, fully functional products.  Therefore, delivery
of products with production defects or reliability, quality or compatibility
problems could significantly delay or hinder market acceptance of such products,
which could damage our credibility with our customers and adversely affect our
ability to retain our existing customers and to attract new customers.
Moreover, such errors, defects or functional limitations could cause problems,
interruptions, delays or a cessation of sales to our customers.  Alleviating
such problems may require significant expenditures of capital and resources by
us.  Despite our testing, our suppliers or our customers may find errors,
defects or functional limitations in new products after commencement of
commercial production.  This could result in additional development costs, loss
of, or delays in, market acceptance, diversion of technical and other resources
from our other development efforts, product repair or replacement costs, claims
by our customers or others against us, or the loss of credibility with our
current and prospective customers.</P>
<B><P ALIGN="JUSTIFY">We have significant international operations, which
subject us to risks that could cause our operating results to decline</P>
</B><P ALIGN="JUSTIFY">Sales to customers outside of the United States during
the years ended March&nbsp;31, 2002, 2001 and 2000 were 61%, 69% and 47% of
total revenues, respectively. The following table illustrates our net revenues
by geographic area. Revenues are attributed to countries based on the
destination of shipment (in thousands): </P>

<FONT FACE="Courier New"><PRE>
<FONT SIZE=2>
                                                  Year Ended March 31,
                                          -------------------------------------
                                             2002         2001         2000
                                          -----------  -----------  -----------
United States........................... $     5,777  $     5,632  $    13,381
Europe..................................       4,126        5,862        5,808
Taiwan..................................       2,026        2,739        1,737
Japan...................................       1,119        1,188        2,351
Other...................................       1,643        2,807        2,107
                                          -----------  -----------  -----------
                                         $    14,691  $    18,228  $    25,384
                                          ===========  ===========  ===========
</FONT SIZE=2>
</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">Substantially all of our current semiconductor and system-level
products are, and substantially all of our future products will be,
manufactured, assembled, and tested by independent third parties in foreign
countries.  International sales and manufacturing are subject to a number of
risks, including general economic conditions in regions such as Asia, changes in
foreign government regulations and telecommunication standards, export license
requirements, tariffs and taxes, other trade barriers, fluctuations in currency
exchange rates, difficulty in collecting accounts receivable, and difficulty in
staffing and managing foreign operations.  We are also subject to geopolitical
risks, such as political, social, and economic instability, potential
hostilities, and changes in diplomatic and trade relationships, in connection
with our international operations.  Taiwan in particular is subject to a high
rate of natural disasters, such as earthquakes or typhoons, which could have
significant impact on our suppliers and customers due to a delay in operations
within that country.  In addition, Taiwan's tenuous relationship with mainland
China is a source of continuing concern due to potential hostilities.  A
significant decline in demand from foreign markets could have a material adverse
effect on our business, operating results, and financial condition.</P>
<B><P ALIGN="JUSTIFY">We need to retain key personnel to support our products
and ongoing operations </P>
</B><P ALIGN="JUSTIFY">The development and marketing of our IP telephony
products will continue to place a significant strain on our limited personnel,
management, and other resources.  While the pace of economic growth in the San
Francisco Bay Area (where our corporate headquarters are located) has slowed in
recent months, competition for highly skilled engineering, sales, marketing, and
support personnel has remained strong.  Any failure to retain qualified
personnel could adversely affect our financial results and impair our growth.
We have no written employment contracts with employees but we have provided Joe
Parkinson, our Chairman and former Chief Executive Officer, through a resolution
of our Board of Directors, with severance benefits that vest over time as a
retention device.  Similarly, the Board of Directors authorized severance
arrangements with Bryan R. Martin, Dr. Philip Bednarz, David M. Stoll, and
certain other vice-presidents of Netergy Microelectronics, Inc., which are all
fully vested.  We primarily rely on equity compensation plans and compensation
policies to retain our key personnel.  We currently do not maintain key person
life insurance policies on any of our employees.</P>
<B><P ALIGN="JUSTIFY">We may not be able to manage our inventory levels
effectively, which may lead to inventory obsolescence that would force us to
lower our prices</P>
</B><P ALIGN="JUSTIFY">Our products have lead times of up to several months, and
are built to forecasts that are necessarily imprecise.  Because of our practice
of building our products to necessarily imprecise forecasts, it is likely that,
from time to time, we will have either excess or insufficient product inventory.
Excess inventory levels would subject us to the risk of inventory obsolescence
and the risk that our selling prices may drop below our inventory costs, while
insufficient levels of inventory may negatively affect relations with customers.
Any of these factors could have a material adverse effect on our business,
operating results, and financial condition.</P>
<B><P ALIGN="JUSTIFY">Our stock price has been highly volatile </P>
</B><P ALIGN="JUSTIFY">The market price of the shares of our common stock has
been and is likely to be highly volatile.  It may be significantly affected by
factors such as: </P>

<UL>
<LI>actual or anticipated fluctuations in our operating results;</LI>
<LI>announcements of technical innovations;</LI>
<LI>loss of key personnel;</LI>
<LI>new products or new contracts by us, our competitors or their customers;
and</LI>
<LI>developments with respect to patents or proprietary rights, general market
conditions, changes in financial estimates by securities analysts, and other
factors which could be unrelated to, or outside our control.</LI></UL>

<P ALIGN="JUSTIFY">The stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stocks of technology companies and that have often
been unrelated to the operating performance of particular companies.  These
broad market fluctuations may adversely affect the market price of our common
stock.  In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
initiated against the issuing company.  If our stock price is volatile, we may
also be subject to such litigation.  Such litigation could result in substantial
costs and a diversion of management's attention and resources, which would
disrupt business and could cause a decline in our operating results.  Any
settlement or adverse determination in such litigation would also subject us to
significant liability.</P>
<B><P ALIGN="JUSTIFY">The location of our headquarters facility subjects us to
the risk of earthquakes</P>
</B><P ALIGN="JUSTIFY">Our corporate headquarters is located in the San
Francisco Bay area of Northern California, a region known for seismic activity.
A significant natural disaster, such as an earthquake, could have a material
adverse impact on our business, operating results, and financial condition.</P>
<B><P ALIGN="JUSTIFY">We may face interruption of production and services due to
increased security measures in response to recent and potential future terrorist
activities</P>
</B><P ALIGN="JUSTIFY">Our business depends on the free flow of products and
services through the channels of commerce.  Recently, in response to terrorists'
activities and threats aimed at the United States, transportation, mail,
financial and other services have been slowed or stopped altogether.  Further
delays or stoppages in transportation, mail, financial or other services,
particularly any such delays or stoppages which harm our ability to obtain an
adequate supply of wafers and products from our independent foundries, could
harm our business, results of operations and financial condition.  Furthermore,
we may experience an increase in operating costs, such as costs for
transportation, insurance and security as a result of the terrorist activities
and potential activities.  We may also experience delays in receiving payments
from customers that have been affected by the terrorist activities and potential
activities.  The United States economy in general is being adversely affected by
terrorist activities and potential terrorist activities.  Any economic downturn
could adversely impact our results of operations, impair our ability to raise
capital or otherwise adversely affect our ability to grow our business.
Moreover, we cannot determine whether other attacks may occur in the future and
the effects of such attacks on our business.</P>
<B><P><A NAME="item7a"></A>ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK</P>
</B><P ALIGN="JUSTIFY">Our financial market risk consists primarily of risks
associated with international operations and related foreign currencies. We
derive a significant portion of our revenues from customers in Europe and Asia.
In order to reduce the risk from fluctuation in foreign exchange rates, the vast
majority of our sales are denominated in U.S. dollars. In addition, all of our
arrangements with our semiconductor foundry and assembly vendors are denominated
in U.S. dollars. We have foreign subsidiaries and are thus exposed to market
risk from changes in exchange rates. We have not entered into any currency
hedging activities. To date, our exposure to exchange rate volatility has not
been significant; however, there can be no assurance that there will not be a
material impact in the future. </P>
<P ALIGN="JUSTIFY">We invest the majority of our surplus cash and cash
equivalents in money market funds that bear variable interest rates, and,
accordingly, fluctuations in interest rates do not have an impact on the fair
values of such investments. However, given the currently low yields on such
money market funds and other low-risk governmental and corporate debt
securities, in March 2002 the Company's Board of Directors authorized us to open
securities trading accounts and make investments in other classes of securities
that may generate higher returns. The amount allocated for such investments was
$1.0 million to be invested on behalf of 8x8, Inc. at the direction of the
Company's Chairman, Joe Parkinson; Chief Executive Officer, Bryan Martin; or
Chief Financial Officer, David Stoll. Mr. Parkinson has agreed to personally
reimburse 8x8 on a quarterly basis for any losses resulting from his trading
activities in order to maintain a minimum investment account balance of $1.0
million. The Board has been assured of Mr. Parkinson's ability to cover any such
losses; however, should he be unable to do so it could have a material impact on
our cash flows and results of operations. As part of the arrangement, our Board
of Directors has expressed its intent, but not obligation, to pay Mr. Parkinson
a quarterly bonus in an amount equal to 25% of the profits attributable to
investments made on our behalf by Mr. Parkinson to the extent such a bonus
exceeds his salary for the corresponding period. The Company or Mr. Parkinson
can terminate this arrangement at any time, subject to the terms of an agreement
that has been filed with this Report as exhibit 10.24. As of March 31, 2002, the
$1.0 million was invested in money market funds.</P>

<B><P><A NAME="item8"></A>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA</P>
<P>INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SHEDULE</P></B>
<P ALIGN="CENTER"><CENTER><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=665>
<TR><TD WIDTH="92%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="JUSTIFY">&nbsp; </B></FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">Page</B></FONT></TD>
</TR>
<TR><TD WIDTH="92%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="JUSTIFY">FINANCIAL STATEMENTS: </FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">&nbsp; </FONT></TD>
</TR>
<TR><TD WIDTH="92%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="JUSTIFY">&nbsp; Report of Independent Accountants
</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"><A HREF="#opinion"> 40</A><FONT SIZE=2> </FONT></TD>
</TR>
<TR><TD WIDTH="92%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="JUSTIFY">&nbsp; Consolidated Balance Sheets at March 31,
2002 and 2001 </FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"><A HREF="#bs">41</A></TD>
</TR>
<TR><TD WIDTH="92%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="JUSTIFY">&nbsp; Consolidated Statements of Operations for
each of the three years in the period ended March 31, 2002 </FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"><A HREF="#ops"> 42</A></TD>
</TR>
<TR><TD WIDTH="92%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="JUSTIFY">&nbsp; Consolidated Statements of Stockholders'
Equity for each of the three years in the period ended March 31, 2002
</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"><A HREF="#equity"> 43</A> </FONT></TD>
</TR>
<TR><TD WIDTH="92%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="JUSTIFY">&nbsp; Consolidated Statements of Cash Flows for
each of the three years in the period ended March 31, 2002 </FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"><A HREF="#flows"> 44</A> </FONT></TD>
</TR>
<TR><TD WIDTH="92%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="JUSTIFY">&nbsp; Notes to Consolidated Financial
Statements </FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"><A HREF="#notes">
45</A></FONT></TD>
</TR>
<TR><TD WIDTH="92%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="JUSTIFY">FINANCIAL STATEMENT SCHEDULE: </FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">&nbsp; </FONT></TD>
</TR>
<TR><TD WIDTH="92%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="JUSTIFY">&nbsp; Schedule II -- Valuation and Qualifying
Accounts </FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"></FONT><A HREF="#schedii"><FONT
SIZE=2>65</FONT></A><FONT SIZE=2> </FONT></TD>
</TR>
<TR><TD WIDTH="92%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="JUSTIFY">  Consolidated Quarterly Financial Data
</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER"></FONT><A HREF="#qtrfs"><FONT
SIZE=2>66</FONT></A><FONT SIZE=2> </FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT FACE="Times New Roman">
<FONT SIZE=3><P ALIGN="JUSTIFY">Schedules other than the one listed above have
been omitted because they are inapplicable, because the required information has
been included in the financial statements or notes thereto, or the amounts are
immaterial. </P>
<P ALIGN="JUSTIFY"><HR WIDTH="85%"></P>
<B><P ALIGN="CENTER"><A NAME="opinion"></A>REPORT OF INDEPENDENT ACCOUNTANTS
</P>
</B><P ALIGN="JUSTIFY">To the Board of Directors and Stockholders of 8x8, Inc.
</P>
<P ALIGN="JUSTIFY">In our opinion, the consolidated financial statements listed
in the accompanying index present fairly, in all material respects, the
financial position of 8x8, Inc. and its subsidiaries at March 31, 2002 and March
31, 2001, and the results of their operations and their cash flows for each of
the three years in the period ended March 31, 2002 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and the financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. </P>
<P>PRICEWATERHOUSECOOPERS LLP </P>
<P>San Jose, California<BR>
April 29, 2002 </P>


<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="bs"></A>
<B><P ALIGN="CENTER">
                             8X8, INC.<br>
<br>
                          CONSOLIDATED BALANCE SHEETS<br>
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)<br>
</B><br>
<FONT FACE="Courier New"><PRE>


                                                                 March 31,
                                                             --------------------
                                                               2002       2001
                                                             ---------  ---------
                          ASSETS
Current assets:
  Cash and cash equivalents................................ $  12,422  $  24,126
  Accounts receivable, net of allowance of
   $286 and $389, respectively.............................     1,239      2,907
  Inventory................................................       733      1,328
  Other current assets.....................................       612      2,571
                                                             ---------  ---------
          Total current assets.............................    15,006     30,932
Property and equipment, net................................     2,740      5,016
Intangibles and other assets...............................     1,907      3,197
                                                             ---------  ---------
                                                            $  19,653  $  39,145
                                                             =========  =========
           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable......................................... $     548  $   1,387
  Accrued compensation.....................................       921      1,531
  Accrued warranty.........................................       478        525
  Deferred revenue.........................................     2,421      5,903
  Other accrued liabilities................................       958      1,623
  Income taxes payable.....................................       280        306
                                                             ---------  ---------
          Total current liabilities........................     5,606     11,275
Convertible subordinated debentures........................        --      6,238
                                                             ---------  ---------
          Total liabilities................................     5,606     17,513
                                                             ---------  ---------
Contingently redeemable common stock.......................       813         --
Commitments and contingencies (Note 8)
Stockholders' equity:
  Preferred stock, $0.001 par value:
     Authorized: 5,000,000 shares;
     Issued and outstanding: 1 share at March 31, 2002
      and March 31, 2001...................................        --         --
  Common stock, $0.001 par value:
     Authorized: 100,000,000 shares at March 31, 2002
      and March 31, 2001;
     Issued and outstanding: 28,228,215 shares of common
      stock at March 31, 2002 and 26,419,919 shares
      of common stock and 260,807 Exchangeable
      Shares at March 31, 2001.............................        27         27
Additional paid-in capital.................................   150,612    150,015
Notes receivable from stockholders.........................        --         (1)
Deferred compensation......................................       (30)      (174)
Accumulated other comprehensive loss.......................       (99)       (89)
Accumulated deficit........................................  (137,276)  (128,146)
                                                             ---------  ---------
          Total stockholders' equity.......................    13,234     21,632
                                                             ---------  ---------
                                                            $  19,653  $  39,145
                                                             =========  =========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<p align="center">
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
</P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="ops"></A>
<B><P ALIGN="CENTER">
                             8X8, INC.<br>
<br>
                     CONSOLIDATED STATEMENTS OF OPERATIONS<br>
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
</B><br>

<FONT FACE="Courier New"><PRE>
<FONT SIZE=2>
                                                              Year Ended March 31,
                                                         -------------------------------
                                                           2002       2001       2000
                                                         ---------  ---------  ---------
Product revenues....................................... $   6,044  $  12,808  $  20,817
License and other revenues.............................     8,647      5,420      4,567
                                                         ---------  ---------  ---------
          Total revenues...............................    14,691     18,228     25,384
                                                         ---------  ---------  ---------
Cost of product revenues...............................     2,626      5,225      8,448
Cost of license and other revenues.....................       197      1,761        150
                                                         ---------  ---------  ---------
          Total cost of revenues.......................     2,823      6,986      8,598
                                                         ---------  ---------  ---------
          Gross profit.................................    11,868     11,242     16,786
                                                         ---------  ---------  ---------
Operating expenses:
  Research and development.............................    11,565     18,736     11,909
  Selling, general and administrative..................     9,554     18,113     21,307
  In-process research and development..................        --      4,563     10,100
  Amortization of intangibles..........................       763     10,987        614
  Restructuring charge.................................        --     33,316         --
                                                         ---------  ---------  ---------
          Total operating expenses.....................    21,882     85,715     43,930
                                                         ---------  ---------  ---------
Loss from operations...................................   (10,014)   (74,473)   (27,144)
Other income, net......................................     1,029      2,628      2,807
Interest expense.......................................      (884)    (1,456)      (391)
                                                         ---------  ---------  ---------
Loss before provision for income taxes.................    (9,869)   (73,301)   (24,728)
Provision for income taxes.............................        15         17        120
                                                         ---------  ---------  ---------
Net loss before extraordinary gain and cumulative
  effect of change in accounting principle ............    (9,884)   (73,318)   (24,848)
Extraordinary gain on extinguishment of debt, net......       779         --         --
Cumulative effect of change in accounting principle....        --     (1,081)        --
                                                         ---------  ---------  ---------
Net loss............................................... $  (9,105) $ (74,399) $ (24,848)
                                                         =========  =========  =========

Basic and diluted per share amounts:
  Net loss before extraordinary gain and cumulative
    effect of change in accounting principle .......... $   (0.36) $   (2.95) $   (1.38)
  Extraordinary gain on extinguishment of debt, net....      0.03         --         --
  Cumulative effect of change in accounting principle..        --      (0.04)        --
                                                         ---------  ---------  ---------
  Net loss............................................. $   (0.33) $   (2.99) $   (1.38)
                                                         =========  =========  =========

Basic and diluted shares outstanding...................    27,271     24,846     18,071
                                                         =========  =========  =========

</font size="2">
</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">The accompanying notes are an integral part of these
consolidated financial statements. <BR>
<BR>



<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="equity"></A>
<B><P ALIGN="CENTER">
                             8X8, INC.<br>
<br>
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY<br>
                         (IN THOUSANDS, EXCEPT SHARES)
</B><br>

<FONT FACE="Courier New"><PRE>
<FONT SIZE=1>

                                                                                     Notes                Accumulated
                                                                                   Receivable               other
                                Preferred Stock     Common Stock       Additional    from      Deferred   Comprehen-
                                ---------------- --------------------   Paid-in     Stock-    Compensa-      sive     Accumulated
                                Shares   Amount    Shares     Amount    Capital     holders      tion        Loss      Deficit      Total
                                -------  ------- -----------  -------  ----------  ---------  ----------  ----------  ----------  ---------
Balance at March 31, 1999......     --  $    --  15,425,752  $    15  $   48,363  $    (266) $     (197) $     (193) $  (28,899) $  18,823
Acquisition of Odisei S.A. ....     --       --   2,988,646        3      13,264        (76)         --          --          --     13,191
Issuance of common stock to
  STMicroelectronics, net......     --       --   3,700,000        4      35,089         --          --          --          --     35,093
Issuance of warrants with
  convertible subordinated
  debentures...................     --       --          --       --       2,467         --          --          --          --      2,467
Issuance of common stock under
  stock plans..................     --       --     906,119        1       2,079         --          --          --          --      2,080
Repayment of notes receivable
  from stockholders............     --       --          --       --          --        240          --          --          --        240
Repurchase of common stock.....     --       --     (61,596)      --         (43)        33          --          --          --        (10)
Deferred compensation related
  to stock options.............     --       --          --       --         340         --        (179)         --          --        161
Realized loss on investments...     --       --          --       --          --         --          --         193          --
Net loss.......................     --       --          --       --          --         --          --          --     (24,848)
Total comprehensive loss.......     --       --          --       --          --         --          --          --          --    (24,655)
                                -------  ------- -----------  -------  ----------  ---------  ----------  ----------  ----------  ---------
Balance at March 31, 2000......     --       --  22,958,921       23     101,559        (69)       (376)         --     (53,747)    47,390
Acquisition of UForce, Inc. ...      1       --   3,555,303        4      44,584         --          --          --          --     44,588
Issuance of common stock under
  stock plans..................     --       --   1,206,591        1       2,761         --          --          --          --      2,762
Repayment of notes receivable
  from stockholders............     --       --          --       --          --         60          --          --          --         60
Repurchase of common stock and
  Exchangeable Shares..........     --       --  (1,040,089)      (1)       (521)         8          --          --          --       (514)
Deferred compensation related
  to stock options.............     --       --          --       --         551         --         202          --          --        753
Value of beneficial conversion
  feature associated with the
  convertible subordinated
  debentures...................     --       --          --       --       1,081         --          --          --          --      1,081
Change in unrealized loss on
  investments..................     --       --          --       --          --         --          --         (24)         --
Cumulative translation
  adjustment...................     --       --          --       --          --         --          --         (65)         --
Net loss.......................     --       --          --       --          --         --          --          --     (74,399)
Total comprehensive loss.......     --       --          --       --          --         --          --          --          --    (74,488)
                                -------  ------- -----------  -------  ----------  ---------  ----------  ----------  ----------  ---------
Balance at March 31, 2001......      1       --  26,680,726       27     150,015         (1)       (174)        (89)   (128,146)    21,632
Redemption of convertible
  subordinated debentures......     --       --   1,000,000       --         321         --          --          --         (25)       296
Issuance of common stock under
  stock plans..................     --       --     457,346       --         335         --          --          --          --        335
Issuance of common stock to
  debt holders to satisfy
  interest obligations.........     --       --      95,699       --          97         --          --          --          --         97
Forgiveness of note receivable.     --       --      (5,556)      --          (1)         1          --          --          --         --
Deferred compensation related
  to stock options.............     --       --          --       --        (155)        --         144          --          --        (11)
Cumulative translation
  adjustment...................     --       --          --       --          --         --          --         (10)         --
Net loss.......................     --       --          --       --          --         --          --          --      (9,105)
Total comprehensive loss.......     --       --          --       --          --         --          --          --          --     (9,115)
                                -------  ------- -----------  -------  ----------  ---------  ----------  ----------  ----------  ---------
Balance at March 31, 2002......      1  $    --  28,228,215  $    27  $  150,612  $      --  $      (30) $      (99) $ (137,276) $  13,234
                                =======  ======= ===========  =======  ==========  =========  ==========  ==========  ==========  =========

</FONT SIZE=1>
</PRE><FONT FACE="Times New Roman" SIZE="3">

<p align="center">
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
</P>


<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="flows"></A>
<B><P ALIGN="CENTER">
                             8X8, INC.<br>
<br>
                     CONSOLIDATED STATEMENTS OF CASH FLOWS<br>
                                 (IN THOUSANDS)
</B><br>
<FONT FACE="Courier New"><PRE>
<FONT SIZE=2>

                                                                    Year Ended March 31,
                                                               -------------------------------
                                                                 2002       2001       2000
                                                               ---------  ---------  ---------
Cash flows from operating activities:
  Net loss................................................... $  (9,105) $ (74,399) $ (24,848)
  Adjustments to reconcile net loss to net cash used
    in operating activities:
    Depreciation and amortization............................     3,862     14,355      2,118
    Extraordinary gain due to debt redemption ...............      (779)        --         --
    Stock compensation expense...............................       (11)       753        161
    Cumulative effect of change in accounting principle......        --      1,081         --
    In-process research and development......................        --      4,563     10,100
    Discount on issuance of common stock.....................        --         --      7,400
    Gain on sale of investments, net.........................      (131)      (225)    (1,687)
    Non-cash restructuring charges...........................        --     32,331         --
    Other....................................................        26        (20)        --
  Changes in assets and liabilities, net of effects
    of businesses acquired and sold:
      Accounts receivable....................................     1,668        851      3,492
      Inventory..............................................       501        (85)     2,548
      Other current and noncurrent assets....................     1,607     (1,281)       (96)
      Accounts payable.......................................      (839)    (2,197)       (71)
      Accrued compensation...................................      (610)      (623)       583
      Accrued warranty.......................................       (47)      (169)      (349)
      Deferred revenue.......................................    (3,482)       197     (3,358)
      Other accrued liabilities..............................      (579)       378        (48)
      Income taxes payable...................................       (26)       (78)       (27)
                                                               ---------  ---------  ---------
         Net cash used in operating activities...............    (7,945)   (24,568)    (4,082)
                                                               ---------  ---------  ---------
Cash flows from investing activities:
  Acquisitions of property and equipment.....................      (172)    (6,127)    (1,693)
  Cash paid for acquisitions, net............................        --       (558)      (149)
  Proceeds from sale of investments..........................       543        225      1,880
  Proceeds from the sale of video monitoring assets, net.....        --      5,160         --
  Proceeds from the sale of equipment........................       116         --         --
                                                               ---------  ---------  ---------
         Net cash provided by (used in) investing activities.       487     (1,300)        38
                                                               ---------  ---------  ---------
Cash flows from financing activities:
  Proceeds from issuance of convertible subordinated
    debentures...............................................        --         --      7,500
  Debt issuance costs........................................        --         --       (617)
  Debt repayments............................................    (4,581)      (891)        --
  Proceeds from issuance of common stock, net................       335      2,763     29,763
  Repayment of notes receivable from stockholders............        --         60        240
  Repurchase of common stock and Exchangeable Shares.........        --       (514)       (76)
                                                               ---------  ---------  ---------
         Net cash (used in) provided by financing activities.    (4,246)     1,418     36,810
                                                               ---------  ---------  ---------
Net increase (decrease) in cash and cash equivalents.........   (11,704)   (24,450)    32,766
Cash and cash equivalents, beginning of year.................    24,126     48,576     15,810
                                                               ---------  ---------  ---------
Cash and cash equivalents, end of year....................... $  12,422  $  24,126  $  48,576
                                                               =========  =========  =========
Supplemental and non-cash disclosures:
  Income taxes paid.......................................... $      12  $      25  $      34
                                                               =========  =========  =========
  Interest paid.............................................. $     204  $     308  $      --
                                                               =========  =========  =========
  Common stock issued to satisfy interest obligations........ $      97  $      --  $      --
                                                               =========  =========  =========
   Issuance of shares and repricing of warrants in
     connection with the debt extinguishment................. $   1,109  $      --  $      --
                                                               =========  =========  =========
   Issuance of shares and assumption of options in
     connection with the acquisition of U|Force.............. $      --  $  44,586  $      --
                                                               =========  =========  =========
   Public stock received in exchange for
     furniture and equipment................................. $      --  $     412  $      --
                                                               =========  =========  =========
   Issuance of shares in connection with the acquisition
     of Odisei............................................... $      --  $      --  $  13,267
                                                               =========  =========  =========


</FONT SIZE=2>
</PRE><FONT FACE="Times New Roman" SIZE="3">
<p align="center">
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
</P>


<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="notes"></A>
<B><P ALIGN="CENTER">


<P ALIGN="CENTER">8X8, INC.</P>
<P ALIGN="CENTER"><BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS </P>
<P ALIGN="CENTER">&nbsp;</P>
<P>NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES</P>
<I><P>THE COMPANY</P>
</B></I><P ALIGN="JUSTIFY">8x8, Inc., or 8x8, and its subsidiaries
(collectively, the Company) develop and market communication technology for
Internet Protocol or, IP, telephony and video applications. The Company has
three primary product lines: voice and video semiconductors and related
software; hosted Internet Private Branch Exchange, or iPBX, solutions; and
telecommunication services software and consumer products.</P>
<P ALIGN="JUSTIFY">During the fiscal year ended March&nbsp;31, 2001, 8x8 formed
two subsidiaries, Netergy Microelectronics, Inc. (Netergy) and Centile, Inc.
(Centile) and reorganized its operations more clearly along its three product
lines. </P>

<UL>
<P ALIGN="JUSTIFY"><LI>Netergy provides voice and video semiconductors and
related communication software to original equipment manufacturers (OEMs) of
telephones, terminal adapters, and other edge devices and to other semiconductor
companies. Netergy's technologies are used to make IP telephones and to voice-enable
cable and digital subscriber line modems, wireless devices, and other
broadband technologies. </LI></P>
<P ALIGN="JUSTIFY"><LI>Centile develops and markets hosted iPBX solutions that
allow service providers to offer to small and medium-sized businesses over
broadband networks the features and functions that a user commonly expects to
find in a typical business phone system. A hosted iPBX solution is a software
application that implements the functionality of a business phone system over
the same data connection that a business uses for connection to the Internet.
The phone system software runs on servers that are located at a central data
center so that the only phone system equipment that is required at the customer
site are telephones. The phone system can also be accessed and controlled from
any web browser on the Internet. </LI></P>
<P ALIGN="JUSTIFY"><LI>8x8 has a third product line that includes consumer
videophones, telephones and communication software and services that work over
broadband networks.  </LI></P></UL>

<P ALIGN="JUSTIFY">The Company was incorporated in California in February 1987,
and in December 1996 was reincorporated in Delaware. In August 2000, the Company
changed its name from 8x8, Inc. to Netergy Networks, Inc. The Company changed
its name back to 8x8, Inc. in July 2001.  </P>
<B><I><P>LIQUIDITY</P>
</B></I><P>The Company has sustained net losses and negative cash flows from
operations since fiscal 1999 that have been funded primarily through the
issuance of equity securities and borrowings. Management expects to experience
negative cash flows for the foreseeable future and such losses may be
substantial. As of March 31, 2002, the Company had $12.4 million of cash and
cash equivalents and management believes these funds, combined with expected
revenues from operations, will be sufficient to meet the Company's cash needs
for fiscal 2003. The Company will be seeking additional financing during the
next twelve months in order to meet its cash requirements for fiscal 2004. There
is no assurance that the Company will be able to obtain financing on terms
favorable to the Company, or at all. Failure to increase revenues, to manage net
operating expenses and to raise additional financing through public or private
equity financing or other sources of financing may result in the Company not
achieving its longer term business objectives.</P>
<B><I><P>FISCAL YEAR</P>
</B></I><P ALIGN="JUSTIFY">Effective beginning in fiscal 2001, the Company
changed its fiscal year from a year ending on the Thursday closest to March 31
to a year ending on March 31. Fiscal 2001 was 52 weeks and 2 days, while fiscal
2002 and fiscal 2000 were 52 weeks and 53 weeks, respectively. For all periods
presented in these consolidated financial statements, the Company has indicated
its fiscal year ends on March 31. </P>

<B><I><P>PRINCIPLES OF CONSOLIDATION</P>
</B></I><P ALIGN="JUSTIFY">The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated. </P>
<B><I><P>USE OF ESTIMATES</P>
</B></I><P ALIGN="JUSTIFY">The preparation of the consolidated financial
statements, in conformity with accounting principles generally accepted in the
United States, requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities and equity and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, the Company evaluates its estimates, including, but not limited to, those
related to bad debts, investments, goodwill and intangible assets, income taxes,
restructuring and impairment charges, and other contingencies. The Company bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results could differ
from those estimates under different assumptions or conditions.</P>
<B><I><P>REVENUE RECOGNITION</P>
</I><P ALIGN="JUSTIFY">Product revenue</B> -- The Company recognizes revenue
from product sales upon shipment to OEMs and end users provided that persuasive
evidence of an arrangement exists, the price is fixed, title has transferred,
collection of resulting receivables is reasonably assured, there are no customer
acceptance requirements, and there are no remaining significant obligations.
Reserves for returns and allowances for OEM and end user sales are recorded at
the time of shipment. The Company defers recognition of revenue on sales to
distributors and resellers where the right of return exists until products are
resold to the end user. </P>
<B><P ALIGN="JUSTIFY">License and other revenue</B> -- The Company recognizes
revenue from license contracts when a non-cancelable, non-contingent license
agreement has been signed, the software product has been delivered, no
uncertainties exist surrounding product acceptance, fees from the agreement are
fixed and determinable, and collection is probable. The Company uses the
residual method to recognize revenue when a license agreement includes one or
more elements to be delivered at a future date if evidence of the fair value of
all undelivered elements exists. If evidence of the fair value of the
undelivered elements does not exist, revenue is deferred and recognized when
delivery occurs. When the Company enters into a license agreement requiring that
the Company provide significant customization of the software products, the
license and consulting revenue is recognized using contract accounting. Revenue
from maintenance agreements is recognized ratably over the term of the
maintenance agreement, which in most instances is one year. The Company
recognizes royalties upon notification of sale by its licensees. Revenue from
consulting, training, and development services is recognized as the services are
performed. </P>
<B><I><P>CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS</P>
</B></I><P ALIGN="JUSTIFY">The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates the classification at each
reporting date. The cost of the Company's investments is determined based upon
specific identification. </P>
<P ALIGN="JUSTIFY">Investments classified as available-for-sale are reported at
fair value, based upon quoted market prices, with unrealized gains and losses,
net of related tax, if any, included in Accumulated Other Comprehensive Loss in
the Consolidated Balance Sheet.  At March 31, 2001, the Company classified an
investment in marketable equity securities valued at $388,000 as available-for-sale.
The investment was recorded in Other Current Assets in the Consolidated
Balance Sheet. The Company realized a gain of $131,000 on the sale of this
investment during the year ended March 31, 2002. The Company realized a loss on
investments classified as available-for-sale of approximately $205,000 during
the year ended March 31, 2000. Realized and unrealized gains and losses for all
other investments were not significant for the years ended March 31, 2002, 2001,
and 2000.</P>
<B><I><P>INVENTORY</P>
</B></I><P ALIGN="JUSTIFY">Inventory is stated at the lower of standard cost,
which approximates actual cost using the first-in, first-out method, or market.
Inventory at March 31, 2002 and 2001 was comprised of the following:</P>

<FONT FACE="Courier New"><PRE>

                                                         March 31,
                                                    --------------------
                                                      2002       2001
                                                    ---------  ---------
                                                      (in thousands)
<br>
  Raw materials and work-in-process...............       528        996
  Finished goods..................................       205        332
                                                    ---------  ---------
                                                   $     733  $   1,328
                                                    =========  =========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<B><I><P>PROPERTY AND EQUIPMENT</P>
</B></I><P ALIGN="JUSTIFY">Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method. Estimated useful lives of three years
are used for equipment and software and five years for furniture and fixtures.
Amortization of leasehold improvements is computed using the shorter of the
remaining facility lease term or the estimated useful life of the improvements.
Property and equipment at March 31, 2002 and 2001 was comprised of the following
components:</P>

<FONT FACE="Courier New"><PRE>

                                                         March 31,
                                                    --------------------
                                                      2002       2001
                                                    ---------  ---------
                                                      (in thousands)
<br>
  Machinery and computer equipment................ $   8,076  $   7,987
  Furniture and fixtures..........................     1,084      1,311
  Licensed software...............................     4,105      4,185
  Leasehold improvements..........................       991      1,018
                                                    ---------  ---------
                                                      14,256     14,501
Less: accumulated depreciation and amortization...   (11,516)    (9,485)
                                                    ---------  ---------
                                                   $   2,740  $   5,016
                                                    =========  =========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">Maintenance, repairs and ordinary replacements are charged to
expense. Expenditures for improvements that extend the physical or economic life
of the property are capitalized. Gains or losses on the disposition of property
and equipment are reflected in Other Income, net. </P>
<B><I><P>WARRANTY EXPENSE</P>
</B></I><P ALIGN="JUSTIFY">The Company accrues for the estimated cost that may
be incurred under its product warranties upon revenue recognition. </P>
<B><I><P>RESEARCH AND SOFTWARE DEVELOPMENT COSTS</P>
</B></I><P ALIGN="JUSTIFY">Research and development costs are charged to
operations as incurred. Software development costs incurred prior to the
establishment of technological feasibility are included in research and
development and are expensed as incurred. The Company defines establishment of
technological feasibility as the completion of a working model. Software
development costs incurred subsequent to the establishment of technological
feasibility through the period of general market availability of the product are
capitalized, if material. To date, all software development costs have been
expensed as incurred. </P>
<B><I><P>FOREIGN CURRENCY TRANSLATION</P>
</B></I><P ALIGN="JUSTIFY">Assets and liabilities of the Company's foreign
subsidiaries are translated from their respective functional currencies at
exchange rates in effect at the balance sheet date, and revenues and expenses
are translated at average exchange rates prevailing during the year. If the
functional currency is the local currency, resulting translation adjustments are
reflected as a separate component of stockholders' equity. If the functional
currency is the U.S. dollar, resulting conversion adjustments are included in
the results of operations. Foreign currency transaction gains and losses, which
have been immaterial, are also included in results of operations. Total assets
of the Company's foreign subsidiaries were $1.6 million, $3.8 million, and $1.6
million as of March 31, 2002, 2001, and 2000, respectively. The Company does not
undertake any foreign currency hedging activities. </P>
<B><I><P>INCOME TAXES</P>
</B></I><P ALIGN="JUSTIFY">Income taxes are accounted for using the asset and
liability approach. Under the asset and liability approach, a current tax
liability or asset is recognized for the estimated taxes payable or refundable
on tax returns for the current year. A deferred tax liability or asset is
recognized for the estimated future tax effects attributed to temporary
differences and carryforwards. If necessary, the deferred tax assets are reduced
by the amount of benefits that, based on available evidence, are not expected to
be realized. </P>
<B><I><P>TAX CREDITS</P>
</B></I><P ALIGN="JUSTIFY">Research and development and other refundable tax
credits are accounted for using the cost reduction method. Under this method,
tax credits relating to eligible expenditures are accounted for as a reduction
of related expenses in the period during which the expenditures are incurred,
provided there is reasonable assurance of realization. </P>
<B><I><P>CONCENTRATIONS</P>
</B></I><P ALIGN="JUSTIFY">Financial instruments that potentially subject the
Company to significant concentrations of credit risk consist principally of cash
and cash equivalents and trade accounts receivable. At March 31, 2002,
approximately 83% of the Company's cash equivalents were placed in an
institutional money market fund of a reputable, U.S. based financial
institution.  The Company
has not experienced any material losses relating to any investment instruments.
</P>
<P ALIGN="JUSTIFY">The Company sells its products to OEMs and distributors
throughout the world. The Company performs ongoing credit evaluations of its
customers' financial condition, and for certain transactions does require
collateral from its customers. For each of the three years ended March 31, 2002,
the Company experienced minimal write-offs for bad debts and doubtful accounts.
At March 31, 2002, one customer accounted for 45% of accounts receivable. At
March 31, 2001, two customers accounted for 23% and 12% of accounts receivable,
respectively. </P>
<P ALIGN="JUSTIFY">The Company outsources the manufacturing, packaging, and
testing of its semiconductor products to independent subcontractors located
primarily in Taiwan. The inability of any manufacturer to fulfill supply
requirements of the Company could materially impact future operating results,
financial position and cash flows. </P>
<B><I><P>FAIR VALUE OF FINANCIAL INSTRUMENTS</P>
</B></I><P ALIGN="JUSTIFY">The estimated fair value of financial instruments is
determined by the Company using available market information and valuation
methodologies considered to be appropriate. The carrying amounts of the
Company's cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities approximate their fair values due to their short maturities.
</P>
<B><I><P>ACCOUNTING FOR STOCK-BASED COMPENSATION</P>
</B></I><P ALIGN="JUSTIFY">The Company accounts for employee stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion No. 25) and related
interpretations thereof. As required under Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," (SFAS 123)
the Company provides pro forma disclosure of net income and earnings per share.
</P>
<B><I><P>COMPREHENSIVE LOSS</P>
</B></I><P ALIGN="JUSTIFY">Comprehensive loss, as defined, includes all changes
in equity (net assets) during a period from non-owner sources. The difference
between net loss and comprehensive loss is due primarily to unrealized losses on
short-term investments classified as available-for-sale and foreign currency
translation adjustments. Comprehensive loss is reflected in the Consolidated
Statements of Stockholders' Equity. </P>
<B><I><P>RECLASSIFICATIONS</P>
</B></I><P ALIGN="JUSTIFY">Certain prior year balances have been reclassified to
conform with the current year presentation. </P>
<B><I><P>NET LOSS PER SHARE </P>
</B></I><P ALIGN="JUSTIFY">Basic net loss per share is computed by dividing net
loss available to common stockholders (numerator) by the weighted average number
of vested, unrestricted common and Exchangeable Shares (see Note 9) outstanding
during the period (denominator). Net loss available to common stockholders was
as follows (in thousands):</P>

<FONT FACE="Courier New"><PRE>

                                              Year Ended March 31,
                                         -------------------------------
                                           2002       2001       2000
                                         ---------  ---------  ---------
Net loss............................... $  (9,105) $ (74,399) $ (24,848)
Accretion of dividends on contingently
  redeemable common stock..............       (25)        --         --
                                         ---------  ---------  ---------
Net loss available to common
  stockholders......................... $  (9,130) $ (74,399) $ (24,848)
                                         =========  =========  =========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">Due to net losses incurred for all periods presented,
weighted average basic and diluted shares outstanding for the respective periods
are the same. The following equity instruments were not included in the
computations of net loss per share because the effect on the calculations would
be anti-dilutive (in thousands): </P>

<FONT FACE="Courier New"><PRE>

                                              Year Ended March 31,
                                         -------------------------------
                                           2002       2001       2000
                                         ---------  ---------  ---------
Common stock options...................     9,900      7,732      4,174
Warrants...............................       701        701        701
Convertible subordinated debentures....        --        638        638
Unvested restricted common stock.......        --         30        516
                                         ---------  ---------  ---------
                                           10,601      9,101      6,029
                                         =========  =========  =========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<B><I><P>RECENT ACCOUNTING PRONOUNCEMENTS</P>
</B></I><P ALIGN="JUSTIFY">In July 2001, the FASB issued SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
141 requires all business combinations to be accounted for using the purchase
method of accounting, and also requires that certain intangible assets acquired
in a business combination be recognized as assets apart from
goodwill.  SFAS No. 141
was effective for all business combinations initiated after June 30,
2001.  Under SFAS No.
142, goodwill will no longer be amortized, but will be subject to annual
impairment tests. Goodwill should be assigned to an entity's reporting units,
which, under SFAS No. 142, are defined as operating segments, or one level below
that. Furthermore, SFAS No. 142 requires purchased intangible assets other than
goodwill to be amortized over their useful lives, unless these lives are
determined to be indefinite, and, upon adoption, requires a reassessment of the
useful lives previously assigned to its recognized intangible assets. In
addition, if certain recognized intangible assets do not meet certain criteria,
such assets should be reclassified to goodwill. Conversely, certain intangible
assets that have been reported as part of goodwill may need to be reclassified
as of the date that SFAS No. 142 is initially applied in its entirety.</P>
<P ALIGN="JUSTIFY">Goodwill that existed at June 30, 2001 was amortized through
March 31, 2002. The net carrying value of goodwill at March 31, 2002 was $1.5
million. Upon adoption of these standards in the first quarter of fiscal 2003,
the $11,000 remaining balance of the workforce intangible asset acquired in
conjunction with the Company's acquisition of Odisei will be reclassified as
goodwill. Goodwill will no longer be amortized, but will be subject to
impairment tests on at least an annual basis or upon the occurrence of
triggering events, if earlier, to identify potential goodwill impairment and
measure the amount of goodwill impairment loss to be recognized, if any. An
impairment loss is recognized when the carrying amount of reporting unit
goodwill exceeds the implied fair value of that goodwill. After a goodwill
impairment loss is recognized, the adjusted carrying amount of the goodwill will
be its new accounting basis. The first step of the goodwill impairment test
should be performed by September 30, 2002. If an impairment is indicated, the
second step of the impairment test must be completed no later than March 31,
2003. The Company will be required to determine if any reclassification of some
portion of the goodwill to intangible assets will be required. The Company
anticipates that its operating segments will comprise its reporting units, and,
accordingly, annual impairment tests would be performed at the operating segment
level. Based on acquisitions completed as of June 30, 2001, application of the
goodwill non-amortization provisions of SFAS No. 142 is expected to result in a
decrease in operating expenses of approximately $707,000 for fiscal 2003. </P>
<P ALIGN="JUSTIFY">On October 3, 2001, the FASB issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of."  SFAS No. 144 applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting
Principles Board Opinion No. 30. SFAS No. 144 develops one accounting model for
long-lived assets that are to be disposed of by sale. SFAS No. 144 requires that
long-lived assets that are to be disposed of by sale be measured at the lower of
book value or fair value less cost to sell.  Additionally, SFAS No. 144 expands
the scope of discontinued operations to include all components of an entity with
operations that (i) can be distinguished from the rest of the entity and (ii)
will be eliminated from the ongoing operations of the entity in a disposal
transaction.  SFAS No. 144 is effective for the Company for all financial
statements issued in fiscal 2003. The adoption of SFAS No. 144 is not expected
to have a material impact on the Company's results of operations.</P>
<B><P>NOTE 2 -- ACQUISITIONS</P>
<I><P>U|Force, Inc.</P>
</B></I><P ALIGN="JUSTIFY">The Company's consolidated financial statements
reflect the purchase acquisition of all of the outstanding stock of U|Force,
Inc. (U|Force) on June 30, 2000 for a total purchase price of $46.8 million.
U|Force, based in Montreal, Canada, was a developer of IP-based software
applications and a provider of professional services. U|Force was also
developing a Java-based service creation environment (SCE) designed to allow
telecommunication service providers to develop, deploy, and manage telephony
applications and services to their customers. The purchase price was comprised
of 8x8 common stock with a fair value of approximately $38.0 million comprised
of: (i) 1,447,523 shares issued at closing of the acquisition, and (ii)
2,107,780 shares to be issued upon the exchange or redemption of the
exchangeable shares (the Exchangeable Shares) of Canadian entities held by
former employee shareholders or indirect owners of U|Force stock. See Note 9
regarding further discussion of the Exchangeable Shares. 8x8 also assumed
outstanding stock options to purchase shares of U|Force common stock for which
the Black-Scholes option-pricing model value of approximately $6.5 million was
included in the purchase price. Direct transaction costs related to the merger
were approximately $747,000. Additionally, the Company advanced $1.5 million to
U|Force upon signing the acquisition agreement, but prior to the close of the
transaction. This amount was accounted for as part of the purchase price. The
following table summarizes the composition of the purchase price (in
thousands):</P>

<FONT FACE="Courier New"><PRE>

Value of common stock and Exchangable Shares issued...... $  38,042
Value of stock otions assumed............................     6,546
Cash advanced to U|Force prior to closing................     1,500
Direct transaction costs.................................       747
                                                           ---------
                                                          $  46,835
                                                           =========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">The purchase price was allocated to tangible assets acquired
and liabilities assumed based on the book value of U|Force's assets and
liabilities, which approximated their fair value. Intangible assets acquired
included amounts allocated to U|Force's in-process research and development. The
in-process research and development related to U|Force's initial products, the
SCE and a unified messaging application, for which technological feasibility had
not been established and the technology had no alternative future use. The
estimated percentage complete for the unified messaging and SCE products was
approximately 44% and 34%, respectively, at June 30, 2000. The fair value of the
in-process technology was based on a discounted cash flow model, similar to the
traditional "Income Approach," which discounts expected future cash flows to
present value, net of tax. In developing cash flow projections, revenues were
forecasted based on relevant factors, including aggregate revenue growth rates
for the business as a whole, characteristics of the potential market for the
technology, and the anticipated life of the technology. Projected annual
revenues for the in-process research and development projects were assumed to
ramp up initially and decline significantly at the end of the in-process
technology's economic life. Operating expenses and resulting profit margins were
forecasted based on the characteristics and cash flow generating potential of
the acquired in-process technologies. Risks that were considered as part of the
analysis included the scope of the efforts necessary to achieve technological
feasibility, rapidly changing customer markets, and significant competitive
threats from numerous companies. The Company also considered the risk that if
the products were not brought to market in a timely manner, it could adversely
affect sales and profitability of the combined company in the future. The
resulting estimated net cash flows were discounted at a rate of 25%. This
discount rate was based on the estimated cost of capital plus an additional
discount for the increased risk associated with in-process technology. The value
of the acquired U|Force in-process research and development, which was expensed
in the second quarter of fiscal 2001, approximated $4.6 million. The excess of
the purchase price over the net tangible and intangible assets acquired and
liabilities assumed was allocated to goodwill. Amounts allocated to goodwill,
the value of an assumed distribution agreement, and workforce were being
amortized on a straight-line basis over three, three, and two years,
respectively, prior to the write-off of the unamortized balances in the fourth
quarter of fiscal 2001 as discussed in Note 3. The allocation of the purchase
price was as follows (in thousands): </P>

<FONT FACE="Courier New"><PRE>

In-process research and development............... $   4,563
Distribution agreement............................     1,053
Workforce.........................................     1,182
U|Force net tangible assets.......................     1,801
Goodwill..........................................    38,236
                                                    ---------
                                                   $  46,835
                                                    =========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">The consolidated results of the Company include the results
of the operations of U|Force from the date of the acquisition, June 30, 2000,
the beginning of our second quarter of fiscal 2001. The following unaudited pro
forma consolidated amounts give effect to the acquisition of U|Force as if it
had occurred at the beginning of each of fiscal 2001 and 2000 (in thousands,
except per share data): </P>

<FONT FACE="Courier New"><PRE>

                                                    Year Ended March 31,
                                                    --------------------
                                                      2001       2000
                                                    ---------  ---------
Revenue........................................... $  18,765  $  25,874
Net loss.......................................... $  74,949  $  41,155
Net loss per share................................ $    2.97  $    2.05

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">The above unaudited pro forma consolidated amounts are not
necessarily indicative of the actual results of operations that would have been
reported if the acquisition had actually occurred as of the beginning of the
periods described above, nor does such information purport to indicate the
results of our future operations. In the opinion of management, all adjustments
necessary to present fairly such pro forma amounts have been made. </P>
<B><I><P>Odisei S.A.</P>
</B></I><P ALIGN="JUSTIFY">On May 24, 1999, the Company acquired Odisei S.A.
(Odisei), a privately held, development stage company based in Sophia Antipolis,
France, that was developing software for managing voice-over IP networks. The
consolidated financial statements reflect the acquisition of Odisei for
approximately 2,868,000 shares of the Company's common stock and approximately
121,000 of contingent shares, which were subsequently issued to Odisei employee
shareholders in March 2000. The purchase price was approximately $13.6 million,
which includes approximately $295,000 of acquisition-related costs. The purchase
price was allocated to tangible assets acquired and liabilities assumed based on
the book value of Odisei's current assets and liabilities, which approximated
their fair value. Intangible assets acquired included amounts allocated to
Odisei's in-process research and development. The in-process research and
development related to Odisei's initial product for which technological
feasibility had not been established and was estimated to be approximately 60%
complete. The fair value of the in-process technology was based on a discounted
cash flow model, which discounted expected future cash flows to present value,
net of tax. In developing cash flow projections, revenues were forecasted based
on relevant factors, including aggregate revenue growth rates for the business
as a whole, characteristics of the potential market for the technology, and the
anticipated life of the technology. Projected annual revenues for the in-process
research and development projects were assumed to ramp up initially and decline
significantly at the end of the in-process technology's economic life. Operating
expenses and resulting profit margins were forecasted based on the
characteristics and cash flow generating potential of the acquired in-process
technology. Associated risks included the inherent difficulties and
uncertainties in completing the project and thereby achieving technological
feasibility, and risks related to the impact of potential changes in market
conditions and technology. The resulting estimated net cash flows were
discounted at a rate of 27%. This discount rate was based on the estimated cost
of capital plus an additional discount for the increased risk associated with
in-process technology. The value of the acquired Odisei in-process research and
development, which was expensed in the fiscal year ended March 31, 2000, was
$10.1 million. The excess of the purchase price over the net tangible and
intangible assets acquired and liabilities assumed was allocated to goodwill.
Until the adoption of SFAS 142 on April 1, 2002, amounts allocated to goodwill
and workforce were being amortized on a straight-line basis over five and three
years, respectively. The allocation of the purchase price consisted of the
following (in thousands): </P>

<FONT FACE="Courier New"><PRE>

In-process research and development............... $  10,100
Workforce.........................................       200
Net tangible liabilities..........................      (219)
Goodwill..........................................     3,481
                                                    ---------
                                                   $  13,562
                                                    =========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P>The Company's Consolidated Statement of Operations for the fiscal year ended
March 31, 2000 includes the results of Odisei from the date of acquisition. Had
the acquisition taken place as of the beginning of fiscal 2000, the pro forma
net loss for the year would have been substantially the same. </P>
<B><P>NOTE 3 -- RESTRUCTURING CHARGES</P>
</B><P ALIGN="JUSTIFY">During the fourth quarter of fiscal 2001, after a
significant number of employees had resigned, the Company discontinued its
Canadian operations acquired in conjunction with the acquisition of U|Force in
June 2000. The Company closed its offices in Montreal and Hull, Quebec and laid-off
all remaining employees resulting in the cessation of most of the research
and development efforts and all of the sales and marketing and professional
services activities associated with the U|Force business. As a result of the
restructuring, the Company recorded a one-time charge of $33.3 million in the
quarter ended March 31, 2001. The restructuring charge consisted of the
following (in thousands): </P>

<FONT FACE="Courier New"><PRE>

Employee separation............................... $     765
Fixed asset losses and impairments................     2,084
Intangible asset impairments......................    30,247
Lease obligation and termination..................       220
                                                    ---------
                                                   $  33,316
                                                    =========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P>Employee separation costs represent severance payments related to the 96
employees in the Montreal and Hull offices who were laid-off. </P>
<P ALIGN="JUSTIFY">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.</P>
<P ALIGN="JUSTIFY">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. </P>
<P ALIGN="JUSTIFY">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 are no remaining
restructuring related accruals at March 31, 2002.</P>
<B><P>NOTE 4 -- DEBT</P>
<I><P>Convertible Subordinated Debentures</P>
</B><P>Issuance of the Debentures</P>
</I><P ALIGN="JUSTIFY">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.
The exercise price of the warrants and the number of shares issuable upon exercise
of the warrants are subject to potential adjustment, in
certain circumstatnces, including in the event that the Company issues
equity securities, convertible debt or other equity instruments for consideration
per share that is less than the five day average closing bid price of the Company's
common stock preceeding such issuance.
All of the warrants expire in December 2002. </P>
<P ALIGN="JUSTIFY">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 $864,000, including a non-cash charge for the value of warrants issued
to the placement agent. The debt discount and debt issuance costs were amortized
to interest expense on a straight-line basis over the term of the Debentures.<B>
</P>
</B><I><P>Cumulative Effect of Change in Accounting Principle - Beneficial
Conversion Feature</P>
</I><P ALIGN="JUSTIFY">In November 2000, the Emerging Issues Task Force reached
several conclusions regarding the accounting for debt and equity securities with
beneficial conversion features, including a consensus requiring the application
of the "accounting conversion price" method, versus the use of the stated
conversion price, to calculate the beneficial conversion feature for such
securities. The SEC required companies to record a cumulative catch-up
adjustment in the fourth quarter of calendar 2000 related to the application of
the "accounting conversion price" method to securities issued after May 21,
1999. Accordingly, the Company recorded a $1.1 million non-cash expense during
the quarter ended December 31, 2000 to account for a beneficial conversion
feature associated with the Debentures and related warrants. The Company has
presented the charge in the Consolidated Statements of Operations as a
cumulative effect of a change in accounting principle.</P>
<I><P>Extraordinary Item - Early Extinguishment of Debentures</P>
</I><P ALIGN="JUSTIFY">In December 2001, the Company redeemed the Debentures for
$4.5 million in cash and 1,000,000 shares of common stock. Additionally, the
Company agreed to reduce the exercise price of the Lender Warrants to $0.898 per
share. This transaction resulted in an extraordinary gain of $779,000, net of
the incremental 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. </P>
<I><P>Contingently Redeemable Common Stock</P>
</I><P ALIGN="JUSTIFY">Under the terms of a 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, 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 does not comply with the Maintenance Requirements in the
future, it may 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 shares held by
the lenders at March 31, 2002 were recorded at their potential redemption value
at March 31, 2002 of $813,000 and classified as contingently redeemable common
stock due to the redemption rights described above. The Company will not mark
the contingently redeemable common stock to the higher of $0.898 per share or
market unless it becomes probable that the Company will not be able to comply
with the Maintenance Requirements.<B> </P>
</B><P ALIGN="JUSTIFY">The approximately $25,000 difference between the
potential redemption value of the shares held by the lenders at March 31, 2002
and the value of those shares on the date of issuance has been treated as a
deemed dividend and included as an adjustment to net income (loss) available to
common stockholders for purposes of calculating the Company's net income (loss)
per share.</P>
<B><I><P>Other Debt</P>
</B></I><P ALIGN="JUSTIFY">The Company assumed certain capital lease and loan
obligations in conjunction with the acquisition of U|Force on June 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. </P>
<B><P>NOTE 5 -- DISPOSITION OF VIDEO MONITORING PRODUCT LINE</P>
</B><P ALIGN="JUSTIFY">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. </P>
<P ALIGN="JUSTIFY">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.</P>
<P ALIGN="JUSTIFY">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.</P>
<B><P>NOTE 6 -- TRANSACTIONS WITH RELATED PARTIES</P>
<I><P>Strategic Relationship With STMicroelectronics </P>
</B></I><P ALIGN="JUSTIFY">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. </P>
<P ALIGN="JUSTIFY">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. </P>
<B><I><P>Other Transactions </P>
</B></I><P ALIGN="JUSTIFY">In March 2002 the Board of Directors authorized the
Company to open securities trading accounts and make investments in other
classes of securities that may generate higher returns than the currently low
yields on governmental and corporate debt securities and money market funds. The
amount allocated for such investments was $1.0 million to be invested on behalf
of 8x8, Inc. as directed by the Company's Chairman, Joe Parkinson; Chief
Executive Officer, Bryan Martin; or Chief Financial Officer, David Stoll. Mr.
Parkinson has agreed to personally reimburse 8x8, Inc. on a quarterly basis for
any losses resulting from his trading activities in order to maintain a minimum
investment account balance of $1.0 million. As part of the arrangement, the
Company's Board of Directors has expressed its intent, but not obligation, to
pay Mr. Parkinson a quarterly bonus in an amount equal to 25% of the profits
attributable to investments made on the Company's behalf by Mr. Parkinson to the
extent such a bonus exceeds his salary for the corresponding period. The Company
or Mr. Parkinson can terminate this arrangement at any time, subject to the
terms of an agreement between Mr. Parkinson and the Company. As of March 31,
2002, the $1.0 million was invested in money market accounts.</P>
<P ALIGN="JUSTIFY">During fiscal 2001 and 2000, Dr. Bernd Girod, a director of
8x8 and its subsidiary, Netergy Microelectronics, Inc., received $22,000 and
$41,000, respectively, in consideration for technical consulting services that
he provided to the Company. In addition, the Company contributed $150,000 during
fiscal 2001 to a Stanford University research program managed by Dr. Girod.</P>
<B><P>NOTE 7 -- INCOME TAXES</P>
</B><P ALIGN="JUSTIFY">The Company's loss before income taxes included $161,000,
$162,000, and $160,500 of foreign subsidiary income for the fiscal years ended
March 31, 2002, 2001, and 2000, respectively. </P>
<P ALIGN="JUSTIFY">The components of the consolidated provision for income taxes
consisted of the following (in thousands): </P>

<FONT FACE="Courier New"><PRE>

                                              Year Ended March 31,
                                         -------------------------------
                                           2002       2001       2000
                                         ---------  ---------  ---------
Current:
  Federal.............................. $     (10) $      --  $      --
  State................................        --         --         --
  Foreign..............................        25         17        120
                                         ---------  ---------  ---------
                                        $      15  $      17  $     120
                                         =========  =========  =========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">Deferred tax assets were comprised of the following (in
thousands): </P>

<FONT FACE="Courier New"><PRE>

                                                         March 31,
                                                    --------------------
                                                      2002       2001
                                                    ---------  ---------
Research and development credit carryforwards..... $   4,809  $   4,455
Net operating loss carryforwards..................    23,954     22,625
Inventory valuation...............................       569        650
Reserves and allowances...........................       471      1,181
Goodwill..........................................    14,193     15,584
Other.............................................     3,335      3,155
                                                    ---------  ---------
                                                      47,331     47,650
Valuation allowance...............................   (47,331)   (47,650)
                                                    ---------  ---------
          Total................................... $      --  $      --
                                                    =========  =========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">Management believes that, based on a number of factors, the
weight of objective available evidence indicates that it is more likely than not
that the Company will not be able to realize its deferred tax assets, and thus a
full valuation allowance was recorded at March 31, 2002 and March 31, 2001. </P>
<P ALIGN="JUSTIFY">At March 31, 2002, the Company had net operating loss
carryforwards for federal and state income tax purposes of approximately $67.0
million and $17.0 million, respectively, which expire at various dates beginning
in 2005. The net operating loss carryforwards include approximately $5.0 million
resulting from employee exercises of non-qualified stock options or
disqualifying dispositions, the tax benefits of which, when realized, will be
accounted for as an addition to additional paid-in capital rather than as a
reduction of the provision for income taxes. In addition, at March 31, 2002, the
Company had research and development credit carryforwards for federal and state
tax reporting purposes of approximately $3.0 million and $2.5 million,
respectively. The federal credit carryforwards will begin expiring in 2010 while
the California credit will carryforward indefinitely. Under applicable tax laws,
the amount of and benefits from net operating losses and credits that can be
carried forward may be impaired or limited in certain circumstances. Events
which may cause limitations in the amount of net operating loss carryforwards
that the Company may utilize in any one year include, but are not limited to, a
cumulative ownership change of more than 50% over a three year period. </P>
<P ALIGN="JUSTIFY">A reconciliation of the tax provision (benefit) to the
amounts computed using the statutory U.S. federal income tax rate of 34% is as
follows (in thousands): </P>

<FONT FACE="Courier New"><PRE>

                                                      Year Ended March 31,
                                                 ---------------------------------
                                                    2002        2001       2000
                                                 -----------  ---------  ---------
Benefit at statutory rate...................... $    (3,090) $ (25,296) $  (8,408)
State income taxes (benefit) before valuation
  allowance, net of federal effect.............         229     (3,909)      (251)
In-process research and development............          --      1,551      3,434
Non-deductible goodwill........................         259         --         --
Discount on issuance of Common Stock...........         558         --      2,176
Research and development credits...............        (216)    (1,162)      (338)
Change in valuation allowance..................       2,302     29,027      3,125
Non-deductible compensation....................          (4)       256         55
Foreign rate differences.......................         (30)         1         66
Other..........................................           7       (451)       261
                                                 -----------  ---------  ---------
                                                $        15  $      17  $     120
                                                 ===========  =========  =========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<B><P>NOTE 8 -- COMMITMENTS AND CONTINGENCIES</P>
<I><P ALIGN="JUSTIFY">Leases</P>
</B></I><P ALIGN="JUSTIFY">The Company leases its primary facility in Santa
Clara, California under a noncancelable operating lease agreement that expires
in May 2003. The Company also has leased facilities in the United Kingdom,
France and Canada. The facility leases include rent escalation clauses, and
require the Company to pay taxes, insurance, and normal maintenance costs. At
March 31, 2002, future minimum annual lease payments under noncancelable
operating leases, net of sublease income, were as follows (in thousands): </P>

<FONT FACE="Courier New"><PRE>

 YEAR ENDING MARCH 31,
 ---------------------
2003.............................................. $   1,405
2004..............................................       449
2005..............................................       270
2006..............................................       256
2007..............................................       242
2008 and thereafter...............................       889
                                                    ---------
          Total minimum payments.................. $   3,511
                                                    =========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">Rent expense for the years ended March 31, 2002, 2001, and
2000 was $1.5 million, $1.8 million, and $1.3 million, respectively. </P>
<P>The Company subleases office space under operating lease agreements expiring
at various dates through 2005. The total future minimum rentals to be received
under these noncancelable sublease agreements are $64,000 in fiscal 2003,
$33,000 in fiscal 2004, $16,000 per year in each of fiscal 2005 and 2006, and
$11,000 in fiscal 2007.</P>
<B><I><P ALIGN="JUSTIFY">Legal Proceedings</P>
</B></I><P ALIGN="JUSTIFY">In November 2001, the Company settled a lawsuit that
was filed against it in April 2001 in British Columbia, Canada by Milinx
Business Services, Inc. and Milinx Business Group, Inc (collectively, Milinx).
The Company was one of five named defendants in the lawsuit, the others being
Sun Microsystems, Inc., Netscape Communications Canada, Inc., Burntsand, Inc.,
and Intraware Canada, Inc. The Company has been released of any further
obligations to Milinx in exchange for returning a portion of the original
license fee. As a result of the settlement agreement, the Company recognized
$309,000 of previously deferred revenue stemming from a March 2000 license
agreement with Milinx.</P>
<P ALIGN="JUSTIFY">The Company is also involved in various other legal claims
and litigation that have arisen in the normal course of the Company's
operations. While the results of such claims and litigation cannot be predicted
with certainty, the Company believes that the final outcome of such matters will
not have a significant adverse effect on the Company's financial position or
results of operations. However, should the Company not prevail in any such
litigation, its operating results and financial position could be adversely
impacted.</P>
<B><P>NOTE 9 -- STOCKHOLDERS' EQUITY</P>
<I><P>Common Stock</P>
</B></I><P ALIGN="JUSTIFY">In August 2000, the Company's stockholders authorized
an amendment to the restated certificate of incorporation to increase the
authorized number of shares of common stock to 100,000,000 shares from
40,000,000 shares. </P>
<B><I><P>Exchangeable Shares and Preferred Stock</P>
</B></I><P ALIGN="JUSTIFY">In conjunction with the acquisition of U|Force (see
Note 2), the Company agreed to issue up to 2,107,780 shares of 8x8 common stock
upon the exchange or redemption of the exchangeable shares (the Exchangeable
Shares) of Canadian entities held by employee shareholders of U|Force stock. The
Exchangeable Shares held by U|Force employees were subject to certain
restrictions, including the Company's right to repurchase the Exchangeable
Shares if an employee departed the Company prior to vesting. Upon vesting, the
Exchangeable Shares were convertible into 8x8 common stock on a 1-for-1 basis.
The Company also issued one share of preferred stock (the Special Voting Share)
that provides holders of Exchangeable Shares with voting rights that are
equivalent to the shares of common stock into which their shares are
convertible. </P>
<P ALIGN="JUSTIFY">During the fourth quarter of fiscal 2001, the Company
repurchased a total of 1,034,107 unvested Exchangeable Shares at an average
price of $0.49 per share when the beneficial holders of such shares resigned
from the Company. In addition, 812,866 Exchangeable Shares were converted into
an equivalent number of shares of the Company's common stock in the fourth
quarter of fiscal 2001. The remaining 260,807 Exchangeable Shares were exchanged
for shares of the Company's common stock during the year ended March 31, 2002.
</P>
<B><I><P>1992 Stock Option Plan</P>
</B></I><P ALIGN="JUSTIFY">The Board of Directors has reserved 2,000,000 shares
of the Company's common stock for issuance under the 1992 Stock Option Plan (the
1992 Plan). The 1992 Plan, which has been approved by the Company's
stockholders, provides for granting incentive and nonstatutory stock options to
employees, directors or consultants at prices equal to the fair market value of
the stock at the grant dates. The stock option price of incentive stock options
granted may not be less than the determined fair market value at the date of
grant. Options generally vest over four years and expire ten years after grant.
</P>
<B><I><P>Key Personnel Plan</P>
</B></I><P ALIGN="JUSTIFY">In July 1995, the Board of Directors adopted the Key
Personnel Plan. The Board of Directors reserved 2,200,000 shares of the
Company's common stock for issuance under this plan. The Key Personnel Plan
provided for granting incentive and nonstatutory stock options to officers of
the Company at prices equal to the fair market value of the stock at the grant
dates. Options generally vest over four years. Shares issued under the Key
Personnel Plan were subject to repurchase at the original issuance price of
$0.50 per share if the employee left the Company prior to vesting. During fiscal
2001 and 2000, the Company repurchased 5,982 and 46,296 unvested shares,
respectively. As of March 31, 2002, all shares were vested and no shares are
available for grant under the Key Personnel Plan. The Company is no longer
issuing options under this plan.</P>
<B><I><P>1996 Stock Plan</P>
</B></I><P ALIGN="JUSTIFY">In June 1996, the Board of Directors adopted the 1996
Stock Plan (the 1996 Plan) and reserved 1,000,000 shares of the Company's common
stock for issuance under this plan. The Company's stockholders subsequently
authorized increases in the number of shares of the Company's common stock
reserved for issuance under the 1996 Plan of 500,000 shares in June 1997 and
2,000,000 shares in August 2000. The 1996 Plan also provides for an annual
increase in the number of shares reserved for issuance under the 1996 Plan on
the first day of the Company's fiscal year in an amount equal to 5% of the
Company's common stock issued and outstanding at the end of the immediately
preceding fiscal year, subject to a maximum annual increase of 1,000,000 shares.
The annual increase was 1,000,000 shares in both fiscal 2002 and 2001 and
771,287 during the fiscal year ended March 31, 2000. To date, this provision has
resulted in increases in shares reserved for issuance under the 1996 Plan
totaling 3,535,967. The 1996 Plan provides for granting incentive stock options
to employees and nonstatutory stock options to employees, directors or
consultants.  The stock option price of incentive stock options granted may not
be less than the determined fair market value at the date of grant. Options
generally vest over four years and expire ten years after grant.</P>
<B><I><P>1996 Director Option Plan</P>
</B></I><P ALIGN="JUSTIFY">The Company's 1996 Director Option Plan (the Director
Plan) was adopted in June 1996 and became effective in July 1997. A total of
150,000 shares of common stock were initially reserved for issuance under the
Director Plan. The Company's stockholders subsequently authorized an increase in
the number of shares of common stock reserved for issuance under the Director
Plan to 500,000 shares in August 2000. The Director Plan provides for both
discretionary and periodic grants of nonstatutory stock options to non-employee
directors of the Company (the Outside Directors). The exercise price per share
of all options granted under the Director Plan will be equal to the fair market
value of a share of the Company's common stock on the date of grant. Options
generally vest over a period of four years. Options granted to Outside Directors
under the Director Plan have a ten year term, or shorter upon termination of an
Outside Director's status as a director. If not terminated earlier, the Director
Plan will have a term of ten years. </P>
<B><I><P>1999 Nonstatutory Stock Option Plan</P>
</B></I><P ALIGN="JUSTIFY">In fiscal 2000, the Company's Board of Directors
approved the 1999 Nonstatutory Stock Option Plan (the 1999 Plan) with 600,000
shares initially reserved for issuance thereunder. In fiscal 2001, the number of
shares reserved for issuance was increased to 3,600,000 shares by the Board of
Directors. Under the terms of the 1999 Plan, options may not be issued to either
officers or directors of the Company provided, however, that options may be
granted to an officer in connection with the officer's initial employment by the
Company. Options generally vest over four years and expire ten years after
grant. The 1999 Plan has not been approved by the stockholders of the
Company.</P>
<B><I><P>UForce Company -- Societe UForce Amended and Restated 1999 Stock Option
Plan</P>
</B></I><P ALIGN="JUSTIFY">In connection with the acquisition of U|Force (see
Note 2), the Company assumed the UForce Company -- Societe UForce Amended and
Restated 1999 Stock Option Plan (the U|Force Plan), and reserved 1,023,898
shares of the Company's common stock related to options issued thereunder. The
U|Force Plan provided for the grant of nonstatutory stock options to employees
and consultants of U|Force at prices equal to the fair market value of the stock
at the grant dates.  Due to the cessation of the Company's Canadian operations
(see Note 3), 1,016,408 and 7,490 of the options previously granted under the
U|Force Plan were forfeited and returned to the U|Force Plan in fiscal 2001 and
fiscal 2002, respectively. In fiscal 2002, the Company's Board of Directors
terminated the U|Force Plan.</P>
<P ALIGN="JUSTIFY">Option activity under the Company's stock option plans since
March 31, 1999, excluding the Netergy and Centile  stock option plans, is
summarized as follows: </P>

<FONT FACE="Courier New"><PRE>
                                                                   Weighted
                                                        Shares      Average
                                           Shares     Subject to   Exercise
                                          Available    Options       Price
                                          for Grant  Outstanding   Per Share
                                         ----------- ------------  ---------
Balance at March 31, 1999...............    112,811    3,430,310  $    2.60
Change in options available for grant...  1,371,287           --         --
Granted................................. (2,105,015)   2,105,015       7.94
Exercised...............................         --     (725,209)      2.12
Returned to plan........................    636,354     (636,354)      3.40
                                         ----------- ------------
Balance at March 31, 2000...............     15,437    4,173,762       5.25
Change in options available for grant...  7,373,898           --         --
Granted or assumed...................... (8,116,100)   8,116,100       6.26
Exercised...............................         --     (925,008)      2.30
Returned to plan........................  3,632,963   (3,632,963)      8.29
                                         ----------- ------------
Balance at March 31, 2001...............  2,906,198    7,731,891       5.24
Change in options available for grant...    (23,898)          --         --
Granted................................. (4,901,073)   4,901,073       1.09
Exercised...............................         --      (40,757)      0.01
Returned to plan........................  2,692,381   (2,692,381)      6.18
                                         ----------- ------------
Balance at March 31, 2002...............    673,608    9,899,826       2.95
                                         =========== ============


</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">Significant option groups outstanding at March 31, 2002 and
related weighted average exercise price and contractual life information for
8x8, Inc.'s stock option plans are as follows: </P>

<FONT FACE="Courier New"><PRE>

                     Options Outstanding                 Options Exercisable
                    ----------------------------------  ------------ ------------
                                Weighted    Weighted                   Weighted
                                 Average    Average                     Average
                                Exercise   Remaining                   Exercise
 Range of Exercise                Price   Contractual                    Price
      Prices          Shares    Per Share Life (Years)     Shares      Per Share
------------------- ----------  --------- ------------  ------------  -----------
$ 0.01 to $ 3.16... 7,571,210  $    1.44          8.9     1,472,297  $      2.02
$ 3.16 to $ 6.32... 1,030,304       3.97          7.6       730,601         4.00
$ 6.32 to $ 9.49...   410,812       7.43          7.6       216,191         7.34
$ 9.49 to $12.65...   771,500      11.60          8.1       346,821        11.58
$12.65 to $15.81...    38,500      14.56          8.2        17,453        14.56
$15.81 to $25.44...    77,500      22.10          7.9        39,423        22.04
                    ----------                          ------------
                    9,899,826  $    2.95          8.6     2,822,786  $      4.47
                    ==========                          ============

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">The Company recorded a deferred compensation charge of
approximately $7,267,000 with respect to options repriced and certain additional
options granted in fiscal 1997. In addition, the Company recorded deferred
compensation charges of approximately $503,000 and $406,000 in connection with
certain options granted to non-officer employees in fiscal 2001 and 2000,
respectively. The Company recognizes deferred compensation over the related
vesting period of the options (which is generally forty-eight months). The
Company recognized $753,000 and $161,000 as compensation expense in the fiscal
years ended March 31, 2001 and 2000, respectively.  Stock compensation expense
in fiscal 2002 was not significant. At March 31, 2002, the balance of deferred
compensation was $30,000. Deferred compensation is subject to reduction for any
employee who terminates employment prior to the expiration of such employee's
option vesting period. </P>
<B><I><P>Netergy Microelectronics, Inc. 2000 Stock Option Plan</P>
</B></I><P ALIGN="JUSTIFY">Netergy's 2000 Stock Option Plan (the Netergy Plan)
was adopted in December 2000 by the Netergy Board of Directors. The Netergy Plan
provides for granting incentive stock options (ISO) to employees and
nonstatutory stock options (NSO) to employees, directors, and consultants of
Netergy. Options granted under the Netergy Plan may be granted for periods up to
ten years and at prices no less than 85% of the estimated fair value of the
shares on the date of grant as determined by the Netergy Board of Directors,
provided, however, that (i) the exercise price of an ISO and NSO shall not be
less than 100% and 85% of the estimated fair value of the shares on the date of
grant, respectively, and (ii) the exercise price of an ISO and NSO granted to a
10% shareholder shall not be less than 110% of the estimated fair value of the
shares on the date of grant, respectively. To date, options granted vest over
four years. However, in the event of a change in control (as defined in the
Netergy Plan document) vesting for certain options will be accelerated. Option
activity during fiscal 2001 and fiscal 2002 was as follows: </P>

<FONT FACE="Courier New"><PRE>

                                                             Weighted
                                                  Shares      Average
                                      Shares    Subject to   Exercise
                                     Available    Options      Price
                                     for Grant  Outstanding  Per Share
                                    ----------- -----------  ---------
Shares reserved at Netergy Plan's
  inception........................  5,000,000          --  $      --
Granted............................ (3,572,000)  3,572,000       0.50
Returned to plan...................    400,000    (400,000)      0.50
                                    ----------- -----------
Balance at March 31, 2001..........  1,828,000   3,172,000       0.50
Granted............................   (136,000)    136,000       0.50
Exercised..........................         --          --         --
Returned to plan...................    264,834    (264,834)      0.50
                                    ----------- -----------
Balance at March 31, 2002..........  1,956,834   3,043,166  $    0.50
                                    =========== ===========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P>As of March 31, 2002, 900,302 options were exercisable, the weighted average
remaining contractual life was 8.2 years, and the weighted average exercise
price was $0.50 per share. </P>
<B><I><P>Centile, Inc. 2001 Stock Option Plan</P>
</B></I><P ALIGN="JUSTIFY">Centile's 2001 Stock Option Plan (the Centile Plan)
was adopted in March 2001 by the Centile Board of Directors. The Centile Plan
provides for granting ISOs to employees and NSOs to employees, directors, and
consultants of Centile. Options granted under the Centile Plan may be granted
for periods up to ten years and at prices no less than 85% of the estimated fair
value of the shares on the date of grant as determined by the Centile Board of
Directors, provided, however, that (i) the exercise price of an ISO and NSO
shall not be less than 100% and 85% of the estimated fair value of the shares on
the date of grant, respectively, and (ii) the exercise price of an ISO and NSO
granted to a 10% shareholder shall not be less than 110% of the estimated fair
value of the shares on the date of grant, respectively. To date, options granted
vest over four years. Option activity during fiscal 2001 and fiscal 2002 was as
follows:</P>

<FONT FACE="Courier New"><PRE>

                                                             Weighted
                                                  Shares      Average
                                      Shares    Subject to   Exercise
                                     Available    Options      Price
                                     for Grant  Outstanding  Per Share
                                    ----------- -----------  ---------
Shares reserved at Centile Plan's
  inception........................  4,500,000          --         --
Granted............................ (4,107,000)  4,107,000       0.43
                                    ----------- -----------
Balance at March 31, 2001..........    393,000   4,107,000       0.43
Granted............................   (846,000)    846,000       0.43
Exercised..........................         --          --         --
Returned to plan...................  2,688,000  (2,688,000)      0.43
                                    ----------- -----------
Balance at March 31, 2002..........  2,235,000   2,265,000  $    0.43
                                    =========== ===========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">As of March 31, 2002, 237,187 options were exercisable, the
weighted average remaining contractual life was 9.2 years, and the weighted
average exercise price was $0.43 per share. </P>
<B><I><P>1996 Employee Stock Purchase Plan</P>
</B></I><P ALIGN="JUSTIFY">The Company's 1996 Stock Purchase Plan (the Purchase
Plan) was adopted in June 1996 and became effective upon the closing of the
Company's initial public offering in July 1997. Under the Purchase Plan, 500,000
shares of common stock were initially reserved for issuance. At the start of
each fiscal year, the number of shares of common stock subject to the Purchase
Plan increases so that 500,000 shares remain available for issuance. This
provision resulted in increases of 281,583, 180,910 and 187,491 shares issuable
under the Purchase Plan during the fiscal years ended March 31, 2002, 2001 and
2000, respectively. During fiscal 2002, 2001, and 2000, 416,589, 281,583, and
180,910 shares, respectively, were issued under the Purchase Plan. </P>
<P ALIGN="JUSTIFY">The Purchase Plan permits eligible employees to purchase
common stock through payroll deductions at a price equal to 85% of the fair
market value of the common stock at the beginning of each two year offering
period or the end of a six month purchase period, whichever is lower. The
contribution amount may not exceed ten percent of an employee's base
compensation, including commissions but not including bonuses and overtime. In
the event of a merger of the Company with or into another corporation or the
sale of all or substantially all of the assets of the Company, the Purchase Plan
provides that a new exercise date will be set for each option under the plan
which exercise date will occur before the date of the merger or asset sale. </P>
<B><I><P>Certain pro forma disclosures</P>
</B></I><P ALIGN="JUSTIFY">The Company accounts for its stock plans in
accordance with the provisions of APB Opinion No. 25. Had compensation cost for
the Company's stock plans been determined based on the fair value of options at
their grant dates, as prescribed in SFAS 123, the Company's net loss would have
been as follows (in thousands, except per share amounts):</P>

<FONT FACE="Courier New"><PRE>

                                                  Year Ended March 31,
                                          -------------------------------------
                                             2002         2001         2000
                                          -----------  -----------  -----------
Net loss:
  As reported........................... $    (9,105) $   (74,399) $   (24,848)
  Pro forma............................. $   (25,149) $   (87,233) $   (30,670)
Basic and diluted loss per share:
  As reported........................... $     (0.33) $     (2.99) $     (1.38)
  Pro forma............................. $     (0.92) $     (3.51) $     (1.70)

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P>For the purposes of the disclosure above, the fair value of each of the
Company's option grants, excluding those options issued under the Netergy and
Centile Plans, has been estimated on the date of grant using the Black-Scholes
pricing model with the following assumptions: </P>

<FONT FACE="Courier New"><PRE>

                                                  Year Ended March 31,
                                          -------------------------------------
                                             2002         2001         2000
                                          -----------  -----------  -----------
Expected volatility.....................         135%         141%          70%
Expected dividend yield.................         0.0%         0.0%         0.0%
Risk-free interest rate.................  3.5% to 4.9% 4.7% to 6.8% 5.5% to 6.4%
Weighted average expected option term...   5.1 years      5 years    5.3 years
Weighted average fair value of options
  granted............................... $      0.96  $      5.17  $      5.12

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">The fair value of grants under the Netergy and Centile stock
option plans, for purposes of the pro forma disclosure, have also been estimated
on the date of grant using the Black-Scholes pricing model using the weighted
average assumptions noted below. The expected volatility factors for the Netergy
and Centile plans reflect the fact that the underlying shares of Netergy and
Centile are not publicly traded and therefore the Company's overall volatility
factor has been reduced by 50% for these plans.  The various risk free interest
rates used in the computations reflect the different rates in effect at the
respective grant dates.</P>

<FONT FACE="Courier New"><PRE>

                                                  Year Ended March 31,
                                          -------------------------------------
                                             2002         2001         2000
                                          -----------  -----------  -----------
Expected volatility.....................          67%          70%          --
Expected dividend yield.................         0.0%         0.0%          --
Risk-free interest rate.................  4.1% to 4.8% 4.7% to 5.1%         --
Weighted average expected option term...   5.25 years     5 years           --
Netergy weighted average fair value
  of options granted.................... $      0.31  $      0.31  $        --
Centile weighted average fair value
  of options granted.................... $      0.26  $      0.26  $        --

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P>For the purpose of providing pro forma disclosures, the estimated fair value
of stock purchase rights granted under the Purchase Plan were estimated using
the Black-Scholes pricing model with the following weighted-average assumptions:
</P>

<FONT FACE="Courier New"><PRE>

                                                  Year Ended March 31,
                                          -------------------------------------
                                             2002         2001         2000
                                          -----------  -----------  -----------
Expected volatility.....................         135%         141%          70%
Expected dividend yield.................        0.0%         0.0%         0.0%
Risk-free interest rate.................        3.82%        4.92%        5.84%
Weighted average expected rights term...   1.25 years   1.25 years   1.25 years
Weighted average fair value of rights
  granted............................... $      1.16  $      3.00  $      5.52

</PRE><FONT FACE="Times New Roman" SIZE="3">

<B><P>NOTE 10 -- EMPLOYEE BENEFIT PLANS</P>
<I><P>401(k) Savings Plan</P>
</B></I><P ALIGN="JUSTIFY">In April 1991, the Company adopted a 401(k) savings
plan (the Savings Plan) covering substantially all of its U.S. employees.
Eligible employees may contribute to the Savings Plan from their compensation up
to the maximum allowed by the Internal Revenue Service. The Company's matching
contribution is $1,500 per employee per calendar year at a dollar for dollar
rate of the employee contribution. The matching contributions vest over three
years. The Company contributed $85,000, $125,000, and $124,000 to the Savings
Plan during fiscal 2002, 2001, and 2000, respectively. The Savings Plan does not
allow employee contributions to be invested in 8x8 common stock. </P>
<B><P>NOTE 11 -- SEGMENT REPORTING</P>
</B><P ALIGN="JUSTIFY">During the fourth quarter of fiscal year 2001, the
Company changed its internal reporting processes and determined that it had
three reportable segments: Netergy, Centile, and Corporate and Other. Inter-
segment revenues between the reportable segments were not significant during the
periods presented. Shared support service functions such as human resources,
facilities management, and other infrastructure support and overhead are
allocated between the segments. Accounting policies are applied consistently to
the segments, where applicable. The Company's reportable segments have been
determined based on the nature of the operations and products offered to
customers:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>The Netergy segment primarily reflects the activity
associated with the sale and development of semiconductors and related software
focused on the IP telephony and videoconferencing markets.  In addition, the
Netergy segment includes revenue derived from the license of video monitoring
technology to Interlogix, Inc., as well as sales of media hub systems.
</LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>The Centile segment reflects activity associated with the
development and sale of its hosted iPBX solution. Centile also markets and sells
media hub systems as part of its hosted iPBX solution. </LI></P></UL>


<UL>
<P ALIGN="JUSTIFY"><LI>The Corporate and Other segment represents the business
activities of the parent entity, 8x8, Inc. The results for the Corporate and
Other segment principally reflect activities related to the development and
deployment of the service creation environment and eSLEE products, unallocated
corporate overhead expenses, and revenues and certain costs associated with
discontinued product lines. </LI></P></UL>

<P ALIGN="JUSTIFY">Due to limitations in the Company's internal reporting
systems, it was not practicable to disclose operating losses and net losses by
segment for fiscal 2000. The following table illustrates results by segment for
the periods during which the information was available: </P>

<FONT FACE="Courier New"><PRE>

                                                  Year Ended March 31,
                                          -------------------------------------
                                             2002         2001         2000
                                          -----------  -----------  -----------
Revenues:
  Netergy............................... $    13,350  $    15,850  $    16,308
  Centile...............................         260          198           70
  Corporate and Other...................       1,081        2,180        9,006
                                          -----------  -----------  -----------
          Total revenues................ $    14,691  $    18,228  $    25,384
                                          ===========  ===========  ===========
Gross profit:
  Netergy............................... $    10,656  $    10,792  $    13,137
  Centile...............................         205           71           45
  Corporate and Other...................       1,007          379        3,604
                                          -----------  -----------  -----------
          Total gross profit............ $    11,868  $    11,242  $    16,786
                                          ===========  ===========  ===========
Operating loss:
  Netergy............................... $    (1,509) $    (5,668) $        --
  Centile...............................      (5,721)     (13,024)          --
  Corporate and Other...................      (2,784)     (55,781)          --
                                          -----------  -----------  -----------
          Total operating loss.......... $   (10,014) $   (74,473) $        --
                                          ===========  ===========  ===========
Net loss:
  Netergy............................... $    (1,318) $    (5,661) $        --
  Centile...............................      (5,627)     (12,955)          --
  Corporate and Other...................      (2,160)     (55,783)          --
                                          -----------  -----------  -----------
          Total net loss................ $    (9,105) $   (74,399) $        --
                                          ===========  ===========  ===========


</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">There were no reconciling items between the segments for the
revenue, gross profit, operating loss and net loss amounts. </P>
<P ALIGN="JUSTIFY">The following table illustrates net revenues by geographic
area. Revenues are attributed to countries based on the destination of shipment
(in thousands): </P>

<FONT FACE="Courier New"><PRE>

                                                  Year Ended March 31,
                                          -------------------------------------
                                             2002         2001         2000
                                          -----------  -----------  -----------
United States........................... $     5,777  $     5,632  $    13,381
Europe..................................       4,126        5,862        5,808
Taiwan..................................       2,026        2,739        1,737
Japan...................................       1,119        1,188        2,351
Other...................................       1,643        2,807        2,107
                                          -----------  -----------  -----------
                                         $    14,691  $    18,228  $    25,384
                                          ===========  ===========  ===========

</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">The majority of the Company's long-lived assets were located
in the United States. Long-lived assets consist primarily of property and
equipment and deposits. The following table illustrates long-lived assets by
country (in thousands):</P>

<FONT FACE="Courier New"><PRE>

                                                         March 31,
                                                    --------------------
                                                      2002       2001
                                                    ---------  ---------
                                                      (in thousands)

United States..................................... $   2,051  $   4,426
United Kingdom....................................       602        681
France............................................       452        762
                                                    ---------  ---------
                                                   $   3,105  $   5,869
                                                    =========  =========


</PRE><FONT FACE="Times New Roman" SIZE="3">

<P ALIGN="JUSTIFY">Three customers represented more than 10% of our total
revenues in fiscal 2002. These customers represented 13%, 13% and 12% of our
total revenues, respectively.  During the fiscal years ended March 31, 2001 and
2000, no customer accounted for 10% or more of total revenues.</P>
<P ALIGN="JUSTIFY">&nbsp;</P>


<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="schedii"></A>
<B><p align="center">
                             8X8, INC.<br>
<br>
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS<br>
                                 (IN THOUSANDS)
</B>
<FONT FACE="Courier New"><PRE>

                                      Balance   Additions
                                        at      Charged to             Balance
                                     Beginning  Costs and              at End
Description                           of Year   Expenses   Deductions  of Year
-----------------------------------  ---------  ---------  ---------  ---------
Allowance for doubtful accounts:
 Year ended March 31, 2000......... $     686  $    (200) $      44  $     442
 Year ended March 31, 2001.........       442         25         78        389
 Year ended March 31, 2002.........       389          --       103        286


</PRE><FONT FACE="Times New Roman" SIZE="3">

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="quarter"></A>
<B><P ALIGN="CENTER"><A NAME="qtrfs"></A></P>
<P ALIGN="CENTER">8X8, INC.</P>
<P ALIGN="CENTER">
                     CONSOLIDATED QUARTERLY FINANCIAL DATA<br>
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)<br>
                                  (UNAUDITED)
</B></P><br>
<FONT FACE="Courier New"><PRE>
<FONT SIZE=1>
                                                                        QUARTER ENDED
                                        ------------------------------------------------------------------------------
                                        March 31, Dec. 31,  Sept. 30, June 30,  March 31, Dec. 31,  Sept. 30, June 30,
                                          2002      2001      2001      2001      2001      2000      2000      2000
                                        --------  --------  --------  --------  --------  --------  --------  --------
Total revenues........................ $  2,221  $  4,944  $  3,926  $  3,600  $  4,409  $  4,104  $  3,892  $  5,823
Cost of revenues......................      692       659       434     1,038     1,695     1,948     1,765     1,578
                                        --------  --------  --------  --------  --------  --------  --------  --------
Gross profit..........................    1,529     4,285     3,492     2,562     2,714     2,156     2,127     4,245
                                        --------  --------  --------  --------  --------  --------  --------  --------
Operating expenses:
  Research and development............    2,705     2,295     2,697     3,868     4,866     4,868     4,788     4,214
  Selling, general, and
    administrative....................    1,956     2,269     2,367     2,962     5,189     4,497     4,728     3,699
  In-process research and
    development.......................       --        --        --        --        --        --     4,563        --
  Amortization of intangibles.........      191       190       191       191     3,612     3,612     3,573       190
  Restructuring charge................        --        --        --       --    33,316        --        --        --
                                        --------  --------  --------  --------  --------  --------  --------  --------
        Total operating expenses......    4,852     4,754     5,255     7,021    46,983    12,977    17,652     8,103
                                        --------  --------  --------  --------  --------  --------  --------  --------
Loss from operations..................   (3,323)     (469)   (1,763)   (4,459)  (44,269)  (10,821)  (15,525)   (3,858)
Other income (expense), net...........      218       135      (220)       12       (94)       67       554       645
                                        --------  --------  --------  --------  --------  --------  --------  --------
Loss before income taxes..............   (3,105)     (334)   (1,983)   (4,447)  (44,363)  (10,754)  (14,971)   (3,213)
Provision for income taxes............       15        --        --        --         5        --        --        12
                                        --------  --------  --------  --------  --------  --------  --------  --------
Net loss before extraordinary gain
  and cumulative  effect of change
  in accounting principle ............   (3,120)     (334)   (1,983)   (4,447)  (44,368)  (10,754)  (14,971)   (3,225)
Extraordinary gain on extinguishment
  of debt, net........................       --       779        --        --        --        --        --        --
Cumulative effect of change in
  accounting principle................       --        --        --        --        --    (1,081)       --        --
                                        --------  --------  --------  --------  --------  --------  --------  --------
Net income (loss)..................... $ (3,120) $    445  $ (1,983) $ (4,447) $(44,368) $(11,835) $(14,971) $ (3,225)
                                        ========  ========  ========  ========  ========  ========  ========  ========
Net income (loss) per share:
  Basic............................... $  (0.11) $   0.02  $  (0.07) $  (0.17) $  (1.67) $  (0.47) $  (0.60) $  (0.14)
  Diluted.............................    (0.11)     0.02     (0.07)    (0.17)    (1.67)    (0.47)    (0.60)    (0.14)
Shares used in per share calculations:
  Basic...............................   28,156    27,201    26,958    26,769    26,541    25,337    24,923    22,582
  Diluted.............................   28,156    27,438    26,958    26,769    26,541    25,337    24,923    22,582

</FONT SIZE=1>
</PRE><FONT FACE="Times New Roman" SIZE="3">

<P>&nbsp;</P>
<B><P><A NAME="item9"></A>ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE</P>
</B><P ALIGN="JUSTIFY">None. </P>
<B><P ALIGN="CENTER">PART III </P>
</B><P ALIGN="JUSTIFY">Certain information required by Part III is omitted from
this Report on Form 10-K in that the Registrant will file its definitive Proxy
Statement for its Annual Meeting of Stockholders (the 2002 Proxy Statement)
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended,
not later than 120 days after the end of the fiscal year covered by this Report,
and certain information included in the 2002 Proxy Statement is incorporated
herein by reference. </P>
<B><P><A NAME="item10"></A>ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT</P>
</B><P ALIGN="JUSTIFY">The information required by this is included in the 2002
Proxy Statement under the captions "Election of Directors -- Nominees,"
"Additional Information -- Executive Officers" and "Additional Information --
Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated
herein by reference. </P>
<B><P><A NAME="item11"></A>ITEM 11. EXECUTIVE COMPENSATION</P>
</B><P ALIGN="JUSTIFY">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. </P>
<B><P><A NAME="item12"></A>ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT</P>
</B><P ALIGN="JUSTIFY">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. </P>
<B><P><A NAME="item13"></A>ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS </P>
<I><P>Agreements with STMicroelectronics</P>
</B></I><P ALIGN="JUSTIFY">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.</P>
<I><P ALIGN="JUSTIFY">Stock Purchase and Related Rights.  </I>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:</P>

<UL>
<P ALIGN="JUSTIFY"><LI>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</LI></P>
<P ALIGN="JUSTIFY"><LI>participate in future registration statements, including
a registered public offering involving an underwriting, subject to certain
conditions and limitations. </LI></P></UL>

<P ALIGN="JUSTIFY">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.</P>
<I><P ALIGN="JUSTIFY">License and Development Agreements</I>.  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.</P>
<P ALIGN="JUSTIFY">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 internet telephony applications
including digital subscriber line, or DSL, modems and internet protocol
telephones. In May 2000 STM Inc. paid us $1.0 million associated with this
project; $500,000 for engineering fees 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.  </P>
<P ALIGN="JUSTIFY">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.26L 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 ST200 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.</P>
<P ALIGN="JUSTIFY">Additional information required by this Item is set forth in
the 2002 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. </P>
<B><P ALIGN="CENTER">PART IV </P>
<P><A NAME="item14"></A>ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K</P>
<I><P ALIGN="JUSTIFY">(a)(1) Financial Statements.</B></I>  The information
required by this item is included in Item 8. </P>
<B><I><P ALIGN="JUSTIFY">(a)(2) Financial Statement Schedules.</B></I>  The
information required by this item is included in Item 8. </P>
<B><I><P ALIGN="JUSTIFY">(a)(3) Exhibits.</B></I>  The documents listed on the
Exhibit Index appearing at pages 69-71 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. </P>
<B><I><P ALIGN="JUSTIFY">(b) Reports on Form 8-K.</B></I>  On January 30, 2002,
we filed an amendment to our Current Report on Form 8-K dated December 17, 2001
reporting the redemption of our convertible subordinated debentures.</P>
<P ALIGN="JUSTIFY">On February 14, 2002, we filed a Current Report on Form 8-K
also dated February 14, 2002 announcing that Bryan Martin had been named Chief
Executive Officer of 8x8, Inc. and that Joe Parkinson, our former Chief
Executive Officer, would continue as Chairman of 8x8's Board of Directors. We
also announced a new Internet Protocol (IP) video product development
initiative.</P>
<P>&nbsp;</P>

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<br>
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<A NAME="sign"></A>
<B><p align="center">
                                    SIGNATURES
</B><br>

<P ALIGN="JUSTIFY">     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, 8X8, Inc., a Delaware
corporation, has duly caused this Report on Form 10-K to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Santa Clara, State
of California, on May 23, 2002.

<P>
<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
  <TR>
    <TD width="38%"></TD>
    <TD width="62%"></TD></TR>
  <TR vAlign=top>
    <TD><FONT SIZE=3>&nbsp;</TD>
    <TD align=left><FONT SIZE=3>
                                                 8X8, INC.
</TD></TR>

  <TR vAlign=top>
    <TD><FONT SIZE=3>
&nbsp;
</TD>
    <TD align=left><FONT SIZE=3>
                                        <U>   By: /s/ BRYAN R. MARTIN </U><br>
                                                       Bryan R. Martin,<br>
                                             President & Chief Executive Officer
</TD></TR>
</TABLE>




<FONT SIZE=3><B><P ALIGN="CENTER">POWER OF ATTORNEY </P>
</B><P ALIGN="JUSTIFY">KNOW ALL PERSONS BY THESE PRESENT, that each person whose
signature appears below constitutes and appoints Bryan R. Martin and David M.
Stoll, jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof. </P>
<P ALIGN="JUSTIFY">Pursuant to the requirements of the Securities and Exchange
Act of 1934, this Report on Form 10-K has been signed by the following persons
in the capacities and on the date indicated: </P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=8 WIDTH=649>
<TR><TD WIDTH="35%" VALIGN="TOP">
<FONT SIZE=2><P>&nbsp;<U>Signature</U></FONT></TD>
<TD WIDTH="45%" VALIGN="TOP">
<U><FONT SIZE=2><P>Title</U></FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<U><FONT SIZE=2><P>Date</U></FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP">
<U><FONT SIZE=2><P>/s/ BRYAN R. MARTIN </U><BR>
Bryan R. Martin </FONT></TD>
<TD WIDTH="45%" VALIGN="TOP">
<FONT SIZE=2><P>Director, President and Chief Executive Officer (Principal
Executive Officer)</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P>May 23, 2002 </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP">
<U><FONT SIZE=2><P>/s/ DAVID M. STOLL </U><BR>
David M. Stoll </FONT></TD>
<TD WIDTH="45%" VALIGN="TOP">
<FONT SIZE=2><P>Chief Financial Officer, Vice President, Finance and
Secretary<BR>
(Principal Financial and Accounting Officer) </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P>May 23, 2002 </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP">
<U><FONT SIZE=2><P>/s/ JOE PARKINSON </U><BR>
Joe Parkinson </FONT></TD>
<TD WIDTH="45%" VALIGN="TOP">
<FONT SIZE=2><P>Chairman of the Board <BR>
 </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P>May 23, 2002 </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP">
<U><FONT SIZE=2><P>/s/ BERND GIROD </U><BR>
Bernd Girod </FONT></TD>
<TD WIDTH="45%" VALIGN="TOP">
<FONT SIZE=2><P>Director </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P>May 23, 2002 </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP">
<U><FONT SIZE=2><P>/s/ GUY L. HECKER </U><BR>
Guy L. Hecker, Jr. </FONT></TD>
<TD WIDTH="45%" VALIGN="TOP">
<FONT SIZE=2><P>Director </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P>May 23, 2002 </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP">
<U><FONT SIZE=2><P> </U><BR>
Christos Lagomichos </FONT></TD>
<TD WIDTH="45%" VALIGN="TOP">
<FONT SIZE=2><P>Director </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P>May 23, 2002 </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP">
<U><FONT SIZE=2><P>/s/ WILLIAM TAI </U><BR>
William Tai </FONT></TD>
<TD WIDTH="45%" VALIGN="TOP">
<FONT SIZE=2><P>Director </FONT></TD>
<TD WIDTH="20%" VALIGN="TOP">
<FONT SIZE=2><P>May 23, 2002 </FONT></TD>
</TR>
</TABLE>

<br>
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<B><p align="center">
                                    8X8, INC.<br>
<br>
                                 EXHIBIT INDEX
</B><br>

<P ALIGN="CENTER"><CENTER><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=625>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<FONT SIZE=3><P ALIGN="CENTER">Exhibit Number</FONT></TD>
<TD WIDTH="88%" VALIGN="BOTTOM">
<FONT SIZE=3><P ALIGN="CENTER">Exhibit Title</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">2.1 (c) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<FONT SIZE=3><P>Stock Exchange Agreement, dated as of May 13, 1999, by and among
8x8, Inc. (the Registrant), Odisei S.A. and the Security Holders named therein
and the agreements related thereto. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">2.2 (g) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Share Exchange Agreement, dated as of May 19, 2000, by and among
the Registrant, U|Force, all of the shareholders of U|Force and indirect owners
of the shares of U|Force. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">3.1 (a) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Form of Amended and Restated Certificate of Incorporation of
Registrant. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">3.2 (a) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Bylaws of Registrant. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">3.3 (l)</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Registrant. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">3.4 (n)</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Registrant. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">4.1 (d) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Securities Purchase Agreement by and among Wingate Capital Ltd.
and Fisher Capital Ltd. (collectively the Buyers) and the Registrant dated
December 15, 1999, with Schedule and Exhibits. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">4.2 (d) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Registration Rights Agreement by and among the Registrant and
the Buyers dated December 15, 1999. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">4.3 (d) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Form of Series A Warrant by and among the Registrant and
FleetBoston Robertson Stephens, Inc. dated December 16, 1999. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">4.4 (d) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Form of Series B Warrant by and among the Registrant and
FleetBoston Robertson Stephens Inc. dated December 16, 1999. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">4.5 (d) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Registration Rights Agreement by and among the Registrant and
FleetBoston Robertson Stephens Inc. dated December 16, 1999. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">4.6 (f) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Common Stock Purchase Agreement by and among the Registrant and
STMicroelectronics dated January 24, 2000. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">4.7 (f) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Form of Investor Rights Agreement by and among the Registrant
and STMicroelectronics dated January 24, 2000. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">4.8 (o)</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Form of Amendment No.1 to the Series A and Series B Warrants,
dated as of December 17, 2001, by and among the Registrant, Fisher Capital Ltd.
and Wingate Capital Ltd.</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">4.9 (o)</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Registration Rights Agreement, dated as of December 13, 2001, by
and among the Registrant, Fisher Capital Ltd. and Wingate Capital
Ltd.</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.1 (a) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Form of Indemnification Agreement. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.2 (a) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>1992 Stock Option Plan, as amended, and form of Stock Option
Agreement. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.3 (a) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Key Personnel Plan, as amended, and form of Stock Option
Agreement. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.4 (i) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>1996 Stock Plan, as amended, and form of Stock Option Agreement.
</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.5 (a) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>1996 Employee Stock Purchase Plan, as amended, and form of
Subscription Agreement. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.6 (j) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>1996 Director Option Plan, as amended, and form of Director
Option Agreement. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.7 (a) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Facility lease dated as of July 3, 1990 by and between Sobrato
Interests, a California Limited Partnership, and the Registrant, as amended.
</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.8 (b) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Fifth Amendment to Lease dated January 26, 1998 between Sobrato
Interests and the Registrant. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.9 (b) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Landlord's Consent to Sublease dated February 23, 1998 among
Sobrato Interests, Bay Networks, Inc. and the Registrant. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.10 (e) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>1999 Nonstatutory Stock Option Plan, as amended, and form of
Stock Option Agreement. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.11 (h) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Asset Purchase Agreement by and among the Registrant and
Interlogix, Inc. dated May 19, 2000. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.12 (h) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Technology License Agreement by and among the Registrant and
Interlogix, Inc. dated May 19, 2000. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.13 (k) </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>UForce Company -- Societe UForce Amended and Restated 1999 Stock
Option Plan. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.14 (l)</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Settlement Agreement and Release by and between the Registrant
and Keith Barraclough dated July 10, 2000. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.15 (l)</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Severance Agreement and Mutual Release by and between the
Registrant, Netergy Networks Canada Corporation and Dominique Pitteloud dated
October 13, 2000.</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.16 (m)</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Agreement by and between the Registrant and Dr. Paul Voois dated
April 30, 2001. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.17 (m)</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Agreement by and between the Registrant and Jonathan Foster
dated April 30, 2001.</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.18 (p)</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Redemption and Exchange Agreement, dated as of December 13,
2001, by and among 8x8, Inc., Fisher Capital Ltd. and Wingate Capital Ltd.
</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.19 (q)</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>License Agreement dated as of January 24, 2000, by and between
the Registrant and STMicroelectronics, Inc.</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.20 (q)</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Development Agreement dated as of January 24, 2000, by and
between the Registrant and STMicroelectronics, Inc. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.21</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>LX Video Development and License Agreement dated as of March 19,
2002, by and between the Registrant and STMicroelectronics N.V.</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.22</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Netergy Microelectronics, Inc. 2000 Stock Option Plan, as
amended, and form of Stock Option Agreement.</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.23</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Centile, Inc. 2001 Stock Option Plan, as amended, and form of
Stock Option Agreement.</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">10.24</FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Investment Agreement dated April 1, 2002 by and between the
Registrant and Joe Parkinson.</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">21.1 </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Subsidiaries of Registrant. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">23.1 </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Consent of Independent Accountants. </FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="TOP">
<Font Size=3><P ALIGN="CENTER">24.1 </FONT></TD>
<TD WIDTH="88%" VALIGN="TOP">
<Font Size=3><P>Power of Attorney (see page 68). </FONT></TD>
</TR>
</TABLE>
</CENTER></P>

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<Font Size=3><P> </P>
<P ALIGN="JUSTIFY">(a) Incorporated by reference to identically numbered
exhibits filed in response to Item 16 (a), "Exhibits," of the registrant's
Registration Statement on Form S-1 (File No. 333-15627), as amended, declared
effective on July 1, 1997. </P>
<P ALIGN="JUSTIFY">(b) Incorporated by reference to exhibits filed in response
to Item 14 (a), "Exhibits," of the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1998. </P>
<P ALIGN="JUSTIFY">(c) Incorporated by reference to identically numbered
exhibits filed in response to Item 7, "Exhibits," of the Registrant's Report on
Form 8-K dated June 7, 1999 and 8-K/A dated August 9, 1999. </P>
<P ALIGN="JUSTIFY">(d) Incorporated by reference to exhibits filed in response
to Item 6(a), "Exhibits," of the Registrant's Report on Form 10-Q for the fiscal
quarter ended December 31, 1999. </P>
<P ALIGN="JUSTIFY">(e) Incorporated by reference to exhibit 4.1 filed in
response to Item 8, "Exhibits," of the Registrant's Statement on Form S-8 dated
July 17, 2000. </P>
<P ALIGN="JUSTIFY">(f) Incorporated by reference to exhibits filed in response
to Item 7, "Exhibits," of the Registrant's Report on Form 8-K filed on February
16, 2000. </P>
<P ALIGN="JUSTIFY">(g) Incorporated by reference to an exhibit filed in response
to Item 7, "Exhibits," of the Registrant's Report on Form 8-K filed on May 23,
2000. </P>
<P ALIGN="JUSTIFY">(h) Incorporated by reference to exhibits filed in response
to Item 7, "Exhibits," of the Registrant's Report on Form 8-K filed on May 26,
2000. </P>
<P ALIGN="JUSTIFY">(i) Incorporated by reference to exhibit 4.1 filed in
response to Item 8, "Exhibits," of the Registrant's Report on Form S-8 dated
November 7, 2000. </P>
<P ALIGN="JUSTIFY">(j) Incorporated by reference to exhibit 4.2 filed in
response to Item 8, "Exhibits," of the Registrant's Report on Form S-8 dated
November 7, 2000. </P>
<P>(k) Incorporated by reference to exhibit 4.2 filed in response to Item 8,
"Exhibits," of the Registrant's Statement on Form S-8 dated July 17, 2000. </P>
<P>(l) Incorporated by reference to exhibits filed in response to Item 14 (a),
"Exhibits," of the Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 2001.</P>
<P>(m) Incorporated by reference to exhibits filed in response to Item 6(a),
"Exhibits," of the Registrant's Report on Form 10-Q for the fiscal quarter ended
June 30, 2001.</P>
<P>(n) Incorporated by reference to exhibit 3.1 filed in response to Item 6(a),
"Exhibits," of the Registrant's Report on Form 10-Q for the fiscal quarter ended
September 30, 2001.</P>
<P>(o) Incorporated by reference to exhibits filed in response to Item 7,
"Exhibits," of the Registrant's Report on Form 8-K filed on December 17,
2001.</P>
<P>(p) Incorporated by reference to exhibit 10.1 filed in response to Item 7,
"Exhibits," of the Registrant's Report on Form 8-K/A filed on January 30,
2002.</P>
<P>(q) Incorporated by reference to exhibits filed in response to Item 7,
"Exhibits," of the Registrant's Report on Form 8-K/A filed on January 30,
2002.</P></FONT>




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<p align="right">
                                                           Exhibit 10.21

<FONT SIZE=2><B><P ALIGN="CENTER">STMICROELECTRONICS N.V. AND 8X8 LX VIDEO
DEVELOPMENT AND LICENSE</P>
</B><P ALIGN="CENTER"></P>
<P>&nbsp;</P>
<P>This Agreement is made as of March___, 2002 (the &quot;Effective Date&quot;)
between 8x8, Inc., a corporation organized and existing under the laws of the
State of Delaware (hereafter &quot;8x8&quot;) and STMicroelectronics N.V., a
Dutch corporation having its principal place of business at Strawinskylaan 1725,
Tower B 17<SUP>th</SUP> floor, 1077 Amsterdam, The Netherlands, acting for the
purpose of this Agreement through its Swiss branch, ICC Bloc A, Route de
Pr&eacute;-bois 20, 1215 Geneva 15, Switzerland   (hereafter
&quot;ST&quot;).</P>

<P>&nbsp;</P>
<OL>

<B><LI>ST LX Technology</B>.  Subject to the terms and conditions herein, ST is
to provide 8x8 with sufficient information to enable 8x8 to develop
semiconductor products that incorporate the ST LX based processor core
technology..  For purposes of this Agreement,   &quot;LX Technology&quot; shall
mean the LX based processor core technology known as ST 210 and ST 220 and a
specific ST220 enhanced core (hereafter known as ST220-26L) which will be for
the purpose of accommodating the performance requirements of the H26L
specification.  For purposes of this Agreement, the &quot;8x8 LX Chips&quot;
shall mean chips designed by 8X8 and incorporating the LX Technology, 8x8
circuitry and possibly other ST or third party circuitry.  The information to be
provided by ST hereunder (&quot;LX Information&quot;) includes, but is not
limited to, the following as it relates to the LX Technology and as it exists on
the Effective Date or upon delivery:<BR>
</LI>

<OL TYPE="a">
<OL TYPE="a">

<LI>All applicable netlists; schematics; layouts; software, high level,
behavioral, C-, Verilog and timing models; simulation patterns, validation and
test suites and test programs; and standard cell libraries and models.</LI>
<LI>All internal ROM microcodes and microcode models and tools</LI>
<LI>Documentation relating to these items to the extent presently available and
in its existing form.<BR>
</LI></OL>
</OL>


<B><LI>ST LX Tools.</B>  ST will provide 8X8 the ST220 simulator and compiler
(known as the Multi-Flow tools chain) and successor simulators and compilers
related to the LX Technology  (the &quot;LX Tools&quot;) in binary code format.
ST will provide 8x8 with five (5) ST210 development platforms and five (5)
ST220/Web-Buddy development platforms.  ST will provide 8x8 with documentation
relating to these items to the extent presently available and in its existing
form.<BR>
</LI>
<B><LI>ST LX License</B>.  Subject to the terms and conditions of this
Agreement, ST hereby grants to 8x8, a  non-exclusive, non-transferable, non-
assignable, world-wide license to use, operate and copy the LX Technology, LX
Information and LX Tools in order to make, have manufactured, commercialize,
sell and otherwise dispose of 8x8 LX Chips and 8x8 software.  </FONT><FONT
FACE="Times" SIZE=2> The license granted herein includes any patents, trade
secrets, copyrights or other intellectual property owned by ST or its Affiliates
now or in the future applicable to the LX Technology, LX Information and LX
Tools provided that any license or delivery of technology is only to the extent
ST is legally entitled to grant rights thereto to 8x8 hereunder.<BR>
</LI>
<OL TYPE="a">

</FONT><FONT SIZE=2><LI>8x8 shall have the rights to choose, at its sole
discretion, at which foundry to manufacture the 8x8 LX Chips, provided that ST
shall first be offered an opportunity to meet or beat all terms and conditions
offered by 8x8's chosen foundry vendor including but not limited to such terms
as unit pricing, tooling, capacity allocation, prototype and production
delivery, quality and reliability.<BR>
</LI>
<OL TYPE="i">

<LI>8x8 shall present to ST a request for quotation (&quot;RFQ&quot;) that
contains sufficient information with which ST can provide a quotation to 8x8
including any relevant competitive terms and conditions, without violating any
existing Non Disclosure Agreements in affect between 8x8 and a 3<SUP>rd</SUP>
party.  ST will provide 8x8 with a quotation within a reasonable timeframe as
mutually agreed to between the parties.   If such ST quotation does not meet
competitive terms and conditions</FONT><FONT FACE="Times" SIZE=2> or is not
received by 8x8 in a timely manner</FONT><FONT SIZE=2>, 8x8 can choose, at its
sole discretion, to build the 8x8 LX Chips at alternative, non-ST foundry of its
choice.<BR>
 </LI>
<LI>If ST does respond to the RFQ in a timely manner and with competitive terms,
8x8 may at its own discretion, still choose to manufacture the 8x8 LX Chip at
another foundry.  However, 8x8 will ensure that at least 80% of the annual unit
volume that it purchases of such an 8x8 LX Chip is manufactured or sourced
through ST provided that ST maintains competitive terms and conditions. <BR>
</LI>
<LI>8x8 acknowledges that ST may subcontract some or all of the manufacturing of
the 8x8 LX Chips to an external, third party foundry.  Accordingly, design
package information provided by 8x8 to ST for the manufacture of the 8x8 LX
Chips may be, at 8x8's sole discretion, targeted towards the appropriate third
party foundry process.<BR>
</LI></OL>

<LI>Subject to the terms and conditions of this Agreement and in addition to the
rights granted in Section 3 above, ST hereby grants to 8x8 the right to grant to
8x8's 8x8 LX Chip customers a non-exclusive, non-assignable, non-transferable
sublicense to use the 8x8 LX Chips to develop, make, have manufactured,
commercialize, sell or otherwise dispose of board, subsystem or system level
products that contain the 8x8 LX Chip.<BR>
</LI></OL>

<B><LI>LX Royalty</B>.  In return for the license described in Item 3, 8x8 will
pay ST a royalty of $0.25 for each of the first five (5) million, $0.15 for each
of the units between five (5) and ten (10) million, and $0.10 for each unit
above ten (10) million  8x8 LX Chips not manufactured by ST or sourced through
ST that 8x8 sells either as a semiconductor product or  incorporated in a
system. <BR>
</LI>
<B><LI>ST MPEG4 Code.</B>  Subject to the terms and conditions herein, ST is to
provide 8x8 with its existing  DIV-X MPEG4 firmware ported for execution on the
LX in source and object code form (&quot;MPEG4 Code&quot;) as it exists upon
delivery and any documentation relating to the MPEG4 Code to the extent
presently available and in its existing form. Specifically excluded from the
license granted hereunder are any future developments, enhancements, maintenance
or any other technology developed relative to MPEG1, 2,4 or MPEG standards that
are unrelated to the MPEG4 Code as of the Effective Date.<BR>
</LI>
<B><LI>ST MPEG4 License.</B>  Subject to the terms and conditions of this
Agreement, ST hereby grants to 8x8 a royalty free, nonexclusive,
nontransferable, non-assignable world-wide license to use, operate, copy and
modify the MPEG4 Code in order to make, have manufactured, commercialize, sell
and otherwise dispose of 8x8 LX Chips bundled with the MPEG4 Code or derivatives
thereof provided by ST hereunder or developed by 8x8 hereunder, provided that
nothing herein entitles 8x8 to distribute the MPEG4 Code except in object code
form only.   The license granted herein includes any patents, trade secrets,
copyrights or other intellectual property owned by ST now or in the future
applicable to the MPEG4 Code, provided that any license or delivery of
technology is only to the extent ST is legally entitled to grant rights thereto
to 8x8 hereunder.<BR>
</LI>
<OL TYPE="a">

<LI>Subject to the terms and conditions of this Agreement and in addition to the
rights granted in Section 6 above, ST hereby grants to 8x8 the right to grant to
8x8's 8x8 LX Chip customers a non-exclusive, non-assignable, non-transferable
sublicense to use the MPEG4 Code to develop, make, have manufactured,
commercialize, sell or otherwise dispose of products that contain the MPEG4 Code
as bundled with the 8x8 LX Chips and in object code form only.<BR>
</LI></OL>

<B><LI>8x8 Code.</B>  Subject to the terms and conditions herein, 8x8 is to
provide ST with its H.263</FONT><FONT SIZE=2 COLOR="#ff0000"> </FONT><FONT
SIZE=2>and future H26L video codec firmware ported for execution on the LX
Technology (including, if any, H.263 or H.26L codec firmware targeted for
operation on a system host processor in conjunction with the LX Technology) in
source and object code form (&quot;8x8 Code&quot;) as it exists upon delivery
and any documentation relating to the 8x8 Code to the extent presently available
and in its existing form.  The parties understand and agree that the H26L video
codec firmware as referred to hereunder means the Joint Model Number 1 video
compression recommendation resulting from the work of the Joint Video Team
formed by ITU-T SG16 Q.6 (VCEG) and ISO/IEC JTC 1/SC 29/WG 11 (MPEG).  </LI>
</FONT><FONT SIZE=2 COLOR="#0000ff">
</FONT><FONT SIZE=2><B><LI>8x8 License.</B>  Subject to the terms and conditions
of this Agreement, 8x8 hereby grants to ST a nonexclusive, nontransferable, non-
assignable world-wide license to use, operate, copy and modify the 8x8 Code in
order to make, have manufactured, commercialize, sell and otherwise dispose of
ST semiconductor products bundled with the 8x8 Code or derivatives thereof
(&quot;ST Chip&quot;), provided that nothing herein entitles ST to distribute
the 8x8 Code except in object code form only. The license granted herein
includes any patents, trade secrets, copyrights or other intellectual property
owned by 8x8 now or in the future applicable to the 8x8 Code, provided that any
license or delivery of technology is only to the extent 8x8 is legally entitled
to grant rights thereto to ST hereunder.<B><BR>
</LI>
<OL TYPE="a">

</B><LI>Subject to the terms and conditions of this Agreement and in addition to
the rights granted in Section 8 above, 8x8 hereby grants to ST the right to
grant to ST's ST Chip customers a non-exclusive, non-assignable, non-
transferable sublicense to use the 8x8 Code to develop, make, have manufactured,
commercialize, sell or otherwise dispose of products that contain the 8x8 Code
as bundled with the ST Chips and in object code form only. <B><BR>
</LI></OL>

<LI>Third Party Technology.</B>  Specifically excluded from the licenses granted
hereunder are any developments, enhancements, maintenance or any other
technology received by the licensor from third parties unless such third party
has allowed the licensor to pass on such enhancements to the licensor's other
licensees. <BR>
</LI>
<B><LI>Custom Development.</B>  Specifically excluded from the licenses granted
hereunder are any developments, enhancements, maintenance or any other
technology developed by the licensor for a third party unless such third party
has allowed the licensor to pass on such enhancements to licensor's other
licensees.<BR>
</LI>
<B><LI>8x8 Code Royalty</B>.  In return for the license described in Item 8, ST
will pay 8x8 a royalty according to the below schedule for each ST Chip it sells
with which the 8x8 Code is expressly sublicensed or supplied by ST to ST
customers. <BR>
</LI></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=510>
<TR><TD WIDTH="74%" VALIGN="TOP">
<FONT SIZE=2><B><P ALIGN="CENTER">Volume</B></FONT></TD>
<TD WIDTH="26%" VALIGN="TOP"><DIR>

<FONT SIZE=2><B><P ALIGN="CENTER">Royalty Per Unit</DIR>
</B></FONT></TD>
</TR>
<TR><TD WIDTH="74%" VALIGN="TOP">
<FONT SIZE=2><P>Initial 4,500,000 ST Chips bundled with the H.263 based 8x8
Code</P>
<P>                                              </FONT></TD>
<TD WIDTH="26%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P ALIGN="CENTER">$0.10</P>
<P ALIGN="CENTER"></DIR>
</FONT></TD>
</TR>
<TR><TD WIDTH="74%" VALIGN="TOP">
<FONT SIZE=2><P>Initial 4,500,000 ST Chips bundled with the H.26L based 8x8
Code</P>
<P>                                              </FONT></TD>
<TD WIDTH="26%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P ALIGN="CENTER">$0.10</DIR>
</FONT></TD>
</TR>
<TR><TD WIDTH="74%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="26%" VALIGN="TOP">&nbsp;</TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=2 COLOR="#0000ff">
</FONT><FONT SIZE=2><LI>Subject to the terms of this Agreement, in the event the
8x8 Code or any derivatives of the MPEG4 code practices patents, patent
applications, including with respect to patents any patent rights granted upon
any reissue, division, continuation or continuation-in-part applications now or
hereafter filed (&quot;Patents&quot;) by ST<B>, </B>ST agrees that it will not
assert these Patents against 8x8 for 8x8's making, using, and/or selling of the
8x8 Code. In any event this non-assert clause applies only in favor of 8x8 and
8x8 customers, and does not cover any third parties or partners of 8x8.
NOTWITHSTANDING ANYTHING TO THE CONTRARY, This non-assert clause is non-
transferable, not assignable and will automatically terminate in the event of a
change of control of 8X8. For purposes of this section, a change of control
shall mean one transaction or a series of related transactions that results in a
change of control through direct or indirect ownership of fifty percent (50%) or
more of the outstanding shares of stock entitled to vote for the election of
directors (other than restricted shares of stock).<BR>
</LI>
<LI>Subject to the terms of this Agreement, in the event the LX Technology,  the
MPEG4 Code, or any derivatives of the 8x8 Code practices patents, patent
applications, including with respect to patents any patent rights granted upon
any reissue, division, continuation or continuation-in-part applications now or
hereafter filed (&quot;Patents&quot;) by 8x8<B>, </B>8x8 agrees that it will not
assert these Patents against ST for ST's making, using, or selling the LX
Technology, the MPEG4 Code, or any derivatives of the 8x8 Code. In any event
this non-assert clause applies only in favor of ST and ST customers and  does
not cover any third parties or partners of ST. NOTWITHSTANDING ANYTHING TO THE
CONTRARY, This non-assert clause is NON-Transferable, not assignable and will
automatically terminate in the event of a change of control of ST. For purposes
of this section, a change of control shall mean one transaction or a series of
related transactions that results in a change of control through direct or
indirect ownership of fifty percent (50%) or more of the outstanding shares of
stock entitled to vote for the election of directors (other than restricted
shares of stock).<BR>
</LI>
<LI>All royalties payable hereunder will be due within 30 days of the end of
each of the payee's fiscal quarters in which applicable product was shipped.
Each party is entitled to audit the other party's records through an independent
auditor.  Either party shall have the right for representatives of a firm of
independent accountants who shall have signed an appropriate non disclosure
agreement, to which the other party shall not unreasonably object
(&quot;Auditors"), to make an examination and audit, by prior appointment agreed
between the  Parties, such agreement not to be unreasonably withheld, during
normal business hours, not more frequently than once annually during the time
that a party is required to make royalty payments to the other party hereunder
and for one year thereafter, of all records and accounts as may under recognized
accounting practices contain information bearing upon the royalties revenue and
the number of products sold by either party under this Agreement. The Auditors
will report to the auditing party only upon whether the royalties paid to it by
the audited party were or were not correct, and if incorrect, what are the
correct amounts for the royalties. The audited party shall be supplied with a
copy of or sufficient extracts from any report prepared by the Auditors. Such
audit shall be at the auditing party's expense unless it reveals an underpayment
of royalties of five percent (5%) or more in which case the audited party shall
reimburse the auditing party&nbsp; for the costs of such audit, plus interest of
12% per annum on the deficiency from the time the royalty was due until
paid.<BR>
</LI>
<OL TYPE="a">

<LI>Concurrent with each royalty payment either party makes hereunder, the
paying party shall provide an explanation, as mutually agreed to, of how the
payment amount was calculated.<BR>
</LI></OL>

<B><LI>Development Schedule.</B>  ST will employ commercially reasonable efforts
to deliver the LX Tools, the LX Technology and the MPEG4 Code (together &quot;ST
Technology&quot;) within one (1) month of the Effective Date.  8x8 will employ
commercially reasonable efforts to deliver the initial 8x8 Code within nine (9)
months from receipt of the LX Tools and the LX Technology.<BR>
</LI>
<B><LI>Tool Updates</B>.  ST will provide 8x8 with updates and enhancements to
the LX Tools developed by ST, including but not limited to the new tool chain
that ST is developing that is expected to be available at the end of 2002 and
any documentation as they become available for the term of this Agreement.  Upon
delivery, such updates and enhancements shall become part of the LX Tools as
defined herein.</LI>

<B><LI>Update and Enhancement Sharing.</B>  ST and 8x8 will share with each
other where the creating party has the legal ability to disclose, such updates
and enhancements either party makes to the LX Technology, MPEG4 Code and 8x8
Code (&quot;Enhancements&quot;) as those terms are defined herein as they become
available for a period of two (2) years from the Effective Date or two (2) years
from the date on which a new, major version of the relevant technology is made
available whichever is later. For purposes of this agreement, the meaning of a
new, major version shall be mutually agreed to but would be considered , but not
limited to , for the LX Technology the initial delivery and any new version of
the LX core provided hereunder and for the 8X8 Code the H263 codec or new H26L
codec. </FONT><FONT FACE="Times" SIZE=2>After that time, Enhancement sharing is
to continue unless either party indicates an interest in discontinuing to share
such Enhancements at which time the parties will exchange the latest updates and
no further Enhancements will be shared.</FONT><FONT SIZE=2>   Upon delivery such
Enhancements will become part of the relevant LX Technology, MPEG4 Code or 8x8
Code as those terms are defined herein.<BR>
</LI>
</FONT><FONT FACE="Times" SIZE=2>
<B><LI>Future Developments.  </B>The parties understand that availability of the
H26L based 8x8 Code assumes implementation of a mutually  agreed to version of
the LX Technology capable of executing the H.26L based 8x8 Code and ratification
and acceptance of the relevant standard currently known as the Joint Video Team
(JVT) initiative.  ST and 8X8 agree to negotiate in good faith on a case-by-case
basis the terms and conditions under which such a license may be provided for
future cores and future codecs.<BR>
</LI>
</FONT><FONT SIZE=2><B><LI>Technical Support</B>.  Each party will provide the
other with sufficient applications engineering level technical support necessary
to commercialize products based on the licensed technology for as long as the
parties continue to share enhancements to the licensed technology.</LI>

<B><LI>8x8 LX Chip Customers</B>.  In the event that an 8x8 LX Chip customer
wishes to license the LX Tools or the MPEG4 Code in source format, ST agrees to
negotiate in good faith on a case-by-case basis the terms and conditions under
which such a license may be provided.</LI>

<B><LI>ST LX Customers</B>.  In the event that an ST Chip customer wishes to
license the 8x8 Code in source code form, 8x8 agrees to negotiate in good faith
on a case by case basis the terms and conditions under which such a license may
be provided.</LI>
<U>
</U><B><LI>Representations and Warranties</LI>

<OL TYPE="a">

</B><LI>8x8 represents and warrants to ST that (a) to the best of its knowledge
as of the Effective Date it has full power and authority to enter into this
Agreement, (b) to the best of its knowledge as of the Effective Date the terms
and conditions of this Agreement, and 8x8's obligations hereunder, do not
conflict with or violate any terms or conditions of any other agreement or
commitment to which 8x8 is a signatory or by which it is bound, (c) to the best
of its knowledge as of the Effective Date it owned or controlled the 8x8 Code
that will be licensed and delivered to ST under this Agreement and (d) it will
defend and indemnify ST against any third party claims arising out of or related
to a breach of these warranties and representations.<BR>
</LI>
<LI>EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, 8x8 MAKES NO WARRANTIES OR
CONDITIONS, EXPRESSED, STATUTORY, IMPLIED, OR OTHERWISE, WITH RESPECT TO THE 8x8
CODE LICENSED HEREUNDER, AND 8x8 HEREBY DISCLAIMS THE IMPLIED WARRANTIES AND
CONDITIONS OF, SATISFACTORY QUALITY, MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT THERETO.<BR>
</LI>
<LI>ST represents and warrants to 8x8 that (a) to the best of its knowledge as
of the Effective Date it has full power and authority to enter into this
Agreement, (b) to the best of its knowledge as of the Effective Date the terms
and conditions of this Agreement, and ST's obligations hereunder, do not
conflict with or violate any terms or conditions of any other agreement or
commitment to which ST is a signatory or by which it is bound, (c) to the best
of its knowledge as of the Effective Date it owned or has authority to license
the ST Technology that will be licensed and delivered to 8x8 under this
Agreement and (d) it will defend and indemnify 8x8 against any third party
claims arising out of or related to a breach of these warranties and
representations.<BR>
</LI>
<LI>EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, ST MAKES NO WARRANTIES OR
CONDITIONS, EXPRESSED, STATUTORY, IMPLIED, OR OTHERWISE, WITH RESPECT TO THE ST
CODE LICENSED HEREUNDER, AND ST HEREBY DISCLAIMS THE IMPLIED WARRANTIES AND
CONDITIONS OF, SATISFACTORY QUALITY, MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT THERETO<BR>
</LI></OL>

<B><LI>8x8 Indemnification<BR>
</LI>
<OL TYPE="a">

</B><LI>8x8 shall indemnify and hold ST, their respective officers, directors,
employees and agents (hereafter referred individually or collectively as
&quot;ST Indemnitees&quot;) harmless and shall pay all costs, damages, and
reasonable attorneys' fees and expenses relating to ST Indemnitees defense
resulting from any suit, claim, demand, or other action by a third party against
ST Indemnitees based upon a finding that any 8x8 Code infringes the IP Rights of
a third party (&quot;ST Infringement Claim&quot;), provided that: (i) ST gives
written notice to 8x8 within ten (10) business days of notice of such ST
Infringement Claim; (ii) ST allows 8x8 at its expense through attorneys of its
own choice, to exclusively defend or control the defense of any ST Infringement
Claim; and (iii) ST assists 8x8 in all reasonable aspects in such investigation
and defense, and is reimbursed by 8x8 for all the reasonable costs incurred in
collaborating in such investigation and defense.  The foregoing indemnity
obligations shall specifically not apply to any claim excluded under Section
(b) below.  If, as a result of a ST Infringement Claim, ST Indemnitees are
enjoined from using the 8x8 Code, or selling ST Chips, 8x8 may in its sole
discretion, (i) procure for ST Indemnitees the right to use the 8x8 Code under
the same terms and conditions set forth in this Section or (ii) provide ST
Indemnitees with modified 8x8 Code that is non-infringing while still meeting
substantially the same functional specifications as the 8x8 Code.<BR>
</LI>
<LI>8x8 shall have no obligation hereunder for any ST Infringement Claim which
results from: (a)&nbsp;the combination of the 8x8 Code with other products;
(b)&nbsp;the modification of the 8x8 Code by parties other than 8x8 (or not
authorized by 8x8); (c)&nbsp;the Enhancements of the 8x8 Code by or for ST.<BR>
</LI>
<LI>THIS SECTION STATES THE ENTIRE LIABILITY OF 8x8 AND THE EXCLUSIVE REMEDY OF
ST WITH RESPECT TO ANY AND ALL INFRINGEMENT CLAIMS.  EXCEPT AS EXPRESSLY STATED
IN THIS SECTION, ALL WARRANTIES OF NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY
RIGHTS ARE HEREBY DISCLAIMED BY 8x8.<BR>
</LI></OL>

<B><LI>ST Indemnification<BR>
</LI>
<OL TYPE="a">

</B><LI>ST shall indemnify and hold 8x8, their respective officers, directors,
employees and agents (hereafter referred individually or collectively as
&quot;8x8 Indemnitees&quot;) harmless and shall pay all costs, damages, and
reasonable attorneys' fees and expenses relating to 8x8 Indemnitees defense
resulting from any suit, claim, demand, or other action by a third party against
8x8 Indemnitees based upon a finding that any ST Technology infringes the IP
Rights of a third party (&quot;8x8 Infringement Claim&quot;), provided that: (i)
8x8 gives written notice to ST within ten (10) business days of notice of such
8x8 Infringement Claim; (ii) 8x8 allows ST at its expense through attorneys of
its own choice, to exclusively defend or control the defense of any 8x8
Infringement Claim; and (iii) 8x8 assists ST in all reasonable aspects in such
investigation and defense, and is reimbursed by ST for all the reasonable costs
incurred in collaborating in such investigation and defense.  The foregoing
indemnity obligations shall specifically not apply to any claim excluded under
Section  (b) below.  If, as a result of a 8x8 Infringement Claim, 8x8
Indemnitees are enjoined from using the ST Technology, or selling 8x8 LX Chips,
ST may in its sole discretion, (i) procure for 8x8 Indemnitees the right to use
the ST Technology under the same terms and conditions set forth in this Section
or (ii) provide 8x8 Indemnitees with modified ST Technology that is non-
infringing while still meeting substantially the same functional specifications
as the ST Technology.<BR>
</LI>
<LI>ST shall have no obligation hereunder for any 8x8 Infringement Claim which
results from: (a)&nbsp;the combination of the ST Technology with other products
;  (b)&nbsp;the modification of the ST Technology by parties other than ST (or
not authorized by ST); (c)&nbsp;the Enhancements of the ST Technology by or for
8x8.<BR>
</LI>
<LI>THIS SECTION STATES THE ENTIRE LIABILITY OF ST AND THE EXCLUSIVE REMEDY OF
8x8 WITH RESPECT TO ANY AND ALL INFRINGEMENT CLAIMS.  EXCEPT AS EXPRESSLY STATED
IN THIS SECTION, ALL WARRANTIES OF NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY
RIGHTS ARE HEREBY DISCLAIMED BY ST.<BR>
</LI></OL>

<B><LI>Term and Termination.  <BR>
</LI>
<OL TYPE="a">

</B><LI>This Agreement shall become effective upon the Effective Date and shall
continue for a period of five (5) years (&quot;Term&quot;), extended with
additional one-year renewal periods should the parties agree in writing. <BR>
</LI>
<LI>This Agreement may be terminated by either party upon notice if the other
party (i) breaches any material term or condition of this Agreement and fails to
remedy the breach within thirty (30) days after being given notice thereof, or
(ii) becomes the subject of any voluntary or involuntary proceeding under the
applicable national or state bankruptcy or insolvency laws and such proceeding
is not terminated within sixty (60) days of its commencement.<BR>
</LI>
<LI>In the event of termination of this Agreement for breach or bankruptcy as
provided herein, the license rights of the non-terminated party pursuant to
licenses granted hereunder shall survive such termination, and the license
rights of the terminated party pursuant to the licenses granted hereunder shall
survive only to the extent required to protect the interest of existing,
committed customers of the terminated party, and in particular the terminated
party shall have the right to (i) complete and sell or otherwise dispose of any
work-in-progress existing in its manufacturing plants at the time of
termination, (ii) sell and otherwise dispose of any relevant product in stock,
(iii) complete any orders for relevant product existing at the time of
termination and (iv) continue to provide technical support to its customers.<BR>
</LI>
<LI>Notwithstanding anything to the contrary herein, no expiration or
termination of this Agreement shall diminish the rights of any customer who has
purchased product to continue to use and/or sell or otherwise dispose of the
same.<BR>
</LI>
<LI>Notwithstanding anything to the contrary herein, no expiration or
termination of this Agreement shall relieve either party of its obligation to
pay any sum due hereunder.<BR>
</LI>
<LI>The provisions of Sections&nbsp;22, 23, 24, 25, 26, 27,and 30 shall survive
any termination of this Agreement. <BR>
</LI>
<LI>Furthermore, unless terminated under Section 25(b) above, the provisions of
Sections 3, 4, 6, 8 and 11shall survive termination of this agreement to the
extent that either party may, under the terms of this Agreement (i) complete any
product development work-in-progress prior to the date of termination but not
initiate any new product development effort using the technology licensed
hereunder; (ii) continue to make, have manufactured, commercialize, sell or
otherwise dispose of products subject to the licenses herein; and (iii) continue
to sublicense the rights to its customers to develop, make, have manufactured,
commercialize, sell or otherwise dispose of products that contain the technology
subject to the licenses herein. <BR>
</LI></OL>

<B><LI>Confidentiality<A NAME="_Ref453476741"> <BR>
</LI>
<OL TYPE="a">

</B><LI>For the purposes of this agreement, Confidential Information shall mean
the terms of this Agreement as well as any proprietary information and data of
either party, contained in written or tangible form which is marked as
&quot;Internal Use Only&quot;, &quot;Proprietary&quot;,
&quot;Confidential&quot;, or similar words. One party's, including its
Affiliates (&quot;Disclosing Party&quot;) Confidential Information shall also
include its confidential information and data orally disclosed to the other
party including its Affiliates (&quot;Receiving Party&quot;)as long as such
verbal disclosures are marked as &quot;Confidential&quot; or similar wording
within 30 days of the verbal disclosure.  However, Confidential Information
shall not include any data or information which<I>:</A></I><BR>
</LI>
<OL TYPE="i">

<LI>Is or becomes publicly available through no fault of the Receiving
Party;<BR>
</LI>
<LI>Is already in the rightful possession of the Receiving Party prior to its
receipt of such data or information;<BR>
</LI>
<LI>Is independently developed by the Receiving Party without reference to the
Confidential Information of the Disclosing Party;<BR>
</LI>
<LI>Is rightfully obtained by the Receiving Party from a third party or in the
public domain;<BR>
</LI>
<LI>Is disclosed with the written consent of the Party whose information it is;
or<BR>
</LI>
<LI>Is disclosed pursuant to court order or other legal compulsion, after
providing prior written  notice to the Disclosing Party of the intended
disclosure.<BR>
</LI></OL>

<LI>The Receiving Party shall and for a period of ten (10) years following
receipt of the Confidential Information, hold all Confidential Information of
the Disclosing Party in confidence, not disclose such Confidential Information
to any third parties except those with a need to know in connection with or
during the performance of this Agreement  who have executed a confidentiality
agreement with terms at least as restrictive with regard to the Disclosing
Party's information as those set forth herein, and in general use the same
degree of care to protect the confidentiality of the Disclosing Party's
Confidential Information as it uses with respect to its own information of a
similar nature. <BR>
</LI>
<LI>Neither 8x8 nor ST shall use the other party's Confidential Information for
another or other purpose than for the purposes set forth in this Agreement.<BR>
</LI>
<LI>Except as otherwise provided in Section 25(a) above, upon termination of
this Agreement all of the Disclosing Party`s Confidential Information and all
copies thereof in the Receiving Party's possession or control shall be
immediately returned to the Disclosing Party or destroyed by the Receiving Party
at the Disclosing Party's instruction. The Receiving Party shall then certify
the same in writing and that no copies have been retained by the Receiving
Party, its employees, Affiliates, contractors, or other parties to whom such
information is provided.<BR>
</LI>
<LI>The Receiving Party acknowledges that the unauthorized disclosure of the
Disclosing Party Confidential Information will cause irreparable harm and
significant injury, the scope of which is difficult to ascertain. Accordingly,
the Receiving Party agrees that the Disclosing Party shall have the right to an
immediate injunction enjoining any such unauthorized disclosure.<BR>
</LI></OL>

<B><LI>Limitation of Liability <BR>
</LI>
<OL TYPE="a">

</B><LI>EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER OR TO ANY THIRD PARTY FOR ANY SPECIAL,
INDIRECT, PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT
LIMITATION, LOSS OF PROFITS), CAUSED BY ANY BREACH OF ITS OBLIGATIONS TO THE
OTHER ARISING OUT OF OR RELATING TO THIS AGREEMENT, REGARDLESS OF THE FORM OF
ACTION, WHETHER IN CONTRACT OR IN TORT, EVEN IF THE BREACHING PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.<BR>
</LI>
<LI>IN NO EVENT SHALL THE TOTAL LIABILITY OF 8x8 TO ST ARISING UNDER SECTION 23
&quot;INDEMNIFICATION&quot; HEREOF EXCEED THE TOTAL AMOUNT PAID BY ST TO 8x8
WITH RESPECT TO THE 8X8 CODE CONTAINING THE IP RIGHTS SUBJECT MATTER OF THE
CLAIM, PROVIDED THAT SUCH TOTAL AMOUNT SHALL NOT EXCEED THE LESSER OF THE AMOUNT
OF ROYALTIES PAID BY ST TO 8x8 HEREUNDER OR FIVE HUNDRED THOUSAND U.S. DOLLARS
($500,000). <BR>
</LI>
<LI>IN NO EVENT SHALL THE TOTAL LIABILITY OF ST TO 8x8 ARISING UNDER SECTION 24
&quot;INDEMNIFICATION&quot; HEREOF EXCEED THE TOTAL AMOUNT PAID BY 8x8 TO ST
WITH RESPECT TO THE LX TECHNOLOGY CONTAINING THE IP RIGHTS SUBJECT MATTER OF THE
CLAIM, PROVIDED THAT SUCH TOTAL AMOUNT SHALL NOT EXCEED THE LESSER OF THE AMOUNT
OF ROYALTIES PAID BY 8X8 TO ST HEREUNDER OR FIVE HUNDRED THOUSAND U.S. DOLLARS
($500,000). <BR>
</LI>
<LI>IN NO EVENT SHALL THE TOTAL LIABILITY OF EITHER PARTY TO THE OTHER PARTY FOR
ANY LOSS, DAMAGE OR LIABILITY ARISING FROM A BREACH OF THIS AGREEMENT EXCEED THE
LESSER OF THE SUM TOTAL OF THE ROYALTIES PAID BY THE NON-PAYING PARTY OR FIVE
HUNDRED THOUSAND DOLLARS ($500,000) PROVIDED (1) THAT SUCH LIMIT SHALL NOT APPLY
IN THE EVENT OF A WILLFUL MISUSE OR WILLFULLY UNLAWFUL DISTRIBUTION OF THE
TECHNOLOGY LICENSED HEREUNDER, AND (2) PROVIDED THAT SUCH LIMITATION SHALL NOT
APPLY IN THE EVENT THAT EITHER PARTY FAILS TO PAY THE ROYALTIES DUE BY ONE PARTY
TO THE OTHER AS SET FORTH HEREIN, NOTWITHSTANDING THE ABOVE LANGUAGE IN (2), THE
TOTAL LIABILITY OWED IN A DISPUTE FOR ROYALTIES SHALL BE THE AMOUNT OF ROYALTIES
OWED PLUS ANY INTEREST OWED UNDER SECTION 14.</LI></OL>


<B><LI>Affiliates.</B>  Both parties will be able to apply this agreement and
the license herein to itself and its affiliate companies.  Affiliate companies
shall be defined to be an entity controlling, controlled by, or under common
control as of the Effective Date or thereafter during the term of this
Agreement, with ST or 8x8 as the case may be, provided that such entity shall be
considered an Affiliate only for the time during which such control exists.  For
purposes of this definition &quot;control&quot; shall mean ownership or control,
either directly or indirectly, of greater than 50% of the voting rights of such
entity.</LI>

<B><LI>Public Announcements.</B>  8x8 and ST will use reasonable efforts to
issue a mutually agreeable joint press release.  Otherwise, neither party shall
make any announcement or press release regarding this Agreement or any terms
thereof without the other Party's prior written consent. However, either party
is free to file with the SEC or other relevant government agencies any document
required to be filed thereon advice of counsel (redacted in a form advised by
counsel).  </LI>
<U>
</U><B><LI>Assignment</B>.   This Agreement may not be assigned by either party,
nor any of such party's rights or obligations hereunder, to any third party
including without limitation through a U.S. Bankruptcy Code Chapter 11
reorganization, without prior written consent of the other party. For purposes
of this section, a change of control of a Party resulting from one transaction
or a series of related transactions shall be deemed to result in an assignment
or transfer of this Agreement.  Control shall mean direct or indirect ownership
or control of fifty percent (50%) or more of the outstanding shares of stock
entitled to vote for the election of directors (other than restricted shares of
stock). In the event that this Agreement is assigned effectively to a third
party, this Agreement shall bind upon successors and assigns of the Parties
hereto.<BR>
</LI>
<B><LI>Force Majeure</B>.  Neither party shall be liable to the other party for
failure of or delay in performance of any obligation under this Agreement,
directly or indirectly, owing to acts of God, war, war-like condition,
embargoes, riots, strike and other events beyond its reasonable control. In the
event that such failure or delay occurs, the affected party shall notify the
other party of the occurrence thereof as soon as possible and the parties shall
discuss the best way to resolve the event of force majeure.</LI>

<B><LI>Notices</B>.  All notices provided for in connection with this Agreement
shall be given in writing and shall be effective (i)&nbsp;upon receipt, when
served by personal delivery; or (ii)&nbsp;the next day following the date of
transmittal when transmitted by facsimile; or (iii)&nbsp;on the third day
following the date of  transmittal when transmitted by express mail; or
(iv)&nbsp;on the 7th day following the date of mailing when sent by registered
airmail of the sender's country with postage prepaid, addressed to the Party as
follows, or to a changed address as the Party shall have specified by prior
written notice:  ST:  ST Microelectronics, Inc. at 1310 Electronics Drive
Carrollton, TX 75006 USA. Attention: General Counsel; and  8x8:   8x8, Inc. 2445
Mission College Blvd. Santa Clara, California 95054  Attention: Chief Financial
Officer.</LI>

<B><LI>Waiver</B>.  The waiver by either party of the remedy for the other
party's breach of or its right under this Agreement will not constitute a waiver
of the remedy for any other similar or subsequent breach or right.</LI>
<U>
</U><B><LI>Severability.</B>  If any provision of this Agreement is or becomes,
at any time or for any reason, unenforceable or invalid, no other provision of
this Agreement shall be affected thereby, and the remaining provisions of this
Agreement shall continue with the same force and effect as if such unenforceable
or invalid provisions had not been inserted in this Agreement.<A
NAME="_Ref453473064"></LI>
<U>
</U><B><LI>Amendment. </B> No changes, modifications or alterations to this
Agreement shall be valid unless reduced to writing and duly signed by the
respective authorized representative of each party.</A></LI>

<B><LI>Governing Law.</B>  This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the State of Delaware, USA without
respect to its conflict of law provisions.</LI>
<U>
</U><B><LI>No Partnership.</B> In giving effect to this Agreement, no party
shall be or be deemed to be an agent or employee of another party for any
purpose, and that their relationship to each other shall be that of independent
contractors. Nothing in this Agreement shall constitute a partnership or a joint
venture between the parties. No party shall have the right to enter into
contracts or pledge the credit of or incur expenses or liability on behalf of
the other party.<BR>
</LI>
<LI>8X8 acknowledges that in consideration of the licenses granted by ST herein,
8X8 agrees that for the Term of the Agreement the 8X8 LX Chips shall be
restricted to applications that include  audio telephony and/or video telephony
functions unless otherwise specifically agreed to in writing between the
parties. In the event that ST and 8x8 determine that 8x8 is attempting to sell
the 8x8 LX Chips and ST is attempting to sell ST Chips to the same prospect or
customer for the same application, the parties agree to negotiate in good faith
to avoid confusing such a customer.</LI>

<B><LI>Entire Agreement</B>.  This Agreement constitute the entire agreement
between the parties and supersede all prior proposal(s) and discussions relative
to the subject matter of this Agreement and neither of the parties shall be
bound by any conditions, definitions, warranties, understandings or
representations with respect to the subject matter other than as expressly
provided herein. The terms and conditions contained herein and the appendixes
attached hereto constitute the entire agreement between the parties and shall
supersede all previous communications either oral or written between the parties
with respect to the subject matter hereof. No oral explanation or oral
information by either party hereto shall alter the meaning or interpretation of
this Agreement.</LI></OL>

<B>
<P>IN WITNESS THEREOF</B>, the Parties hereto have executed this Agreement on
the Effective Date.</P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=590>
<TR><TD WIDTH="50%" VALIGN="MIDDLE" COLSPAN=2 HEIGHT=24>
<FONT SIZE=2><P>For STMicroelectronics N.V.</FONT></TD>
<TD WIDTH="3%" VALIGN="MIDDLE" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="MIDDLE" COLSPAN=2 HEIGHT=24>
<FONT SIZE=2><P>For 8x8, Inc.</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="MIDDLE" HEIGHT=24>
<FONT SIZE=2><P>Name:</FONT></TD>
<TD WIDTH="38%" VALIGN="MIDDLE" HEIGHT=24>
<FONT SIZE=2><P>Philippe Geyres</FONT></TD>
<TD WIDTH="3%" VALIGN="MIDDLE" HEIGHT=24><P></P></TD>
<TD WIDTH="13%" VALIGN="MIDDLE" HEIGHT=24>
<FONT SIZE=2><P>Name:</FONT></TD>
<TD WIDTH="34%" VALIGN="MIDDLE" HEIGHT=24>
<FONT SIZE=2><P>Christopher Peters</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="MIDDLE" HEIGHT=24>
<FONT SIZE=2><P>Title:</FONT></TD>
<TD WIDTH="38%" VALIGN="MIDDLE" HEIGHT=24>
<FONT SIZE=2><P>Corporate Vice President, G.M. CMG</FONT></TD>
<TD WIDTH="3%" VALIGN="MIDDLE" HEIGHT=24><P></P></TD>
<TD WIDTH="13%" VALIGN="MIDDLE" HEIGHT=24>
<FONT SIZE=2><P>Title:</FONT></TD>
<TD WIDTH="34%" VALIGN="MIDDLE" HEIGHT=24>
<FONT SIZE=2><P>Corporate Development Officer</FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="MIDDLE" HEIGHT=24>
<FONT SIZE=2><P>Signature:</FONT></TD>
<TD WIDTH="38%" VALIGN="MIDDLE" HEIGHT=24>
<FONT SIZE=2><P>/s/  Philippe Geyres</FONT></TD>
<TD WIDTH="3%" VALIGN="MIDDLE" HEIGHT=24><P></P></TD>
<TD WIDTH="13%" VALIGN="MIDDLE" HEIGHT=24>
<FONT SIZE=2><P>Signature:</FONT></TD>
<TD WIDTH="34%" VALIGN="MIDDLE" HEIGHT=24>
<FONT SIZE=2><P>/s/  Christopher Peters</FONT></TD>
</TR>
</TABLE>

<FONT SIZE=2></FONT>
</BODY>
</HTML>


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.22
<SEQUENCE>5
<FILENAME>exh10-22.htm
<DESCRIPTION>EXHIBIT
<TEXT>

<HTML>
<HEAD>
<TITLE>25102(o) Exempt Plan</TITLE>
</HEAD>
<BODY>

<p align="right">
                                                           Exhibit 10.22

<B><P ALIGN="CENTER">NETERGY MICROELECTRONICS, INC.</P>
<P ALIGN="CENTER">2000 STOCK OPTION PLAN</P>
<P ALIGN="CENTER">&nbsp;</P>
<OL>

<OL>

</B><FONT FACE="Times New Roman" SIZE=2><U>
<P ALIGN="JUSTIFY"><LI>Purposes&nbsp;of&nbsp;the&nbsp;Plan</U>.  The purposes of
this Stock Option Plan are to attract and retain the best available personnel
for positions of substantial responsibility, to provide additional incentive to
Employees, Directors and Consultants and to promote the success of the Company's
business.  Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. </LI></P>
<U><P ALIGN="JUSTIFY"><LI>Definitions</U>.  As used herein, the following
definitions shall apply:</LI></P>
<OL TYPE="a">

<P ALIGN="JUSTIFY"><LI>"<U>Administrator</U>" means the Board or any of its
Committees as shall be administering the Plan in accordance with Section&nbsp;4
hereof. </LI></P>
<P ALIGN="JUSTIFY"><LI>"<U>Applicable Laws</U>" means the requirements relating
to the administration of stock option plans under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any other country or jurisdiction where Options are granted
under the Plan.</LI></P>
<P ALIGN="JUSTIFY"><LI>"<U>Board</U>" means the Board of Directors of the
Company.</LI></P>
<LI>"<U>Change in Control</U>" means the occurrence of any of the following
events:</LI>
<OL TYPE="i">

<LI>Any &quot;person&quot; (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) becomes the &quot;beneficial owner&quot; (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Company's then outstanding voting securities; or</LI>
<LI>The consummation of the sale or disposition by the Company of all or
substantially all of the Company's assets; or</LI>
<LI>The consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its parent) at least fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity or its parent outstanding immediately after
such merger or consolidation.</LI></OL>

<P ALIGN="JUSTIFY"><LI>&quot;<U>Code</U>&quot; means the Internal Revenue Code
of 1986, as amended.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Committee</U>&quot; means a committee of
Directors appointed by the Board in accordance with Section&nbsp;4
hereof.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Common Stock</U>&quot; means the Common Stock of
the Company.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Company</U>&quot; means Netergy
Microelectronics, Inc., a<B> </B>California corporation.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Consultant</U>&quot; means any natural person
who is engaged by the Company or any Parent or Subsidiary to render consulting
or advisory services to such entity and who satisfies the requirements of
subsection (c)(1) of Rule 701 under the Securities Act of 1933, as amended.
</LI></P>
<P ALIGN="JUSTIFY"><LI> &quot;<U>Director</U>&quot; means a member of the
Board.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Disability</U>&quot; means total and permanent
disability as defined in Section&nbsp;22(e)(3) of the Code.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Employee</U>&quot; means any person, including
officers and Directors, employed by the Company or any Parent or Subsidiary of
the Company.  A Service Provider shall not cease to be an Employee in the case
of (i)&nbsp;any leave of absence approved by the Company or (ii)&nbsp;transfers
between locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor.  For purposes of Incentive Stock Options, no such
leave may exceed ninety (90) days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract.  If reemployment upon expiration of
a leave of absence approved by the Company is not so guaranteed, then three (3)
months following the 91st day of such leave, any Incentive Stock Option held by
the Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option.  Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute &quot;employment&quot; by the Company.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Exchange Act</U>&quot; means the Securities
Exchange Act of 1934, as amended. </LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Fair Market Value</U>&quot; means, as of any
date, the value of Common Stock determined as follows:</LI></P>
<OL TYPE="i">

<P ALIGN="JUSTIFY"><LI>If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in <I>The Wall Street Journal</I> or such
other source as the Administrator deems reliable;</LI></P>
<P ALIGN="JUSTIFY"><LI>If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the day of determination; or</LI></P>
<P ALIGN="JUSTIFY"><LI>In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator. </LI></P></OL>

<P ALIGN="JUSTIFY"><LI>&quot;<U>Incentive Stock Option</U>&quot; means an Option
intended to qualify as an incentive stock option within the meaning of
Section&nbsp;422 of the Code. </LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Nonstatutory Stock Option</U>&quot; means an
Option not intended to qualify as an Incentive Stock Option.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Option</U>&quot; means a stock option granted
pursuant to the Plan.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Option Agreement</U>&quot; means a written or
electronic agreement between the Company and an Optionee evidencing the terms
and conditions of an individual Option grant.  The Option Agreement is subject
to the terms and conditions of the Plan.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Optioned&nbsp;Stock</U>&quot; means the Common
Stock subject to an Option.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Optionee</U>&quot; means the holder of an
outstanding Option granted under the Plan.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Parent</U>&quot; means a &quot;parent
corporation,&quot; whether now or hereafter existing, as defined in
Section&nbsp;424(e) of the Code. </LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Plan</U>&quot; means this 2000 Stock Option
Plan.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Service Provider</U>&quot; means an Employee,
Director or Consultant.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Share</U>&quot; means a share of the Common
Stock, as adjusted in accordance with Section&nbsp;12 below.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Subsidiary</U>&quot; means a &quot;subsidiary
corporation,&quot; whether now or hereafter existing, as defined in
Section&nbsp;424(f) of the Code. </LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Stock&nbsp;Subject&nbsp;to&nbsp;the&nbsp;Plan</U>.
Subject to the provisions of Section&nbsp;12 of the Plan, the maximum aggregate
number of Shares that may be subject to option and sold under the Plan is
5,000,000 Shares.  The Shares may be authorized but unissued, or reacquired
Common Stock.</LI></P>
<P ALIGN="JUSTIFY">&#9;If an Option expires or becomes unexercisable without
having been exercised in full, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated).  However, Shares that have actually been issued under the Plan,
upon exercise of an Option, shall not be returned to the Plan and shall not
become available for future distribution under the Plan, except that if Shares
of restricted stock issued pursuant to an Option are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan.</P>
<U><P
ALIGN="JUSTIFY"><LI>Administration&nbsp;of&nbsp;the&nbsp;Plan</U>.</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Administrator</U>.  The Plan shall be administered by
the Board or a Committee appointed by the Board, which Committee shall be
constituted to comply with Applicable Laws.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Powers&nbsp;of&nbsp;the&nbsp;Administrator</U>.
Subject to the provisions of the Plan and, in the case of a Committee, the
specific duties delegated by the Board to such Committee, and subject to the
approval of any relevant authorities, the Administrator shall have the authority
in its discretion:</LI></P>
<OL TYPE="i">

<P ALIGN="JUSTIFY"><LI>to determine the Fair Market Value;</LI></P>
<P ALIGN="JUSTIFY"><LI>to select the Service Providers to whom Options may from
time to time be granted hereunder;</LI></P>
<P ALIGN="JUSTIFY"><LI>to determine the number of Shares to be covered by each
such Option granted hereunder;</LI></P>
<P ALIGN="JUSTIFY"><LI>to approve forms of agreement for use under the
Plan;</LI></P>
<P ALIGN="JUSTIFY"><LI>to determine the terms and conditions of any Option
granted hereunder.  Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or the Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;</LI></P>
<P ALIGN="JUSTIFY"><LI>to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws;</LI></P>
<P ALIGN="JUSTIFY"><LI>to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option that number of Shares having a Fair Market Value equal to
the minimum amount required to be withheld.  The Fair Market Value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined.  All elections by Optionees to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and</LI></P>
<P ALIGN="JUSTIFY"><LI>to construe and interpret the terms of the Plan and
Options granted pursuant to the Plan.</LI></P></OL>

<U><LI>Effect&nbsp;of&nbsp;Administrator's&nbsp;Decision</U>.  All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.</LI></OL>

<U><LI>Eligibility</U>.  Nonstatutory Stock Options may be granted to Service
Providers.  Incentive Stock Options may be granted only to Employees.</LI>
<U><LI>Limitations</U>.</LI>
<OL TYPE="a">

<U><LI>Incentive Stock Option Limit</U>.  Each Option shall be designated in the
Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option.  However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by the Optionee during any calendar
year (under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options.  For
purposes of this Section&nbsp;6(a), Incentive Stock Options shall be taken into
account in the order in which they were granted.  The Fair Market Value of the
Shares shall be determined as of the time the Option with respect to such Shares
is granted.</LI>
<U><P ALIGN="JUSTIFY"><LI>At-Will Employment</U>.  Neither the Plan nor any
Option shall confer upon any Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
such relationship at any time, with or without cause, and with or without
notice.</LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Term&nbsp;of&nbsp;Plan</U>.  Subject to shareholder
approval in accordance with Section 18, the Plan shall become effective upon its
adoption by the Board.  Unless sooner terminated under Section 14, it shall
continue in effect for a term of ten&nbsp;(10) years from the later of (i) the
effective date of the Plan, or (ii) the date of the most recent Board approval
of an increase in the number of shares reserved for issuance under the
Plan.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Term of Option</U>.  The term of each Option shall be
stated in the Option Agreement; provided, however, that the term shall be no
more than ten&nbsp;(10) years from the date of grant thereof.  In the case of an
Incentive Stock Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Option shall be five&nbsp;(5) years from the date of grant or such shorter
term as may be provided in the Option Agreement.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Option Exercise Price and Consideration</U>.</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Exercise Price</U>.  The per share exercise price for
the Shares to be issued upon exercise of an Option shall be such price as is
determined by the Administrator, but shall be subject to the following:</LI></P>
<OL TYPE="i">

<P ALIGN="JUSTIFY"><LI>In the case of an Incentive Stock Option</LI></P>
<OL TYPE="A">

<P ALIGN="JUSTIFY"><LI>granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.</LI></P>
<P ALIGN="JUSTIFY"><LI>granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.</LI></P></OL>

<P ALIGN="JUSTIFY"><LI>In the case of a Nonstatutory Stock Option</LI></P>
<OL TYPE="A">

<P ALIGN="JUSTIFY"><LI>granted to a Service Provider who, at the time of grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.</LI></P>
<P ALIGN="JUSTIFY"><LI>granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.</LI></P></OL>

<P ALIGN="JUSTIFY"><LI>Notwithstanding the foregoing, Options may be granted
with a per Share exercise price other than as required above pursuant to a
merger or other corporate transaction.</LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Forms of Consideration</U>.  The consideration to be
paid for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Administrator (and, in the case of
an Incentive Stock Option, shall be determined at the time of grant).  Such
consideration  may consist of, without limitation, (1)&nbsp;cash,
(2)&nbsp;check, (3) promissory note, (4)&nbsp;other Shares, provided Shares
acquired directly from the Company (x) have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y)&nbsp;have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which such Option shall be exercised, (5)&nbsp;consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan, or (6)&nbsp;any combination of the
foregoing methods of payment. In making its determination as to the type of
consideration to accept, the Administrator shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
Notwithstanding the foregoing, the Administrator may permit an Optionee to
exercise his or her Option by delivery of a full-recourse promissory note
secured by the purchased Shares.  The terms of such promissory note shall be
determined by the Administrator in its sole discretion.</LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Exercise&nbsp;of&nbsp;Option</U>.</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Procedure&nbsp;for&nbsp;Exercise; Rights as a
Shareholder</U>.  Any Option granted hereunder shall be exercisable according to
the terms hereof at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement.  Except in the case of
Options granted to officers, Directors and Consultants, Options shall become
exercisable at a rate of no less than 20% per year over five&nbsp;(5) years from
the date the Options are granted.  Unless the Administrator provides otherwise,
vesting of Options granted hereunder to officers and Directors shall be
suspended during any unpaid leave of absence.  An Option may not be exercised
for a fraction of a Share.</LI></P>
<P ALIGN="JUSTIFY">An Option shall be deemed exercised when the Company receives
(i)&nbsp;written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii)&nbsp;full
payment for the Shares with respect to which the Option is exercised.  Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan.  Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option.  The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised.  No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section&nbsp;12 of the Plan.</P>
<P ALIGN="JUSTIFY">&#9;&#9;Exercise of an Option in any manner shall result in a
decrease in the number of Shares thereafter available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.</P>
<U><P ALIGN="JUSTIFY"><LI>Termination&nbsp;of Relationship as a Service
Provider</U>.  If an Optionee ceases to be a Service Provider, such Optionee may
exercise his or her Option within thirty (30) days of termination, or such
longer period of time as specified in the Option Agreement, to the extent that
the Option is vested on the date of termination (but in no event later than the
expiration of the term of the Option as set forth in the Option Agreement).  If,
on the date of termination, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall revert to
the Plan.  If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the
Plan.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Disability of Optionee</U>.  If an Optionee ceases to
be a Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within six (6) months of termination, or such longer
period of time as specified in the Option Agreement, to the extent the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement).  If, on the date
of termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Death&nbsp;of&nbsp;Optionee</U>.  If an Optionee dies
while a Service Provider, the Option may be exercised within six (6) months
following Optionee's death, or such longer period of time as specified in the
Option Agreement, to the extent that the Option is vested on the date of death
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement) by the Optionee's designated beneficiary,
provided such beneficiary has been designated prior to Optionee's death in a
form acceptable to the Administrator.  If no such beneficiary has been
designated by the Optionee, then such Option may be exercised by the personal
representative of the Optionee's estate or by the person(s) to whom the Option
is transferred pursuant to the Optionee's will or in accordance with the laws of
descent and distribution.  If, at the time of death, the Optionee is not vested
as to his or her entire Option, the Shares covered by the unvested portion of
the Option shall immediately revert to the Plan.  If the Option is not so
exercised within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.</LI></P></OL>

<U><LI>Limited Transferability&nbsp;of&nbsp;Options</U>.  Unless determined
otherwise by the Administrator, Options may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
the laws of descent and distribution, and may be exercised during the lifetime
of the Optionee, only by the Optionee.  If the Administrator in its sole
discretion makes an Option transferable, such Option may only be transferred by
(i) will, (ii) the laws of descent and distribution, (iii) instrument to an
inter vivos or testamentary trust in which the Option is to be passed to
beneficiaries upon the death of the Optionee, or (iv) gift to a member of
Optionee's immediate family (as such term is defined in Rule 16a-1(e) of the
Exchange Act).  In addition, any transferable Option shall contain additional
terms and conditions as the Administrator deems appropriate.</LI>
<U><P
ALIGN="JUSTIFY"><LI>Adjustments&nbsp;Upon&nbsp;Changes&nbsp;in&nbsp;Capitalizati
on, Merger or Change in Control</U>.</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Changes in Capitalization</U>.  Subject to any
required action by the shareholders of the Company, the number and type of
Shares which have been authorized for issuance under the Plan but as to which no
Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, and the number and type of Shares
covered by each outstanding Option, as well as the price per Share covered by
each such outstanding Option, shall be proportionately adjusted for any increase
or decrease in the number or type of issued Shares resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of issued shares
of Common Stock effected without receipt of consideration by the Company.  The
conversion of any convertible securities of the Company shall not be deemed to
have been &quot;effected without receipt of consideration.&quot;  Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive.  Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number, type or price of
Shares subject to an Option.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Dissolution or Liquidation</U>.  In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify each Optionee as soon as practicable prior to the effective date of such
proposed transaction.  The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until fifteen&nbsp;(15)
days prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not otherwise be exercisable.  In
addition, the Administrator may provide that any Company repurchase option
applicable to any Shares purchased upon exercise of an Option shall lapse as to
all such Shares, provided the proposed dissolution or liquidation takes place at
the time and in the manner contemplated.  To the extent it has not been
previously exercised, an Option will terminate immediately prior to the
consummation of such proposed action.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Change in Control</U>.  In the event of a Change in
Control, each outstanding option shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Change in
Control, become fully exercisable with respect to the total number of shares of
Common Stock at the time subject to such option and may be exercised for any or
all of those shares as fully-vested shares of Common Stock.  However, an
outstanding option shall not so accelerate if and to the extent the acceleration
of such option is subject to other limitations imposed by the Administrator at
the time of the option grant. </LI></P></OL>

<P ALIGN="JUSTIFY">Immediately following the consummation of the Change in
Control, all outstanding options shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation (or parent
thereof).</P>
<P ALIGN="JUSTIFY">The portion of any Incentive Stock Option accelerated in
connection with a Change in Control shall remain exercisable as an Incentive
Stock Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded.  To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Stock Option under Federal tax laws.</P>
<P ALIGN="JUSTIFY">The outstanding options shall in no way affect the right of
the Company to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.</P>
<U><P ALIGN="JUSTIFY"><LI>Time&nbsp;of&nbsp;Granting&nbsp;Options</U>.  The date
of grant of an Option shall, for all purposes, be the date on which the
Administrator makes the determination granting such Option, or such later date
as is determined by the Administrator.  Notice of the determination shall be
given to each Service Provider to whom an Option is so granted within a
reasonable time after the date of such grant.</LI></P>
<U><P
ALIGN="JUSTIFY"><LI>Amendment&nbsp;and&nbsp;Termination&nbsp;of&nbsp;the&nbsp;Pl
an</U>.</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Amendment and Termination</U>.  The Board may at any
time amend, alter, suspend or terminate the Plan.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Shareholder Approval</U>.  The Board shall obtain
shareholder approval of any Plan amendment to the extent necessary and desirable
to comply with Applicable Laws. </LI></P>
<U><P
ALIGN="JUSTIFY"><LI>Effect&nbsp;of&nbsp;Amendment&nbsp;or&nbsp;Termination</U>.
No amendment, alteration, suspension or termination of the Plan shall impair the
rights of any Optionee, unless mutually agreed otherwise between the Optionee
and the Administrator, which agreement must be in writing and signed by the
Optionee and the Company.  Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such
termination.</LI></P></OL>

<U><P
ALIGN="JUSTIFY"><LI>Conditions&nbsp;Upon&nbsp;Issuance&nbsp;of&nbsp;Shares</U>.<
/LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Legal Compliance</U>.  Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares shall comply with Applicable Laws and shall
be further subject to the approval of counsel for the Company with respect to
such compliance.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Investment Representations</U>.  As a condition to the
exercise of an Option, the Administrator may require the person exercising such
Option to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required.</LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Inability to Obtain Authority</U>.  The inability of
the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Reservation&nbsp;of&nbsp;Shares</U>.  The Company,
during the term of this Plan, shall at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the requirements of the
Plan.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Shareholder Approval</U>.  The Plan shall be subject
to approval by the shareholders of the Company within twelve&nbsp;(12) months
after the date the Plan is adopted.  Such shareholder approval shall be obtained
in the degree and manner required under Applicable Laws.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Information to Optionees</U>.  The Company shall
provide to each Optionee and to each individual who acquires Shares pursuant to
the Plan, not less frequently than annually during the period such Optionee has
one or more Options outstanding, and, in the case of an individual who acquires
Shares pursuant to the Plan, during the period such individual owns such Shares,
copies of annual financial statements.  The Company shall not be required to
provide such statements to key employees whose duties in connection with the
Company assure their access to equivalent information.</LI></P></OL>
</OL>

<B><P ALIGN="CENTER">NETERGY MICROELECTRONICS, INC</P>
<P ALIGN="CENTER">2000 STOCK OPTION PLAN</P>
<P ALIGN="CENTER">STOCK OPTION AGREEMENT</P>
</B><P ALIGN="JUSTIFY">Unless otherwise defined herein, the terms defined in the
2000 Stock Option Plan (the &quot;Plan&quot;) shall have the same defined
meanings in this Stock Option Agreement.</P>
<B><P>I.</B>&#9;<B><U>NOTICE OF STOCK OPTION GRANT</P>
</B></U><P ALIGN="JUSTIFY">The undersigned Optionee has been granted an Option
to purchase Common Stock of Netergy Microelectronics, Inc. (the
&quot;Company&quot;), subject to the terms and conditions of the Plan and this
Option Agreement, as follows:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="LEFT"><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=558>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Name</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Date of Grant</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Vesting Commencement Date</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Exercise Price per Share</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Total Number of Shares Granted</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Total Exercise Price</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Type of Option</FONT></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=24><P></P></TD>
<TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Incentive Stock Option</FONT></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=24><P></P></TD>
<TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Nonstatutory Stock Option</FONT></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Term/Expiration Date</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
</TABLE>
</P>

<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">&nbsp;</P>
<U><P ALIGN="JUSTIFY">Vesting Schedule and Limitations</U>:</P>
<P ALIGN="JUSTIFY"> The Option shall become exercisable with respect to, (i)
twenty-five percent (25%) of the Option Shares upon Optionee's completion of one
(1) year of Service measured from the Vesting Commencement Date and (ii) the
balance of the Option Shares in a series of thirty-six (36) successive equal
monthly installments, subject to Optionee continuing to be an Employee, over the
thirty-six (36) month period measured from the first anniversary of the Vesting
Commencement Date.</P>
<P ALIGN="JUSTIFY">Following an assumption or substitution of the Option Shares
in connection with a merger or Change in Control, if Optionee's status as an
Employee of the Corporation or the successor corporation is terminated by the
Corporation or successor corporation as a result of an &quot;Involuntary
Termination&quot; (as defined below) within two (2) years following their merger
or Change in Control, Optionee shall fully vest in and have the right to
exercise the option as to all of the Option Shares, including shares which would
not otherwise be vested or exercisable.  </P>

<P>&#9;      For this purpose, &quot;Involuntary Termination&quot; means (i)
without Optionee's express written consent, a significant reduction of
Optionee's duties, position or responsibilities, or the removal of such Optionee
from such position and responsibilities, unless the Optionee is provided with a
comparable position (i.e., a position of equal or greater organizational level,
duties, authority, compensation and status) relative to Optionee's duties,
position or responsibilities in effect immediately prior to such reduction; (ii)
without Optionee's express written consent, a material reduction by the
Corporation or successor corporation of Optionee's base salary as in effect
immediately prior to such reduction; (iii) without Optionee's express written
consent, a material reduction by the Corporation or successor corporation in the
kind or level of employee benefits to which Optionee is entitled immediately
prior to such reduction with the result that Optionee's overall benefits package
is significantly<B> </B>reduced; (iv) without Optionee's express written
consent, the relocation of Optionee to a facility or a location more than fifty
(50) miles from his/her current location, or (v) any purported termination of
Optionee other than for &quot;Cause&quot; (as defined below).</P>
<P>For this purpose, &quot;Cause&quot; means (i) any act of personal dishonesty
taken by Optionee in connection with his or her responsibilities as an Employee
of the Corporation or successor corporation which is intended to result in
personal enrichment of Optionee, (ii) Optionee's conviction of a felony, (iii)
any act by Optionee that constitutes material misconduct and is injurious to the
Corporation or successor corporation, or (iv) continued violations by Optionee
of Optionee's obligations to the Corporation or successor corporation.</P>
<U><P ALIGN="JUSTIFY">Termination Period</U>:</P>
<P ALIGN="JUSTIFY">This Option shall be exercisable for thirty (30) days after
Optionee ceases to be  an Employee.  Upon Optionee's death or Disability, this
Option may be exercised for one (1) year<B> </B>after Optionee ceases to be an
Employee.  In no event may Optionee exercise this Option after the
Term/Expiration Date as provided above.</P>
<B><P>II.&#9;<U>AGREEMENT</P>
</B></U><P>1.&#9;<U>Grant of Option</U>.  The Plan Administrator of the Company
hereby grants to the Optionee named in the Notice of Grant (the
&quot;Optionee&quot;), an option (the &quot;Option&quot;) to purchase the number
of Shares set forth in the Notice of Grant, at the exercise price per Share set
forth in the Notice of Grant (the &quot;Exercise Price&quot;), and subject to
the terms and conditions of the Plan, which is incorporated herein by reference.
Subject to Section&nbsp;14(c) of the Plan, in the event of a conflict between
the terms and conditions of the Plan and this Option Agreement, the terms and
conditions of the Plan shall prevail.</P>
<P>If designated in the Notice of Grant as an Incentive Stock Option
(&quot;ISO&quot;), this Option is intended to qualify as an Incentive Stock
Option as defined in Section&nbsp;422 of the Code.  Nevertheless, to the extent
that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be
treated as a Nonstatutory Stock Option (&quot;NSO&quot;).</P>
<OL START=2>

<OL>

<U><LI>Exercise of Option</U>.</LI></OL>
</OL>

<OL TYPE="a">
<OL TYPE="a">

<OL TYPE="a">

<U><LI>Right to Exercise</U>.  This Option shall be exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and with
the applicable provisions of the Plan and this Option Agreement.</LI>
<U><LI>Method of Exercise</U>.  This Option shall be exercisable by delivery of
an exercise notice in the form attached as <U>Exhibit&nbsp;A</U> (the
&quot;Exercise Notice&quot;) which shall state the election to exercise the
Option, the number of Shares with respect to which the Option is being
exercised, and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares.  This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.</LI></OL>
</OL>
</OL>

<P ALIGN="JUSTIFY">No Shares shall be issued pursuant to the exercise of an
Option unless such issuance and such exercise comply with Applicable Laws.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.</P>
<OL START=2>

<OL>

<U><P ALIGN="JUSTIFY"><LI>Optionee's Representations</U>.  In the event the
Shares have not been registered under the Securities Act of 1933, as amended
(the &quot;Securities Act&quot;), at the time this Option is exercised, the
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as
<U>Exhibit&nbsp;B</U>.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Lock-Up Period</U>.  Optionee hereby agrees that
Optionee shall not offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any Common Stock (or other securities) of the Company or
enter into any swap, hedging or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of any Common
Stock (or other securities) of the Company held by Optionee (other than those
included in the registration) for a period specified by the representative of
the underwriters of Common Stock (or other securities) of the Company not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act. </LI></P>
<P ALIGN="JUSTIFY">&#9;Optionee agrees to execute and deliver such other
agreements as may be reasonably requested by the Company or the underwriter
which are consistent with the foregoing or which are necessary to give further
effect thereto.  In addition, if requested by the Company or the representative
of the underwriters of Common Stock (or other securities) of the Company,
Optionee shall provide, within ten (10) days of such request, such information
as may be required by the Company or such representative in connection with the
completion of any public offering of the Company's securities pursuant to a
registration statement filed under the Securities Act.  The obligations
described in this Section shall not apply to a registration relating solely to
employee benefit plans on Form S-1 or Form S-8 or similar forms that may be
promulgated in the future, or a registration relating solely to a Commission
Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the
future.  The Company may impose stop-transfer instructions with respect to the
shares of Common Stock (or other securities) subject to the foregoing
restriction until the end of said one hundred eighty (180) day period.  Optionee
agrees that any transferee of any Option shall be bound by this Section.</P>
<U><P ALIGN="JUSTIFY"><LI>Method of Payment</U>.  Payment of the aggregate
Exercise Price shall be by any of the following, or a combination thereof, at
the election of the Optionee:</LI></P></OL>
</OL>

<OL TYPE="a">
<DIR>
<DIR>

<OL TYPE="a">

<LI>cash or check;</LI>
<LI>consideration received by the Company under a formal cashless exercise
program adopted by the Company in connection with the Plan; or </LI>
<LI>surrender of other Shares which, (i)&nbsp;in the case of Shares acquired
from the Company, either directly or indirectly, have been owned by the Optionee
for more than six&nbsp;(6) months on the date of surrender, and (ii) have a Fair
Market Value on the date of surrender equal to the aggregate Exercise Price of
the Exercised Shares.</LI></OL>
</DIR>
</DIR>
</OL>

<OL START=2>

<OL>

<U><LI>Restrictions on Exercise</U>.  This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.</LI>
<U><LI>Non-Transferability of Option</U>.  This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee.  The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.</LI>
<U><LI>Term of Option</U>.  This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.</LI>
<U><LI>Tax Obligations</U>.</LI></OL>
</OL>

<OL TYPE="a">
<OL TYPE="a">

<OL TYPE="a">

<U><LI>Withholding Taxes.</U>  Optionee agrees to make appropriate arrangements
with the Company (or the Parent or Subsidiary employing or retaining Optionee)
for the satisfaction of all Federal, state, local and foreign income and
employment tax withholding requirements applicable to the Option exercise.
Optionee acknowledges and agrees that the Company may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.</LI>
<U><LI>Notice of Disqualifying Disposition of ISO Shares</U>.  If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1)&nbsp;the date two years after the Date of Grant, or (2)&nbsp;the
date one year after the date of exercise, the Optionee shall immediately notify
the Company in writing of such disposition.  Optionee agrees that Optionee may
be subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.</LI></OL>
</OL>
</OL>

<OL START=2>

<OL>

<U><LI>Entire Agreement; Governing Law</U>.  The Plan is incorporated herein by
reference.  The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.  This agreement is governed by the internal substantive laws but not
the choice of law rules of California.</LI>
<U><P ALIGN="JUSTIFY"><LI>No Guarantee of Continued Service</U>.  OPTIONEE
ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING
SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS AN EMPLOYEE AT THE WILL OF THE
COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER).  OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND
SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS AN EMPLOYEE AT ANY TIME, WITH OR WITHOUT
CAUSE.</LI></P></OL>
</OL>

<P ALIGN="JUSTIFY">Optionee acknowledges receipt of a copy of the Plan and
represents that he or she is familiar with the terms and provisions thereof, and
hereby accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option and
fully understands all provisions of the Option.  Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">&nbsp;</P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=636>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">OPTIONEE</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">NETERGY MICROELECTRONICS,
INC.</FONT></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Signature</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">By</FONT></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Print Name</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Title</FONT></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Residence Address</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=10><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=10><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=10><P></P></TD>
</TR>
</TABLE>

<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<B><U><P ALIGN="CENTER">EXHIBIT A</P>
</U><P ALIGN="CENTER">2000 STOCK OPTION PLAN</P>
<P ALIGN="CENTER">EXERCISE NOTICE</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Netergy Microelectronics, Inc.</P>
<P ALIGN="JUSTIFY">2445 Mission College Blvd.</P>
<P ALIGN="JUSTIFY">Santa Clara, CA 95054</P>
<P ALIGN="JUSTIFY">Attention: [__________]</P>
<OL>

<OL>

<U><P ALIGN="JUSTIFY"><LI>Exercise of Option</U>.  Effective as of today,
_____________, _____, the undersigned (&quot;Optionee&quot;) hereby elects to
exercise Optionee's option to purchase _________ shares of the Common Stock (the
&quot;Shares&quot;) of ________. (the &quot;Company&quot;) under and pursuant to
the 2000&nbsp;Stock Option Plan (the &quot;Plan&quot;) and the Stock Option
Agreement dated ____________, ____ (the &quot;Option Agreement&quot;).</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Delivery of Payment</U>.  Purchaser herewith delivers
to the Company the full purchase price of the Shares, as set forth in the Option
Agreement, and any and all withholding taxes due in connection with the exercise
of the Option.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Representations of Optionee</U>.  Optionee
acknowledges that Optionee has received, read and understood the Plan and the
Option Agreement and agrees to abide by and be bound by their terms and
conditions.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Rights as Shareholder</U>.  Until the issuance of the
Shares (as evidenced by the appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option.  The Shares shall be
issued to the Optionee as soon as practicable after the Option is exercised in
accordance with the Option Agreement.  No adjustment shall be made for a
dividend or other right for which the record date is prior to the date of
issuance except as provided in Section&nbsp;12 of the Plan.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Company's Right of First Refusal</U>.  Before any
Shares held by Optionee or any transferee (either being sometimes referred to
herein as the &quot;Holder&quot;) may be sold or otherwise transferred
(including transfer by gift or operation of law), the Company or its assignee(s)
shall have a right of first refusal to purchase the Shares on the terms and
conditions set forth in this Section (the &quot;Right of First
Refusal&quot;).</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Notice of Proposed Transfer</U>.  The Holder of the
Shares shall deliver to the Company a written notice (the &quot;Notice&quot;)
stating: (i)&nbsp;the Holder's bona fide intention to sell or otherwise transfer
such Shares; (ii)&nbsp;the name of each proposed purchaser or other transferee
(&quot;Proposed Transferee&quot;); (iii)&nbsp;the number of Shares to be
transferred to each Proposed Transferee; and (iv)&nbsp;the bona fide cash price
or other consideration for which the Holder proposes to transfer the Shares (the
&quot;Offered Price&quot;), and the Holder shall offer the Shares at the Offered
Price to the Company or its assignee(s).</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Exercise of Right of First Refusal</U>.  At any time
within thirty&nbsp;(30) days after receipt of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection&nbsp;(c) below.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Purchase Price</U>.  The purchase price
(&quot;Purchase Price&quot;) for the Shares purchased by the Company or its
assignee(s) under this Section shall be the Offered Price.  If the Offered Price
includes consideration other than cash, the cash equivalent value of the non-
cash consideration shall be determined by the Board of Directors of the Company
in good faith.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Payment</U>.  Payment of the Purchase Price shall be
made, at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within thirty&nbsp;(30) days after receipt of the
Notice or in the manner and at the times set forth in the Notice.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Holder's Right to Transfer</U>.  If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Shares to that Proposed
Transferee at the Offered Price or at a higher price, provided that such sale or
other transfer is consummated within 120 days after the date of the Notice, that
any such sale or other transfer is effected in accordance with any applicable
securities laws and that the Proposed Transferee agrees in writing that the
provisions of this Section shall continue to apply to the Shares in the hands of
such Proposed Transferee.  If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Exception for Certain Family Transfers</U>.  Anything
to the contrary contained in this Section notwithstanding, the transfer of any
or all of the Shares during the Optionee's lifetime or on the Optionee's death
by will or intestacy to the Optionee's immediate family or a trust for the
benefit of the Optionee's immediate family shall be exempt from the provisions
of this Section.  &quot;Immediate Family&quot; as used herein shall mean spouse,
lineal descendant or antecedent, father, mother, brother or sister.  In such
case, the transferee or other recipient shall receive and hold the Shares so
transferred subject to the provisions of this Section, and there shall be no
further transfer of such Shares except in accordance with the terms of this
Section.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Termination of Right of First Refusal</U>.  The Right
of First Refusal shall terminate as to any Shares upon the earlier of (i) the
first sale of Common Stock of the Company to the general public, or (ii) a
Change in Control in which the successor corporation has equity securities that
are publicly traded.</LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Tax Consultation</U>.  Optionee understands that
Optionee may suffer adverse tax consequences as a result of Optionee's purchase
or disposition of the Shares.  Optionee represents that Optionee has consulted
with any tax consultants Optionee deems advisable in connection with the
purchase or disposition of the Shares and that Optionee is not relying on the
Company for any tax advice.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Restrictive Legends and Stop-Transfer
Orders</U>.</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Legends</U>.  Optionee understands and agrees that the
Company shall cause the legends set forth below or legends substantially
equivalent thereto, to be placed upon any certificate(s) evidencing ownership of
the Shares together with any other legends that may be required by the Company
or by state or federal securities laws:</LI></P>
<P ALIGN="JUSTIFY">THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE &quot;ACT&quot;) AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO
THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.</P>
<P ALIGN="JUSTIFY">THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER
OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND
THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER.  SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST
REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.</P>
<U><P ALIGN="JUSTIFY"><LI>Stop-Transfer Notices</U>.  Optionee agrees that, in
order to ensure compliance with the restrictions referred to herein, the Company
may issue appropriate &quot;stop transfer&quot; instructions to its transfer
agent, if any, and that, if the Company transfers its own securities, it may
make appropriate notations to&nbsp;the same effect in its own records.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Refusal to Transfer</U>.  The Company shall not be
required (i)&nbsp;to transfer on its books any Shares that have been sold or
otherwise transferred in violation of any of the provisions of this Exercise
Notice or (ii)&nbsp;to treat as owner of such Shares or to accord the right to
vote or pay dividends to any purchaser or other transferee to whom such Shares
shall have been so transferred.</LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Successors and Assigns</U>.  The Company may assign
any of its rights under this Exercise Notice to single or multiple assignees,
and this Exercise Notice shall inure to the benefit of the successors and
assigns of the Company.  Subject to the restrictions on transfer herein set
forth, this Exercise Notice shall be binding upon Optionee and his or her heirs,
executors, administrators, successors and assigns.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Interpretation</U>.  Any dispute regarding the
interpretation of this Exercise Notice shall be submitted by Optionee or by the
Company forthwith to the Administrator which shall review such dispute at its
next regular meeting.  The resolution of such a dispute by the Administrator
shall be final and binding on all parties.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Governing Law; Severability</U>.  This Exercise Notice
is governed by the internal substantive laws but not the choice of law rules, of
California.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Entire Agreement</U>.  The Plan and Option Agreement
are incorporated herein by reference.  This Exercise Notice, the Plan, the
Option Agreement and the Investment Representation Statement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee.</LI></P></OL>
</OL>

<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="RIGHT"><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=636>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Submitted by:</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Accepted by:</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">OPTIONEE</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">NETERGY MICROELECTRONICS,
INC.</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Signature</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">By</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Print Name</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Title</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Address:  2445 Mission
College Blvd</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Address</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Santa Clara, CA
95054</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Date Received</FONT></TD>
</TR>
</TABLE>
</P>

<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<B><U><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">EXHIBIT B</P>
</U><P ALIGN="CENTER">INVESTMENT REPRESENTATION STATEMENT</P>
</B></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=474>
<TR><TD WIDTH="30%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">OPTIONEE:</FONT></TD>
<TD WIDTH="70%" VALIGN="TOP">&nbsp;</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">COMPANY:</FONT></TD>
<TD WIDTH="70%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">NETERGY MICROELECTRONICS,
INC.</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">SECURITY:</FONT></TD>
<TD WIDTH="70%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">COMMON STOCK</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">AMOUNT:</FONT></TD>
<TD WIDTH="70%" VALIGN="TOP">&nbsp;</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">DATE:</FONT></TD>
<TD WIDTH="70%" VALIGN="TOP">&nbsp;</TD>
</TR>
</TABLE>

<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">In connection with the
purchase of the above-listed Securities, the undersigned Optionee represents to
the Company the following:</P>
<OL TYPE="a">
<OL TYPE="a">

<OL TYPE="a">

<P ALIGN="JUSTIFY"><LI>Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities.
Optionee is acquiring these Securities for investment for Optionee's own account
only and not with a view to, or for resale in connection with, any
&quot;distribution&quot; thereof within the meaning of the Securities Act of
1933, as amended (the &quot;Securities Act&quot;).</LI></P>
<P ALIGN="JUSTIFY"><LI>Optionee acknowledges and understands that the Securities
constitute &quot;restricted securities&quot; under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of Optionee's investment intent as expressed herein.  In this
connection, Optionee understands that, in the view of the Securities and
Exchange Commission, the statutory basis for such exemption may be unavailable
if Optionee's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future.  Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available.  Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities.  Optionee understands that the certificate evidencing the
Securities will be imprinted with any legend required under applicable state
securities laws.</LI></P>
<P ALIGN="JUSTIFY"><LI>Optionee is familiar with the provisions of Rule&nbsp;701
and Rule&nbsp;144, each promulgated under the Securities Act, which, in
substance, permit limited public resale of &quot;restricted securities&quot;
acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions.  Rule&nbsp;701
provides that if the issuer qualifies under Rule&nbsp;701 at the time of the
grant of the Option to the Optionee, the exercise will be exempt from
registration under the Securities Act.  In the event the Company becomes subject
to the reporting requirements of Section&nbsp;13 or 15(d) of the Securities
Exchange Act of 1934, ninety&nbsp;(90) days thereafter (or such longer period as
any market stand-off agreement may require) the Securities exempt under
Rule&nbsp;701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule&nbsp;144, including: (1)&nbsp;the resale being made
through a broker in an unsolicited &quot;broker's transaction&quot; or in
transactions directly with&nbsp;a market maker (as said term is defined under
the Securities Exchange Act of 1934); and, in the case of an affiliate,
(2)&nbsp;the availability of certain public information about the Company,
(3)&nbsp;the amount of Securities being sold during any three month period not
exceeding the limitations specified in Rule&nbsp;144(e), and (4)&nbsp;the timely
filing of a Form&nbsp;144, if applicable.</LI></P>
<P ALIGN="JUSTIFY">&#9;In the event that the Company does not qualify under
Rule&nbsp;701 at the time of grant of the Option, then the Securities may be
resold in certain limited circumstances subject to the provisions of
Rule&nbsp;144, which requires&nbsp;the resale to occur not less than one year
after the later of the date the Securities were sold by the Company or the date
the Securities were sold by an affiliate of the Company, within the meaning of
Rule&nbsp;144; and, in the case of acquisition of the Securities by an
affiliate, or by a non-affiliate who subsequently holds the Securities less than
two years, the satisfaction of the conditions set forth in sections&nbsp;(1),
(2), (3) and (4) of the paragraph immediately above.</P>
<P ALIGN="JUSTIFY"><LI>Optionee further understands that in the event all of the
applicable requirements of Rule&nbsp;701 or 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact that
Rules&nbsp;144 and 701 are not exclusive, the Staff of the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rules&nbsp;144 or 701 will have a substantial burden of proof
in establishing that an exemption from registration is available for such offers
or sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.  Optionee understands that no
assurances can be given that any such other registration exemption will be
available in such event.</LI></P></OL>
</OL>
</OL>

<P ALIGN="JUSTIFY"></P></FONT>
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<TR><TD VALIGN="TOP" COLSPAN=2>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Signature of
Optionee:</FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=2>&nbsp;</TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Date:</FONT></TD>
<TD WIDTH="81%" VALIGN="TOP">&nbsp;</TD>
</TR>
</TABLE>
</P>

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<P ALIGN="JUSTIFY">&nbsp;</P></FONT>
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<DOCUMENT>
<TYPE>EX-10.23
<SEQUENCE>6
<FILENAME>exh10-23.htm
<DESCRIPTION>EXHIBIT
<TEXT>
<HTML>
<HEAD>
<TITLE>25102(o) Exempt Plan</TITLE>
</HEAD>
<BODY>

<p align="right">
                                                           Exhibit 10.23

<B><P ALIGN="CENTER">CENTILE, INC.</P>
<P ALIGN="CENTER">2001 STOCK OPTION PLAN</P>
<P ALIGN="CENTER">&nbsp;</P>
<OL>

<OL>

</B><FONT FACE="Times New Roman" SIZE=2><U>
<P ALIGN="JUSTIFY"><LI>Purposes&nbsp;of&nbsp;the&nbsp;Plan</U>.  The purposes of
this Stock Option Plan are to attract and retain the best available personnel
for positions of substantial responsibility, to provide additional incentive to
Employees, Directors and Consultants and to promote the success of the Company's
business.  Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. </LI></P>
<U><P ALIGN="JUSTIFY"><LI>Definitions</U>.  As used herein, the following
definitions shall apply:</LI></P>
<OL TYPE="a">

<P ALIGN="JUSTIFY"><LI>"<U>Administrator</U>" means the Board or any of its
Committees as shall be administering the Plan in accordance with Section&nbsp;4
hereof. </LI></P>
<P ALIGN="JUSTIFY"><LI>"<U>Applicable Laws</U>" means the requirements relating
to the administration of stock option plans under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any other country or jurisdiction where Options are granted
under the Plan.</LI></P>
<P ALIGN="JUSTIFY"><LI>"<U>Board</U>" means the Board of Directors of the
Company.</LI></P>
<LI>"<U>Change in Control</U>" means the occurrence of any of the following
events:</LI>
<OL TYPE="i">

<LI>Any &quot;person&quot; (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) becomes the &quot;beneficial owner&quot; (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Company's then outstanding voting securities; or</LI>
<LI>The consummation of the sale or disposition by the Company of all or
substantially all of the Company's assets; or</LI>
<LI>The consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its parent) at least fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity or its parent outstanding immediately after
such merger or consolidation.</LI></OL>

<P ALIGN="JUSTIFY"><LI>&quot;<U>Code</U>&quot; means the Internal Revenue Code
of 1986, as amended.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Committee</U>&quot; means a committee of
Directors appointed by the Board in accordance with Section&nbsp;4
hereof.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Common Stock</U>&quot; means the Common Stock of
the Company.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Company</U>&quot; means Centile,
Inc., a<B> </B>Delaware corporation.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Consultant</U>&quot; means any natural person
who is engaged by the Company or any Parent or Subsidiary to render consulting
or advisory services to such entity and who satisfies the requirements of
subsection (c)(1) of Rule 701 under the Securities Act of 1933, as amended.
</LI></P>
<P ALIGN="JUSTIFY"><LI> &quot;<U>Director</U>&quot; means a member of the
Board.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Disability</U>&quot; means total and permanent
disability as defined in Section&nbsp;22(e)(3) of the Code.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Employee</U>&quot; means any person, including
officers and Directors, employed by the Company or any Parent or Subsidiary of
the Company.  A Service Provider shall not cease to be an Employee in the case
of (i)&nbsp;any leave of absence approved by the Company or (ii)&nbsp;transfers
between locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor.  For purposes of Incentive Stock Options, no such
leave may exceed ninety (90) days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract.  If reemployment upon expiration of
a leave of absence approved by the Company is not so guaranteed, then three (3)
months following the 91st day of such leave, any Incentive Stock Option held by
the Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option.  Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute &quot;employment&quot; by the Company.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Exchange Act</U>&quot; means the Securities
Exchange Act of 1934, as amended. </LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Fair Market Value</U>&quot; means, as of any
date, the value of Common Stock determined as follows:</LI></P>
<OL TYPE="i">

<P ALIGN="JUSTIFY"><LI>If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in <I>The Wall Street Journal</I> or such
other source as the Administrator deems reliable;</LI></P>
<P ALIGN="JUSTIFY"><LI>If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the day of determination; or</LI></P>
<P ALIGN="JUSTIFY"><LI>In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator. </LI></P></OL>

<P ALIGN="JUSTIFY"><LI>&quot;<U>Incentive Stock Option</U>&quot; means an Option
intended to qualify as an incentive stock option within the meaning of
Section&nbsp;422 of the Code. </LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Nonstatutory Stock Option</U>&quot; means an
Option not intended to qualify as an Incentive Stock Option.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Option</U>&quot; means a stock option granted
pursuant to the Plan.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Option Agreement</U>&quot; means a written or
electronic agreement between the Company and an Optionee evidencing the terms
and conditions of an individual Option grant.  The Option Agreement is subject
to the terms and conditions of the Plan.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Optioned&nbsp;Stock</U>&quot; means the Common
Stock subject to an Option.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Optionee</U>&quot; means the holder of an
outstanding Option granted under the Plan.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Parent</U>&quot; means a &quot;parent
corporation,&quot; whether now or hereafter existing, as defined in
Section&nbsp;424(e) of the Code. </LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Plan</U>&quot; means this 2001 Stock Option
Plan.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Service Provider</U>&quot; means an Employee,
Director or Consultant.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Share</U>&quot; means a share of the Common
Stock, as adjusted in accordance with Section&nbsp;12 below.</LI></P>
<P ALIGN="JUSTIFY"><LI>&quot;<U>Subsidiary</U>&quot; means a &quot;subsidiary
corporation,&quot; whether now or hereafter existing, as defined in
Section&nbsp;424(f) of the Code. </LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Stock&nbsp;Subject&nbsp;to&nbsp;the&nbsp;Plan</U>.
Subject to the provisions of Section&nbsp;12 of the Plan, the maximum aggregate
number of Shares that may be subject to option and sold under the Plan is
4,500,000 Shares.  The Shares may be authorized but unissued, or reacquired
Common Stock.</LI></P>
<P ALIGN="JUSTIFY">&#9;If an Option expires or becomes unexercisable without
having been exercised in full, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated).  However, Shares that have actually been issued under the Plan,
upon exercise of an Option, shall not be returned to the Plan and shall not
become available for future distribution under the Plan, except that if Shares
of restricted stock issued pursuant to an Option are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan.</P>
<U><P
ALIGN="JUSTIFY"><LI>Administration&nbsp;of&nbsp;the&nbsp;Plan</U>.</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Administrator</U>.  The Plan shall be administered by
the Board or a Committee appointed by the Board, which Committee shall be
constituted to comply with Applicable Laws.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Powers&nbsp;of&nbsp;the&nbsp;Administrator</U>.
Subject to the provisions of the Plan and, in the case of a Committee, the
specific duties delegated by the Board to such Committee, and subject to the
approval of any relevant authorities, the Administrator shall have the authority
in its discretion:</LI></P>
<OL TYPE="i">

<P ALIGN="JUSTIFY"><LI>to determine the Fair Market Value;</LI></P>
<P ALIGN="JUSTIFY"><LI>to select the Service Providers to whom Options may from
time to time be granted hereunder;</LI></P>
<P ALIGN="JUSTIFY"><LI>to determine the number of Shares to be covered by each
such Option granted hereunder;</LI></P>
<P ALIGN="JUSTIFY"><LI>to approve forms of agreement for use under the
Plan;</LI></P>
<P ALIGN="JUSTIFY"><LI>to determine the terms and conditions of any Option
granted hereunder.  Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or the Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;</LI></P>
<P ALIGN="JUSTIFY"><LI>to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws;</LI></P>
<P ALIGN="JUSTIFY"><LI>to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option that number of Shares having a Fair Market Value equal to
the minimum amount required to be withheld.  The Fair Market Value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined.  All elections by Optionees to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and</LI></P>
<P ALIGN="JUSTIFY"><LI>to construe and interpret the terms of the Plan and
Options granted pursuant to the Plan.</LI></P></OL>

<U><LI>Effect&nbsp;of&nbsp;Administrator's&nbsp;Decision</U>.  All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.</LI></OL>

<U><LI>Eligibility</U>.  Nonstatutory Stock Options may be granted to Service
Providers.  Incentive Stock Options may be granted only to Employees.</LI>
<U><LI>Limitations</U>.</LI>
<OL TYPE="a">

<U><LI>Incentive Stock Option Limit</U>.  Each Option shall be designated in the
Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option.  However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by the Optionee during any calendar
year (under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options.  For
purposes of this Section&nbsp;6(a), Incentive Stock Options shall be taken into
account in the order in which they were granted.  The Fair Market Value of the
Shares shall be determined as of the time the Option with respect to such Shares
is granted.</LI>
<U><P ALIGN="JUSTIFY"><LI>At-Will Employment</U>.  Neither the Plan nor any
Option shall confer upon any Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
such relationship at any time, with or without cause, and with or without
notice.</LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Term&nbsp;of&nbsp;Plan</U>.  Subject to shareholder
approval in accordance with Section 18, the Plan shall become effective upon its
adoption by the Board.  Unless sooner terminated under Section 14, it shall
continue in effect for a term of ten&nbsp;(10) years from the later of (i) the
effective date of the Plan, or (ii) the date of the most recent Board approval
of an increase in the number of shares reserved for issuance under the
Plan.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Term of Option</U>.  The term of each Option shall be
stated in the Option Agreement; provided, however, that the term shall be no
more than ten&nbsp;(10) years from the date of grant thereof.  In the case of an
Incentive Stock Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Option shall be five&nbsp;(5) years from the date of grant or such shorter
term as may be provided in the Option Agreement.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Option Exercise Price and Consideration</U>.</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Exercise Price</U>.  The per share exercise price for
the Shares to be issued upon exercise of an Option shall be such price as is
determined by the Administrator, but shall be subject to the following:</LI></P>
<OL TYPE="i">

<P ALIGN="JUSTIFY"><LI>In the case of an Incentive Stock Option</LI></P>
<OL TYPE="A">

<P ALIGN="JUSTIFY"><LI>granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.</LI></P>
<P ALIGN="JUSTIFY"><LI>granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.</LI></P></OL>

<P ALIGN="JUSTIFY"><LI>In the case of a Nonstatutory Stock Option</LI></P>
<OL TYPE="A">

<P ALIGN="JUSTIFY"><LI>granted to a Service Provider who, at the time of grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.</LI></P>
<P ALIGN="JUSTIFY"><LI>granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.</LI></P></OL>

<P ALIGN="JUSTIFY"><LI>Notwithstanding the foregoing, Options may be granted
with a per Share exercise price other than as required above pursuant to a
merger or other corporate transaction.</LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Forms of Consideration</U>.  The consideration to be
paid for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Administrator (and, in the case of
an Incentive Stock Option, shall be determined at the time of grant).  Such
consideration  may consist of, without limitation, (1)&nbsp;cash,
(2)&nbsp;check, (3) promissory note, (4)&nbsp;other Shares, provided Shares
acquired directly from the Company (x) have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y)&nbsp;have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which such Option shall be exercised, (5)&nbsp;consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan, or (6)&nbsp;any combination of the
foregoing methods of payment. In making its determination as to the type of
consideration to accept, the Administrator shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
Notwithstanding the foregoing, the Administrator may permit an Optionee to
exercise his or her Option by delivery of a full-recourse promissory note
secured by the purchased Shares.  The terms of such promissory note shall be
determined by the Administrator in its sole discretion.</LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Exercise&nbsp;of&nbsp;Option</U>.</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Procedure&nbsp;for&nbsp;Exercise; Rights as a
Shareholder</U>.  Any Option granted hereunder shall be exercisable according to
the terms hereof at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement.  Except in the case of
Options granted to officers, Directors and Consultants, Options shall become
exercisable at a rate of no less than 20% per year over five&nbsp;(5) years from
the date the Options are granted.  Unless the Administrator provides otherwise,
vesting of Options granted hereunder to officers and Directors shall be
suspended during any unpaid leave of absence.  An Option may not be exercised
for a fraction of a Share.</LI></P>
<P ALIGN="JUSTIFY">An Option shall be deemed exercised when the Company receives
(i)&nbsp;written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii)&nbsp;full
payment for the Shares with respect to which the Option is exercised.  Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan.  Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option.  The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised.  No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section&nbsp;12 of the Plan.</P>
<P ALIGN="JUSTIFY">&#9;&#9;Exercise of an Option in any manner shall result in a
decrease in the number of Shares thereafter available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.</P>
<U><P ALIGN="JUSTIFY"><LI>Termination&nbsp;of Relationship as a Service
Provider</U>.  If an Optionee ceases to be a Service Provider, such Optionee may
exercise his or her Option within thirty (30) days of termination, or such
longer period of time as specified in the Option Agreement, to the extent that
the Option is vested on the date of termination (but in no event later than the
expiration of the term of the Option as set forth in the Option Agreement).  If,
on the date of termination, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall revert to
the Plan.  If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the
Plan.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Disability of Optionee</U>.  If an Optionee ceases to
be a Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within six (6) months of termination, or such longer
period of time as specified in the Option Agreement, to the extent the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement).  If, on the date
of termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Death&nbsp;of&nbsp;Optionee</U>.  If an Optionee dies
while a Service Provider, the Option may be exercised within six (6) months
following Optionee's death, or such longer period of time as specified in the
Option Agreement, to the extent that the Option is vested on the date of death
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement) by the Optionee's designated beneficiary,
provided such beneficiary has been designated prior to Optionee's death in a
form acceptable to the Administrator.  If no such beneficiary has been
designated by the Optionee, then such Option may be exercised by the personal
representative of the Optionee's estate or by the person(s) to whom the Option
is transferred pursuant to the Optionee's will or in accordance with the laws of
descent and distribution.  If, at the time of death, the Optionee is not vested
as to his or her entire Option, the Shares covered by the unvested portion of
the Option shall immediately revert to the Plan.  If the Option is not so
exercised within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.</LI></P></OL>

<U><LI>Limited Transferability&nbsp;of&nbsp;Options</U>.  Unless determined
otherwise by the Administrator, Options may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
the laws of descent and distribution, and may be exercised during the lifetime
of the Optionee, only by the Optionee.  If the Administrator in its sole
discretion makes an Option transferable, such Option may only be transferred by
(i) will, (ii) the laws of descent and distribution, (iii) instrument to an
inter vivos or testamentary trust in which the Option is to be passed to
beneficiaries upon the death of the Optionee, or (iv) gift to a member of
Optionee's immediate family (as such term is defined in Rule 16a-1(e) of the
Exchange Act).  In addition, any transferable Option shall contain additional
terms and conditions as the Administrator deems appropriate.</LI>
<U><P
ALIGN="JUSTIFY"><LI>Adjustments&nbsp;Upon&nbsp;Changes&nbsp;in&nbsp;Capitalizati
on, Merger or Change in Control</U>.</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Changes in Capitalization</U>.  Subject to any
required action by the shareholders of the Company, the number and type of
Shares which have been authorized for issuance under the Plan but as to which no
Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, and the number and type of Shares
covered by each outstanding Option, as well as the price per Share covered by
each such outstanding Option, shall be proportionately adjusted for any increase
or decrease in the number or type of issued Shares resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of issued shares
of Common Stock effected without receipt of consideration by the Company.  The
conversion of any convertible securities of the Company shall not be deemed to
have been &quot;effected without receipt of consideration.&quot;  Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive.  Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number, type or price of
Shares subject to an Option.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Dissolution or Liquidation</U>.  In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify each Optionee as soon as practicable prior to the effective date of such
proposed transaction.  The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until fifteen&nbsp;(15)
days prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not otherwise be exercisable.  In
addition, the Administrator may provide that any Company repurchase option
applicable to any Shares purchased upon exercise of an Option shall lapse as to
all such Shares, provided the proposed dissolution or liquidation takes place at
the time and in the manner contemplated.  To the extent it has not been
previously exercised, an Option will terminate immediately prior to the
consummation of such proposed action.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Change in Control</U>.  In the event of a Change in
Control, each outstanding option shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Change in
Control, become fully exercisable with respect to the total number of shares of
Common Stock at the time subject to such option and may be exercised for any or
all of those shares as fully-vested shares of Common Stock.  However, an
outstanding option shall not so accelerate if and to the extent the acceleration
of such option is subject to other limitations imposed by the Administrator at
the time of the option grant. </LI></P></OL>

<P ALIGN="JUSTIFY">Immediately following the consummation of the Change in
Control, all outstanding options shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation (or parent
thereof).</P>
<P ALIGN="JUSTIFY">The portion of any Incentive Stock Option accelerated in
connection with a Change in Control shall remain exercisable as an Incentive
Stock Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded.  To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Stock Option under Federal tax laws.</P>
<P ALIGN="JUSTIFY">The outstanding options shall in no way affect the right of
the Company to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.</P>
<U><P ALIGN="JUSTIFY"><LI>Time&nbsp;of&nbsp;Granting&nbsp;Options</U>.  The date
of grant of an Option shall, for all purposes, be the date on which the
Administrator makes the determination granting such Option, or such later date
as is determined by the Administrator.  Notice of the determination shall be
given to each Service Provider to whom an Option is so granted within a
reasonable time after the date of such grant.</LI></P>
<U><P
ALIGN="JUSTIFY"><LI>Amendment&nbsp;and&nbsp;Termination&nbsp;of&nbsp;the&nbsp;Pl
an</U>.</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Amendment and Termination</U>.  The Board may at any
time amend, alter, suspend or terminate the Plan.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Shareholder Approval</U>.  The Board shall obtain
shareholder approval of any Plan amendment to the extent necessary and desirable
to comply with Applicable Laws. </LI></P>
<U><P
ALIGN="JUSTIFY"><LI>Effect&nbsp;of&nbsp;Amendment&nbsp;or&nbsp;Termination</U>.
No amendment, alteration, suspension or termination of the Plan shall impair the
rights of any Optionee, unless mutually agreed otherwise between the Optionee
and the Administrator, which agreement must be in writing and signed by the
Optionee and the Company.  Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such
termination.</LI></P></OL>

<U><P
ALIGN="JUSTIFY"><LI>Conditions&nbsp;Upon&nbsp;Issuance&nbsp;of&nbsp;Shares</U>.<
/LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Legal Compliance</U>.  Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares shall comply with Applicable Laws and shall
be further subject to the approval of counsel for the Company with respect to
such compliance.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Investment Representations</U>.  As a condition to the
exercise of an Option, the Administrator may require the person exercising such
Option to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required.</LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Inability to Obtain Authority</U>.  The inability of
the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Reservation&nbsp;of&nbsp;Shares</U>.  The Company,
during the term of this Plan, shall at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the requirements of the
Plan.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Shareholder Approval</U>.  The Plan shall be subject
to approval by the shareholders of the Company within twelve&nbsp;(12) months
after the date the Plan is adopted.  Such shareholder approval shall be obtained
in the degree and manner required under Applicable Laws.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Information to Optionees</U>.  The Company shall
provide to each Optionee and to each individual who acquires Shares pursuant to
the Plan, not less frequently than annually during the period such Optionee has
one or more Options outstanding, and, in the case of an individual who acquires
Shares pursuant to the Plan, during the period such individual owns such Shares,
copies of annual financial statements.  The Company shall not be required to
provide such statements to key employees whose duties in connection with the
Company assure their access to equivalent information.</LI></P></OL>
</OL>

<B><P ALIGN="CENTER">CENTILE, INC</P>
<P ALIGN="CENTER">2001 STOCK OPTION PLAN</P>
<P ALIGN="CENTER">STOCK OPTION AGREEMENT</P>
</B><P ALIGN="JUSTIFY">Unless otherwise defined herein, the terms defined in the
2001 Stock Option Plan (the &quot;Plan&quot;) shall have the same defined
meanings in this Stock Option Agreement.</P>
<B><P>I.</B>&#9;<B><U>NOTICE OF STOCK OPTION GRANT</P>
</B></U><P ALIGN="JUSTIFY">The undersigned Optionee has been granted an Option
to purchase Common Stock of Centile, Inc. (the
&quot;Company&quot;), subject to the terms and conditions of the Plan and this
Option Agreement, as follows:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="LEFT"><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=558>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Name</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Date of Grant</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Vesting Commencement Date</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Exercise Price per Share</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Total Number of Shares Granted</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Total Exercise Price</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Type of Option</FONT></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=24><P></P></TD>
<TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Incentive Stock Option</FONT></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24><P></P></TD>
<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=24><P></P></TD>
<TD WIDTH="42%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Nonstatutory Stock Option</FONT></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="BOTTOM" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P>Term/Expiration Date</FONT></TD>
<TD WIDTH="53%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
</TABLE>
</P>

<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">&nbsp;</P>
<U><P ALIGN="JUSTIFY">Vesting Schedule and Limitations</U>:</P>
<P ALIGN="JUSTIFY"> The Option shall become exercisable with respect to, (i)
twenty-five percent (25%) of the Option Shares upon Optionee's completion of one
(1) year of Service measured from the Vesting Commencement Date and (ii) the
balance of the Option Shares in a series of thirty-six (36) successive equal
monthly installments, subject to Optionee continuing to be an Employee, over the
thirty-six (36) month period measured from the first anniversary of the Vesting
Commencement Date.</P>
<P ALIGN="JUSTIFY">Following an assumption or substitution of the Option Shares
in connection with a merger or Change in Control, if Optionee's status as an
Employee of the Corporation or the successor corporation is terminated by the
Corporation or successor corporation as a result of an &quot;Involuntary
Termination&quot; (as defined below) within two (2) years following their merger
or Change in Control, Optionee shall fully vest in and have the right to
exercise the option as to all of the Option Shares, including shares which would
not otherwise be vested or exercisable.  </P>

<P>&#9;      For this purpose, &quot;Involuntary Termination&quot; means (i)
without Optionee's express written consent, a significant reduction of
Optionee's duties, position or responsibilities, or the removal of such Optionee
from such position and responsibilities, unless the Optionee is provided with a
comparable position (i.e., a position of equal or greater organizational level,
duties, authority, compensation and status) relative to Optionee's duties,
position or responsibilities in effect immediately prior to such reduction; (ii)
without Optionee's express written consent, a material reduction by the
Corporation or successor corporation of Optionee's base salary as in effect
immediately prior to such reduction; (iii) without Optionee's express written
consent, a material reduction by the Corporation or successor corporation in the
kind or level of employee benefits to which Optionee is entitled immediately
prior to such reduction with the result that Optionee's overall benefits package
is significantly<B> </B>reduced; (iv) without Optionee's express written
consent, the relocation of Optionee to a facility or a location more than fifty
(50) miles from his/her current location, or (v) any purported termination of
Optionee other than for &quot;Cause&quot; (as defined below).</P>
<P>For this purpose, &quot;Cause&quot; means (i) any act of personal dishonesty
taken by Optionee in connection with his or her responsibilities as an Employee
of the Corporation or successor corporation which is intended to result in
personal enrichment of Optionee, (ii) Optionee's conviction of a felony, (iii)
any act by Optionee that constitutes material misconduct and is injurious to the
Corporation or successor corporation, or (iv) continued violations by Optionee
of Optionee's obligations to the Corporation or successor corporation.</P>
<U><P ALIGN="JUSTIFY">Termination Period</U>:</P>
<P ALIGN="JUSTIFY">This Option shall be exercisable for thirty (30) days after
Optionee ceases to be  an Employee.  Upon Optionee's death or Disability, this
Option may be exercised for one (1) year<B> </B>after Optionee ceases to be an
Employee.  In no event may Optionee exercise this Option after the
Term/Expiration Date as provided above.</P>
<B><P>II.&#9;<U>AGREEMENT</P>
</B></U><P>1.&#9;<U>Grant of Option</U>.  The Plan Administrator of the Company
hereby grants to the Optionee named in the Notice of Grant (the
&quot;Optionee&quot;), an option (the &quot;Option&quot;) to purchase the number
of Shares set forth in the Notice of Grant, at the exercise price per Share set
forth in the Notice of Grant (the &quot;Exercise Price&quot;), and subject to
the terms and conditions of the Plan, which is incorporated herein by reference.
Subject to Section&nbsp;14(c) of the Plan, in the event of a conflict between
the terms and conditions of the Plan and this Option Agreement, the terms and
conditions of the Plan shall prevail.</P>
<P>If designated in the Notice of Grant as an Incentive Stock Option
(&quot;ISO&quot;), this Option is intended to qualify as an Incentive Stock
Option as defined in Section&nbsp;422 of the Code.  Nevertheless, to the extent
that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be
treated as a Nonstatutory Stock Option (&quot;NSO&quot;).</P>
<OL START=2>

<OL>

<U><LI>Exercise of Option</U>.</LI></OL>
</OL>

<OL TYPE="a">
<OL TYPE="a">

<OL TYPE="a">

<U><LI>Right to Exercise</U>.  This Option shall be exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and with
the applicable provisions of the Plan and this Option Agreement.</LI>
<U><LI>Method of Exercise</U>.  This Option shall be exercisable by delivery of
an exercise notice in the form attached as <U>Exhibit&nbsp;A</U> (the
&quot;Exercise Notice&quot;) which shall state the election to exercise the
Option, the number of Shares with respect to which the Option is being
exercised, and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares.  This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.</LI></OL>
</OL>
</OL>

<P ALIGN="JUSTIFY">No Shares shall be issued pursuant to the exercise of an
Option unless such issuance and such exercise comply with Applicable Laws.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.</P>
<OL START=2>

<OL>

<U><P ALIGN="JUSTIFY"><LI>Optionee's Representations</U>.  In the event the
Shares have not been registered under the Securities Act of 1933, as amended
(the &quot;Securities Act&quot;), at the time this Option is exercised, the
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as
<U>Exhibit&nbsp;B</U>.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Lock-Up Period</U>.  Optionee hereby agrees that
Optionee shall not offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any Common Stock (or other securities) of the Company or
enter into any swap, hedging or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of any Common
Stock (or other securities) of the Company held by Optionee (other than those
included in the registration) for a period specified by the representative of
the underwriters of Common Stock (or other securities) of the Company not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act. </LI></P>
<P ALIGN="JUSTIFY">&#9;Optionee agrees to execute and deliver such other
agreements as may be reasonably requested by the Company or the underwriter
which are consistent with the foregoing or which are necessary to give further
effect thereto.  In addition, if requested by the Company or the representative
of the underwriters of Common Stock (or other securities) of the Company,
Optionee shall provide, within ten (10) days of such request, such information
as may be required by the Company or such representative in connection with the
completion of any public offering of the Company's securities pursuant to a
registration statement filed under the Securities Act.  The obligations
described in this Section shall not apply to a registration relating solely to
employee benefit plans on Form S-1 or Form S-8 or similar forms that may be
promulgated in the future, or a registration relating solely to a Commission
Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the
future.  The Company may impose stop-transfer instructions with respect to the
shares of Common Stock (or other securities) subject to the foregoing
restriction until the end of said one hundred eighty (180) day period.  Optionee
agrees that any transferee of any Option shall be bound by this Section.</P>
<U><P ALIGN="JUSTIFY"><LI>Method of Payment</U>.  Payment of the aggregate
Exercise Price shall be by any of the following, or a combination thereof, at
the election of the Optionee:</LI></P></OL>
</OL>

<OL TYPE="a">
<DIR>
<DIR>

<OL TYPE="a">

<LI>cash or check;</LI>
<LI>consideration received by the Company under a formal cashless exercise
program adopted by the Company in connection with the Plan; or </LI>
<LI>surrender of other Shares which, (i)&nbsp;in the case of Shares acquired
from the Company, either directly or indirectly, have been owned by the Optionee
for more than six&nbsp;(6) months on the date of surrender, and (ii) have a Fair
Market Value on the date of surrender equal to the aggregate Exercise Price of
the Exercised Shares.</LI></OL>
</DIR>
</DIR>
</OL>

<OL START=2>

<OL>

<U><LI>Restrictions on Exercise</U>.  This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.</LI>
<U><LI>Non-Transferability of Option</U>.  This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee.  The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.</LI>
<U><LI>Term of Option</U>.  This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.</LI>
<U><LI>Tax Obligations</U>.</LI></OL>
</OL>

<OL TYPE="a">
<OL TYPE="a">

<OL TYPE="a">

<U><LI>Withholding Taxes.</U>  Optionee agrees to make appropriate arrangements
with the Company (or the Parent or Subsidiary employing or retaining Optionee)
for the satisfaction of all Federal, state, local and foreign income and
employment tax withholding requirements applicable to the Option exercise.
Optionee acknowledges and agrees that the Company may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.</LI>
<U><LI>Notice of Disqualifying Disposition of ISO Shares</U>.  If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1)&nbsp;the date two years after the Date of Grant, or (2)&nbsp;the
date one year after the date of exercise, the Optionee shall immediately notify
the Company in writing of such disposition.  Optionee agrees that Optionee may
be subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.</LI></OL>
</OL>
</OL>

<OL START=2>

<OL>

<U><LI>Entire Agreement; Governing Law</U>.  The Plan is incorporated herein by
reference.  The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.  This agreement is governed by the internal substantive laws but not
the choice of law rules of California.</LI>
<U><P ALIGN="JUSTIFY"><LI>No Guarantee of Continued Service</U>.  OPTIONEE
ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING
SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS AN EMPLOYEE AT THE WILL OF THE
COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER).  OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND
SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS AN EMPLOYEE AT ANY TIME, WITH OR WITHOUT
CAUSE.</LI></P></OL>
</OL>

<P ALIGN="JUSTIFY">Optionee acknowledges receipt of a copy of the Plan and
represents that he or she is familiar with the terms and provisions thereof, and
hereby accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option and
fully understands all provisions of the Option.  Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">&nbsp;</P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=636>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">OPTIONEE</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">CENTILE,
INC.</FONT></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Signature</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">By</FONT></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Print Name</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Title</FONT></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Residence Address</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="47%" VALIGN="TOP" HEIGHT=10><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=10><P></P></TD>
<TD WIDTH="48%" VALIGN="TOP" HEIGHT=10><P></P></TD>
</TR>
</TABLE>

<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<B><U><P ALIGN="CENTER">EXHIBIT A</P>
</U><P ALIGN="CENTER">2001 STOCK OPTION PLAN</P>
<P ALIGN="CENTER">EXERCISE NOTICE</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Centile, Inc.</P>
<P ALIGN="JUSTIFY">2445 Mission College Blvd.</P>
<P ALIGN="JUSTIFY">Santa Clara, CA 95054</P>
<P ALIGN="JUSTIFY">Attention: [__________]</P>
<OL>

<OL>

<U><P ALIGN="JUSTIFY"><LI>Exercise of Option</U>.  Effective as of today,
_____________, _____, the undersigned (&quot;Optionee&quot;) hereby elects to
exercise Optionee's option to purchase _________ shares of the Common Stock (the
&quot;Shares&quot;) of ________. (the &quot;Company&quot;) under and pursuant to
the 2001&nbsp;Stock Option Plan (the &quot;Plan&quot;) and the Stock Option
Agreement dated ____________, ____ (the &quot;Option Agreement&quot;).</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Delivery of Payment</U>.  Purchaser herewith delivers
to the Company the full purchase price of the Shares, as set forth in the Option
Agreement, and any and all withholding taxes due in connection with the exercise
of the Option.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Representations of Optionee</U>.  Optionee
acknowledges that Optionee has received, read and understood the Plan and the
Option Agreement and agrees to abide by and be bound by their terms and
conditions.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Rights as Shareholder</U>.  Until the issuance of the
Shares (as evidenced by the appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option.  The Shares shall be
issued to the Optionee as soon as practicable after the Option is exercised in
accordance with the Option Agreement.  No adjustment shall be made for a
dividend or other right for which the record date is prior to the date of
issuance except as provided in Section&nbsp;12 of the Plan.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Company's Right of First Refusal</U>.  Before any
Shares held by Optionee or any transferee (either being sometimes referred to
herein as the &quot;Holder&quot;) may be sold or otherwise transferred
(including transfer by gift or operation of law), the Company or its assignee(s)
shall have a right of first refusal to purchase the Shares on the terms and
conditions set forth in this Section (the &quot;Right of First
Refusal&quot;).</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Notice of Proposed Transfer</U>.  The Holder of the
Shares shall deliver to the Company a written notice (the &quot;Notice&quot;)
stating: (i)&nbsp;the Holder's bona fide intention to sell or otherwise transfer
such Shares; (ii)&nbsp;the name of each proposed purchaser or other transferee
(&quot;Proposed Transferee&quot;); (iii)&nbsp;the number of Shares to be
transferred to each Proposed Transferee; and (iv)&nbsp;the bona fide cash price
or other consideration for which the Holder proposes to transfer the Shares (the
&quot;Offered Price&quot;), and the Holder shall offer the Shares at the Offered
Price to the Company or its assignee(s).</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Exercise of Right of First Refusal</U>.  At any time
within thirty&nbsp;(30) days after receipt of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection&nbsp;(c) below.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Purchase Price</U>.  The purchase price
(&quot;Purchase Price&quot;) for the Shares purchased by the Company or its
assignee(s) under this Section shall be the Offered Price.  If the Offered Price
includes consideration other than cash, the cash equivalent value of the non-
cash consideration shall be determined by the Board of Directors of the Company
in good faith.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Payment</U>.  Payment of the Purchase Price shall be
made, at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within thirty&nbsp;(30) days after receipt of the
Notice or in the manner and at the times set forth in the Notice.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Holder's Right to Transfer</U>.  If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Shares to that Proposed
Transferee at the Offered Price or at a higher price, provided that such sale or
other transfer is consummated within 120 days after the date of the Notice, that
any such sale or other transfer is effected in accordance with any applicable
securities laws and that the Proposed Transferee agrees in writing that the
provisions of this Section shall continue to apply to the Shares in the hands of
such Proposed Transferee.  If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Exception for Certain Family Transfers</U>.  Anything
to the contrary contained in this Section notwithstanding, the transfer of any
or all of the Shares during the Optionee's lifetime or on the Optionee's death
by will or intestacy to the Optionee's immediate family or a trust for the
benefit of the Optionee's immediate family shall be exempt from the provisions
of this Section.  &quot;Immediate Family&quot; as used herein shall mean spouse,
lineal descendant or antecedent, father, mother, brother or sister.  In such
case, the transferee or other recipient shall receive and hold the Shares so
transferred subject to the provisions of this Section, and there shall be no
further transfer of such Shares except in accordance with the terms of this
Section.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Termination of Right of First Refusal</U>.  The Right
of First Refusal shall terminate as to any Shares upon the earlier of (i) the
first sale of Common Stock of the Company to the general public, or (ii) a
Change in Control in which the successor corporation has equity securities that
are publicly traded.</LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Tax Consultation</U>.  Optionee understands that
Optionee may suffer adverse tax consequences as a result of Optionee's purchase
or disposition of the Shares.  Optionee represents that Optionee has consulted
with any tax consultants Optionee deems advisable in connection with the
purchase or disposition of the Shares and that Optionee is not relying on the
Company for any tax advice.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Restrictive Legends and Stop-Transfer
Orders</U>.</LI></P>
<OL TYPE="a">

<U><P ALIGN="JUSTIFY"><LI>Legends</U>.  Optionee understands and agrees that the
Company shall cause the legends set forth below or legends substantially
equivalent thereto, to be placed upon any certificate(s) evidencing ownership of
the Shares together with any other legends that may be required by the Company
or by state or federal securities laws:</LI></P>
<P ALIGN="JUSTIFY">THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE &quot;ACT&quot;) AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO
THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.</P>
<P ALIGN="JUSTIFY">THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER
OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND
THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER.  SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST
REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.</P>
<U><P ALIGN="JUSTIFY"><LI>Stop-Transfer Notices</U>.  Optionee agrees that, in
order to ensure compliance with the restrictions referred to herein, the Company
may issue appropriate &quot;stop transfer&quot; instructions to its transfer
agent, if any, and that, if the Company transfers its own securities, it may
make appropriate notations to&nbsp;the same effect in its own records.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Refusal to Transfer</U>.  The Company shall not be
required (i)&nbsp;to transfer on its books any Shares that have been sold or
otherwise transferred in violation of any of the provisions of this Exercise
Notice or (ii)&nbsp;to treat as owner of such Shares or to accord the right to
vote or pay dividends to any purchaser or other transferee to whom such Shares
shall have been so transferred.</LI></P></OL>

<U><P ALIGN="JUSTIFY"><LI>Successors and Assigns</U>.  The Company may assign
any of its rights under this Exercise Notice to single or multiple assignees,
and this Exercise Notice shall inure to the benefit of the successors and
assigns of the Company.  Subject to the restrictions on transfer herein set
forth, this Exercise Notice shall be binding upon Optionee and his or her heirs,
executors, administrators, successors and assigns.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Interpretation</U>.  Any dispute regarding the
interpretation of this Exercise Notice shall be submitted by Optionee or by the
Company forthwith to the Administrator which shall review such dispute at its
next regular meeting.  The resolution of such a dispute by the Administrator
shall be final and binding on all parties.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Governing Law; Severability</U>.  This Exercise Notice
is governed by the internal substantive laws but not the choice of law rules, of
California.</LI></P>
<U><P ALIGN="JUSTIFY"><LI>Entire Agreement</U>.  The Plan and Option Agreement
are incorporated herein by reference.  This Exercise Notice, the Plan, the
Option Agreement and the Investment Representation Statement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee.</LI></P></OL>
</OL>

<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="RIGHT"><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=636>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Submitted by:</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Accepted by:</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">OPTIONEE</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">CENTILE,
INC.</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Signature</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">By</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Print Name</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Title</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Address:  2445 Mission
College Blvd</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Address</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Santa Clara, CA
95054</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="47%" VALIGN="TOP" HEIGHT=24>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Date Received</FONT></TD>
</TR>
</TABLE>
</P>

<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">&nbsp;</P>
<B><U>
<P ALIGN="CENTER">EXHIBIT B</P>
</U><P ALIGN="CENTER">INVESTMENT REPRESENTATION STATEMENT</P>
</B></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=474>
<TR><TD WIDTH="30%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">OPTIONEE:</FONT></TD>
<TD WIDTH="70%" VALIGN="TOP">&nbsp;</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">COMPANY:</FONT></TD>
<TD WIDTH="70%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">CENTILE,
INC.</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">SECURITY:</FONT></TD>
<TD WIDTH="70%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">COMMON STOCK</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">AMOUNT:</FONT></TD>
<TD WIDTH="70%" VALIGN="TOP">&nbsp;</TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">DATE:</FONT></TD>
<TD WIDTH="70%" VALIGN="TOP">&nbsp;</TD>
</TR>
</TABLE>

<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">In connection with the
purchase of the above-listed Securities, the undersigned Optionee represents to
the Company the following:</P>
<OL TYPE="a">
<OL TYPE="a">

<OL TYPE="a">

<P ALIGN="JUSTIFY"><LI>Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities.
Optionee is acquiring these Securities for investment for Optionee's own account
only and not with a view to, or for resale in connection with, any
&quot;distribution&quot; thereof within the meaning of the Securities Act of
1933, as amended (the &quot;Securities Act&quot;).</LI></P>
<P ALIGN="JUSTIFY"><LI>Optionee acknowledges and understands that the Securities
constitute &quot;restricted securities&quot; under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of Optionee's investment intent as expressed herein.  In this
connection, Optionee understands that, in the view of the Securities and
Exchange Commission, the statutory basis for such exemption may be unavailable
if Optionee's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future.  Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available.  Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities.  Optionee understands that the certificate evidencing the
Securities will be imprinted with any legend required under applicable state
securities laws.</LI></P>
<P ALIGN="JUSTIFY"><LI>Optionee is familiar with the provisions of Rule&nbsp;701
and Rule&nbsp;144, each promulgated under the Securities Act, which, in
substance, permit limited public resale of &quot;restricted securities&quot;
acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions.  Rule&nbsp;701
provides that if the issuer qualifies under Rule&nbsp;701 at the time of the
grant of the Option to the Optionee, the exercise will be exempt from
registration under the Securities Act.  In the event the Company becomes subject
to the reporting requirements of Section&nbsp;13 or 15(d) of the Securities
Exchange Act of 1934, ninety&nbsp;(90) days thereafter (or such longer period as
any market stand-off agreement may require) the Securities exempt under
Rule&nbsp;701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule&nbsp;144, including: (1)&nbsp;the resale being made
through a broker in an unsolicited &quot;broker's transaction&quot; or in
transactions directly with&nbsp;a market maker (as said term is defined under
the Securities Exchange Act of 1934); and, in the case of an affiliate,
(2)&nbsp;the availability of certain public information about the Company,
(3)&nbsp;the amount of Securities being sold during any three month period not
exceeding the limitations specified in Rule&nbsp;144(e), and (4)&nbsp;the timely
filing of a Form&nbsp;144, if applicable.</LI></P>
<P ALIGN="JUSTIFY">&#9;In the event that the Company does not qualify under
Rule&nbsp;701 at the time of grant of the Option, then the Securities may be
resold in certain limited circumstances subject to the provisions of
Rule&nbsp;144, which requires&nbsp;the resale to occur not less than one year
after the later of the date the Securities were sold by the Company or the date
the Securities were sold by an affiliate of the Company, within the meaning of
Rule&nbsp;144; and, in the case of acquisition of the Securities by an
affiliate, or by a non-affiliate who subsequently holds the Securities less than
two years, the satisfaction of the conditions set forth in sections&nbsp;(1),
(2), (3) and (4) of the paragraph immediately above.</P>
<P ALIGN="JUSTIFY"><LI>Optionee further understands that in the event all of the
applicable requirements of Rule&nbsp;701 or 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact that
Rules&nbsp;144 and 701 are not exclusive, the Staff of the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rules&nbsp;144 or 701 will have a substantial burden of proof
in establishing that an exemption from registration is available for such offers
or sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.  Optionee understands that no
assurances can be given that any such other registration exemption will be
available in such event.</LI></P></OL>
</OL>
</OL>

<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="RIGHT"><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=318>
<TR><TD VALIGN="TOP" COLSPAN=2>
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Signature of
Optionee:</FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=2>&nbsp;</TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="TOP">
<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">Date:</FONT></TD>
<TD WIDTH="81%" VALIGN="TOP">&nbsp;</TD>
</TR>
</TABLE>
</P>

<FONT FACE="Times New Roman" SIZE=2><P ALIGN="JUSTIFY">&nbsp;</P>
<P ALIGN="JUSTIFY">&nbsp;</P></FONT>
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<DOCUMENT>
<TYPE>EX-10.24
<SEQUENCE>7
<FILENAME>exh10-24.htm
<DESCRIPTION>EXHIBIT
<TEXT>
<HTML>
<HEAD>
<TITLE>INVESTMENT AGREEMENT</TITLE>
</HEAD>
<BODY>

<p align="right">
                                                           Exhibit 10.24

<FONT FACE="Times New Roman" SIZE=2><P ALIGN="CENTER">INVESTMENT AGREEMENT</P>
<P ALIGN="CENTER"></P>
<P>&#9;This agreement is effective April 1, 2002 by and among 8x8, Inc.
(&quot;8x8&quot;) and Joe Parkinson, Chairman and an employee of 8x8
(&quot;Employee&quot;).</P>
<OL>

<LI>INVESTMENT POOL.  8x8 will make available $1 million (the &quot;Initial
Pool&quot;) of its funds to Employee for investment as he directs (though Bryan
Martin, CEO and David Stoll, CFO, are also authorized to make transactions,
though Employee then does not guarantee against loss below the Initial Pool in
the event that they do; provided, however, that the CEO may require that
Employee make any amounts available to 8x8 that the CEO deems necessary for the
operation of the company or the investment pool without affecting Employee's
guarantee against loss below the Initial Pool).</LI>
<LI>GUARANTEE.  At the end of each calendar quarter, or upon termination of this
agreement, Employee will personally replenish the Initial Pool to the extent
that it has lost principal value below $1M (but with a credit for any amounts
withdrawn by 8x8) based on publicly available quotes in the determination of the
CFO (&quot;Replenishment Money&quot;).  Any subsequent increase in value over
the Initial Pool will be returned to Employee at the end of subsequent calendar
quarters, to the extent required to restore Employee's past Replenishment Money
amounts.</LI>
<LI>BONUS.  The Board of Directors of 8x8 intends (but is not obligated to do
so), in its discretion, that 8x8 will pay Employee a bonus of 25% of the pre-tax
net positive change in value of the investment pool at the end of each quarter,
to the extent that such investment pool has exceeded the value at the beginning
of the quarter, and net of any increase that is returned to Employee to restore
Employee's past Replenishment Money amounts.  It is anticipated that any salary
paid Employee since the date that the Initial Pool (&quot;Inception Date&quot;)
is available for him to invest will reduce the amount of such bonus payable to
Employee.   To the extent that Employee has been paid full bonuses for gains in
the pool and the pool subsequently declines at the end of a quarter compared to
the beginning of the quarter, the Employee will restore (and pay back to 8x8)
25% of the loss in value for such quarter; provided that the Employee keeps what
would otherwise be his salary (so there is no replenishment to the extent of
salary earned, only the portion of bonus above salary).   Whether the bonus is
paid or not, to the extent of the 25% of gains in each quarter, that amount of
gains may be withdrawn from the pool and returned to 8x8 at the request of the
CEO.</LI>
<LI>AUTHORITY AND POOL ENDS.  The authority of Employee to enter into trades
ends whenever the CEO in his discretion or Employee decides to terminate the
arrangement. Then, all positions will be promptly liquidated, balances will be
rectified according to paragraphs 2 and 3 above, and the funds returned to the
bank account of 8x8 immediately. </LI></OL>

</FONT>
<P ALIGN="RIGHT"><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=504>
<TR><TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=2>
<FONT FACE="Times New Roman" SIZE=2><P>Agreed:</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM">&nbsp;</TD>
<TD WIDTH="48%" VALIGN="BOTTOM">&nbsp;</TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=25>
<FONT FACE="Times New Roman" SIZE=2><P>8x8, Inc.</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=25><P></P></TD>
<TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=25>
<FONT FACE="Times New Roman" SIZE=2><P>Joe Parkinson, Employee</FONT></TD>
</TR>
<TR><TD WIDTH="10%" VALIGN="BOTTOM" HEIGHT=18>
<FONT FACE="Times New Roman" SIZE=2><P>By:</FONT></TD>
<TD WIDTH="38%" VALIGN="BOTTOM" HEIGHT=18>
<FONT FACE="Times New Roman" SIZE=2><P>/s/ Bryan Martin</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM" HEIGHT=18><P></P></TD>
<TD WIDTH="48%" VALIGN="BOTTOM" HEIGHT=18>
<FONT FACE="Times New Roman" SIZE=2><P>/s/ Joe Parkinson</FONT></TD>
</TR>
<TR><TD WIDTH="10%" VALIGN="BOTTOM">&nbsp;</TD>
<TD WIDTH="38%" VALIGN="BOTTOM">
<FONT FACE="Times New Roman" SIZE=2><P>Bryan Martin, CEO</FONT></TD>
<TD WIDTH="5%" VALIGN="BOTTOM">&nbsp;</TD>
<TD WIDTH="48%" VALIGN="BOTTOM">
<FONT FACE="Times New Roman" SIZE=2><P>Joe Parkinson</FONT></TD>
</TR>
</TABLE>
</P>

<FONT FACE="Times New Roman" SIZE=2></FONT>
</BODY>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>8
<FILENAME>exh21-1.htm
<DESCRIPTION>SUBS
<TEXT>
<html>
<head>
<title>FY2001 10K Exhibit 21.1</title>
</head>
<body bgcolor=white>
<FONT FACE="Times New Roman" SIZE="3">

<p align="right">
                                                                    EXHIBIT 21.1

<P ALIGN="CENTER"><IMG SRC="logo.gif"></P>
<B><p align="center">
                           SUBSIDIARIES OF REGISTRANT
</B><br>

<P ALIGN="CENTER"><TABLE BORDER=0 CELLSPACING=1 CELLPADDING=7 WIDTH=625>
<TR><TD WIDTH="50%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Name
</B></TD>
<TD WIDTH="50%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Jurisdiction of Incorporation</B></FONT></TD>
</TR>

<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
3044007 Nova Scotia Company
</TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
Nova Scotia, Canada
</TD></TR>

<TR><TD WIDTH="50%" VALIGN="TOP">
<P><FONT SIZE=3>
3044869 Nova Scotia Company
</TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
Nova Scotia, Canada
</TD></TR>

<TR><TD WIDTH="50%" VALIGN="TOP">
<P><FONT SIZE=3>
Centile, Inc.
</TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
   Delaware, USA
</TD></TR>

<TR><TD WIDTH="50%" VALIGN="TOP">
<P><FONT SIZE=3>
Netergy Microelectronics, Inc.
</TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
  California, USA
</TD></TR>

<TR><TD WIDTH="50%" VALIGN="TOP">
<P><FONT SIZE=3>
Netergy Microelectronics, Ltd.
</TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
  United Kingdom
</TD></TR>

<TR><TD WIDTH="50%" VALIGN="TOP">
<P><FONT SIZE=3>
Netergy Networks Canada Company
</TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
Nova Scotia, Canada
</TD></TR>

<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
Netergy Networks Canada Holding Company
</TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
   Delaware, USA
</TD></TR>

<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
Odisei S.A.
</TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
      France
</TD></TR>

<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
UForce Holding Company
</TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
   Delaware, USA
</TD></TR>

<TR><TD WIDTH="50%" VALIGN="TOP">
<P><FONT SIZE=3>
Visit, Inc.
</TD>
<TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>
  California, USA
</TD></TR>
</TABLE></P>



<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>9
<FILENAME>exh23-1.htm
<DESCRIPTION>CONSENT
<TEXT>
<html>
<head>
<title>FY2001 10K Exhibit 23.1</title>
</head>
<body bgcolor=white>
<FONT FACE="Times New Roman" SIZE="3">

<p align="right">
                                                                    EXHIBIT 23.1


<B><p align="center">
                       CONSENT OF INDEPENDENT ACCOUNTANTS
</B><br>


<P ALIGN="JUSTIFY">We hereby consent to the incorporation by reference in the
Registration Statements on Form S-3
(Nos. 333-32928, 333-32930, 333-32932, 333-49414, 333-80379 and
333-75402) and Form S-8 (Nos. 333-30943, 333-50519, 333-41594, 333-49410
and 333-66296) of 8x8, Inc. of our report dated April 29, 2002 relating to the
consolidated financial statements and financial statement schedule, which
appears in this Form 10-K.



<P>PricewaterhouseCoopers LLP<br>
<br>
San Jose, California<br>
May 21, 2002

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>GRAPHIC
<SEQUENCE>10
<FILENAME>logo.gif
<DESCRIPTION>LOGO
<TEXT>
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